report
stringlengths 320
1.32M
| summary
stringlengths 127
13.7k
|
|---|---|
Currently 104 commercial nuclear power plants operate in the United States, together generating, as of 2007, about 20 percent of our nation’s electricity. These reactors are located at 65 sites across the country (see fig. 1) and are operated by 26 different companies. Many reactors built in the late 1960s and early 1970s are reaching or have reached the end of their initial 40-year license. As of March 2011, NRC had renewed 63 reactor licenses for an additional 20 years and was currently reviewing 19 license renewal applications. Since 2008, NRC has been collecting data from licensees on groundwater contamination incidents at nuclear power plants that have resulted from unplanned or uncontrolled releases of radioactive material, including leaks from underground piping systems. Based on these data, NRC has concluded that all 65 reactor sites in the United States have experienced a leak or spill of radioactive material into groundwater. NRC estimates that between 10 and 20 percent of groundwater contamination events at nuclear power plants can be attributed to leaks from underground piping systems. Figure 2 provides a diagram of a hypothetical underground piping system leak at a nuclear power plant. In addition, NRC data suggest that groundwater contamination events have been more prevalent during the last several years; however, the agency attributes this apparent increase to the nuclear industry’s enhanced monitoring efforts and increased reporting of leaks during the same time period. NRC strives to accomplish its mission of protecting public health and safety and the environment by establishing regulations and standards governing licensed activities and inspecting facilities to ensure compliance with requirements. NRC prioritizes its oversight and inspections of structures, systems, and components that are critical to safely operating the plant during normal conditions and safely cooling the reactor core in the case of an emergency shutdown. Therefore, these structures, systems, and components are classified by NRC as “safety-related.” NRC maintains staff at commercial nuclear power plants to inspect, measure, and assess their safety performance—and respond to any deficiency in performance—through its Reactor Oversight Process. Furthermore, according to NRC inspection protocols, performance deficiencies by the company licensed to operate a nuclear power plant, or licensee, can result in more intensive NRC oversight and/or issuance of a violation. However, to assure licensees that requirements placed on them will change only when they are justified from a public health and safety standpoint, the “backfit rule” requires that NRC make the determination that new requirements will result in a substantial increase in the overall protection of public health and safety and that this increased protection justifies the cost of implementing the new requirement. NRC’s regulations allow certain levels of radioactive materials to be discharged into the environment. As a part of its license application, a licensee performs calculations of its expected releases, and NRC reviews these calculations to verify their validity and conformance to NRC requirements. NRC’s review and verification are documented in reports, and the licensees are required to monitor their discharges. Most of the systems used to discharge these radioactive materials are not classified as “safety-related.” According to NRC officials, the amount of radioactive materials released from underground piping system leaks has been small relative to these permitted discharges. Furthermore, the officials noted that a leak of tritium in and of itself is not a violation of NRC requirements. NRC has established several layers of radiation standards to protect the public against potential health risks from exposure to radioactive releases from nuclear power plant operations (see table 1). In addition to these standards, the Environmental Protection Agency (EPA) developed drinking water standards for radioactive isotopes using its authority under the Safe Drinking Water Act. These limits apply to public drinking water systems but are also used by many state authorities as groundwater protection standards. For tritium, EPA set a maximum contaminant level of 20,000 picocuries per liter (pCi/l). None of the reported underground piping system leaks to date have exceeded NRC limits on the public’s exposure to radiation, nor have reported concentrations of radioactive materials in off-site groundwater exceeded EPA standards for drinking water. When unplanned releases do not exceed NRC dose limits, NRC requirements allow for licensees to remediate the residual radioactivity at the time the site is decommissioned. For a decommissioned nuclear power plant site to be released for unrestricted use, NRC requires that it be cleaned up to an established minimum radiation annual dose limit. In addition to this requirement, NRC has entered into a memorandum of understanding (MOU) with EPA on cleanup of radioactively contaminated sites. The MOU includes provisions for NRC to consult with EPA if a site meets NRC cleanup standards but exceeds EPA-permitted levels. According to the experts in our public health discussion group, no impacts on public health have been discernible from leaks at the three case study nuclear power plants we asked the expects to consider. Experts in our environmental expert group also said that no impacts from these leaks on off-site environmental resources have been discernible to date but that the on-site impacts over time are less certain. Finally, experts in both groups believe that additional information could help facilitate the identification of any future leaks and characterize their impacts. Radioactive leaks at three power plants in Illinois, New Jersey, and Vermont have had no discernible impact on the public’s health, according to the participants in our expert discussion group on the public health impacts of the leaks. More specifically, although the experts observed that the risk of impacts to the public’s health is not zero, it is immeasurably small. While tritium was detected in the on-site groundwater at each of these plants from one or more leaks, it was detected in an off-site drinking water well only in the case of the Illinois plant. The experts noted that, based on the information reported by the licensees and NRC on off-site contamination levels, the radiation doses to the public from leaks at these plants have been very low—well below NRC regulations for radiation exposure, and orders of magnitude below any exposure that could cause an observable health effect. While the experts concluded that leaks at these plants have not discernibly impacted the public’s health, some of them noted that the leaks may affect people in the surrounding communities in a less tangible manner. For example, according to two of the experts, even if community members have not been exposed to radiation from the leaks, the perception that contamination could exist in their community or that they cannot trust the operators of a nearby nuclear power plant can degrade individuals’ quality of life. In addition, another expert noted that reported leaks at nuclear power plants could have an impact on the property values in the surrounding community based on the perception that the leaks could impact public health. Some of the experts observed that such perceptions are not taken into account in NRC’s regulatory framework, which is based on protecting public health and safety. However, they noted that, for NRC or licensees to build trust and gain credibility, they should consider these perceived impacts when determining their actions to address a leak. A few experts said that better communication and complete transparency with the public about the risks associated with very low doses of radiation would be required to change the public’s perception of the impacts associated with the leaks. However, one expert acknowledged the difficulty in effectively communicating the complex issue of risks to the public posed by low doses of radiation. Another expert suggested that communication with the public may be more effective if it is done through someone outside of industry with higher credibility from the community’s perspective. Based on the information that is available on the case studies considered by the experts, the experts in our environmental impacts discussion group concluded that the leaks have had no discernible impact on off-site environmental resources. The experts noted that the leaks are unlikely to have an environmental impact if they do not affect public health, since humans are probably more sensitive to the effects of tritium contamination than most other organisms. However, two experts noted that very little information exists on the sensitivity of other organisms to impacts from environmental tritium contamination. Consequently, subtle effects on other organisms that have not been identified could exist. A few experts pointed out that even though off-site environmental impacts are not discernible, the on-site groundwater contamination from the leaks may have degraded the on-site environment, potentially limiting the site’s future use. The on-site groundwater tritium contamination resulting from two of the case study leaks was detected in concentrations over 100 times the EPA drinking water standard. Consequently, some of the experts noted that when a licensee decommissions a plant with this level of groundwater contamination, the licensee may have to conduct costly remediation to be able to meet NRC regulations for unrestricted release of the site, or the site could have deed restrictions placed on its future use. Some of the experts debated whether the time frames for decommissioning current nuclear power plant sites would be sufficient for existing tritium contamination to naturally decay to levels required for unrestricted release of the site. Regardless, one of the experts noted that the licensees and NRC need to monitor high levels of current on-site contamination and ensure it does not move off-site in the future. According to the experts in both of our discussion groups, to facilitate the detection of leaks in a timely manner, it is important that licensees have a thorough understanding of the site’s subsurface environment and identify risk areas. NRC requires characterization of a site’s hydrogeology—the groundwater and other subsurface characteristics—as a part of the evaluation process to choose an appropriate site for construction of the nuclear power plant. However, one expert pointed out that any construction on-site can significantly modify how groundwater flows through the subsurface, so it is very important to have current knowledge of a site’s hydrogeology. In addition, experts also said that it was very important for licensees to have knowledge of their underground infrastructure and to identify critical systems, structures, and components where a leak might occur. This knowledge would enable licensees to strategically place their monitoring wells in order to have confidence that they will promptly detect leaks. Additional information could help characterize the impacts of leaks, according to the experts. More specifically, the experts noted that industry currently lacks standardized data across nuclear power plants to characterize the impacts of leaks and that data used to inform assessments of risk are limited to the locations where samples are collected. Experts said that, to obtain a complete picture of a leak’s consequences, monitoring wells need to be placed in the proper locations, which must be informed by a thorough understanding of a site’s hydrogeologic characteristics. Finally, the experts noted that licensees need to have conservative models that can predict how contamination would move if a leak were to occur, how long it would take for contamination to migrate off-site or contaminate a drinking water well, and what impacts there might be to public health and the environment. Finally, experts identified the need for licensees’ monitoring data and assessments of impacts to be more transparent and to be independently reviewed to provide greater public confidence in them. One expert noted that groundwater data collected voluntarily by the licensees should be part of their annual environmental reports. Another expert observed that the groundwater reports prepared voluntarily by industry typically oversimplify presented data. In addition, experts expressed concern that there is no process for an agency or third party to review licensees’ groundwater monitoring programs. For example, one expert observed that licensees, with their consultants, independently develop their voluntary groundwater monitoring programs, collect the data, and report the results without a formal opportunity for NRC or others to comment on the specifics of the programs such as the number, location, and depth of monitoring wells. Another expert noted that the results of licensees’ modeling of radiation doses to the public from a leak should also undergo an independent review. Such a review could assess whether a different conclusion might have been reached if, for example, monitoring wells were placed in a different location. This is important, according to one expert, because NRC relies on licensees to initially determine whether a leak presents a health risk. NRC inspection requirements related to underground piping systems at all 104 U.S. nuclear power plants focus on ensuring the functionality of safety-related piping systems, monitoring the plant environs for radiation, and reporting planned and unplanned releases. Specifically, NRC requires licensees to periodically test a sample of safety-related piping. Pipes are designated as safety related if they are essential to safely operate the plant or safely shut it down in case of an emergency. NRC inspection regulations, through the adoption of applicable American Society of Mechanical Engineers (ASME) Code provisions, require licensees to perform only pressure tests or flow tests on their safety-related underground piping systems. The pressure test is used to determine if and to what extent pressure is being lost within a section of piping, while the flow test is designed to identify any reduction in flow volume. To pass these tests, the pipes must be able to transport fluids at or above a specified minimum pressure or flow rate, which can be accomplished even when pipes are leaking. According to NRC, the agency’s primary concern is whether a system is providing enough water to maintain its functionality at one point in time, which is what the results of the pressure and flow tests indicate. NRC regulations also require that licensees monitor the “plant environs” for radioactivity that may be released from normal plant operations, as well as from unplanned leakage such as leaks and spills, to ensure the protection of the public’s health and safety. NRC requires that licensees establish and implement a site-specific Radiological Environmental Monitoring Program to obtain data on measurable levels of radiation and radioactive materials in the environment. Consistent with NRC guidance for this required monitoring program, licensees conduct radiation monitoring at locations where a member of the public could be exposed to radiation to identify whether levels of off-site radiation exceed federal dose limits. For example, agency guidance recommends quarterly monitoring of off-site groundwater only if it is used as a direct source of drinking water or irrigation and is likely to be contaminated. The agency does not generally require that licensees monitor groundwater on-site if it is not used for drinking water. However, if a licensee’s monitoring program found radioactive materials off-site, additional on-site monitoring could be required. With on-site monitoring, future leaks and spills have a higher likelihood of being detected before contamination reaches the site boundaries. Even though NRC has not generally required licensees to have on-site groundwater monitoring wells, most plants have installed some on- site wells that could help detect and monitor leaks. Although some contamination has been found to migrate off-site, thus far, according to NRC, reported off-site contamination has not exceeded EPA drinking water standards or NRC radiation exposure limits. In addition, NRC regulations require that planned and unplanned releases be reported to NRC by licensees in a timely manner. For example, each licensee must submit a written report to NRC within 30 days after learning of an inadvertent release above specified limits of radioactive materials, such as tritium. The licensee’s report must include a description of the extent of exposure of individuals to radiation and radioactive material. These NRC reporting requirements are in addition to their immediate notification of incidents requirements. Immediate notification, via an Emergency Notification System or telephone, is required for certain events or situations that may have caused or threatens to cause an individual to receive a high dose of radiation. In response to underground piping leaks at nuclear power plants, the nuclear power industry adopted two voluntary initiatives largely intended, according to the Nuclear Energy Institute (NEI), to enhance public confidence in the operation and maintenance of their plants. The actions specified in these initiatives, according to NRC officials, are above and beyond NRC requirements. Groundwater incidents that occurred around the 2005 time frame led to the industry’s Groundwater Protection Initiative in 2007, which was intended to boost public confidence in the safe operation of the plants and to improve groundwater monitoring at nuclear power plant sites to promptly detect leaks. All licensees of operating commercial nuclear power plants in the United States have committed to the groundwater initiative and, in so doing, have agreed to perform a site hydrogeologic characterization and risk assessment, establish an on-site groundwater monitoring program, and establish a remediation protocol. After 2007, additional underground piping leaks were reported, heightening public concern about the degradation of buried pipes at nuclear power plants. As a result, NEI announced another voluntary industry initiative in 2009. This second initiative—called the Buried Piping Integrity Initiative—was designed to provide reasonable assurance of structural and leaktight integrity of all buried pipes. All licensees of operating commercial nuclear power plants in the United States have committed to this initiative as well. The initiative defined a series of milestones for, among other things, assessing the condition of buried pipes and establishing a plan for managing them. Specifically, under this initiative, licensees agreed to rank their buried piping based on the likelihood and consequences of its failure and to develop an inspection plan using the results of the risk ranking, along with other factors, to prioritize the selection of locations at which they will inspect pipes. The initiative placed special emphasis on buried piping that is safety-related and/or contains radioactive material. In 2010, the Buried Piping Integrity Initiative was expanded to the Buried Piping/Underground Piping and Tanks Integrity Initiative to address additional structures. All of the licensees have also committed to implement the expanded initiative. Licensees’ actions in response to identified leaks at their power plants have varied, ranging from simply repairing the leak source and documenting the extent of the leak for future cleanup, to performing extensive mitigation. Specifically, at six of the seven sites we visited that had experienced underground piping system leaks, most of the licensees had identified and repaired the leak source and conducted remediation and/or monitoring of the groundwater contamination. For example, when we visited the Vermont Yankee Nuclear Power Station, the soil near the identified leak source had been excavated and removed by a radiological waste company hired by the licensee. In addition, at the Oyster Creek Generating Station in New Jersey, the licensee had undertaken a mitigation project to excavate some of its buried piping, either moving the pipes aboveground or placing them in vaults that can be monitored for leakage. NRC’s response to underground piping leaks has taken various forms. First, NRC’s response to individual leaks has generally been an increase in oversight at the particular plant, and not issuance of a violation, because most of the leaks have not posed a safety risk. For example, after an April 2009 leak at Oyster Creek Generating Station, NRC sent out regional inspectors to review and evaluate the circumstances associated with the leak. At other power plants, NRC’s enhanced review has included overseeing some of the groundwater sampling activities that were performed to characterize leaks. In many of these instances, NRC relied upon split sampling—sending portions of some of the groundwater monitoring samples to a laboratory and comparing its analytical results with those obtained by the licensees’ laboratories for the same samples— to verify the licensees’ results. Furthermore, NRC reviewed its oversight of buried piping and took actions on the basis of its review. In particular, in the fall of 2009, after several reported leaks from buried piping resulted in groundwater contamination and increased media coverage, NRC’s Chairman tasked the agency staff with reviewing activities NRC had taken related to buried pipe leaks. The resulting December 2009 report concluded that the agency’s regulations for the design, inspection, and maintenance of safety-related buried piping are adequate to ensure buried piping can perform its safety function. The report also identified a number of ongoing activities, such as conducting direct visual inspections of piping when a licensee excavates underground piping for the purpose of repair and replacements. In 2010, NRC developed a Buried Piping Action Plan under which it would collect a variety of information, including data on buried pipe system leaks; assess the implementation of the industry’s Buried Piping/Underground Piping and Tanks Integrity Initiative; participate in reviewing professional codes and standards for buried pipes; and, if warranted, develop responding regulatory actions. In 2010, NRC actions also included revising its Aging Management Program guidance for licensees to manage the effects of aging on structures or components for license renewal. The revisions include more detailed and comprehensive guidance for preventing and mitigating corrosion of underground piping systems and inspecting them. In addition, NRC proposed requirements for additional groundwater surveys for decommissioning. Moreover, in 2010 and 2011, NRC reviewed the extent to which the industry has implemented the Groundwater Protection Initiative but did not evaluate its effectiveness. During this review, NRC found that most plants have implemented most but not necessarily all steps outlined in the voluntary initiative. To insure full implementation of the initiative, NRC plans to continue observing the long-term implementation of this initiative through its Reactor Oversight Process. However, NRC has no plans to evaluate the extent to which this initiative, as implemented, will promptly detect leaks and, as a result, has no assurance that the Groundwater Protection Initiative will consistently help to promptly detect leaks as nuclear power plants age. In addition, NRC officials have said they will continue to review the status of the initiative’s implementation, but said that the agency is not going to incorporate the initiative into its requirements because of the low level of risk associated with the reported leaks to date. Therefore, the public cannot be assured the initiative will remain in place in the future. In addition, in 2010 NRC convened a Groundwater Task Force composed of NRC staff to evaluate NRC’s actions to address incidents of groundwater contamination at nuclear power plants and identify actions for a senior management review group to consider. Later that year, the task force issued a report that concluded that NRC is accomplishing its stated mission of protecting the public health and safety and the environment through its response to leaks and spills that contaminated groundwater. However, the report also concluded that NRC’s response to leaks and spills has varied widely and that NRC should further consider ways to communicate more timely and complete information to the public about these incidents. In early 2011, NRC reported the results of its senior management’s review of the Groundwater Task Force report findings. This report included four areas in which the agency committed to action: (1) identifying and addressing policy issues related to groundwater contamination; (2) enhancing the agency’s Reactor Oversight Process; (3) developing specific actions in response to key themes and conclusions of the Groundwater Task Force report; and (4) conducting a focused dialogue with other regulators, such as EPA and states, to develop a collaborative approach for enhanced groundwater protection. Several stakeholders noted that NRC should enhance its inspection requirements for underground piping systems to help prevent leaks. In addition, several stakeholders suggested that NRC make its groundwater monitoring requirements more stringent to help detect leaks. Furthermore, according to some stakeholders, NRC should require more timely disclosure of information on leaks and make this information more accessible to the public. The stakeholders we interviewed included representatives from NRC, other federal and state agencies, industry and industry groups, standards-setting organizations, and advocacy and other interested groups, as well as independent consultants and experts. Several of the stakeholders we interviewed said that NRC should enhance its inspection and testing requirements by requiring that licensees visually inspect underground piping more frequently and regularly, inspect piping’s structural integrity, and inspect and test nonsafety-related piping that contains radioactive material. Many stakeholders who recommended more frequent and regular inspections pointed out that NRC requires direct visual inspection of underground pipes only when a pipe has been excavated for another purpose. While some stakeholders wanted NRC to require visual inspections even if that meant licensees would have to excavate underground piping to do so, one stakeholder pointed out that pipes can be damaged during excavation and that some pipes may not be accessible through excavation if, for example, they lie under a road or building. In addition, some stakeholders we interviewed recommended that NRC require inspections of structural integrity of safety-related underground piping systems, which can be susceptible to corrosion as plants age. NRC officials and other stakeholders noted that the pressure and flow tests NRC currently requires do not provide information about the structural integrity of an underground pipe, such as whether the pipe has degraded to the point that the thickness of its wall could hinder the pipe’s future performance. One stakeholder voiced concern that not having structural integrity information about safety-related underground piping systems could create a very significant risk to public health and safety if such pipes were to unexpectedly fail due to corrosion. Moreover, some of the stakeholders we interviewed noted that some of the inspection techniques used in the oil and gas industry to provide additional information about the structural integrity of underground pipes could be used in the nuclear power industry. However, these stakeholders recognized that applying such techniques at nuclear power plants may be difficult, largely because the technology for such tests has not been sufficiently developed for, or adapted to, the nuclear industry site conditions. For example, guided wave technology—a method that transmits ultrasonic energy through a pipe’s walls and monitors how the energy is reflected back to identify areas where a pipe may have corrosion—is used in the oil and gas industry, which tends to have miles of relatively straight piping through which waves can travel with little interference. However, the underground piping at nuclear power plants tends to include many bends and turns, which can distort the wave energy and interfere with the inspection test results. In addition, the oil and gas industry uses robotic devices sent through a pipe to capture images of its condition and identify areas of corrosion, but the bends and turns in pipes at nuclear power plants limit the use of robotic devices by the nuclear power industry. Although obtaining information about the structural integrity of pipes is currently challenging, based on stakeholders’ observations, NRC and licensees cannot be assured that underground safety-related pipes remain structurally sound without having information about degradation that has occurred. Without such assurance, the likelihood of future pipe failures cannot be as accurately assessed, and this increases the uncertainty surrounding the safety of the plants. Industry and standards-setting organizations have undertaken activities to address the challenges of inspecting the structural integrity of underground piping systems at nuclear power plants. For example, industry, through the Electric Power Research Institute, has undertaken research to develop new, and improve upon existing, techniques to provide reliable and usable results, and some licensees are trying these techniques at their plants. The licensee at the Seabrook Station, for instance, has plans to pilot test a mechanical robot that was developed by the Electric Power Research Institute to detect cracks in underground piping. In addition, stakeholders representing standards-setting organizations, such as NACE International and ASME, noted that they have undertaken efforts to evaluate and enhance current technologies and codes for inspecting underground piping systems. For example, according to a member of NACE International, the organization formed a buried piping task group to, among other things, evaluate the current state of inspection techniques and technologies for underground piping systems and determine how they could be applied at nuclear power plants. Moreover, various stakeholders mentioned the need for NRC to require inspections and testing of nonsafety-related piping that contains radioactive material. Although NRC currently does not generally require such inspections, nonsafety-related piping has been the source of many reported leaks that resulted in groundwater contamination. For example, nonsafety-related piping was the source of leaks at the Oyster Creek and Braidwood plants. Some stakeholders said that any system whose failure could result in contamination of the environment should be prioritized for inspection and testing, even if it is not classified as being safety-related. According to NRC stakeholders, NRC has limited ability to enhance the licensees’ inspection requirements of nonsafety-related underground piping systems, given the low level of risk associated with reported leaks to date, and the requirement that NRC justify the cost of new requirements relative to this risk. However, according to industry stakeholders, the voluntary Buried Piping/Underground Piping and Tanks Integrity Initiative may address stakeholder concerns related to inspection of nonsafety- related underground piping that carries radioactive material. This initiative includes a component under which licensees assign a risk rank to segments of their underground piping based on the potential for and consequences of failure. As a result, systems that are safety-related and systems that contain radioactive materials receive a higher rank. According to the initiative, systems with a higher rank will be prioritized for inspection and testing, so industry stakeholders noted that piping containing radioactive materials would receive more attention under the initiative. Several of the stakeholders we interviewed noted that NRC should have more stringent requirements for licensees to monitor on-site groundwater to quickly detect leaks. Industry stakeholders acknowledged the importance of detecting leaks early to minimize their consequences. A few stakeholders said they would like to see NRC require that licensees install groundwater monitoring wells in the vicinity of potential leaks based on a risk-informed assessment of the underground piping systems that have the highest likelihood of leaking and a current and thorough assessment of the site’s hydrogeology. Some stakeholders noted, however, that NRC should allow flexibility for licensees to determine the best approach to detect leaks at their own sites and to adapt their approach on the basis of evolving industry experience. However, according to stakeholders at NRC, as is the case with inspection requirements, the agency is unlikely to be able to justify changing its groundwater monitoring requirements given the low level of risk associated with reported leaks. Nevertheless, industry and NRC stakeholders noted that components of the industry’s voluntary Groundwater Protection Initiative may address some stakeholders’ concerns with respect to groundwater monitoring. For example, one of the objectives of the initiative is to establish an on-site groundwater monitoring program by considering placing wells closer to systems with the highest potential for inadvertent releases that could contaminate groundwater. Moreover, many NRC stakeholders noted that the industry initiative goes well beyond what the agency can do in terms of regulations and has already been implemented, whereas establishing new regulations could take years. In fact, a review performed by senior managers at NRC concluded that, in view of the progress being made by industry through the initiative, efforts to amend NRC’s regulations to include the initiative are not necessary at this time. Moreover, industry stakeholders told us they do not consider the initiative to be voluntary since all of the power plants’ chief nuclear officers committed to its implementation. Other stakeholders, however, told us that the language in the initiative is not strong enough and expressed concern that, because NRC has no authority to enforce the voluntary initiative, industry could move away from it at any point without recourse from NRC. According to some stakeholders, NRC should require licensees to report information about the level and extent of groundwater contamination from a leak and the licensee’s assessment of a leak’s impact in a more timely manner. One stakeholder noted that the inability to obtain timely information about leaks could undermine the public’s confidence in NRC and licensee conclusions that a leak does not impact public health and safety. NRC currently requires licensees to make information on significant leaks available to the public by providing groundwater sample results and calculations of the radiation dose the public has received in its annual radioactive effluent and environmental reports. Consequently, even though NRC posts on its Web site some information about leaks as it becomes available, up to a year may pass between the time a leak occurs and the time the public receives information supporting the licensee’s assessment of the leaks’ impact. In addition, some stakeholders noted that NRC should make information pertaining to leaks more accessible to the public. For example, some of these stakeholders said that NRC could improve the accessibility of information on its Web site. Specifically, one stakeholder said that the site is difficult to navigate, cumbersome, and unnecessarily slow. Another stakeholder noted that staff members at his organization had used NRC’s Web site to track information on groundwater contamination at a particular site, but the links they used were no longer available. The occurrence of leaks at nuclear power plants from underground piping systems is expected to continue as nuclear power plants age and their piping systems corrode. While reported underground piping system leaks to date have not posed discernible health impacts to the public, there is no guarantee that future leaks’ impacts will be the same. Some of our stakeholders noted that a future leak could put the public’s health and safety at risk if the leak went undetected for a long period of time. NRC’s groundwater monitoring requirements are intended to identify when the public could be or has been exposed through drinking water to radiation doses above certain limits rather than to promptly detect underground piping system leaks. NRC has concluded that, in general, licensees’ groundwater monitoring programs implemented under the voluntary groundwater initiative go beyond what the agency requires for groundwater monitoring and could enhance licensees’ prevention of and response to potential leaks by detecting them early. However, without regularly evaluating the extent to which the initiative will result in prompt detection of leaks, NRC cannot be assured that groundwater monitoring programs under the initiative will detect leaks before they pose a risk to public health and safety. In addition, although NRC has acknowledged that the corrosion of underground piping systems, particularly those that are safety-related, is a concern, limitations in the industry’s ability to measure the wall thickness of an underground pipe without excavation prevent licensees from determining the structural integrity of underground piping systems. Without being able to identify that an underground piping system’s structural integrity has not been compromised by corrosion, the risk to public health and safety is increased. In this context, licensees at nuclear power plants cannot assure that a safety-related pipe will continue to function properly between inspection intervals, thereby protecting the public’s health and safety. To ensure the continued protection of the public’s health and safety, we recommend that the Chairman of NRC direct agency staff to take the following two actions: Periodically evaluate the extent to which the industry’s voluntary Groundwater Protection Initiative will result in prompt detection of leaks and, based upon these evaluations, determine whether the agency should expand its groundwater monitoring requirements. Stay abreast of ongoing industry research to develop technologies for structural integrity tests and, when they become feasible, analyze costs to licensees of implementing these tests compared with the likely benefits to public health and safety. Based on this analysis, NRC should determine whether it should expand licensees’ inspection requirements to include structural integrity tests for safety-related underground piping. We provided a draft of this report to NRC for its review and comment. NRC provided written comments, which are reproduced in appendix III, and technical comments, which we incorporated into the report as appropriate. NRC agreed with the information presented in the draft report and said they believe it to be fair and balanced. NRC also agreed with each of the report recommendations and asserted that they have established activities to address the recommendations. In responding to our recommendation to periodically evaluate the extent to which the industry voluntary Groundwater Protection Initiative will result in prompt detection of leaks and, based on these evaluations, determine whether the agency should expand its groundwater monitoring requirements, NRC stated that “the public can be assured that the NRC will continue to review the status of industry implementation of the initiative and consider regulatory changes as appropriate.” Specifically, NRC said that it reviews reported groundwater monitoring results and changes to licensees’ programs for identifying and controlling spills and leaks. However, as we reported, the agency has not assessed the adequacy of the licensees’ groundwater monitoring programs, which were implemented under the Groundwater Protection Initiative, to promptly detect leaks. Absent such an assessment, we continue to believe that NRC has no assurance that the Groundwater Protection Initiative will lead to prompt detection of underground piping system leaks as nuclear power plants age. In addition, NRC agreed with our recommendation that it stay abreast of ongoing research on structural integrity tests; analyze the costs and benefits of implementing feasible tests; and, on the basis of this analysis, determine whether it should require structural integrity tests for safety- related piping. Further, NRC pointed out that it has established milestones to periodically assess both the performance of available inspection technology and the need to make changes to the current regulatory framework. Nevertheless, NRC said it “believes there is reasonable assurance that the underground piping systems will remain structurally sound.” We believe that structural integrity tests, when feasible, would provide enhanced assurance of underground piping systems’ structural soundness and enable more proactive oversight. As we reported, NRC’s currently required pipe testing procedures—which provide information about a pipe’s function at a particular point in time—do not indicate the presence of degradation in a pipe that could hinder its future performance. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, Chairman of NRC, and other interested parties. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. Our objectives were to (1) determine experts’ opinions on the impacts, if any, that underground piping system leaks have had on public health and the environment; (2) assess Nuclear Regulatory Commission (NRC) requirements of licensees for inspecting underground piping systems and monitoring and reporting on leaks from these systems; (3) identify actions the nuclear power industry, licensees, and NRC have taken in response to underground piping system leaks; and (4) identify, according to key stakeholders, what additional NRC requirements, if any, could help prevent, detect, and disclose leaks from underground piping systems. To determine experts’ opinions on the impacts that underground piping system leaks have had on public health and the environment, we worked with the National Academy of Sciences to organize two half-day expert group discussion sessions in January 2011 to discuss (1) issues related to the public health risks associated with radioactive leaks from underground piping systems at nuclear power plants and (2) the environmental resource impacts from the leaks. In addition, we held a half-day plenary discussion session to follow up on questions left open during the public health impacts and environmental impacts group discussion and to discuss the overall characterization of impacts from leaks. In discussing the public health and environmental impacts of leaks, we asked the experts to consider three case studies of nuclear power plants that have experienced leaks from underground piping systems including Braidwood Generating Station in Illinois, Oyster Creek Generating Station in New Jersey, and Vermont Yankee Nuclear Power Station in Vermont. We compiled information packets on each of the case studies using sources such as NRC inspection reports, licensee environmental and effluent reports, Environmental Impact Statements prepared for license renewal, licensee hydrogeology reports, and licensee groundwater monitoring results and maps (see app. II). The panelists were provided the information packets prior to the panel sessions. We selected these case studies because they included power plants that had among the highest detected on-site groundwater tritium concentrations that were associated with underground piping system leaks, received a significant amount of publicity surrounding underground piping system leaks, and had contaminants from leaks that migrated off-site. The case studies selected had a range of cooling water sources, included both boiling water reactors and pressurized water reactors, and represented a range of plant ages with start of operations dates from 1969 to 1988. For the first discussion group on public health impacts from underground piping system leaks, the National Academy of Sciences invited qualified individuals with expertise in toxicology, health physics, public health, risk assessment, dosimetry, nuclear engineering, regulatory issues, and radiobiology. For the second discussion group on the environmental impacts of underground piping system leaks, the National Academy of Sciences invited individuals with expertise in the environmental effects of radiation, fate and transport of radioactive materials, civil engineering, water quality and remediation, hydrogeology, risk assessment, nuclear engineering, and regulatory issues. The invited experts had experience working in academia, consulting, and the federal government. None of the experts were compensated for their work on the discussion groups, and all experts were screened by the National Academy of Sciences for potential conflicts of interest. The following experts participated in the discussion sessions: Discussion Group on Public Health Impacts Jerome Puskin, U.S. Environmental Protection Agency Phaedra S. Corso, University of Georgia Chris G. Whipple, ENVIRON Corporation Lynn R. Anspaugh, University of Utah Carl Paperiello, Talisman International, LLC David Brenner, Columbia University Discussion Group on Environmental Impacts Timothy Mousseau, University of South Carolina Patricia J. Culligan, Columbia University James Clarke, Vanderbilt University John Quinn, Argonne National Laboratory Chris G. Whipple, ENVIRON Corporation Carl Paperiello, Talisman International, LLC To assess the requirements that NRC places on licensees for inspecting underground piping systems and monitoring and reporting on leaks from these systems, we reviewed and analyzed relevant NRC regulations and requirements, and interviewed NRC officials from the Office of Nuclear Reactor Regulation, Office of General Counsel, Region I, and Region III (a map of the NRC regions is provided in fig. 3). To identify actions the nuclear power industry, licensees, and NRC have taken in response to underground piping system leaks, we conducted site visits at a nonprobability sample of seven nuclear power plants in NRC Regions I and III, which are listed in table 2. During the site visits, we interviewed industry officials and NRC resident inspectors and observed ongoing underground piping system mitigation activities. We selected nuclear power plants for their site visits to include plants that had experienced recent reported underground piping system leaks and a nuclear power plant that had not experienced a major reported leak. In addition, we gathered and reviewed relevant documents from NRC, including NRC task force reports, policy papers, and an action plan; and industry, including documentation of industry initiatives. Finally, to determine, according to key stakeholders, what additional NRC requirements, if any, could help prevent and detect leaks from underground piping systems, we identified and interviewed over 30 key stakeholders using a standard set of questions. To ensure a balanced range of perspectives, we selected stakeholders from the following organizations: independent consultants and experts; advocacy and other interested groups, including Beyond Nuclear, Riverkeeper, Pilgrim Watch, and Union of Concerned Scientists; industry and industry groups, including licensees at the nuclear power plants that we visited, the Nuclear Energy Institute, and the Electric Power Research Institute; standards-setting organizations, including the American Society of Mechanical Engineers, and NACE International; NRC, including officials from Headquarters, Region I, and Region III; other federal and state agencies that have worked on issues related to underground piping system leaks and associated groundwater contamination. We identified stakeholders by performing an Internet and literature search for individuals and organizations that have published relevant reports and studies and by asking previously identified stakeholders for referrals. We worked with the National Academy of Sciences to convene groups of experts to discuss the impacts that underground piping system leaks have had on public health and the environment. We asked the experts to consider these impacts in the context of three case studies of nuclear power plants that recently experienced leaks from underground piping systems. Prior to the January 2011 discussion groups, the National Academy of Sciences sent the experts information packets that we prepared using NRC and licensee reports to provide background information on these three case studies. This appendix contains excerpts of these case study information packets, excluding their attachments. We and the National Academy of Sciences are convening expert discussion groups on (1) the public health risks resulting from underground piping system leaks at nuclear power plants and (2) the environmental impacts resulting from underground piping system leaks at nuclear power plants and a plenary session on the overall characterization of leak impacts and further information needs. We would like to obtain the following information from each of the discussion groups: Public Health Risks Discussion Group: the impacts to public health from selected leak case studies, and the potential impacts to public health if everything in the case study remained the same, but the tritium concentrations were higher. Proposed questions for the experts: 1. What is the risk (or risk range) associated with the levels of tritium detected in groundwater at select nuclear power plants if the groundwater was to be used for drinking water (see attached case study information packets)? Please describe the assumptions used and the sensitivity of the risk to these assumptions. 2. How would the risk change if the tritium concentrations were twice the maximum concentration listed above? How would they change if the concentrations were an order of magnitude greater? 3. What additional exposure pathways (other than groundwater) could impact the overall health risk posed to the public by tritium and other radionuclides released into the environment from the leaks (e.g., Cesium-137, Strontium-90)? Environmental Resource Impacts Discussion Group: the impacts on environmental resources from select leak case studies, and the potential impacts to environmental resources if everything in the case studies remained the same, but the tritium concentrations were higher. Proposed questions for the experts: 1. To what extent have selected leaks from nuclear power plants degraded environmental resources, both on-site and off-site, in a manner that compromises their quality or limits their present or future value or use (see attached case study information packets)? 2. How would the environmental resource impacts change if the contaminant concentrations were twice the concentrations in the examples above? How would they change if the concentrations were an order of magnitude greater? 3. If leaks of similar magnitudes were to occur at other plants, what factors might affect the extent of the resultant environmental impacts or make a particular site more vulnerable to impacts? the overall characterization of public health and environmental impacts from leaks, including considerations for cumulative and long-term impacts, ability to fully characterize impacts based on the information available the additional information that would be required to fully characterize and assess impacts to public health and environmental resources. We selected three case study nuclear power plants for the experts’ consideration: Braidwood, Oyster Creek, and Vermont Yankee. Each of these plants has had a recent underground piping system leak that generated public interest. In addition, the case studies represent some of the highest groundwater tritium concentrations detected at nuclear power plants in association with underground piping system leaks. Summary information about each of the case studies is presented in table 3. For each of the case studies, we compiled case study information packets for the panelists that include information on the case study nuclear power plant location and area demographics; a description of the environment near the plant; and information about each of the radioactive leaks, including groundwater tritium concentrations and dose assessment results. The following information was compiled from NRC reports, licensee- prepared reports to NRC, and Exelon’s “Tritium Project” Web site. Braidwood Generating Station (see fig. 4)—which consists of two pressurized water reactors owned and operated by Exelon Nuclear—is located in Braceville, Illinois, and covers approximately 4,457 acres of land with a 2,537-acre cooling lake. More broadly, the site is situated in Will County, Illinois, about 20 miles southwest of Joliet, Illinois, and 60 miles southwest of Chicago. In 2009, approximately 685,000 people resided in Will County’s 837 square miles, resulting in density of 600 persons/square mile. Attachment A, which is an excerpt from a hydrogeologic investigation report for Braidwood, includes a description of the environment near Braidwood including topography, surface water features, geology, hydrogeology, and groundwater flow conditions in the region surrounding the station. Land surrounding the Braidwood site falls mainly into the agricultural, residential, and recreational use categories. Residential lots surround the site to the north and to the east along Smiley Road and Center Street. Further to the north, there are several ponds or small lakes. The center of the Village of Braidwood is approximately 8,000 feet from the site measured from Smiley Road. To the northwest of the site, there are two main highways (Illinois State Highway 53 and Illinois Route 129) running parallel to each other with a railroad (Southern Pacific Railroad) between them. Within the southern portion of the site is the Cooling Lake that is used as a recreational area in the summer for boating and fishing by the Illinois Department of Natural Resources. A Land Use Survey conducted during August 2005 around the Braidwood Station was performed by Environmental Inc. (Midwest Labs) for Exelon Nuclear to comply with Braidwood Station’s Offsite Dose Calculation Manual. The purpose of the survey was to document the nearest resident, milk producing animal and garden of greater than 500 ft in each of the sixteen 22½ degree sectors around the site. The results of this survey are summarized in table 4. During March 2005, the licensee was notified by the Illinois Environmental Protection Agency of reports of tritium in wells in a nearby community. Following that notification, the licensee began monitoring groundwater between the community and Braidwood Station and obtained samples from a drainage ditch that was near the community. While no contaminated groundwater was identified, the licensee did measure levels of tritium in the drainage ditch near the Braidwood access road. The licensee performed additional monitoring to identify the source of that tritium contamination. Between March 2005 and March 2006, the licensee sampled the wells of several homeowners with drinking water wells and installed groundwater monitoring wells to determine the extent of the tritium contamination. On November 30, 2005, the NRC Region III office was notified that the licensee had measured tritium levels as high as 58,000 picocuries per liter (pCi/L) in shallow, groundwater monitoring wells located at the northern edge of the owner-controlled area. The licensee attributed the contamination to historical leakage of vacuum breakers along the circulating water blowdown line that is routinely used for radioactive liquid releases to the Kankakee River. As an immediate corrective action, the licensee suspended all further releases of liquid radioactive material, while the licensee performed a more comprehensive evaluation of the incidents. Beginning in December 2005, the NRC performed an independent analysis of split samples taken from some of the licensee’s monitoring wells and collected independent samples from some residents nearest to the site boundary. The NRC sample results were consistent with the licensee’s results. The licensee identified tritium levels between 1,400 and 1,600 pCi/L in one residential drinking water well. The tritium levels detected in that well were below the Environmental Protection Agency (EPA) drinking water standard of 20,000 pCi/L. The tritium levels also corresponded to calculated doses that are well below the corresponding NRC dose limits. The remaining residential well samples had no measurable tritium above normal background levels. However, the licensee’s monitoring identified an area of contaminated groundwater that extended about 2,000 to 2,500 feet north of the site boundary. Initial measurements by the licensee and independent measurements by the NRC confirmed that gamma-emitting radionuclides and Strontium-90 (Sr-90) were not detected in the contaminated groundwater. NRC inspectors reviewed the origin of the tritium contamination with the licensee’s staff. Based on the information presented and the licensee’s measurements, the inspectors confirmed that the measured levels of tritium in the environment were consistent with past leakage of the vacuum breakers on the circulating water blowdown line. That line normally carried nonradioactive water back to the Kankakee River but also served as a dilution pathway for planned liquid radioactive releases. The line was about 5 miles long and contained 11 vacuum breakers that compensated for pressure transients within the line from liquid surges. A map of the blowdown line is included in Attachment B. Attachment B, which is not included in this appendix, contained Braidwood site maps and groundwater tritium plume maps. the NRC’s contract laboratory to evaluate the accuracy of the licensee’s measurements (see Attachment C). NRC inspectors independently estimated the extent and magnitude of the groundwater tritium contamination through NRC’s contract analysis of water samples collected from residential drinking wells near the facility and from shallow monitoring wells installed by the licensee. The NRC’s contract laboratory analyzed the samples for tritium contamination. In addition, the NRC’s contract laboratory analyzed selected samples for other radionuclides using gamma spectroscopy, and analyses have also been performed for Sr-90 and Technetium-99 (Tc-99). The contract laboratory also utilized special techniques to identify “difficult to detect” radionuclides, such as Iron-55 (Fe-55), Nickel-63 (Ni-63), and transuranic elements. The NRC’s results confirmed that tritium was present in one off-site residential well at levels of about 1,300 to 1,500 pCi/L, which is a small fraction of the EPA drinking water standard of 20,000 pCi/L. In all other residential wells, no measurable levels of tritium or other licensed radioactive material above normal background have been detected. In a deeper on-site groundwater well, the NRC measured tritium as high as 282,000 pCi/L. Measurable levels of tritium have been found off-site in shallow monitoring wells and in a pond located near the plant boundary (see Attachment B). Exelon released a report in March 2006 that assessed the potential off-site radiation doses that could have been received by members of the public from exposure to tritium that reached the off-site environment around the Braidwood Station following the blowdown line releases. The following paragraphs summarize the results of this study, which is included in its entirety in Attachment D. Conservative exposure scenarios were evaluated to develop bounding dose estimates—the highest reasonable radiation doses that could have been received by members of the public. These conservative scenarios were then evaluated in more detail to develop realistic estimates of dose. The methodology of NRC Regulatory Guide 1.109 was used as the basis for estimating doses from all scenarios. The estimated bounding dose to a member of the public was about 0.16 millirem per year (mrem/yr) from ingestion of drinking water from a residential groundwater well containing tritium from a vacuum breaker release. The highest realistic estimates of radiation dose were from the same drinking water scenario. The estimated maximum realistic dose was 0.068 mrem/yr with an average or expected value about one-half that or 0.034 mrem/yr. When doses from the realistic exposure scenarios were summed, the maximum dose was estimated to be 0.072 mrem/yr. Table 5 lists these dose estimates. The estimated doses from the vacuum breaker releases at the Braidwood Station are well below the design objective of 6 mrem/yr for the two-unit site provided in Title 10 of the Code of Federal Regulations Part 50 (10 C.F.R. 50, Appendix I). The doses are even further below the 100 mrem/yr regulatory dose limit for a member of the public provided in 10 C.F.R. 20, Subpart D. The estimated radiation dose represents a negligible increased risk—less than 0.1 percent of the risk from natural background radiation— to members of the public. Attachment B includes maps created by Exelon that illustrate the groundwater tritium plumes at Braidwood from 2006 through 2010. Attachment E from Braidwood’s 2009 Environmental Report to NRC provides more recent diagrams of groundwater sampling locations and sample results for tritium and Sr-90. Hydrogeologic Investigation Report, Braidwood Generating Station, September 2006 Tritium Investigation, Braidwood Station, March 2006 Braidwood 2005 Radioactive Effluent Release Report Braidwood 2005 Annual Radiological Environmental Operating Report Braidwood 2009 Annual Radiological Environmental Operating Report NRC Inspection Report for Braidwood May 25, 2006 Frequently Asked Questions Regarding Clean-Up Efforts at Braidwood U.S. Census Bureau, State and County QuickFacts, Will County, Illinois (http://quickfacts.census.gov/qfd/states/17/17197.html) The following information was compiled from NRC reports, licensee- prepared reports to NRC, and Exelon’s “Tritium Project” Web site. The Oyster Creek Generating Station (OCGS) (see fig. 5), consisting of one boiling water reactor owned and operated by Exelon, is located on the Atlantic Coastal Plain Physiographic Province in Ocean County, New Jersey, about 60 miles south of Newark, 9 miles south of Toms River, and 35 miles north of Atlantic City. As illustrated in figure 6, the site, covering approximately 781 acres, is situated partly in Lacey Township and, to a lesser extent, in Ocean Township. Access is provided by U.S. Route 9, passing through the site and separating a 637-acre eastern portion from the balance of the property west of the highway. The station is about one- quarter mile west of the highway and 1¼ miles east of the Garden State Parkway. The site property extends about 2½ miles inland from the bay; the maximum width in the north-south direction is almost 1 mile (see fig. 7). The site location is part of the New Jersey shore area with its relatively flat topography and extensive freshwater and saltwater marshlands. The South Branch of Forked River runs across the northern side of the site, and Oyster Creek partly borders the southern side. In 2000, 434,476 people were living within 20 miles of OCGS, resulting in a density of 610 persons per square mile (persons/mi). At the same time, 4,243,462 persons were living within 50 miles of the plant, for a density of 1,132 persons/mi. Aspects of the environment that are described in this excerpt include land use, water use, water quality, air quality, aquatic resources, and terrestrial resources. A Land Use Survey was conducted during 2009 around OCGS. The purpose of the survey was, in part, to determine the location of animals producing milk for human consumption in each of the 16 meteorological sectors out to a distance of 5 miles from the OCGS. None were observed. Another purpose of the survey was to determine the location of gardens greater than 500 square feet in size producing broad leaf vegetation, as well as the closest residence within each of the 16 meteorological sectors. The distance and direction of all locations from the OCGS Reactor Building were determined using Global Positioning System technology. The results of this survey are summarized below. There were two underground piping system leaks at OCGS in 2009 that released tritiated water into the environment. The first was identified in April 2009, and the second was identified in August 2009. On April 15, 2009, in preparation for work inside the Emergency Service Water (ESW) vault, water was found inside the vault. As part of standard practices for water removal, the water was pumped into drums and sampled for gamma emitters, tritium, and pH. Sample analysis identified tritium levels at 102,000 pCi/L. Exelon collected and controlled the water in the vault by pumping it (about 3,000 gallons) into 55-gallon drums for storage and processing. On April 17, 2009, Exelon received analytical results from monitoring well MW-15K-1A (see fig. 8), which indicated a tritium concentration of about 4.46 million pCi/L. MW-15K-1A is located south of the ESW cable vault. According to Exelon, MW-15K-1A was last sampled on March 10, 2009, as one of about 32 wells routinely sampled and analyzed as part of its on going groundwater monitoring program at OCGS. No tritium or other radionuclides, were detected in any wells above minimum detectable activity (MDA) at that time, including well MW-15K-1A. Additionally, on March 25, 2009, Exelon conducted routine sampling of its on-site potable water sources. The results of the sample indicated no tritium or other radionuclides were detected in the potable water above MDA. During its investigation of the leak, Exelon installed six additional groundwater monitoring wells (MW-50 through 55) to support characterization of the tritium in the groundwater (see fig. 8). These wells were predominately to the east of the intake structure. An investigation determined that the release of tritiated water was caused by leaks in the 8-inch and 10-inch carbon steel Condensate System lines. The root cause investigation determined that the piping leaks developed due to a corrosion mechanism known as anodic dissolution. Poor application of pipe coating left the buried pipes susceptible to this corrosion. A bounding calculation of the doses was done. A total of 66 Curies of tritium was assumed to be released to the discharge canal over a 4-month period with a dilution flow of 500,000 gallons per minute (GPM). The total body and organ doses were both 6.06E-04 mrem. In calculating doses, the licensee considered tritium as the only radionuclide and evaluated the following exposure pathways (and routes of exposure) for liquid effluents: ingestion of fish, and ingestion of shellfish. The receptors evaluated by the licensee included adults, teenagers, children, and infants. According to Oyster Creek’s Offsite Dose Calculation Manual, the dose from liquid effluent is calculated to a person at the Route 9 bridge who consumes fish and shellfish harvested at that location. On August 24, 2009, an 8- to 10-gallon per minute leak was discovered in the condenser bay. The leak was coming from the turbine building west wall penetration housing the Condensate Transfer CH-5 line, the 6-inch Condensate Transfer Main Header. Two leaks were found in the pipe within the wall penetration. A tritium concentration of 1.08E+07 pCi/L was detected. The root cause investigation determined the cause of the leak to be galvanic corrosion of the pipe. Estimated Dose to the Public A bounding calculation of the doses was done. A total of 2.06 Curies of tritium was assumed to be released to the discharge canal over a 7-day period with a dilution flow of 1E+06 GPM. The total body and organ doses were both 9.36E-06 mrem (see above for a discussion of the radionuclides, pathways, and receptors evaluated in calculating this dose). The leaks have resulted in groundwater contamination at the site in the form of a tritium plume. Exelon’s groundwater geology study indicates that the subsurface water flow containing the tritium plume under the OCGS site is contained within the shallow Cape May aquifer and the somewhat deeper Cohansey aquifer (see the tritium plume maps included in Attachment B). The tritium contamination is slowly moving through the subsurface to the Oyster Creek intake/discharge canal, where it is diluted to nondetectable levels and subsequently discharged into the Barnegat Bay and onward to the Atlantic Ocean. A layer of clay that exists between the Cohansey aquifer and the much deeper Kirkwood drinking water aquifer greatly impedes water movement downward. Plant-related radioactivity, including tritium, has not been detected at any off-site liquid discharge or groundwater environmental monitoring location. To date, the current on-site groundwater contamination condition at Oyster Creek has not exceeded any regulatory limits for liquid discharge releases. Exelon Corporation’s Oyster Creek Tritium Project Web site: http://www.exeloncorp.com/PowerPlants/oystercreek/tritiumproject/overv iew.aspx Generic Environmental Impact Statement for License Renewal of Nuclear Power Plants, Regarding Oyster Creek Generating Station, January 2007 Oyster Creek Generating Station 2009 Annual Radiological Environmental Operating Report (http://www.nrc.gov/reactors/operating/ops- experience/tritium/plant-info.html) Oyster Creek Generating Station 2009 Radioactive Effluent Release Report (http://www.nrc.gov/reactors/operating/ops-experience/tritium/plant- info.html) Oyster Creek Generating Station Offsite Dose Calculation Manual, Revision 4 Oyster Creek Generating Station–NRC Integrated Inspection Report 2009004 Oyster Creek Generating Station–NRC Inspection Report 2009008 (Underground Piping Leak) NRC Correspondence to the Honorable Senator Menendez (July 19, 2010) The following information was compiled from NRC reports, licensee- prepared reports to NRC, and Entergy’s Web site. The Vermont Yankee Nuclear Power Station (VYNPS), consisting of one boiling water reactor owned and operated by Entergy, is located in the town of Vernon, Vermont, in Windham County on the west shore of the Connecticut River immediately upstream of the Vernon Hydroelectric Station and dam (see fig. 9). The 125-acre site, about 1 mile wide, is owned by Entergy Nuclear Vermont Yankee, LLC, and is situated on the west shore of the Connecticut River across from Hinsdale, New Hampshire, on the east side of the river. The property bounding the site to the north, south, and west is privately owned. VYNPS controls the river water between the northern and southern boundary fences extending out to the state border near the middle of the river. The site is located on Vernon Pond, formed by Vernon Dam and Hydroelectric Station located immediately downstream 0.75 miles from the VYNPS site. VYNPS employs a General Electric boiling water reactor nuclear steam supply system licensed to generate 1593 megawatts-thermal (MWt). The current facility operating license for VYNPS expires at midnight, March 21, 2012. The principal structures at VYNPS include a reactor building, primary containment, control building, radwaste building, intake structure, turbine building, cooling towers, and main stack. Entergy, with approval by the Vermont Public Service Board, is developing an independent spent fuel storage installation for dry cask storage using approximately 1 acre of site land to the north of the plant. N.E.C. The Generic Environmental Impact Statement for VYNPS submitted by NRC as a part of license renewal contains a detailed description of the environment near VYNPS. An excerpt of this report is enclosed in Attachment A. Aspects of the environment that are described in this excerpt include land use, water use, water quality, air quality, aquatic resources, and terrestrial resources. A brief description of a few of these characteristics is also summarized below. VYNPS does not use public water supplies for plant operations but instead relies on surface water from the Connecticut River and groundwater from on-site potable wells. The VYNPS is located on the west bank of Vernon Pool on the Connecticut River, about 0.75 mile upstream of the Vernon Hydroelectric Dam (Vernon Dam). Vernon Pool is the impounded portion of the Connecticut River directly upstream of the dam; it is both the source and receiving water body for the plant’s cooling system. The pond covers 2,250 acres when full, and it is about a half-mile wide with a maximum depth of about 40 feet. The Connecticut River has an average daily flow of 10,500 cubic feet per second (cfs) at Vernon Dam. The Vernon Dam, owned and operated by TransCanada, regulates the river discharge to maintain a minimum sustained flow of 1,250 cfs, although under severe drought conditions, flow rates may drop below 1,250 cfs. There are a total of nine hydroelectric dams and three storage dams on the main stem of the Connecticut River upstream of the dam and three hydroelectric dams and one pumped-storage facility downstream of the dam. The VYNPS withdraws water daily for its variable cooling system from Vernon Pool on the Connecticut River. Cooling water can be circulated through the system in one of three modes of operation: open-cycle (also called once-through cooling), closed-cycle, or a combination hybrid cycle. The plant has the highest water usage in the open-cycle mode of operation, withdrawing up to 360,000 GPM (802 cfs) from Vernon Pond. In the closed cycle mode, the rate of water pumped is reduced to about 10,000 GPM (22 cfs). The rate of water withdrawn from Vernon Pool in the hybrid-cycle mode falls between that of the open- and closed-cycle modes. In the vicinity of the major plant structures, groundwater is approximately 20 feet below ground surface. An inventory of potential sources of groundwater contamination within the source protection area (defined as a 500-ft radius) of each potable water supply well at the VYNPS is provided in source water protection plans for each well. The protection plans delineate management practices to reduce the potential risk of contamination of these wells and outline emergency response protocols for spills or other contamination events occurring within the source protection area. The Vermont Water Resources Board classifies the Connecticut River at the station’s point of discharge as Class B water. Class B waters are managed to achieve and maintain a level of quality that supports aquatic biota, wildlife, and aquatic habitat; have aesthetic value; and are suitable for public water supply with filtration and disinfection, for swimming and other water-based recreation, and for crop irrigation and other agricultural uses. Surface water quality is regulated through the EPA’s National Pollutant Discharge Elimination System (NPDES) permit program. The State of Vermont has been delegated responsibility by the EPA for administration of the NPDES program in Vermont. In addition to the water quality parameters, the plant is also required to monitor the following: river flow rates on an hourly basis at Vernon Dam, temperatures on an hourly basis at River Monitoring Station 3 (0.65 mile downstream of the dam) and River Monitoring Station 7 (4 miles upstream of the plant), and concentrations of three metals (copper, iron, and zinc) via monthly grab samples. About 35 acres (28 percent) of the VYNPS site currently is occupied by buildings and structures. Prior to construction of the station, the site was primarily pasture land with a few mature trees. The remainder of the site supports mowed grass and early successional habitat (66 acres; 53 percent), mixed deciduous and coniferous woodland (20 acres; 16 percent), shrubland (3 acres; 2 percent), and wetland (1 acre; 1 percent). In 2000, 153,409 people were living within 20 miles of VYNPS, for a density of 122 persons per square mile. At the same time, there were 1,513,282 persons living within 50 miles of the plant, for a density of 193 persons per square mile. The area within a 5-mile radius of the plant is predominantly rural with the exception of a portion of the town of Brattleboro, Vermont, and the town of Hinsdale, New Hampshire. Between 75 and 80 percent of the area within 5 miles of the station is wooded. The remainder is occupied by farms and small industries. Downstream of the plant on the Connecticut River is the Vernon Hydroelectric Station. The VYNPS Offsite Dose Calculation Manual requires that a Land Use Census be conducted annually between the dates of June 1 and October 1. The census identifies the locations of the nearest milk animal and the nearest residence in each of the 16 meteorological sectors within a distance of 5 miles of the plant. The census also identifies the nearest milk animal (within 3 miles of the plant) to the point of predicted highest annual average relative disposition values due to elevated releases from the plant stack in each of the three major meteorological sectors. The census results are included in table 7. There were two reported underground piping system leaks at VYNPS in 2010, which released tritiated water into the environment. The leaks were reported on January 7, 2010, and on May 28, 2010. An investigation of the leaks determined the sources and Entergy incorporated corrective actions that included repairing the pipes, excavating contaminated soil, and extracting nearly 300,000 gallons of tritium-contaminated groundwater from the site. A collection of wells on-site have been used since 1988 for testing groundwater to show compliance with VYNPS’s Indirect Discharge Permit from the Vermont Department of Environmental Conservation. A total of 34 wells existed before January 2010. Many of them were used to verify that radioactivity and other contaminants did not pass from two septage spreading fields, one at the northern end of the site, and one at the southern end of the site. Of these 34 wells, 3 of them (GZ-1, GZ-3, and GZ- 5) were specifically installed as part of the Nuclear Energy Institute’s Groundwater Protection Initiative. The VYNPS shallow monitoring wells were drilled to a depth of about 30 feet with deeper monitoring wells at a depth of 60 to 70 feet. Potable water has traditionally been supplied to various site locations from 4 (350+ feet deep) on-site wells. In early 2010, as an additional safety precaution, use of the Construction Office Building on-site well for drinking water was discontinued. An investigation into the release of tritiated water determined the following two root causes: inadequate construction and housekeeping practices employed when the Advanced Off-Gas (AOG) Building was constructed in the late 1960s and early 1970s, and when the AOG drain line was added in 1978, and ineffective monitoring and inspection of vulnerable structures, systems, and components that eventually leaked radioactive materials into the environment. Furthermore, corrosion found in two pipes in the AOG pipe tunnel was considered a contributing cause of the leak. The report stated that pipes should not fail. If pipes do fail, the contents should be contained and kept from the environment, and any leaks that occur should be identified promptly. Two additional identified organizational and programmatic causes included the fact that implementation of the Nuclear Energy Institute (NEI) NEI 07-07, “Industry Groundwater Protection Initiative,” was not timely or complete, based upon: (1) Entergy’s implementation of the NEI Industry Groundwater Protection Initiative, to date, had not adequately defined fleet, corporate, and VYNPS’s accountabilities and (2) inadequate commitment by management to fully implement the NEI Industry Groundwater Protection Initiative. An NRC inspector noted that these organizational and programmatic issues involving groundwater monitoring were previously examined by the NRC (reference Inspection Report No. 05000271/2010006, dated May 20, 2010) and were consistent with the NRC’s conclusions in that report. Entergy Vermont Yankee is limited to the amount of radiation exposure that can be received if an individual were to stand at the company’s property boundary 24 hours a day, 365 days a year. The limit at most nuclear sites is 100 mrem per year at the site boundary. At VYNPS, the limit agreed to by Entergy Vermont Yankee and the Vermont Department of Health is 20 mrem per year. VYNPS and the Vermont Department of Health each collect surveillance data from more than 1,300 different measurements of the air, water, milk, soil, vegetation, sediment, and fish each year. VYNPS officials wrote a report that describes the course of their 2010 leak events, beginning with the discovery of the tritium leak that was reported by them in January 2010, the search for the source or sources of the leak, the identification of the AOG pipe tunnel leak and the soil contamination that resulted as nuclear reactor water passed from the failed pipes, out the pipe tunnel into the soil, and then into the groundwater. This report was not released to the public, but the Vermont Department of Health summarized major points of interest from this report that relate to public health and environmental protection. According to the VYNPS report, there was “no nuclear, radiological or personnel safety significance.” As evidence of this, it was pointed out that the AOG system is not safety-related and therefore the protection of the reactor and fuel was not jeopardized. The calculated dose from the methods of Vermont Yankee’s Offsite Dose Calculation Manual was used to demonstrate the lack of radiological safety significance. This dose— 0.00095 mrem per year—was compared to the NRC annual dose limit of 100 mrem per year and the EPA annual limit for the maximally exposed individual of 25 mrem per year, as evidence that there was no radiological safety significance. The maximally exposed member of the public for dose assessment purposes was considered to be a child who consumed fish from the Connecticut River above the Vernon Dam and consumed food products grown with irrigated water from the Connecticut River below the Vernon Dam, and consumed drinking water downstream from the Connecticut River below the Vernon Dam. The child was assumed to consume 6.9 kilograms per year (kg/yr) of fish, 520 kg/yr of vegetables, 26 kg/yr fresh leafy vegetables, 41 kg/yr of meat, 330 L/yr of milk, and 510 L/yr of drinking water. The 2010 identified leaks have resulted in groundwater contamination at the site in the form of a tritium plume. This condition did not result in any NRC regulatory limits related to effluent releases being exceeded. In 2010, the maximum concentration detected was 2,500,000 pCi/L. Ongoing sample results continue to confirm that no off-site environmental monitoring locations contain detectable levels of plant-related radioactivity, including tritium. See the map of the VYNPS tritium plume included in Attachment B. Generic Environmental Impact Statement for License Renewal of Nuclear Power Plants, Regarding Vermont Yankee Nuclear Power Station, August 2007 Vermont Yankee Nuclear Power Station License Renewal Application Vermont Yankee Nuclear Power Station–Groundwater Monitoring Inspection Report 05000271/2010006 Vermont Yankee Nuclear Power Station–NRC Inspection and Review of Areas Identified in Demand for Information (Inspection Report 05000271/2010007) Vermont Yankee Nuclear Power Station–NRC Inspection Report 05000271/2010009 (Root Cause Evaluation Report of Buried Piping Leak) In addition to the individual named above, Kim Gianopoulos, Assistant Director; Nancy Crothers; Mark Gaffigan; Cindy Gilbert; Anne Hobson; Karen Keegan; Jonathan Kucskar; Diane Lund; Jaclyn Nidoh; and Timothy Persons made key contributions to this report. Joyce Evans, Jena Sinkfield, and Cynthia S. Taylor provided technical assistance. | All U.S. nuclear power plant sites have had some groundwater contamination from radioactive leaks, and some of these leaks came from underground piping systems. The Nuclear Regulatory Commission (NRC) regulates nuclear power plants to protect public health and the environment from radiation hazards. GAO was asked to (1) determine experts' opinions on the impacts, if any, of underground piping system leaks on public health and the environment; (2) assess NRC requirements of licensees for inspecting these systems and monitoring and reporting on leaks; (3) identify actions the nuclear power industry, licensees, and NRC have taken in response to leaks; and (4) identify additional NRC requirements, if any, that key stakeholders think could help prevent, detect, and disclose leaks. GAO convened expert discussion groups through the National Academy of Sciences and asked experts to review three case studies, analyzed documents, visited seven plant sites and two NRC regional offices, and interviewed stakeholders. While experts in our public health discussion group generally agreed that radioactive leaks at the three nuclear power plants in our case studies of actual events had no discernible impact on the public's health, these experts noted that additional information could enhance the identification of the leaks and the characterization of their impacts. The experts in our environmental impact discussion group concluded that environmental resources beyond the plant site have not been impacted discernibly, but that on-site contamination could affect plant decommissioning; for example, the licensee may have to conduct costly remediation to meet NRC regulations for unrestricted release of the site. Experts also identified the need for licensees to transparently report monitoring data and for licensees' groundwater monitoring programs to be independently reviewed. NRC inspection requirements focus on ensuring the functionality of underground piping systems that are essential for both the safe operation and the shutdown of plants rather than providing information about the condition of the underground piping systems. In addition, NRC's groundwater monitoring requirements generally focus on monitoring off-site locations, where a member of the public could be exposed to radiation, but not on onsite groundwater monitoring, which can improve the likelihood that leaks will be detected before they migrate off-site. In response to leaks, the nuclear power industry has implemented two voluntary initiatives to increase public confidence in plant safety. The first initiative was intended to improve on-site groundwater monitoring to promptly detect leaks. The second was intended to provide reasonable assurance of underground piping systems' structural and leaktight integrity. Licensees' responses to detected leaks have varied, ranging from repairing the leak source and documenting the leak's extent, to performing extensive mitigation. In addition, NRC has assessed its regulatory framework for, and oversight of, inspection of underground piping systems and groundwater monitoring. Based on the low risk posed by spills to date, NRC determined that no further regulations are needed at this time but has committed to such actions as gathering information on underground piping leak trends and reviewing codes and standards for underground piping. Key stakeholders identified additional NRC requirements that they thought could help prevent, detect, and disclose leaks. Some saw a need for NRC to require licensees to inspect the structural integrity of underground piping using techniques used in the oil and gas industry, while noting the challenges to applying such techniques at nuclear power plants. Industry is undertaking research to overcome these challenges. Stakeholders also noted that NRC should enhance its on-site groundwater monitoring requirements to promptly detect leaks and minimize their impacts. Finally, stakeholders said that NRC should require licensees to provide leak information in a more timely fashion and should make that information more accessible to the public. GAO recommends that NRC periodically assess the effectiveness of the groundwater initiative and determine whether structural integrity tests should be included in licensee inspection requirements, when they become feasible, based on industry research. NRC stated it agrees with the report and recommendations and asserted that NRC has taken relevant actions. |
DOD designed GPS to support military missions, such as military air, land, and sea navigation; missile guidance; search and rescue; mine placement; and precision surveying. GPS has space and ground components, as depicted in figure 1. The space component consists of a worldwide constellation of 24 satellites in six orbits at approximately 11,000 miles above the earth. These satellites are positioned so that a user will have at least four satellites in view at any given location. The satellites transmit radio signals that permit adequately equipped users to calculate the time as well as their speed and tridimensional position (latitude, longitude, and altitude) anywhere on or above the earth’s surface and in any weather condition. The ground component includes a master control station, five monitoring stations, and three ground antennae located throughout the world. The master control station tracks and directs the GPS satellites through the monitoring stations and ground antennae, respectively. As mentioned earlier, because GPS was designed for military purposes, the system, by itself, cannot satisfy key safety-related civil air navigation requirements, such as those dictating that a sufficient number of the system’s satellite signals be available virtually all of the time. Currently, GPS is used domestically as a supplemental means of navigation because on-board-the-aircraft augmentation systems—which use altimeters, gyroscopes, and other equipment to augment GPS—do not address all civil air navigation requirements, particularly those related to the system’s availability. In accordance with the direction provided by the Department of Transportation (DOT), FAA is supporting the development of a wide area system and local area systems that will permit GPS to fulfill all civil air navigation requirements and become a primary means of navigation. This month, FAA plans to award a contract for developing the wide area system. The agency has not announced a date for awarding a contract to develop local area systems. (See app. I for a description of civil air navigation requirements and the wide and local area systems that FAA intends to implement.) FAA and the aviation industry expect that the augmented GPS will result in a navigation capability that will provide major benefits to the agency, civil aviation, and others because of its superiority over currently used navigation aids. For example, because FAA expects that the augmented GPS will be able to support runway approaches and landings in all weather conditions, the agency recently canceled its multibillion-dollar project to acquire microwave landing systems—a key element of the program to modernize the air traffic control system. Also, FAA foresees that the augmented GPS will permit the agency, after a transition period, to start decommissioning its ground network of navigation and landing aids. Moreover, airlines expect that the augmented GPS and its applications will result in major operational and economic benefits by reducing flying times and fuel consumption. In addition, DOT and FAA anticipate that the augmented GPS will benefit not only aviation users but also other federal agencies and land and sea users having a need for navigation information. Although FAA has met all milestones for GPS to date, the agency will face more complex and difficult tasks in achieving future milestones. We are concerned that the revised schedule for augmenting GPS will not give the agency enough time to develop and implement the wide area system by 1997, when civil aircraft are expected to use the augmented GPS domestically as a primary means of navigation. The schedule is tight, and potential problems could affect the system’s development and implementation. In 1993, FAA met several milestones for GPS when the agency approved the use of the system as a supplemental means of navigation for oceanic and domestic air routes as well as nonprecision approaches. Also, in December 1994, FAA met one of two 1995 milestones ahead of schedule when the agency approved the use of GPS—augmented by on-board-the-aircraft systems—as a primary means of navigation over oceans and remote areas. In addition, FAA will likely meet the other 1995 milestone when the agency completes assessing the feasibility of using local area systems to support all types of precision approaches. Agency officials responsible for GPS activities see little chance for delays in meeting this milestone. Although FAA has been confident for some time that local area systems will be able to support all types of precision approaches, the agency is sponsoring research by various institutions to confirm the feasibility of these systems. For example, in June 1994, FAA awarded contracts to Wilcox Electric Inc. and E-Systems to develop and test two different local area systems for supporting precision approaches. According to FAA officials responsible for GPS activities, the preliminary testing of demonstration systems has been encouraging. These agency officials expect that the reports on the performance of these systems will be completed on schedule by the summer of 1995. FAA may not be able to meet its 1997 milestones for civil aircraft to use GPS domestically as a primary means of navigation. These milestones are based on the implementation of an initial wide area system by 1997. (See app. II for a depiction of FAA’s milestones for GPS.) The schedule for implementing the initial system is tight, and potential problems could affect the system’s development. This commitment is challenging because the system’s schedule may not provide enough time for FAA to complete all necessary steps. Over a 28-month period, from May 1995 to September 1997, the FAA contractor must develop and implement the system, and the agency must accept and commission it. However, FAA estimates that the system’s software development alone may take from 24 to 28 months, thereby leaving little time for the agency to accept and commission the system. Also, potential difficulties may be encountered during the system’s development. These difficulties include the following: Software-related problems. Although FAA has taken measures such as strengthening its oversight capabilities, the contractor selected may face difficulties while attempting to develop, integrate, test, and certify the wide area system’s software. The agency estimates that when measures to mitigate potential software development problems are considered, the software schedule has about a 60-percent probability of success. FAA has noted its concerns about potential software problems since it decided to adopt the accelerated schedule for developing and implementing the system. Satellite-related problems. The space component of the wide area system requires that three commercial communication satellites be in place by late 1997—an undertaking that is beyond FAA’s control. However, enough satellites may not be in orbit on time because the International Maritime Satellite Organization (INMARSAT)—the only commercial entity that has publicly announced its intention to launch satellites capable of supporting this space component—could delay launches or could launch an insufficient number of satellites to fully support this component. INMARSAT recently delayed launching the first of these satellites from late 1995 to early 1996 because the rocket to launch the satellite would not be available on schedule. FAA recently estimated that its 1997 milestones may slip up to 18 months if potential problems are realized. However, the agency did not provide information on the likelihood of meeting the milestones within this period of time. In 1994, FAA took several actions to strengthen its capacity to manage its GPS-related efforts, including integrating GPS activities within the agency, securing additional funding to develop the wide area system, and issuing plans for developing and implementing the augmentation systems and a draft plan for transitioning to GPS. These actions are encouraging. However, the plans are not comprehensive because they exclude schedule and cost estimates for implementing augmentation systems and information on the likelihood of achieving these estimates. FAA recently took several management actions to better position itself for augmenting GPS. First, FAA integrated pertinent GPS research, development, and acquisition activities that had been fragmented across the agency. In October 1993, FAA named a Director of GPS/Communications, Navigation, and Surveillance (CNS) Systems, and in May 1994, it created the GPS/CNS Development and Implementation Service. In November 1994, FAA consolidated the Service with units responsible for current ground-based navigation aids, such as instrument landing systems. This new organization, headed by the former Director of the GPS/CNS Service, is called the Integrated Product Team for GPS and Navigation and is under the jurisdiction of the Associate Administrator for Research and Acquisitions. According to the head of this organization, the consolidation was intended to improve the integration and coordination of the agency’s efforts to augment GPS. Second, after deciding to accelerate the implementation of the wide area system, FAA obtained $82.8 million for fiscal year 1995, an increase of $61.9 million over its appropriation for fiscal year 1994. This funding includes $67.9 million to develop and implement the wide area system. In fiscal year 1996, the administration is requesting $86.9 million to fund the system. Third, in mid-1994, FAA released plans for guiding the development, acquisition, and implementation of GPS’ augmentations and drafted an agencywide plan for directing the transition to GPS. Although these actions are encouraging, they may not address potential problems that may affect the development of the wide area system. Some of these problems are beyond FAA’s control, such as the difficulties that may be experienced during the launching of commercial communication satellites. Among other things, the GPS development and implementation plans and the draft of the transition plan (1) present information on FAA’s planned efforts to augment GPS, including schedule information on the wide area system and related milestones for using GPS as a primary means of navigation; (2) identify requirements that GPS must satisfy; and (3) highlight benefits that GPS will provide the agency and aviation users. Also, after the wide and local area systems are implemented, the transition plan proposes tentative schedules for transitioning to GPS and for decommissioning navigation aids in current use. However, these plans provide insufficient information to decisionmakers in the administration and the Congress on the systems needed for augmenting GPS. The plans issued in 1994 do not provide a timetable for implementing local area systems that will be needed to support precision approaches. FAA recently canceled its microwave landing system project because it is confident that the local area systems will be able to support all types of precision approaches. Without a timetable, decisionmakers cannot evaluate the extent to which schedules being considered are timely and minimize the need to keep instrument landing systems operational. The GPS plans exclude information on the level of financial resources needed by FAA to implement the wide area system. Also, they do not present information on the funding required to implement the local area systems needed for supporting precision approaches. When plans do not identify financial resource needs, past experience shows that decisionmakers may not have a sound basis for assessing budget requests or considering alternative courses of action. For example, because FAA’s 1992 GPS development plan did not include cost information, the Congress did not have the necessary information to evaluate the administration’s budget request for funding FAA’s GPS effort for fiscal year 1993. After we reported to the Congress that this budget request was less than half of what FAA needed to keep these efforts on schedule, the Congress had a basis to fully fund the agency’s needs. The plans omit information on the likelihood that FAA will meet its milestone and cost estimates, given the effect of potential problems on the system’s development and implementation. Identifying the probability (low, medium, and high) of successfully meeting the schedule and cost estimates would enable decisionmakers to understand the level of confidence that the agency has in these estimates. FAA has the above information for the wide area system. Also, according to agency officials responsible for GPS activities, FAA expects to complete the development of similar information on the local area systems by late 1995. FAA has been successful in meeting its GPS milestones to date. However, the agency faces more complex and difficult tasks in achieving future milestones. We are concerned that the revised schedule will not give the agency enough time to develop and implement the wide area system by 1997, when civil aviation is expected to use the augmented GPS as a primary means of navigation. To strengthen its ability to manage its GPS efforts, FAA recently took various actions, such as integrating GPS activities across the agency, securing additional funding for accelerating the development of the wide area system, issuing development and implementation plans, and drafting a transition plan. These actions are encouraging. However, the plans are not comprehensive enough to provide the administration and the Congress with a sound basis for making programmatic and budgetary decisions concerning GPS’ augmentation systems. For example, the plans omit important schedule and cost information on these systems. A comprehensive plan—including (1) complete milestones for augmenting GPS and transitioning to it, (2) the financial resources needed to achieve those milestones, and (3) information on the likelihood that FAA will meet its milestone and cost estimates—would help FAA guide and coordinate its efforts, marshall its resources, and assess its progress. Also, this plan would help the administration and the Congress ascertain the scope of FAA’s efforts, in terms of schedules and costs; assess whether the agency can meet milestones on time, given the level of resources requested; consider alternative courses of action; and monitor whether the agency’s progress toward accomplishing these milestones and transitioning to GPS is on schedule and within budget. Finally, the plan would help aviation users map out their transition to GPS in terms of both equipping aircraft and training pilots. With the development of additional information on local area systems by late 1995, FAA will soon have the information needed to prepare a comprehensive GPS plan. We recommend that the Secretary of Transportation direct the FAA Administrator to prepare a comprehensive plan for augmenting GPS and transitioning to it and to update this plan regularly. The plan should include, among other things, schedule and cost estimates for developing and implementing the wide and local area augmentation systems as well as information on the probability that FAA will meet these estimates. We gave copies of the draft report to DOT and FAA officials, including FAA’s Director of the Integrated Product Team for GPS and Navigation, the Manager of the Satellite Navigation Program, the Manager of the Wide Area Augmentation System Project, and the Manager of the Local Area Augmentation System Project. These officials generally agreed with the report’s findings, conclusions, and recommendation and did not have concerns about its contents. The officials gave us information and suggestions to help us clarify and qualify the report. We incorporated their suggestions where appropriate. We obtained information on FAA’s efforts to augment GPS from FAA officials responsible for pertinent GPS activities, including the Director of the Integrated Product Team for GPS and Navigation and the Manager of the Satellite Navigation Program. Also, we reviewed key documentation on civil air navigation requirements, reports on different augmentation systems being developed to augment GPS, plans and studies that identified various time frames for augmenting GPS, and schedule and cost information on FAA’s efforts related to GPS. In addition, we attended various professional meetings sponsored by FAA and other aviation organizations at which GPS issues were discussed. Finally, we obtained information on satellite navigation technology through discussions with representatives from airlines, the Air Transport Association, the Aircraft Owners and Pilots Association, the GPS industry, the International Civil Aviation Organization (ICAO), and DOD, including the Executive Secretary of the U.S. GPS Industry Council; the Chairman of ICAO’s Special Committee on Future Air Navigation Systems, Phase II; and the Senior Staff Specialist for Navigation and Air Traffic Control Systems in the Office of the Assistant Secretary of Defense. We conducted our work from August 1993 through April 1995 in accordance with generally accepted government auditing standards. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to interested congressional committees; the Secretary of Transportation; the Administrator, FAA; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. This work was performed under the direction of Allen Li, Associate Director, who may be reached at (202) 512-3600 if you or your staff have any questions. Major contributors to this report are listed in appendix III. The Global Positioning System (GPS), by itself, cannot fulfill civil air navigation requirements related to the various phases of flight. The Federal Aviation Administration (FAA) is working on two major systems for augmenting (enhancing) GPS so that it can meet these requirements and become a primary means of navigation. GPS does not satisfy civil air navigation requirements, including availability, integrity, and in the case of precision approaches (see fn. 2) accuracy requirements. The availability of a navigation aid is defined as the amount of time that the system is available for use. Availability requirements for the different phases of flight dictate for safety-related reasons that the system’s signals be available more than 99.9 percent of the time. However, under the current GPS constellation of 21 operational satellites and 3 spares, satellites are available only 98 percent of the time. Through its augmentations to GPS, FAA plans to provide users with several satellite signals similar to those provided by GPS so that signals are available virtually all of the time. The integrity of a navigation aid is defined as its ability to provide timely warnings to users about the system’s malfunctions. Integrity requirements for the different phases of flight dictate that warnings be provided to users within seconds of a system’s malfunction. However, GPS’ integrity warnings can take 15 minutes or longer. Through its enhancements to GPS, FAA intends to provide timely integrity warnings to users so that they know when GPS or its enhancements are malfunctioning. The accuracy of a navigation aid is defined as the difference between the true and measured position of an aircraft, the latter position as calculated by on-board-the-aircraft equipment. Accuracy requirements for precision approaches range from a few meters to under a meter. However, GPS, by itself, provides accuracies of about 100 meters. Through its augmentation to GPS, FAA plans to provide accuracy corrections to users so that the system can support all types of precision approaches. FAA is working to develop and implement wide and local area augmentation systems for augmenting GPS. FAA is working on the development and implementation of a satellite-based wide area system that will permit GPS to satisfy the integrity, availability, and accuracy requirements needed to make it a primary means of navigation for supporting all phases of flight, including precision approaches. FAA plans to use the wide area system to augment GPS in two phases. Under the first phase, FAA will use the system to enhance the availability and integrity of GPS. The system will transmit satellite signals similar to those provided by GPS, which will provide integrity warnings within 6 seconds of a malfunction. Under the second phase, FAA intends to enhance the accuracy of GPS for meeting the requirements of Category I precision approaches. FAA recently received authorization to implement this accuracy enhancement. The wide area system will have ground and space components for augmenting GPS. Figure I.1 depicts the wide area augmentation system. Legend WAAS = wide area augmentation system. Other communication satellites not shown. Other GPS satellites not shown. Other communication stations not shown. Other WAAS master stations not shown. Other WAAS reference stations not shown. The ground component will consist of a network of stations, including reference, master, and communication stations. Reference stations will, among other things, monitor the GPS satellite signals to generate integrity warnings and calculate corrections to improve the accuracy of the signals. Master stations will monitor the performance of the system, control reference stations, and process the integrity and accuracy information needed for augmenting GPS. Master stations, which will be located at several reference station sites, will send this information to communication stations. The latter will transmit the information to communication satellites—the space component—that in turn will broadcast the information to users with augmented signals similar to GPS signals. In addition to this operational wide area system, FAA plans to implement a smaller wide area system—called a functional verification system—to support related developmental, operational, and maintenance efforts. FAA’s strategy is to implement an initial wide area system by September 1997. The initial system, through a series of enhancements, is expected to become a final system by 2001. The initial system will consist of 2 master stations, 24 reference stations, and 6 communication stations. These stations will be joined by ground telecommunications. The system will use three communication satellites to deliver augmented signals similar to those provided by GPS to users. FAA envisions that the final system will consist of about 4 master stations, up to 40 reference stations, and up to 16 communication stations. The final system may use up to eight communication satellites. The functional verification system will consist of two master stations, five reference stations, and one communication station. It will require one communication satellite. The initial system and the functional verification system will use the same software. This software will contain an estimated 150,000 lines of code. The final system’s software may contain about 200,000 lines of code. This additional software code is intended to make the system capable of supporting Category I precision approaches and interfacing with other wide area augmentation systems implemented around the world. To limit risks during the integration of the system and ensure proper interfaces between the system’s components, FAA plans to award a contract for the wide area system to a single contractor. The contract will be a cost-plus contract because uncertainties affecting, for example, the software’s development and integration do not permit FAA to estimate costs with the accuracy required for using a fixed-price contract. The contract will include incentives for the contractor to meet technical and cost goals. FAA expects to award the contract in May 1995. The contract, including four options, could extend for up to 8 years and will be funded incrementally. FAA is working on the development of a ground-based local area system that will allow GPS to satisfy the integrity, accuracy, and availability requirements needed to make it a primary means of navigation for supporting precision approaches. This local system uses a ground component for augmenting GPS. Figure I.2 depicts one of the systems under development. The ground component has one or more GPS monitoring stations located at known locations for detecting malfunctions and calculating accuracy corrections near or at the airport. After processing this information, the stations transmit it with an augmented signal similar to those provided by GPS to users. Other GPS satellites not shown. Currently, FAA is sponsoring various efforts to develop local area systems to support all types of precision approaches. For example, in 1994, the agency awarded contracts to Wilcox Electric and E-Systems, at a cost of $1.67 million and $2 million, respectively, to develop and test demonstration systems using two different technologies. Figure II.1 shows the milestones in the schedule for enhancing GPS. Also, it displays the extent to which FAA has accelerated some milestones since they were introduced in 1992. Future milestones in the schedule depend on the implementation of a wide area system for augmenting GPS nationwide by 1997. A: GPS for multisystem navigation. Under this mode, a pilot uses the system in conjunction with one or more commissioned air navigation aids for obtaining reliable information on the aircraft’s position. The aircraft must carry equipment for both GPS and the navigation aids, and the pilot must constantly cross-check the GPS-derived positioning information with the other systems’ information. B: GPS augmented for supplemental navigation. Under this mode, the pilot uses the augmented GPS by itself for determining the aircraft’s position. However, because the GPS signals may not be available during one of the phases of flight, the aircraft must carry equipment for a commissioned air navigation aid as a backup. C: GPS augmented for primary means navigation. Under this mode, the pilot uses the augmented GPS by itself. However, the aircraft does not have to carry equipment for a commissioned air navigation aid as a backup. B* and C*: Milestones based on the implementation of the wide area augmentation system. D: GPS augmented for special Category I precision approaches. Under this mode, a pilot uses GPS augmented by privately owned local area systems for flying this type of precision approach. E: Feasibility determination of GPS’ augmentation for supporting Category II/III precision approaches. FAA determines whether GPS augmented by local area systems can support these types of precision approaches. Allen Li, Associate Director Robert E. Levin, Assistant Director Juan F. Tapia-Videla, Evaluator-in-Charge Stephanie K. Gupta, Staff Evaluator Gregory P. Carroll, Staff Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO reviewed the Federal Aviation Administration's (FAA) augmentation of the Global Positioning System (GPS) for use in civil aviation navigation, focusing on whether FAA: (1) will have sufficient time under its new milestones to augment GPS; and (2) has taken appropriate actions to better manage its GPS-related efforts. GAO found that: (1) although FAA has met all of its milestones to date, its future milestones involve more complex and difficult tasks; (2) FAA may not have enough time to develop and implement its wide area system augmentation by 1997, although civil aircraft are expected to use the augmented GPS without relying on other navigation aids for backup; (3) FAA estimates that system software development alone may take 24 to 28 months; (4) implementation of the wide area system may be delayed by factors beyond FAA control, such as the launching of commercial satellites needed to support the system; (5) in 1994, FAA strengthened its GPS management by integrating its GPS activities, securing the necessary funding to accelerate the wide area system's development, and issuing plans for developing and implementing augmentation systems and transitioning to GPS; and (6) the FAA GPS plans are not comprehensive, since they omit a schedule for implementing the local area system, cost estimates for the local and wide area systems, and the probabilities of meeting schedule and cost estimates. |
As authorized by the Occupational Safety and Health Act of 1970, OSHA issues and enforces workplace safety and health standards (OSHA standards). Some OSHA standards require that certain products used in the workplace, such as a variety of electrical equipment, be safety-tested and approved by OSHA-accredited laboratories. To serve this purpose, OSHA established the NRTL program by regulation in 1988. The program is currently administered by four staff members and a director who was hired in August 2012. The NRTL accreditation process is designed to determine whether an organization has the capability and independence to test and certify (“approve”) that products meet consensus-based safety standards (test standards). The main purpose of the NRTL accreditation process is to ensure that these organizations are and remain qualified to test and certify products used in the workplace. OSHA makes three types of accreditation decisions, which are generally valid for 5 years: 1. Initial: Determinations about whether to accredit an organization as an NRTL for the first time. 2. Expansion: Determinations about whether to expand the purview of an accredited NRTL to include other categories of products to be tested or to allow an accredited NRTL to conduct testing activities at additional sites. For example, an NRTL that is already accredited by OSHA to test electric clothes washing machines may apply to add additional test standards to its NRTL scope, such as standards for testing heat detectors for fire. The duration of expansion accreditations may be shorter than 5 years because expansion decisions expire at the end of the current accreditation period. 3. Renewal: Determinations about whether to continue accrediting a lab as an NRTL once its previous accreditation has expired. An NRTL that submits a sufficient renewal application 9 months to 1 year before its existing accreditation expires retains its NRTL accreditation until the final renewal decision is made. OSHA also conducts regular onsite audits of accredited NRTLs. The NRTL accreditation process generally includes the steps outlined in figure 1. OSHA collects fees from applicants and accredited NRTLs, and uses the fees for program expenses. OSHA first instituted fees in 2000 and calculated them with the intention of covering core application processing costs and audits of accredited labs. In 2011, OSHA revised its calculation of these fees to cover additional program costs, with the intent that the NRTL program would be almost entirely funded through fees paid by the labs. Under the revised fee structure, the fee for application review will be $17,750 for an initial NRTL application, $8,280 for applications to expand to additional sites, and $300 for renewals and other expansion applications, in addition to fees for other stages of the process. Once fully implemented, OSHA expects that the fees will cover approximately 95 percent of program costs, but revenues from fees and the percentage of program costs they cover will vary from year to year based on the number of applications submitted and audits performed. conform to the test standards.during follow-up inspections at the manufacturing facilities, where staff ensure that the mark is being controlled properly and that products are consistently being manufactured to meet safety standards. None of the accreditation applications approved in the last 5 years were processed and approved within the time frames that OSHA officials consider desirable, and the time frames for some applications were significantly longer. In the 5-year period from June 2007 to June 2012, OSHA approved 13 applications. Processing and approval times ranged from 1.2 to 5 years (see fig. 3). OSHA officials told us that the desirable time frame for processing and approving applications is 12 to 18 months for initial applications, 6 to 8 months for expansion applications, and 3 to 4 months for renewal applications. OSHA officials said they expect an application to fall within this range if there are no major delays or application deficiencies. For all 13 applications processed during the 5-year period we reviewed, it took much longer to process and approve the application than the desirable time frames, and in some cases, years longer (see table 2). The NRTL accreditation process is also lengthy in relation to the amount of time that NRTL accreditations are valid. Our analysis of the processing time frames for these initial, expansion, and renewal applications showed that it took OSHA 2.5 years or more to complete about half of them. These time frames signify a relatively long application period for an accreditation term of 5 years and, for some renewal applications, a lengthy period in which an existing lab is operating under an extension of its existing accreditation. In addition to these lengthy time frames for approving applications, many application decisions have been under review by OSHA for substantial lengths of time and remain pending. Of the 29 applications pending approval as of June 2012, 12 had been pending for between 5 and 10 years. Therefore, they had been under review by OSHA for at least as long as the term of the 5-year accreditation (see fig. 4). Almost all of the applications pending for this long were renewal applications. Further, the number of pending applications may underestimate the total number of accreditation cases that are awaiting review. At least two of the eight laboratories we interviewed had chosen not to submit new expansion applications until their earlier expansions were approved because they said that it is not productive to have multiple expansion applications going through OSHA’s process at once. Officials from one lab noted that they decided not to submit a second application to OSHA while the first was under review because they did not want OSHA to divide its time between the two applications. The lengthy NRTL accreditation process results in negative economic consequences for applying labs, according to most of the applicants with whom we spoke. Lab officials said that NRTL accreditation processing times make it difficult to attract or retain customers or hire and retain technical experts. For example, an official with a lab that had a pending NRTL expansion application told us that his lab had already been accredited by another organization to test and certify the same products for use outside the workplace. However, OSHA had not approved the lab’s application to test and certify these same products for use in the workplace although the lab’s application had been under review for several years. He said OSHA’s lengthy NRTL accreditation process hurt the lab’s relationship with clients because many manufacturers do not want to work with a laboratory unless it can approve products for use within the workplace. An official from another laboratory said that the company had lost staff members who were hired specifically to support the lab’s application for an expanded scope of work. Given the length of time that the lab’s expansion application has been under review, it could not retain these specialized staff members while it waited for NRTL approval. The laboratory will ultimately need to rehire individuals with this type of expertise if the application is approved. The way the NRTL program is designed requires its four staff members to balance many wide-ranging responsibilities and can lead to delays in approving accreditation applications. Two senior engineers and two junior staff members share responsibility for all aspects of the NRTL program.Labor attorneys also assist the NRTL program. The program is structured so that these staff members are responsible for the following: All aspects of approving accreditation applications. This includes reviewing all aspects of the accreditation applications; communicating with applicants regarding questions and application status; conducting site visits; making preliminary accreditation decisions; and preparing the Federal Register notices that formalize accreditation decisions. Oversight activities for existing labs. According to NRTL program policy documents, accredited labs and satellite offices should be audited by OSHA personnel. In total, this includes auditing approximately 120 sites worldwide. The staff are also responsible for investigating any complaints OSHA receives about accredited labs. Updating program guidance and procedures. This includes making revisions to program documents including the NRTL program directive on program policies, procedures, and guidelines, as well as other guidance on the application review process. Staff must also update OSHA’s NRTL website to provide information such as the names and approved products for each NRTL. Responding to requests from other federal agencies. OSHA staff told us that federal entities such as the Office of Management and Budget and the Office of the United States Trade Representative frequently request NRTL program staff input on questions related to international trade and product safety. OSHA officials told us that balancing these responsibilities can be challenging and leads to difficult decisions about how to prioritize their tasks. They said that their workloads are often affected by tasks that originate outside the NRTL program office. For example, staff reported having to postpone accreditation work when urgent requests came in from the Office of the United States Trade Representative or other federal agencies. Given these wide-ranging duties, NRTL program staff sometimes set aside applications for significant amounts of time while they attend to their other responsibilities. OSHA often cited these competing demands when explaining to applicants its slow process for approving their applications. For example, one applicant said that when he asked for a status update on his organization’s application several months after submitting it to OSHA, an agency official told him it had not yet been opened because no one had had time to start processing the application. OSHA officials also told us that more complex applications, which may take a lot of time to process, are sometimes set aside in order to process applications that are more straight-forward, but there is no formal method of prioritizing applications for review. While OSHA does not systematically collect data on the proportion of time an application is being actively processed versus the time it is waiting for review, available information supports applicants’ concerns that OSHA may not be actively reviewing applications for a significant amount of the time they are at the agency. OSHA processing, applicant revisions, and public comment periods accounted for some, but not all, of the total duration of recent application reviews. The estimated time frames for each of these steps are described below, but the full duration of application processing and approval times for most applications approved between June 2007 and June 2012 took months or years longer than the estimated time frames for each of these steps combined. This suggests that a given application may be set aside for significant amounts of time while OSHA personnel attend to their other responsibilities. OSHA’s average processing times: OSHA documents show that, on average, staff actively work on initial applications for the equivalent of about 2.5 months and expansion or renewal applications for the equivalent of about 1 month. Applicant revisions: OSHA officials noted that labs often have to revise their applications after deficiencies are identified, which extends the duration of the time frames for approving applications. This may involve two rounds of OSHA comments on written applications and two rounds of related applicant revisions. OSHA officials said they have sometimes allowed up to 1 year and 2 months for applicants to complete such revisions. Applicants may also correct deficiencies identified by OSHA during site visits, and OSHA allowed approximately 1 month for one recent initial applicant to do so. In our analysis of the application processing files for three recent initial applications, we found that all three applicants revised their applications at least once and the total revisions for each application took from 6 to 11 months. Public comment period: For all types of applications, OSHA provides a public comment period that begins when it publishes its preliminary accreditation decision in the Federal Register. According to OSHA’s regulations, the minimum period for public comment on initial applications is 30 days, while the minimum period for public comment on renewal or expansion applications is 15 days. In addition to extending the time it takes OSHA to approve applications, staff workload also leads to delays in responding to applicants’ questions about the status of their applications. Almost all of the applicants we interviewed expressed frustration about the amount of time it took to receive responses from OSHA and often said that OSHA officials attributed slow response times to their workload. Officials at one laboratory stated that there was about a 50/50 chance of ever receiving a response from OSHA when they contacted program staff. Officials of another laboratory described the OSHA accreditation process as a “black box” because applicants were uncertain about when their applications would reach the next milestone. Several applicants said that this uncertainty made the long application processing time frames even more difficult for their businesses because they could not plan for budgetary needs or update their clients on when they would offer new services. Several labs also noted that other accreditation programs respond to questions within a few days, so the delays in receiving responses from OSHA staff make the program an outlier. OSHA officials told us they used to provide applicants with quarterly updates that included projected target dates for the various stages of the application approval process, but they stopped providing these quarterly updates because the agency could not meet its projected target dates. Decisions about how to prioritize staff workload also affect the amount of internal review that accreditation decisions receive before they are finalized and can have negative impacts on applicants’ trust of program operations. GAO guidance on internal controls highlights the importance of separating key duties such as initial decisions and reviews of those decisions. International accreditation standards also require that final accreditation decisions be made by competent individuals or committees different from those who carried out the assessment. However, OSHA’s accreditation decisions for NRTLs are not consistently reviewed by a second technical reviewer before being finalized. OSHA officials said that the decisions are reviewed for legal accuracy, and are approved by upper management, but given the small size of the NRTL staff and their heavy workload, the person who conducts the initial reviews of applications is often the same person who makes the final recommendation about whether a lab should be accredited. While this might decrease the processing time for some applications or be the most feasible approach given program staffing levels, it can create a greater potential for error or bias. Two applicants we spoke with expressed concern about the absence of a second technical reviewer. Further, staffing roles and responsibilities affect the level of oversight OSHA provides once an accreditation application is approved. For example, to reduce the number of pending applications, OSHA staff reprioritized their duties so that a senior engineer could spend the majority of his time processing and approving applications. While this provided more resources for the application process, officials said it reduced the time they can spend auditing existing NRTLs, and several labs we interviewed confirmed that they had been audited less frequently in recent years. Auditing the NRTLs less frequently increases the likelihood that any problems with an accredited lab will go unnoticed. The extensive time it takes OSHA to approve renewal applications also means that labs are sometimes operating under previous accreditations for much longer than the 5 years for which they are valid because OSHA regulations generally allow labs to retain their accreditation and continue approving products while they wait for OSHA’s decisions on their applications for renewal. This can minimize the impact that processing delays have on a lab’s business operations, but it also means that a lab with performance problems could operate for an extended period of time after its 5-year accreditation period, even if the lab’s renewal is ultimately rejected. For example, one lab’s recent renewal application was pending for 8 years before OSHA ultimately rejected it. Most of the applicants we spoke with told us that OSHA’s guidance does not always provide adequate information about the program’s application requirements, which creates confusion and adds time to the review process. Applicants found the guidance particularly confusing because OSHA’s requirements for the content and level of detail labs must provide in their accreditation applications differ in important ways from those of many other organizations that accredit safety labs by using current international standards for accreditation. For example, several NRTLs noted that the types of product approval activities they conduct or are applying to conduct for the NRTL program are similar to the work that they do under other accreditation programs. Some of the information OSHA requires during its application process to test those products differs from what other programs require in ways that applicants believe are not clearly articulated in NRTL guidance. When the program last updated its application policies in 1999, OSHA developed these deviations from international standards in order to ensure that NRTLs were qualified to meet all aspects of the program’s mission and requirements. At the time they completed their applications for the NRTL program, most applicants said they were unclear about how and why the NRTL requirements differed from international accreditation standards, which led to confusion and affected the timeliness of the process. For example, officials at a lab that recently submitted an initial application to OSHA said the agency required them to provide additional detail about the work procedures they planned to use when conducting tests of equipment. This information was not required when they submitted similar applications to other accreditation organizations and lab officials were unaware of this difference when they initially prepared and submitted their accreditation application to OSHA. The lab ultimately had to revise its application to meet OSHA’s requirements, extending both the amount of time lab staff spent preparing the application and the time OSHA officials spent reviewing it. OHSA officials told us that such detail is key to ensuring that lab staff have the knowledge to perform the required safety tests. Officials stated that the agency intends to revise its policies and guidance to better convey its application expectations, but has not yet done so due to workload issues. Confusion resulting from OSHA’s unclear guidance is compounded in cases where OSHA’s requirements are evolving. For example, OSHA has been revising its process for verifying the independence of labs since 2008, but it has not updated the independence policies in its policy OSHA officials said that the directive or other application guidance.agency continues to process renewal applications while it revises its independence policies, but they have delayed making final decisions until the requirements are finalized. They noted that this process is time- consuming. There were 13 renewal applications pending in June 2012, 10 of which were pending for 5 years or more. Officials from several labs said that they have not received clear guidance from OSHA on the level of information required to illustrate independence and, therefore, they have had to provide several rounds of information to OSHA in their applications. One lab said that gathering this additional information is time consuming because it often involves obtaining information about individuals and companies with a minority financial interest in the labs, some of whom are located in different countries. Several applicants with pending expansion or renewal applications also said that some of OSHA’s requirements seem to have evolved over time and OSHA has not revised its guidance to include these new requirements. Representatives from these labs said OSHA identified deficiencies in their most recent expansion applications although they provided similar types of information in previous years on applications accepted by OSHA. While OSHA’s application requirements may differ from international standards in order to meet the agency’s safety mission, OSHA has not compared its requirements to current international standards to identify differences and assess their costs and benefits in order to ensure that the time devoted to assessing applicants against additional requirements is well-spent. OSHA officials told us the additional information about work procedures and independence they require of applicants is necessary to ensure the quality of the product approval process and that applicants follow program requirements. For example, OSHA officials said that the requirement in OSHA regulations that labs be “completely independent” of manufacturers presents a high bar for application review, and international standards on accreditation do not include such extensive requirements. When OSHA developed its NRTL policy directive in 1999 detailing the specific requirements for accreditation applications, it modified the international standards that were available at that time to fit NRTL program needs and requirements. However, subsequently, the agency has not formally reviewed the NRTL procedures against the current versions of international standards on accreditation or recently assessed the risks, costs, and benefits of having procedures that deviate from these standards. NIST guidance recommends that agencies establish ongoing processes for reviewing their accreditation activities and, to the extent possible, coordinate with federal, private, and international organizations. Officials told us that they would like to evaluate their procedures against current international standards, but have not had time to do so. Without OSHA conducting a risk assessment of its current requirements, the extent of any value added from the program’s additional application requirements is unknown, as are any trade-offs the agency makes by devoting more resources to the application review. In addition, the rationale for these requirements may be unclear to applicants. Perhaps as a consequence, about half of the NRTL applicants we spoke with questioned whether all of OSHA’s application procedures were necessary. For example, two applicants questioned whether it was necessary for OSHA’s independence review to cover individuals sitting on the boards of companies only marginally affiliated with the testing lab. On the other hand, representatives from two of the eight labs we interviewed said that certain OSHA requirements enhanced the quality of the program by, for example, providing detailed information about work procedures that was helpful in training new staff. While additional requirements imposed by OSHA may have value, where their purpose has not been articulated or their actual value has not been assessed, applicants may be more likely to question whether the requirements are justified and OSHA may not be expending its resources to optimum benefit. While a range of promising strategies for improving timeliness exist, including some that might help address resource constraints, mitigate confusion over application procedures, and improve efficiency, OSHA has taken limited steps to implement such strategies in its accreditation process. Based on our review of various sources, including GAO reports, we identified three promising strategies for improving timeliness: (1) aligning program design with program mission and resources; (2) providing clear guidance and timely communication to program stakeholders; and (3) developing performance measures and using data to track progress in meeting them to identify inefficiencies. For more information on how we arrived at these three strategies and the sources we reviewed, see appendix I. Past GAO work on program management has found that agencies can improve efficiency, including timeliness, by aligning program design with resources through various actions. For example, in some instances, streamlining procedures can save resources, improve productivity, and help staff focus more time on performing essential program activities. In other instances, a fundamental reexamination of program structure may be appropriate and can provide insight into whether government operations are outmoded and need to be restructured. According to guidance from the Office of Management and Budget and previous GAO reports on risk management, agencies can also benefit from evaluating program procedures by analyzing the associated risks, benefits, and costs of changes to program operations. Conducting such analyses helps agencies effectively decide how to prioritize their work, consistent with their mission and resources. Furthermore, collaborating with other government agencies and similar industry organizations is another step that agencies can take to improve program design and align program structure with resources. Collaboration allows programs to capitalize on the expertise of others, coordinate activities, and avoid unnecessary duplication and complexity. 53 Fed. Reg. 12,102, 12,114 (Apr. 12, 1988). other agencies such as NIST.thought that OSHA should reevaluate its approach to accreditation. For example, a few of the NRTL applicants we interviewed said there has been a shift in accreditation approaches since the NRTL program started in the late 1980s and OSHA has not always kept pace with these changes. The expenditure figure is based on the existing four NRTL program staff and includes estimates of salary and benefits for the program staff and for one Labor attorney who assists the program; travel expenses, mainly for performing audits; and general office expenses. 2013. If the agency is successful in its hiring efforts, officials anticipate holding extensive training sessions for new staff members to prepare them for their responsibilities. While using higher fees to increase staffing is promising in theory as a means of improving timeliness, GAO has found in the past that, in practice, there may be problems associated with this approach. For example, it can be difficult to hire and train people quickly enough or retain them long enough to affect timeliness. Furthermore, if fewer accreditation applications are submitted than expected, fees may fall short of estimates, making it difficult to plan and budget for the program. Due to the unpredictability of the volume of applications received, OSHA cannot be certain that increased fees will lead to higher revenues, as projected, and the outcome of OSHA’s efforts to hire and retain additional staff remains unclear. Unlike OSHA’s NRTL accreditation process, other federal agencies we interviewed relied in part on other public or private organizations to carry out the accreditation process and maximize their resources. The outside accreditation organizations often charge and collect fees from the labs in order to cover the cost of accreditation application processing and approval, but according to the federal agencies we interviewed, these organizations do not charge fees to the federal agencies. The federal agencies we interviewed also worked with NIST to plan, design, and develop their accreditation programs. Although each federal agency has a unique mission and a distinct process for accrediting labs, the examples below illustrate varied actions that agencies have taken in their efforts to adapt their processes to maximize resources and meet their own unique missions and circumstances. FCC’s Equipment Authorization Program - FCC officials told us the agency originally required labs to submit accreditation applications directly to FCC, but then restructured its approach to address resource constraints in the agency by collaborating with outside accreditation organizations. In order to satisfy FCC’s requirements, labs accredited through these outside accrediting organizations must meet both international standards and additional program-specific requirements. While the outside organizations evaluate labs and make recommendations about whether a lab meets FCC’s criteria and procedural requirements, FCC makes the final decision about whether to accept the lab into its programs. An FCC official said that working with outside accrediting organizations means that FCC has to constantly educate these organizations about program changes and new technology. However, the official said that using this structure allows FCC to use its limited resources to focus on critical compliance issues and the more technical aspects of the program while capitalizing on the expertise of organizations that have specialized backgrounds in accreditation. HHS’s Health Information Technology Certification Program - Like FCC, HHS officials decided to collaborate with external organizations in order to maximize program resources and harness the expertise of others. HHS officials said that because health information technology systems are complex, have important implications for patient safety, and present a high risk for potential fraud and abuse, it was important for HHS to be involved in developing policies and to tailor HHS’s accreditation processes to fit the unique needs of the program. For example, according to agency officials, HHS worked with NIST to develop sector-specific requirements for accrediting certification organizations in addition to using international accreditation standards. HHS officials said that by designating outside organizations to make accreditation decisions, they are better able to focus on the program’s goals and strategic planning, and are less focused on administrative tasks, such as collecting and tracking fees. They also said that using this structure has allowed them to make decisions about how to design their accreditation approach based on what will best fulfill their mission, rather than what resources are available in-house. CPSC’s Conformity Assessment Body Recognition Program - Officials at CPSC recognized that their relatively small staff was not prepared to perform accreditations themselves and that there were not enough time, resources, and expertise within the CPSC to run a large-scale international accreditation program. After consulting with NIST and weighing its options, CPSC ultimately decided to leverage the expertise and experience of an international organization whose member accreditation organizations meet international standards for accreditation and have been deemed competent through a peer- review process. CPSC officials believe this approach provides additional transparency in the process. Although CPSC does not accredit labs itself, it maintains a list of approved labs by requiring labs to apply directly to CPSC and by verifying that different types of labs have been appropriately accredited. Another approach that may help a program align its design with its resources is to use contractors to supplement limited in-house staff. For example, representatives from some of the private accreditation organizations we interviewed, including some that conduct accreditation activities for the federal agencies discussed above, said they use individual contractors on an as-needed basis. This reduces the need for full-time staff and helps to ensure that those individuals performing accreditation activities possess the necessary expertise. These organizations said that using contractors provides organizations with the flexibility to quickly adjust staffing levels based on the amount of work, and the particular accreditation work that needs to be performed. It also allows them to retain appropriately skilled people to perform the accreditation work. However, federal agencies’ use of private contractors is subject to various requirements, which limit the type of functions that may be performed by contractors and entail a commitment of time and resources to meet. In addition, an OSHA official told us that if the agency were to rely on outside individuals, it would need to ensure their competency and independence. Clear guidance and communication with applicants can also serve to improve the timeliness of the accreditation process. Guidance that does not give applicants the information they need to submit an acceptable application can delay approval. GAO’s internal control guidance states that program managers should ensure there are adequate means of communicating with, and obtaining information and feedback from, external stakeholders who may have a significant impact on the program achieving its goals. Not only do clear guidance and communication contribute to timely processes, but they also serve to enhance the transparency of programs and policies by explaining program criteria and may increase trust and confidence among stakeholders. OSHA’s current structure and workload have made it difficult to provide clear guidance and timely communication to applicants. Most of the NRTL applicants we interviewed stated that OSHA could enhance its guidance and communication in order to improve the timeliness of the accreditation process and to help make the accreditation process more transparent. The directive on NRTL program policies and procedures has not been revised since 1999, and OSHA has not updated its NRTL application guidelines since 2000. A new director assumed responsibility for the NRTL program in August 2012, and plans to focus on improving the consistency and clarity of program procedures and guidance, but it is too early to determine the timing and scope of such revisions. OSHA plans to issue interim program guidance in the short-term while later updating NRTL application guidelines and the directive on NRTL program policies and procedures. We also found that OSHA had not adopted some of the measures to disseminate information used by other accreditation organizations we interviewed. For example, one of the accreditation organizations we interviewed holds an annual meeting specifically to hear from clients, and FCC hosts workshops twice a year where it shares program updates and explains program requirements to stakeholders. OSHA, on the other hand, occasionally speaks at trade association conferences and participates in workshops sponsored by NIST, but it does not hold regular meetings to update stakeholders and solicit feedback. An OSHA official did say that about 2 years ago, he started to initiate phone calls with labs interested in applying to the NRTL program to clarify the requirements for applications, with the intention of minimizing the back and forth that takes place during the application process. In his opinion, applicants have found these calls useful. Other accreditation organizations we interviewed have taken steps to enhance guidance and communication with applicants, such as developing systems to provide applicants with status updates and information in “real time.” For example, two accreditation organizations we interviewed maintain online portals that allow applicants to check on the status of their applications throughout the various stages of the application process. Furthermore, FCC manages a database for providing information to stakeholders. This database provides answers to frequently asked questions submitted by stakeholders and helps to ensure that FCC is giving consistent advice and answers to questions. FCC officials also said that input from stakeholders helps inform their guidance publications. Our research on program management underscores the importance of developing performance goals and measures to track progress and evaluate program performance. Developing a range of related performance measures and balancing these measures to address quality, timeliness, efficiency, cost of service, and outcomes also allows a program to balance priorities among other demands and gives managers crucial information on which to base their organizational and management decisions. In addition, using data to understand time frames offers an opportunity to identify potential inefficiencies and strategies for improving timeliness. OSHA developed performance measures for the NRTL program, including measures for timeliness of the approval process. However, it recently discontinued using these measures, because staff members’ workload increased to the point that it was impractical to achieve the metrics established. Through informal monitoring of the time it takes to approve accreditation applications, OSHA recognizes that its accreditation process has been taking longer than expected, especially for those applications with no major deficiencies or issues. OSHA officials are hoping that their plans to hire additional staff will bring the NRTL program closer to achieving their timeliness goals. It remains unclear, however, whether planned hiring efforts will adequately address timeliness issues or how OSHA plans to reinstitute its performance measures. OSHA also collects some program data, but it does not currently use the data to track timeliness or analyze trends. For example, in response to one of the recommendations included in a 2005 report by Labor’s Office of Inspector General, OSHA developed a contact log so that the NRTL program could maintain a log of calls, e-mails, and related However, the contact log was developed primarily to document details.that OSHA had responded to inquiries from NRTLs, not necessarily to track the amount of time it took OSHA to respond. In the fall of 2012, OSHA officials told us they began developing a more robust system to track timeliness data and to address inefficiencies identified through the data, but this initiative is in the early stages. OSHA does not have performance measures to assess the quality and timeliness of its accreditation process, although such measures have been adopted by most of the accreditation organizations we contacted. For example, one accreditation organization had target dates in place for each phase of its application process and tracked its performance in relation to the targets. Another accreditation organization with performance measures in place also had a corrective action system in place to review troubling data, identify the root cause of any problems, and implement solutions. This accreditation organization also measured customer satisfaction. The NRTL program provides an important mechanism for protecting workers’ safety. However, if not addressed, the lengthy accreditation application processing and approval times resulting from the current scope of staff responsibilities and unclear guidance about the process will continue to have negative impacts on labs’ business operations and OSHA’s ability to conduct other oversight activities. Much has changed in the world of laboratory accreditation since the NRTL process was designed in 1988; for example, NIST issued guidance intended to reduce duplication and improve efficiency, in accordance with the National Technology Transfer and Advancement Act of 1995, and some federal agencies have used new approaches to accreditation to administer lab accreditation programs. This includes increasing use of new approaches for efficiently and effectively using resources and harnessing the expertise of other organizations, while retaining key oversight responsibilities within the federal government. While OSHA plans to take some actions to improve timeliness, it is too early to determine the extent of these actions and it is uncertain whether any incremental changes will be sufficient to fully address the program’s challenges. Without thinking strategically about the program as a whole, the agency may be missing opportunities to implement more comprehensive strategies for improving timeliness, such as modifying its program structure in a manner that better serves its mission and capitalizes on the expertise of agency staff and external resources. Even if some of these strategies require initial time investments, thinking strategically about the program’s structure can ultimately reap time savings and ensure that procedures and staff responsibilities are targeted in a way that optimizes the program’s effectiveness in addressing workplace safety. To improve the timeliness of the NRTL accreditation process, we recommend that the Secretary of Labor direct the Assistant Secretary for Occupational Safety and Health to: Review the NRTL program’s structure and accreditation application procedures to identify and implement any alternatives that better align program design with resource levels and improve program timeliness while remaining consistent with the agency’s mission. This review should draw upon the expertise of NIST or other organizations that provide guidance on developing effective and efficient accreditation schemes. It should include: 1. Identifying and evaluating the risks, costs, and benefits of various structural approaches for making accreditation decisions in terms of both timeliness and effectiveness in achieving OSHA’s mission. Approaches could include using an external accrediting organization to implement some or all of the lab accreditation duties, using contractors to support in-house portions of the accreditation process, or separating testing from certification accreditation activities. 2. Reviewing OSHA’s current regulations and procedures to identify areas where increased alignment with international standards on accreditation may result in time savings without impairing the agency’s mission to protect workers’ safety and health. This could include analyzing the risks, costs, and benefits to effectiveness involved in making any program modifications or changes to existing regulations. 3. Ensuring that all lab accreditation decisions are reviewed by an independent technical reviewer in order to better align the accreditation decision process with internal controls principles for separating key duties and international standards on making accreditation decisions. OSHA should evaluate options for achieving independent review based in part on their effects on process duration. 4. Improving overall program guidance and transparency to help prevent delays in the approval process. 5. Establishing program goals and performance measures, including timeliness goals for the approval of accreditation applications, and analyzing resulting performance measurement data to identify potential inefficiencies in the application process. We provided a draft of this report to Labor for its review and comment. Labor’s Assistant Secretary for OSHA provided written comments, which are reproduced in appendix II. Labor agreed with our recommendations and described its plans to implement them, citing a commitment to use the most efficient and effective strategies in the NRTL program. For example, Labor states that it is assessing the NRTL program against alternative approaches used by other testing laboratory accrediting organizations and that it is coordinating with outside agencies, including the National Institute of Standards and Technology, to seek ways in which the NRTL program can improve its processes. In response to our recommendation to improve program guidance and transparency, Labor stated that it plans to develop and issue policy guidance on NRTL program requirements to ensure the program is administered consistently, and it plans to actively engage NRTL stakeholders in the policy-development process. In addition, Labor intends to use performance measures for processing applications and to explore the development of a web-based customer service site where NRTLs could check the status of their applications throughout the review process. We are sending copies of this report to the appropriate congressional committees and the Secretary of Labor. In addition, the report is available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or moranr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. This study’s objective was to answer the following questions about the Occupational Safety and Health Administration’s (OSHA) Nationally Recognized Testing Laboratory (NRTL) program: (1) How long does it take to make accreditation decisions and what are the key factors that affect timeliness? and (2) To what extent has OSHA adopted commonly used strategies for improving timeliness? To address these research questions, we used a variety of methods including: analysis of OSHA’s data on recently processed accreditation applications; reviews of relevant federal laws, regulations, and OSHA publications on the NRTL program; interviews with key program stakeholders including OSHA officials, eight NRTL program applicants, and other public and private organizations, including non-profits, that accredit safety labs for other programs or purposes; a review and synthesis of findings from various sources, including GAO reports, international standards, guidance on accreditation, and materials from other federal agencies to identify promising strategies for improving the timeliness of accreditation decisions; and interviews with officials from selected federal agencies about their accreditation processes and practices. To determine how long it took OSHA to approve accreditation applications between June 2007 and June 2012—as well as how many applications were pending during that time— we analyzed Federal Register notices and information from an internal OSHA database that included key application dates, such as application submission and final accreditation decision dates. We analyzed timing data on all initial, expansion, and renewal decisions that were approved between June 11, 2007 and June 11, 2012. We also reviewed timing information for all applications that are currently pending. We selected this date range to ensure that our analysis included decisions for each of the three types of applications, reflected OSHA’s most recent time frames and processes, and included decisions made under two administrations. After interviewing OSHA officials and comparing Federal Register notices that identify key application dates for approved applications to separately generated data from OSHA’s internal database, we determined that the data on application submission dates and final decision dates were sufficiently reliable for our purposes. Our analysis focused primarily on application submission dates and final decision dates because the available data in OSHA’s database for intermediary stages of the review process were less reliable. We used the following criteria to assess the length of OSHA’s accreditation process: OSHA’s view on desirable time frames for accreditation reviews. for completed applications, duration of the accreditation application and approval process relative to duration of the accreditation itself (5 years); for pending applications, existence and duration of application backlogs; stakeholders’ views; and To gather more information about the amount of time that initial applications were with applicants for revisions versus with OSHA during the accreditation review, we also reviewed the application files for the three initial applications processed by OSHA between June 2007 and June 2012. Two of these applications were approved by OSHA and one was withdrawn by the applicant after the initial review and revision stages of the process. To further understand the accreditation process and factors that might affect its timing, we interviewed OSHA officials and reviewed relevant federal laws, regulations, and NRTL program documents. We also interviewed eight NRTL applicants who represented a mix of initial, expansion, and/or renewal accreditation applications that have been pending, approved, or otherwise closed since June 2007. We selected labs so that our review would include the perspectives of applicants at different points in the decision-making process and with a variety of initial, expansion, and renewal applications. We also chose labs that represented a variety of sizes, as measured by the number of approved NRTL testing sites. In addition, we interviewed other stakeholders including a manufacturing organization and an employer organization to obtain information about any effects the duration of the NRTL accreditation process may have had on these sectors. To identify promising practices for improving timeliness, we reviewed and international standards synthesized findings from relevant GAO reports,and guidance on accreditation, and materials from federal organizations such as the Office of Management and Budget, the National Institute of Standards and Technology (NIST), and the National Research Council.We identified these sources through literature searches and discussions with stakeholders and individuals who are knowledgeable about management practices that could improve timeliness. We compared the strategies we identified with OSHA’s current and planned actions to improve timeliness, as identified through interviews and relevant documentation. We also identified promising practices for improving the timeliness of the NRTL accreditation process by soliciting suggestions from the eight NRTL applicants that we interviewed. We also interviewed officials and reviewed relevant documents from seven public and private accreditation programs and organizations, including non-profit organizations, as well as two consortiums of accreditation organizations, to identify promising timeliness practices used by others. No other accreditation process is completely comparable to OSHA’s given differences in scope or mission. However, the experiences of other programs and organizations provide illustrative examples of actions that agencies have taken to adapt to their own unique missions and circumstances. After compiling an extensive list of accreditation programs and organizations, we ultimately selected organizations to review in more detail based on the following: recommendations from NRTL program stakeholders, those programs we identified as using one or more of the promising strategies for improving timeliness included in our report, or those programs that are similar to OSHA’s program in terms of mission or scope. We interviewed officials from four federal agencies with lab accreditation programs: the Consumer Product Safety Commission Conformity Assessment Body Recognition Program; the Federal Communications Commission Equipment Authorization Program; the Department of Health and Human Services Health Information Technology Certification Program; and the NIST National Voluntary Laboratory Accreditation Program. In addition to speaking with officials from these four federal accreditation programs, we also interviewed representatives from three accreditation organizations outside the U.S. federal government: the American Association for Laboratory Accreditation, Standards Council of Canada, and the American National Standards Institute. Finally, we spoke with representatives from two consortiums of accreditation organizations: the International Laboratory Accreditation Cooperation and the National Cooperation for Laboratory Accreditation. In addition to the contact named above, Betty Ward-Zukerman, Assistant Director; Elizabeth Dobrenz, Meredith Moore, Maria Stattel, and Barbara Steel-Lowney made significant contributions to all phases of the work. Also contributing to this report were James Bennett, Sarah Cornetto, Elizabeth Curda, Debra Johnson, Kathy Leslie, Jean McSween, Cathy Roark, Daren Sweeney, and Kate van Gelder. | American workers interact with many types of products that could pose risks to their safety. The NRTL program, administered by OSHA, works to support employers and workers by establishing a process for safety-testing certain equipment and other products for use in the U.S. workplace. Under this program, which is supported by user fees, OSHA accredits third-party labs as NRTLs, which then determine whether certain types of products meet safety standards. Because the availability of NRTLs is essential to ensuring that employers have timely access to products that meet safety standards, GAO was asked to examine (1) how long it takes to make accreditation decisions and the key factors that affect timeliness, and (2) the extent to which OSHA has adopted commonly used strategies for improving timeliness. GAO reviewed relevant documents and data from OSHA; interviewed OSHA officials, other NRTL stakeholders, and officials from four federal agencies that administer accreditation programs for other purposes; and reviewed information on strategies for improving timeliness from past GAO reports and other sources. The Department of Labor's (Labor) Occupational Safety and Health Administration's (OSHA) process for accrediting Nationally Recognized Testing Laboratories (NRTL) is lengthy due to the scope of staff members' responsibilities and unclear application procedures for accreditation. Among the 13 recently approved applications, OSHA took between 1 and 5 years to make accreditation decisions. All of these applications took much longer to approve than OSHA's desired time frames, and in some cases, years longer. In addition, 12 of the 29 applications that were awaiting final decisions by OSHA as of June 2012 had been under review longer than the 5-year period for which the accreditation decision would be valid. This lengthy process has potentially negative economic consequences for laboratories and requires OSHA staff to divert their time from other oversight activities. Two key factors led to the long time frames: Imbalance between staffing levels and scope of responsibilities : The way that OSHA has designed the NRTL program requires its four staff members to balance many wide-ranging responsibilities. These responsibilities include: reviewing all aspects of accreditation, auditing existing laboratories, and responding to information requests from other federal agencies. Consequently, accreditation applications were sometimes set aside for significant amounts of time while OSHA personnel attended to their other responsibilities. Unclear application requirements : OSHA's requirements for the content and level of detail to be provided in accreditation applications--such as detailed information to assess independence--differ in important ways from international standards used for accrediting safety labs. Lack of clarity in guidance about these and other requirements create confusion among applicants and extend both the amount of time applicants spend preparing the applications and the time OSHA officials spend reviewing them. OSHA said its additional requirements are important to the agency's mission, but it has not formally compared them to current international standards or recently assessed the risks, costs, and benefits of any procedures that deviate from international standards. While OSHA plans to take some steps to improve timeliness, it has not taken advantage of a range of promising strategies, including some that might address its resource constraints and improve efficiency. GAO identified three key strategies for improving timeliness: (1) aligning program design with program mission and resources; (2) providing clear guidance and timely communication to stakeholders; and (3) developing performance measures and using data to identify inefficiencies. GAO found that OSHA has not evaluated the NRTL accreditation process to assess whether its current structure is the most efficient for processing and approving applications in a timely manner and meeting the program's goals. Consequently, OSHA's processes may be slower than necessary and planned hiring may not adequately address timeliness issues. Since the NRTL program was created in 1988, several new approaches to accreditation have been developed. For example, some federal agencies have collaborated with outside entities to complete select tasks in the accreditation process while continuing to make key oversight decisions in-house. The NRTL staff's current workload has made it difficult for them to implement other timeliness strategies, such as providing timely communication to stakeholders. In addition, OSHA recently stopped using its NRTL performance measures because officials believed that meeting them was impractical. GAO recommends that Labor review its current structure and procedures for accrediting NRTLs and implement alternatives that would maintain effectiveness while improving timeliness. Labor agreed with the recommendations and described its plans to address them. |
Mercury enters the environment in various ways, such as through volcanic activity, coal combustion, and chemical manufacturing. As a toxic element, mercury poses ecological threats when it enters water bodies, where small aquatic organisms convert it into its highly toxic form— methylmercury. This form of mercury may then migrate up the food chain as predator species consume the smaller organisms. Fish contaminated with methylmercury may pose health threats to people who rely on fish as part of their diet. Mercury can harm fetuses and cause neurological disorders in children, resulting in, among other things, impaired cognitive abilities. The Food and Drug Administration and EPA recommend that expectant or nursing mothers and young children avoid eating swordfish, king mackerel, shark, and tilefish and limit consumption of other potentially contaminated fish. These agencies also recommend checking local advisories about recreationally caught freshwater and saltwater fish. In recent years, most states have issued advisories informing the public that concentrations of mercury have been found in local fish at levels of public health concern. Coal-fired power plants burn at least one of three primary coal types— bituminous, subbituminous, and lignite—and some plants burn a blend of these coals. Of all coal burned by power plants in the United States in 2004, DOE estimates that about 46 percent was bituminous, 46 percent was subbituminous, and 8 percent was lignite. The amount of mercury in coal and the relative ease of its removal depend on a number of factors, including the geographic location where it was mined and the chemical variation within and among coal types. Coal combustion releases mercury in oxidized, elemental, or particulate-bound form. Oxidized mercury is more prevalent in the flue gas from bituminous coal combustion, and it is relatively easy to capture using some sulfur dioxide controls, such as wet scrubbers. Elemental mercury, more prevalent in the flue gas from combustion of lignite and subbituminous coal, is more difficult to capture with existing pollution controls. Particulate-bound mercury is relatively easy to capture in particulate matter control devices. In addition to mercury, coal combustion releases other harmful air pollutants, including sulfur dioxide and nitrogen oxides. EPA has regulated these pollutants since 1995 and 1996, respectively, through its program intended to control acid rain. Figure 1 shows various pollution controls that may be used at coal-fired power plants: selective catalytic reduction to control nitrogen oxides, wet or dry scrubbers to reduce sulfur dioxide, electrostatic precipitators and fabric filters to control particulate matter, and sorbent injection to reduce mercury emissions. From 2000 to 2009, DOE’s National Energy Technology Lab conducted field tests at operating power plants with different boiler configurations to develop mercury-specific control technologies capable of achieving high mercury emission reductions at the diverse fleet of U.S. coal-fired power plants. As a result, DOE now has comprehensive information on the effectiveness of sorbent injection systems using all coal types at a wide variety of boiler configurations. Most of these tests were designed to achieve mercury reductions of 50 to 70 percent while decreasing mercury reduction costs—primarily the cost of the sorbent. Thus, the results from the DOE test program may understate the mercury reductions that can be achieved by sorbent injection systems to some extent. For example, while a number of short-term tests achieved mercury reductions in excess of 90 percent, the amount of sorbent injection that achieved the reductions was often decreased during long-term tests to determine the minimum cost of achieving, on average, 70 percent mercury emission reductions. Under its mercury testing program, DOE initially tested the effectiveness of untreated carbon sorbents. On the basis of these results, we reported in 2005 that sorbent injection systems showed promising results but that they were not effective when used at boilers burning lignite and subbituminous coals. DOE went on to test the effectiveness of chemically treated sorbents—which can help convert the more difficult-to-capture mercury common in lignite and subbituminous coals to a more easily captured form—and achieved high mercury reduction across all coal types. Finally, DOE continued to test sorbent injection systems and to assess solutions to impacts on plant devices, structures, or operations that may result from operating these systems—called “balance-of-plant impacts.” In 2008, DOE reported that the high performance observed during many of its field tests at a variety of configurations has given coal-fired power pla nt operators the confidence to begin deploying these technologies. Bills have been introduced in the prior and current Congress addressing mercury emissions from power plants. The bills have proposed specific limits on mercury emissions, such as not less than 90 percent reductions, and some have specified time frames for EPA to promulgate a MACT regulation limiting mercury emissions from power plants. For example, a bill introduced in this Congress would require EPA to promulgate a MACT standard for mercury from coal-fired power plants within a year of the bill’s enactment. In addition, some bills introduced the past few years— termed multipollutant bills—would have regulated sulfur dioxide, nitrogen oxides, and carbon dioxide emissions, in addition to mercury, from coal- fired power plants. Most would have required a 90 percent reduction—or similarly stringent limit—of mercury emissions, with the compliance deadlines varying from 2011 to 2015. One such bill currently before Congress would prohibit existing coal-fired power plants from exceeding an emission limit of 0.6 pounds of mercury per trillion British thermal units (BTUs), a standard measure of the mercury content in coal— equivalent to approximately a 90 percent reduction—by January 2013. The managers of 14 coal-fired power plants reported to us they currently operate sorbent injection systems on 25 boilers to meet the mercury emission reduction requirements of 4 states and several consent decrees and construction permits. Preliminary data show that these boilers have achieved, on average, reductions in mercury emissions of about 90 percent. Of note, all 25 boilers currently operating sorbent injection systems have met or surpassed their relevant regulatory mercury requirements, according to plant managers. For example: A 164 megawatt bituminous-fired boiler, built in the 1960s and operating a cold-side electrostatic precipitator and wet scrubber, exceeds its 90 percent reduction requirement—achieving more than 95 percent mercury emission reductions using chemically treated carbon sorbent. A 400 megawatt subbituminous-fired boiler, built in the 1960s and operating a cold-side electrostatic precipitator and a fabric filter, achieves a 99 percent mercury reduction using untreated carbon sorbent, exceeding its 90 percent reduction regulatory requirement. A recently constructed 600 megawatt subbituminous-fired boiler operating a fabric filter, dry scrubber, and selective catalytic reduction system achieves an 85 percent mercury emission reduction using chemically treated carbon sorbent, exceeding its 83 percent reduction regulatory requirement. While mercury emissions reductions achieved with sorbent injection on a particular boiler configuration do not guarantee similar results at other boilers with the same configuration, the reductions achieved in deployments and tests provide important information for plant managers who must make decisions about pollution controls to reduce mercury emissions as more states’ mercury regulations become effective and as EPA develops its national mercury regulation. The sorbent injection systems currently used at power plants to reduce mercury emissions are operating on boiler configurations that are used at 57 percent of U.S. coal- fired power boilers. Further, when the results of 50 tests of sorbent injection systems at power plants conducted primarily as part of DOE’s or EPRI’s mercury control research and development programs are factored in, mercury reductions of at least 90 percent have been achieved at boiler configurations used at nearly three-fourths of coal-fired power boilers nationally. Some boiler configurations tested in the DOE program that are not yet included in commercial deployments follow: A 360 megawatt subbituminous-fired boiler with a fabric filter and a dry scrubber using a chemically treated carbon sorbent achieved a 93 percent mercury reduction. A 220 megawatt boiler burning lignite, equipped with a cold-side electrostatic precipitator, increased mercury reduction from 58 percent to 90 percent by changing from a combination of untreated carbon sorbent and a boiler additive to a chemically treated carbon sorbent. A 565 megawatt subbituminous-fired boiler with a fabric filter achieved mercury reductions ranging from 95 percent to 98 percent by varying the amount of chemically treated carbon sorbent injected into the system. As these examples of deployed and tested injection systems show, plants are using chemically treated sorbents and sorbent enhancement additives, as well as untreated sorbents. The DOE program initially used untreated sorbents, but during the past 6 years, the focus shifted to chemically treated sorbents and enhancement additives that were being developed. These more recent tests showed that using chemically treated sorbents and enhancement additives could achieve substantial mercury reductions for coal types that had not achieved these results in earlier tests with untreated sorbents. For example, injecting untreated sorbent reduced mercury by an average of 55 percent during a 2003 DOE test at a subbituminous-fired boiler. Recent tests using chemically treated sorbents and enhancement additives, however, have resulted in average mercury reductions of 90 percent for boilers using subbituminous coals. Similarly, recent tests on boilers using lignite reduced mercury emissions by roughly 80 percent, on average. The examples of substantial mercury reductions highlighted above also show that sorbent injection can be successful with both types of air pollution control devices that power plants use to reduce emissions of particulate matter. Specifically, regulated coal-fired power plants typically use either electrostatic precipitators or fabric filters for particulate matter control. The use of fabric filters—which are more effective at mercury emission reductions than electrostatic precipitators—at coal-fired power plants to reduce emissions of particulate matter and other pollutants is increasing, but currently less than 20 percent have them. Plant officials told us that they chose to install fabric filters along with 10 of the sorbent injection systems currently deployed to assist with mercury control—but that some of the fabric filters were installed primarily to comply with other air pollution control requirements. One plant manager, for example, told us that the fabric filter installed at the plant helps the sorbent injection system achieve higher levels of mercury emission reductions but that the driving force behind the fabric filter installation was to comply with particulate matter emission limits. Further, as another plant manager noted, fabric filters may provide additional benefits by limiting emissions of acid gases and trace metals, as well as by preserving fly ash—fine powder resulting from coal combustion—for sale for reuse. The successful deployments of sorbent injection technologies at power plants occurred around the time DOE concluded, on the basis of its tests, that these technologies were ready for commercial deployment. Funding for the DOE testing program has been eliminated. Regarding deployments to meet state requirements that will become effective in the near future, the Institute of Clean Air Companies reported that power plants had 121 sorbent injection systems on order as of February 2009. Importantly, mercury control technologies will not have to be installed on a number of coal-fired boilers to meet mercury emission reduction requirements because they already achieve high mercury reductions from their existing pollution control devices. EPA data indicate that about one- fourth of the industry may be currently achieving mercury reductions of 90 percent or more as a co-benefit of other pollution control devices. We found that of the 36 boilers currently subject to mercury regulation, 11 are relying on existing pollution controls to meet their mercury reduction requirements. One plant manager told us their plant achieves 95 percent mercury reduction with a fabric filter for particulate matter control, a scrubber for sulfur dioxide control, and a selective catalytic reduction system for nitrogen oxides control. Other plants may also be able to achieve high mercury reduction with their existing pollution control devices. For example, according to EPA data, a bituminous-fired boiler with a fabric filter may reduce mercury emissions by more than 90 percent. While sorbent injection technology has been shown to be effective with all coal types and on boiler configurations at more than three-fourths of U.S. coal-fired power plants, DOE tests show that some plants may not be able to achieve mercury reductions of 90 percent or more with sorbent injection systems alone. For example: Sulfur trioxide—which can form under certain operating conditions or from using high sulfur bituminous coal—may limit mercury reductions because it prevents mercury from binding to carbon sorbents. Hot-side electrostatic precipitators reduce the effectiveness of sorbent injection systems. Installed on 6 percent of boilers nationwide, these particulate matter control devices operate at very high temperatures, which reduces the ability of mercury to bind to sorbents and be collected in the devices. Lignite, used by roughly 3 percent of boilers nationwide, has relatively high levels of elemental mercury—the most difficult form to capture. Lignite is found primarily in North Dakota and the Gulf Coast, the latter called Texas lignite. Mercury reduction using chemically treated sorbents and sorbent enhancement additives on North Dakota lignite has averaged about 75 percent—less than reductions using bituminous and subbituminous coals. Less is known about Texas lignite because few tests have been performed using it. However, a recent test at a plant burning Texas lignite achieved an 83 percent mercury reduction. Boilers that may not be able to achieve 90 percent emissions reductions with sorbent injection alone, and some promising solutions to the challenges they pose, are discussed in appendix I. Further, EPRI is continuing research on mercury controls at power plants that should help to address these challenges. In some cases, however, plants may need to pursue a strategy other than sorbent injection to achieve high mercury reductions. For example, officials at one plant decided to install a sulfur dioxide scrubber— designed to reduce both mercury and sulfur dioxide—after sorbent injection was found to be ineffective. This approach may become more typical as power plants comply with the Clean Air Interstate Rule and court-ordered revisions to it, which EPA is currently developing, and as some plants add air pollution control technologies required under consent decrees. EPA air strategies group officials told us that many power plants will be installing devices—fabric filters, scrubbers, and selective catalytic reduction systems—that are typically associated with high levels of mercury reduction, which will likely reduce the number of plants requiring alternative strategies for mercury control. Finally, mercury controls have been tested on about 90 percent of the boiler configurations at coal-fired power plants. The remaining 10 percent include several with devices, such as selective catalytic reduction devices for nitrogen oxides control and wet scrubbers for sulfur dioxide control, which are often associated with high levels of mercury emission reductions. The cost to meet current regulatory requirements for mercury reductions has varied depending in large part on decisions regarding compliance with other pollution reduction requirements. For example, while sorbent injection systems alone have been installed on most boilers that must meet mercury reduction requirements—at a fraction of the cost of other pollution control devices—fabric filters have also been installed on some boilers to assist in mercury capture or to comply with particulate matter requirements, according to plant officials we interviewed. The costs of purchasing and installing sorbent injection systems and monitoring equipment have averaged about $3.6 million for the 14 coal- fired boilers that use sorbent injection systems alone to reduce mercury emissions (see table 1). For these boilers, the cost ranged from $1.2 to $6.2 million. By comparison, on the basis of EPA estimates, the average cost to purchase and install a wet scrubber for sulfur dioxide control, absent monitoring system costs, is $86.4 million per boiler—the estimates range from $32.6 to $137.1 million. EPA’s estimate of the average cost to purchase and install a selective catalytic reduction device to control nitrogen oxides is $66.1 million, ranging from $12.7 to $127.1 million. Capital costs can increase significantly if fabric filters are also purchased to assist in mercury emission reductions or as part of broader emission reduction requirements. For example, plants installed fabric filters at another 10 boilers for these purposes. On the five boilers where plant officials reported also installing a fabric filter specifically designed to assist the sorbent injection system in mercury emission reductions, the average reported capital cost for both the sorbent injection system and fabric filter was $15.8 million per boiler—the costs ranged from $12.7 million to $24.5 million. Importantly, these boilers have uncommon configurations—ones that, as discussed earlier, DOE tests showed would need additional control devices to achieve high mercury reductions. Table 1 shows the per-boiler capital costs of sorbent injections systems depending on whether fabric filters are also installed primarily to reduce mercury emissions. For the five boilers where plant officials reported installing fabric filters along with sorbent injection systems largely to comply with requirements to control other forms of air pollution, the average reported capital cost for both the sorbent injection system and fabric filter was $105.9 million per boiler, ranging from $38.2 million to $156.2 million per boiler. We did not determine what portion of these costs would appropriately be allocated to the cost of reducing mercury emissions. Decisions to purchase such fabric filters will likely be driven by the broader regulatory landscape affecting plants in the near future, such as requirements for particulate matter, sulfur dioxide, and nitrogen oxides reductions, as well as EPA’s upcoming MACT regulation for coal-fired power plants that, according to EPA officials, will regulate mercury as well as other air toxics emitted from these plants. Regarding operating costs, plant managers said that annual operating costs associated with sorbent injection systems consist almost entirely of the cost of the sorbent itself. In operating sorbent injection systems, sorbent is injected continuously into the boiler exhaust gas to bind to mercury passing through the gas. The rate of injection is related to, among other things, the level of mercury emission reduction required to meet regulatory requirements and to the amount of mercury in the coal used. For the 18 boilers with sorbent injection systems for which power plants provided sorbent cost data, the average annualized cost of sorbent was $674,000. Plant engineers often adjust the injection rate of the sorbent to capture more or less mercury—the more sorbent in the exhaust gas, for example, the higher the likelihood that more mercury will bind to it. Some plant managers told us that they have recently been able to decrease their sorbent injection rates, thereby reducing costs, while still complying with relevant requirements. Specifically, a recently constructed plant burning subbituminous coal successfully used sorbent enhancement additives to considerably reduce its rate of sorbent injection—resulting in significant savings in operating costs when compared with its original expectations. Plant managers at other plants reported that they have injected sorbent at relatively higher rates because of regulatory requirements that mandate a specific injection rate. One state’s consent decree, for example, requires plants to operate their sorbent injection systems at an injection rate of 5 pounds per million actual cubic feet. Among the 19 boilers for which plant managers provided operating data, the average injection rate was 4 pounds per million actual cubic feet; rates ranged from 0.5 to 11.0 pounds per million actual cubic feet. For those plants that installed a sorbent injection system alone—at an average cost of $3.6 million—to meet mercury emissions requirements, the cost to purchase, install, and operate sorbent injection and monitoring systems represents 0.12 cents per kilowatt hour, or a potential 97 cent increase in the average residential consumer’s monthly electricity bill. How, when, and to what extent consumers’ electric bills will reflect the capital and operating costs power companies incur for mercury controls depends in large measure on market conditions and the regulatory framework in which the plants operate. Power companies in the United States are generally divided into two broad categories: (1) those that operate in traditionally regulated jurisdictions where cost-based rate setting still applies (rate-regulated) and (2) those that operate in jurisdictions where companies compete to sell electricity at prices that are largely determined by supply and demand (deregulated). Rate-regulated power companies are generally allowed by regulators to set rates that will recover allowable costs, including a return on invested capital. Minnesota, for example, passed a law in 2006 allowing power companies to seek regulatory approval for recovering the cost of anticipated state- required reductions in mercury emissions in advance of the regulatory schedule for rate increase requests. One utility in the state submitted a plan for the installation of sorbent injection systems to reduce mercury emissions at two of its plants at a cost of $4.4 and $4.5, respectively, estimating a rate increase of 6 to 10 cents per month for customers of both plants. For power companies operating in competitive markets where wholesale electricity prices are not regulated, prices are largely determined by supply and demand. Generally speaking, market pricing does not guarantee full cost recovery to suppliers, especially in the short run. Of the 25 boilers using sorbent injection systems to comply with a requirement to control mercury emissions, 21 are in jurisdictions where full cost recovery is not guaranteed through regulated rates. In addition to the costs discussed above, some plant managers told us they have incurred costs associated with balance-of-plant impacts. The issue of particular concern relates to fly ash—fine particulate ash resulting from coal combustion that some power plants sell for commercial uses, including concrete production, or donate for beneficial purposes, such as backfill. According to DOE, about 30 percent of the fly ash generated by coal-fired power plants was sold in 2005; 216 plants sold some portion of their fly ash. Most sorbents increase the carbon content of fly ash, which may render it unsuitable for some commercial uses. Specifically, some plant managers told us that they have incurred additional costs because of lost fly ash sales and additional costs to store fly ash that was previously either sold or donated for beneficial re-use. For the eight boilers with installed sorbent injection systems to meet mercury emissions requirements for which plants reported actual or estimated fly-ash related costs, the average net cost reported by plants was $1.1 million per year. Advances in sorbent technologies that have reduced costs at some plants also offer the potential to preserve the market value of fly ash. For example, at least one manufacturer offers a concrete-friendly sorbent to help preserve fly ash sales—thus reducing potential fly ash storage and disposal costs. Additionally, a recently constructed plant burning subbituminous coal reported that it had successfully used sorbent enhancement additives to reduce its rate of sorbent injection from 2 pounds to less than one-half pound per million actual cubic feet—resulting in significant savings in operating costs and enabling it to preserve the quality of its fly ash for reuse. Other potential advances include refining sorbents through milling and changing the sorbent injection sites. Specifically, in testing, milling of sorbents has, for some configurations, improved their efficiency in reducing mercury emissions—that is, reduced the amount of sorbent needed—and also helped minimize negative impact on fly ash re-use. Also, in testing, some vendors have found that injecting sorbents on the hot side of air preheaters can decrease the amount of sorbent needed to achieve desired levels of mercury control. Some plant managers reported other balance-of-plant impacts associated with sorbent injection systems, such as ductwork corrosion and small fires in the particulate matter control devices. Plant engineers told us these issues were generally minor and have been resolved. For example, two plants experienced corrosion in the ductwork following the installation of their sorbent injection systems. One plant manager resolved the problem by purchasing replacement parts at a cost of $4,500. The other plant manager told us the corrosion problem remains unresolved but that it is primarily a minor engineering challenge not impacting plant operations. Four plant managers reported fires in the particulate matter control devices; plant engineers have generally solved this problem by emptying the ash from the collection devices more frequently. Overall, despite minor balance-of-plant impacts, most plant managers said that the sorbent injection systems at their plants are more effective than they originally expected. EPA’s decisions on key regulatory issues will impact the overall stringency of its mercury emissions limit. Specifically, the data EPA decides to use will affect (1) the mercury emission reductions calculated for “best performers,” from which a proposed emission limit is derived, (2) whether EPA will establish varying standards for the three coal types, and (3) how EPA’s standard will take into account varying operating conditions. Each of these issues could affect the stringency of the MACT standard the agency proposes. In addition, the format of the standard—whether it limits the mercury content of coal being burned (an input standard) or of emissions from the stack (an output standard)—may affect the stringency of the MACT standard the agency proposes. Finally, the vacatur of the Clean Air Mercury Rule has delayed for a number of years the continuous emissions monitoring that would have started in 2009 at most coal-fired power plants. Consequently, data on mercury emissions from coal-fired power plants and the resolution of some technical issues with monitoring systems have both been delayed. Obtaining data on mercury emissions and identifying the “best performers”—defined as the 12 percent of coal-fired power plant boilers with the lowest mercury emissions—is a critical initial step in the development of a MACT standard for mercury. EPA may set one standard for all power plants, or it may establish subcategories to distinguish among classes, types, and sizes of plants. For example, in its 2004 proposed mercury MACT, EPA established subcategories for the types of coal most commonly used by power plants. Once the average mercury emissions of the best performers are established for power plants—or for subcategories of power plants—EPA accounts for variability in the emissions of the best performers in its MACT standard(s). EPA’s method for accounting for variability has generally resulted in MACT standards that are less stringent than the average emission reductions achieved by the best performers. To identify the best performers, EPA typically collects emissions data from a sample of plants representative of the U.S. coal-fired power industry through a process known as an information collection request. Information collection requests are required when an agency collects data from 10 or more nongovernmental parties. According to EPA officials, this data collection process, which requires Office of Management and Budget (OMB) review and approval, typically takes from 8 months to 1 year. EPA’s schedule for issuing a proposed rule and a final rule has not yet been established as the agency is currently in negotiations with litigants about these time frames. In developing the rule, EPA told us it could decide to use data from its 1999 information collection request, data from commercial deployments and DOE tests to augment its 1999 data, or implement a new information collection request for mercury emissions. On July 2, 2009, EPA published a draft information collection request in the Federal Register, providing a 60-day public comment period on the draft questionnaire to industry prior to submitting this information collection request to OMB for review and approval. Our analysis of EPA’s 1999 data, as well as more current data from deployments and DOE tests, shows that newer data may have several implications for the stringency of the standard. First, the average emissions of the best performers, from which the standard is derived, may be higher. Our analysis of EPA’s 1999 data shows an average mercury emission reduction of nearly 91 percent for the best performers. In contrast, using more current commercial deployment and DOE test data, as well as data on co-benefit mercury reductions collected in 1999, an average mercury emission reduction of nearly 96 percent for best performers is demonstrated. The 1999 data do not reflect the significant and widespread mercury reductions achieved by sorbent injection systems. Further, EPA’s 2004 proposed MACT standards for mercury were substantially lower than the 1999 average emission reduction of the best performers because of variability in mercury emissions among the top performers, as discussed in more detail below. Second, more current information that reflects mercury control deployments and DOE tests may make the rationale EPA used to create MACT standards for different subcategories less compelling to the agency now. In its 2004 proposed MACT, using 1999 data, EPA proposed separate standards for three subcategories of coal used at power plants, largely because the co-benefit capture of mercury from subbituminous- and lignite-fired boilers was substantially less than from bituminous-fired boilers and resulted in higher average mercury emissions for best performers using these coal types. Specifically, the 1999 data EPA used for its 2004 MACT proposal showed that best performers achieved average emission reductions of 97 percent for bituminous, 71 percent for subbituminous, and 45 percent for lignite. In contrast, more current data show that using sorbent injection systems with all coal types has achieved at least 90 percent mercury emission reductions in most cases. Finally, using more current emissions data in setting the mercury standard, may mean that accounting for variability in emissions will not have as significant an effect as it did in the 2004 proposed MACT—thereby lowering the MACT standard—because the current data already reflect variability. In its 2004 proposed MACT, EPA explained that its 1999 data, obtained from the average of short-term tests (three samples taken over a 1- to 2-day period), did not necessarily reveal the range of emissions that would be found over extended periods of time or under a full range of operating conditions they could reasonably anticipate. EPA thus extrapolated longer-term variability data from the short-term data, and on the basis of these calculations, proposed MACT standards equivalent to a 76 percent reduction in mercury emissions for bituminous coal, a 25 percent reduction for lignite, and a 5 percent reduction for subbituminous coal—20 to 66 percentage points lower than the average of what the best performers achieved for each coal type. However, current data may eliminate the need for such extrapolation. Data from commercial applications of sorbent injection systems, DOE field tests, and co-benefit mercury reductions show that mercury reductions well in excess of 90 percent have been achieved over periods ranging from more than 30 days in field tests to more than a year in commercial applications. Mercury emissions measured over these periods may more accurately reflect the variability in mercury emissions that plants would encounter over the range of operating conditions. Along these lines, at least 15 states with mercury emission limits require long-term averaging— ranging from 1 month to 1 year—to account for variability. According to the manager of a power plant operating a sorbent injection system, long- term averaging of mercury emissions takes into account the “dramatic swings” in mercury emissions from coal that may occur. He told us that while mercury emissions can vary on a day-to-day basis, this plant has achieved 94 percent mercury reduction, on average, over the last year. Similarly, another manager of a power plant operating a sorbent injection system told us the amount of mercury in the coal they use “varies widely, even from the same mine.” Nonetheless, the plant manager reported that this plant achieves its required 85 percent mercury reduction because the state allows averaging mercury emissions on a monthly basis to take into account the natural variability of mercury in the coal. In 2004, EPA’s proposed mercury MACT included two types of standards to limit mercury emissions: (1) an output-based standard for new coal- fired power plants and (2) a choice between an input- or output-based standard for existing plants. Input-based standards establish emission limits on the basis of pounds of mercury per trillion British thermal units (BTUs) of heat input; output-based standards, on the other hand, establish emission limits on the basis of pounds of mercury per megawatt hour of electricity produced. These standards are referred to as absolute limits. For the purposes of setting a standard, absolute emissions limits can be correlated to percent reductions. For example, EPA’s 2004 proposed standards for bituminous, lignite, and subbituminous coal (2, 9.2, and 5.8 pounds per trillion BTUs, respectively) are equivalent with mercury emissions reductions of 76, 25, and 5 percent, respectively, based on nationwide averages of the mercury content in coal. During EPA’s 2004 MACT development process, state and local agency stakeholders, as well as environmental stakeholders, generally supported output-based emission limits; industry stakeholders generally supported having a choice between an emission limit and a percent reduction. EPA must now decide in what format it will set its mercury MACT standard(s). Input-based limits can have some advantages for coal-fired power plants. For example, input-based limits can provide more flexibility to older, less efficient plants because they allow boilers to burn as much coal as needed to produce a given amount of electricity, as long as the amount of mercury per trillion BTUs does not exceed the level specified by the standard. However, input-based limits may allow some power plants to emit more mercury per megawatt hour than output-based limits. Under an output- based standard, mercury emissions cannot exceed a specific level per megawatt-hour of electricity produced—efficient boilers, which use less coal, will be able to produce more electricity than inefficient boilers under an output-based standard. Moreover, under an output-based limit, less efficient boilers may have to, for example, increase boiler efficiency or switch to a lower mercury coal. Thus, output-based limits provide a regulatory incentive to enhance both operating efficiency and mercury emission reductions. We found that at least 16 states have established a format for regulating mercury emissions from coal-fired power plants. Eight states allow plants to meet either an emission limit or a percent reduction, three require an emission limit, four require percent reductions, and one state requires plants to achieve whatever mercury emissions reductions—percent reduction or emission limit—are greater. On the basis of our review of these varying regulatory formats, we conclude that to be meaningful, a standard specifying a percent reduction should be correlated to an absolute limit. When used alone, percent reduction standards can limit mercury emissions reductions. For example, in one state, mercury reductions are measured against “historical” coal-mercury content data, rather than current coal-mercury content data. If plants are required to reduce mercury by, for example, 90 percent compared to historical coal data, but coal used in the past had higher levels of mercury than the plants have been using more recently, then actual mercury emission reductions would be less than 90 percent. In addition, percent reduction requirements do not provide an incentive for plants burning high mercury coal to switch coals or pursue more effective mercury control strategies because it is easier to achieve a percent reduction requirement with high mercury coal than with lower mercury coals. Similarly, a combination standard that gives regulated entities the option to choose either a specified emission limit or a percent reduction might limit actual mercury emission reductions. For example, a plant burning coal with a mercury content of 15 pounds per trillion BTUs that may choose between meeting an absolute limit of 0.7 pounds of mercury per trillion BTUs or a 90 percent reduction could achieve the percent reduction while emitting twice the mercury that would be allowed under the specified absolute limit. As discussed above, for the purposes of setting a standard, a required absolute limit, which provides a consistent benchmark for plants to meet, can be correlated to a percent reduction. For example, according to EPA’s Utility Air Toxic MACT working group, a 90 percent mercury reduction based on national averages of mercury in coal equates to an emission limit of approximately 0.7 pounds per trillion BTUs. For bituminous coal, a 90 percent reduction equates to a limit of 0.8 pounds per trillion BTUs; for subbituminous coal, a 90 percent reduction equates to a limit of 0.6 pounds per trillion BTUs; and for lignite, a 90 percent reduction equates to a limit of 1.2 pounds per trillion BTUs. EPA’s now-vacated Clean Air Mercury Rule required most coal-fired power plants to conduct continuous emissions monitoring for mercury—and a small percentage of plants with low mercury emissions to conduct periodic testing—beginning in 2009. State and federal government and nongovernmental organization stakeholders told us they support reinstating the monitoring requirements of the Clean Air Mercury Rule. In fact, in a June 2, 2008, letter to EPA, the National Association of Clean Air Agencies requested that EPA reinstate the mercury monitoring provisions that were vacated in February 2008 because, among other things, the monitoring requirements are important to state agencies with mercury reduction requirements. This association for state clean air agencies also said the need for federal continuous emissions monitoring requirements is especially important in states that cannot adopt air quality regulations more stringent than those of the federal government. However, EPA officials told us the agency has not determined how to reinstate continuous emissions monitoring requirements for mercury at coal-fired power plants outside of the MACT rulemaking process. As a result, continuous monitoring of mercury emissions from coal-fired power plants may continue to be delayed for years. Under the Clean Air Mercury Rule, the selected monitoring methodology for each power plant was to be approved by EPA through a certification process. For its part, EPA was to develop a continuous emissions monitoring systems (CEMS) certification process and approve protocols for quality control and assurance. However, when the Clean Air Mercury Rule was vacated, EPA put its CEMS certification process on hold. Effective emissions monitoring assists facilities and regulators in ensuring compliance with regulations and can also help facilities identify ways to better understand the efficiency of their processes and the efficiency of their operations. Monitoring mercury emissions is more complex than monitoring other pollutants, such as nitrogen oxides and sulfur dioxide, which are measured in parts per million. Mercury, for example, is emitted at lower levels of concentration than other pollutants and is measured in parts per billion—it is like “trying to find a needle in a haystack,” according to one plant engineer. Consequently, mercury CEMS require more time to install and setup than CEMS for other pollutants, and, according to plant engineers using them, they involve a steeper learning curve in getting these relatively complex monitoring systems up and running properly. EPA plans to release interim quality control protocols for mercury CEMS in July 2009. In our work, we found that these systems are installed on 16 boilers at power plants for monitoring operations or for compliance reporting. Our preliminary data shows that for regulated coal-fired boilers, plant managers reported that their mercury CEMS were online from 62 percent to 99 percent of the time. When these systems were offline, it was mainly because of failed system integrity checks or routine parts failure. Some plant engineers told us that CEMS are accurate at measuring mercury, but others said that these systems are “several years away” from commercial readiness. However, according to an EPA Clean Air Markets Division official, while some technical monitoring issues remain, mercury CEMS are sufficiently reliable to determine whether plants are complying with their relevant state mercury emissions regulations. Data from commercially deployed sorbent injection systems show that substantial mercury reductions have been achieved at a relatively low cost. Importantly, these results, along with test results from DOE’s comprehensive research and development program, suggest that substantial mercury emission reductions can likely be achieved at most coal-fired power plants in the United States. Other strategies, including blending coal and using other technologies, exist for the small number of plants with configuration types that were not able to achieve significant mercury emissions reductions with sorbent injection alone. Whether power plants will install sorbent injection systems or pursue multipollutant control strategies will likely be driven by the broader regulatory context in which they operate, such as requirements for sulfur dioxide and nitrogen oxides reductions in addition to mercury, and the associated costs to comply with all pollution reduction requirements. Nonetheless, for many plants, sorbent injection systems appear to be a cost-effective technology for reducing mercury emissions. For other plants, sorbent injection may represent a relatively inexpensive bridging technology—that is, one that is available for immediate use to reduce only mercury emissions but that may be phased out—over time—with the addition of multipollutant controls, which are more costly. Moreover, some plants emit small amounts of mercury without mercury-specific controls because their existing controls for other air pollutants also effectively reduce mercury emissions. In fact, while many power companies currently subject to mercury regulation have installed sorbent injection systems to achieve required reductions, about one-third of them are relying on existing pollution control devices to meet the requirements. As EPA proceeds with its rulemaking process to regulate hazardous air pollutants from coal-fired power plants, including mercury, it will likely find that current data on commercially deployed sorbent injection systems and plants that achieve high mercury reductions from their existing pollution control devices justify a more stringent mercury emission standard than was last proposed in 2004. More significant mercury emission reductions are actually being achieved by the current best performers than was the case in 1999 when such information was last collected—and similar results can likely be achieved by most plants across the country at relatively low cost. Mr. Chairman, this concludes my prepared statement. We expect to complete our ongoing work by October 2009. I would be happy to respond to any questions that you or other Members of the Subcommittee may have at this time. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. For further information about this testimony, please contact me at (202) 512-3841 or stephensonj@gao.gov. Key contributors to this statement were Christine Fishkin (Assistant Director), Nathan Anderson, Mark Braza, Antoinette Capaccio, Nancy Crothers, Philip Farah, Mick Ray, and Katy Trenholme. DOE tests show that some plants may not be able to achieve mercury reductions of 90 percent or more with sorbent injections alone. Specifically, the tests identified three factors that can impact the effectiveness of sorbent injection systems: sulfur trioxide interference, using hot-side precipitators, and using lignite. These factors are discussed below, along with some promising solutions to the challenges they pose. Sulfur trioxide interference. High levels of sulfur trioxide gas may limit mercury emission reductions by preventing some mercury from binding to carbon sorbents. Using an alkali injection system in conjunction with sorbent injection can effectively lessen sulfur trioxide interference. Depending on the cause of the sulfur trioxide interference—which can stem from using a flue gas conditioning system, a selective catalytic reduction system, or high sulfur bituminous coal—additional strategies may be available to ensure high mercury reductions: Flue gas conditioning systems, used on 13 percent of boilers nationwide, improve the performance of electrostatic precipitators by injecting a conditioning agent, typically sulfur trioxide, into the flue gas to make the gas more conducive to capture in electrostatic precipitators. Mercury control vendors are working to develop alternative conditioning agents that could be used instead of sulfur trioxide in the conditioning system to improve the performance of electrostatic precipitators without jeopardizing mercury emission reductions using sorbent injection. Selective catalytic reduction systems, a common control device for nitrogen oxides, are used by about 20 percent of boilers nationwide. Although selective catalytic reduction systems often improve mercury capture, in some instances these devices may lead to sulfur trioxide interference when sulfur in the coal is converted to sulfur trioxide gas. Newer selective catalytic reduction systems often have improved catalytic controls, which can minimize the conversion of sulfur to sulfur trioxide gas. High sulfur bituminous coal—defined as having a sulfur content of at least 1.7 percent sulfur by weight—may also lead to sulfur trioxide interference in some cases. As many as 20 percent of boilers nationwide may use high sulfur coal, according to 2005 DOE data; however, the number of coal boilers using high sulfur bituminous coal is likely to decline in the future as more stringent sulfur dioxide regulations take effect. Plants can consider using alkali-based sorbents, such as Trona, which adsorb sulfur trioxide gas before it can interfere with the performance of sorbent injection systems. Plants that burn high sulfur coal can also consider blending their fuel to include some portion of low sulfur coal. In addition, according to EPA, power companies are likely to have or to install scrubbers for controlling sulfur dioxide at plants burning high sulfur coal and are more likely to use the scrubbers, rather than sorbent injection systems, to also reduce mercury emissions. Hot-side electrostatic precipitators. Installed on 6 percent of boilers nationwide, these particulate matter control devices operate at very high temperatures, which reduce the incidence of mercury binding to sorbents for collection in particulate matter control devices. However, at least two promising techniques have been identified in tests and commercial deployments at configuration types with hot-side electrostatic precipitators. First, 70 percent mercury emission reductions were achieved with specialized heat-resistant sorbents during DOE testing. Moreover, one of the 25 boilers currently using a sorbent injection system has a hot-side electrostatic precipitator and uses a heat-resistant sorbent. Although plant officials are not currently measuring mercury emissions for this boiler, the plant will soon be required to achieve mercury emission reductions equivalent to 90 percent. Second, in another DOE test, three 90 megawatt boilers—each with a hot-side electrostatic precipitator— achieved more than 90 percent mercury emission reductions by installing a shared fabric filter in addition to a sorbent injection system, a system called TOXECONTM. According to plant officials, these three units currently use this system to comply with a consent decree and achieved 94 percent mercury emission reductions during the third quarter of 2008, the most recent compliance reporting period when the boiler was operating under normal conditions. Lignite. North Dakota and Texas lignite, the fuel source for roughly 3 percent of boilers nationwide, have relatively high levels of elemental mercury—the most difficult form to capture. Overall, tests on boilers using lignite reduced mercury emissions by roughly 80 percent, on average. For example, four long-term DOE tests were conducted at coal units burning North Dakota lignite using chemically-treated sorbents. Mercury emission reductions averaged 75 percent across the tests. The best result was achieved at a 450 megawatt boiler burning North Dakota lignite and having a fabric filter and a dry scrubber—mercury reductions of 92 percent were achieved when chemically-treated sorbents were used. In addition, two long-term tests were conducted at plants burning Texas lignite with a 30 percent blend of subbituminous coal. With coal blending, these boilers achieved average mercury emission reductions of 82 percent. Specifically, one boiler, with an electrostatic precipitator and a wet scrubber, achieved mercury reductions in excess of 90 percent when burning the blended fuel. The second boiler achieved 74 percent reduction in long-term testing. However, 90 percent was achieved in short term tests using a higher sorbent injection rate. Although DOE conducted no tests on plants burning purely Texas lignite, one power company is currently conducting sorbent injection tests at a plant burning 100 percent Texas lignite and is achieving promising results. In the most recent round of testing, this boiler achieved mercury removal of 83 percent using untreated carbon and a boiler additive in conjunction with the existing electrostatic precipitator and wet scrubber. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The 491 U.S. coal-fired power plants are the largest unregulated industrial source of mercury emissions nationwide, annually emitting about 48 tons of mercury--a toxic element that poses health threats, including neurological disorders in children. In 2000, the Environmental Protection Agency (EPA) determined that mercury emissions from these sources should be regulated, but the agency has not set a maximum achievable control technology (MACT) standard, as the Clean Air Act requires. Some power plants, however, must reduce mercury emissions to comply with state laws or consent decrees. After managing a long-term mercury control research and development program, the Department of Energy (DOE) reported in 2008 that systems that inject sorbents--powdery substances to which mercury binds--into the exhaust from boilers of coal-fired power plants were ready for commercial deployment. Tests of sorbent injection systems, the most mature mercury control technology, were conducted on a variety of coal types and boiler configurations--that is, on boilers using different air pollution control devices. This testimony provides preliminary data from GAO's ongoing work on (1) reductions achieved by mercury control technologies and the extent of their use at coal-fired power plants, (2) the cost of mercury control technologies in use at these plants, and (3) key issues EPA faces in regulating mercury emissions from power plants. GAO obtained data from power plants operating sorbent injection systems. Commercial deployments and 50 DOE and industry tests of sorbent injection systems have achieved, on average, 90 percent reductions in mercury emissions. These systems are being used on 25 boilers at 14 coal-fired plants, enabling them to meet state or other mercury emission requirements--generally 80 to 90 percent reductions. The effectiveness of sorbent injection is largely affected by coal type and boiler configuration. Importantly, the substantial mercury reductions using these systems commercially and in tests were achieved with all three main types of coal and on boiler configurations that exist at nearly three-fourths of U.S. coal-fired power plants. While sorbent injection has been shown to be widely effective, DOE tests suggest that other strategies, such as blending coals or using other technologies, may be needed to achieve substantial reductions at some plants. Finally, sorbent injection has not been tested on a small number of boiler configurations, some of which achieve high mercury removal with other pollution control devices. The cost of the mercury control technologies in use at power plants has varied, depending in large part on decisions regarding compliance with other pollution reduction requirements. The costs of purchasing and installing sorbent injection systems and monitoring equipment have averaged about $3.6 million for the 14 coal-fired boilers operating sorbent systems alone to meet state requirements. This cost is a fraction of the cost of other pollution control devices. When plants also installed a fabric filter device primarily to assist the sorbent injection system in mercury reduction, the average cost of $16 million is still relatively low compared with that of other air pollution control devices. Annual operating costs of sorbent injection systems, which often consist almost entirely of the cost of the sorbent itself, have been, on average, about $640,000. In addition, some plants have incurred other costs, primarily due to lost sales of a coal combustion byproduct--fly ash--that plants have sold for commercial use. The carbon in sorbents can render fly ash unusable for certain purposes. Advances in sorbent technologies that have reduced sorbent costs at some plants offer the potential to preserve the market value of fly ash. EPA's decisions on key regulatory issues will have implications for the effectiveness of its mercury emissions standard. For example, the data EPA decides to use will impact (1) the emissions reductions it starts with in developing its regulation, (2) whether it will establish varying standards for the three main coal types, and (3) how the standard will take into account a full range of operating conditions at the plants. These issues can affect the stringency of the MACT standard EPA proposes. Data from EPA's 1999 power plant survey do not reflect commercial deployments or DOE tests of sorbent injection systems and could support a standard well below what has recently been broadly achieved. Moreover, the time frame for proposing the standard may be compressed because of a pending lawsuit. On July 2, 2009, EPA announced that it planned to conduct an information collection request to update existing emission data, among other things, from power plants. |
Our body of work on interagency collaboration has identified several key areas that are essential for collaboration among U.S. federal agencies in addressing security challenges. Three are particularly important for SOUTHCOM and AFRICOM: (1) developing and implementing overarching strategies, (2) creating collaborative organizations, and (3) building a well- trained workforce. Underlying the success of these key areas is committed and effective leadership. Developing and implementing overarching strategies: Our prior work, as well as that by national security experts, has found that strategic direction is required as a foundation for collaboration on national security goals. The means to operate across multiple agencies and organizations—such as compatible policies and procedures that facilitate collaboration across agencies and mechanisms to share information frequently—enhances and sustains collaboration among federal agencies. Strategies can help agencies develop mutually reinforcing plans and determine activities, resources, processes, and performance measures for implementing those strategies. Moreover, a strategy defining organizational roles and responsibilities can help agencies clarify who will lead or participate in activities, help organize their joint and individual efforts, facilitate decision making, and address how conflicts would be resolved. Creating collaborative organizations: Given the differences among U.S. government agencies—such as differences in structure, planning processes, and funding sources—developing adequate coordination mechanisms is critical to achieving integrated approaches. U.S. government agencies, such as DOD, State, and USAID, among others, spend billions of dollars annually on various defense, diplomatic, and development missions in support of national security. Without coordination mechanisms, the results can be a patchwork of activities that waste scarce funds and limit the overall effectiveness of federal efforts. Developing a well-trained workforce: Collaborative approaches to national security require a well-trained workforce with the skills and experience to integrate the government’s diverse capabilities and resources. A lack of understanding of other agencies’ cultures, processes, and core capabilities can hamper U.S. national security partners’ ability to work together effectively. However, training can help personnel develop the skills and understanding of other agencies’ capabilities needed to facilitate interagency collaboration. Effective leadership is essential to achieving success in each of these areas. The 2010 Quadrennial Defense Review states that by integrating U.S. defense capabilities with other elements of national security— including diplomacy, development, law enforcement, trade, and intelligence—the nation can ensure that the right mix of expertise is at hand to take advantage of emerging opportunities and to thwart potential threats. In addition, the 2010 National Security Strategy calls for a renewed emphasis on building a stronger leadership foundation for the long term to more effectively advance U.S. interests. Our work on SOUTHCOM and AFRICOM found that both commands have demonstrated some practices that will help enhance and sustain interagency collaboration, but areas for improvement remain. Moreover, our preliminary work on counterpiracy efforts in the Horn of Africa region suggests that U.S. agencies have made progress in leading and supporting international efforts to counter piracy, but implementation challenges exist. SOUTHCOM and AFRICOM have sought input from several federal agencies in developing overarching strategies and plans, but AFRICOM has not yet completed many specific plans to guide activities and ensure a U.S. government unity of effort in Africa. In addition, our preliminary work shows that a U.S. action plan has been developed which provides a framework for interagency collaboration, but the roles and responsibilities of the multiples agencies involved in countering piracy in the Horn of Africa region are not clearly assigned. In its Guidance for Employment of the Force, DOD required both SOUTHCOM and AFRICOM, as prototype test cases, to seek broader involvement from other departments in drafting their theater campaign and contingency plans. To meet this requirement, SOUTHCOM held a series of meetings with interagency officials that focused on involving and gathering input from interagency partners. In developing its 2009 theater campaign plan, which lays out command priorities and guides its resource allocations, SOUTHCOM coordinated with over 10 U.S. government departments and offices, including the Departments of State, Homeland Security, Justice, the Treasury, Commerce, and Transportation and the Office of the Director of National Intelligence (see fig. 1). According to both SOUTHCOM and interagency partners, this coordination helped SOUTHCOM understand the diverse missions of its interagency partners and better align activities and resources in the Americas and the Caribbean. As a result of this effort, SOUTHCOM’s 2009 theater campaign plan includes 30 theater objectives, of which 22 are led by interagency partners with SOUTHCOM serving in a supporting role. SOUTHCOM also provides input into State’s regional strategic plans. Both SOUTHCOM and interagency partners told us that this coordination has helped ensure that SOUTHCOM and interagency partner strategic goals were mutually reinforcing and has helped align activities and resources in achieving broad U.S. objectives. Similarly, AFRICOM met with representatives from many agencies to gain interagency input into its theater campaign plan. We spoke with officials from State, USAID, and the U.S. Coast Guard who stated that they provided input into several additional strategy documents, including DOD’s Guidance for Employment of the Force and AFRICOM’s posture statement, and participated in activity planning meetings. Federal agency officials also noted progress in AFRICOM’s interagency coordination since its establishment. State officials said that AFRICOM had made improvements in taking their feedback and creating an environment that is conducive to cooperation across agencies. Similarly, USAID officials said that AFRICOM had improved its coordination with their agency at the USAID headquarters level. Notwithstanding this collaboration, AFRICOM officials told us that aligning strategies among partners can be difficult because of different planning horizons among agencies. For example, AFRICOM’s theater campaign plan covers fiscal years 2010 through 2014, whereas the State/USAID strategic plan spans fiscal years 2007 through 2012. While AFRICOM has collaborated with partners on overarching strategies, it has not yet completed some plans, which hinders planning and implementation efforts with partners. AFRICOM currently lacks regional engagement and country work plans for Africa, which are called for in its theater campaign plan and would provide specific information on conducting activities. One key requirement for the country work plans, for example, is to align them with embassy strategic plans to ensure unity of effort. Figure 2 shows AFRICOM’s plans in the context of national strategies, guidance, and other federal agencies’ planning efforts. AFRICOM’s Army component stated that perhaps the greatest challenge to creating positive conditions in Africa is ensuring that U.S. defense efforts remain synchronized; if plans are not coordinated, their efforts could have unintended consequences, such as the potential for Africans to perceive the U.S. military as trying to influence public opinion in a region sensitive to the military’s presence. At the time we completed our audit work, AFRICOM’s regional plans had not been approved by the command, and the country plans were still in the process of being developed. Therefore, we recommended that the Secretary of Defense direct AFRICOM to expedite the completion of its plans and to develop a process whereby plans are reviewed on a recurring basis to ensure that efforts across the command are complementary, comprehensive, and supportive of AFRICOM’s mission. DOD agreed with our recommendation, stating that some of the plans are in the final stages of review and approval by AFRICOM’s leadership. Our preliminary work on U.S. counterpiracy efforts off the Horn of Africa shows that the United States has an action plan that serves as an overarching strategy and provides a framework for interagency collaboration, but roles and responsibilities have not been clearly assigned. The action plan establishes three main lines of action for interagency stakeholders, in collaboration with industry and international partners, to take in countering piracy. These actions are (1) prevent pirate attacks by reducing the vulnerability of the maritime domain to piracy; (2) interrupt and terminate acts of piracy, consistent with international law and the rights and responsibilities of coastal and flag states; and (3) ensure that those who commit acts of piracy are held accountable for their actions by facilitating the prosecution of suspected pirates by flag, victim, and coastal states and, in appropriate cases, the United States. While piracy in the Horn of Africa region emanates primarily from Somalia, a country located within AFRICOM’s area of responsibility, most attacks are carried out in waters within U.S. Central Command’s jurisdiction. Outside DOD, many other stakeholders are involved in counterpiracy efforts. Specifically, the action plan states that, subject to the availability of resources, the Departments of State, Defense, Homeland Security, Justice, Transportation, and the Treasury and the Office of the Director of National Intelligence shall also contribute to, coordinate, and undertake initiatives. Our preliminary work indicates that the National Security Council, which authored the plan, has not assigned the majority of tasks outlined in the plan to specific agencies. As of July 2010, only one task, providing an interdiction-capable presence, had been assigned to the Navy and Coast Guard. Roles and responsibilities for other tasks—such as strategic communications, disrupting pirate revenue, and facilitating prosecution of suspected pirates—have not been clearly assigned. Without specific roles and responsibilities for essential tasks outlined in the action plan, the U.S. government cannot ensure that agencies’ approaches are comprehensive, complementary, and effectively coordinated. SOUTHCOM and AFRICOM have developed organizational structures to facilitate interagency collaboration, but challenges include fully leveraging interagency personnel and maintaining the ability to organize quickly for large-scale military operations when necessary. Both commands have established key leadership positions for interagency officials within their organizational structures. In addition to a deputy military commander who oversees military operations, each command has a civilian deputy to the commander from State who oversees civil-military activities. At SOUTHCOM, the civilian deputy to the commander—a senior foreign service officer with the rank of Minister Counselor at State— advises SOUTHCOM’s commander on foreign policy issues and serves as the primary liaison with State and with U.S. embassies located in SOUTHCOM’s area of responsibility. At AFRICOM, the civilian deputy to the commander directs AFRICOM’s activities related to areas such as health, humanitarian assistance, disaster response, and peace support operations. Both commands have also embedded interagency officials throughout their organizations. As of June 2010, AFRICOM reported that it had embedded 27 interagency partners into its headquarters staff from several federal agencies (see table 1), and according to officials at AFRICOM and State, it plans to integrate five foreign policy advisors from State later this year. Moreover, DOD has signed memorandums of understanding with nine federal agencies to outline conditions for sending interagency partners to AFRICOM. As of July 2010, SOUTHCOM reported that it had 20 embedded interagency officials (see table 1), with several placed directly into key senior leadership positions. SOUTHCOM has also created a partnering directorate, which among its responsibilities, has the role of embedding interagency personnel into the command. Decisions to embed interagency officials at SOUTHCOM are made on a case-by-case basis, with most agencies sending a representative to SOUTHCOM on a short- term basis to discuss needs, roles, and responsibilities and to assess whether a full-time embedded official would be mutually beneficial. Both AFRICOM and SOUTHCOM have indicated that they currently do not have a specific requirement for the number of embedded interagency personnel at their commands but would benefit from additional personnel. However, limited resources at other federal agencies have prevented interagency personnel from participating in the numbers desired. In February 2009, we reported that AFRICOM initially expected to fill 52 positions with personnel from other government agencies. However, State officials told us that they would not likely be able to provide employees to fill the positions requested by AFRICOM because they were already facing a 25 percent shortfall in midlevel personnel. Similarly, SOUTHCOM has identified the need for around 40 interagency personnel, but had only filled 20 of those positions as of July 2010. According to SOUTHCOM officials, it has taken about 3 years to fill its interagency positions because of lack of funding at the command or the inability of partners to provide personnel. Because many agencies have limited personnel and resources, SOUTHCOM and its interagency partners have, on occasion, developed other means to gain stakeholder input and perspectives. For example, in lieu of embedding a Department of the Treasury (Treasury) official at the command, SOUTHCOM and Treas ury decided that providing a local Treasury representative with access to thecommand and establishing a memorandum of understanding would serve to improve communication and coordination among the organizations. While embedding interagency personnel into a DOD command can be an effective means of coordination, interagency personnel serving at AFRICOM may not be fully leveraged for their expertise within the organization. AFRICOM officials told us that it is a challenge to determine where in the command to include interagency personnel. For example, an embedded interagency staff member stated that AFRICOM initially placed him in a directorate unrelated to his skill set, and he initiated a transfer to another directorate that would better enable him to share his expertise. Moreover, several embedded interagency officials said that there is little incentive to take a position at AFRICOM because it will not enhance one’s career position upon return to the original agency after the rotation. Difficulties with leveraging interagency personnel are not unique to AFRICOM. We have previously reported that personnel systems often do not recognize or reward interagency collaboration, which could diminish interest in serving in interagency efforts. AFRICOM officials said that it would be helpful to have additional interagency personnel at the command, but they understand that staffing limitations, resource imbalances, and lack of career progression incentives for embedded staff from other federal agencies may limit the number of personnel who can be brought in from these agencies. Despite challenges, AFRICOM has made some efforts that could improve interagency collaboration within the command, such as expanding its interagency orientation process. Last fall, the command conducted an assessment of the embedded interagency process to analyze successes and identify lessons learned, including recommendations on how to integrate interagency personnel into command planning and operations. In July 2010, AFRICOM stated that it had established an interagency collaborative forum to assess, prioritize, and implement the recommendations from the assessment. SOUTHCOM’s recent experience in responding to the Haiti earthquake serves as a reminder that while interagency collaboration is important in addressing security challenges, DOD’s commands must also be prepared to respond to a wide range of contingencies, including large-scale disaster relief operations. While our work found that SOUTHCOM has taken significant steps in building partnerships to enhance and sustain collaboration, the command faces challenges preparing for the divergent needs of its potential missions. SOUTHCOM must have an organizational structure that is prepared for military contingencies and that is also effective in supporting interagency partners in meeting challenges such as corruption, crime, and poverty. In 2008, SOUTHCOM developed an organizational structure to improve collaboration with interagency stakeholders, which included a civilian deputy to the vommander, interagency partners embedded into key leadership positions, and a directorate focused on sustaining partnerships. While SOUTHCOM’s organizational structure was designed to facilitate interagency collaboration, the 2010 Haiti earthquake response revealed weaknesses in this structure that initially hindered its efforts to conduct a large-scale military operation. For example, the command’s structure lacked a division to address planning for military operations occurring over 30 days to 1 year in duration. In addition, SOUTHCOM had suboptimized some core functions that were necessary to respond to large-scale contingencies. For example, SOUTHCOM’s logistics function was suboptimized because it was placed under another directorate in the organizational structure rather than being its own core function. As a result, the command had difficulty planning for the required logistics support—including supply, maintenance, deployment distribution, health support, and engineering—during the large-scale Haiti relief effort, which SOUTHCOM reported peaked at more than 20,000 deployed military personnel, about 2 weeks after the earthquake occurred (see fig. 4). According to command officials, SOUTHCOM was able to integrate additional interagency and international partners into its headquarters as Haiti relief operations grew in scale; however, the command had not identified the military personnel augmentation required for a large contingency nor had it developed a plan to integrate military personnel into its headquarters structure. Ultimately, SOUTHCOM received 500 military augmentees to provide additional capabilities to its existing command staff of about 800, including an entire staff office from U.S. Northern Command, filling vital gaps in SOUTHCOM’s ability to support operations in Haiti. However, augmented military personnel were not familiar with SOUTHCOM’s organizational structure and did not initially understand where they could best contribute because many of the traditional joint staff functions were divided among SOUTHCOM’s directorates. To address these challenges, SOUTHCOM’s commander returned the command to a traditional joint staff structure while retaining elements from its 2008 reorganization and plans to retain this structure for the foreseeable future. Our report made recommendations aimed at improving SOUTHCOM’s ability to conduct the full range of military missions that may be required in the region, while balancing its efforts to support interagency partners in enhancing regional security and cooperation. DOD acknowledged the challenges it had faced and agreed with our recommendations. In its response, the department noted that SOUTHCOM’s ability to respond to the Haiti crisis quickly was in part a by-product of close, collaborative relationships developed with a range of U.S. government interagency partners over many years. AFRICOM, as a relatively new command engaged in capacity-building efforts, has emphasized the need to work closely with U.S. embassies to ensure that activities are consistent with U.S. foreign policy and to contribute to a unity of effort among interagency partners (see fig. 5). In addition, the command has designated cultural awareness as a core competency for its staff. However, we found that some AFRICOM staff have limited knowledge about working with U.S. embassies and about cultural issues in Africa, and the training or guidance available to augment personnel expertise in these areas is limited. While AFRICOM has efforts under way to strengthen staff expertise in these areas, the limited knowledge among some staff puts AFRICOM at risk of being unable to fully leverage resources with U.S. embassy personnel, build relationships with African nations, and effectively carry out activities. AFRICOM emphasizes the importance of collaborating with its interagency partners, but some personnel’s limited knowledge of working with U.S. embassies can impose burdens on embassies’ staff who may be taken away from their assigned duties to help AFRICOM. For example, a U.S. embassy official in Uganda stated that AFRICOM personnel arrived in country with the expectations that the embassy would take care of basic cultural and logistical issues for them. Also, AFRICOM’s Horn of Africa task force personnel have, at times, approached the Djiboutian government ministries directly with concepts for activities rather than following the established procedure of having the U.S. embassy in Djibouti initiate the contact. Additionally, while cultural awareness is a core competency for AFRICOM, the limited knowledge of some personnel in the command and its military service components regarding Africa cultural issues has occasionally led to difficulties in building relationships with African nations—such as when AFRICOM’s task force distributed used clothing to local Djibouti villagers during Ramadan, which offended the Muslim population, or proposed drilling a well without considering how its placement could affect local clan relationships. While AFRICOM personnel and forces deploying for activities receive some training on working with interagency partners and on African cultural awareness—and efforts are under way to increase training for some personnel—our review of training presentations indicated that they were insufficient to adequately build the skills of its staff. AFRICOM officials told us that training includes Web courses and seminars, and that there are other training requirements for personnel deploying to Africa such as medical and cultural awareness training. Officials said, however, that while training is encouraged, it is not required, and that the comm does not currently monitor the completion of training courses. Furthermore, officials from several AFRICOM components voiced a preference for more cultural training and capabilities. In our prior work on AFRICOM’s Horn of Africa task force, we similarly was reported that the task force’s training on working with U.S. embassies not shared with all staff, and cultural awareness training was limited. We recommended, and DOD agreed, that the Secretary of Defense dir AFRICOM to develop comprehensive training guidance or a program t augments assigned personnel’s understanding of African cultural awareness and working with interagency partners. In addition, in our report on AFRICOM released today, we recommended that the Secretary of Defense direct AFRICOM, in consultation with State and USAID, to develop a comprehensive training program for staff and forces involved in AFRICOM activities that focuses on working with interagency partners and on cultural issues related to Africa. DOD agreed with the recommendation, describing some efforts that AFRICOM was taking and stating that the command will continue to develop and conduct trainin improve its ability to work with embassies and other agencies. While ou work on SOUTHCOM did not focus on workforce training, comm personnel have expressed the need for more opportunities to improve th eir understanding of working in an interagency environment. Mr. Chairman, this concludes my prepared remarks. I would be pleased to respond to any questions you or other Members of the Subcommittee may have at this time. For future information regarding this statement, please contact John H. Pendleton at (202) 512-3489 or pendletonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this statement are listed in appendix I. In addition to the contact named above, Directors Stephen Caldwell and Jess Ford; Assistant Directors Patricia Lentini, Marie Mak, and Suzanne Wren; and Alissa Czyz, Richard Geiger, Dawn Hoff, Brandon Hunt, Farhanaz Kermalli, Arthur Lord, Tobin McMurdie, Jennifer Neer, Jodie Sandel, Leslie Sarapu, and Erin Smith made key contributions to this statement. Defense Management: Improved Planning, Training, and Interagency Collaboration Could Strengthen DOD’s Efforts in Africa. GAO-10-794. Washington, D.C.: July 28, 2010. Defense Management: U.S. Southern Command Demonstrates Interagency Collaboration, but Its Haiti Disaster Response Revealed Challenges Conducting a Large Military Operation. GAO-10-801. Washington, D.C.: July 28, 2010. National Security: Key Challenges and Solutions to Strengthen Interagency Collaboration. GAO-10-822T. Washington, D.C.: June 9, 2010. Defense Management: DOD Needs to Determine the Future of Its Horn of Africa Task Force. GAO-10-504. Washington, D.C.: April 15, 2010. Homeland Defense: DOD Needs to Take Actions to Enhance Interagency Coordination for Its Homeland Defense and Civil Support Missions. GAO-10-364. Washington, D.C.: March 30, 2010. Interagency Collaboration: Key Issues for Congressional Oversight of National Security Strategies, Organizations, Workforce, and Information Sharing. GAO-09-904SP. Washington, D.C.: September 25, 2009. Military Training: DOD Needs a Strategic Plan and Better Inventory and Requirements Data to Guide Development of Language Skills and Regional Proficiency. GAO-09-568. Washington, D.C.: June 19, 2009. Influenza Pandemic: Continued Focus on the Nation’s Planning and Preparedness Efforts Remains Essential. GAO-09-760T. Washington, D.C.: June 3, 2009. U.S. Public Diplomacy: Key Issues for Congressional Oversight. GAO-09-679SP. Washington, D.C.: May 27, 2009. Military Operations: Actions Needed to Improve Oversight and Interagency Coordination for the Commander’s Emergency Response Program in Afghanistan. GAO-09-615. Washington, D.C.: May 18, 2009. Foreign Aid Reform: Comprehensive Strategy, Interagency Coordination, and Operational Improvements Would Bolster Current Efforts. GAO-09-192. Washington, D.C.: April 17, 2009. Iraq and Afghanistan: Security, Economic, and Governance Challenges to Rebuilding Efforts Should Be Addressed in U.S. Strategies. GAO-09-476T. Washington, D.C.: March 25, 2009. Drug Control: Better Coordination with the Department of Homeland Security and an Updated Accountability Framework Can Further Enhance DEA’s Efforts to Meet Post-9/11 Responsibilities. GAO-09-63. Washington, D.C.: March 20, 2009. Defense Management: Actions Needed to Address Stakeholder Concerns, Improve Interagency Collaboration, and Determine Full Costs Associated with the U.S. Africa Command. GAO-09-181. Washington, D.C.: February 20, 2009. Combating Terrorism: Actions Needed to Enhance Implementation of Trans-Sahara Counterterrorism Partnership. GAO-08-860. Washington, D.C.: July 31, 2008. Information Sharing: Definition of the Results to Be Achieved in Terrorism-Related Information Sharing Is Needed to Guide Implementation and Assess Progress. GAO-08-637T. Washington, D.C.: July 23, 2008. Force Structure: Preliminary Observations on the Progress and Challenges Associated with Establishing the U.S. Africa Command. GAO-08-947T. Washington, D.C.: July 15, 2008. Highlights of a GAO Forum: Enhancing U.S. Partnerships in Countering Transnational Terrorism. GAO-08-887SP. Washington, D.C.: July 2008. Stabilization and Reconstruction: Actions Are Needed to Develop a Planning and Coordination Framework and Establish the Civilian Reserve Corps. GAO-08-39. Washington, D.C.: November 6, 2007. Homeland Security: Federal Efforts Are Helping to Alleviate Some Challenges Encountered by State and Local Information Fusion Centers. GAO-08-35. Washington, D.C.: October 30, 2007. Military Operations: Actions Needed to Improve DOD’s Stability Operations Approach and Enhance Interagency Planning. GAO-07-549. Washington, D.C.: May 31, 2007. Combating Terrorism: Law Enforcement Agencies Lack Directives to Assist Foreign Nations to Identify, Disrupt, and Prosecute Terrorists. GAO-07-697. Washington, D.C.: May 25, 2007. Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. GAO-06-15. Washington, D.C.: October 21, 2005. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | Recognizing the limits of military power in today's security environment, the Department of Defense (DOD) is collaborating with other U.S. federal agencies to achieve its missions around the world. DOD's combatant commands, such as U.S. Southern Command (SOUTHCOM) and U.S. Africa Command (AFRICOM), play key roles in this effort. Both aim to build partner nation capacity and perform humanitarian assistance, while standing ready to perform a variety of military operations. Among its missions, SOUTHCOM supports U.S. law enforcement and intelligence agencies in the Americas and Caribbean in disrupting illicit trafficking and narco-terrorism. As DOD's newest command, AFRICOM works with U.S. diplomacy and development agencies on activities such as maritime security and pandemic response efforts. Today GAO issued reports that the subcommittee requested on SOUTHCOM (GAO-10-801) and AFRICOM (GAO-10-794), which in part evaluated how each collaborates with U.S. interagency partners. This testimony summarizes that work and provides observations from ongoing work on U.S. counterpiracy efforts by focusing on 3 key areas essential for interagency collaboration. GAO's work has shown that developing overarching strategies, creating collaborative organizations, and building a workforce that understands how to fully engage partners are key areas where agencies can enhance interagency collaboration on national security issues. GAO found that DOD's SOUTHCOM and AFRICOM have demonstrated some practices that will help enhance and sustain collaboration, but areas for improvement remain. (1) Overarching strategies: SOUTHCOM and AFRICOM have sought input from several federal agencies in creating their theater campaign plans, which outline command priorities, and for other strategies and plans. However, AFRICOM has not completed plans that detail its activities by country and that align with embassy strategic plans to ensure U.S. government unity of effort in Africa. Also, GAO's preliminary work indicates that a U.S. action plan provides a framework for interagency collaboration to counter piracy in the Horn of Africa region, but the plan does not assign agencies their roles or responsibilities for the majority of tasks in the plan. (2) Collaborative organizations: Both commands have organizational structures that encourage interagency involvement in their missions. Each has a military deputy commander to oversee military operations and a civilian deputy to the commander from the State Department to oversee civil-military activities. Both commands also embed interagency officials within their organizations, but limited resources at other federal agencies have prevented interagency personnel from participating at the numbers desired. However, AFRICOM has struggled to fully leverage the expertise of embedded officials. Moreover, while SOUTHCOM's organizational structure was designed to facilitate interagency collaboration, the 2010 Haiti earthquake response revealed weaknesses in this structure that initially hindered its efforts to conduct a large-scale military operation. (3) Well-trained workforce: AFRICOM has emphasized the need to work closely with U.S. embassies to ensure that activities are consistent with U.S. foreign policy and to contribute to a unity of effort among interagency partners. In addition, the command has designated cultural awareness as a core competency for its staff. However, some AFRICOM staff have limited knowledge about working with U.S. embassies and about cultural issues in Africa, which has resulted in some cultural missteps. Further, limited training is available to enhance personnel expertise. While GAO's work on SOUTHCOM did not focus on training, personnel from the command also expressed the need for more opportunities to improve their understanding of working in an interagency environment. GAO made recommendations to the commands aimed at improving their capabilities to perform their missions through the development of plans and training. DOD agreed with the recommendations. |
Human traffickers exploit individuals, and human trafficking often involves transnational criminal organizations, violations of labor and immigration codes, and government corruption. Many forms of trafficking—including sex trafficking and labor trafficking—can take place anywhere in the world and can occur without crossing country boundaries. As discussed in the Trafficking in Persons Report, trafficking victims include Asian and African women and men who migrate to the Persian Gulf region for domestic labor but then suffer both labor trafficking and sexual abuse in the homes of their employers. Some victims are children; for example, Pakistani children as young as 5 are sold or kidnapped into forced labor to work in brick kilns, some of which are owned by government officials. Other victims are subjected to sexual exploitation; in some cases, women and girls have been bought and sold as sex slaves by members of the Islamic State; in others, adult men and women are forced to engage in commercial sex, and children are induced to do the same. Individuals, including men, are exploited in forced labor in a variety of sectors; Burmese men, for example, have been subjected to forced labor 20 hours a day, 7 days a week on fishing boats in Thailand. Reliable data on the scope of trafficking are limited due to a number of factors. Trafficking is a clandestine activity, which limits the data available on victims. Victims may live daily under inhumane treatment, physical and mental abuse, and threats to themselves or their families. Because of their vulnerable position, trafficking victims may be unwilling or unable to report to, or seek help from, relevant authorities. They may distrust the government and police because they are afraid of being deported or because they come from countries where law enforcement is corrupt and feared, or their traffickers made such threats to discourage their reporting to law enforcement. Further, some governments do not systematically collect data on victims or do not recognize some types of trafficking, such as forced labor or the trafficking of men. In 2000, Congress enacted the TVPA and reauthorized it four times, most recently in 2013. The act, as amended, defines severe forms of trafficking in persons as (1) sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act is under age 18; or (2) the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion, for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery. The TVPA does not specify movement across international boundaries as a condition of trafficking nor does it require the transportation of victims from one locale to another. According to State officials, the TVPA definition of trafficking is largely consistent with the definition set forth in the UN Protocol on trafficking in persons. The TVPA, as amended, provides a framework for current U.S. antitrafficking efforts, including the criteria for the Trafficking in Persons Report. According to State officials, it is also consistent with the UN Protocol on trafficking in persons in approaching this crime within a framework known as the “three p’s”: prosecution, protection and prevention. These include the prosecution and punishment of traffickers, the protection of and assistance for victims of trafficking, and the prevention of trafficking. The TVPA, as amended, also laid out minimum standards for eliminating trafficking to be used in the Secretary of State’s annual assessment of foreign governments’ antitrafficking efforts (see app. II). The first three standards deal with countries’ efforts to enact laws to prohibit severe forms of trafficking and prescribe penalties for trafficking. The fourth standard, as detailed by State, relates to government efforts to implement those laws and includes 12 criteria that can be used to assess these efforts. For example, criteria for the fourth minimum standard include whether a country’s government has achieved appreciable progress in eliminating trafficking—including prosecuting traffickers, protecting victims, and preventing trafficking—compared to efforts from the previous year and whether a country’s government has taken steps to protect and provide assistance, such as counseling and shelter, to victims. The Office to Monitor and Combat Trafficking in Persons (Trafficking Office) was established in accordance with the TVPA of 2000. The office is headed by an ambassador-at-large and is organized into four sections: Reports and Political Affairs, International Programs, Public Engagement, and Resource Management and Planning. The Reports and Political Affairs section prepares the congressionally mandated Trafficking in Persons Report annually. Other parts of State, including regional bureaus, which cover geographic regions, and functional bureaus, which cover global issues such as refugees and human rights, also have input into the report. The report ranks countries into one of four categories, or tiers, based on the Secretary of State’s assessment of foreign governments’ compliance with the four minimum standards for eliminating human trafficking. See figure 1 for the number of countries in each tier in 2015 and 2016. As reported by State, the definitions of the four tiers are as follows: Tier 1: countries whose governments fully meet the minimum standards. Tier 2: countries whose governments do not fully meet the minimum standards but are making significant efforts to do so. Tier 2 Watch List: countries whose governments do not fully meet the minimum standards but are making significant efforts to do so and have a very significant or increasing number of victims, fail to show increasing efforts to combat trafficking from the previous year, or have been assessed as making significant efforts to comply based on commitments to take steps over the next year. Tier 3: countries whose governments do not meet the minimum standards and are not making significant efforts to do so. Figure 2 shows tier ranking by country. Appendix III lists each country by tier. In addition, under a 2008 amendment to the TVPA, any country that has been included on the Tier 2 Watch List for 2 consecutive years and that would otherwise be ranked on the Tier 2 Watch List for the next year will be included in Tier 3 in the third year. The Secretary of State is authorized to waive the automatic downgrade if the Secretary determines that a government has devoted sufficient resources (such as funding, staffing, or in-kind or other resources) to a written plan that, if implemented, would constitute making significant efforts to meet the minimum standards and reports credible evidence of such to specified congressional committees. Countries may receive such a waiver for two consecutive years, after which time a country must either go up to Tier 2 or down to Tier 3. The TVPA, as amended, also established funding restrictions, such as withholding nonhumanitarian, nontrade-related assistance, that could be applied against governments that are not in compliance with the minimum standards and not making significant efforts to come into compliance (i.e., countries in Tier 3). Types of assistance that can be withheld include support to a country’s military. Those funding restrictions may be waived by the President if the provision of assistance would promote the purposes of the TVPA, or is otherwise in the U.S. national interest. The Trafficking Office drafts the Trafficking in Persons Report based on information it receives from a variety of sources including U.S. missions, NGOs, and foreign governments. In 2014, after the most recent TVPA reauthorization, State officials noted that they revised State’s guidance for drafting country narratives and its guidelines for implementing the TVPA minimum standards to help ensure consistent application of the standards across country narratives. The Trafficking Office also makes tier ranking recommendations for each country. The Trafficking Office stated that it reported to Congress in a timely manner all required information on countries that received waivers to avoid being downgraded to Tier 3, but it did not annually post this information to its website within the TVPA required deadline for the 2014, 2015, or 2016 reports. The information for all 3 years was posted in September 2016 despite the requirement to do so within 30 days of notifying Congress of these waivers. According to Trafficking Office officials, they resolve most tier ranking disagreements with regional bureaus, with relatively few elevated to the Secretary without a consensus recommendation. In the final step of the process, the Trafficking Office facilitates communication between other State bureaus and other government agencies to decide whether to recommend that the President grant waivers for funding restrictions for countries in Tier 3. The Trafficking Office produces initial drafts of the State Department’s annual Trafficking in Persons Report with input compiled from a variety of sources including U.S. missions, foreign governments, and NGOs. Those drafts are edited and refined with the direct involvement of the regional and functional bureaus. The reporting period covers actions that governments take from April 1 of one year through March 31 of the next year. See figure 3 for an overview of the reporting process from information gathering through issuance. According to State officials, Trafficking Office analysts gather information throughout the year from sources including foreign governments, U.S. missions overseas, other department offices and U.S. government agencies, NGOs, media reports, and research, as well as the analysts’ travel and consultations around the world. Officials noted that the 12 analysts in the office were each responsible for 15 to 20 countries, grouped by geographic region, in the 2015 and 2016 reports. The Trafficking in Persons Report has narratives for 188 countries in the 2015 report, including two territories and one special case. Trafficking Office officials stated that each analyst is responsible for maintaining expertise and gathering information for each country in his or her portfolio, which includes traveling to the countries to engage with U.S. mission staff, NGOs, and host government officials. In November, the Trafficking Office sends a request for information to all diplomatic and consular posts and publishes a four-page notice in the Federal Register requesting information on the degree to which the United States and foreign governments meet the minimum standards for the elimination of trafficking in persons. In response to the request to the U.S. missions, the officials at the missions return a detailed submission on the trafficking situation in the host country and the government’s efforts to combat it, including updates from the previous year’s report and specific data sets requested by the Trafficking Office (see app. IV for more on the law enforcement data included in the report). Reporting officers are encouraged to draw on a variety of sources to obtain this information, including host government officials, NGOs, and international and multilateral organizations. NGOs noted that they also provide information directly to the Trafficking Office throughout the reporting period. Analysts in the Trafficking Office said that they compile the information for the U.S. narrative primarily from the U.S. Attorney General’s Annual Report to Congress and Assessment of U.S. Government Activities to Combat Trafficking in Persons, but also from other U.S. government agencies and NGOs. The information is due in mid-February, which is about 6 weeks before the end of the reporting period. Therefore, Trafficking Office analysts stated that they work to collect and update the information while they are still drafting country narratives to ensure that they have the latest and most accurate information. The Trafficking Office provides State’s implementation guidelines for State staff, including human trafficking reporting officers at the U.S. missions, during information sessions and on State’s internal website. These guidelines detail State’s implementation of the TVPA’s reporting requirement, and include the definition of severe forms of trafficking in persons, the standards from the TVPA and how to implement them, the roles of the reporting officers, and the elements of the reporting process. The guidelines include descriptions of the actions a government should take to meet the various standards and applicable criteria. For example, to determine whether a foreign government satisfies the minimum standard for prescribing punishment for traffickers that is sufficiently stringent, the guidance states that the country should include criminal penalties to include a maximum sentence of at least 4 years deprivation of liberty, or a more severe penalty. The Trafficking Office also gives similar guidance to its analysts to use in preparing the Trafficking in Persons Report. The guidance establishes some standard language for the narratives in the report. The guidance includes standard language to indicate compliance or noncompliance with the first three minimum standards enumerated in the TVPA, which address laws to prohibit and punish trafficking in persons. For example, using the guidance, an analyst may write “Country X prohibits all forms of trafficking and prescribes penalties that are sufficiently stringent and commensurate with other serious crimes, such as rape.” The guidance also establishes standard language for certain criteria for the fourth minimum standard on governments’ efforts to implement its trafficking laws, such as training diplomatic personnel, addressing official complicity in participating in or facilitating trafficking, or not penalizing victims for acts committed as a direct result of being trafficked. For example, the standard language for official complicity, in cases where a government reported no efforts to combat official complicity in human trafficking and where no complicity is documented or known, is “The government did not report any investigations, prosecutions, or convictions of government employees complicit in human trafficking offenses.” Additionally, the guidance document establishes standard language for some countries downgraded from Tier 2 Watch List to Tier 3; for example, “The government of X does not fully comply with the minimum standards for the elimination of trafficking. The government of X does not have a written plan; therefore, Country X is deemed not to be making significant efforts to comply with the minimum standards and is placed on Tier 3.” In 2014, after the most recent TVPA reauthorization, State officials noted that they revised its guidance for drafting country narratives and its guidelines for implementing the TVPA minimum standards to help ensure consistent application of the standards across country narratives. The Trafficking Office writes the first drafts of the country narratives from mid-February through early April. The analysts use the information compiled all year from U.S. missions, NGOs, and foreign governments in combination with information obtained from travel, the media, and other sources to write the country narratives and assign recommended tier rankings. The rankings are based on the governments’ efforts against trafficking as measured against State’s implementation of the TVPA minimum standards, compared with the governments’ efforts in the preceding years, and not compared to the efforts of other countries. The Trafficking in Persons Report narratives provide data and analytical assessments of the governments’ performance as related to the TVPA minimum standards as interpreted by State. The narratives follow a standard presentation and include the status of efforts to combat trafficking in the countries and recommendations for actions to improve these efforts. See figure 4 for a summary of the report elements. State officials told us that State does not use a formula to determine tier rankings; rather, it considers the totality of government efforts in the categories of prosecution, protection, and prevention. According to State officials, State generally gives more focus to prosecution and protection than to prevention because of the TVPA’s structure. For example, State officials noted that the first three minimum standards as well as several criteria for minimum standard four are focused on prosecution. As part of the tier ranking process, the Trafficking Office identifies countries that may require a waiver of a statutory automatic downgrade from Tier 2 Watch List to Tier 3 and that are potentially eligible to receive one. The Trafficking Office then leads an assessment of each country’s eligibility for such a waiver and coordinates State Department-wide recommendations for the Secretary’s consideration. Countries may remain on the Tier 2 Watch List for 2 years before being automatically downgraded to Tier 3. However, the TVPA, as amended, authorizes the President to waive a country’s automatic downgrade for up to 2 years, if, among other things, there is credible evidence that the country has a written plan to make significant efforts to meet the minimum standards and has devoted sufficient resources to the plan’s implementation. This authority has been delegated by the President to the Secretary of State. The Trafficking Office produces initial drafts of the narratives in the report, then works to resolve any disagreements on the draft content and recommended tier rankings with the regional bureau and U.S. mission staff. Once the Trafficking Office has completed the first drafts of each country narrative, it sends the draft to the relevant overseas mission and regional bureau for review and further inputs. According to the Trafficking Office, their analysts send out the draft narratives on a rolling basis as they are completed; this year, the earliest drafts went out in late February for initial factual review. Some of the regional bureaus we talked to received drafts for the 2016 report between mid-April and early May. According to Trafficking Office officials, once the Trafficking Office and U.S. missions agree on the primary facts in the draft, the Trafficking Office formulates tier ranking recommendations. In the majority of cases, tier ranking recommendations are agreed upon early in the process at the working level. In other cases, several drafts are exchanged either due to significant gaps in data or because the characterization and weighing of data merit further discussion. When the regional bureaus and Trafficking Office disagree on the content of the narratives or the tier rankings, State officials explained that reconciliation involves several steps: (1) The Trafficking Office attempts to resolve any disagreements regarding the narratives and tier ranking recommendations at the working level, that is, between the Trafficking Office analyst and the contact at the U.S. mission and the regional bureau. According to State officials, the majority of disagreements are resolved at the working level. (2) Disagreements that cannot be resolved at the working level are discussed at a meeting chaired by Trafficking Office Ambassador and the designated regional bureau counterpart. In cases where they do not reach consensus on recommendations, additional fact-gathering or subsequent conversations are required, sometimes including higher-level senior officials. (3) All drafts and recommended tier rankings are sent to the Secretary, along with any remaining disagreements, for the Secretary’s final decision. According to the TVPA, the Secretary is required to submit the Trafficking in Persons Report to the appropriate congressional committees. The Secretary has the sole authority to assign tier rankings. The Secretary’s decisions are informed by recommendations made by department staff. The Secretary makes the final decision on all tier rankings, including those that remain in disagreement. According to State officials, if the Secretary highlights a factual issue or thinks the narrative should be revised, State staff would respond accordingly. Regardless of the final tier ranking decision, Trafficking Office officials explained that it is the weighting of the facts, not the facts themselves, that is the determining factor in tier ranking decisions. Officials said that the Trafficking Office and regional bureaus might assess the facts differently because of differing priorities. For example, State officials said that the Trafficking Office is focused on trafficking issues in a country, while regional bureaus take a broader perspective that considers overall relations with countries. Regional bureau officers said that consultations among stakeholders are part of the process to resolve disagreements about tier rankings. State officials explained that discussions about the facts and how they are weighed is an important part of the report drafting and tier ranking process. In some cases, the relatively short time the regional bureaus have from when they get the drafts to when they have the report consultations (around a week, in some cases) can make it difficult to gather more information from regional bureaus and U.S. missions to make updates or corrections or to support resolution of tier ranking disagreements. According to State, late submission of information by governments or delays in providing edits on a draft can present similar challenges. However, one regional bureau official noted that the Trafficking Office generally sends the more controversial country narratives earlier, giving the bureau more time to review them. Regional bureau officials explained that they need time to update the information in the narratives between receiving the draft and starting the process to resolve tier ranking disagreements. Additionally, some bureau officials stated that they occasionally have received the tier ranking after they receive the draft, which leaves less time to gather the information needed from the U.S. missions and foreign governments to support a tier ranking disagreement. In the final stage of the reporting process, State releases the Trafficking in Persons Report to Congress and the public. Before the public issuance of the report, State sends a notification to each U.S. mission in a country or territory in the report that includes the country narrative and tier ranking for release to the host government, accompanying notes of explanation for delivering the narrative and ranking to the host government, and an action plan containing recommended steps for making antitrafficking progress in the country or territory. The Trafficking Office drafts these action plans based on the recommendations in the country narratives, and clears the plans with the regional bureaus and U.S. missions. The plans are designed to guide the progress of the host governments’ antitrafficking efforts. The Trafficking Office manages the process by which State and other relevant U.S. government agencies recommend which countries in Tier 3 receive waivers of assistance restrictions. This process results in specific recommendations for the Secretary that inform their final recommendations to the President. The President has responsibility for making the final determinations. Pursuant to the TVPA, as amended, governments of countries in Tier 3 may be subject to certain funding restrictions, whereby the U.S. government may restrict nonhumanitarian, nontrade-related foreign assistance. In addition, countries whose governments received no nonhumanitarian, nontrade-related foreign assistance from the United States during the previous fiscal year may be subject to restrictions on funding for government employees’ participation in educational and cultural exchange programs. Furthermore, consistent with the TVPA, as amended, the President will also instruct the U.S. Executive Directors of each multilateral development bank and of the International Monetary Fund to vote against, and to use the Executive Director’s best efforts to deny, any loan or other utilization of the funds of the respective institution to that country, with certain exceptions. Officials stated that the Trafficking Office leads the formal process of considering waivers on funding restrictions for countries in Tier 3 usually around the start of July, as soon as the Trafficking in Persons Report is publicly released. According to the TVPA, the determination about waivers for Tier 3 countries must be made not less than 45 days or more than 90 days of the Trafficking in Persons Report’s release. The Trafficking Office engages the regional and functional bureaus at State, as well as the Department of Defense (DOD), the U.S. Agency for International Development (USAID), and the Department of the Treasury to provide recommendations on the types of assistance in a given country that could be subject to restriction and whether countries will get full, partial, or no waivers. The regional and functional bureaus may argue for funding restriction waivers for some Tier 3 countries for many reasons, such as the fact that some assistance supports human trafficking goals (e.g., funding for training prosecutors); regional or functional bureaus as well as other agencies may argue for waivers on the basis of larger issues that are in the national interest of the United States. State officials explained that they compile a package with the list of recommendations to provide full, partial, or no waivers of funding restrictions for countries in Tier 3, which includes information to support the recommendations, and sends this list to the other agencies for their input. According to DOD and USAID officials, the agencies review the recommendations, coordinate the input of the related agency offices and components affected, and respond to State as to whether they agree or disagree with the recommendations on waivers. The Trafficking Office incorporates input from other entities at State and the other relevant agencies into a memo to the Secretary of State with recommendations. The Secretary transmits recommendations to the President, who makes the final determinations on funding restrictions and waivers and submits the list to Congress. In 2015, 21 of the 23 countries ranked as Tier 3 received a full or partial waiver. Thirteen were granted full waivers, and 8 were granted partial waivers. For example, Thailand received a full waiver of the TVPA restriction on nonhumanitarian, nontrade-related foreign assistance. South Sudan received a partial waiver to allow for nonhumanitarian, nontrade related assistance otherwise restricted under the act, except for funding for foreign military sales, foreign military financing, and excess defense articles, which was restricted as a result of its placement in Tier 3. North Korea and Iran were not granted any waivers on funding restrictions. However, the assistance the United States has provided to these governments, if any, would be limited, so little funding would be restricted as a result. State has made improvements to the Trafficking in Persons Report but does not explicitly explain the basis for certain countries’ tier rankings or, where relevant, why countries’ tier rankings changed. Our analysis of the 2015 Trafficking in Persons Report found that, compared to our previous review in 2006, there were few instances in which minimum standards and criteria were not mentioned in the report country narratives. However, most narratives for the highest-ranked, or Tier 1, countries in the 2015 and 2016 reports did not explicitly explain the basis for the tier ranking. The TVPA-mandated reports state that Tier 1 countries are those whose governments fully comply with the minimum standards to combat trafficking. Specifically, the Trafficking in Persons Report states that “while Tier 1 is the highest ranking, it does not mean that a country has no human trafficking problem or that it is doing enough to address the problem. Rather, a Tier 1 ranking indicates that a government has acknowledged the existence of human trafficking, has made efforts to address the problem, and meets the TVPA’s minimum standards.” Nonetheless, we found that the narratives sometimes included language that seemed contradictory to certain standards and criteria. These narratives also did not contain an explanation as to how the negative information provided fits into the country’s overall placement in Tier 1 in accordance with State’s reporting guidance. Moreover, the narratives also included ambiguous language, which made it unclear how State had determined whether certain standards and criteria were met. In addition, we found that, for countries that changed tier from one year to the next, most narratives did not provide an explicit explanation as to why State had decided to change those countries’ tier rankings. Standards for Internal Control in the Federal Government states that information should be communicated in a way that is useful to internal and external users. Without such clarity, the report’s usefulness could be diminished. Our analysis of the 2015 Trafficking in Persons Report found that State has made improvements to its annual report since our previous review in 2006. In 2006, we reported that many country narratives in the 2005 Trafficking in Persons Report did not mention compliance with certain minimum standards and criteria. In contrast, our analysis of the 2015 Trafficking in Persons Report found considerably fewer instances in which standards and criteria were not mentioned in the country narratives: For example, in 2006 we reported that the narratives for 21 percent of the Tier 1 countries did not mention whether the governments complied with the second minimum standard, which, among other things, calls for governments to prescribe penalties for sex trafficking that are commensurate with those for grave crimes such as forcible sexual assault. In contrast, our analysis of the 2015 Trafficking in Persons Report found that all Tier 1 country narratives mentioned the second minimum standard. We also reported in 2006 that the narratives for 80 percent of the countries in the lowest two tiers (Tier 2 Watch List and Tier 3) failed to mention key aspects of the victim protection criterion for minimum standard four, including whether victims were encouraged to assist in the investigation and prosecution of trafficking cases, whether the government provided legal alternatives to removal to countries in which victims would face retribution or hardship, and whether victims were protected from being inappropriately penalized for unlawful acts committed as a direct result of being trafficked. In contrast, our analysis of the 2015 Trafficking in Persons Report found that less than half (42 percent) of the Tier 2 Watch List and Tier 3 country narratives did not mention these aspects of the victim protection criterion. The Trafficking in Persons Report defines the three lowest tiers (Tier 2, Tier 2 Watch List, and Tier 3) as exhibiting varying degrees of noncompliance with the TVPA minimum standards. We found that Tier 3 country narratives generally described decreasing or inadequate efforts. Furthermore, across the narratives for the countries in the lowest three tiers, we found that the groups of narratives in each tier contained progressively less negative information regarding governments’ actions moving from Tier 3 to Tier 2 Watch List to Tier 2. For example, criterion 11 of minimum standard four concerns whether governments achieve appreciable progress in eliminating severe forms of trafficking when compared to the assessment in the previous year. Trafficking Office analysts said that governments should show overall increasing efforts across the prosecution, protection, and prevention categories to meet this criterion, and that State’s assessment is captured in the first sentence of each category: Tier 3 country narratives generally described decreasing or inadequate efforts. Our analysis found that 20 (87 percent) of the 23 Tier 3 country narratives described decreasing or inadequate efforts in one or more of the prosecution, protection, and prevention categories. In addition, only two country narratives described increasing efforts in any of the three categories. The Trafficking in Persons Report defines Tier 3 countries as those whose governments do not fully comply with the minimum standards and are not making significant efforts to bring themselves into compliance with those standards. Tier 2 Watch List country narratives generally described decreasing, mixed, or sustained efforts. Our analysis found that 34 (77 percent) of the 44 Tier 2 Watch List country narratives described decreasing, mixed, or sustained efforts in one or more of the prosecution, protection, and prevention categories. Narrative reporting of mixed efforts included a combination of positive and negative findings, such as that the government had increased identification of victims but had provided victims inadequate assistance, or had made progress in law enforcement efforts but continued to lack trafficking convictions. The Trafficking in Persons Report defines Tier 2 Watch List countries as those whose governments do not fully comply with the minimum standards but are making significant efforts to bring themselves into compliance with those standards, and where there is a failure to provide evidence of increasing efforts to combat trafficking from the previous year, among other things. Tier 2 country narratives generally described increasing, mixed, or sustained efforts. Our analysis found that 77 (89 percent) of the 87 Tier 2 country narratives described increasing, mixed, or sustained efforts in one or more of the prosecution, protection, or prevention categories. Furthermore, in contrast to the 87 percent of Tier 3 country narratives that described decreasing or inadequate efforts in one or more of the three categories, less than half (36 percent) of Tier 2 country narratives did. The Trafficking in Persons Report defines Tier 2 countries as those whose governments do not fully comply with the minimum standards but are making significant efforts to bring themselves into compliance with those standards. While our analysis of the narratives for the Tier 1 countries as a group continued the trend of showing increased improvement in governments’ actions as compared to the groups of narratives for the other tiers, the narratives for most Tier 1 countries in State’s 2015 and 2016 Trafficking in Persons reports did not explicitly explain the basis for the tier rankings. We did not assess whether State had placed countries in the appropriate tier; rather, we assessed the language State used in the country narratives. In implementing the TVPA, State ranks countries whose governments fully comply with the minimum standards as Tier 1; however, the report narratives sometimes included language that seemed contradictory to certain standards and criteria. The narratives also included ambiguous language, which meant that we were unable to determine how State had determined whether certain standards and criteria were met. Specifically, our analysis found that 61 (92 percent) of the 66 Tier 1 country narratives in the 2015 and 2016 reports included language that seemed contradictory to certain standards and criteria, ambiguous language that made it unclear as to how State had determined whether certain standards and criteria were met, or both. However, the narratives did not explain how the contradictory or ambiguous language provided fits into the country’s overall placement in Tier 1 in accordance with State’s reporting guidance. Standards for Internal Control in the Federal Government states that information should be communicated in a form that is useful to internal and external users. Without clarity in country narratives regarding State’s assessments of governments’ compliance with the minimum standards to combat trafficking, particularly for Tier 1, which is described by the report as governments of countries that fully meet the TVPA’s minimum standards for the elimination of trafficking, the report’s usefulness could be diminished. Forty (61 percent) of the 66 Tier 1 country narratives in State’s 2015 and 2016 Trafficking in Persons reports had at least one section that seemed inconsistent with State’s reporting guidance regarding narratives for countries with the highest ranking. Our analysis of the Tier 1 country narratives in the 2015 and 2016 reports found that the narratives for 3 (5 percent) of the 66 Tier 1 country narratives for that period included language that seemed contradictory to State’s interpretation of the first three minimum standards, which generally call for governments to prohibit severe forms of trafficking in persons and prescribe penalties that are sufficiently stringent and commensurate with those for grave crimes such as forcible sexual assault. Trafficking Office analysts said that, in drafting the narratives, the interpretation they use is that governments should prohibit all forms of trafficking and prescribe penalties that are sufficiently stringent and commensurate with those for other serious crimes, such as rape, to meet these standards. For example, the narrative for New Zealand in the 2016 report noted that the government enacted a bill that substantially conforms the definition of trafficking with international law; however, the narrative also stated that the bill does not include a provision making the sex trafficking of a child a crime regardless of deception or coercion, which is, according to the narrative, inconsistent with international law. The narrative further noted that prescribed penalties are not sufficiently stringent because of the possibility that a fine can be imposed in lieu of imprisonment and that the penalty for sex trafficking is insufficient because it is not a penalty commensurate with that imposed for other serious crimes, such as rape. The narrative does not, however, contain an explanation as to how the negative information provided fits into the country’s overall placement in Tier 1. Further, 39 (59 percent) of the 66 Tier 1 country narratives in the 2015 and 2016 reports included language that seemed contradictory to certain criteria State uses to assess whether governments are making serious and sustained efforts to eliminate severe forms of trafficking as called for by the fourth minimum standard. Criterion 11 of minimum standard four concerns whether governments achieve appreciable progress in eliminating severe forms of trafficking when compared to the assessment in the previous year. Trafficking Office analysts said that governments should show overall increasing efforts across the prosecution, protection, and prevention categories to meet this criterion and that increasing efforts in each of these categories is not required. However, the narratives for 10 (15 percent) of the 66 Tier 1 country narratives for that period reported that the governments made decreased, weakened, limited, or inadequate efforts in at least one of the prosecution, protection, and prevention categories. While increasing efforts in each of these categories is not required, this seems inconsistent with Trafficking Office guidelines and statements that indicate Tier 1 countries should show evidence of sustained progress in combating trafficking in persons. For example: The 2015 report narrative for Armenia noted that the government demonstrated decreased law enforcement efforts, as authorities reported fewer prosecutions and convictions. The narrative for Canada in the 2016 report stated that the government identified fewer trafficking victims than in previous years; the government did not provide adequate funding for specialized victim services; and the range, quality, and timely delivery of services varied across the provinces. The narratives also included language that seemed contradictory to State’s interpretation of minimum standard four criteria addressing training for diplomats, efforts to reduce demand, and efforts to protect victims from inappropriate penalization for unlawful acts committed as a direct result of being trafficked. As previously discussed, there are 12 criteria that should be considered for minimum standard four determinations; the Trafficking Office examines each criterion separately, and its assessment of each individual criterion factors into its overall assessment of compliance with minimum standard four. Specifically, we found that, of the 66 Tier 1 country narratives: 10 narratives (15 percent) noted that the governments did not provide antitrafficking training or guidance for their diplomatic personnel (criterion 3); 12 narratives (18 percent) noted that the governments did not make efforts to reduce the demand for commercial sex acts or forced labor (criterion 12); and 15 narratives (23 percent) noted that the governments inappropriately penalized trafficking victims for unlawful acts committed as a direct result of being trafficked (criterion 2). For example, the 2016 report narrative for Ireland stated that the government prosecuted, convicted, and imprisoned Asian victims of forced labor in illegal cannabis production for crimes committed while subjected to trafficking, with 70 Asian nationals remaining in prison related to cannabis offenses, including 30 cases where the defendants were in pretrial detention. However, the narratives did not explicitly explain how these deficiencies fit into the country’s overall placement in Tier 1. The 2015 and 2016 report country narratives included ambiguous language, making it difficult to determine how State had determined whether certain minimum standards and criteria were met, thus leaving State’s justification for a Tier 1 ranking unclear. We were unable to determine, judging from the narratives, State’s complete rationale for the placement of 45 (68 percent) of the 66 Tier 1 countries. Specifically, we found ambiguous language relating to the first minimum standard (addressing the prohibition and punishment of trafficking); the minimum standard four criterion on making appreciable progress; and the minimum standard four criterion on victim protection, as interpreted by State. Prohibiting and punishing trafficking (minimum standard 1). Our analysis found that the narratives for 13 (20 percent) of the 66 Tier 1 country narratives for 2015 and 2016 stated that the governments prohibit sex and labor trafficking, leaving it unclear how State considered information to determine whether the governments prohibit all forms of trafficking. According to Trafficking Office analysts, Tier 1 countries must criminalize all forms of trafficking. The 2015 and 2016 reports include the following categories of trafficking: sex trafficking, child sex trafficking, forced labor, bonded labor or debt bondage, domestic servitude, forced child labor, and unlawful recruitment and use of child soldiers. The narratives for most Tier 1 countries explicitly stated that the governments prohibit all forms of trafficking. For those narratives that did not explicitly state that the governments prohibit all forms of trafficking, Trafficking Office analysts acknowledged that there could be gaps in the countries’ laws, which should be explained in the narratives, or that inconsistent language might have been used across country narratives. Making appreciable progress in eliminating severe forms of trafficking when compared to the previous year’s assessment (minimum standard 4, criterion 11). Our analysis of the 2015 and 2016 reports found that the narratives for 16 (24 percent) of the Tier 1 country narratives for that period did not contain clear language describing appreciable progress for any of the prosecution, protection, and prevention categories. For each category, the narratives described mixed efforts; stated that the governments made “modest efforts”; or stated that the governments “sustained,” “maintained,” or “continued” their efforts without defining those words or stating whether the country made progress. For example, the narrative for Israel in the 2015 report cited a mix of positive and negative findings for the prosecution and protection categories and “continued” efforts for the prevention category. For prosecution, the narrative noted that the government made strong law enforcement efforts but also gave inadequate sentences to convicted offenders. For protection, it stated that the government improved its efforts to identify and protect trafficking victims but also stated that unidentified victims among the African migrant population remained vulnerable to the government’s policy of detaining migrants. The narrative cited “continued” government efforts for the prevention category without explaining whether those efforts demonstrated progress when compared with the previous year. Protecting victims of trafficking (minimum standard 4, criterion 2). Our analysis found that the narratives for 34 (52 percent) of the 66 Tier 1 country narratives for 2015 and 2016 were unclear regarding how State considered information to determine whether governments met the overall victim protection requirement. State Trafficking Office analysts said that State defines victim protection as (1) the identification of victims, (2) the existence of systems to refer victims to care, and (3) the provision of victim assistance (e.g., services, shelter). However, the narratives did not clearly explain government compliance with this criterion for most Tier 1 countries in the 2015 and 2016 reports. For example, the 2015 report narrative for the United States stated that some trafficking victims, including those under 18 years of age, were detained or prosecuted for conduct committed as a direct result of being subjected to trafficking. The narrative also stated that NGOs reported that many state and local authorities failed to treat sex-trafficked children as victims of trafficking by arresting and incarcerating them, including states with “safe harbor” laws designed to protect children from criminalization. However, it also noted that to address these challenges, the U.S. Department of Health and Human Services facilitated training with advocates, attorneys, and service providers across the United States to increase identification of child trafficking victims. Our analysis of the 2015 and 2016 Trafficking in Persons reports showed that most country narratives did not provide an explicit explanation as to why countries were upgraded or downgraded in their tier ranking from one year to the next. Although each narrative includes a trend line that shows a country’s tier ranking from one year to the next, the narratives do not explicitly explain why a country’s tier ranking changed. Standards for Internal Control in the Federal Government states that information should be communicated in a form that is useful to internal and external users. The lack of an explicit explanation for most of State’s decisions to upgrade or downgrade countries to a different tier could limit the ability of internal and external stakeholders to understand the justification for tier changes and, in turn, use the report as a diplomatic tool to advance efforts to combat trafficking. Further, understanding tier ranking changes is viewed as complicated, according to some State officials, by the challenges in determining whether a government’s efforts are significant according to the minimum standards when several indicators may point in different directions. The tier ranking for a total of 82 countries was changed in the 2015 and 2016 reports: 37 were upgraded, and 45 were downgraded (see fig. 5). Our analysis showed that, of the 82 countries upgraded or downgraded in 2015 or 2016, 7 (9 percent) of the country narratives explicitly explained why the country’s tier ranking changed; however, none of the remaining 75 country narratives explicitly explained why the country’s tier ranking changed. According to Trafficking Office guidance and analysts, State’s justification for a country’s tier ranking is captured in the summary paragraph of the country narrative. The analysts also noted that the government does not need to show progress or lack of progress in all three categories (prosecution, protection, and prevention) for a tier change; in some cases, positive or negative movement in one category is sufficient for a tier upgrade or downgrade. We examined the summary paragraphs to determine whether they provided clear explanations as to why countries were upgraded or downgraded in their tier ranking. The only country narratives with an explicit explanation were for those countries subject to the TVPA automatic downgrade provision. As discussed earlier in this report, the TVPA, as amended, requires that countries be automatically downgraded to Tier 3 after 2 consecutive years on Tier 2 Watch List unless the country is granted a waiver based on credible evidence that a waiver is justified because the government has a written plan that, if implemented, would constitute making significant efforts to comply with the TVPA minimum standards and is devoting sufficient resources to implement the plan. The waiver can be issued for 2 consecutive years, bringing the total length of time a country can remain on Tier 2 Watch List to 4 consecutive years. The narratives with explicit explanations cited this 4-year time limit, or a waiver no longer being available, or the lack of a written plan, as the reason for downgrading a country from Tier 2 Watch List to Tier 3. For those country narratives (75 of 82) that lacked an explicit explanation, we examined the summary paragraphs and the first sentence of each of the prosecution, protection, and prevention sections in the narratives to see if there was any discernible information that may explain the tier change. The narratives provided no direct linkage between the tier change and the information cited in the summary paragraphs and opening sentences. Trafficking Office analysts noted that they had not made a deliberate decision to exclude an explanation as to why a country changed tier but that this information can be inferred from the summary paragraphs. We found that 2 of these 75 country narratives provided no discernible explanation for the tier change. The narratives described mixed efforts, or included other ambiguous or contradictory language. Seventy-three country narratives provided some information that could help explain State’s decision to change the tier; however, no direct linkage was made between such information and the tier change. Specifically, some narratives provided an overarching statement summarizing State’s determination regarding the country’s progress or lack of progress against trafficking. For example, the 2015 summary paragraph for Kenya (which was upgraded to Tier 2) stated that the government had made robust efforts to implement the Counter-Trafficking in Persons Act for the first time since it came into effect in 2012. Other narratives provided some information for at least one of the three categories (prosecution, protection, and prevention) that could help explain State’s decision to change the tier. For example, the most commonly cited negative finding for countries that were downgraded was that the government did not prosecute or convict any traffickers during the reporting period or that such law enforcement efforts had decreased when compared with the previous reporting period. However, the narratives did not directly explain that such information was a reason for the change in tier. Based on our discussions with selected officials from State, other agencies, and NGOs, the Trafficking in Persons Report has raised awareness about trafficking and that countries’ concerns about their tier ranking can spur them to make progress. However, the report can also complicate bilateral efforts. Further, the U.S. government has waived Tier 3 funding restrictions, potentially reducing the reports’ impact. Finally, State officials said they do not yet systematically assess the effectiveness of the Trafficking in Persons Report as a tool to encourage countries to combat human trafficking but plan to do so. Without such an assessment, the effect of the report in encouraging governments to make progress against trafficking is not well understood. As previously discussed, countries in Tier 3 are subject to restrictions on assistance. These restrictions cover nonhumanitarian, nontrade-related foreign assistance for affected governments, assistance through multilateral development banks and, for certain countries, funding for government official or employee participation in educational and cultural exchange programs. The President has issued full or partial waivers for many of the governments subject to the restrictions. For example, as previously discussed, 21 of the 23 countries ranked Tier 3 in 2015 received a full or partial waiver. Officials raised questions about the efficacy of the funding restrictions. For example, some NGO officials said that, given the likelihood that the funding restrictions will be waived, governments do not see them as a credible threat that would motivate them to increase antitrafficking efforts. Further, some State officials said that, although some governments are motivated by the possibility of funding restrictions, many are more concerned about the reputational harm that comes with a Tier 3 ranking rather than about the risk of losing funding. In addition, State officials said that while the Trafficking in Persons Report is visible and is reported on locally, assistance from the World Bank and other international financial institutions, such as the International Monetary Fund, goes forward without U.S. support. Thus, U.S. opposition would not, on its own, prevent a country in Tier 3 from obtaining multilateral assistance. State has not yet systematically assessed the effectiveness of the Trafficking in Persons Report as a tool to encourage countries to combat human trafficking, according to State officials. As a result, State does not have a formal assessment of how well the report achieves the goal of encouraging governments to make progress in combating trafficking. State officials noted a number of difficulties in systematically assessing the report’s effectiveness. For example, steps that foreign governments take to address human trafficking could be in response to any number of factors, not just the Trafficking in Persons Report. In addition, officials from one of the regional bureaus stated that because reliable data on the level of trafficking are limited due to its inherent clandestine nature, it is difficult to gauge the effectiveness of the Trafficking in Persons Report in encouraging change. It is also difficult to measure a country’s efforts. For example, it can be difficult to assess whether a decrease in the number of victims identified indicates a decrease in trafficking, or fewer country efforts to identify and assist victims. The lack of reliable data on law enforcement and victim assistance further complicates efforts to assess effectiveness. Trafficking Office and regional bureau officials stated that they do not systematically track the extent to which countries take the actions that State recommends in the report. According to State, the recommendations provide governments guidance on how to enhance their efforts to meet the TVPA’s minimum standards. Officials noted that interim assessments required by the TVPA, and the process State has for producing them, serve as a systematic review of progress by governments in implementing the recommendations for Tier 2 Watch List countries. In addition, the guidance on developing the report that the Trafficking Office analysts use includes a section for assessment of efforts to address the previous year’s recommendations. Further, the Trafficking Office has begun efforts to compile information on recommendations, such as the prioritization of the recommendations and the number of consecutive years the recommendations have been in the Trafficking in Persons Report. However, to date, the effort has not assessed the impact of the report’s recommendations. Officials from the Trafficking Office stated that they have taken steps to more systematically assess the report’s effectiveness. Specifically, officials said they have hired a monitoring and evaluation expert to assess the Trafficking Office’s activities, including the Trafficking in Persons Report. In addition, Trafficking Office officials said they plan to develop a knowledge management database, for which they have solicited bids. According to these officials, a better understanding of the results of the Trafficking in Persons Report will contribute to this larger monitoring and evaluation effort. Further, these officials said they are considering ways to more effectively push for short- and medium-term progress in a way that also achieves the long-term structural changes needed to address trafficking. According to Standards for Internal Control in the Federal Government, agency officials need various types of information to determine whether they are meeting an agency’s objectives. Without systematically assessing the effectiveness of the Trafficking in Persons Report by, for example, tracking the implementation of recommendations, State does not know the extent to which the report is having an impact on punishing traffickers, protecting and assisting victims, and preventing human trafficking. Human trafficking causes victims grave personal suffering and negatively affects the communities involved. Congress has maintained an active interest in human trafficking issues, including mandating and expanding the Trafficking in Persons Report, which highlights the exploitation of men, women, and children around the world and the efforts of governments to combat trafficking. Since our 2006 report, State has improved its reporting of these efforts. This complex task involves evaluation of every country against itself—per the minimum standards outlined in the TVPA and interpreted by State; one country’s efforts are not directly compared to those of another. In addition, every country is different, with varying degrees of capacity to address this heinous crime. Some important shortcomings of the Trafficking in Persons Report could limit its usefulness as a tool to encourage countries to increase their efforts to prosecute and punish traffickers, protect and assist victims, and prevent trafficking. First, despite a legislative requirement to do so, State has not regularly posted on its public website a detailed description of the credible evidence supporting the determination to issue a waiver to avoid an automatic downgrade to Tier 3. This lack of transparency limits the ability of external stakeholders to understand the justification for these waivers and their usefulness in the annual review process. In addition, the Trafficking in Persons Report does not always explicitly communicate State’s assessment of how the highest-ranked foreign governments met the minimum standards to combat trafficking. The report also lacks an explicit explanation for many of the decisions to upgrade or downgrade countries to a different tier. This lack of clarity could cause confusion about the status of country actions or State’s decision making and could limit the ability of State and others to use the report as a diplomatic tool to advance efforts to combat trafficking. Consistent language could help clarify State’s assessment of actions governments have taken. Finally, State has not systematically assessed the effectiveness of the Trafficking in Persons Report; as a result, State does not know how well the report achieves the goal of diminishing trafficking in persons throughout the world. The Trafficking in Persons Report sheds light on the efforts governments and organizations throughout the world are taking to fight trafficking. Improvements to the report can increase its usefulness as another tool in the struggle to protect and provide justice for vulnerable populations. To improve the transparency and clarity of the Trafficking in Persons Report and improve its usefulness as a diplomatic tool to encourage countries to address trafficking, we recommend that the Secretary of State take the following four actions: 1. On an annual basis, ensure the full implementation of recently revised Trafficking in Persons Report preparation guidance that includes posting a detailed description of the credible evidence used to support automatic downgrade waivers on its publicly available website, in compliance with the 2013 TVPA. 2. Improve explanations in narratives for Tier 1 rankings, including using consistent language, as feasible, in the Trafficking in Persons Report. 3. Provide an explicit linkage between statements in the Trafficking in Persons Report and decisions to upgrade or downgrade a country’s tier ranking. 4. Take actions, such as tracking the recommendations in the Trafficking in Persons Report, to assess the effectiveness of the report as a tool to encourage countries to address human trafficking. We provided a draft of this report to the Department of State for comment. In its written comments, reproduced in appendix V, State concurred with the recommendations. Specifically, State said that, as our report noted, it has updated its standard operating procedures to ensure a description of the credible evidence used to support automatic downgrade waivers, as required by the TVPA, is posted to State’s website. While updating State’s procedures is an important step, our recommendation is to ensure the full implementation of those new procedures. In addition, State said it seeks to make each country narrative comprehensive in order to make the Trafficking in Persons Report as useful as possible to a broad array of stakeholders and will continue its commitment to ensure each narrative better serves this purpose. Finally, State described steps it is taking to more systematically assess the effectiveness of the Trafficking in Persons Report in encouraging governments to address human trafficking, including the recent establishment of a monitoring and evaluation position in the Trafficking Office. State also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-9601, or melitot@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. This report addresses (1) the process the Department of State (State) uses to prepare country narratives and decide tier rankings in the Trafficking in Persons Report; (2) the extent to which country narratives in the Trafficking in Persons Report clearly discuss the minimum standards to combat trafficking as enumerated in the Trafficking Victims Protection Act (TVPA) and interpreted by State; and (3) the extent to which State assesses the effectiveness of the Trafficking in Persons Report as a diplomatic tool to encourage countries to address human trafficking. To address these objectives, we reviewed documents and relevant laws, including the TVPA, as amended. We interviewed officials from State’s Office to Monitor and Combat Trafficking in Persons (Trafficking Office) and from all of State’s regional bureaus: the bureaus of African Affairs, East Asian and Pacific Affairs, European and Eurasian Affairs, Near Eastern Affairs, South and Central Asian Affairs, and Western Hemisphere Affairs. In addition, we interviewed State functional offices and bureaus that have some involvement in the Trafficking in Persons Report. These include the Bureau of Economic and Business Affairs; the Bureau of Political-Military Affairs; the Office of Foreign Assistance; the Bureau of Democracy, Human Rights, and Labor; and the Bureau of Population, Refugees, and Migration. We also selected countries in each of the tiers that had changed tier in 2015 and interviewed the relevant officials from each of the U.S. missions and the corresponding country desk officers. We selected 3 countries that were upgraded to a higher tier (Portugal, Rwanda, and Uzbekistan) and 2 that were downgraded to a lower tier (Slovenia and Belize). As much as possible, we selected countries of different sizes and from different geographic regions. We also interviewed officials from agencies that have some involvement in the report process: the Departments of Defense (DOD) and the Treasury (Treasury), and the U.S. Agency for International Development (USAID). In addition, we held a roundtable discussion with officials from 13 nongovernmental organizations (NGOs), organized by an umbrella group of NGOs focused on trafficking in persons. We did not select a generalizable sample of officials to interview. To assess the process State uses to prepare country narratives and decide tier rankings, we reviewed the TVPA, as amended; the Trafficking in Persons Report; and State report preparation guidance documents. We also interviewed cognizant officials from State, DOD, Treasury, and USAID, as well as from NGOs about the process, including how State gathers information for the report and how decisions are made on waivers to avoid automatic downgrades as well as waivers of funding restrictions for countries in Tier 3. To assess the extent to which the country narratives in the Trafficking in Persons Report clearly discuss the minimum standards to combat trafficking as enumerated in the TVPA and interpreted by State, we reviewed 185 country narratives in the 2015 Trafficking in Persons Report. We also reviewed the 35 Tier 1 country narratives in the 2016 Trafficking in Persons Report. We systematically compared the country narratives with the minimum standards (as interpreted and applied by State) and determined whether the narratives clearly explain State’s assessment of the degree of governments’ compliance with them. We used the following coding system when assessing the country narratives against State’s interpretation of the minimum standards: If the country narrative did not mention a standard or criterion, we coded that as “not mentioned.” If the country narrative did mention a standard or criterion, we determined whether the narrative clearly described that the government complied or did not comply with the standard or criterion (as interpreted and applied by State). If we determined that the narrative included language that seemed consistent with the standard or criterion, we coded that as “met.” If we determined that the narrative included language that seemed contradictory to the standard or criterion, we coded that as “not met.” In some cases, the narratives mentioned a standard or criterion, but included ambiguous language that made it unclear if the standard or criterion were met. We coded those cases as “cannot determine.” In addition, for criterion 11 of minimum standard four, we examined the first sentence of each of the prosecution, protection, and prevention sections of the country narratives to determine whether they clearly described that the government made appreciable progress in combating trafficking when compared with the previous year’s assessment. Trafficking Office analysts said that governments should show overall increasing efforts across the prosecution, protection, and prevention categories to meet this criterion but that increasing efforts in each of these categories is not necessarily required. We used the following coding system when assessing the opening sentences: If the sentence noted that the government made progress, or made strong, improved, or increased efforts (or other similar words), we coded that as “met.” We then reported these as country narratives that generally described increasing efforts. If the sentence noted that the government made no efforts or progress, or made decreased or inadequate efforts, we coded that as “not met.” We also coded as “not met” efforts described as weak or negligible (or other similar words). We then reported these as country narratives that generally described decreasing or inadequate efforts. If the sentence noted that the government sustained, maintained, or continued its efforts, we coded that as “cannot determine.” We also coded mixed efforts, or efforts described using words such as modest, uneven, limited, or minimal as “cannot determine.” We then reported these as country narratives that generally described mixed or sustained efforts. We did not assess whether State had placed countries in the appropriate tier. Each country narrative was assessed independently by two analysts, using a detailed rules document developed from State’s guidelines and through discussions with State. We also analyzed the narratives for the 82 countries that changed tiers in the 2015 and 2016 Trafficking in Persons reports to assess whether the narratives clearly explain why State changed a country’s tier. To assess the extent to which State assesses the effectiveness of the Trafficking in Persons Report as a diplomatic tool to encourage countries to address human trafficking, we interviewed officials from State, DOD, the Treasury, USAID, and representatives of NGOs about the credibility and effectiveness of the report and how it is used. We also reviewed documents related to funding restrictions and waivers of funding restrictions for countries in Tier 3. We conducted this performance audit from September 2015 to December 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The government of the country should prohibit severe forms of trafficking in persons and punish acts of such trafficking. For the knowing commission of any act of sex trafficking involving force, fraud, coercion, or in which the victim of sex trafficking is a child incapable of giving meaningful consent, or of trafficking which includes rape or kidnapping or which causes a death, the government of the country should prescribe punishment commensurate with that for grave crimes, such as forcible sexual assault. For the knowing commission of any act of a severe form of trafficking in persons, the government of the country should prescribe punishment that is sufficiently stringent to deter and that adequately reflects the heinous nature of the offense. The government of the country should make serious and sustained efforts to eliminate severe forms of trafficking in persons. In determinations under minimum standard 4, the following factors should be considered as indicia of serious and sustained efforts to eliminate severe forms of trafficking in persons Criterion 1 Whether the government of the country vigorously investigates and prosecutes acts of severe forms of trafficking in persons, and convicts and sentences persons responsible for such acts, that take place wholly or partly within the territory of the country, including, as appropriate, requiring incarceration of individuals convicted of such acts. For purposes of the preceding sentence, suspended or significantly reduced sentences for convictions of principal actors in cases of severe forms of trafficking in persons shall be considered, on a case-by-case basis, whether to be considered an indicator of serious and sustained efforts to eliminate severe forms of trafficking in persons. After reasonable requests from the Department of State for data regarding investigations, prosecutions, convictions, and sentences, a government which does not provide such data, consistent with the capacity of such government to obtain such data, shall be presumed not to have vigorously investigated, prosecuted, convicted, or sentenced such acts. During the periods prior to the annual report submitted on June 1, 2004, and on June 1, 2005, and the periods afterwards until September 30 of each such year, the Secretary of State may disregard the presumption contained in the preceding sentence if the government has provided some data to the Department of State regarding such acts and the Secretary has determined that the government is making a good faith effort to collect such data. Whether the government of the country protects victims of severe forms of trafficking in persons and encourages their assistance in the investigation and prosecution of such trafficking, including provisions for legal alternatives to their removal to countries in which they would face retribution or hardship, and ensures that victims are not inappropriately incarcerated, fined, or otherwise penalized solely for unlawful acts as a direct result of being trafficked, including by providing training to law enforcement and immigration officials regarding the identification and treatment of trafficking victims using approaches that focus on the needs of the victims. Whether the government of the country has adopted measures to prevent severe forms of trafficking in persons, such as measures to inform and educate the public, including potential victims, about the causes and consequences of severe forms of trafficking in persons, measures to establish the identity of local populations, including birth registration, citizenship, and nationality, measures to ensure that its nationals who are deployed abroad as part of a diplomatic, peacekeeping, or other similar mission do not engage in or facilitate severe forms of trafficking in persons or exploit victims of such trafficking, a transparent system for remediating or punishing such public officials as a deterrent, measures to prevent the use of forced labor or child labor in violation of international standards, effective bilateral, multilateral, or regional information sharing and cooperation arrangements with other countries, and effective policies or laws regulating foreign labor recruiters and holding them civilly and criminally liable for fraudulent recruiting. Whether the government of the country cooperates with other governments in the investigation and prosecution of severe forms of trafficking in persons and has entered into bilateral, multilateral, or regional law enforcement cooperation and coordination arrangements with other countries. Whether the government of the country extradites persons charged with acts of severe forms of trafficking in persons on substantially the same terms and to substantially the same extent as persons charged with other serious crimes (or, to the extent such extradition would be inconsistent with the laws of such country or with international agreements to which the country is a party, whether the government is taking all appropriate measures to modify or replace such laws and treaties so as to permit such extradition). Whether the government of the country monitors immigration and emigration patterns for evidence of severe forms of trafficking in persons and whether law enforcement agencies of the country respond to any such evidence in a manner that is consistent with the vigorous investigation and prosecution of acts of such trafficking, as well as with the protection of human rights of victims and the internationally recognized human right to leave any country, including one’s own, and to return to one’s own country. Whether the government of the country vigorously investigates, prosecutes, convicts, and sentences public officials, including diplomats and soldiers, who participate in or facilitate severe forms of trafficking in persons, including nationals of the country who are deployed abroad as part of a diplomatic, peacekeeping, or other similar mission who engage in or facilitate severe forms of trafficking in persons or exploit victims of such trafficking, and takes all appropriate measures against officials who condone such trafficking. A government’s failure to appropriately address public allegations against such public officials, especially once such officials have returned to their home countries, shall be considered inaction under these criteria. After reasonable requests from the Department of State for data regarding such investigations, prosecutions, convictions, and sentences, a government which does not provide such data consistent with its resources shall be presumed not to have vigorously investigated, prosecuted, convicted, or sentenced such acts. During the periods prior to the annual report submitted on June 1, 2004, and on June 1, 2005, and the periods afterwards until September 30 of each such year, the Secretary of State may disregard the presumption contained in the preceding sentence if the government has provided some data to the Department of State regarding such acts and the Secretary has determined that the government is making a good faith effort to collect such data. Whether the percentage of victims of severe forms of trafficking in the country that are non-citizens of such countries is insignificant. Whether the government has entered into effective, transparent partnerships, cooperative arrangements, or agreements that have resulted in concrete and measurable outcomes with: (A) domestic civil society organizations, private sector entities, or international nongovernmental organizations, or into multilateral or regional arrangements or agreements, to assist the government’s efforts to prevent trafficking, protect victims, and punish traffickers; or (B) the United States toward agreed goals and objectives in the collective fight against trafficking. Whether the government of the country, consistent with the capacity of such government, systematically monitors efforts to satisfy the criteria described in paragraphs (1) through (8) and makes available publicly a periodic assessment of such efforts. Whether the government of the country achieves appreciable progress in eliminating severe forms of trafficking when compared to the assessment in the previous year. Whether the government of the country has made serious and sustained efforts to reduce the demand for— (A) commercial sex acts; and (B) participation in international sex tourism by nationals of the country. The Trafficking Victims Protection Act (TVPA) requires that the Secretary of State annually submit a report describing the antitrafficking efforts of the United States and foreign governments according to the minimum standards and criteria enumerated in section 108 of the TVPA. The Department of State (State) interprets this to require that evidence of trafficking investigations, prosecutions, convictions, and sentences be considered in State’s assessment of whether governments are making serious and sustained efforts to eliminate severe forms of trafficking. Our analysis of the 2015 Trafficking in Persons Report found that the country narratives generally mentioned such data, trends compared to previous years, as well as details on the legal basis of law enforcement action and the sufficiency of those laws and their implementation. However, it is unclear what the data may mean relative to other factors, such as a government’s capacity or resources to address trafficking, the importance of cases, or the significance of the data relative to the magnitude of the trafficking problem in that county. State bureau officials noted that law enforcement data could be difficult to interpret, unreliable, or may not provide a useful description of the situation in the country. For example: (1) Data may be difficult to interpret. Officials said data on prosecutions and convictions may not accurately reflect the level of law enforcement efforts. For example, it may be unclear whether increased prosecutions and convictions means the trafficking situation in the country is getting worse or that the government is doing a better job of enforcing its anti-trafficking laws. (2) Data may be unreliable. According to officials, it is unclear if the data are accurate or reliable. For example, the data may not be public, and countries may lack centralized systems, according to officials. Officials also noted that an emphasis on increased prosecutions and convictions might lead to a country arresting innocent people to increase its numbers. (3) Data may not provide a useful description of the situation. Officials said that an emphasis on increased law enforcement numbers may not accurately reflect a country’s successes or tell the whole story. For example, a country might have increased its law enforcement efforts in ways that did not result in increased prosecutions. Further, a country might be penalized for not having convictions when the cases being prosecuted are taking time to work through the judicial system, or for not reporting data when lacking the systems needed to do so. State’s Office to Monitor and Combat Trafficking in Persons (Trafficking Office) acknowledges that there are limitations to the law enforcement data, but maintains that the data are a strength of the report. For example, State can use the numbers on investigations, prosecutions, and convictions, when they are too low relative to the trafficking problem, according to the Trafficking Office, to push governments to do more. The Trafficking Office also noted that it uses the same methodology every year so the data are comparable from one year to the next, and that it does not accept a government’s data without efforts to verify the data, or noting in the report when there are issues with the data. In addition to the contact named above, Leslie Holen (Assistant Director), Christina Werth, Julia Jebo Grant, and Esther Toledo made key contributions to this report. In addition, Lynn Cothern, Martin de Alteriis, Karen Deans, Neil Doherty, and Grace Lui provided technical assistance. | Human traffickers exploit men, women, and children for financial gain. Congress enacted the TVPA in 2000, which requires the Secretary of State to report annually on governments' efforts according to the act's minimum standards for the elimination of trafficking. Each year since 2001, State has published the Trafficking in Persons Report , ranking countries into one of four tiers. GAO found in 2006 that the report did not fully describe State's assessment of compliance with standards or provide complete explanations for ranking decisions. The explanatory statement accompanying the Consolidated Appropriations Act, 2014, included a provision for GAO to review the report's preparation and effectiveness. This report addresses (1) the process to develop the report, (2) the extent to which country narratives discuss minimum standards, and (3) the extent to which State assesses the report's effectiveness as a tool to address trafficking. GAO compared 220 country narratives in the 2015 and 2016 reports with the minimum standards and analyzed 82 narratives for countries that changed tier. GAO also interviewed State and other officials. The Department of State's (State) Office to Monitor and Combat Trafficking in Persons (Trafficking Office) compiles information on countries' actions to combat human trafficking and recommends tier rankings for the Trafficking in Persons Report but did not post information on waivers within mandated timeframes. The figure below shows the percentage of countries by tier in the 2015 and 2016 reports. Disagreements about tier rankings between the Trafficking Office and other parts of State, which have different priorities, are usually resolved at the working level, according to officials, with only a few elevated to the Secretary of State for resolution. The Secretary of State determines all final tier rankings. The Trafficking Office recommends whether to grant waivers for countries that otherwise would be automatically downgraded to the lowest tier. The Trafficking Victims Protection Act (TVPA) requires State to post a detailed description of the credible evidence used to support these waivers on its website annually, but State did not do so for the 2014 through 2016 reports until September 2016. State has made improvements to the Trafficking in Persons Report since 2006 but does not explicitly explain the basis for certain countries' tier rankings or, where relevant, why countries' tier rankings changed. GAO's analysis of the 2015 Trafficking in Persons Report found that, compared with GAO's previous report in 2006, there were fewer instances in which minimum standards and criteria were not mentioned in the narratives. However, most narratives for the highest-ranked, or Tier 1, countries in the 2015 and 2016 reports did not explicitly explain the basis for the tier rankings. The narratives sometimes included language that seemed contradictory to certain standards and criteria. In addition, GAO found that, for countries that changed tier from one year to the next, most narratives did not provide an explicit explanation as to why the rankings changed. Standards for Internal Control in the Federal Government states that information should be communicated in a way that is useful to internal and external users. Lacking such clarity could diminish the report's usefulness as a tool to advance efforts to combat trafficking. State and other officials indicate that the Trafficking in Persons Report can be a useful tool to engage other countries about trafficking, but State has not systematically assessed the report's effectiveness. As a result, the effect of the report in encouraging governments to make progress in combating trafficking is not well understood. However, State officials stated that they are working on efforts to assess the report's effectiveness at achieving the goal of addressing trafficking worldwide. GAO is making four recommendations to the Secretary of State to improve the clarity and usefulness of the Trafficking in Persons Report by posting evidence to support downgrade waivers on State's website, improving explanations for tier rankings and changes, and assessing the effectiveness of the report as a tool to address trafficking. State agreed with GAO's recommendations. |
Medicare’s 25 supplier standards were introduced to deter individuals intent on committing fraud from entering the program and to safeguard Medicare beneficiaries by ensuring that suppliers were qualified. The 25 standards apply to a variety of business practices and establish certain requirements and prohibitions (see app. I for a list of the standards). For example, the standards require suppliers to have a physical facility on an appropriate site that is accessible to beneficiaries and to CMS, with stated business hours clearly posted. The following are the most pertinent standards for the purposes of this report: Standard 1: Operate business and furnish Medicare-covered items in compliance with all applicable federal and state licensure and regulatory requirements. Standard 4: Fill orders for equipment or supplies using its own inventory or by contracting with other companies. If the supplier contracts with other companies, it must provide copies of the contracts upon request. Standard 7: Maintain a physical facility that contains space for storing business records including the supplier’s delivery, maintenance, and beneficiary communication records. Standard 8: Permit CMS to conduct on-site inspections. In addition, the supplier’s location must be accessible during reasonable business hours to beneficiaries and to CMS, and must maintain a visible sign and posted hours of operation. Standard 9: Maintain a primary business telephone listed under the name of the business locally or toll-free for beneficiaries. Standard 10: Have a comprehensive liability insurance policy in the amount of at least $300,000 that covers both the supplier’s place of business and all customers and employees of the supplier. Failure to maintain required insurance at all times will result in revocation of the supplier’s billing privileges retroactive to the date the insurance lapsed. Standard 14: Must maintain and replace at no charge or repair directly, or through a service contract with another company, Medicare-covered items it has rented to beneficiaries. The item must function as required and intended after being repaired or replaced. NSC verifies compliance with the 25 standards, primarily during enrollment and reenrollment, through on-site inspections conducted by subcontractors, and desk reviews conducted by NSC analysts. NSC requires that site inspectors arrive unannounced for any inspection. Before the inspection, NSC provides the inspectors with briefing information on the supplier, including information on whether the supplier is enrolling or reenrolling and the type of state licenses to verify. While on site, inspectors are expected to take photographs of the supplier’s sign with its business name, posted hours of operation, complete inventory in stock, and facility. NSC also expects site inspectors to obtain copies of relevant documents, such as state licenses, comprehensive liability insurance policies, contracts with companies for inventory, and contracts for the service and maintenance of DMEPOS supplies. NSC analysts are expected to check that the supplier has all the state licenses that it would need to provide the items it disclosed in its application. The NSC analyst is also expected to contact the insurance underwriter to ensure that the supplier’s policy is valid and the post office to make sure the supplier’s address is listed. NSC also has a procedure to match data from its supplier database with computerized lists maintained by the federal government to ensure that supply company owners are not prohibited from participating in federal health care programs or debarred from federal contracting. In addition, suppliers submitting an enrollment application to NSC on or after March 1, 2008, must also be accredited by an approved organization prior to submitting the application. These accrediting organizations are supposed to ensure that prospective DMEPOS suppliers meet quality standards related to financial and human resource management, consumer management, product safety, product delivery, and beneficiary training, among others. DMEPOS suppliers that enrolled for the first time between January 1, 2008, and February 29, 2008, must obtain accreditation by January 1, 2009. Suppliers that enrolled with Medicare before January 1. 2008, must obtain accreditation by September 30, 2009. Further, CMS is beginning to implement competitive bidding, which will change how suppliers obtain the right to participate in the program. Competitive bidding is a process in which suppliers of medical equipment and supplies compete for the right to provide their products on the basis of established criteria, such as quality and price. Competitive bidding provides CMS with the authority to select suppliers by screening their financial documents such as income statements and credit reports and other application materials. CMS has chosen suppliers to serve beneficiaries in 10 Metropolitan Statistical Areas and the program is scheduled to begin July 1, 2008. Apart from the competitive bidding program, as long as suppliers can demonstrate that they comply with all the standards and have not been excluded from participating in any federal health care program, NSC must enroll or reenroll them in Medicare. Enrolled suppliers are issued a Medicare billing number. If NSC discovers that a new applicant or enrolled supplier is not in compliance with any of the 25 standards, NSC can deny the application or, with CMS’s approval, revoke the supplier’s billing number. Suppliers whose applications have been denied or whose numbers have been revoked can submit a plan to NSC to correct the noncompliance, appeal the denial or revocation by requesting a hearing or both. In January 2008, CMS proposed creating five new standards and strengthening several of the existing standards. The new standards require most suppliers to be open to the public for at least 30 hours per week and prohibit them from sharing an office with another supplier. They will also be required to maintain ordering and referring documentation received from physicians for 7 years. Finally, suppliers that have a federal or state tax delinquency will be prohibited from obtaining or retaining billing privileges. With regard to strengthening the existing standards, CMS will, among other things, require that suppliers maintain an office to store business records and will limit the use of cell phones, beeper numbers, pagers, and answering services as the primary DMEPOS business telephone number during posted hours of operation. After establishing two fictitious DMEPOS storefronts with no inventory and no clients, our undercover investigators were able to successfully complete the Medicare enrollment process. Although CMS and NSC initially requested corrections to our paperwork and then denied our applications because we failed to comply with 2 of the 25 standards, they never detected the fact that our companies were fictitious. After submitting corrective action plans addressing the standards we failed, both companies were approved for Medicare billing privileges and provided with billing numbers. These numbers, in conjunction with billing passwords and software, allowed us to successfully complete Medicare’s test billing process for our Virginia office. Based on a review of case studies we obtained from HHS IG, we believe that, had our operation continued successfully, we could have fraudulently billed Medicare for substantial sums—potentially reaching millions of dollars. Prior to submitting applications to CMS to become approved DMEPOS suppliers, investigators easily set up two fictitious durable medical equipment companies during April and May 2007 using undercover names and bank accounts. Although we did not actually obtain any inventory, we decided that both companies would be generic medical supply companies, providing, among other things, commodes, diabetic supplies, surgical dressings, urinals and bedpans, walkers and canes, and manual wheelchairs. To appear legitimate, we rented 100 square foot commercial offices in both Maryland and Virginia. Both rentals cost approximately $1,000 per month and came complete with Internet, phone and fax service, and a shared secretary. We also set up fictitious Web sites, created brochures and business cards, and purchased a few “props” to be prepared for on-site inspections, including a wheelchair and bed pan. Our investigators for the most part followed the general procedures that any legitimate business would use to begin DMEPOS operations. First, they paid online registration companies about $400 per supplier to obtain required state business licenses, such as sales tax licenses. In addition, for each company, investigators obtained employer identification numbers (EIN) from the Internal Revenue Service (IRS) and National Provider Identification (NPI) numbers from CMS. Investigators obtained both numbers for free online using basic information, such as the business name and address. To make sure that our companies would meet the requirements for DMEPOS suppliers as outlined in the 25 standards, we did the following. We created phony contracts with two fictitious DMEPOS wholesale suppliers to demonstrate that we had the capacity to supply equipment and supplies to clients. We also established phone numbers for each fictitious wholesale supplier. In reality, these phone numbers were unmanned extensions in the GAO building. We created signs for the office doors listing hours of operations and staffed the offices with undercover agents posing as sales representatives. We purchased approximately $3 million worth of general liability insurance covering, among other things, property damage and employee injury, at a cost of $550 annually. The approval process for both applications was similar and the site inspections were even conducted by the same individual, who identified several discrepancies related to our office paperwork. Even though we corrected these discrepancies and submitted all required documentation, both of our applications were initially denied due to lack of compliance with two of the standards. In particular, even though we had already submitted our contracts with phony wholesale suppliers, CMS said that we did not demonstrate that we had the capacity to fill orders for equipment or supplies using our own inventory or by contracting with other companies, as per Standard 4. According to CMS, we also did not demonstrate that we could replace or repair the items we provided to beneficiaries, as per Standard 14. To comply with these two standards, we sent NSC corrective action plans that included repair policies and the same phony DMEPOS wholesale supplier contracts that we had previously submitted. CMS accepted this documentation as valid and approved both of our fictitious DMEPOS companies. In short, the subcontractors hired to review our applications ultimately focused on the technical and administrative completeness of our applications rather than attempting to determine whether we were running valid businesses. Maryland Application Review and Site Visits: The application review process for our fictitious Maryland DMEPOS company took approximately 9 months, from the end of May 2007 until February 2008, when we received an approval letter from CMS containing a Medicare billing number. As shown in figure 1 and described in the following narrative, although NSC and its subcontractors identified several administrative discrepancies, they never uncovered the fact that our DMEPOS company was a fraudulent business. As shown in the figure, we sent our application for review on May 22, 2007. On June 26, 2007, a representative from a contractor hired by NSC to conduct inspections visited the office. The representative explained to our undercover investigator, who was posing as a salesperson, that the visit would be used to gather information needed to verify compliance with CMS’s standards. Using a checklist, the representative asked questions about the company’s return policy, how the items were going to be delivered, and whether we had a warehouse or if we would have items drop-shipped from a supplier. He also asked if any member of our fictitious owner’s family was in the medical supply business, if the owner had any business partners, and if there were any investors. The representative also asked for copies of our state licenses, insurance policy, and other documentation. Our investigator was deliberately vague in his responses to the representative and did not provide the inspector with any of the requested documentation, telling the representative that the “owner” had all that information. The representative also took pictures of the office to make sure that the building was accessible to persons with disabilities. He asked for our insurance documentation and noted that it was missing the company’s physical address. Finally, he mentioned that the business needed a sign in the office window identifying its location and hours. We did not have the hours posted because the building where our office was located had a policy prohibiting postings on office windows; however, the investigator told the representative that he would speak to the building managers and ensure that the hours were posted. The representative then presented our investigator with a site visit acknowledgement form and checked off the following eight documents that needed to be provided to NSC as required by the standards: required licenses, including zoning, complaint log, complaint resolution protocol, rental/purchase option agreement, comprehensive liability insurance, credit agreements or invoices, proof of warranty coverage, and written instructions on beneficiary use. One day later, we sent NSC the information requested on the checklist. On July 17, 2007, NSC requested a full copy of the over 100 page insurance policy; we had sent an abbreviated version provided by our carrier after the site visit, but NSC wanted a complete copy. We immediately contacted the carrier and they agreed to send a complete copy directly to NSC. On August 15, 2007, NSC requested that we provide it with warranty information for DMEPOS rentals and we faxed the information on August 17. We had no further communication with NSC or the subcontractor who conducted the site visit until we called on October 3, 2007, requesting information about the status of our application. On October 8, we received a letter from CMS denying our application for a billing number because our company did not adhere to 2 of the 25 standards. Specifically, even though we had already submitted our contracts with phony wholesale suppliers, CMS said that we did not demonstrate that we had the capacity to fill orders for equipment or supplies using our own inventory or by contracting with other companies, as per Standard 4. According to the letter, we also did not demonstrate that we could replace or repair the items we provided to beneficiaries, as per Standard 14. The letter also informed us that we could reopen our application by submitting a “corrective action plan” addressing our deficiencies within 90 days. As part of the corrective action plan, we sent NSC a repair policy and resubmitted our phony supplier contract on October 30, 2007. We also provided the contact numbers that we created for the wholesale suppliers and informed NSC that we had hired a full- time employee to take care of repair issues. On November 1, 2007, we closed down our physical office and switched to a “virtual office” in the same building, meaning that we no longer had designated office space but still had access to mail and fax services, the shared secretary, and meeting rooms. Although we were never questioned about our plan to correct our repair policy, NSC did call the undercover phone number we set up for our phony DMEPOS wholesale supplier in November and left a message requesting additional information. Posing as a representative for this wholesale supplier, an undercover investigator left a vague message in response but did not confirm the existence of a contract or a credit line. NSC never returned these calls or conducted any other followup. Over the next several months, we repeatedly called NSC and its subcontractors to determine the status of our application and corrective action plan. Each time, we were told that our application was still under review. Finally, on February 4, 2008, NSC requested a voided check or deposit slip to confirm our banking information so that we could be set up for electronic funds transfers. We provided the information the next day, and CMS approved our application and sent us a Medicare billing number in its approval letter dated February 13, 2008 (see fig. 2). Virginia Application Review and Site Visit: The application review process for our fictitious Virginia DMEPOS company took approximately 6 months, from the end of July 2007 until January 2008, when we received an approval letter retroactive to September 28, 2007, and a Medicare billing number. As shown in figure 3 and the following narrative, NSC’s inspectors identified several discrepancies in our application and at our office but never uncovered the fact that our DMEPOS company was a fraudulent business. As shown in figure 3, we sent our application for review on July 24, 2007. Although we complied with most of the application instructions, we did make several errors on the application. Specifically, we failed to provide copies of certain state licenses and certifications and did not check either “yes” or “no” when asked if we had any previous legal actions filed against the company or its owners. NSC detected these errors and on August 15, 2007, we received a letter stating that our application was incomplete. In addition, NSC requested clarification about our office location and requested a voided check or deposit slip to confirm our bank account so that we could be set up for electronic funds transfers. We corrected all these discrepancies by August 30, 2007. NSC’s representative, the same individual who inspected our Maryland office, inspected the site on September 18, 2007. As with the Maryland office, this individual used a simple checklist to conduct the inspection and asked for the same documentation, including licenses, insurance policy, complaint protocols, rental agreement, and instructions for beneficiary use of the supplies. This time, the undercover investigator immediately provided almost all the information requested. The representative provided a site acknowledgment form with just one missing item checked off: written instructions on beneficiary use/maintenance of supplies. We sent these instructions to NSC on September 20, 2007. On October 4, 2007, we received a letter from CMS denying our application for a billing number because our company did not adhere to 2 of the 25 standards—the same standards we had failed to comply with in Maryland. Specifically, we did not demonstrate that we had the capacity to fill orders for equipment or supplies using our own inventory or by contracting with other companies, as per Standard 4. According to the letter, we also did not demonstrate that we could replace or repair the items we provided to beneficiaries, as per Standard 14. As in Maryland, we sent NSC our repair policy and resubmitted our phony wholesale supplier contract on December 11, 2007, as part of our corrective action plan to show compliance with the standards. Because our corrective action plans for the Maryland and Virginia offices were identical, we intentionally delayed sending our Virginia plan by several months so as not to arouse suspicion with NSC. We also provided the contact numbers that we created for the wholesale suppliers and informed NSC that we hired a full-time employee to take care of repair issues. To our knowledge, NSC did not do any further investigation and accepted the existence of the fictitious DMEPOS wholesale suppliers we created. On January 30, 2008, we received an approval letter and Medicare billing number. The letter stated that the effective date of the approval was retroactive to September 28, 2007—the date our application was initially denied. After requesting an electronic billing enrollment package and obtaining passwords from CMS, we were able to successfully complete Medicare’s often confusing test billing process for our Virginia office; we did not complete test billing for our Maryland office because we did not receive the necessary passwords from CMS by the close of our investigation in June 2008. Had we been real fraudsters, we could have fraudulently billed Medicare for substantial sums, potentially reaching millions of dollars. Although the Medicare approval letters we received contained billing numbers, they contained no instructions for how to begin the electronic billing process. Consequently, we had to do our own research on CMS and NSC Web sites in order to figure out that we needed to download billing enrollment packets so that we could be approved to submit electronic claims. We sent completed enrollment packets for both companies to CMS’s contractor by the beginning of March 2008. These packets included billing applications, completed Electronic Data Interchange (EDI) agreements and software order forms, contact information, NPIs, and EINs for our two companies. We did not receive any further information related to the Maryland DMEPOS company. On March 13, 2008, we received, among other things, an electronic billing submitter identification number and password for the Virginia office. There were no instructions accompanying this information and it was not clear to which systems each applied. Using billing software downloaded from the Web, we began processing claims by entering fictitious dates of service, our undercover beneficiary information, DMEPOS item codes and charges, generic diagnosis codes, our billing numbers, and physician identification numbers that we found on the Internet. It is important to note that we only used the latter to complete test billing; we did not compromise the provider status of any legitimate physicians by submitting fraudulent claims using their identification information. We then submitted several completed claims to CMS for acceptance, but our first few attempts were rejected. Our undercover investigator called CMS’s help desk for assistance and found that we had to input our billing number on one of CMS’s billing-related Web sites. There had been no instructions in the billing packet indicating that this was a required step. Once we provided our billing number at the site, CMS approved our initial claims. As required by the electronic enrollment application, DMEPOS suppliers must submit a single test file with at least 25 claims that are 95 percent error-free in order to complete test billing. On May 14, 2008, we successfully submitted a file with 27 claims for $6,876.34 with no errors. As shown by four closed cases from South Florida that we obtained from the HHS IG, criminals use similar techniques to establish fictitious DMEPOS suppliers and then employ billing schemes to obtain millions of dollars in Medicare funds from the government. Specifically, once criminals have created fraudulent DMEPOS companies, they typically steal or buy Medicare beneficiary numbers and physician identification numbers in order to repeatedly submit claims. Case Study 1: The owner of this fraudulent company admitted to HHS that she started her DMEPOS company after working as a secretary for another fraudulent company. She rented an office in the same location as this company and worked with her former employer to obtain all the required state licenses. She also purchased fake invoices for DMEPOS equipment from another company to make it seem as though she was obtaining legitimate supplies from a wholesaler. In February 2005, she received her Medicare provider number and then provided her former employer with kickbacks in order to have access to Medicare beneficiary numbers. From January 1, 2006, through April 30, 2007, she submitted about $1.5 million in claims to Medicare for supplies including urinary bags, tubing, canisters, and air mattresses. Ultimately, Medicare paid the company $372,286. The owner was indicted for health care fraud on September 11, 2007, and was convicted and sentenced on January 22, 2008, to 30 months imprisonment and 3 years supervised release, and ordered to pay $372,286 in restitution. Case Study 2: This case relates to three fraudulent companies with the same owner. In October 2006, the owner bought a DMEPOS company that had been incorporated in August 2006 and used the original owner’s identity, billing number, and beneficiaries to submit claims in an attempt to avoid detection by CMS. The new company used an address in Coral Gables but did not have a real office and did not serve customers. The owner also stole the personal identification numbers of licensed physicians. According to the HHS IG, these physicians did not have any involvement with the company and did not provide care or prescriptions related to the submitted claims. During the course of its investigation, HHS discovered that the owner had opened another fraudulent DMEPOS company. This company used a utility closet as its address—HHS investigators found buckets of sand mix, road tar, and a large wrench in the room, but no medical files, office equipment, or telephone. This time, the owner used a fictitious physician name and identification number to submit claims to CMS; CMS confirmed that this number should not have passed the initial computer system edit for payment. Finally, while conducting a financial analysis of the second company’s bank account records, investigators found that the owner operated yet another fraudulent DMEPOS company. In total, from October 2006 through March 2007, the owner submitted claims from these three companies in excess of $5.5 million and ultimately received about $77,000 from Medicare. In August 2007, the owner was sentenced to 37 months in prison for conspiracy to commit health care fraud, ordered to pay over $70,000 in restitution, and made to forfeit his Miami home and Rolls Royce. Case Study 3: This company billed Medicare for $4.4 million dollars worth of supplies and services that were never delivered. These claims were submitted between March and July 2006 using real beneficiary numbers that the DMEPOS company owner had purchased illegally. Ultimately, Medicare paid approximately half of these claims ($2.2 million). According to HHS IG records, the only employee not involved in the scheme was a secretary who told investigators that there was never any business activity in the office and that the owner rarely visited. She also stated that Medicare beneficiaries often called her to complain that they had received an explanation of benefits letter in the mail even though they did not receive any supplies or services. The Bank of America eventually filed a suspicious activity report as a result of the company’s billing practices. The Federal Bureau of Investigation (FBI) and HHS IG subsequently determined that the owner stole the identities and physician identification numbers of practicing physicians to legitimize his fraudulent claims. The owner plead guilty to one count of health care fraud and on March 16, 2007, was sentenced to 4 years in prison and 3 years of probation, assessed a $100 fee, and ordered to pay $2.2 million in restitution. Case Study 4: The owner of this DMEPOS company operated a fictitious supply business out of an office connected to a real estate company and purchased real Medicare beneficiary numbers illegally for $45 each in order to submit claims. Through data mining, the HHS IG determined that the company displayed billing patterns that were highly consistent with known fraudulent practices. Specifically, the company owner used a small number of stolen physician identification numbers to submit numerous claims for expensive DMEPOS items that are typically used in fraudulent schemes, including motorized wheelchairs, wound therapy pumps, and infusion equipment. From July 2005 through October 2006, the DMEPOS company billed the Medicare program over $1 million and received over $500,000 in payments. On August 7, 2007, the owner was ordered to pay $702,186 in restitution to Medicare and was sentenced to 2 years in federal prison and 3 years of probation. On June 18, 2008, we informed representatives from CMS about the results of our investigation. In response, they stated that they are implementing new supplier requirements, including the accreditation process and the revisions and additions to the 25 standards that were proposed in January 2008. They also acknowledged that our covert testing illustrates gaps in oversight that still require improvement and stated that they would continue to work to strengthen the entire DMEPOS enrollment process. Although CMS took actions to address our prior recommendations, we found that the fraud prevention controls in place during our investigation were not effective in preventing our fictitious DMEPOS companies from obtaining legitimate Medicare billing numbers and completing test billing. As indicated, CMS is currently taking additional actions to strengthen both the 25 standards and its oversight of the DMEPOS supplier enrollment process; however, these actions will only be successful if those tasked with ensuring compliance exercise due diligence when conducting screenings and inspections. Our covert tests clearly demonstrate that a simple paperwork review is not sufficient. Unless CMS and its contractors scrutinize suppliers to ensure that they are responsible, legitimate businesses, DMEPOS fraud will continue to cost taxpayers billions of dollars each year. As agreed with your offices, unless you announce the contents of this report earlier, we will not distribute it until 30 days from its date. At that time, we will send copies to the Administrator of CMS and other interested parties. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-6722 or kutzg@gao.gov if you have any questions concerning this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors are listed in appendix II. Operates its business and furnishes Medicare-covered items in compliance with all applicable Federal and State licensure and regulatory requirements. Has not made, or caused to be made, any false statement or misrepresentation of a material fact on its application for billing privileges. (The supplier must provide complete and accurate information in response to questions on its application for billing privileges. The supplier must report to CMS any changes in information supplied on the application within 30 days of the change.) Must have the application for billing privileges signed by an individual whose signature binds a supplier. Fills orders, fabricates, or fits items from its own inventory or by contracting with other companies for the purchase of items necessary to fill the order. If it does, it must provide, upon request, copies of contracts or other documentation showing compliance with this standard. A supplier may not contract with any entity that is currently excluded from the Medicare program, any State health care programs, or from any other Federal Government Executive Branch procurement or nonprocurement program or activity. Advises beneficiaries that they may either rent or purchase inexpensive or routinely purchased durable medical equipment, and of the purchase option for capped rental durable medical equipment, as defined in § 414.220(a) of this subchapter. (The supplier must provide, upon request, documentation that it has provided beneficiaries with this information, in the form of copies of letters, logs, or signed notices.) Honors all warranties expressed and implied under applicable State law. A supplier must not charge the beneficiary or the Medicare program for the repair or replacement of Medicare covered items or for services covered under warranty. This standard applies to all purchased and rented items, including capped rental items, as described in § 414.229 of this subchapter. The supplier must provide, upon request, documentation that it has provided beneficiaries with information about Medicare covered items covered under warranty, in the form of copies of letters, logs, or signed notices. Maintains a physical facility on an appropriate site. The physical facility must contain space for storing business records including the supplier’s delivery, maintenance, and beneficiary communication records. For purposes of this standard, a post office box or commercial mailbox is not considered a physical facility. In the case of a multi-site supplier, records may be maintained at a centralized location. Permits CMS, or its agents to conduct on-site inspections to ascertain supplier compliance with the requirements of this section. The supplier location must be accessible during reasonable business hours to beneficiaries and to CMS, and must maintain a visible sign and posted hours of operation. Maintains a primary business telephone listed under the name of the business locally or toll-free for beneficiaries. The supplier must furnish information to beneficiaries at the time of delivery of items on how the beneficiary can contact the supplier by telephone. The exclusive use of a beeper number, answering service, pager, facsimile machine, car phone, or an answering machine may not be used as the primary business telephone for purposes of this regulation. Has a comprehensive liability insurance policy in the amount of at least $300,000 that covers both the supplier’s place of business and all customers and employees of the supplier. In the case of a supplier that manufactures its own items, this insurance must also cover product liability and completed operations. Failure to maintain required insurance at all times will result in revocation of the supplier’s billing privileges retroactive to the date the insurance lapsed. Description of what a supplier must do Must agree not to contact a beneficiary by telephone when supplying a Medicare-covered item unless one of the following applies: (i) The individual has given written permission to the supplier to contact them by telephone concerning the furnishing of a Medicare-covered item that is to be rented or purchased. (ii) The supplier has furnished a Medicare-covered item to the individual and the supplier is contacting the individual to coordinate the delivery of the item. (iii) If the contact concerns the furnishing of a Medicare-covered item other than a covered item already furnished to the individual, the supplier has furnished at least one covered item to the individual during the 15-month period preceding the date on which the supplier makes such contact. Must be responsible for the delivery of Medicare covered items to beneficiaries and maintain proof of delivery. (The supplier must document that it or another qualified party has at an appropriate time, provided beneficiaries with necessary information and instructions on how to use Medicare-covered items safely and effectively.) Must answer questions and respond to complaints a beneficiary has about the Medicare-covered item that was sold or rented. A supplier must refer beneficiaries with Medicare questions to the appropriate carrier. A supplier must maintain documentation of contacts with beneficiaries regarding complaints or questions. Must maintain and replace at no charge or repair directly, or through a service contract with another company, Medicare-covered items it has rented to beneficiaries. The item must function as required and intended after being repaired or replaced. Must accept returns from beneficiaries of substandard (less than full quality for the particular item) or unsuitable items (inappropriate for the beneficiary at the time it was fitted and rented or sold) from beneficiaries. Must disclose these supplier standards to each beneficiary to whom it supplies a Medicare-covered item. Must comply with the disclosure provisions in § 420.206 of this subchapter. Must not convey or reassign a supplier number. Must have a complaint resolution protocol to address beneficiary complaints that relate to supplier standards in paragraph (c) of this section and keep written complaints, related correspondence and any notes of actions taken in response to written and oral complaints. Failure to maintain such information may be considered evidence that supplier standards have not been met. (This information must be kept at its physical facility and made available to CMS, upon request.) Must maintain the following information on all written and oral beneficiary complaints, including telephone complaints, it receives: (i) The name, address, telephone number, and health insurance claim number of the beneficiary. (ii) A summary of the complaint; the date it was received; the name of the person receiving the complaint, and a summary of actions taken to resolve the complaint. (iii) If an investigation was not conducted, the name of the person making the decision and the reason for the decision. Provides to CMS, upon request, any information required by the Medicare statute and implementing regulations. All suppliers of DMEPOS and other items and services must be accredited by a CMS-approved accreditation organization in order to receive and retain a supplier billing number. The accreditation must indicate the specific products and services, for which the supplier is accredited, in order for the supplier to receive payment for those specific products and services. All DMEPOS suppliers must notify their accreditation organization when a new DMEPOS location is opened. The accreditation organization may accredit the new supplier location for three months after it is operational without requiring a new site visit. Description of what a supplier must do All DMEPOS supplier locations, whether owned or subcontracted, must meet the DMEPOS quality standards and be separately accredited in order to bill Medicare. An accredited supplier may be denied enrollment or their enrollment may be revoked, if CMS determines that they are not in compliance with the DMEPOS quality standards. All DMEPOS suppliers must disclose upon enrollment all products and services, including the addition of new product lines for which they are seeking accreditation. If a new product line is added after enrollment, the DMEPOS supplier will be responsible for notifying the accrediting body of the new product so that the DMEPOS supplier can be re-surveyed and accredited for these new products. In addition to the individual named above, Matthew Harris, Assistant Director; Erika Axelson; Gary Bianchi; Valerie Blyther; Norman Burrell; Ray Bush; Shafee Carnegie; Jennifer Costello; Paul Desaulniers; Dennis Fauber; Craig Fischer; Janice Friedeborn; Jessica Gray; Ken Hill; Christine Hodakievic; Jason Kelly; Barbara Lewis; Christopher Madar; Jeffrey McDermott; Andrew McIntosh; Keith Steck; and Viny Talwar made key contributions to this report. | According to the Department of Health and Human Services (HHS), schemes to defraud the Medicare program have grown more elaborate in recent years. In particular, HHS has acknowledged Centers for Medicare & Medicaid Service's (CMS) oversight of suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) is inadequate to prevent fraud and abuse. Specifically, weaknesses in the DMEPOS enrollment and inspection process have allowed sham companies to fraudulently bill Medicare for unnecessary or nonexistent supplies. From April 2006 through March 2007, CMS estimated that Medicare improperly paid $1 billion for DMEPOS supplies--in part due to fraud by suppliers. Due to the committee's concern about vulnerabilities in the enrollment process, GAO used publicly available guidance to attempt to create DMEPOS suppliers, obtain Medicare billing numbers, and complete electronic test billing. GAO also reported on closed cases provided by the HHS Inspector General (IG) to illustrate the techniques used by criminals to fraudulently bill Medicare. On June 18, 2008, we briefed CMS representatives on the results of our investigation. In response, they acknowledged that our covert tests illustrate gaps in oversight that still require improvement and stated that they would continue to work to strengthen the entire DMEPOS enrollment process. Investigators easily set up two fictitious DMEPOS companies using undercover names and bank accounts. GAO's fictitious companies were approved for Medicare billing privileges despite having no clients and no inventory. CMS initially denied GAO's applications in part because of this lack of inventory, but undercover GAO investigators fabricated contracts with nonexistent wholesale suppliers to convince CMS and its contractor, the National Supplier Clearinghouse (NSC), that the companies had access to DMEPOS items. The contact number GAO gave for these phony contracts rang on an unmanned undercover telephone in the GAO building. When NSC left a message looking for further information related to the contracts, a GAO investigator left a vague message in return pretending to be the wholesale supplier. As a result of such simple methods of deception, both fictitious DMEPOS companies obtained Medicare billing numbers. After requesting an electronic billing enrollment package and obtaining passwords from CMS, GAO investigators were then able to successfully complete Medicare's test billing process for the Virginia office. GAO could not complete test billing for the Maryland office because CMS has not sent the necessary passwords. However, if real fraudsters had been in charge of the fictitious companies, they would have been clear to bill Medicare from the Virginia office for potentially millions of dollars worth of nonexistent supplies. Once criminals have similarly created fictitious DMEPOS companies, they typically steal or illegally buy Medicare beneficiary numbers and physician identification numbers and use them to repeatedly submit claims. In one case from HHS IG, a company received $2.2 million in payments from Medicare for supplies and services that were never delivered. The owner submitted these fraudulent claims from March 2006 through July 2006 using real beneficiary numbers and physician identification numbers that he had purchased illegally. The only employee not involved in the scheme was a secretary, who told HHS IG that there was no business activity in the office and that the owner was rarely there. Another case related to an individual who stole beneficiary numbers and physician identification numbers and submitted $5.5 million in claims for three fraudulent offices from October 2006 through March 2007. He operated one of these offices out of a utility closet containing buckets of sand mix, road tar, and a large wrench, but no medical files, office equipment, or telephone. |
Several federal agencies and other entities have responsibility for the movement of inbound international mail and express cargo into the United States. The Universal Postal Union (UPU), a United Nations specialized agency with over 190 member countries, governs the international movement of mail amongst member countries under the Universal Postal Convention. The Department of State (State Department) represents the United States, along with USPS, at the UPU Congress and other UPU meetings, including those at which policies and requirements related to mail security are discussed. As the designated postal operator in the United States, USPS accepts and delivers inbound international mail on behalf of designated postal operators around the world. Inbound international mail generally arrives in the United States via five international service centers (ISC) located in New York City, New York; Miami, Florida; Los Angeles, California; San Francisco, California; and Chicago, Illinois. Ground handlers employed by air carriers transport mail to ISCs, where it is accepted by USPS. In general, USPS is required to present all inbound international mail to CBP for inspection. Express consignment operators accept items from customers in foreign countries and transport and deliver those items in the United States. For cargo arriving by aircraft, express consignment operators are required to provide EAD to CBP prior to the scheduled arrival of express cargo in the Unites States. A number of federal agencies are responsible for screening mail and express cargo upon arrival in the United States. Under the Department of Homeland Security, CBP has, among other responsibilities, primary responsibility for enforcing customs and agriculture laws and regulations and for preventing terrorists and their weapons from entering at U.S. ports of entry. As such, CBP operates 328 ports of entry at which it inspects inbound cargo, including express cargo and mail, to enforce laws and regulations while seeking to ensure the safe and efficient flow of goods through U.S. ports of entry. CBP coordinates with other federal agencies—including TSA, the U.S. Postal Inspection Service (USPIS), and the Food and Drug Administration (FDA)—to assess the compliance of inbound items with applicable laws and regulations. For additional information on the above entities as well as others with a role in ensuring the security of inbound international items, see appendix II. CBP has identified and seized a variety of inbound international items that may pose a threat to U.S. security, health and safety, business, and ecology. Screening and review to identify illegal and prohibited items may occur either prior to or after the items’ arrival in the United States. CBP’s highest priority in screening inbound international items is to prevent terrorists and their weapons—including hazardous materials or weapons that may threaten the safety of airline passengers and crew— from entering the United States. Generally, measures to identify these types of threats occur prior to items arriving in the United States. For example, in 2010, individuals located in Yemen with ties to al Qaida attempted to ship explosive devices in express cargo on-board aircraft destined for the United States. Those items were identified and intercepted before reaching the United States. According to CBP, while no additional attempted attacks of that nature have been reported since, CBP has identified a substantial number of air cargo shipments that have potential ties to terrorism and that therefore may represent a threat. CBP inspects mail and express cargo arriving in the United States and seizes illegal goods, including those that may pose threats to health and safety, ecology, and U.S. businesses. According to data from CBP’s Seized Asset and Case Tracking System (SEACATS), during fiscal years 2012 through 2016 CBP conducted about 308,000 seizures of threatening or illegal goods in inbound international items. Of those, CBP seized about 70 percent from mail and 30 percent from express cargo (see fig. 1). This does not necessarily indicate a higher rate of seizures from mail compared to express cargo, as seizure rates may be affected by differences in inbound volume among mail and express cargo, as well as differences in CBP inspection processes for each, as discussed later in this report. Seized items are categorized in SEACATS as either drugs or merchandise. Drugs: Illegal or inadmissible drugs accounted for about 47 percent of total seizures from fiscal years 2012 through 2016 and, among those, the top 10 categories are shown in figure 2. Examples of seized drugs are shown in figure 3. According to testimony by a U.S. Immigration and Customs Enforcement official, a recent increase in deaths related to the synthetic opioid fentanyl has resulted in an increased focus on identifying methods by which traffickers bring fentanyl into the United States. In fiscal years 2012 through 2015, CBP’s seizure data reflect zero seizures of fentanyl, but show 53 such seizures in fiscal year 2016 via both mail and express cargo. According to CBP, a specific category code for fentanyl was added to SEACATS in fiscal year 2016. Prior to that, seizures of fentanyl were captured under other categories in SEACATS. Merchandise: Merchandise accounted for about 53 percent of total seizures in fiscal years 2012 through 2016. Common categories of goods seized were Cuban cigars, cigarettes, fraudulent identification documents, clothing, footwear, and other counterfeit goods (see fig. 4). CBP may seize merchandise based on several different types of violations. For example, according to SEACATS data, Cuban cigars may violate laws against trading with targeted foreign countries and regimes, including Cuba. CBP generally seizes clothing, footwear, watches, and other counterfeit goods based on laws against trademark infringement (see examples in fig. 5). According to USPIS and CBP officials, USPIS works with CBP to seize fraudulent mail, such as illegal sweepstakes and lottery schemes. These seizures are tracked in SEACATS, but do not represent a large percentage of seizures. For example, there were approximately 2,000 seizures of illegal lottery mail reported in SEACATS from 2012 through 2016. CBP also coordinates with the U.S. Department of Agriculture (USDA) to intercept agricultural items including plants and pests that could be harmful to consumers or U.S. agriculture. In fiscal year 2016, CBP reported about 170,000 such interceptions at ports of entry (including mail, express cargo, and other cargo). However, these interceptions may be undercounted in SEACATS. For example, CBP officials stated that if inspection of a package containing many items results in identification of one prohibited agricultural item, CBP would likely intercept only the prohibited item and allow delivery of the rest of the package, so it would not be counted as a seizure. Express consignment operators accept items for delivery to the United States at points of sale in foreign countries and maintain control of items until they are delivered to addressees in the United States. Express cargo undergoes screening at various points as required, including before and after it arrives in the United States. (see fig. 6). As a result of their control over the collection of EAD, express consignment operators are able to provide EAD to CBP at two different stages: (1) prior to loading items on aircraft at foreign airports under the currently voluntary Air Cargo Advance Screening (ACAS) pilot and (2) prior to items’ scheduled arrival in the United States: 1. CBP and TSA have established the Air Cargo Advance Screening (ACAS) pilot project to receive EAD from participating air carriers on cargo bound for the United States as a means to identify cargo that may have a catastrophic impact on the aircraft prior to being loaded onto that aircraft. Under the pilot, passenger air carriers, freight forwarders, and all-cargo air carriers voluntarily send EAD for air cargo to CBP. CBP and TSA review EAD under the ACAS pilot prior to the cargo’s being loaded onto the aircraft and conduct analyses only to identify threats to aviation security—not threats to, for example, public health, ecology, and U.S. businesses. Additionally, the ACAS pilot does not include inbound international mail. 2. All cargo carriers, including those transporting express cargo, are required to provide EAD to CBP for all inbound cargo arriving by aircraft prior to its scheduled arrival in the United States. As express consignment operators unload and process express cargo in the United States, items are routed based on the results of CBP’s analysis of EAD. CBP and other federal agencies each separately determine which arriving shipment items should be inspected. Express consignment operators scan each item as it is unloaded and, depending on the results of the scan, route items for CBP or other inspection, for other review including brokerage assessment, or to be processed for delivery. CBP officials told us that analysis of EAD is only one tool among many that help CBP identify threats in inbound international express cargo items. For example, even with access to EAD, CBP officials stated that they conduct random inspections in order to identify new trends. As mail arrives in the United States, USPS takes possession of the mail and presents it to CBP for inspection. Mail undergoes screening at various steps as required, including before and after it arrives in the United States (see fig. 7). At each location, CBP determines which mail it inspects based on risk determinations made by CBP. Additionally, CBP officials may target mail based on intelligence and characteristics resulting from past experiences and seizures. As such, CBP officials at each ISC may use different criteria to target and inspect different types of mail. At all five ISC locations, USPS and CBP officials stated that they meet and communicate regularly to discuss logistics and that they generally have a good working relationship. For example, during the holiday season, CBP and USPS officials coordinate to establish expanded operating hours to accommodate the increase in mail volume. USPS and CBP described challenges in screening mail: Increase in Mail Volume: USPS reported a 54 percent increase in inbound international mail volume from fiscal year 2012 to fiscal year 2016, an increase that, according to USPS and CBP officials, has presented a challenge for USPS and CBP to process and inspect mail. USPS receives inbound mail from foreign postal operators in various types of receptacles—including sacks and bins—that are scanned as they are accepted at the ISCs. Each receptacle may, in turn, contain many (in some cases hundreds) individual pieces of mail. As shown in figure 8, for example, the ISCs may receive thousands of large sacks of mail—transported via large pallets or dollies—per day. USPS and CBP officials at one ISC told us that, because the volume of mail has increased in recent years, CBP asked USPS to sort mail in a manner that will allow CBP to focus on items they consider to be higher risk. According to USPS officials, they are currently developing an automated system to sort mail per CBP’s preference, as manual sorting was too time consuming. Presentation of Mail: The USPS Office of Inspector General (OIG) recently found that at one ISC, USPS did not consistently present all mail to CBP as required. CBP officials we spoke with generally said they believe USPS is trying to follow requirements for presenting mail, but CBP officials at two ISCs said that there are occasional lapses. In response to the OIG’s finding, USPS management stated that they had clarified requirements with CBP officials, issued new procedures, and provided training and instructions for employees. Additionally, USPS and CBP are developing a memorandum of understanding (MOU) that is intended to detail the work methods and processing procedures for presenting mail to CBP. According to officials, CBP is hopeful that the MOU will be completed by December 31, 2017. Unlike express consignment operators, USPS is not currently required to provide CBP with EAD for inbound international mail and does not have control over mail prior to its arrival in the United States. Thus, USPS relies on foreign postal operators to collect and provide EAD voluntarily or by mutual agreement. According to USPS data, USPS received EAD for about one third of all inbound international mail (excluding letters, flats, and military/diplomatic mail) for the period from April 2016 through March 2017.The most recently available data for the month of March 2017 indicate that EAD was unavailable for roughly half of all inbound international mail (excluding letters, flats, and military/diplomatic mail). While USPS takes part in data-sharing agreements involving over 30 countries to obtain EAD for several types of mail, the agreements do not currently cover EAD for all products or necessarily require participating countries to provide EAD. According to USPS officials, they participate in two types of data-sharing agreements: (1) agreements that establish standards for, but do not require, data sharing; and (2) agreements that establish rates for specific types of mail and require participants to provide EAD for mail covered under the agreements. Even for products covered under agreements that establish data-sharing requirements, USPS does not receive EAD for all covered inbound mail. USPS stated several reasons foreign postal operators may not share EAD for mail covered under EAD-sharing agreements, including: The foreign postal operator, or some of its retail outlets, may not have the technology infrastructure to collect and transmit EAD to USPS. The foreign postal operator has focused on providing EAD only for a certain type of mail (such as commercial versus retail). The costs of collecting and transmitting EAD are prohibitive or not justified by the small amount of mail. According to USPS officials, as foreign postal operators with which USPS has established binding data-sharing agreements make progress in fulfilling obligations to share EAD, USPS officials plan to monitor progress and use appropriate contractual remedies if they determine there is a breach of contract. In 2014 and 2015, USPS and CBP initiated two pilot programs at the New York ISC to target certain mail for inspection using some of the EAD obtained under data-sharing agreements with foreign postal operators. According to USPS documents, the goal of these pilots is to test the effectiveness of placing holds on mail that has been targeted based on EAD. Currently, CBP does not use EAD to target mail for inspection outside of these pilots. In the first pilot (Pilot 1), USPS agreed to provide EAD to CBP for certain mail from a country with a small mail volume. CBP targets an average of five pieces of mail per day for USPS to provide to CBP for inspection. In the second pilot (Pilot 2), USPS provides CBP with EAD on certain mail from a country with a large mail volume, from which CBP targets an average of 10 pieces of mail each day for USPS to locate and provide for inspection. According to USPS officials, when USPS employees scan either individual targeted pieces or larger sacks containing targeted mail, they are alerted to the CBP hold and set it aside for inspection. USPS provided information on the implementation costs for these pilots thus far, though further costs could be incurred as USPS identifies solutions to address challenges: $1.8 million for information technology upgrades to exchange $75,000 annually in personnel costs related to identifying and providing targeted mail to CBP, and $1.3 million to upgrade mail receptacle scanning technology. Since each pilot began, USPS has made efforts to locate and provide CBP with the targeted mail. For these pilots, CBP has collected performance data on the percentage of targeted mail USPS has provided for inspection as well as the percentage of inspected mail seized. According to GAO’s analysis of available data on the percentage of targeted mail provided for inspection: For Pilot 1, for the period from July 2014 through January 2017 (the time period for which these data were available), USPS provided about 82 percent of targeted mail for inspection. For Pilot 2, for the period from November 2015 through December of 2016 (the time period for which these data were available), USPS provided approximately 58 percent of targeted mail for inspection. These percentages reflect a rolling average of targeted mail provided for inspection during this period and percentages vary substantially from month to month. As discussed below, USPS is currently testing methods for identifying targeted mail that may improve their ability to provide targeted mail to CBP. According to USPS and CBP, USPS has been unable to provide some targeted mail for inspection because locating targeted mail once it arrives at an ISC has been a challenge. As discussed earlier, each sack may contain hundreds of pieces of mail that are not individually scanned upon arrival, so locating a targeted item requires manually sorting through the entire sack, and USPS employees may overlook the item while sorting through the larger sack to locate targeted mail. According to USPS officials, they are currently testing an automated method to identify targeted mail within these larger sacks. Another challenge that USPS officials identified in implementing the pilots is that USPS relies on data from foreign postal operators on which pieces of mail are contained in each sack or receptacle, which may be inaccurate. As such, USPS may not be able to locate targeted mail because (1) the item was actually located in a sack that had already been processed or (2) the item is located in a sack that has not yet arrived in the United States. USPS officials stated that if the sack containing targeted mail is not set aside as sacks are scanned—before sacks are opened and emptied—USPS is unlikely to identify individual pieces of mail again until they are individually scanned; either at delivery or as they move between post offices. According to USPS officials, they are currently collecting data to better understand this problem. Standards for Internal Control in the Federal Government states that defining program goals in specific and measurable terms allows for the assessment of performance toward achieving objectives. As stated by USPS, the goal of these pilots is to test the effectiveness of placing holds on mail that has been targeted based on EAD. However, USPS and CBP have not defined the goal for these pilots in specific and measurable terms. While USPS and CBP have collected some performance information for these pilots, including the percentage of targeted mail identified and provided to CBP, this information is not linked to a specific performance target agreed upon by USPS and CBP— such as a specific percentage of targeted mail provided to CBP for inspection. Further, the agencies have not conducted an analysis to determine if the pilot programs are achieving the desired outcomes. In November 2016, USPS officials told us they were planning to expand the pilots to other ISCs to include additional products and mail from other countries—and CBP headquarters officials stated that the expansion would happen as early as that month for one ISC. However, as of February 2017, CBP officials involved in the pilot did not agree that it was ready for expansion based on USPS’s frequent inability to provide targeted mail to CBP for inspection. The CBP officials estimated that to expand the pilot, they would want USPS to be able to locate close to 100 percent of the targeted mail. CBP headquarters officials stated in June 2017 that they would consider the pilots to be successful if USPS provided more than 95 percent of targeted mail for inspection. Because USPS and CBP have not agreed to specific performance goals or targets, it is difficult to make well-informed decisions regarding the possible expansion of these pilots in the future. Without established performance goals against which the success of the pilots are to be evaluated, USPS and CBP may risk using resources to expand or implement a program that may not further efforts to provide targeted mail to CBP for inspection. USPS and State Department officials identified three options to obtain more EAD, as well as potential tradeoffs associated with each. Strategically pursue additional agreements with foreign postal operators to provide EAD: The USPS OIG recently recommended that USPS pursue collection of additional EAD in future bilateral agreements with foreign postal operators based on USPS and CBP recognition of the importance of EAD in targeting mail for inspection. USPS has been pursuing this option in recent years, as discussed above, and, according to USPS officials, is currently negotiating with several additional countries to reach agreements on providing EAD. USPS officials stated that in future negotiations, their intention is to establish binding bilateral data- sharing agreements, rather than agreements that establish standards for, but do not require, data sharing. In addition, according to a State Department official with responsibility for international postal policy, the Department is considering elevating the issue of mail security and related agreements into the diplomatic arena, a step that could have the effect of prioritizing this issue, though USPS would continue to lead negotiations with foreign postal operators. According to USPS officials, this option could result in availability of EAD for a large percentage of inbound mail if the focus is on negotiating with large-volume countries. However, using this option, USPS and CBP would still be dependent on foreign postal operators to provide data voluntarily or by mutual agreement. Additionally, according to USPS officials—even if they participate in a data-sharing agreement with USPS—foreign postal operators retain the ability to send mail without EAD to the United States under standard Universal Postal Union (UPU) requirements (USPS stated that foreign postal operators might not provide EAD as established in agreements for a variety of reasons, as discussed above). Further, according to a State Department official, establishing data-sharing agreements with some countries may present privacy concerns. According to the official, some of the countries that are most eager to exchange EAD tend to be countries that have an interest in surveilling their citizens. Conversely, the official stated that some countries are concerned about collecting the personal information of citizens and are reluctant to enter into agreements for sharing EAD. Pursue EAD requirements through the Universal Postal Union: During the 2016 UPU Congress, member countries agreed to changes—including future requirements for barcodes on small packets—that have laid the groundwork for EAD requirements in the future. The United States drives this effort as joint chair with India on a UPU committee focused on issues related to security, customs, transportation, and standards. Additionally, USPS officials told us they are participating—along with 52 other postal operators—in a UPU program designed to increase transmission of EAD for e-commerce shipments. According to a State Department official, changes to UPU requirements could result in more universal adoption of EAD collection than current efforts to establish data- sharing agreements. The official also stated that while adoption of universal EAD requirements may occur incrementally over many years, the data-sharing standards and tools that are currently being developed through this UPU process could provide countries with capacity-building resources that would not be available to them outside of a UPU-driven process (in a bilateral negotiation, for example). However, State Department and USPS officials stated that universal adoption of EAD requirements through the UPU will likely take many years because many foreign postal operators lack the infrastructure and capacity to collect EAD and it is unclear how willing some countries are to build that capacity. Legally Require Collection of EAD: On February 14, 2017, versions of the Synthetics Trafficking and Overdose Prevention Act of 2017 (STOP Act) were introduced in both the House of Representatives and the U.S. Senate. The STOP Act bills, if passed, would require that all inbound international mail—those items USPS receives from foreign postal operators—be accompanied by EAD, which would be provided to CBP for analysis. The bills would also authorize the collection of an additional customs fee as well as establish penalties for non-compliance. According to a State Department official, the requirements in the two pending bills could cause some countries to provide EAD to USPS. However, according to USPS and State Department officials, many countries do not currently have the ability to carry out the provisions in the bills. As a result, the officials stated that the requirement would likely result in a temporary disruption to the flow of inbound international mail and commerce and potentially result in a long-term halt to the flow of mail from some countries. Additionally, the officials stated that the proposed requirement could have implications related to USPS participation in the UPU and, thus, the exchange of mail between the United States and UPU member countries. According to USPS and CBP officials, increasing the use of EAD to target mail for inspection may have benefits, such as reducing the volume of inspected mail and increasing the percentage of inspections that result in identification of a threatening or illegal item. This potential outcome could decrease time and resources needed for the screening process— potentially decreasing costs—and may increase the security of inbound mail. However, the costs of collecting and implementing the use of EAD are not yet known and neither USPS nor CPB currently collect the data necessary to know whether using EAD might increase the security of inbound mail or decrease the time and costs associated with screening. Regarding the costs of collecting EAD, USPS has not calculated the current costs of collecting EAD from countries with which USPS has data- sharing agreements, but USPS officials stated that USPS does not incur significant additional costs for each new designated postal operator or type of mail for which USPS begins collecting EAD. While some of the costs of obtaining EAD may be borne by designated postal operators in other countries, rather than directly by USPS, costs to USPS to use EAD to target mail for inspection may include: Equipment and personnel required to identify targeted mail (such as equipment required to sort through hundreds of pieces of mail to identify a single piece of mail): For example, USPS estimated that the cost for software upgrades needed for Pilots 1 and 2 (currently the only efforts USPS and CBP have underway to use EAD to target mail for inspection) to identify individual pieces of mail within larger sacks was about $150,000. This technology is currently being tested—so any further costs are unknown—but USPS officials stated that it will be included as a part of these pilots if they are expanded to other ISCs. Software upgrades required to exchange data with foreign postal operators and with CBP: USPS officials stated, as noted above, that developing the technological capability to receive and utilize EAD from foreign posts related to Pilots 1 and 2 cost about $1.8 million. An analysis of the costs associated with planned efforts is particularly critical given USPS’s financial challenges. As we recently found, USPS reported a net loss of $5.6 billion in fiscal year 2016—its 10th consecutive year of net losses. We have reported that USPS urgently needs to restructure to align its costs with revenues. In light of this situation, any expenditure of financial resources to make any additional infrastructure and information technology upgrades necessary to implement the use of EAD for targeting merit careful consideration. Beyond costs, USPS and CBP have not performed an analysis of the benefits of using EAD to target mail for inspection, including the effectiveness of targeted inspection based on EAD relative to other methods of selecting mail for inspection. Thus, the extent to which targeting based on EAD might result in an increased ability to identify threats or other benefits over current methods is unknown. For example, CBP has collected data on the percent of inspections resulting in a seizure for mail inspected as a result of targeting in Pilots 1 and 2. However, CBP does not collect comparable data for seizures resulting from inspections conducted based on current methods of choosing mail for inspection. Although CBP has been using EAD to target express cargo for inspection since approximately 2004, it has not evaluated whether this method results in benefits relative to other methods of choosing express cargo, or cargo more generally, for inspection. We recently reported that CBP generally lacks targets for its trade enforcement activities, which include targeting inbound items for inspection. We found that this may impede CBP’s ability to assess the effectiveness of those activities, and recommended that CBP develop such targets. Moreover, USPS and CBP experience challenges related to inspecting mail that may limit their ability to effectively use EAD to target mail for screening, and, thus, to experience EAD’s possible benefits. For example, in discussing the implementation of Pilots 1 and 2, USPS and CBP officials described several challenges: High inbound international mail volumes may make individual scanning time consuming and possibly impractical. According to CBP data, there were about 571-million inbound international air-cargo packages in fiscal year 2016, of which express cargo would account for only a portion. Comparatively, USPS alone accepted about 621 million pieces of inbound international mail in fiscal year 2016. According to representatives we spoke to from express consignment operators, they are able to individually scan each item upon arrival, providing an opportunity to identify and set aside express cargo targeted for CBP inspection based on EAD. Conversely, individually scanning hundreds of millions of pieces of mail may limit USPS’ ability to process mail in a timely manner or could require additional personnel and resources. USPS depends on foreign postal operators, which, according to USPS and State Department officials, may not share the same security priorities as USPS and CBP, to make EAD available. In March 2017, including countries with which USPS has agreed to share EAD, USPS received EAD for roughly half of inbound mail. Further, lack of control over data collection may result in lower quality and/or reliability of EAD, as compared to that collected by express consignment operators. As such, while CBP has access to EAD for express cargo as a result of the Trade Act of 2002, obtaining EAD for mail may present substantial challenges, as discussed earlier. If the amount of available EAD remains limited for inbound mail, this may limit the effectiveness of CBP’s targeting efforts or could limit CBP’s ability to reduce the volume of mail it inspects. Our prior work has found that, in designing preventive measures—such as the screening of inbound mail to identify potential threats—it is helpful to conduct a thorough assessment of vulnerabilities as well as cost- benefit analyses of alternative strategies. In the absence of information on the relative costs of various methods of selecting mail for inspection— including the use of EAD to target mail—as well as their effectiveness at identifying potential threats in inbound mail, USPS and CBP are unable to fully understand whether obtaining additional EAD for targeting purposes will provide security or resource benefits. Protecting the U.S. citizens, economy, and ecology from threats in items shipped to the United States as mail and express cargo requires balancing risks to health and safety with maintaining the flow of international shipping. Beyond threats posed by concealed weapons and other hazards, the United States is experiencing an increase in deaths related to the use of fentanyl, an increase that may be exacerbated by drugs arriving from overseas via mail and express cargo. Express consignment operators, USPS, and CBP coordinate to conduct screening of inbound international items after their arrival in the United States and USPS and CBP have implemented pilot programs making limited use of EAD to target mail for inspection. However, because CBP and USPS lack clear performance goals for these pilots, they risk spending additional time and resources expanding them prior to fully assessing the pilots’ success or failure. Similarly, because USPS and CBP have not conducted an analysis to identify the potential costs and benefits of using EAD for targeting mail in comparison with other methods of choosing mail for inspection, it is unknown whether using EAD would further efforts to identify threats in inbound mail. Particularly in light of the challenges that collecting and using these data present, it is important that CBP and USPS carefully consider actions to enhance inbound international mail security to avoid wasting time and money on potentially ineffective and costly endeavors. As USPS and CBP contemplate the expansion of pilot programs to other ISCs and types of mail, existing pilots could be used as an opportunity for CBP and USPS: (1) to articulate performance goals for the pilots, (2) to collect data and assess the pilots on their success in enabling USPS to provide targeted mail to CBP for inspection, and (3) to assess the costs and benefits of various methods of choosing mail for inspection. To ensure that current pilot programs related to electronic advance data provide insights that help in assessing USPS’s effectiveness at providing mail targeted by CBP for inspection, the Secretary of Homeland Security should direct the Commissioner of CBP to, in conjunction with USPS, (1) establish measureable performance goals for pilot programs and (2) assess the performance of the pilots in achieving these goals. To provide information on the costs and benefits of collecting electronic advance data for use in targeting inbound international mail for screening, the Secretary of Homeland Security should direct the Commissioner of CBP to, in conjunction with USPS, evaluate the relative costs and benefits of collecting electronic advance data for targeting mail for inspection in comparison to other methods. We provided a draft of this report to the U.S. Postal Service and Departments of State and Homeland Security for review and comment. In its written comments, reproduced in appendix III, DHS concurred with our recommendations and indicated it would coordinate with USPS to implement the recommendations. In its written comments, reproduced in appendix IV, USPS agreed with our findings and provided updates on the expansion of Pilots 1 and 2 and plans for coordinating with CBP to address our recommendations. USPS stated that it has expanded these pilots to the Los Angeles, California, ISC beginning on June 19, 2017 (after our audit work was completed). In light of this expansion, we believe it will be even more important for USPS and CBP to establish measureable performance goals for these pilots to aid in assessing their performance. Additionally, USPS reiterated the distinctions between USPS and express consignment operators related to USPS’s lack of control over the collection of EAD by foreign postal operators. Nonetheless, USPS affirmed its commitment to increasing the percentage of inbound mail for which EAD is available. USPS and the Departments of Homeland Security and State also provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report’s date. At that time, we will send copies to appropriate congressional committees and the Secretary of Homeland Security, the Postmaster General of the United States, and the Secretary of State. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at 202-512-2834 or rectanusl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff making key contributions to this report are listed in appendix V. In this report, we address (1) types of items CBP has seized from mail and express cargo sent to the United States; (2) how inbound international items are inspected as they arrive in the United States; and (3) options to collect electronic advance data for mail and the costs and benefits of using electronic advance data for targeting mail for inspection. Specific details related to the screening process and foreign postal operators that CBP and USPS considered sensitive are not included in this report. Express consignment operators are defined, in general, as those entities moving cargo by special express commercial service under closely integrated administrative control with reliable, timely, door-to-door delivery. Under the Trade Act of 2002, as amended, and implementing regulations, all cargo, including express cargo but not including inbound international mail, is subject to requirements for electronic advance data (EAD). Despite important differences—including the level of control of shipments at the point of acceptance—the door-to-door delivery provided by express consignment operators is more comparable to services provided by USPS than other cargo services. As such, we have reviewed efforts to screen inbound international mail and express cargo only, and have not included other types of cargo. For the purpose of this report, the term inbound international items will refer to those items handled by USPS and express consignment operators, but does not include non-express cargo shipped to the United States. For the purposes of this report, EAD refers to electronic data collected and shared among postal operators (such as USPS); cargo carriers (such as those transporting express cargo); and customs agencies (such as CBP) in advance of the scheduled arrival of cargo (including mail and express cargo) in the United States for the purpose of identifying inbound international items that may pose a threat to the United States. These data include the sender’s name and address, recipient’s name and address, contents description, number of pieces, and total weight. We use the term ‘screening’ to refer to the process of identifying inbound international items for further inspection. Additionally, in referring to any item handled by USPS—including letters and packages—we use the term ‘mail.’ When referring specifically to items handled by express consignment operators, we use the term ‘express cargo.’ To describe the types of items CBP has seized in mail and express cargo sent to the United States, we reviewed and analyzed CBP data on seizures of mail and express cargo items for fiscal years 2012 through 2016 documented in CBP’s Seized Asset and Case Tracking System (SEACATS). Specifically, we reviewed information on fiscal year, item description, and statute cited as the basis for the seizure. To determine the reliability of SEACATS data for the purposes of this report, we reviewed related documentation; conducted electronic and manual data testing to identify missing data, outliers, and obvious errors; and interviewed appropriate CBP officials about related internal controls and procedures and the limitations of the data. While we found this data to be sufficiently reliable for the purpose of providing contextual information about the types and quantity of threats identified by CBP in inbound international items, we have reported these data after taking into account some limitations, which may affect the reliability of the statistics we report: About 20,000 of the 308,000 total seizures (about 6.5 percent) cited more than 1 item description or federal statute as the basis of the seizure because shipments containing more than 1 type of item are reported as a single incident. For example, a package containing both cocaine and marijuana would be counted as a single seizure, but would have two separate item descriptions (cocaine and marijuana). The statistics we report account only for the first item description listed. We have not reported seizures by cited federal statute because the first statute cited might not accurately represent the basis of the seizure. For example, the first statute cited in SEACATS may be laws granting CBP the authority to seize prohibited items; while this may be part of the basis for the seizure, it does not illustrate the type of threat that was identified. As a result, the frequencies we report represent the minimum number of seizures in each category. Nine of the 308,000 total seizures were cited as both drug and merchandise seizures because the associated items contained both drugs and other goods, such as drug paraphernalia. As such, these incidents are counted twice—as both drugs and merchandise. For about 118,000 of the seizures (about 38 percent), SEACATS data did not include a country of origin because, according to CBP, this field is not mandatory. As a result, we were unable to report seizures by country of origin. To describe how inbound international items are inspected as they arrive in the United States, we reviewed applicable laws and regulations; USPS and CBP guidance; USPS Office of Inspector General reports; and international mail agreements, including requirements set by the Universal Postal Union (UPU). We conducted site visits to all five USPS International Service Centers (ISC)—the facilities at which USPS receives the majority of inbound international mail to interview officials, observe the CBP inspection process, and identify associated challenges. We interviewed officials from USPS, CBP’s Office of Field Operations and National Targeting Center, and the Transportation Security Administration (TSA) and representatives from the three largest express consignment operators (based on CBP cargo volume data for fiscal year 2015): UPS, FedEx, and DHL. To describe changes in USPS inbound international volume, we reviewed USPS data on inbound international mail volume. To determine the reliability of these volume data, we interviewed appropriate USPS officials about the systems used to generate the data and related internal controls. We found these data to be reliable for the purpose of describing general trends in USPS inbound international mail volume. We reviewed available reports, plans, and performance data from fiscal years 2015–2016 related to pilot programs conducted by USPS and CBP using EAD to target mail for inspection for the period from July 2014 through January 2017 (the time period for which data were available). To determine the reliability of performance data related to these pilots, we interviewed appropriate CBP officials about related procedures and the limitations of the data. We found this data to be sufficiently reliable for the purpose of providing information on the current status of the pilots. To assess CBP’s and USPS’s efforts related to these pilots, we compared available documentation on the goals and performance of the pilots to federal internal control standards related to defining program goals. We did not assess the effectiveness of CBP’s screening of inbound international express cargo or mail because that was outside the scope of our review. To identify options for obtaining additional EAD for inbound mail as well as related considerations, we interviewed officials from USPS and the Department of State and reviewed existing agreements for EAD with foreign postal operators, UPU documents related to the collection and sharing of EAD, and proposed legislation. To identify the benefits and costs of using EAD for targeting mail for inspection, we interviewed officials from USPS and CBP’s Office of Field Operations and National Targeting Center and reviewed related agency performance data and reports, including performance data on the USPS and CBP pilot projects to use EAD to target mail for inspection, as discussed above. We also reviewed information provided by USPS in response to questions about equipment and personnel costs associated with the pilots. To assess USPS’s and CBP’s efforts to collect and implement EAD, we compared these efforts to GAO guidance on program evaluation, including assessing the quality of preventive measures. We conducted this performance audit from August 2016 through August 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. A range of federal agencies and other stakeholders have a role in keeping prohibited items from entering the country in international mail and express cargo. As the designated postal operator in the United States, the U.S. Postal Service (USPS) accepts and delivers inbound international mail on behalf of foreign postal operators, which generally arrives via five international service centers (ISC) located in New York City, New York; Miami, Florida; Los Angeles, California; San Francisco, California; and Chicago, Illinois in addition to smaller facilities in Hawaii, New Jersey, Puerto Rico, and the U.S. Virgin Islands. USPS is required to present all inbound international mail, with some exceptions, to U.S. Customs and Border Protection (CBP) for inspection. The international movement of mail amongst member countries is governed under the Universal Postal Convention by the Universal Postal Union (UPU), a United Nations specialized agency with over 190 member countries. The UPU’s mission is “to facilitate communication between the inhabitants of the world.” The UPU facilitates the exchange of international mail by guaranteeing the free circulation of postal items over a single postal territory composed of interconnected networks; creating common standards, including those related to security and electronic advance data (EAD); establishing requirements for freedom of transit and basic services; and establishing the terms of reimbursement for certain services. Reimbursement for these activities (called the “terminal dues” rate) is determined based on each country’s gross national income per capita and the cost for each country’s designated postal operator to deliver mail. The Department of State (State Department) has responsibility for formulation, coordination, and oversight of foreign policy related to international postal services and other international delivery services. As such, the State Department represents the United States, along with USPS, at the UPU Congress and other UPU meetings, including those at which policies and requirements related to mail security are discussed. Express consignment operators accept items from customers in foreign countries and transport and deliver those items in the United States. For cargo arriving by aircraft from any foreign port or place in North America, including locations in Mexico, Central America, South America (from north of the equator only), the Caribbean, and Bermuda, air carriers, including those carrying express cargo, are required to provide CBP with electronic advance data (EAD) no later than the time of the departure (“wheels up”) of the aircraft directly to the United States. For cargo arriving by aircraft from other foreign ports, air carriers are required to provide EAD no later than 4 hours prior to the scheduled arrival of items in the United States and to present all inbound items to CBP for inspection. Under the Department of Homeland Security, CBP’s Office of Field Operations has, among other responsibilities, primary responsibility for enforcing customs and agriculture laws and regulations and for preventing terrorists and their weapons from entering at U.S. ports of entry. As such, CBP operates 328 ports of entry at which it inspects inbound cargo, including express cargo and mail, to enforce laws and regulations while seeking to ensure the safe and efficient flow of goods through U.S. ports of entry. Under the Department of Homeland Security, CBP’s National Targeting Center (NTC) identifies high-risk people and cargo traveling to the United States prior to their arrival in the United States. The NTC coordinates examination of cargo that may be connected to terrorist or other crimes, such as narcotics smuggling, human trafficking, merchandise counterfeiting, and money laundering. As part of its mission to secure the U.S. civil-aviation system, the Transportation Security Administration (TSA) is statutorily required to assess the effectiveness of security measures at foreign airports (1) served by a U.S. air carrier, (2) from which a foreign air carrier serves the United States, or (3) that pose a high risk of introducing danger to international air travel. In addition, TSA has statutory and regulatory authority to regulate security-related matters with respect to U.S. air carriers at airports around the world and foreign air carriers operating from last points of departure airports to the United States. These operations are subject to TSA-approved security program requirements, such as screening of air cargo (including express cargo and non-U.S. Mail) for any unauthorized weapons, explosives, incendiaries, and other destructive devices, items, or substances, prior to loading on the aircraft. TSA inspects these air carrier operations at international locations at least annually to ensure compliance with TSA security program requirements. As the federal law enforcement, crime prevention, and security arm of USPS, the U.S. Postal Inspection Service’s (USPIS) mission is to ensure confidence in the U.S. mail. While USPIS does not have primary responsibility for inspecting inbound international mail, it coordinates with USPS and U.S. Customs and Border Protection to facilitate the inspection of inbound international mail. More than 40 federal agencies coordinate with CBP to assess the compliance of inbound items with applicable laws and regulations. For example, the Food and Drug Administration (FDA) reviews pharmaceuticals, cosmetics, medical devices, and other items regulated by the FDA that have been identified in inbound mail and express cargo prior to CBP seizure. Other federal agencies coordinating with CBP in this way include the U.S. Department of Agriculture (USDA) and the Fish and Wildlife Administration. In addition to the contact named above, Derrick Collins, Assistant Director; Katie Hamer, Analyst-In-Charge; Geoff Hamilton; Greg Hanna; Thanh Lu; Amanda Miller; Josh Ormond; Minette Richardson; Rachel Stoiko; and Michelle Weathers made significant contributions to this report. | Expanding international use of e-commerce has increased the volume of global trade, potentially increasing threats sent to the United States via international mail and express cargo. Some in Congress have called for additional measures to identify prohibited items, such as increased collection of EAD that may provide CBP with information to better focus its screening efforts by targeting mail for inspection. GAO was asked to review the security of inbound international mail. In this report, GAO addresses, among other objectives, (1) how inbound international items are inspected as they arrive in the United States; and (2) what options exist to collect EAD and the costs and benefits of using it to target mail for inspection. GAO reviewed documentation and interviewed officials from CBP, USPS, the U.S. Department of State, and, based on 2015 inbound international volume, the three largest express consignment operators. GAO also conducted site visits to all of USPS's International Service Centers and two express consignment operators' facilities, to observe screening operations and interview officials. Express consignment operators (like FedEx and DHL) and the U.S. Postal Service (USPS) work with U.S. Customs and Border Protection to inspect inbound international express cargo and mail. Express consignment operators are required to provide “electronic advance data” (EAD)—such as the shipper's and recipient's name and address—for all inbound express cargo. U.S. Customs and Border Protection (CBP) uses this information to target inspections. USPS is not required to provide this information to CBP. Nonetheless, as of March 2017, advance data are unavailable for roughly half of inbound international mail. Although USPS and CBP have two pilot programs under way to target mail for inspection based on EAD, they have not established specific and measureable goals and therefore lack the performance targets needed to evaluate the effectiveness of the pilots. Without these performance targets, USPS and CBP are unable to make well-informed decisions about the possible expansion of these pilots in the future. While USPS officials reported in November of 2016 that they planned to expand one of the pilots, CBP officials stated that the pilot was not ready for expansion because of USPS's inability to provide 100 percent of targeted mail to CBP for inspection. USPS stated that it is working to address challenges related to identifying targeted mail within sacks containing hundreds of individual pieces of mail (see figure). Options for collecting EAD include negotiating agreements with foreign postal operators and legally requiring EAD, but the costs and benefits of using EAD to target mail for inspection are unclear. USPS and CBP officials stated that having EAD to target mail for inspection could result in saving time and resources and increase the percentage of inspections that identify threatening items. However, USPS has not calculated the cost of collecting EAD from countries with which it has data-sharing agreements, and neither USPS nor CBP has collected the necessary information to determine the extent to which the use of EAD would provide benefits relative to current methods of choosing mail for inspection. For example, CBP has collected data on the rate of seizures per inspection for current pilot programs, but it has not collected comparable data for other screening methods it uses to target mail for inspection. As such, USPS and CBP risk spending resources on efforts that may not increase the security of inbound international mail or that may not result in sufficient improvement to justify the costs. GAO recommends that CBP, in coordination with USPS: (1) establish measureable performance goals to assess pilot programs and (2) evaluate the costs and benefits of using EAD to target mail for inspection compared with other targeting methods. CBP and USPS agreed with these recommendations. |
The Health Center Program is governed by section 330 of the Public Health Service Act. By law, grantees with community health center funding must operate health center sites that serve, in whole or in part, an MUA or MUP; provide comprehensive primary care services as well as enabling services, such as translation and transportation, that facilitate access to health care; are available to all residents of the health center service area, with fees on a sliding scale based on patients’ ability to pay; are governed by a community board of which at least 51 percent of the members are patients of the health center; and meet performance and accountability requirements regarding administrative, clinical, and financial operations. HRSA may designate a geographic area—such as a group of contiguous counties, a single county, or a portion of a county—as an MUA based on the agency’s index of medical underservice, composed of a weighted sum of the area’s infant mortality rate, percentage of population below the federal poverty level, ratio of population to the number of primary care physicians, and percentage of population aged 65 and over. In previous reports, we identified problems with HRSA’s methodology for designating MUAs, including the agency’s lack of timeliness in updating its designation criteria. HRSA published a notice of proposed rule making in 1998 to revise the MUA designation system, but it was withdrawn because of a number of issues raised in over 800 public comments. In February 2008, HRSA published a revised proposal and the period for pubic comment closed in June 2008. HRSA uses a competitive process to award Health Center Program grants. There are four types of health center grants available through the Health Center Program, but only new access point grants are used to establish new health center sites. Since 2005, HRSA has evaluated applications for new access point grants using eight criteria for which an application can receive a maximum of 100 points (see table 1). Grant applications are evaluated by an objective review committee—a panel of independent experts, selected by HRSA, who have health center- related experience. The objective review committee scores the applications by awarding up to the maximum number of points allowed for each criterion and prepares summary statements that detail an application’s strengths and weaknesses in each evaluative criterion. The summary statements also contain the committee’s recommended funding amounts and advisory comments for HRSA’s internal use; for example, the committee may recommend that HRSA consider whether the applicant’s budgeted amount for physician salaries is appropriate. The committee develops a rank order list—a list of all evaluated applications in descending order by score. HRSA uses the internal comments— recommended funding amounts and advisory comments—from the summary statements and the rank order list when making final funding decisions. In addition, HRSA is required to take into account the urban/rural distribution of grants, the distribution of funds to different types of health centers, and whether a health center site is located in a sparsely populated rural area. HRSA also considers the geographic distribution of health center sites—to determine if overlap exists in the areas served by the sites—as well as the financial viability of grantees. After the funding decisions are made, HRSA officials review the summary statements for accuracy, remove the recommended funding amounts and any advisory comments, and send the summary statements to unsuccessful applicants as feedback. For fiscal year 2007, HRSA funded 60 training and TA cooperative agreements with various national, regional, and state organizations to support the Health Center Program, in part, by providing training and technical assistance to health center grant applicants. Cooperative agreements are a type of federal assistance that entails substantial involvement between the government agency—in this case, HRSA—and the funding recipient—that is, the national, regional, and state organizations. HRSA relies on these training and TA cooperative agreement recipients to identify underserved areas and populations across the country in order to assist the agency in increasing access to primary care services for underserved people. In addition, these cooperative agreement recipients serve as HRSA’s primary form of outreach to potential applicants for health center grants. For each cooperative agreement recipient, HRSA assigns a project officer who serves as a recipient’s main point of contact with the agency. The duration of a cooperative agreement, known as the project period, is generally 2 or 3 years, with each year known as a budget period. As a condition of the cooperative agreements, HRSA project officers and the organizations jointly develop work plans detailing the specific training and technical assistance activities to be conducted during each budget period. Activities targeted to new access point applicants can include assistance with assessing community needs, disseminating information in underserved communities regarding health center program requirements, and developing and writing grant applications. After cooperative agreement recipients secure funding through a competitive process, they reapply for annual funding through what is known as a noncompeting continuation application each budget period until the end of their project period. These continuation applications typically include a work plan and budget for the upcoming budget period and progress report on the organization’s current activities. HRSA policy states that cooperative agreement recipients will undergo a comprehensive on-site review by agency officials once every 3 to 5 years. During these comprehensive on-site reviews, HRSA evaluates the cooperative agreement recipients using selected performance measures— developed in collaboration with the organizations—and requires recipients to develop action plans to improve operations if necessary. The purpose of these reviews is for the agency to evaluate the overall operations of all its funding recipients and improve the performance of its programs. Almost half of MUAs nationwide lacked a health center site in 2006. The percentage of MUAs that lacked a health center site varied widely across census regions and states. We could not determine the types of primary care services provided by health center sites in MUAs because HRSA does not maintain data on the types of services offered at each site. Because of this, the extent to which individuals in MUAs have access to the full range of comprehensive primary care services provided by health center sites is unknown. Based on our analysis of HRSA data, we found that 47 percent of MUAs nationwide—1,600 of 3,421—lacked a health center site in 2006. We found wide variation among census regions—Northeast, Midwest, South, and West—and across states in the percentage of MUAs that lacked health center sites. (See fig. 1.) The Midwest census region had the most MUAs that lacked a health center site (62 percent) while the West census region had the fewest MUAs that lacked a health center site (32 percent). More than three-quarters of the MUAs in 4 states—Nebraska (91 percent), Iowa (82 percent), Minnesota (77 percent), and Montana (77 percent)— lacked a health center site; in contrast, fewer than one-quarter of the MUAs in 13 states—including Colorado (21 percent), California (20 percent), Mississippi (20 percent), and West Virginia (19 percent)— lacked a health center site. (See app. I for more detail on the percentage of MUAs in each state and the U.S. territories that lacked a health center site in 2006.) In 2006, among all MUAs, 32 percent contained more than one health center site; among MUAs with at least one health center site, 60 percent contained multiple health center sites. Almost half of all MUAs in the West census region contained more than one health center site while less than one-quarter of MUAs in the Midwest contained multiple health center sites. The states with three-quarters or more of their MUAs containing more than one health center site were Alaska, Connecticut, the District of Columbia, Hawaii, New Hampshire, and Rhode Island. In contrast, Nebraska, Iowa, and North Dakota were the states where less than 10 percent of MUAs contained multiple sites. We could not determine the types of primary care services provided at each health center site because HRSA does not collect and maintain readily available data on the types of services provided at individual health center sites. While HRSA requests information from applicants in their grant applications on the services each site provides, in order for HRSA to access and analyze individual health center site information on the services provided, HRSA would have to retrieve this information from the grant applications manually. HRSA separately collects data through the UDS from each grantee on the types of services it provides across all of its health center sites, but it does not collect data on services provided at each site. Although each grantee with community health center funding is required to provide the full range of comprehensive primary care services, it is not required to provide all services at each health center site it operates. HRSA officials told us that some sites provide limited services— such as dental or mental health services. Because HRSA lacks readily available data on the types of services provided at individual sites, it cannot determine the extent to which individuals in MUAs have access to the full range of comprehensive primary care services provided by health center sites. This lack of basic information can limit HRSA’s ability to assess the full range of primary care services available in needy areas when considering the placement of new access points and limit the agency’s ability to evaluate service area overlap in MUAs. Our analysis of new access point grants awarded in 2007 found that these awards reduced the number of MUAs that lacked a health center site by about 7 percent. Specifically, 113 fewer MUAs in 2007—or 1,487 MUAs in all—lacked a health center site when compared with the 1,600 MUAs that lacked a health center site in 2006. As a result, 43 percent of MUAs nationwide lacked a health center site in 2007. Despite the overall reduction in the percentage of MUAs nationwide that lacked health center sites in 2007, regional variation remained. The West and Midwest census regions continued to show the lowest and highest percentages of MUAs that lacked health center sites, respectively. (See fig. 2.) Three of the census regions showed a 1 or 2 percentage point change since 2006, while the South census region showed a 5 percentage point change. The minimal impact of the 2007 awards on regional variation is due, in large part, to the fact that more than two-thirds of the nationwide decline in the number of MUAs that lacked a health center site—77 out of the 113 MUAs—occurred in the South census region. (See table 2.) In contrast, only 24 of the 113 MUAs were located in the Midwest census region, even though the Midwest had nearly as many MUAs that lacked a health center site in 2006 as the South census region. Overall, while the South census region experienced a decline of 12 percent in the number of MUAs that lacked a health center site, the other census regions experienced declines of approximately 4 percent. The South census region experienced the greatest decline in the number of MUAs lacking a health center site in 2007 compared to other census regions, in large part, because it was awarded more new access point grants that year than any other region. (See table 3.) Specifically, half of all new access point awards made in 2007—from two separate new access point competitions—went to applicants from the South census region. When we examined the High Poverty County new access point competition, in which 200 counties were targeted by HRSA for new health center sites, we found that 69 percent of those awards were granted to applicants from the South census region. (See fig. 3.) The greater number of awards made to the South census region for this competition may be explained by the fact that nearly two-thirds of the 200 counties targeted were located in the South census region. (For detail on the High Poverty County new access point competition by census region and state, see app. II.) When we examined the open new access point competition, which did not target specific areas, we found that the South census region also received a greater number of awards than any other region under that competition. Specifically, the South census region was granted nearly 40 percent of awards; in contrast, the Midwest received only 17 percent of awards. (See table 4.) HRSA oversees cooperative agreement recipients, but the agency’s oversight is limited because it does not have standardized performance measures to assess the performance of the cooperative agreement recipients in assisting new access point applicants and the agency is unlikely to meet its policy timeline for conducting comprehensive on-site reviews. Although HRSA officials told us that they were developing standardized performance measures, they provided no details on the specific measures that may be implemented. Moreover, more than a third of the summary statements sent to unsuccessful applicants for new access point competitions held in fiscal years 2005 and 2007 contained unclear feedback. HRSA oversees the activities of its cooperative agreement recipients using a number of methods. HRSA officials told us that over the course of a budget period, project officers use regular telephone and electronic communications to discuss cooperative agreement recipients’ activities as specified in work plans, review the status of these activities, and help set priorities. According to HRSA officials, there is no standard protocol for these communications, and their frequency, duration, and content vary over the course of a budget period and by recipient. HRSA staff also reviews annual noncompeting continuation applications to determine whether the cooperative agreement recipients provided an update on their progress, described their activities and challenges, and developed a suitable work plan and budget for the upcoming budget period. The progress reports submitted by cooperative agreement recipients in these annual applications serve as HRSA’s primary form of documentation on the status of cooperative agreement recipients’ activities. HRSA’s oversight of training and TA cooperative agreement recipients is based on performance measures tailored to the individual organization rather than performance measures that are standardized across all recipients. Specifically, HRSA uses individualized performance measures in cooperative agreement recipients’ work plans and comprehensive on- site reviews to assess recipients’ performance. For cooperative agreement recipients’ work plans, recipients propose training and technical assistance activities in response to HRSA’s cooperative agreement application guidance, in which the agency provides general guidelines and goals for the provision of training and technical assistance to health center grant applicants. The guidance requires recipients to develop performance measures for each activity in their work plans. When we analyzed the work plans of the 8 national organizations and 10 PCAs with training and TA cooperative agreements, we found that these measures varied by cooperative agreement recipient. For example, we found that for national organizations, performance measures varied from (1) documenting that the organization’s marketing materials were sent to PCAs to (2) recording the number of specific technical assistance requests the organization received to (3) producing monthly reports for HRSA detailing information about potential applicants. For state PCAs, measures varied from (1) the PCA providing application review as requested to (2) holding specific training opportunities—such as community development or board development—to (3) identifying a specific number of applicants the PCA would assist during the budget period. Because these performance measures vary for cooperative agreement recipients’ activities, HRSA does not have comparable measures to evaluate the performance of these activities across recipients. HRSA’s oversight of cooperative agreement recipients is limited in some key respects. One limitation is that the agency does not have standardized measures for its assessment of recipients’ performance of training and technical assistance activities. Without standardized performance measures, HRSA cannot effectively assess the performance of its cooperative agreement recipients with respect to the training and technical assistance they provide to support Health Center Program goals. For example, HRSA does not require that all training and TA cooperative agreement recipients be held to a performance measure that would report the number of successful applicants each cooperative agreement recipient helped develop in underserved communities, including MUAs. Standardized performance measures could help HRSA identify how to better focus its resources to help strengthen the performance of cooperative agreement recipients. HRSA officials told us that they are developing performance measures for the agency’s cooperative agreement recipients, which they plan to implement beginning with the next competitive funding announcement, scheduled for fiscal year 2009. However, HRSA officials did not provide details on the particular measures that it will implement, so it is unclear to what extent the proposed measures will allow HRSA to assess the performance of cooperative agreement recipients in supporting Health Center Program goals through such efforts as developing successful new access point grant applicants. HRSA’s oversight is also limited because the agency’s comprehensive on- site reviews of cooperative agreement recipients do not occur as frequently as HRSA policy states. According to HRSA’s stated policy, the agency will conduct these reviews for each cooperative agreement recipient every 3 to 5 years. The reviews are intended to assess—and thereby potentially improve—the performance of the cooperative agreement recipients in supporting the overall goals of the Health Center Program. This support can include helping potential applicants apply for health center grants, identifying underserved areas and populations across the country, and helping HRSA increase access to primary care services for underserved populations. As part of the comprehensive on-site reviews, HRSA officials consult with the relevant project officer, examine the scope of the activities cooperative agreement recipients have described in their work plans and reported in their progress reports, and develop performance measures in collaboration with the recipient. Similar to the performance measures in cooperative agreement recipients’ work plans, the performance measures used during comprehensive on-site reviews are also individually tailored and vary by recipient. For example, during these reviews, some recipients are assessed using performance measures that include the number of training and technical assistance hours the recipients provided; other recipients are assessed using measures that include the number of applicants that were funded after receiving technical assistance from the recipient or the percentage of the state’s uninsured population that is served by health center sites in the Health Center Program. After an assessment, HRSA asks the recipient to develop an action plan. In these action plans, the reviewing HRSA officials may recommend additional activities to improve the performance of the specific measures they had identified during the review. For example, if the agency concludes that a cooperative agreement recipient needs to increase the percentage of the state’s uninsured population served by health center sites in the Health Center Program, it may recommend that the recipient pursue strategies to develop a statewide health professional recruitment program and identify other funding sources to improve its ability to increase access to primary care for underserved people. Although HRSA’s stated policy is to conduct on-site comprehensive reviews of cooperative agreement recipients every 3 to 5 years, HRSA is unlikely to meet this goal for its training and TA cooperative recipients that target assistance to new access point applicants. In the 4 years since HRSA implemented its policy for these reviews in 2004, the agency has evaluated only about 20 percent of cooperative agreement recipients that provide training and technical assistance to grant applicants. HRSA officials told us that they have limited resources each year with which to fund the reviews. However, without these reviews, HRSA does not have a means of obtaining comprehensive information on the performance of cooperative agreement recipients in supporting the Health Center Program, including information on ways the recipients could improve the assistance they provide to new access point applicants. More than a third of summary statements sent to unsuccessful applicants from new access point grant competitions held in fiscal years 2005 and 2007 contained unclear feedback. Based on our analysis of 69 summary statements, we found that 38 percent contained unclear feedback associated with at least one of the eight evaluative criteria, while 13 percent contained unclear feedback in more than one criterion. We defined feedback as unclear when, in regard to a particular criterion, a characteristic of the application was noted as both a strength and a weakness without a detailed explanation supporting each conclusion. We found that 26 summary statements contained unclear feedback. We found 41 distinct examples of unclear feedback in the summary statements. (See table 5.) HRSA’s stated purpose in providing summary statements to unsuccessful applicants is to improve the quality of future grant applications. However, if the feedback HRSA provides in these statements is unclear, it may undermine the usefulness of the feedback for applicants and their ability to successfully compete for new access point grants. Based on our analysis, the largest number of examples of unclear feedback was found in the need criterion, in which applications are evaluated on the description of the service area, communities, target population—including the number served, encounter information, and barriers-—and the health care environment. For example, one summary statement indicated that the application clearly demonstrated and provided a compelling case for the significant health access problems for the underserved target population. However, the summary statement also noted that the application was insufficiently detailed and brief in its description of the target population. Seven of the examples of unclear feedback were found in the response criterion, in which applications are evaluated on the applicant’s proposal to respond the target population’s need. One summary statement indicated that the application detailed a comprehensive plan for health care services to be provided directly by the applicant or through its established linkages with other providers, including a description of procedures for follow-up on referrals or services with external providers. The summary statement also indicated that the application did not provide a clear plan of health service delivery, including accountability among and between all subcontractors. Awarding new access point grants is central to HRSA’s ongoing efforts to increase access to primary health care services in MUAs. From 2006 to 2007, HRSA’s recent new access point awards achieved modest success in reducing the percentage of MUAs nationwide that lacked a health center site. However, in 2007, 43 percent of MUAs continue to lack a health center site, and the new access point awards made in 2007 had little impact on the wide variation among census regions and states in the percentage of MUAs lacking a health center site. The relatively small effect of the 2007 awards on geographic variation may be explained, in part, because the South census region received a greater number of awards than other regions, even though the South was not the region with the highest percentage of MUAs lacking a health center site in 2006. HRSA awards new access point grants to open new health center sites, thus increasing access to primary health care services for underserved populations in needy areas, including MUAs. However, HRSA’s ability to target these awards and place new health center sites in locations where they are most needed is limited because HRSA does not collect and maintain readily available information on the services provided at individual health center sites. Having readily available information on the services provided at each site is important for HRSA’s effective consideration of need when distributing federal resources for new health center sites because each health center site may not provide the full range of comprehensive primary care services. This information can also help HRSA assess any potential overlap of services provided by health center sites in MUAs. HRSA could improve the number and quality of grant applications it receives—and thereby broaden its potential pool of applicants—by better monitoring the performance of cooperative agreement recipients that assist applicants and by ensuring that the feedback unsuccessful applicants receive is clear. However, limitations in HRSA’s oversight of the training and TA cooperative agreement recipients hamper the agency’s ability to identify recipients most in need of assistance. Because HRSA does not have standardized performance measures for these recipients— either for their work plan activities or for the comprehensive on-site reviews—the agency cannot assess recipients’ performance using comparable measures and determine the extent to which they support the overall goals of the Health Center Program. One standardized performance measure that could help HRSA evaluate the success of cooperative agreement recipients that assist new access point applicants is the number of successful grant applicants each cooperative agreement recipient develops; this standardized performance measure could assist HRSA in determining where to focus its resources to strengthen the performance of cooperative agreement recipients. HRSA’s allocation of available resources has made it unlikely that it will meet its goal of conducting comprehensive on-site reviews of each cooperative agreement recipient every 3 to 5 years. Without these reviews, HRSA does not have comprehensive information on the effectiveness of training and TA cooperative agreement recipients in supporting the Health Center Program, including ways in which they could improve their efforts to help grant applicants. Given the agency’s concern regarding available resources for its comprehensive on-site reviews, developing and implementing standardized performance measures for training and TA cooperative agreement recipients could assist HRSA in determining the cost-effectiveness of its current comprehensive on-site review policy and where to focus its limited resources. HRSA could potentially improve its pool of future applicants by increasing the extent to which it provides clear feedback to unsuccessful applicants on the strengths and weaknesses of their applications. HRSA intends for these summary statements to be used by applicants to improve the quality of future grant applications. However, the unclear feedback HRSA has provided to some unsuccessful applicants in fiscal years 2005 and 2007 does not provide those applicants with clear information that could help them improve their future applications. This could limit HRSA’s ability to award new access point grants to locations where such grants are needed most. We recommend that the Administrator of HRSA take the following four actions to improve the Health Center Program: Collect and maintain readily available data on the types of services provided at each health center site to improve the agency’s ability to measure access to comprehensive primary care services in MUAs. Develop and implement standardized performance measures for training and TA cooperative recipients that assist applicants to improve HRSA’s ability to evaluate the performance of its training and TA cooperative agreements. These standardized performance measures should include a measure of the number of successful applicants a recipient assisted. Reevaluate its policy of requiring comprehensive on-site reviews of Health Center Program training and TA cooperative agreement recipients every 3 to 5 years and consider targeting its available resources at comprehensive on-site reviews for cooperative agreement recipients that would benefit most from such oversight. Identify and take appropriate action to ensure that the discussion of an applicant’s strengths and weaknesses in all summary statements is clear. In commenting on a draft of this report, HHS raised concerns regarding the scope of the report and one of our recommendations and concurred with the other three recommendations. (HHS’s comments are reprinted in app. III.) HHS also provided technical comments, which we incorporated as appropriate. HHS said its most significant concern was with our focus on MUAs and the exclusion of MUPs from the scope of our report. In our analysis, we included the health center sites of 90 percent of all Health Center Program grantees. We excluded from our review sites that were associated with the remaining 10 percent of grantees that received HRSA funding to serve specific MUPs only because they are not required to serve all residents of the service area. Given our research objective to determine the location of health center sites that provide services to residents of an MUA, we excluded these specific MUPs and informed HRSA of our focus on health center sites and MUAs. We agree with HHS’s comment that it could be beneficial to have information on the number of grants awarded to programs serving both MUAs and MUPs generally to fully assess the coverage of health center sites. HHS also commented that our methodology did not account for the proximity of potential health center sites located outside the boundary of an MUA. While we did not explicitly account for the proximity of potential health center sites located outside an MUA, we did include the entire area of all zip codes associated with an MUA. As a result, the geographic boundary of an MUA in our analysis may be larger than that defined by HRSA, so our methodology erred on the side of overestimating the number of MUAs that contained a health center site. With regard to our reporting on the percentage of MUAs that lacked a health center site, HHS stated that this indicator may be of limited utility, because not all programs serving MUAs and MUPs are comparable to each other due to differences in size, geographic location, and specific demographic characteristics. Specifically, HHS commented that our analysis presumed that the presence of one health center site was sufficient to serve an MUA. In our work, we did not examine whether MUAs were sufficiently served because this was beyond the scope of our work. Moreover, since HRSA does not maintain site-specific information on services provided and each site does not provide the same services, we could not assess whether an MUA was sufficiently served. HHS also noted that a health center site may not be the appropriate solution for some small population MUAs; however, we believe it is reasonable to expect that residents of an MUA—regardless of its size, geographic location, and specific demographic characteristics—have access to the full range of primary care services. With regard to our first recommendation that HRSA collect and maintain site-specific data on the services provided at each health center site, HHS acknowledged that site-specific information would be helpful for many purposes, but it said collecting this information would place a significant burden on grantees and raise the program’s administrative expenses. We believe that having site-specific information on services provided would help HRSA better measure access to comprehensive primary health care services in MUAs when considering the placement of new health center sites and facilitate the agency’s ability to evaluate service area overlap in MUAs. HHS concurred with our three other recommendations. With regard to our second recommendation, HHS stated that HRSA will include standardized performance measures with its fiscal year 2009 competitive application cycle for state PCAs and that HRSA plans to develop such measures for the national training and TA cooperative agreement recipients in future funding opportunities. With regard to our third recommendation, HHS commented that HRSA has developed a 5-year schedule for reviewing all state PCA grantees. HHS also stated that HRSA is examining ways to better target onsite reviews for national training and TA cooperative agreement recipients that would most benefit from such a review. Finally, HHS agreed with our fourth recommendation and stated that HRSA is continuously identifying ways to improve the review of applications. As arranged with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days after its issue date. At that time, we will send copies of this report to the Secretary of HHS, the Administrator of HRSA, appropriate congressional committees, and other interested parties. We will also make copies of this report available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http:///www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or bascettac@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff members who made major contributions to this report are listed in appendix IV. In addition to the contact named above, Nancy Edwards, Assistant Director; Stella Chiang; Krister Friday; Karen Howard; Daniel Ries; Jessica Cobert Smith; Laurie F. Thurber; Jennifer Whitworth; Rachael Wojnowicz; and Suzanne Worth made key contributions to this report. | Health centers funded through grants under the Health Center Program--managed by the Health Resources and Services Administration (HRSA), an agency in the U.S. Department of Health and Human Services (HHS)--provide comprehensive primary care services for the medically underserved. HRSA provides funding for training and technical assistance (TA) cooperative agreement recipients to assist grant applicants. GAO was asked to examine (1) to what extent medically underserved areas (MUA) lacked health center sites in 2006 and 2007 and (2) HRSA's oversight of training and TA cooperative agreement recipients' assistance to grant applicants and its provision of written feedback provided to unsuccessful applicants. To do this, GAO obtained and analyzed HRSA data, grant applications, and the written feedback provided to unsuccessful grant applicants and interviewed HRSA officials. Grant awards for new health center sites in 2007 reduced the overall percentage of MUAs lacking a health center site from 47 percent in 2006 to 43 percent in 2007. In addition, GAO found wide geographic variation in the percentage of MUAs that lacked a health center site in both years. Most of the 2007 nationwide decline in the number of MUAs that lacked a site occurred in the South census region, in large part, because half of all awards made in 2007 for new health center sites were granted to the South census region. GAO also found that HRSA lacks readily available data on the services provided at individual health center sites. HRSA oversees training and TA cooperative agreement recipients, but its oversight is limited in key respects and it does not always provide clear feedback to unsuccessful grant applicants. HRSA oversees recipients using a number of methods, including regular communications, review of cooperative agreement applications, and comprehensive on-site reviews. However, the agency's oversight is limited because it lacks standardized performance measures to assess the performance of the cooperative agreement recipients and it is unlikely to meet its policy goal of conducting comprehensive on-site reviews of these recipients every 3 to 5 years. The lack of standardized performance measures limits HRSA's ability to effectively evaluate cooperative agreement recipients' activities that support the Health Center Program's goals with comparable measures. In addition, without timely comprehensive on-site reviews, HRSA does not have up-to-date comprehensive information on the performance of these recipients in supporting the Health Center Program. HRSA officials stated that they are in the process of developing standardized performance measures. Moreover, more than a third of the written feedback HRSA sent to unsuccessful Health Center Program grant applicants in fiscal years 2005 and 2007 contained unclear statements. The lack of clarity in this written feedback may undermine its usefulness rather than enhance the ability of applicants to successfully compete for grants in the future. |
Ballistic missile defense is a challenging mission for DOD, requiring a unique combination of defensive components—space-based sensors, surveillance and tracking radars, advanced interceptors, command and control, and reliable communications—working together as an integrated system. A typical scenario to engage an ICBM is expected to unfold as follows: Overhead satellites detect a missile launch and alert the command authority of a possible attack. Upon receiving the alert, the BMDS directs its land- and sea-based radars to track the missile complex and (if so designed) to identify the warhead from decoys and associated objects. Based on accurate track data, an interceptor—consisting of a “kill vehicle” mounted atop a booster—is launched. The interceptor boosts itself toward the predicted intercept point and releases its kill vehicle to engage the threat. The kill vehicle uses its onboard sensors and divert thrusters to acquire, identify, and steer itself into the warhead. With a combined closing speed on the order of 10 kilometers per second (22,000 miles per hour), the warhead is destroyed through a “hit-to-kill” collision with the kill vehicle. To meet this challenge, DOD intends to develop and field a ballistic missile defense system capable of defeating ballistic missiles during all phases of flight (see fig. 1). Under the evolutionary, capabilities-based acquisition strategy being pursued by DOD, the BMDS has no fixed design or final architecture, and there are no firm requirements. According to DOD, this approach gives MDA increased flexibility to develop a system that can more readily respond to a changing threat and more easily insert new technologies for enhancing system performance. The missile defense capability of Block 2004 is primarily one for defending the United States against ICBM attacks from Northeast Asia and the Middle East. It is built around the Ground-based Midcourse Defense (GMD) element, augmented by shipboard Aegis Ballistic Missile Defense (Aegis BMD) radars, and integrated by the Command, Control, Battle Management, and Communications (C2BMC) element. The Block 2004 BMDS also includes the Army’s Patriot element for point defense of deployed U.S. forces against short- and medium-range ballistic missiles. The Block 2006 program builds directly upon Block 2004. It continues element development and funds the next increment of fielding that adds interceptors, new radars, and enhanced battle management capabilities. MDA is also carrying out an extensive research and development effort to expand its current operational capability into future blocks. During fiscal year 2004, MDA funded the development of four other major BMDS elements—Airborne Laser (ABL), Kinetic Energy Interceptors (KEI), Space Tracking and Surveillance System (STSS), and Terminal High Altitude Area Defense (THAAD)—in addition to those elements comprising the Block 2004 defensive capability. MDA intends to integrate these elements, when ready, into future BMDS blocks. Table 1 provides a brief description of these elements, and more information about them is provided in appendixes II through VIII of this report. As part of MDA’s planning process, MDA defines overarching program goals for the development and fielding of BMDS block configurations. The goals describe the composition of a block (components and elements under development and planned for fielding), provide the costs and schedules associated with element development and fielding, and summarize performance capabilities at the component and system levels. A block’s cost goal is the portion of MDA’s budget dedicated to development and fielding activities associated with the block. MDA has established Block 2004 and 2006 “Development Goals” for the continued development and testing of six BMDS elements—ABL, Aegis BMD, C2BMC, GMD, STSS, and THAAD—and stand-alone components such as forward-deployed radars. These goals identify the developmental areas MDA is funding as part of the Block 2004 and 2006 programs. The associated cost goals, which are the planned budgets for these activities, are approximately $5.7 billion and $12.2 billion for Block 2004 and 2006, respectively. MDA also established a complementary set of goals—referred to as “Fielded Configuration” Goals—in response to the President’s December 2002 direction to begin fielding a limited ballistic missile defense capability. The fielding goals build directly upon the Development Goals but aim to deliver an operational missile defense capability during a given block’s time frame. For example, Block 2004 goals identify the components of the BMDS available for defensive operations by the end of December 2005. MDA states that the cost goals associated with the Block 2004 and 2006 fieldings are $1.7 billion and $3.8 billion, respectively. Therefore, the total cost goals for Block 2004 and 2006 are $7.4 billion and $16.0 billion, respectively. Figure 2 depicts MDA’s total budget between fiscal years 2005 and 2011 broken out by block. As illustrated, funding for a given block spans more than the 2-year period. For example, MDA estimates it will need about $12.0 billion to fund Block 2008 activities over the next 7 years through 2011. Many activities completed in fiscal year 2004 by the various element programs pertain to the completion of the LDO capability—the initial capability fielded by MDA. Although LDO is not formally listed by MDA as a Block 2004 goal, it does include the delivery of a capability on the path to meeting the fielding goals. Table 2 summarizes MDA’s fielding goals. The GMD, Aegis BMD, and C2BMC programs completed scheduled activities in fiscal year 2004 necessary to support the fielding of LDO, an integral part of Block 2004. Most notably, the GMD program completed construction activities at GMD sites, delivered and emplaced five GMD interceptors in their silos at Fort Greely, Alaska, and completed the upgrade of the Cobra Dane radar. The Aegis BMD program upgraded three destroyers for the long-range surveillance and tracking mission that supports homeland defense against ICBMs. In addition, the C2BMC program completed software development, activated control centers, and worked to integrate elements of the system. These programs also continued developmental and fielding activities in early fiscal year 2005 to enhance LDO so that the full Block 2004 capability could be realized by the end of calendar year 2005. For example, the GMD program delivered a sixth interceptor at Fort Greely in October and two interceptors at Vandenberg Air Force Base in December, completed the upgrade of the Beale early warning radar, and initiated the upgrade of the Fylingdales early warning radar. In addition, the Aegis BMD program completed the assembly of five missiles and continued with software development in the upgrade of its cruisers and destroyers. Similarly, the C2BMC program continued with software development and testing leading to the final Block 2004 version. Progress made toward achieving program goals relative to the fielding of the LDO and Block 2004 capabilities is summarized in tables 3 and 4, respectively. Detailed evaluations of activities completed in fiscal year 2004 by all BMDS elements are given in appendices II through VIII of this report. DOD did not activate the LDO capability MDA developed and fielded. Although the LDO capability was expected to be placed on alert by the end of September 2004, officials from the office of the Commander of U.S. Strategic Command (USSTRATCOM) told us that September 30, 2004, was a planning date rather than a “hard date.” The officials indicated that the system had not been put on alert for the following reasons: Shakedown. Since October 2004, the system has been undergoing a “shakedown”—a necessary transition phase between development and operations. During this time, the system is exercised as though an attack is under way. It enables the warfighter to become familiar with the system and, importantly, to plan for unexpected failures. Training. While initial training of operators has been completed, more is needed. For weapon systems in general, the warfighter does not have a military capability without trained operators, and training cannot begin until a weapon system is delivered (or at least far along in development). Policy. USSTRATCOM must receive an Execution Order from the Secretary of Defense before the LDO capability is declared operational. This order, which would reflect DOD policy, is to include a clear identification of command and control relationships. USSTRATCOM plans to advise the Secretary of Defense on the military utility of the system and could advise against declaring the system operational if, for example, more testing were needed to increase the command’s confidence in the system’s effectiveness. Also, the concept of operations (CONOPS) was not finalized, and issues such as the integration of defensive and offensive operations still had to be worked out. USSTRATCOM officials further explained that the declaration of LDO may or may not mean the system is “on alert” for defensive operations—LDO operation is more complicated than “being on” or “being off” alert. For example, the system could be in “developmental mode” when operated by MDA for testing but capable of being transitioned to an “operational mode” for defensive operations given sufficient time. As of March 2005, DOD had not announced a specific date for activating the initial missile defense capability. MDA completed a number of ground tests and exercises in fiscal year 2004, but key flight tests using LDO-configured components were delayed. For example, MDA verified integration and connectivity between its GMD, Aegis BMD, and C2BMC elements, and the warfighter participated in several missile defense exercises (wargames) as part of their training to understand and operate the system. However, the GMD program office conducted two booster tests (non-intercept attempts) in fiscal year 2004 even though six flight tests were planned. As a result, GMD interceptors were emplaced in silos before flight testing was completed to verify that LDO hardware and software could function in an operational environment. A summary of significant testing completed during fiscal year 2004 by each of the respective element programs is presented in table 5. More thorough discussions of element testing are given in appendices II through VIII of this report. The GMD program conducts integrated flight tests (IFT) to realistically demonstrate element operation using actual hardware and software. MDA planned to conduct several flight tests during fiscal year 2004 to gain knowledge about the element’s effectiveness and operation under real- world conditions. However, only two of six flight tests scheduled to occur in fiscal year 2004 were conducted. As noted in table 5, these were non- intercept tests of the Lockheed and OSC boosters. A second Lockheed booster test (IFT-13A) was deferred indefinitely; two intercept attempts utilizing LDO-configured hardware and software (IFT-14 and -15) were either delayed or cancelled; and, IFT-13C, the first flight test in 2 years with the potential for an intercept, was delayed 9 months. When IFT-13C was conducted in December 2004, the interceptor failed to launch, which precluded the fulfillment of key test objectives associated with the LDO- configured interceptor. IFT-13C was of particular significance because it was to have demonstrated operational aspects of the LDO capability for the first time in a flight test environment. For example: IFT-13C was the first flight test to utilize LDO hardware and software. Previous intercept attempts employed a surrogate booster and an earlier configuration of the kill vehicle. In particular, IFT-13C was to have launched a GMD interceptor comprised of the operational kill vehicle mated to an OSC booster. IFT-13C offered the opportunity to exercise Aegis BMD tracking and connectivity in a manner consistent with an actual defensive mission, that is, to demonstrate Aegis BMD’s ability to serve as a fire-control radar for ICBM engagements. However, because weather exceeded peacetime operational safety limits, Navy commanders withdrew Aegis BMD participation from IFT-13C; the program office concurred with the decision. The delay of IFT-13C by 9 months demonstrates that MDA is responsibly following an event-driven test program, that is, conducting tests only when ready. IFT-13C was delayed more than once to correct technical problems with the interceptor and to upgrade the test interceptor to a configuration that matches the ones deployed. However, the event-driven approach was not carried over into fielding. Eight GMD interceptors were in their silos by the end of December 2004 before flight testing was completed to verify that LDO hardware and software could function in an operational environment. If future flight testing identifies problems with the interceptor, MDA could incur added costs to recall and update fielded assets. In anticipation of fielding for LDO, the Aegis BMD flight test program focused on long-range surveillance and tracking—that is, to operate the element as a forward-deployed BMDS sensor—in support of the GMD mission. To this end, by October 2004, the Aegis BMD program completed software development and upgraded three Aegis destroyers for this role; they are available for operations. However, the surveillance and tracking function has only been partially demonstrated. For example: Aegis BMD participated in Glory Trip 185, during which an Aegis destroyer successfully tracked a Minuteman III ICBM launched from Vandenberg Air Force Base. However, the test did not exercise Aegis BMD tracking and connectivity in a manner needed for an actual defensive mission, that is, as an integral part of the system during which the destroyer acts as a fire control radar. In addition, the software tested was not the version installed on fielded destroyers. During the Pacific Explorer II field exercise, a destroyer in the Sea of Japan successfully passed track data of a simulated target, thereby demonstrating connectivity with the BMDS. In Pacific Explorer III, an Aegis destroyer planned to track an actual missile and pass track data to the BMDS. Although the destroyer tracked the live target missile, a malfunction with the target limited the amount of data collected by the Aegis destroyer. Specifically, the target ended its flight before Aegis BMD could send the GMD element all of the information needed for engaging the target. Finally, delays in the GMD flight test program precluded Aegis BMD from participating in two planned integrated flight tests, IFT-13C and IFT-14, during fiscal year 2004. Without these tests, MDA has not verified that the element’s long-range surveillance and tracking capability will perform as desired in an actual defensive mission. The 2005 Defense Authorization Act, section 234, directed DOD to conduct an operationally realistic test of the BMDS by October 1, 2005, and required the Secretary of Defense, in consultation with the Director, Operational Test and Evaluation (DOT&E), to prescribe appropriate test objectives. Such a test is expected to exercise the LDO and Block 2004 configuration in a more realistic manner. Officials from the office of DOT&E told us that the test would be derived from an existing flight test with objectives focused more on operational than developmental aspects. DOT&E recently approved the operational test portion of MDA’s Integrated Master Test Plan. The Integrated Master Test Plan establishes the framework for BMDS ground and flight testing through Block 2006. It is an overarching document that defines the test plans for the BMDS and its elements, identifies operational test objectives to support continuous characterization of demonstrated operational capability, and identifies associated test resources. MDA has conducted various ground and flight tests that provide some degree of confidence that the LDO capability—consisting of the GMD element, Aegis BMD destroyers for surveillance and tracking, and C2BMC for command and control—will operate as intended. In addition, MDA predicts that the LDO capability, although limited in inventory, will be effective in providing some protection of the United States against ICBM attacks from Northeast Asia. However, the agency has not verified that the LDO capability can operate as an integrated system without range-test limitations and artificialities (for example, using surrogate components to emulate missile defense functions), and operational testers within DOD state that there is not enough data to accurately characterize system performance. MDA and DOT&E differ on derived estimates of LDO effectiveness. Both offices employed similar methodologies—that is, they identified critical functions needed to carryout a BMD engagement, estimated the probability of success for each function, and combined results into a “probability chain” to calculate a total probability of success for a given scenario. However, the assessments made by MDA and DOT&E differ in that they are based on different types and sources of information. MDA’s assessment is based on the output from BMDS-level simulations using data derived from a variety of sources, including design specifications and output from high-fidelity simulations of various components (such as radars and interceptors). By employing digital simulations, estimates of system effectiveness are obtained over a wide range of conditions, scenarios, and system architectures. These simulations are anchored by data collected during flight testing so that their underlying models are reflective of real-world operation. DOT&E generated its estimates of system effectiveness by also approximating each factor of the “probability chain,” but it relied on historical data and results from recent ground and flight tests. Based on this methodology, DOT&E concluded that there is not enough test data to accurately characterize system effectiveness—that is, the estimates are too uncertain to make definitive conclusions. In commenting on MDA’s methodology, DOT&E officials made the following points: MDA’s computer-based assessments are appropriate for a developmental program, but there could be difficulty in interpreting results for operational considerations. A noteworthy limitation of MDA’s assessment is the lack of system- level performance data. Although its models provide a good representation of the system being built, fundamentally they are not predictive of actual system performance. The uncertainty in LDO effectiveness has a direct impact on how the warfighter operates the system. As noted by officials from USSTRATCOM, the uncertainty limits the warfighter’s ability to formulate tactics and procedures in operating the system, especially with limited inventory. In addition, knowledge of component performance can play a useful role in fielding decisions by assisting decision makers in determining whether the capability available at the time warrants the cost of fielding, operating, and sustaining the system, or whether additional investment and development to enhance the capability are needed. MDA has conducted a variety of tests that provide some degree of confidence that the LDO capability will operate as intended. For example, since 1999, the GMD program has conducted eight flight tests (intercept attempts) that emulated system operation against ICBM attacks. In addition, based on MDA documentation, the various functions of the BMD engagement—such as launch detection, tracking, interceptor launch, and intercept—have been demonstrated in a variety of venues, including simulations, ground tests, and flight tests. Technical indicators monitored by GMD, Aegis BMD, and C2BMC show that the elements’ various components are on track to function as expected during a BMD engagement. For example, the Aegis BMD program projects that the Aegis SPY-1 radar is able to deliver adequate performance in support of the GMD mission. Furthermore, based on past flight tests, MDA states that discrimination performance of the GMD kill vehicle is adequate to meet system-level objectives relative to the Block 2004 threat. However, collectively, these accomplishments do not verify integrated system operation of the LDO capability because of inherent limitations and artificialities. An end-to-end test of system operation—beginning with launch detection and ending with intercept confirmation—should incorporate operational test objectives such as test realism, lack of scripting, and the utilization of production-representative hardware. Although MDA has progressed in demonstrating such objectives in a ground-test setting, they have yet to be demonstrated in end-to-end flight tests. As we reported in February 2004, GMD flight tests to date have demonstrated basic functionality of a representative missile defense system using surrogate and prototype components. In addition, they have shown success in intercepting a mock reentry vehicle in a developmental test environment. However, as developmental tests, they were scripted, did not use production-representative hardware and software, and required the placement of a C-band transponder on the target reentry vehicle. The transponder was essential for the execution of the flight tests—no ground radar of sufficient accuracy for guiding the interceptor to the intercept point was available. Although MDA has conducted many tests to exercise separate functions of the BMD mission, component-level testing in preparation for LDO has been incomplete. For example, MDA conducted wargames that enabled the warfighter to exercise the C2BMC in a simulated operational environment to gain insight in and provide feedback on C2BMC capabilities. Also, GMD radars and Aegis BMD destroyers took advantage of other DOD missions that enabled these elements to exercise radar and battle management operations. However, some components have not been fully tested: The Cobra Dane radar is located at Eareckson Air Station in Shemya, Alaska, at the western end of the Aleutian chain. Its close proximity to Russia allows it to perform its primary mission of collecting data on ICBMs and submarine-launched ballistic missiles launched into the Kamchatka impact area. In fiscal year 2004, the GMD program completed hardware installation and software upgrades to the Cobra Dane radar. To test these upgrades, Cobra Dane tracked a foreign missile launch and participated in an integrated ground test. However, the upgraded Cobra Dane radar has not participated in a flight test event as the primary fire control radar—a role it would need to fill in the event of a real threat. MDA may conduct a test during the third quarter of fiscal year 2005 using a long-range air-launched target to demonstrate the upgraded Cobra Dane under more operationally realistic conditions. Aegis destroyers upgraded for the long-range surveillance and tracking capability have not been exercised in a manner consistent with an actual defensive mission. That is, the Aegis BMD element has not provided track data of a target, in real time, for use in planning a BMD mission against a target ICBM. Aegis BMD will first participate in a GMD flight test in this role in fiscal year 2005. Despite this concern, DOT&E officials believe that Aegis BMD can adequately perform its detection and tracking functions. We used contractor Cost Performance Reports in combination with Earned Value Management (EVM) analysis to assess progress made by the various element prime contractors toward MDA’s cost and schedule goals during fiscal year 2004. The government routinely uses such reports to independently evaluate these aspects of the prime contractors’ performance. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are generally associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. Cost Performance Reports provide program mangers and others with information on a contractor’s ability to perform work within estimated cost and schedule. When reports show that the contractor is encountering problems that cause cost growth, program officials can then take actions to prevent further growth. We assessed MDA fiscal year 2004 cost performance by reviewing the cost performance of each system element, which, in turn, is based on the cost performance of its element prime contractor. We used this methodology because a large percentage of MDA’s budget is allocated to prime contractors that develop the various BMDS elements. As summarized in table 6, prime contractors responsible for developing three of the seven BMDS elements we reviewed—C2BMC, KEI, and THAAD—completed their fiscal year 2004 work at or near budgeted costs. Activities cost more than budgeted for the ABL, GMD, and the STSS elements by $114 million, $220 million, and $35 million, respectively. Also, our analysis of cost and schedule performance for the entire Aegis BMD element could not be conducted, because Cost Performance Reports for the Standard Missile 3 contract were not issued until September 2004. Our detailed findings are presented in appendices II through VIII of this report. ABL incurred a negative cost variance of $114 million during the first half of fiscal year 2004, before the program was restructured to make its cost and schedule targets more realistic. This variance stemmed primarily from two sources. First, the program encountered unanticipated complexity in manufacturing and in integrating advanced optics and laser components for the prototype system. Second, the push to rapidly develop the prototype aircraft caused the program to limit testing of subcomponents, which, in turn, generated rework and modified requirements. To address the negative variance for ABL, program officials told us that they redirected funds originally earmarked for other program efforts. GMD incurred a negative cost variance of $220 million. The contractor originally underestimated the cost of readying the element for LDO and experienced unexpected problems requiring some rework of its kill vehicle. Additionally, in response to explosions at a subcontractor’s propellant mixing facility, the program incurred cost to transition operations to a new vendor. To address its negative cost variance for GMD, MDA deferred some work planned for completion in fiscal year 2004 into fiscal year 2005, and, to cover these increased costs, requested and received additional money in its fiscal year 2005 budget. MDA also directed other programs within the agency, such as Test and Evaluation, to pick up GMD’s portion of the cost of work tasks that benefited both programs. Employing established EVM analysis techniques, we estimate that the GMD contract—which ends in September 2007—will overrun its budget by between $593 million and $950 million at its completion assuming no corrective actions are taken. The negative STSS cost variance was largely attributed to a subcontractor who had a number of quality and systems-engineering problems in developing the payload—sensors and supporting subsystems—onboard the two STSS demonstration satellites. The program office maintains that there is enough management reserve to cover the overrun at the end of the contract, assuming that the reserve is not used for other purposes before then. ABL program officials’ insight of their prime contractor’s cost and schedule performance between April and July 2004 was somewhat limited. During this time, program officials directed the contractor to suspend normal cost performance reporting while they restructured the ABL prime contract to make its target cost and schedule more realistic. In lieu of providing normal Cost Performance Reports, the contractor provided the program office with monthly forecast expenditure plans, detailed work activities, and the number of staff needed to complete planned tasks. The program office relied on these metrics to determine the program’s status and to provide insight into the contractor’s cost and schedule performance. In the 5 months since cost reporting resumed, the cost and schedule variance has been relatively stable. We could not fully assess cost performance for the Aegis BMD program in fiscal year 2004. The prime contractor developing the SM-3 missile did not generate Cost Performance Reports until September 2004, even though the prime contract was awarded in August 2003. Program officials told us that, instead, they monitored contractor performance through monthly management and business meetings where cost performance, milestones, and future performance were reviewed. Program officials indicated that the delay in issuing Cost Performance Reports stemmed from the late establishment of the contract’s performance management baseline. It was established 7 months after contract award because of the need for the program office to react to funding issues. In addition, the program suspended contractor cost and schedule performance reporting until after the Aegis BMD program office completed an integrated baseline review 5 months later. KEI program officials also had reduced insight into its prime contractor’s work efforts for a portion of fiscal year 2004. After contract award in December 2003, the prime contractor began submitting Cost Performance Reports in May 2004. Program officials suspended cost performance reporting after August 2004 because of the need to restructure the prime contract in response to reduced funding. Program officials told us that the contractor will resume reporting in 2005 after a reliable baseline that reflects the full extent of the program’s restructure is available. A number of factors portend an increasing level of funding risk for the ballistic missile defense program in the years ahead. Based on DOD’s Future Years Defense Plan for fiscal years 2006-2011, MDA plans to request, on average, Research, Development, Test, and Evaluation (RDT&E) funding of about $10 billion annually. This funding supports continued development, procurement, and sustainment of hardware and software that MDA is fielding. However, sources outside and within DOD are expected to put pressure on MDA’s share of research and development dollars. One factor for the increasing pressure is that DOD’s acquisition programs such as ballistic missile defense are likely to be competing for a decreasing share of the federal budget. These programs are categorized as “discretionary spending” as opposed to “mandatory spending,” such as Social Security, Medicare, and Medicaid. In fiscal year 2004, discretionary spending accounted for about 39 percent of the federal budget. The Congressional Budget Office projects that discretionary spending is likely to decrease to 36 percent of the federal budget by fiscal year 2009 and to 32 percent in by fiscal year 2014. A second factor is competing demands for funding within DOD. For example, although missile defense is seen as a national priority and has been funded nearly at requested levels in the past few years, MDA is facing budget cuts. Indeed, DOD’s Program Budget Direction of December 2004 called for MDA to plan for a $5 billion reduction in funding over fiscal years 2006-2011. In addition, MDA is receiving about 13 percent of the $70 billion RDT&E budget in fiscal year 2005 but must continue to compete with hundreds of existing and planned technology development and acquisition programs for RDT&E funding. Cost growth of existing weapon programs puts additional pressure on MDA’s share. We found, for example, that RDT&E cost estimates grew $6.7 billion for the Joint Strike Fighter in calendar year 2003 and $9.2 billion for the Future Combat System in fiscal year 2004. The third factor comes from within MDA itself. The agency continues to respond to cost growth of ongoing programs to enhance the components and elements of the BMDS. As noted above, ABL, GMD, and STSS incurred a collective negative cost variance of approximately $370 million in fiscal year 2004 and, as we reported last year, MDA elements incurred a collective negative cost variance of about $380 million in fiscal year 2003. Unless MDA can mitigate these cost variances, significant cost overruns could occur on these contracts in the future. Estimating cost and schedule targets of new and complex technologies can be difficult and, as demonstrated, are often underestimated. Furthermore, hardware made available for operational purposes is not being fully tested before being fielded. If the need arises to correct problems identified in subsequent testing, removing and recalling this hardware could prove costly. A fourth factor for the increasing pressure on MDA’s RDT&E budget is that MDA is starting to field components of the BMDS, whose production, operation, and sustainment are also funded by RDT&E dollars. A flat RDT&E budget combined with growing fielding costs would result in a decrease in investment in research and development—MDA’s primary mission. According to program documentation, MDA’s budget for its fielding activities between fiscal years 2006 and 2011 includes an average of $1.76 billion per year for procuring BMDS assets and an additional $400 million per year for sustaining the fielded capability. However, the fielding costs can be expected to increase in the years to come as more components of GMD, Aegis BMD, and THAAD are integrated into the BMDS. Operations and support (O&S) costs of fielded systems are generally significant and can be expected to be substantial for operational capabilities of the BMDS. In our 2003 report on total-ownership (life-cycle) cost, we found that the cost to develop and procure a weapon system usually represents about 28 percent of the weapon system’s life-cycle cost; O&S costs typically account for the remaining 72 percent of a weapon’s systems total life-cycle cost. The only BMDS element thus far with a life- cycle cost estimate, the Army’s Patriot-MEADS missile defense program, has comparable life-cycle cost percentages. According to the Army’s Lower-Tier Project Office, the Patriot-MEADS development cost accounts for 6.4 percent, procurement accounts for 21.2 percent, and O&S costs account for 72.4 percent of the total life-cycle cost of $151 billion. DOD officials cautioned us that estimating life-cycle costs of missile defense capabilities involves considerable uncertainty. For example, O&S costs depend on the state of readiness of the fielded system, which is difficult to predict. In addition, historical data of component reliability in the field and the cost to repair operational missile defense assets are essentially nonexistent. Furthermore, life-cycle cost estimates of standard DOD weapon systems assume O&S costs apply for long periods of time, on the order of 20 years. Components of the BMDS, however, might be in the field for shorter durations. Finally, our previous work recognized that life-cycle cost estimates for revolutionary systems such as the ABL program, which utilize new technologies in unproven applications, are unknown. When fielded, operation and support efforts for ABL could be substantial because ABL will require unique support for its laser and beam-control components and ground infrastructure for chemical storage, mixing, and handling. In assessing the extent MDA achieved its stated goals in fiscal year 2004, we observed that MDA’s cost goal for a given block is not consistently aligned with that block’s fielding goals. According to MDA policy, for example, interceptors identified with the Block 2004 fielding goals and fielded during calendar years 2004-2005 should be funded as part of the Block 2004 cost goal. As originally designed, the block approach would provide MDA with the flexibility to deliver a basic capability initially and enhance it during subsequent blocks to respond to the changing threat and to insert new technologies for enhanced performance. The block approach also would provide for accountability, because MDA would identify for decision makers the promised capabilities to be delivered by the end of each block for a specified investment of funds. In the following instances, however, we found that MDA has not been consistently matching a block’s cost and fielding goals thereby obscuring the relationship between requested funding and delivered capabilities: Funds accounted for in the Block 2004 cost goal are being used to procure 32 Aegis BMD SM-3 missiles. Of these missiles, 11 will be delivered in 2004-2005, and the remaining missiles will be delivered during 2006-2007. Similarly, funds accounted for in the Block 2006 cost goal are being used to procure 40 missiles. Of these missiles, 7 will be delivered in 2006-2007, and the remaining delivered during 2008-2009. The THAAD program is funding a “fire unit” as part of its Block 2006 program. Operated by the Army, it will consist of a radar, a battle management unit, 3 launchers, 24 missiles, and equipment for support, maintenance and training. Even though MDA refers to this fire unit as a Block 2006 fielding, it will not be delivered until 2009 (i.e., during Block 2008). In addition, counter to the definition of a block as an integrated set of capabilities fielded during the 2-year block window, the Airborne Laser program will not field any capabilities during Block 2004 although Block 2004 funds are used in the program’s development. Rather, the ABL program is focused on developing a prototype aircraft for use in a lethality demonstration—a flight test in which the ABL aircraft will attempt to shoot down a short-range ballistic missile. However, ABL’s funding is broken out by block—2004, 2006, and 2008—even though the program is developing a single configuration of the element that will not be integrated into the BMDS earlier than Block 2008. MDA delivered much of what it planned in fiscal year 2004, and DOD is on the verge of standing up an initial capability against long-range ballistic missiles launched from Northeast Asia. Despite this success, the performance of the system remains uncertain and unverified because of recurrent test delays and failures. Also, Ground-based Midcourse Defense developmental costs continue to increase and the Airborne Laser program was restructured when it became clear that much more time and money would be needed to develop and demonstrate a prototype aircraft. Looking to the future, decision makers in Congress and DOD face billion dollar investment decisions in allocating funds both within MDA’s RDT&E activities and between MDA and other DOD programs. In exercising their funding and oversight responsibilities, these decision makers would benefit from a consistent implementation of a block policy for which delivered capability is aligned with tax dollars received. To assist decision makers in Congress and DOD in exercising their oversight of MDA’s acquisition plans and in evaluating MDA’s budget requests, we recommend that the Director, MDA, clarify and modify, as needed, its block policy to ensure that a block’s cost and fielding goals are consistently aligned. DOD’s comments on our draft report are reprinted in appendix I. DOD concurred with our recommendation. Acknowledging our observations, the Department noted that the policy for ballistic missile defense block definitions should provide for consistent accounting of the various features of each block. MDA is taking steps to clarify and modify the block definitions for that purpose. We are sending copies of this report to the Secretary of Defense and to the Director, MDA. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-4841. The major contributors to this report are listed in appendix XI. The Aegis Ballistic Missile Defense (Aegis BMD) element is designed to protect U.S deployed forces, friends, and allies from short- and medium-range ballistic missile attacks. Additionally, its shipboard radar can serve as a forward- deployed sensor for surveillance and early tracking of long-range ballistic missiles in support of the Ground-based Midcourse Defense (GMD) mission. To provide these capabilities, the Missile Defense Agency (MDA) is upgrading existing Aegis Navy ships for the BMD mission. MDA completed an initial surveillance and tracking capability in fiscal year 2004 and plans to field an initial intercept capability in April 2005. The Aegis BMD program completed work planned for fiscal year 2004 generally on schedule and is largely on track to upgrade system software and expand missile inventory for an enhanced capability by the end of December 2005 (Block 2004). However, Aegis destroyers upgraded for the long-range surveillance and tracking (LRS&T) mission had limited opportunities to be exercised in a manner consistent with an actual defensive mission. Schedule: In fiscal year 2004 and early 2005, the Aegis BMD program completed the upgrade of three Aegis destroyers for the LRS&T mission—all are available for operations. In addition, the program delivered five missiles, known as the Standard Missile 3 (SM-3), in the first quarter of fiscal year 2005 for the element’s Block 2004 engagement capability. Because of funding constraints and ship availability, missile deliveries and ship upgrades were delayed. In particular, the program expects to have available a slightly smaller inventory of SM-3 missiles by December 2005 than was originally planned. Also, the program expected to upgrade three cruisers by the end of Block 2004, but only two will be completed by this time. DOD’s planned investment in the Aegis BMD program from program inception in 1996 through 2011 is approximately $10 billion. DOD expended $3.67 billion between fiscal years 1996 and 2004, Congress appropriated $1.14 billion for fiscal year 2005, and MDA is budgeting about $5.22 billion between fiscal years 2006 and 2011 for Aegis BMD development, procurement, and operations. Testing: Aegis BMD flight testing conducted in fiscal year 2004 focused on the LRS&T mission, including the element’s connectivity with the BMDS. Because there were limited opportunities to track actual targets using the fielded version of the LRS&T system, this capability was only partially demonstrated prior to the destroyers’ fielding. The Aegis BMD program also conducted one successful intercept attempt against a short-range ballistic missile target during fiscal year 2004. Finally, design changes to the missile’s divert system underwent ground testing and are planned to be tested in flight in fiscal year 2005. Performance: The Aegis BMD program has demonstrated the capability to intercept a non-separating target through its successes in five of six flight tests. The root cause of a failure in the missile’s divert system during the one unsuccessful attempt is understood, and design changes are expected to be tested in flight in fiscal year 2005. Although the program has exercised the element’s LRS&T capability in a small number of flight-test events, it has not yet used the fielded version of the system software to provide real-time track data of a target for use in planning a BMD mission, as it would need to do in an actual defensive operation. Cost: We could not fully assess cost performance for the Aegis BMD program in fiscal year 2004 based on an analysis of prime contractor Cost Performance Reports. We found that the contractor responsible for upgrading existing Aegis ships for the BMD mission completed fiscal year 2004 work $3.5 million under budget but was unable to complete $2.0 million worth of work. However, we were unable to assess cost and schedule performance of the prime contractor who develops the SM-3 missile because Cost Performance Reports were not available during fiscal year 2004. The Aegis Ballistic Missile Defense (Aegis BMD) element is a sea-based missile defense system being developed to protect deployed U.S. forces, allies, and friends from short- and medium-range ballistic missile attacks. It will also be used as a forward-deployed Ballistic Missile Defense System (BMDS) sensor, employing its shipboard SPY-1 radar, to perform surveillance and tracking of long-range ballistic missiles in support of the Ground-based Midcourse Defense (GMD) mission. The Aegis BMD element builds upon the existing capabilities of Aegis- equipped Navy cruisers and destroyers. Planned hardware and software upgrades to these ships will enable them to carry out the missile defense mission in addition to their current role of protecting U.S. Navy ships from air, surface, and subsurface threats. The program is also developing the Standard Missile 3 (SM-3)—the system’s interceptor missile, which is designed to destroy enemy warheads through hit-to-kill collisions above the atmosphere. The SM-3 is comprised of a kill vehicle mounted atop a 3-stage booster. In 1996, the Department of Defense (DOD) initiated the Navy Theater Wide program, the predecessor to Aegis BMD. The Navy Theater Wide system was to be a ship-based missile defense system capable of destroying short- range ballistic missiles above the atmosphere. At the time, plans called for deploying the first increment of the Navy Theater Wide system in 2010 and a final increment with an improved kill vehicle at a later, undefined date. The Missile Defense Agency (MDA) currently manages and funds the Aegis BMD program, although the U.S. Navy has a role in its development and management. Accordingly, the Aegis BMD element is being developed under MDA’s acquisition approach, which delivers system capabilities in 2-year block increments. The first increment of the Aegis BMD element, Block 2004, is expected to deliver a limited operational capability in the 2004-2005 time frame. It provides for surveillance and tracking of long- range ballistic missiles and an intercept capability (engagement role) against shorter-range ballistic missiles. The Block 2004 capability is being rolled out in three phases: Initial fielding of the surveillance and tracking capability. By October 2004, the program office upgraded three Aegis destroyers with the ability to perform the long-range surveillance and tracking (LRS&T) function as a BMDS sensor in support of the GMD mission. All three destroyers are available for operations. This capability is the element’s contribution to MDA’s fielding of Limited Defensive Operations (LDO), MDA’s first increment of fielded capability. Initial fielding of an intercept capability. By April 2005, MDA plans to have available two cruisers, along with a combined inventory of approximately five SM-3 missiles. The cruisers are expected to be capable of performing its two BMD missions, LRS&T and the engagement of short- and medium-range ballistic missiles. This configuration could be deployed operationally if so directed in an emergency. Completion of the Block 2004 element. The program expects to increase the number of Aegis destroyers capable of providing LRS&T from 3 to 10 by the end of December 2005. In addition, the program plans to deliver eight SM-3 missiles available to be deployed on upgraded cruisers available for the engagement role. Future block configurations of the Aegis BMD element build upon the Block 2004 capability. In Block 2006, MDA plans to add the capability to defeat intermediate-range ballistic missiles with limited countermeasures and to increase Aegis BMD’s role as a remote sensor by upgrading radar capabilities. The Aegis BMD Block 2008 configuration will incorporate upgrades to the SPY-1 radar to improve the radar’s discrimination capability and to enhance the element’s command and control component so that the element can engage multiple threats simultaneously. Finally, the Aegis BMD Block 2010 and 2012 configurations are expected to incorporate missile enhancements, improve discrimination capability against advanced countermeasures, and improve planning and coordination as part of the BMDS. The Aegis BMD program establishes annual element-level goals by outlining specific activities the program plans to complete during a given fiscal year. In fiscal year 2004, the program focused largely on delivering the LRS&T capability for LDO and continuing with activities leading to the full Block 2004 capability. These activities can be grouped into three categories: fielding, testing, and design reviews. Fielding. The Aegis BMD program planned to install the initial version of the operational computer program and make associated hardware upgrades on three Aegis destroyers enabling them to perform the LRS&T mission. In addition, the program planned to continue its activities leading to the initial delivery of SM-3 missiles during fiscal year 2005. Testing. The Aegis BMD program office planned to conduct an intercept attempt against a short-range ballistic missile—Flight Mission 6 (FM-6)—and to participate in other events that exercise the system’s LRS&T functionality and connectivity with the BMDS. Design reviews. The program planned to conduct design reviews of the final Block 2004 Aegis Weapon System software, the final Block 2004 missile configuration, and the SM-3 missile’s shipboard launch system. In fiscal year 2004, the Aegis BMD program completed the upgrade of three Aegis destroyers for the LRS&T mission. In addition, the program was completing the final assembly of the first five SM-3 missiles for the Block 2004 engagement capability, which were delivered in early fiscal year 2005. The program is largely on track to upgrade software, expand missile inventory, and conduct flight tests to deliver an enhanced capability for Block 2004 by the end of December 2005. However, funding modifications and ship availability delayed final missile deliveries and ship upgrades. In particular, although the program expected to field nine SM-3 missiles by the end of Block 2004, only eight will be delivered by this time. Also, the program expected to upgrade three cruisers by the end of Block 2004, but only two will be completed by this time. Specific progress made in fiscal year 2004 relative to fielding, testing, and design is given in the narrative below and summarized in tables 7 to 12. The Aegis BMD program has plans to eventually upgrade 18 Aegis- equipped Navy ships (15 destroyers and 3 cruisers) with enhanced planning, surveillance, tracking, and engagement functions to make them capable of performing the BMD mission. These upgrades will improve the capability of the element’s SPY-1 radar to discriminate a missile’s warhead from decoys, enable tracking of long-range ballistic missiles as a BMDS sensor, plan engagements, and launch SM-3 missiles to engage ballistic missiles. To achieve this enhanced functionality, the Aegis BMD program office is upgrading the Aegis Weapon System on designated ships through a series of software builds and hardware upgrades, referred to as BMD 3.0E, BMD 3.0, and BMD 3.1. Each BMD upgrade will increase the element’s capability. The Aegis BMD program has successfully installed BMD 3.0E in three destroyers, which enables the ships to carry out long-range surveillance and tracking. However, the ships are not yet capable of launching missiles to engage ballistic missiles. Rather, the next software build, BMD 3.0, will be needed to provide the preliminary engagement capability for Aegis cruisers. It is expected to be approved for use in April 2005 and could be deployed operationally if so directed in an emergency. The third version of the BMD upgrade—BMD 3.1—will eventually enable the destroyers to also launch missiles, but because other hardware upgrades are needed, only Aegis cruisers will be equipped to do so by the end of Block 2004. BMD 3.1 is the last weapon system upgrade planned for the Block 2004 time frame. Table 7 summarizes the principal software development and installation activities completed in fiscal year 2004. As software builds and hardware upgrades are completed and installed, Navy cruisers and destroyers will become available to perform their expected missions. Table 8 summarizes the availability of Aegis ships for the BMD mission in the Block 2004 time frame. Although MDA program goals specified that three cruisers would be available by the end of Block 2004 (December 2005), only two are expected to be upgraded by this time; the third is expected to be upgraded in early 2006, depending on ship availability. In fiscal year 2004, the Aegis BMD program office continued to procure SM-3 missiles for delivery in the 2004-2005 time frame. In particular, 11 “Block I” SM-3 missiles are expected to be delivered by the end of calendar year 2005, some of which will be used in flight testing. Table 9 summarizes the status of SM-3 deliveries through December 2005. Prior to September 2004, three SM-3 missiles of an earlier configuration were delivered and subsequently used in flight missions (intercept attempts), FM-4, FM-5, and FM-6. “Block I” SM-3 missiles, which are being fielded during 2004-2005, are an operational configuration that evolved from this earlier design. Fiscal year 2004 funding modifications impacted SM-3 missile integration and delivery; consequently, the Aegis BMD program expects to have available a slightly smaller inventory of SM-3 missiles by December 2005 than was originally planned. The Aegis BMD program conducts both ground and flight tests to demonstrate and validate element performance. Ground tests serve to reduce risk and, in some cases, are conducted under conditions that are difficult to replicate in flight. Flight tests verify the element’s ability to engage ballistic missile targets using actual equipment, computer programs, and an operational ship with a Navy crew. Ground tests completed during fiscal year 2004 included those focused on a subcomponent of the missile’s divert system—the Solid Divert and Attitude Control System (SDACS). This subcomponent is a collection of solid-fuel thrusters used to steer the kill vehicle into its designated target. When an updated SDACS design proved successful in earlier ground tests, the program flight-tested it during Flight Mission 5 (FM-5) in June 2003. However, during this test, the subassemblies supporting the energetic pulse-mode failed, causing the kill vehicle to be less maneuverable and miss its target. Program officials stated that the failure likely stemmed from a “diverter ball” in the SDACS, which acts as a valve to control pulses that allow the missile to maneuver quickly. The exercising of the high-energy pulse mode of the SDACS increased internal operating pressures, and, under the thermal stress, the protective coating of the diverter ball cracked, disabling normal SDACS operation. The root cause of this failure has been traced to a material failure under intense temperature and pressure. In response to this failure, during fiscal year 2004, the program modified the SDACS design to improve its switching performance and reliability during high-energy pulse operation. A series of ground tests and engineering analysis is ongoing to validate the design updates. Following completion of ground tests and analysis, future flight tests are planned to demonstrate operation of the SDACS using its high-energy pulse mode. Since 1999, there have been six intercept attempts using variants of the SM-3 missile. In five of the six, the SM-3 successfully intercepted targets. In fiscal year 2004, the program conducted one of these successful intercept attempts—FM-6. Additionally, the Aegis BMD element participated in other non-intercept test events to assess the Aegis destroyer’s ability to track targets of opportunity and pass data to the BMDS. Because of the technical issues associated with the SDACS reliability that arose in FM-5, the program office delayed FM-6 from September 2003 to December 2003 and did not exercise the SDACS high- energy pulse mode as originally planned. After the FM-6 flight mission in December 2003, Aegis BMD flight testing conducted in fiscal year 2004 focused on the LRS&T mission although there were limited opportunities to track actual targets using the fielded version of the LRS&T software, BMD 3.0E. For example, delays in the GMD flight test program prevented Aegis BMD from participating in two integrated flight tests, IFT-13C and IFT-14, during fiscal year 2004. In addition, the Aegis BMD program participated in Glory Trip 185, during which an Aegis destroyer successfully tracked a Minuteman III ICBM launched from Vandenberg Air Force Base. However, it exercised an earlier version of the LRS&T software, rather than BMD 3.0E, which is installed on fielded destroyers. Finally, in Pacific Explorer III, an Aegis destroyer planned to track an actual missile and pass track data to the BMDS. Although the destroyer tracked the live target missile, a malfunction with the target limited the amount of data collected by the Aegis destroyer. Specifically, the target ended its flight before Aegis BMD could send the GMD element enough information needed for engaging the target. Although there were limited opportunities to track actual targets, Aegis BMD participated in other tests that verified connectivity with the BMDS. For example, in Pacific Explorer II, Glory Trip 185, Pacific Explorer III, and Pacific Explorer IV (conducted in fiscal year 2005), simulated or real ballistic missile target track data was successfully transmitted to the BMDS. Table 10 summarizes the flight test and LRS&T activities completed in fiscal year 2004 by the Aegis BMD program. In fiscal year 2005, the program office scheduled three more Block 2004 flight tests, all of which are planned as intercept attempts. These tests aim to progressively demonstrate the element’s capability against short- and medium-range unitary and separating targets, as well as demonstrate that Aegis BMD can support the BMDS as a forward-deployed sensor. FM-7 was the first flight test to use BMD 3.0 and the Block I SM-3 missile, which is the configuration of the first set of SM-3 missiles that will be made available for fielding. Table 11 provides a summary of the Block 2004 flight tests the program expects to conduct through fiscal year 2005. The Aegis BMD program scheduled four component-level design reviews in fiscal year 2004 to evaluate the design maturity of the Aegis Weapon System software, launch system, and upgraded SM-3 missile, known as “Block IA.” The program successfully completed three of these design reviews but delayed the fourth until early 2005. Table 12 summarizes the principal activities related to each review. We identified areas for which the Aegis BMD program has not fully demonstrated element performance and reliability. First, the program has demonstrated its intercept capability under limited conditions; second, the program has not successfully demonstrated, in a flight test, SDACS operation using its high-energy pulse mode; and third, the program has only exercised the element’s LRS&T capability in a small number of flight- test events. The Aegis BMD program demonstrated the capability to intercept a non- separating target through its successes in FM-2, FM-3, FM-4, FM-6, and FM-7. Although these tests were scripted, they are noteworthy, given the difficulty of “hit-to-kill” intercepts. Officials with the office of Director, Operational Test and Evaluation (DOT&E), pointed out that the Aegis BMD program has conducted the most operationally realistic testing of all BMDS elements, especially because they utilize an operational U.S. Navy cruiser. They recognize, however, that the targets in FM-2 and FM-3 flew trajectories that facilitated radar detection and tracking. More realistic engagement scenarios will be tested in Block 2006, for example, tests with multiple simultaneous engagements. As we reported last year, the Aegis BMD program faced challenges with ensuring the reliability of SDACS operation; the issue continues to be relevant. The root causes of the SDACS failure in FM-5 are understood and the program is implementing four design changes to correct the problem. After completing ground tests to verify these changes, the program plans to flight test the modified multi-pulse SDACS no earlier than FM-8, scheduled for the third quarter of fiscal year 2005. Even if the design changes prove to resolve the SDACS issue, program officials do not expect to implement any design changes in the first 11 Block 2004 missiles being delivered. Program officials believe that these missiles provide a credible defense against a large population of the threat even with reduced divert capability. The program has exercised the element’s LRS&T capability in a limited number of flight-test events, as noted above. Nonetheless, the Aegis BMD program predicts that the Aegis SPY-1 radar is able to deliver adequate performance in support of the BMD mission, and DOT&E officials believe that Aegis BMD can adequately perform its detection and tracking functions. Although the Aegis destroyers have been upgraded for the LRS&T capability, they have not been exercised in a manner consistent with an actual defensive mission. That is, the Aegis BMD element has not provided track data of a target, in real time, to plan a BMD mission and launch GMD interceptors. DOD’s planned investment in the Aegis BMD program from program inception in 1996 through 2011 is approximately $10 billion. As broken out in table 13, DOD expended $3.67 billion between fiscal years 1996 and 2004, Congress appropriated $1.14 billion for fiscal year 2005, and MDA is budgeting about $5.22 billion between fiscal years 2006 and 2011 for Aegis BMD development, procurement, and operations. Budgeted activities in the “cooperative work” column include SM-3 component development between the United States and Japan. In the second half of 2003, two new prime contracts for the Aegis BMD element were awarded, one for the Aegis Weapon System and one for the SM-3 missile. Aegis Weapon System efforts, previously part of five Navy contracts, were merged into one contract, which was awarded to Lockheed Martin in October 2003. This contract covers Block 2004 activities, including upgrades to BMD software, upgrades to the SM-3 missile launch system, and planning activities for future blocks. The two previous Navy SM-3 contracts were merged into a new contract, which was awarded to Raytheon in August 2003. It covers development and delivery of SM-3 missiles and related engineering efforts. The government routinely uses contractor Cost Performance Reports to independently evaluate a prime contractor’s cost and schedule performance. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are generally associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. We used the Cost Performance Reports to evaluate the cost and schedule performance of the Aegis Weapon System prime contractor but had insufficient data to assess the performance of the SM-3 contractor. Our analysis of the Aegis Weapon System found that the prime contractor performed at or near budgeted cost and schedule during fiscal year 2004. Specifically, since contract inception in October 2003 through September 2004, the prime contractor was $3.5 million under budget. However, it was unable to complete $2 million of work because of fluctuations in ship and testing schedules (see fig. 3). The Defense Contract Management Agency is concerned with the delay that occurred in the implementation of the SM-3 contract’s performance measurement baseline, which reflects the schedule and budget for all work tasks that must be performed to meet contract objectives. Although the contract was awarded to the prime contractor, Raytheon, in August 2003, the contract’s baseline was not reviewed at an Integrated Baseline Review (IBR) until almost a year after contract award. Program officials indicated that the delay stemmed from the late establishment of the contract’s performance management baseline, which was established 7 months after contract award because of the need for the program office to react to funding issues. Raytheon was allowed to postpone issuing Cost Performance Reports until after the Aegis BMD program office held an IBR 5 months after establishment of the baseline. Until the completion of the Raytheon IBR, program officials monitored contractor performance through monthly management and business meetings where cost and performance data, milestones, and projections of future performance were reviewed. The program office stated that these monthly meetings provided sufficient data to monitor contractor performance. Nonetheless, without these reports, it is difficult for the program office (and other independent agencies) to monitor cost and schedule performance of the contract’s various components and, therefore, to identify areas in need of corrective action. Additionally, although we are aware of past problems with SDACS performance on the SM-3 contract, we did not have any data to evaluate its impact on the contract’s cost and schedule. The Airborne Laser (ABL) is being developed to shoot down enemy missiles during the boost phase of flight. Integrated onboard a Boeing 747 aircraft, ABL is designed to use a high-energy chemical laser to rupture the enemy missile’s fuel or oxidizer tanks, causing the missile to lose thrust or flight control. As part of its development effort, the Missile Defense Agency (MDA) plans to demonstrate the feasibility of using the prototype ABL aircraft to shoot down a short-range ballistic missile. This event is referred to as the lethal demonstration. During fiscal year 2004, MDA restructured the ABL program to focus on near- term milestones and to improve confidence in longer-term schedule and cost projections. The restructuring placed the near-term focus on two events: (1) the combined operation of individual laser modules to generate a single laser beam, known as “First Light,” and (2) a flight test of the prototype aircraft with an installed laser beam control system, known as “First Flight.” In light of the program’s restructure, ABL completed most of its planned fiscal year 2004 activities on schedule. However, total contract costs through calendar year 2008 increased by approximately $1.5 billion, and the program’s schedule was extended over 3 years. Schedule: The program completed on schedule most of its fiscal year 2004 activities associated with the preparation for “First Light” and “First Flight.” However, as a result of the recent program restructuring, the demonstration to shoot down a short-range ballistic missile—the focus of the program—was delayed from 2005 and is now scheduled to occur no earlier than 2008. DOD’s planned investment in the ABL program from program inception in 1996 through 2011 is about $7.3 billion. DOD expended $2.52 billion between fiscal years 1996 and 2004, Congress appropriated $458 million for fiscal year 2005, and MDA is budgeting about $4.32 billion between fiscal years 2006 and 2011 for ABL research and development. Testing: Both “First Light” and “First Flight” were achieved in early fiscal year 2005. Although the achievement of “First Light” is a key milestone for the program, it was not intended as an operational demonstration of a high-power laser, that is, at full power and for the length of time needed to shoot down a boosting missile. Rather, the laser’s operation for a fraction of a second demonstrates successful integration of subsystems. “First Flight” is also a key milestone for the program. It is the first of a series of flights to demonstrate the completion of design, safety, and verification activities that are necessary to assure flight worthiness of the aircraft with the laser beam control system installed. Performance: At this stage of ABL development—before the laser has been operated at full power or critical technologies have been demonstrated in flight tests—any assessment of effectiveness is questionable. Nonetheless, the program office monitors performance indicators to assess the element’s readiness for successfully completing the lethality demonstration. One indicator in particular—atmospheric compensation, the process whereby a system of deformable mirrors and electronics is used to minimize the degradation of the laser beam as it travels through the atmosphere—is not meeting its performance objectives. Program officials told us that a recovery plan for this indicator is in place. Cost: ABL program costs continue to grow. During the first half of fiscal year 2004, prior to the restructuring of the program, the ABL prime contractor incurred a negative cost variance of $114 million and could not complete $47 million of planned work. MDA’s restructuring of the ABL program increased program cost by about $1.5 billion—the prime contract is currently valued at approximately $3.6 billion, more than three times its original value of $1.02 billion—although overall program objectives did not change. The Airborne Laser (ABL) is a missile defense system designed to shoot down enemy missiles during the boost phase of flight, the period after launch during which the missile’s rocket motors are thrusting. By engaging ballistic missiles during the boost phase, ABL destroys enemy missiles early in their trajectory before warheads and countermeasures can be released. ABL plans to use a high-energy chemical laser to defeat enemy missiles by rupturing a missile’s fuel or oxidizer tanks, causing the missile to lose thrust or flight control. ABL’s objective is to prevent the delivery of the missile’s warhead to its intended target. ABL was initially conceived as a theater system to defeat short- and medium-range ballistic missiles. However, its role has been expanded to include the full range of ballistic missile threats, including intercontinental ballistic missiles (ICBM). In addition, ABL could be used as a forward- deployed Ballistic Missile Defense System (BMDS) sensor to provide launch point, impact point, and trajectory data of enemy missiles in support of engagements by other system elements. The ABL element consists of the following three major components integrated onboard a highly modified Boeing 747 aircraft. In addition, the element includes ground support infrastructure for storing, mixing, and handling the chemicals used in the laser. High-energy chemical oxygen-iodine laser (COIL). The laser, which generates energy through chemical reactions, consists of six laser modules linked together to produce megawatt levels of power. Because the laser beam travels at the speed of light, ABL is expected to destroy missiles quickly, giving it a significant advantage over conventional boost-phase interceptors. Beam control/fire control (BC/FC). The BC/FC component’s primary mission is to maintain the beam’s quality as it travels through the aircraft and atmosphere. Through tracking and stabilization, the BC/FC ensures that the laser’s energy is focused on a targeted spot of the enemy missile. Battle management/command and control (BMC2). The BMC2 component plans and executes the element’s defensive engagements. It is being designed to work autonomously using its own sensors for launch detection, but it could also receive early warning data from other external sensors. In 1996, the Air Force initiated the ABL program to develop a defensive system that could destroy enemy missiles from a distance of several hundred kilometers. Developmental testing of the first prototype aircraft was originally planned to conclude in 2002 with an attempt to shoot down a short-range ballistic missile target. In 2002, management authority and funding responsibility transferred from the Air Force to the Missile Defense Agency (MDA). In accordance with MDA planning, the ABL program restructured its acquisition strategy to conform to an evolutionary, capabilities-based approach. The ABL program is focused on developing a prototype aircraft for use in a lethality demonstration—a flight test in which the ABL aircraft will attempt to shoot down a short-range ballistic missile. If this test is successful, MDA believes it will prove out the concept of using directed energy for missile defense. Although ABL’s funding is broken out by block—2004, 2006, 2008, and 2010—the program is developing a single configuration of the element leading to the lethality demonstration, which will occur no earlier than 2008. A specific date for the demonstration has not been scheduled and depends on the success of ground testing. Furthermore, there is uncertainty as to when ABL will provide an initial operational capability. MDA plans to provide this capability through the development of a second aircraft, but the purchase of this aircraft is contingent upon the successful test of the prototype aircraft. In January 2004, MDA restructured the ABL program to focus on near-term milestones and to improve confidence in longer-term schedule and cost projections. The near-term focus of the program was shifted toward two events: (1) the achievement of a key laser demonstration known as “First Light”—the first demonstration of the integration of six individual laser modules to produce a single beam of laser energy—and (2) the initial flight test of the prototype aircraft with the BC/FC installed, which is referred to as “First Flight.” Key provisions of the restructure call for the program office to complete the following activities during the next few years: Ground test and flight test the BC/FC segment independent of high- energy laser testing activities. BC/FC testing would utilize a low-power, substitute laser in place of the high-energy laser, as needed. Ground test the high-energy laser independent of BC/FC testing activities. Integrate and ground test the complete ABL weapon system (i.e., combined laser, BC/FC, and battle management segments). Flight test the ABL weapon system, culminating in a lethality demonstration against a boosting missile. The lethal demonstration has been delayed by about 6 years. This event was originally scheduled to occur in 2002 and, as we reported last year, was later rescheduled to be conducted in early 2005. However, as a result of the January 2004 restructuring of the program, the event is now scheduled to occur no earlier than 2008. In its report accompanying the 2005 Defense Authorization Act, the House Armed Services Committee noted its approval of the restructured program. However, the Committee also recognized that the future of the ABL program depended upon successful completion of “First Light” and “First Flight.” The Committee stated that these milestones must be completed in order for the Committee to further support the program after fiscal year 2005. The program planned to complete several activities during fiscal year 2004 commensurate with the program’s restructuring. As noted above, the program shifted its near-term focus toward key demonstrations within the BC/FC and laser segments. The following activities were identified as the key milestones for the fiscal year. BC/FC Segment. Complete ground integration and testing of the BC/FC segment and begin integration of beam control segment into the ABL prototype aircraft in preparation for “First Flight.” Laser Segment. Complete integration of the six laser modules in the System Integration Laboratory (SIL)—a ground-test facility located at Edwards Air Force Base, California—in preparation for “First Light.” In fiscal year 2004, the program completed most of its planned activities on schedule. Tables 14 and 15 summarize the progress made toward completing BC/FC and laser activities in fiscal year 2004. The demonstration of “First Light”—to prove that individual laser modules can be successfully integrated and operated to generate a single laser beam—was achieved on November 10, 2004, at the SIL ground facility. In general, “First Light” is an important milestone for any laser system because it demonstrates the ability to get all major laser subsystems to work together. Although the achievement of “First Light” is a key milestone for the program, it was not intended as an operational demonstration of a high- power laser, that is, at full power and for the length of time needed to shoot down a boosting missile. Rather, the laser’s operation for a fraction of a second demonstrates successful integration of subsystems. “First Light” demonstrated that the six modules are aligned optically and the flow system is functioning, but program officials noted that the operation of the laser was too short to make meaningful predictions of power and beam quality. The program plans to conduct a series of tests that will gradually increase the length and power of the laser operation until full power lasing objectives are achieved. The achievement of “First Flight”—the first of 22 planned tests—is also a key milestone for the program. This flight test was conducted on December 3, 2004, and served as the functional check of the aircraft with its newly installed laser beam control system. This event is critical because: It demonstrates that all necessary design, safety, and verification activities to assure flight worthiness have been completed. It begins the process of expanding the aircraft flight envelope—types and combinations of flight conditions—in which the ABL can operate. It offers the program the opportunity to collect data on the effects of the environment on the BC/FC system while the aircraft is in flight. The data gathered during this test will be used to address jitter issues. Although “First Flight” was conducted, the program was unable to achieve all of its intended test objectives. The test was originally planned for 2-½ hours but was terminated early due to some erroneous instrumentation readings. Program officials made several attempts to resolve the readings in flight but were unsuccessful and the aircraft was landed early. However, the instrumentation anomalies were all fixed and the program conducted a second flight test on December 9, 2004, which lasted the intended duration of 2-½ hours. The primary objective of the second test was the same as that for “First Flight”—to perform all necessary in-flight functional checks to ensure flight worthiness of the aircraft. The flight test was completed and all remaining test points not completed during “First Flight” were completed successfully. The program office monitors performance indicators to determine the program’s readiness for successfully completing the lethality demonstration in 2008. Based on its assessment, 11 of 15 of these indicators point to some risk in achieving this goal. For example, one indicator—atmospheric compensation—is not meeting its performance objectives. Program officials identified a shortfall in the bandwidth of the adaptive optics control system—the system of deformable mirrors and electronics that focus the laser beam on the target—as the primary cause of this deficiency. Program officials told us that a recovery plan for this indicator is already in place and that the contractor is in the process of fixing the shortfall. Another important indicator pertaining to the technology of controlling and stabilizing the high-energy laser beam so that vibration unique to the aircraft does not degrade aimpoint—a phenomenon referred to as “jitter”—was identified as a risk item by the program office early on and continues to be a program risk. Jitter control is crucial to the operation of the laser because the laser beam must be stable enough to impart sufficient energy on a fixed spot of the missile target to rupture its fuel or oxidizer tank. Because jitter is among the least mature of ABL’s critical technologies, the program office is conducting ground tests and, in the future, flight tests to learn more about jitter control. DOD’s planned investment in the ABL program from program inception in 1996 through 2011 is approximately $7.3 billion. As broken out in table 16, DOD expended $2.52 billion between fiscal years 1996 and 2004, Congress appropriated $458 million for fiscal year 2005, and MDA is budgeting about $4.32 billion between fiscal years 2006 and 2011 for ABL research and development. ABL was funded as an Air Force program from 1996 through 2001 and during that time a little over $1 billion was spent. After the program was transferred to MDA in fiscal year 2002, MDA expended approximately $1 billion in fiscal years 2002 and 2003 on ABL development. The cost of the ABL program continues to grow. In May 2004, we reported that the prime contractor’s costs for developing ABL had nearly doubled from the Air Force’s original estimate. In addition, the program incurred cost overruns. In fiscal year 2003 alone, the contractor overran its budget by $242 million, which resulted primarily from integration and testing issues. The program office recognized that the contractor’s unfavorable cost and schedule performance would eventually cause the contract to reach its ceiling price by May 2004. Consequently, MDA considered three alternatives to the contract: (1) continue to work toward the planned schedule, (2) develop a new schedule that scaled back planned activities, or (3) discontinue the contract. Agency officials decided to continue with the existing contract and refocus the program on near-term technical progress. In an effort to continue with the current contract, program officials reevaluated the program schedule and extended the contract period of performance, established a new estimate to complete the contract, and increased the contract cost ceiling by about $1.5 billion. Prior to the recent program restructure, the Block 2004 prime contract was valued at approximately $2.1 billion and was scheduled to end six months after the lethality demonstration in June 2005. However, as a result of the recent program changes, the lethality demonstration is now expected to occur no earlier than 2008 and the contract’s period of performance was extended through December 2008. The prime contract to conduct the lethality demonstration is currently valued at approximately $3.6 billion—more than three times its original value of $1.02 billion. Figure 4 summarizes the major activity for the program’s prime contract since inception. The government routinely uses contractor Cost Performance Reports to independently evaluate prime contractor performance relative to cost and schedule. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are generally associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. Our analysis of prime contractor Cost Performance Reports indicates that ABL cost and schedule performance declined during the first half of fiscal year 2004 even though the program implemented a new performance measurement baseline at the beginning of the fiscal year. As illustrated in figure 5, the program incurred a negative cost variance of $114 million and a negative schedule variance of $47 million during the first 6 months of fiscal year 2004. Program officials indicated that delays in hardware delivery, design problems, and integration issues were the primary drivers of cost growth. Between April and July 2004, while the contractor was re-planning its work effort, the program was unable to fully evaluate the contractor’s progress against its cost and schedule objectives. During this time, program officials directed the contractor to suspend normal cost performance reporting and redirected resources to complete the re- planning effort. Since the contractor was not required to provide program officials with full Cost Performance Reports, the program was unable to perform meaningful Earned Value Management (EVM) analysis. However, in the absence of these reports, program officials took steps to ensure that some insight into the contractor’s progress was maintained throughout the re-planning effort. For example, the program measured schedule progress by comparing actual progress against the completion of detailed activities associated with “First Light” and “First Flight” and gauged the contractor’s cost performance by comparing contractor forecasted expenditures to the actual costs of the work performed. The contractor resumed normal cost performance reporting in August 2004. As of September 2004, the contractor was performing work under budget but slightly behind schedule—the program had a positive cost variance of $6.6 million and a negative schedule variance of $1.6 million. According to Cost Performance Reports, the program experienced delays associated with the integration and checkout of the turret assembly—a subcomponent of the BC/FC system—which caused schedule slips through the end of the fiscal year. The late delivery of laser spare material and assembly parts caused additional schedule delays for the program. Although the program was restructured in spring 2004 and the ABL prime contract modified to extend the contract period and increase its value, the associated award fee plan was not adjusted. Therefore, the contractor currently has no opportunity to earn any fee for successful demonstration, since the current award fee plan was tied to a successful completion of shoot down by December 2004. The Command, Control, Battle Management, and Communications (C2BMC) element is the integrating and controlling element of the Ballistic Missile Defense System (BMDS). It is designed to link all system elements, manage real-time battle information for the warfighter, and coordinate element operation to counter ballistic missile attacks in all phases of flight. The C2BMC team executed the program within budget but slightly behind schedule in fiscal year 2004. Important activities—such as the completion of software development and testing, integration activities, and operator training continued in fiscal year 2004 to ready the element for Limited Defensive Operations (LDO)—were completed. Schedule: By the end of September 2004, the C2BMC program office completed activities needed to ready the C2BMC element for LDO. The LDO software “build” (spiral 4.3) was delivered. The program office also carried out a number of activities enabling BMDS integration and communications. Finally, C2BMC suites at U.S. Strategic Command and U.S. Northern Command were activated, and “web browsers” providing summary screens of the unfolding battle (such as trajectories of attacking missiles and launched interceptors) were installed at U.S. Pacific Command and locations in the National Capital Region. The C2BMC element is being developed under MDA’s evolutionary acquisition approach, which delivers system capabilities in 2-year blocks beginning with Block 2004. Within each block, C2BMC software is developed incrementally through a series of software builds known as “spirals.” The principal function of the Block 2004 C2BMC element is to provide situational awareness, that is, to monitor the operational status of each BMDS component and to display threat information such as missile trajectories and impact points. It also performs deliberate planning activities for developing battle plans and other operational concepts. Testing: Testing to evaluate C2BMC functionality, interoperability, and system-level integration for LDO was completed. For example, Cycle-3 testing—the third of four cycles of testing to verify that C2BMC interfaces with each BMDS element individually—was completed in August 2004. Cycle-4 testing, which is ongoing, is the final cycle of testing to verify system-level integration. During these tests, the C2BMC element participates in flight tests planned and conducted by MDA. Performance: During testing of its software, the C2BMC program uncovered a performance issue with its “track correlation and association” algorithm in scenarios involving multiple tracks. The program monitored this issue as a high-risk item because it had the potential to impact situational awareness. In particular, threat information could be displayed differently at C2BMC suites and GMD fire control nodes, possibly causing confusion within the command structure. The problem was resolved with software fixes and the issue retired in July 2004. DOD’s planned investment in the C2BMC program from program inception in 2002 through 2011 is approximately $2.2 billion. DOD expended $344 million between fiscal years 2002 and 2004, Congress appropriated $191 million for fiscal year 2005, and MDA is budgeting about $1.65 billion for C2BMC development and operations between fiscal years 2006 and 2011. Cost: Our analysis of the prime contractor’s Cost Performance Reports shows that the contractor continued to carry a positive cost variance, that is, in total it completed work under budget. However, the contractor experienced a modest erosion in cost performance in fiscal year 2004. In particular, it completed fiscal year 2004 activities slightly over budget, incurring a negative cost variance of $3.6 million. The prime contractor’s schedule performance was slightly, yet consistently, behind schedule for most of fiscal year 2004. In total, the contractor incurred a negative schedule variance of $5.7 million because of unanticipated technical issues. The Command, Control, Battle Management, and Communications (C2BMC) element is being developed as the integrating and controlling entity of the Ballistic Missile Defense System (BMDS). It is designed to provide connectivity between the various BMDS elements and to manage their operation as part of an integrated, layered missile defense system. C2BMC has neither a sensor nor weapon. As a software system housed in command centers known as suites, C2BMC provides network-centric warfare capabilities that provide the warfighter with the capability to plan and monitor the missile defense mission. The C2BMC element will track ballistic missile threats—utilizing all available sensors from the various elements—and direct weapons systems to engage the threat. As the name indicates, the C2BMC is comprised of three major components: Command and control. The command and control component enables the warfighter to monitor the operational status of each BMDS component, display threat information, such as missile trajectory and impact point, and control defensive actions. In other words, it provides the situational awareness and planning tools to assist the command structure in formulating and implementing defensive actions. Battle management. The battle management component formulates the detailed instructions (task plans) for executing various missile defense functions, such as tracking enemy missiles, discriminating the warhead from decoys and associated objects, and directing the launch of interceptors. Once implemented, the battle manager will direct the operation of system elements and components, especially under evolving battle conditions. Communications. Leveraging existing infrastructure, the communications component manages the exchange and dissemination of information necessary for carrying out the battle management and command and control objectives. The Missile Defense Agency (MDA) initiated the C2BMC program in 2002 as a new element of the BMDS. Program officials noted that initial versions of C2BMC software are based on existing Air Force and GMD- developed fire control (battle management) software. The C2BMC element is being developed under MDA’s evolutionary acquisition approach, which delivers system capabilities in 2-year blocks, beginning with Block 2004. Within each block, C2BMC software is developed incrementally through a series of software builds known as “spirals.” Over time, the C2BMC element will be enhanced to provide overarching control and execution of missile defense engagements with the aim of implementing layered defense through the collective use of individual BMDS elements. The principal function of the Block 2004 C2BMC element is to provide situational awareness, that is, to monitor the operational status of each BMDS component and to display threat information such as missile trajectories and impact points. The program expects to develop this capability incrementally through spirals 4.1 – 4.5. The interim delivery, spiral 4.3, is available for Limited Defensive Operations (LDO) and is on the path to full Block 2004 functionality. The incorporation of battle management capabilities in the C2BMC element begins with Block 2006. In the 2006-2007 time frame, the element is expected to track that ballistic missile threat throughout its entire trajectory and select the appropriate elements to engage the threat. For example, the Block 2006 C2BMC configuration would be able to generate a single, more precise track from multiple radars and to transmit it to the other elements. Together, this functionality enables each element to “see farther” than it could using its own radar system. This allows elements to launch interceptors earlier, which provides more opportunity to engage incoming ballistic missiles. Block 2006 is also expected to make a significant improvement over Block 2004 with respect to BMDS communications. During this time, the C2BMC program office will work to establish communications to all elements of the BMDS, overcome limitations of legacy satellite communications protocols, and establish redundant communications links to enhance robustness. Such upgrades serve to improve operational availability and situational awareness. Planned accomplishments for the C2BMC program in fiscal year 2004 centered on completing activities to ready the element for LDO by the end of September 2004. To achieve this goal, the C2BMC element planned to complete the following specific activities: Software development. Complete the design, development, and testing of LDO C2BMC software spirals 4.1 – 4.3. BMDS integration and communications. Integrate the C2BMC element into the BMDS; install and activate global communications capabilities. Make BMDS operational. Complete and activate C2BMC suites; train operators. By the end of September 2004, the C2BMC program office completed activities needed to ready the C2BMC element for LDO. The LDO “build” of C2BMC (spiral 4.3) was delivered and installed at the various suites. The program office also carried out a number of activities enabling BMDS integration and communications. Finally, C2BMC suites at U.S. Strategic Command (USSTRATCOM) and U.S. Northern Command (USNORTHCOM) were activated, and “web browsers” providing summary screens of the unfolding battle (such as trajectories of attacking missiles and launched interceptors) were installed at U.S. Pacific Command (USPACOM) and locations in the National Capital Region (such as the White House). Table 17 summarizes the principal development and testing activities for the first three spirals of Block 2004 C2BMC element software. Most notably, development of the LDO build, spiral 4.3, was completed in May 2004. Testing to evaluate C2BMC functionality, interoperability, and system-level integration was also completed. For example, Cycle-3 testing—the third of four cycles of testing to verify that C2BMC interfaces with each BMDS element individually—was completed in August 2004. Cycle-4 testing, the final cycle of testing to verify system-level integration, is ongoing. During these tests, the C2BMC element participates in flight tests planned and conducted by MDA. The program office plans to complete, by the end of calendar year 2005, key activities pertaining to the development and testing of spirals 4.4 and 4.5—the final two builds of Block 2004 C2BMC element software. For example, development of spiral 4.4 was completed in November 2004 and Cycle-3 testing is expected to be completed in April 2005. In addition, the program office expects to complete development of spiral 4.5 in March 2005 and begin Cycle-3 testing in June 2005. Cycle-4 testing of spiral 4.5 is scheduled to begin during the first quarter of fiscal year 2006 with completion coinciding with the completion of Block 2004. The C2BMC program office carried out a number of activities in fiscal year 2004 related to C2BMC’s role in BMDS integration and communications. For example, interface specifications between C2BMC and other elements were completed. In addition, communications software and hardware were installed at the various C2BMC sites, including USSTRATCOM, USNORTHCOM, and USPACOM. Finally, the C2BMC element participated in a number of MDA test events to verify system integration. The C2BMC program completed a variety of activities in fiscal year 2004 to make the BMDS operational. These activities included activation of C2BMC suites at the various command sites and the training of military operators for conducting ballistic missile defense missions. Table 18 summarizes the program’s efforts in making the system available for LDO. During testing of C2BMC software, the C2BMC program uncovered a performance issue with its “track correlation and association” algorithm in scenarios involving multiple tracks. During a portion of fiscal year 2004, the program monitored this issue as a high-risk item because it had the potential to impact situational awareness. In particular, threat information could be displayed differently at C2BMC suites and GMD fire control nodes, possibly causing confusion within the command structure. The program implemented a mitigation plan to resolve this issue, including the formation of a “Blue Ribbon Panel” in June 2004 to analyze the problem. The problem was resolved with software fixes and the issue retired in July 2004. DOD’s planned investment in the C2BMC program from program inception in 2002 through 2011 is approximately $2.2 billion. As broken out in table 19, DOD expended $343 million between fiscal years 2002 and 2004, Congress appropriated $191 million for fiscal year 2005, and MDA is budgeting $1.65 billion for C2BMC development and operations between fiscal years 2006 and 2011. C2BMC development is being carried out through a contractual vehicle known as an Other Transaction Agreement (OTA), which functions much like a prime contract. MDA believes that an OTA allows the C2BMC element to take advantage of more collaborative relationships between industry, the government, Federally Funded Research and Development Centers, and University Affiliated Research Centers. OTAs generally are not subject to federal procurement laws and regulations. The OTA did implement the earned value management system used to assess the cost and schedule performance of contractors developing large weapon systems. The C2BMC Missile Defense National Team, for which Lockheed Martin Integrated System and Solutions serves as the industry lead, is developing and fielding the C2BMC element of the BMDS. The government routinely uses contractor Cost Performance Reports to independently evaluate a prime contractor’s cost and schedule performance. Generally, these reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are usually associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. During fiscal year 2004, C2BMC development was performed under two parts of the existing OTA—Part 2, for which work was completed in March 2004, and Part 3, for which work began in March 2004. As illustrated in figure 6, Cost Performance Reports show that Lockheed Martin, the industry lead for the OTA, continued to carry a positive cost variance, that is, in total it completed work under budget. However, Lockheed experienced a modest erosion in cost performance in fiscal year 2004. In particular, it completed fiscal year 2004 activities slightly over budget, incurring a negative cost variance of $3.6 million on combined Part 2 and Part 3 work efforts. The prime contractor’s schedule performance was slightly, yet consistently, behind schedule for most of fiscal year 2004. However, beginning in May 2004, schedule performance sharply declined. In total, Lockheed incurred a negative schedule variance of $5.7 million for combined Part 2 and Part 3 work performed in fiscal year 2004. The C2BMC program office reported the following two drivers as contributing to fiscal year 2004 cost and schedule variances. Track association algorithm. As noted in the performance section, the C2BMC program uncovered a performance issue with its “track correlation and association” algorithm during spiral testing. Resources allocated to spiral 4.4 development were used to address this problem, including the convening of a Blue Ribbon panel to analyze it. In the course of analyzing and correcting this issue, more time and money were needed for additional testing of spiral 4.3 and associated risk reduction efforts on developing an alternative algorithm. Site activation. C2BMC suites are being integrated with existing systems at USSTRATCOM, USNORTHCOM, and USPACOM. The integration efforts, particularly those aspects pertaining to information assurance, were considerably more difficult that anticipated. The result was the need for more travel by the engineering team to field, install, and troubleshoot problems at the three activation sites. The Ground-based Midcourse Defense (GMD) element is a missile defense system being developed to protect the United States against limited long-range ballistic missile attacks launched from Northeast Asia and the Middle East. The first increment of this capability, Block 2004, is being developed and fielded during the 2004-2005 time frame. By the end of fiscal year 2004, GMD carried out planned activities needed to field an initial missile defense capability, including, as summarized below, the emplacement of interceptors at Fort Greely, Alaska. However, delays of flight tests prevented MDA from demonstrating the operation of the integrated system in a realistic environment before placing interceptors in silos for defensive operations. The program also showed unfavorable trends in contractor cost and schedule performance in fiscal year 2004. By the end of September 2004, the GMD program put in place the components of a limited capability, which is known as Limited Defensive Operations (LDO). MDA plans to augment this capability with additional interceptors and radars by the end of calendar year 2005 to complete the full Block 2004 increment. Schedule: The GMD program completed construction of missile silos and facilities at Fort Greely, Alaska, and Vandenberg Air Force Base, California; emplaced five GMD interceptors in their silos at Fort Greely by the end of September 2004; and completed the upgrade of the Cobra Dane radar. MDA is on track to add additional interceptors and radar capabilities throughout Block 2004, although there is some risk that the sea-based X-band radar will not be completed by the first quarter of fiscal year 2006, as planned. DOD’s planned investment in the GMD program from program inception in 1996 through 2011 is approximately $31.6 billion. DOD expended $15.3 billion between fiscal years 1996 and 2004, Congress appropriated $3.3 billion for fiscal year 2005, and MDA is budgeting about $13.0 billion between fiscal years 2006 and 2011 for GMD development, procurement, and operations. Test: The GMD program office conducted two flight tests (non-intercept booster tests) in fiscal year 2004 out of six events that were planned—no intercept attempts were conducted. Accordingly, GMD interceptors were fielded before flight testing was performed to verify that LDO hardware and software could function in an operational environment. In preparation for defensive operations, the GMD program also completed a series of System Integration and Checkouts that demonstrated connectivity, functionality, and integration of its fielded components. Performance: While ground and flight tests have demonstrated each step of the missile defense engagement sequence—detect, track, launch/engage, and intercept—collectively, these accomplishments do not verify integrated operation of the GMD capability. For example, BMDS and GMD radars have not performed their primary function as a fire control radar in a flight test event. Cost: Our analysis of the prime contractor’s Cost Performance Reports shows that the contractor overran its budgeted costs in fiscal year 2004 by $219.6 million and was unable to complete $59.9 million worth of scheduled work. Developmental issues with the interceptor’s booster and kill vehicle remain the leading causes of cost overruns and schedule slips. For example, interceptor development cost $204 million more in fiscal year 2004 than the contractor budgeted. Flight test delays also contributed to unfavorable cost and schedule performance. The Ground-based Midcourse Defense (GMD) element is a missile defense system designed to protect the U.S. homeland against intercontinental ballistic missile (ICBM) attacks. As an integral part of the Ballistic Missile Defense System (BMDS), GMD functions to destroy long-range ballistic missiles during the midcourse phase of flight, the period after booster burnout when the warhead travels through space on a predictable path. The GMD element relies on a broad array of components, including (1) space- and ground-based sensors to provide early warning and tracking of missile launches; (2) ground- and sea-based radars to identify and refine the tracks of threatening objects; (3) ground-based interceptors to destroy enemy missiles through “hit-to-kill” impacts outside the atmosphere; and (4) fire control and communications nodes for battle management and execution of the GMD mission. Figure 7 illustrates GMD components, current and planned, which are situated at several locations within and outside of the United States. The program office produced, emplaced, and upgraded all GMD components needed for an initial capability by the end of September 2004 and is working to augment this initial capability with additional interceptors and radars by the end of calendar year 2005. This first block of capability—Block 2004—is estimated to provide the U.S. with protection against ICBMs launched from Northeast Asia and the Middle East. The Department of Defense (DOD) established the National Missile Defense program in 1996 to develop a missile defense system capable of protecting the United States from ICBM attacks. The program was to be in a position to deploy the system by 2005, if the threat warranted. Many of the components used in the current GMD program are based directly on the research and development conducted by the National Missile Defense program. In response to the President’s December 2002 directive to field a missile defense system, the Missile Defense Agency (MDA) accelerated its developmental activities to make the GMD element operational—that is, to field a working system operated by trained warfighters. GMD remains a capabilities-based research and development program with enhanced capabilities delivered periodically in block upgrades. GMD’s development and fielding are proceeding in a series of planned 2- year blocks, which incrementally increase the element’s capability by maturing the design of element components and upgrading software. Block 2004, the first increment, is being rolled out in two major phases: Limited Defensive Operations (LDO). The GMD program completed an initial capability in September 2004, which is available for limited defensive operations. The principal components include five interceptors at Fort Greely, Alaska; GMD fire control and communications nodes for battle management and execution at Fort Greely and Schriever Air Force Base, Colorado; an upgraded Cobra Dane radar at Eareckson Air Station, Alaska; and connectivity to Aegis BMD for additional radar tracking. DOD will use this initial capability to provide the United States with protection against a limited ballistic missile attack launched from Northeast Asia. This capability was expanded by the end of calendar year 2004 with the addition of three interceptors—one at Fort Greely and two at Vandenberg Air Force Base (VAFB), California—and an upgraded early warning radar (UEWR) at Beale Air Force Base, California. Block 2004 Defensive Capability. By the end of calendar year 2005, MDA plans to augment the LDO capability by installing 10 additional interceptors at Fort Greely (for a total of 18 interceptors at Fort Greely and VAFB); deploying a sea-based X-band radar; and upgrading the early warning radar at Fylingdales, England. These enhancements are expected to provide additional protection against ICBMs launched from the Middle East. Future block configurations of the GMD element build upon the Block 2004 capability. As part of its Block 2006 program, MDA expects to field 10 additional interceptors at Fort Greely and upgrade the early warning radar located at Thule Airbase, Greenland. MDA also plans to conduct more realistic flight tests to demonstrate performance against more complex missile threats and environments. The GMD element plays a central role in the Block 2004 BMDS. In general, planned accomplishments for GMD in fiscal year 2004 centered on continuing development of element components, conducting ground and flight testing, and fielding components for LDO. Specific planned accomplishments include: Component Development. The program office planned to continue development of all element components for LDO, Block 2004, and the incremental improvement of block capability. Testing. The program planned to conduct six flight tests (three booster tests, one “fly-by” test, and two intercept attempts), two integrated ground tests, and System Integration and Checkouts in preparation for LDO. Fielding Initial Capability. The program planned to complete construction of facilities and the installation of five ground-based interceptors at Fort Greely, complete upgrades of the Cobra Dane radar, and activate its fire control and communications component. MDA met its fielding goals for LDO and is on track, with some schedule risk, to add additional interceptors and radar capabilities throughout Block 2004. Ground tests were conducted to ensure interoperability of element components and to verify operation and performance of component software. However, several key flight tests needed to verify the effectiveness of LDO hardware and software, originally scheduled for fiscal year 2004, were delayed into fiscal year 2005. In fiscal year 2004, a large portion of the GMD program focused on the development of its Block 2004 components, some of which will be fielded as part of LDO. Summaries of progress made by the GMD program office during fiscal year 2004 in developing its components are given in table 20. In our April 2004 report on missile defense, we noted that MDA is pursuing the development of two types of boosters for the GMD interceptor, one referred to as the Lockheed BV+ booster and the other known as the Orbital Sciences Corporation (OSC) booster. We also described how problems with the development and delivery of Lockheed’s BV+ booster contributed to cost growth and schedule slips for the program. For example, BV+ production was temporarily suspended because of two separate explosions at a subcontractor’s propellant-mixing facility. Despite these problems, MDA is dedicated to pursuing a dual-booster strategy. However, the problems with Lockheed’s booster in fiscal year 2003 had ramifications for the program’s fiscal year 2004 activities. For example, MDA planned to use BV+ boosters in alternating Block 2004 flight tests and in about half of the interceptors fielded. However, because of BV+ development and production problems, MDA deferred BV+ participation in integrated flight tests into Block 2006, and the Block 2004 inventory of GMD interceptors will consist entirely of those utilizing OSC boosters. MDA plans to restart the manufacturing of BV+ boosters in fiscal year 2005 and to field the first BV+ booster in 2007. The GMD program conducts a variety of tests, the most visible being flight test events. For example, the program conducted booster validation (BV) flight tests to assess the operation of GMD’s two booster designs. In addition, the program conducts integrated flight tests (IFT) to more realistically demonstrate the GMD element using actual hardware and software. IFTs are reflective of the environment in which the GMD element would operate for a given threat trajectory and given set of conditions. Although MDA hoped to gain knowledge about the element’s effectiveness by conducting several integrated flight tests throughout fiscal year 2004, only two of six scheduled tests—non-intercept tests of the Lockheed BV+ booster and the OSC booster—were executed. Table 21 summarizes the major GMD flight tests that MDA planned to conduct in fiscal year 2004. IFT-13C, which was the first flight test in 2 years with the potential for an intercept, was delayed several times during fiscal year 2004. Part of the delay was attributed to technical problems with the interceptor. In addition, MDA upgraded the test interceptor to a configuration that more closely matches the ones deployed. The test was conducted in December 2004, but failed to execute fully because the interceptor did not launch from its silo. IFT-13C was of particular significance, because it was to have demonstrated operational aspects of the LDO capability for the first time in a flight test environment. For example, it was to have demonstrated: (1) the operation of LDO hardware and software; (2) the operation of the kill vehicle mated with an OSC booster; and (3) “real-time” connectivity between Aegis destroyers and the C2BMC. IFT-14 was conducted in February 2005 as a repeat of IFT-13C but with the added objective to achieve an intercept. However, as in IFT-13C, it failed to execute fully because the interceptor did not launch from its silo. MDA relies heavily on its ground test program to characterize element and system performance (especially under a broad set of conditions not testable in flight), to demonstrate interoperability, and to develop operational doctrine. MDA conducted two integrated ground tests (IGT) in fiscal year 2004, IGT-2 and IGT-4a. These tests employed actual GMD- component processors integrated together in a hardware-in-the-loop facility that emulated GMD operation in a simulated environment. They also included warfighter participation to aid in the development of operational concepts. Although the tests demonstrated that GMD components could work together, its utility in assessing element performance was limited. Officials in the office of DOT&E told us that such assessments should be anchored by flight test data so that models and simulations accurately characterize the system. Delays in the GMD flight test program precluded these tests from being adequately anchored and, therefore, limited its usefulness in assessing element performance. The GMD program also participated in a series of System Integration and Checkouts (SICO) of its fielded components. While these checkouts do not assess element performance, they do demonstrate connectivity, functionality, integration, and configuration in preparation for defensive operations. During fiscal year 2004, MDA successfully conducted SICOs 1, 3, 5, and 6A. SICO 3 demonstrated the integration of non-LDO interceptor equipment at Fort Greely into the overall BMDS; SICO 5 confirmed that the upgraded Cobra Dane radar was properly connected to the Communications Network; and SICO 6A confirmed integration of LDO interceptor equipment at Fort Greely into the BMDS. Finally, SICO 6B was successfully conducted in the beginning of fiscal year 2005 (December 2004). It demonstrated the integration of interceptor equipment at Vandenberg into the BMDS. The GMD program completed the development, emplacement, and/or upgrade of element components planned for LDO, including ground-based interceptors, the Cobra Dane radar, the Beale UEWR (in fiscal year 2005), and the GMD fire control and communications. Most notably, five interceptors were placed in silos at Fort Greely and are available for defensive operations. GMD also completed hardware and software upgrades to the Cobra Dane and Beale radars, both of which met objectives in ground tests and tracked targets of opportunity. Fire control and communications nodes have been activated and linked to all GMD locations. Finally, facility construction at Fort Greely and other GMD sites was completed. Table 22 summarizes main accomplishments made in fiscal year 2004 for each activity. GMD, the centerpiece of the BMDS Block 2004 defensive capability, has demonstrated its ability to intercept target warheads in several flight tests since 1999. Indeed, the program has achieved five successful intercepts out of eight attempts. In addition, according to MDA officials, ground and flight tests have demonstrated each step of the engagement sequence— detect, track, launch/engage, and intercept—collectively, although these accomplishments do not verify integrated operation of the GMD capability. Although GMD flight tests have demonstrated basic functionality of a representative missile defense system using surrogate and prototype components, the tests were developmental in nature and relied on artificialities to overcome test-range limitations. For example, flight tests required the placement of a C-band transponder and Global Positioning System instrumentation on the target reentry vehicle. In addition, engagement conditions were limited to low closing velocities and short interceptor fly-out ranges. Finally, the tests were scripted and did not use production-representative hardware and software. In its push to field the first eight GMD interceptors by the end of December 2004, MDA is assuming both performance and cost risk. As noted above, the GMD program emplaced interceptors in silos before successfully conducting a flight test utilizing components with the LDO configuration. For example, the program did not demonstrate that the kill vehicle could operate with the OSC booster prior to placing it in the silo for future operational use (even though this booster puts more stress on the kill vehicle). If future flight testing identifies problems with fielded interceptors, the need for corrective actions could be costly, but confidence would increase as corrections are made and capability is understood. DOD’s planned investment in the GMD program from program inception in 1996 through 2011 is approximately $31.6 billion. As broken out in table 23, DOD expended $15.3 billion between fiscal years 1996 and 2004, Congress appropriated $3.3 billion for fiscal year 2005, and MDA is budgeting about $13.0 billion between fiscal years 2006 and 2011 for GMD development, procurement, and operations. GMD’s prime contract consumes the bulk of the program’s budget. The contract originally covered Block 2004 and Block 2006 developmental activities, not the procurement and fielding of interceptors for the initial defensive capability. Therefore, the program significantly modified the contract in October 2003. The $823 million modification directed the delivery of Block 2004 interceptors 6-20. The program is expected to modify the contract again to procure additional interceptors. The added cost of these interceptors is already reflected in the planned GMD budget and MDA cost goals. The government routinely uses contractor Cost Performance Reports to independently evaluate prime contractor performance relative to cost and schedule. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are usually associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. The GMD program showed an unfavorable trend in contractor performance in fiscal year 2004. According to our analysis, the contractor exceeded its budgeted costs during fiscal year 2004 by $219.6 million, which equates to 11.6 percent of the contract value over the fiscal year. In addition, the contractor fell behind schedule in its work plan. In fiscal year 2004, the contractor was unable to complete $59.9 million of planned work. Figure 8 shows how the contractor’s cumulative cost and schedule performance declined during fiscal year 2004. Our analysis shows that developmental issues with the interceptor continue to be the leading contributor to cost overruns and schedule slips. Interceptor-related work cost $204 million more than budgeted in fiscal year 2004, with the kill vehicle accounting for approximately 40 percent of this overrun. Delays in flight tests IFT-13C and IFT-14 also caused unfavorable cost and schedule variances. Based on the contractor’s cost and schedule performance in fiscal year 2004, we estimate that the current GMD contract—which ends in September 2007—will overrun its budget by between $593 million and $950 million. The contractor, in contrast, estimates a $200 million overrun at contract completion. However, as of the end of fiscal year 2004, the contractor had already incurred a negative cumulative cost variance of approximately $348 million. In order for the prime contractor to complete the contract within the established budget, the contractor must not incur any additional cost overruns through contract completion and recoup at least $148 million. The Defense Contract Management Agency believes that the prime contractor is optimistic in projecting that it can limit further cost growth and schedule slips. Indeed, the Defense Contract Management Agency predicts that the contractor will continue to fall behind and be unable to recover from past cost growth and schedule slips. The Kinetic Energy Interceptors (KEI) element is a new Missile Defense Agency (MDA) program in its early stage of development. The program is building on existing missile defense technology to develop an interceptor capable of destroying long-range ballistic missiles during the boost phase of flight—the period after launch when rocket motors are thrusting. KEI also provides the opportunity to engage an enemy missile in the early-ascent phase, the period after booster burnout before warheads are released. MDA expects to have available a land-based capability in the 2012-2013 time frame. KEI program activities completed in fiscal year 2004 include the selection of Northrop Grumman as prime contractor for KEI development, associated planning activities, and experimental work geared toward collecting data of boosting missiles. Of significance, the amount appropriated by Congress for missile defense in fiscal years 2004 and 2005 did not include the amount of funding for KEI that was requested in the President’s Budget. As a result, the program delayed its land-based capability from the originally planned Block 2008 time frame to Block 2012. Schedule: In December 2003, MDA awarded Northrop Grumman a $4.6 billion prime contract to develop and test the KEI element over the next 8 years. The award follows an 8-month concept design effort between competing contractor teams, each of which was awarded $10 million contracts to design concepts for KEI. DOD’s planned investment in the KEI program from program inception in 2003 through 2011 is approximately $6.0 billion. DOD expended $192 million between fiscal years 2003 and 2004, Congress appropriated $267 million for fiscal year 2005, and MDA is budgeting about $5.5 billion for KEI research and development between fiscal years 2006 and 2011. Testing: In fiscal year 2004, the KEI program office continued with activities designed to reduce technical risks in developing the KEI interceptor. In particular, the program office is working on an experiment to collect data on boosting missiles, known as the Near Field Infrared Experiment. At this early stage of development, however, no significant testing of the land-based capability has been conducted by the program office. Performance: Because this element is still in its infancy, data are not yet available to make a performance assessment. However, the program office identified areas of high risk that could have an impact on the element’s future performance. All risks are associated with interceptor development— including motor development and plume-to-hardbody handover—stemming from the demands required of the boost phase intercept mission. Cost: Our analysis of the prime contractor’s cost performance report shows that the contractor completed planned work under budget but was slightly behind schedule in performing planned activities. Specifically, during fiscal year 2004, the contractor could not complete about $1.6 million worth of work. The program was unexpectedly tasked to complete trade studies of how to incorporate new requirements being imposed by MDA. Due to plans to restructure the KEI program, the prime contract’s long-term baseline is no longer relevant; a reliable baseline will not be available until 2005. The Kinetic Energy Interceptors (KEI) element is a missile defense system designed to destroy ballistic missiles during the boost phase of flight, the period after launch during which the missile’s rocket motors are thrusting. KEI is also planned to engage enemy missiles in the early ascent-phase, the period after booster burnout before the missile releases warheads and countermeasures. Unlike the Airborne Laser element, which utilizes directed energy to disable boosting missiles, the KEI element launches interceptors to engage and destroy these threats through hit-to-kill collisions. The KEI program is currently focused on developing a mobile, land-based system—to be fully demonstrated by the Block 2012 time frame—to protect the United States against long-range ballistic missile attacks. The land-based system will be a deployable unit consisting of a command and control/battle management unit, mobile launchers, and interceptors. The KEI element has no sensor component, such as radars, for detecting and tracking boosting missiles. Instead, it will rely on Ballistic Missile Defense System (BMDS) sensors, such as space-based infrared sensors and forward-deployed radars, for such functions. Concurrent with KEI development, the program is proceeding with its Near Field Infrared Experiment (NFIRE). The experiment consists of launching an experimental satellite in fiscal year 2006 to collect infrared imagery of boosting intercontinental ballistic missiles (ICBM). The data it collects will support the program’s efforts in developing the software that operates the interceptor’s kill vehicle, in addition to enhancing plume models and boost-phase simulations. In fiscal year 2003, MDA initiated the KEI program as part of its Boost Defense Segment. To select a contractor and a concept for the element, the KEI program office awarded competitive contracts to teams headed by Northrop Grumman and Lockheed Martin. Each contractor was given the flexibility to design a system that met only one broad requirement—that the KEI element be capable of reliably intercepting missiles in their boost/ascent phases. MDA did not set cost or schedule requirements or specify how the contractors should design the system. MDA initially requested funds for the KEI element along with other boost- phase defense elements, such as the Airborne Laser, in its Boost Defense Segment. However, in fiscal year 2004, MDA budgeted the KEI program under a new area known as BMDS Interceptors. The KEI element is being developed under MDA’s acquisition approach, which delivers system capabilities in 2-year block increments. When the KEI concept was first being pursued in fiscal year 2003—during which Northrop Grumman and Lockheed Martin were competing for the prime contract—the program planned on developing a mobile, land-based system to be available in the Block 2008 time frame and expanding it to sea-based platforms in Block 2010. However, the amount appropriated by Congress for missile defense in fiscal year 2004 did not include the amount of funding for KEI that was requested in the President’s Budget. As a result, the program delayed completion of its land-based capability into Block 2010 and delayed the expansion of the sea-based capability into Block 2012. In fiscal year 2004, the KEI program underwent a second re-plan to compensate for anticipated fiscal year 2005 funding cuts and the addition of new requirements (such as nuclear hardening) imposed by MDA. In the re-plan, the land-based capability was combined with the sea-based capability of Block 2012, both of which utilize the same interceptor. The KEI program has undergone further restructuring, as reflected in the fiscal year 2006 President’s Budget submitted in February 2005. Based on revised funding levels beyond fiscal year 2005, the program deferred the sea-based capability into Block 2014 (2014-2015 time frame), removed the international program, and initiated plans for a Space Test Bed. The program now expects to develop KEI capabilities as follows: Block 2012—land. MDA envisions that the first-generation land based interceptors would be launched from trucks that can be driven up close to the border of the threatening nation. An initial land-based capability will be declared after the final flight test, Integrated Test 5 (IT-5), is conducted by the end of 2013. Block 2014—sea. This block increment expands KEI’s land-based capabilities to include the capability to launch KEI interceptors from sea-based platforms, such as Aegis cruisers. The sea-based capability will use the same interceptor as the land-based capability. Blocks 2012/2014—space test bed. Development of the space test bed is planned to be carried out concurrently with the development of KEI’s terrestrial (land and sea) capabilities. Consisting of a limited constellation of space-based interceptors, the test bed is envisioned to provide an additional layer of defense against ICBMs. MDA plans to initiate a concept design phase in fiscal year 2008 and conduct space- based intercept tests in the Block 2012/2014 time frame. The KEI program planned to accomplish several activities during fiscal year 2004 associated with the land-based capability, with its primary focus being the selection of a prime contractor for KEI’s developmental phase. In the first quarter of fiscal year 2004, the program selected Northrop Grumman as its prime contractor and awarded the company a contract valued at $4.6 billion that covers a 98-month performance period. The program office also planned to complete design, test, and risk reduction efforts in fiscal year 2004. However, budget reductions forced Northrop Grumman to delay several of these planned activities until fiscal year 2005. The program office originally told the contractor to plan for a $90 million budget during fiscal year 2004, but only $47 million was available. Because program funding in fiscal year 2004 was much less than requested, several design and test activities were postponed into fiscal year 2005. For example, the program’s System Requirements Review (SRR)—a review during which mission objectives are documented, critical components are identified, and program planning is established—was postponed into fiscal year 2005. While the program completed a number of its planned activities, overall, the KEI program progressed much more slowly than anticipated. As noted above, Northrop Grumman was forced to re-plan several scheduled activities because of reduced funding for the KEI program in fiscal years 2004 and 2005. Progress made toward achieving scheduled activities is summarized in tables 24 through 27. A key program accomplishment in fiscal year 2004 was the selection of Northrop Grumman as the KEI prime contractor. The KEI program office employed a unique acquisition strategy in the award of the contract by making mission assurance—the successful operation of the element to perform its mission—the basis for the amount of the contractor’s profit from the performance of the contract. MDA built incentives into the contract that require the prime contractor to assure mission assurance through a disciplined execution of quality processes. For example, the contractor earns an award fee only if flight tests are successful, and the percentage of the award fee earned is determined by whether the tests are conducted on schedule. The program’s intention is to maximize the contractor’s incentives to develop a quality product on schedule and at the originally proposed price. At this early stage of element development, data are not available to evaluate element performance through the use of technical indicators. However, the program office identified areas of high risk that may have an impact on the element’s future performance. Table 28 summarizes these risks. All risks are associated with interceptor operation for the boost- phase intercept mission. In its July 2003 report on the boost-phase intercept mission, the American Physical Society indicated that “time line” is a major challenge for boost phase defense systems. In particular, boost phase defense against ICBMs hinges (in large part) on the length of time an attacking missile is in boost phase and on the speed of the defending interceptor. Accordingly, KEI program officials recognize the time constraints of the boost phase intercept mission and the challenge in developing quicker interceptors—as is evident by the first high-risk item of table 28. This same report also questions the feasibility of a land-based boost-phase intercept concept, especially against large nations. For example, the report states that a boost-phase intercept system employing terrestrial-based interceptors would generally be ineffective against ICBMs launched from the interiors of large countries—those having dimensions greater than 1,000 kilometers. Nonetheless, the program office contends sufficient coverage is possible given adequate numbers and stationing of KEI units. Furthermore, sea basing, which offers more options for boost phase defense, builds directly upon the investments being made in the land- based capability. Finally, a scientific study on boost phase defense commissioned by MDA focused on selected issues of high risk. Plume-to-hardbody handover was identified as high risk because of a lack of plume phenomenology data available for determining the appropriate sensor combination for the interceptor. The program office recognizes this challenge, as noted in table 28. As a result, the KEI program is proceeding with a 2-color seeker, better enabling the kill vehicle to differentiate between the plume and hardbody of a missile. In addition, the program is sponsoring NFIRE and participating in targets of opportunity to collect data of boosting missiles. DOD’s planned investment in the KEI program from program inception in 2003 through 2011 is approximately $6.0 billion. As broken out in table 29, DOD expended $192 million between fiscal years 2003 and 2004, Congress appropriated $267 million for fiscal year 2005, and MDA is budgeting about $5.5 billion for KEI research and development between fiscal years 2006 and 2011. Table 29 reflects the planned funding profile of the KEI program as presented in the President’s Budget for fiscal year 2006, which was submitted in February 2005. When compared with the fiscal year 2005 President’s Budget—submitted last year in February 2004—KEI’s current funding level is considerably less. Indeed, last year MDA budgeted $7.87 billion for KEI program activities between fiscal years 2004 and 2009. The current budget of $2.77 billion over the same time period represents a 65 percent reduction in program funding. The government routinely uses contractor Cost Performance Reports to independently evaluate prime contractor performance relative to cost and schedule. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are usually associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. The KEI prime contractor performed work in fiscal year 2004 near its budgeted costs. From contract inception through August 2004 (which covers less than 1 percent of the contract), the contractor completed work slightly under budget but was behind schedule in performing about $1.6 million worth of planned work. Program officials indicated that the negative schedule variance was the result of the contractor delaying activities so that it could conduct trade studies on new requirements imposed by MDA. For example, the contractor has been directed to determine the cost of adding requirements for anti-tampering, nuclear hardening, and insensitive munitions. Because of plans to restructure the KEI program, the long-term performance measurement baseline is no longer relevant. Near-term work is still being performed according to plan, but the program suspended contractor cost and schedule performance reporting for current work efforts after August 2004. As a result, KEI program officials had reduced insight into its prime contractor’s work efforts for a portion of fiscal year 2004. The program office told us that the contractor will resume reporting in 2005 after a reliable baseline that reflects the full extent of the program’s restructure is available. The Space Tracking and Surveillance System (STSS) is being developed as a constellation of low-orbiting satellites to detect and track enemy missiles throughout all phases of flight. Funded and managed by the Missile Defense Agency (MDA), STSS replaces the Air Force’s Space-Based Infrared System-Low (SBIRS-Low) program. The STSS program office is preparing to launch in 2007 two technology demonstration satellites that were partially built under the SBIRS-Low program. MDA intends to assess how well these satellites perform missile defense surveillance and tracking functions and use this information to establish capabilities and goals for next- generation STSS satellites. The STSS program office accomplished all but one of the principal Block 2006 activities planned for completion in fiscal year 2004 and initiated work planned for completion in fiscal year 2005. Although the prime contractor is working to an accelerated delivery schedule, quality and systems- engineering problems with a subcontractor are jeopardizing the early delivery of a satellite’s payload. Schedule: Program activities completed in fiscal year 2004 include the complex tasks of systems integration, testing, and software development. The program office completed a critical design review on time. Hardware modifications to the satellites were completed, but a heat problem resulting from the redesign of the electrical power subsystem caused a delay of three months. Software development activities were also completed, and reviews to ensure that the design for the STSS ground system could accommodate a larger constellation of satellites were conducted. DOD’s planned investment in the STSS program from program inception in 2002 through 2011 is approximately $4.5 billion. DOD expended $819 million between fiscal years 2002 and 2004, Congress appropriated $305 million for fiscal year 2005, and MDA is budgeting about $3.35 billion for element development between fiscal years 2006 and 2011. Testing: Functional tests on components of the second technology demonstration satellite were completed several months late because of minor problems with the spacecraft’s computer processor and other components. Planned integration tests on the track sensor were not completed, and integration testing of an interim version of the software that controls the sensors onboard the satellites took longer than planned. Although final acceptance testing for the ground software is expected to be completed 2 months late, all software development tasks are scheduled to be completed two years before satellite launch. Performance: Data provided by MDA indicate that two STSS performance indicators do not meet their respective requirements—one pertaining to the acquisition sensor and a second pertaining to the tracking sensor. Program officials stated that degradation in performance is within acceptable limits. The program considers the demonstration of STSS functionality more critical than verifying the effectiveness of the demonstrator satellites. MDA’s planned budget for the next 6 years through 2011 funds activities associated with the assembly and launch of the two demonstrator satellites (Block 2006), ground segment upgrades (Block 2008), and the development of an operational constellation of satellites (Block 2012). Cost: Our analysis of prime contractor Cost Performance Reports shows that the contractor completed work in fiscal year 2004 over budget by about $34.6 million. In addition, the contractor could not complete $20.7 million of scheduled work (relative to a 6-month accelerated schedule). Quality and systems-engineering problems with a subcontractor contributed to the overruns in cost and schedule. The Space Tracking and Surveillance System (STSS) is being developed as a space-based sensor for the Ballistic Missile Defense System (BMDS). As envisioned by the Missile Defense Agency (MDA), the full STSS element will be comprised of a constellation of low-orbiting satellites designed to detect and track enemy missiles throughout all phases of flight. Each satellite making up the program’s “space segment” includes a space vehicle and a payload of two infrared sensors—the acquisition sensor to watch for the bright plumes (hot exhaust gas) of boosting missiles, and the tracking sensor to follow the missile through midcourse and reentry. The STSS element also has supporting ground infrastructure, known as the “ground segment,” which includes a ground station and mission software to support the processing and communication of data from the satellites to the BMDS. MDA is currently working on the first increment of STSS, known as Block 2006, which is focused on the preparation and launch of two technology demonstration satellites partially built under the Space Based Infrared System Low (SBIRS-Low) program. MDA plans to launch these satellites in 2007, in tandem, in an effort to assess how well they perform surveillance and tracking functions. Using data collected by the satellites, MDA will determine what capabilities are needed and what goals should be set for the next generation of STSS satellites. Any real operational capability, however, would not be realized until the next decade. Initiated in 1996, SBIRS-Low was the latest in a series of Department of Defense (DOD) satellite programs attempting to deliver an operational capability for detecting and tracking missiles from low-earth orbits. The program experienced cost and schedule growth and performance shortfalls. In response, DOD cancelled the accompanying demonstration program in 1999 and put the partially constructed satellite equipment into storage. In October 2000, Congress directed the Air Force to transfer the SBIRS- Low program to the Ballistic Missile Defense Organization (MDA’s predecessor). When MDA inherited SBIRS-Low, the agency decided to make use of the equipment that was partially built under the SBIRS-Low technology demonstrator program. By completing the assembly of the two satellites and launching them in 2007, MDA intends to use the satellites in missile defense flight tests. At the end of 2002, the SBIRS-Low program was renamed STSS. STSS’s development is proceeding in a series of 2-year blocks, namely, Blocks 2006, 2008, and beyond. As noted above, Block 2006 involves the assembly, integration, testing, and launch of two research and development satellites in 2007. The first satellite is expected to be ready in September 2005 and the second in early fiscal year 2007. Block 2008 is primarily an upgrade of the Block 2006 ground stations, which are used to collect and analyze data from the two satellites. As technology matures and as lessons are learned from the first satellites, more capable satellites will be designed and launched in subsequent blocks. The STSS program office intended to accomplish several activities during fiscal year 2004 related to the preparation of the two demonstration satellites for launch in 2007. Specifically, the program office planned to complete the following space- and ground-segment activities: Space Segment. The program planned to complete a design review to ensure the STSS design can support the BMDS mission; complete the reactivation of hardware components for the second satellite; modify two satellite hardware components to enhance spacecraft performance; continue to develop the payload software; and start the assembly, integration, and testing of satellite components. Ground Segment. The program planned to complete activities to ensure that the STSS element has a mature ground system design and to continue with the development of software for the ground segment of the program. The STSS program office completed all but one of the principal Block 2006 activities planned for fiscal year 2004, including the complex tasks of systems integration, testing, and software development. Moreover, the program office initiated work planned for completion in fiscal year 2005. The contractor has been performing to an accelerated delivery schedule, that is, attempting to complete all contracted activities six months earlier than required by the contract. However, according to the program office, quality and systems-engineering problems at the payload subcontractor are jeopardizing the early delivery. Progress made toward achieving the space- and ground-segment activities is summarized in tables 30 and 31, respectively. The Block 2006 STSS satellites will be used as technology demonstrators (rather than for operational missions) and have an in-orbit life of 18-24 months. To keep costs within budget, the program considers the demonstration of STSS functionality more critical than the demonstration of STSS effectiveness in performing the functions. MDA decided to fly these demonstration satellites before developing and producing them in larger numbers to see how components and subsystems work together as a system in a realistic environment before a greater investment of resources is made, thereby reducing program risk. As noted above, each satellite contains two infrared sensors—an acquisition sensor to detect a missile launch and a tracking sensor to track the missile through space once it has been detected. The tracking sensor would continue tracking the missile after the acquisition sensor has completed its detection function. The ability of one satellite to detect or “acquire” a missile launch and to transmit this data to its internal tracking sensor has not yet been demonstrated in space, although DOD has had successes in demonstrating some related on-orbit capabilities through experimental satellites. Even with a focus on system functionality over effectiveness, the prime contractor continues to track 12 system level technical parameters that are critical to the performance of the sensors onboard the Block 2006 satellites. Data provided to us by MDA indicate that 2 of the 12 indicators do not meet their respective requirements. The details on these issues, including the impact on STSS performance, are classified. However, shortfalls in performance involve both sensors. The ability of the acquisition sensors to properly detect a missile launch is falling below performance margins and the accuracy of the tracking sensor is getting close to the margin. Program officials stated that the degradation in acquisition sensor performance is within allowable limits and steps are being taken to improve tracking sensor performance. DOD’s planned investment in the STSS program from program inception in 2002 through 2011 is approximately $4.5 billion. As broken out in table 32, DOD expended $819 million between fiscal years 2002 and 2004, Congress appropriated $302 million for fiscal year 2005, and MDA is budgeting about $3.35 billion between fiscal years 2006 and 2011 for element development. MDA’s planned budget for the next 6 years through 2011 funds activities associated with the assembly and launch of the two demonstrator satellites (Block 2006), ground segment upgrades (Block 2008), and the development of an operational constellation of satellites (Block 2012). The government routinely uses contractor Cost Performance Reports to independently evaluate prime contractor performance relative to cost and schedule. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are usually associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. Figure 9 shows the STSS contractor’s cost and schedule performance during fiscal year 2004. According to Cost Performance Reports, the work completed during this time cost more than budgeted and was behind schedule relative to a 6-month accelerated schedule. Specifically, during fiscal year 2004, the work cost about $34.6 million more than expected, and the contractor could not complete approximately $20.7 million of scheduled work. The erosion of cumulative cost variance throughout fiscal year 2004 was largely attributed to cost overruns by the payload subcontractor, whose costs comprise about one-third of the total STSS contract. During the past year, the subcontractor has had a number of quality and systems- engineering problems that contributed to overruns in cost and schedule. These problems are largely the result of unclear systems engineering procedures and the subcontractor’s lack of experience with space hardware. In response to these problems, the prime contractor conducted a thorough review of the subcontractor’s quality assurance program for the assembly, integration, and testing of satellite components. In addition, the subcontractor added technicians who have more experience working with space hardware and brought in systems engineers to work with the technicians. Despite these issues, the program office still expects the prime contractor to complete the contract early and with minimal cost overruns. The cumulative schedule variance also eroded during fiscal year 2004. The delay in the delivery of the payload is the major driver of the unfavorable schedule variance. In addition to these drivers, performance upgrades to the Electrical Power Subsystem were completed three months later than planned due to a heat-removal problem. A factor complicating our analysis of schedule variance is that the contractor implemented a performance measurement baseline that reflects a six-month accelerated schedule. This means the contractor might be performing work on a schedule that would allow it to complete all the work by the end of the contract, but schedule performance data would show that work was falling behind schedule. Our assessment of fiscal year 2004 activities did not identify any evidence that the STSS program would be unable to launch the two demonstration satellites in 2007. Although the payload subcontractor experienced schedule delays and cost overruns arising from quality issues, the program office is still confident that the satellites will be delivered early. In addition, the reactivation of components from storage went better than anticipated and, accordingly, the program office reduced the risk level associated with hardware and software furnished by the government. Furthermore, the prime contractor is making progress on the parts obsolescence issue. For example, the prime contractor located most replacement parts and is assembling a database to track them. The Terminal High Altitude Area Defense (THAAD) element is a ground-based missile defense system designed to protect deployed military forces and civilian population centers from short- and medium-range ballistic missile attacks. THAAD engages ballistic missiles during the late- midcourse and terminal phases of flight, that is, before or after the warhead reenters the atmosphere. The THAAD program expects to field an initial capability consisting of 24 interceptors during the 2009 time frame. The bulk of fiscal year 2004 activities focused on developing and ground- testing THAAD components in preparation for the first round of flight tests in mid-fiscal year 2005. At the end of fiscal year 2004 with 61 percent of the THAAD prime contract completed, THAAD’s prime contractor was under budget and ahead of schedule. However, the contractor’s favorable cost and schedule performance eroded somewhat during fiscal year 2004. Our analysis indicates that problems with missile development were a major driver of the deteriorating performance. Schedule: During fiscal year 2004, the THAAD program accomplished key activities ahead, on, or slightly behind schedule. The program conducted the missile-component design readiness review ahead of schedule, completed radar assembly on schedule, but was behind schedule on missile delivery for the element’s first flight test, Flight Test 1. In addition, the program successfully conducted ground tests in preparation for the initial flight test. DOD’s planned investment in the THAAD program from program inception in 1992 through 2011 is approximately $12.3 billion. DOD expended $7.2 billion between fiscal years 1992 and 2004, Congress appropriated $760 million for fiscal year 2005, and MDA is budgeting about $4.3 billion for THAAD development and procurement between fiscal years 2006 and 2011. Testing: Two explosions in the summer of 2003 at a subcontractor’s propellant mixing facility impacted THAAD’s fiscal year 2004 funding, delayed the start of flight testing, and led to a revision of the flight test program. Performance: The program office told us that key indicators show that THAAD is on track to meet operational performance goals. However, an assessment of THAAD’s effectiveness remains uncertain until the program conducts flight tests with updated hardware and software. Data from flight testing are needed to “anchor” simulations of THAAD’s performance and to more confidently predict the element’s effectiveness. Cost: Our analysis of prime contractor cost performance reports shows that the contractor’s favorable cost and schedule performance eroded somewhat during fiscal year 2004. The declining schedule performance was largely driven by unfavorable performance in the missile component—caused by two separate explosions at a subcontractor’s propellant mixing facility—but offset by other THAAD components with favorable performance. Overall, the prime contractor is under budget and ahead of schedule. The Terminal High Altitude Area Defense (THAAD) element is being developed as a ground-based missile defense system to protect forward- deployed military forces, population centers, and civilian assets from short- and medium-range ballistic missile attacks. THAAD provides the opportunity to engage ballistic missiles—outside or inside the earth’s atmosphere—not destroyed earlier in the boost or midcourse phases of flight by other elements of the Ballistic Missile Defense System (BMDS). A THAAD unit consists of a command, control, battle management, and communications (C2/BMC) component for controlling and executing a defensive mission, truck-mounted launchers, ground-based radar, interceptor missiles, and ground support equipment. The ground-based radar is a solid-state, phased-array, X-band radar that performs search, track, discrimination, and other fire-control functions. The THAAD missile is comprised of a kill vehicle mounted atop a single-stage booster and is designed to destroy enemy warheads through hit-to-kill collisions. The THAAD program entered the Program Definition and Risk Reduction phase of acquisition in 1992 but was plagued by missed intercepts in its first six attempts. As noted in our 1999 report, THAAD’s failures were caused by a combination of a compressed test schedule and quality control problems. The Director, Operational Test and Evaluation (DOT&E), reported in his Fiscal Year 1999 Annual Report to the Congress that the sense of urgency to deploy a prototype system resulted in an overly optimistic development schedule. The THAAD program conducted two successful intercept attempts in 1999 after devoting substantial time to pretest activities. The program then transitioned to the product development phase of acquisition, in which program activities shifted from technology development and demonstration to missile redesign and engineering. The Department of Defense (DOD) transferred the THAAD program from the U.S. Army to the Ballistic Missile Defense Organization (now MDA) on October 1, 2001. The THAAD program is pursuing its goals within the MDA block approach, which incrementally increases the element’s capability against the ballistic missile threat. We reported last year that THAAD’s development was structured around a Block 2004-2006-2008 program, with program funding aligned accordingly. However, with the submission of the fiscal year 2006 President’s Budget in February 2005, MDA implemented a new BMDS baseline approach for the THAAD program. Under this new program, THAAD development is structured around a Block 2006-2008-2010 program, with funding broken out by Block 2006/2008 and Block 2010. Block 2006. Block 2006 incorporates the activities of the former Block 2004 program. The Block 2006 THAAD program is expected to demonstrate an engagement capability against short- and medium- range ballistic missiles above the atmosphere. Block 2008. By the end of Block 2008, the THAAD element will have completed additional flight tests (including attempts employing a salvo- firing doctrine), demonstrated an engagement capability inside and above the atmosphere, and be configured to accept data from other BMDS sensors for launching its interceptor missiles. THAAD’s integration with the BMDS is expected to increase its defended area by more than a factor of three. The THAAD program includes a “fire unit” for delivery in fiscal year 2009. Operated by the Army, it will consist of a radar, a C2/BMC unit, 3 launchers, 24 missiles, and equipment for support, maintenance and training. The Army has “signed on” to receive the equipment and is planning to allocate nearly 100 soldiers for training and operations. Block 2010. The THAAD program plans to enhance the element’s ability to interoperate with other elements and sensors of the BMDS. By engaging threats with external BMDS data, THAAD is expected to increase its defended area by more than a factor of ten. The bulk of the fiscal year 2004 activities focused on developing and ground-testing THAAD components in preparation for the first round of flight tests in mid-fiscal year 2005. We grouped activities into three categories: (1) design, (2) build, and (3) integration and test. Progress on key activities scheduled for fiscal year 2004 is discussed below. During fiscal year 2004, the THAAD program accomplished key activities ahead, on, or slightly behind schedule. As examples, the program conducted the missile-component design readiness review ahead of schedule, completed radar assembly on schedule, but delivery of the missile for Flight Test 1 slipped into fiscal year 2005. Specifics regarding progress in achieving these and other key scheduled activities are summarized below in tables 33 through 35. The THAAD flight-test program consists of 15 flight-test events divided among Blocks 2006 and 2008. Two explosions in the summer of 2003 at a subcontractor’s propellant mixing facility impacted THAAD’s fiscal year 2004 funding, delayed the start of flight testing, and led to revisions of the flight test plans. The first set of flight tests have been delayed 3-5 months. The first flight test, referred to as a control test flight (CTF), is a missile-only, non- intercept test that focuses on how the missile operates under high endoatmospheric environmental conditions. The second flight test is an integrated system test with a “virtual target” to demonstrate system performance under conditions comparable to the next flight test (first flight test utilizing a real target). The third flight test is a seeker characterization flight (SCF), which ensures proper functioning of the seeker. This SCF is also a non-intercept test, but the seeker will demonstrate the ability to view a real target. The fourth flight test, FT-04, is the first intercept attempt with a configuration—target and engagement geometry—comparable to that used in flight tests conducted during the Program Definition and Risk Reduction phase of development. Table 36 summarizes the first six flight test events, including current and prior flight test dates with their objectives. Compared to test plans of fiscal year 2004, the THAAD program deferred two test events. A second control test flight conducted at WSMR— formerly FT-02—and an intercept attempt against a threat-representative target at the Pacific Missile Range Facility (PMRF)—formerly FT-05—have been deferred to a later time. Any assessment of THAAD’s effectiveness is uncertain at this time. The program office told us that key indicators show that THAAD is on track to meet operational performance goals. However, the THAAD program has not conducted any recent flight tests and, as a result, performance indicators used to gauge progress toward meeting performance objectives are based only on engineering analysis and ground testing. Until data collected during flight tests are used to “anchor” simulations of THAAD operation, the program cannot be confident that current indicators accurately predict THAAD’s performance in actual combat conditions. DOD’s planned investment in the THAAD program from program inception in 1992 through 2011 is approximately $12.3 billion. As broken out in table 37, DOD expended $7.2 billion between fiscal years 1992 and 2004, Congress appropriated $760 million for fiscal year 2005, and MDA is budgeting about $4.3 billion for THAAD development and procurement between fiscal years 2006 and 2011. The government routinely uses contractor Cost Performance Reports to independently evaluate the prime contractor’s performance relative to cost and schedule. Generally, the reports detail deviations in cost and schedule relative to expectations established under the contract. Contractors refer to deviations as “variances.” Positive variances are usually associated with the accomplishment of activities under cost or ahead of schedule, while negative variances are often associated with the accomplishment of activities over cost or behind schedule. At the end of fiscal year 2004, the THAAD prime contractor was carrying a positive cumulative cost and schedule variance of $3.9 million and $14.7, respectively. That is, overall, the prime contractor was under budget and ahead of schedule. As figure 10 shows, declining cumulative schedule variance during the latter portion of fiscal year 2004 was eroding overall performance. The decline in the positive schedule variance was largely caused by problems with the missile component, which were the result of two explosions at a subcontractor’s propellant mixing facility. In January 2004, these incidents and efforts to reestablish booster production caused MDA to revise THAAD’s baseline. The new baseline recognizes the inevitable delay to initial flight testing and all supporting tasks. It also provides a new starting point for measuring the prime contractor’s schedule performance. Therefore, even though the prime contractor completed $8.1 million worth above that scheduled for fiscal year 2004 (that is, incurred a positive schedule variance of $8.1 million), the variance would have been less favorable had the contractor not established a new baseline. The favorable cumulative cost variance incurred during fiscal year 2004 masks problems with the cost variance incurred by the missile component, which was unfavorable for the year. Major factors contributing to the missile’s unfavorable cost variance include explosions at a subcontractor’s facility used to mix missile propellant and the cost of efforts to reestablish booster production, as noted above; delays in activating a test facility at the Air Force Research Laboratory; and re-design efforts on a faulty valve thrust vector assembly. Favorable cost variances in other THAAD areas, such as the radar segment, offset the missile’s unfavorable cost variance. The Army is responsible for funding and managing two missile defense programs. The programs—which ultimately will be fielded as a single missile defense system—include the Patriot missile defense system including its newest missile variant, the Patriot Advanced Capability-3 (PAC-3), and the Medium Extended Air Defense System (MEADS), which is currently under development. The Army intends to incrementally replace fielded Patriot components with more-capable MEADS components as they become available. The resulting system is expected to better protect deployed U.S. forces and critical assets from short- and medium-range tactical ballistic missile attacks. The Army’s Lower Tier Project Office manages Patriot and MEADS development, procurement, and fielding. Now operational with the U.S. Army, Patriot with its PAC-3 missiles is the latest evolution of the Patriot air and missile defense system. The Patriot system has four basic components: (1) ground-based radar to detect and track targets; (2) engagement control station to provide command, control, and communications; (3) launcher; and (4) interceptor missiles. Compared with earlier versions of the Patriot missile, PAC-3 provides improved performance against short- and medium-range tactical ballistic missiles, cruise missiles, and aircraft. The PAC-3 missile is in production and successfully achieved initial fielding in September 2001. MEADS is an international co-development program between the United States, Germany, and Italy with a cost share of 58, 25, and 17 percent, respectively. MEADS expands upon Patriot capability with four new components: (1) a launcher; (2) battle management, command, control, communications, computer and intelligence (BMC4I) equipment; (3) a surveillance radar; and (4) a multi-function fire control radar. MEADS is expected to offer significant improvements in tactical mobility and strategic deployability over existing Patriot units. In addition, MEADS is designed to be interoperable with other airborne and ground-based sensors and utilize a netted architecture to provide a robust, 360-degree defense against cruise missiles, unmanned-aerial-vehicles, tactical air to surface missiles, rotary-wing and fixed-wing threats, and very short and medium range theater ballistic missiles. In 2003, the Under Secretary of Defense for Acquisition, Technology, and Logistics approved plans for combining management, development, and fielding of the Patriot and MEADS programs. The approach calls for incremental fielding and early insertion of MEADS components within existing Patriot batteries rather than delivering MEADS as a single system. The Army uses the term “Combined Aggregate Program (CAP)” to refer to the transitional activities leading up to full fielding of the MEADS and replacement of Patriot components. CAP also includes an enhanced PAC-3 missile—funded 100 percent by the United States—called the Missile Segment Enhancement (MSE). The MSE missile is intended to operate at higher altitudes and longer ranges than existing PAC-3 missiles. The plan calls for MEADS components to be inserted into Patriot battalions in three time-phased increments, as follows: Increment one. Scheduled for initial fielding in fiscal year 2009, increment one consists of the insertion of the MEADS BMC4I to begin replacing the Patriot engagement control station component and associated equipment. This increment is considered the highest acquisition priority because it (a) integrates with existing sensors to provide 360-degree coverage to counter cruise missiles, and (b) supports targeting by using data from external sensors, which is referred to as “engage on remote.” Increment two. Scheduled for initial fielding in fiscal year 2011, increment two consists of the insertion of the MEADS launcher to begin replacing the Patriot launcher. This increment is expected to enhance system mobility and be capable of firing either the existing PAC-3 missile or the new MSE missile. The MSE missile is scheduled for initial fielding in 2011. It does not replace the PAC-3 missile but, rather, supplements fielded inventory. Increment three. Scheduled for initial fielding in fiscal year 2015, increment three consists of the insertion of the MEADS Ultra High Frequency surveillance radar and the X-band multifunction fire control radar to replace the Patriot C-band radars. These radars are expected to provide (a) 360-degree coverage for defense against cruise missiles and fire control to engage low-altitude, stressing targets; and (b) surveillance and fire control for high-value asset defense against short-range ballistic missiles. The overall Patriot/MEADS CAP is scheduled for initial fielding in 2015 when increment three is available. MEADS production is scheduled to continue through fiscal year 2028. The 2015 fielding date, approved by the Under Secretary for Defense, represents a three-year delay from the fielding date planned in the previous MEADS program. According to a Lower Tier Project Office spokesperson, constraints in developmental funding caused the delay in initial fielding of MEADS components. Specifically, out-year Research, Development, Test and Evaluation (RDT&E) funding was insufficient to field MEADS in fiscal year 2012. The Army’s Lower Tier Project Office estimates that the life-cycle cost for the United States’ portion of the Patriot/MEADS CAP program—which includes PAC-3 and MEADS-component development, procurement, and operations and support (O&S) costs—will be $150.6 billion through approximately fiscal year 2048. Of this amount: $109 billion (72.4 percent) is for O&S. $31.9 billion (21.2 percent) is for procurement. $9.7 billion (6.4 percent) is for RDT&E. Operations and support costs are a large proportion of the total cost largely because of the length of time a fielded unit is supported. Although production is scheduled to end in fiscal year 2028, these newest units are expected to be in the field for another 20 years. Table 38 summarizes the funding requested by the U.S. Army to fund development and missile procurement of the Patriot/MEADS Combined Aggregate Program over the Future Years Defense Plan (fiscal years 2006- 2011). The requested funding supports the procurement of 108 PAC-3 missiles per year. The accomplishment of Missile Defense Agency (MDA) program goals is ultimately achieved through the efforts of individual Ballistic Missile Defense System (BMDS) elements. Therefore, we based our assessment on the progress made in fiscal year 2004 by those seven elements that (1) are under the management of MDA and (2) are being developed as part of a block capability. The elements we reviewed accounted for 72 percent of MDA’s fiscal year 2004 research and development budget. We compared each element’s completed activities, test results, demonstrated performance, and prime contractor cost and schedule performance in fiscal year 2004 with those planned for the year. We also completed an abbreviated evaluation of an eighth BMDS element, the U.S. Army’s Combined Aggregate Program, which consists of Patriot and the Medium Extended Air Defense System. Many activities completed in fiscal year 2004 by the various element programs pertained to the completion of Limited Defensive Operations, which is an integral part of the Block 2004 goals. To assess progress toward schedule goals—that is, program activities including test events scheduled for completion in fiscal year 2004—we examined each element’s prime contractor Cost Performance Reports, Defense Contract Management Agency’s analyses of these reports (if available), quarterly reviews of element progress (known as System Element Reviews), and other agency documents to determine whether key activities were accomplished as planned. We also developed a data collection instrument, which was submitted to MDA, to gather detailed information on completed program activities, including tests, design reviews, prime contracts, and estimates of element performance. We assessed MDA’s fiscal year 2004 cost performance by separately reviewing the cost performance of each BMDS element’s prime contractor. We used this methodology because MDA allocates a large percentage of its budget to fund prime contractors that develop system elements. To make these assessments, we applied established earned value management techniques to data captured in contractor Cost Performance Reports. Results were presented in graphical form to determine trends. We also used established earned value management formulas to project the likely costs of the contracts at completion. discussions with, and attending overview briefings presented by, various program office officials. Furthermore, we interviewed officials from the office of the Director, Operational Test and Evaluation, within the Department of Defense (DOD) to learn more about their assessment of the operational capability of the initial BMDS. Finally, we met with officials from U.S. Strategic Command to discuss the initial capability’s military utility from the warfighter’s perspective. During our review, we observed that MDA is expected to face increasing funding risks—arising from sources both within and outside DOD—in the years ahead as MDA attempts to enhance and field its missile defense capabilities. To examine this issue further, we reviewed life-cycle cost documentation from the U.S. Army Lower Tier Project Office, our report on total ownership costs, a Congressional Budget Office report, and MDA documentation on the agency’s plans for development and fielding. We also observed inconsistencies in how MDA is implementing its block approach. To gain insight into this issue, we examined element-level documents and answers to a data collection instrument that we generated to extract specific information on planned deliveries of fielded assets. We also examined MDA’s Statement of Goals, budget statements for fiscal years 2004 and 2005, and other documents provided by MDA, such as Missile Defense Plan II. To ensure that MDA-generated data used in our assessment are reliable, we evaluated the agency’s internal management control processes. We discussed these processes extensively with MDA upper management. In addition, we confirmed the accuracy of MDA-generated data with multiple sources within MDA and, when possible, with independent experts. To assess the validity and reliability of prime contractors’ Earned Value Management systems and reports, we analyzed audit reports prepared by the Defense Contract Audit Agency. Finally, we assessed MDA’s internal accounting and administrative management controls by reviewing MDA’s Federal Managers’ Financial Integrity Report for Fiscal Years 2003 and 2004. Our work was performed primarily at MDA headquarters in Arlington, Virginia. At this location, we met with officials from the Kinetic Energy Interceptors Program Office; Aegis Ballistic Missile Defense Program Office; Airborne Laser Program Office; Command, Control, Battle Management, and Communications Program Office; and Ground-based Midcourse Defense Program Office. In addition, we met with officials from the Space Tracking and Surveillance System Program Office, Los Angeles, California; Terminal High Altitude Area Defense Project Office, Huntsville, Alabama; and the U.S. Army Lower Tier Program Office, Huntsville, Alabama. We also interviewed officials from the office of the Director, Operational Test and Evaluation, Arlington, Virginia; U.S. Strategic Command, Omaha, Nebraska; and the Joint Theater Air Missile Defense Organization, Arlington, Virginia. We conducted our review from May 2004 through February 2005 in accordance with generally accepted government auditing standards. In addition to the individual named above, Tony Beckham, Ivy Hübler, Stan Lipscomb, LaTonya Miller, Karen Richey, Adam Vodraska, Jonathan Watkins, and Randy Zounes (Analyst-in-Charge) made key contributions to this report. | Since 1985, the Department of Defense (DOD) has invested $85 billion in ballistic missile defense programs, with $66.5 billion more anticipated over the next 7 years through 2011. As a major result of this investment, the Department is on the verge of activating our nation's first missile defense system for protecting the United States from intercontinental ballistic missile attacks out of Northeast Asia. This initial capability--referred to as Limited Defensive Operations (LDO)--is the first step of a national priority to develop, field, and evolve over time an overarching ballistic missile defense system (BMDS). To fulfill a congressional mandate, GAO assessed how well the Missile Defense Agency (MDA) met its cost, schedule, testing, and performance goals during fiscal year 2004. GAO assessed the program last year and will continue to provide assessments of MDA progress through 2006. By the end of fiscal year 2004, MDA carried out activities needed to field an initial missile defense capability, as planned. These included delivery and emplacement of Ground-based Midcourse Defense interceptors; upgrades of ground-based radars; enhancements to Aegis Navy ships for improved surveillance and tracking; development of command and control software for system operation; and tests to verify that components of this initial capability can communicate as part of an integrated whole. However, the performance of the system remains uncertain and unverified, because a number of flight tests slipped into fiscal year 2005 and MDA has not successfully conducted an end-to-end flight test using operationally-representative hardware and software. Additionally, based on our analysis of prime contractor cost and schedule performance, the development of BMDS elements cost approximately $370 million more than planned during fiscal year 2004. To cover much of this cost overrun, MDA deferred work planned for fiscal year 2004, redirected funds earmarked for other programs, and requested additional funds in its fiscal year 2005 budget to cover the cost of deferred work. In the future, MDA will likely face increased funding risks. MDA plans to request about $10 billion annually from DOD for BMDS development, procurement, and sustainment. However, DOD's acquisition programs are likely to be competing for a decreasing share of the total federal budget and MDA's programs are competing against hundreds of other DOD programs. Also, MDA continues to budget for unanticipated cost growth. For example, the Airborne Laser program plans to spend an additional $1.5 billion to develop and demonstrate a prototype aircraft. Furthermore, procurement and sustainment will demand increased funding as more missile defense components are fielded over time. MDA policy defines a block as an integrated set of capabilities fielded during the 2-year block cycle, but we observed that MDA's fielding goals do not consistently match its cost goals. For example, Block 2004 funds are used to procure 32 Aegis Ballistic Missile Defense missiles, but of these missiles, 11 will be delivered in 2004-2005 and the remaining missiles will be delivered during 2006-2007. MDA officials intend to clarify the block policy in the near future to better align the cost and fielding goals. |
Registered nurses are responsible for a large portion of the health care provided in this country. RNs make up the largest group of health care providers, and are 77 percent of the nurse workforce. Historically, RNs have worked predominantly in hospitals; in 2000, 59.1 percent of RNs worked in hospitals. A smaller number of RNs work in other settings, such as ambulatory care, home health care, and nursing homes. Their responsibilities may include providing direct patient care in a hospital or home health care setting, managing and directing complex nursing care in an intensive care unit, or supervising the provision of long-term care in a nursing home. In 1999 licensed practical nurses (LPN) composed 23 percent of the nurse workforce. LPNs provide patient care under the direction of physicians and registered nurses, with 32 percent working in hospitals, 28 percent working in nursing homes, and the rest working for doctors’ offices, home health agencies, residential care facilities, schools, temporary help agencies, and government agencies. Individuals usually select one of three ways to become an RN—through a 2-year associate degree, 3-year diploma, or 4-year baccalaureate degree program. As of 2000, 40.3 percent of nurses had received their training through an associate program, while 29.6 percent and 29.3 percent had received their training in a diploma or baccalaureate degree program, respectively. LPN programs are 12 to 18 months in length and generally focus on basic nursing skills such as monitoring patient or resident condition and administering treatments and medications. Once they have completed their education, RNs and LPNs must meet the licensing requirements of their state to be allowed to practice. The U.S. health care system has changed significantly over the past two decades, affecting the environment in which nurses provide patient care. Advances in technology and greater emphasis on cost effectiveness have led to changes in the structure, organization, and delivery of health care services. While hospitals traditionally were the primary providers of acute care, advances in technology, along with cost controls, shifted some care from traditional inpatient settings to ambulatory, community-based, nursing facility, or home health care settings. The transfer of less acute patients to nursing homes and community-based care settings created additional job opportunities and increased demand for nurses in these settings. This change in service settings has also resulted in decreased lengths of patient stay in hospitals and a decline in the numbers of beds staffed. At the same time, the acuity of patients increased as those patients remaining in hospitals were those too medically complex to be cared for in another setting. In an additional effort to contain costs in the early 1990s, acute care facilities restructured and redesigned staffing patterns, introducing more non-RN caregivers and reducing the number of RNs on staff. Recent studies have identified a relationship between the level of nurse staffing and the quality of patient care. A recent Health Resources and Services Administration (HRSA) study found a relationship between higher RN staffing levels and the reduction of certain negative hospital inpatient outcomes, such as urinary tract infection and pneumonia.Furthermore, a Health Care Financing Administration (HCFA) report to the Congress last year found a direct relationship between nurse staffing levels in nursing homes and the quality of resident care. Current evidence suggests emerging shortages of nurses available or willing to fill some vacant positions in hospital, nursing home, and home health care settings. National data are not adequate to describe the full nature and extent of nurse workforce shortages, nor are data sufficiently sensitive or current to allow a comparison of the degree of nurse workforce shortages across states, specialties, or provider types. The nationwide unemployment rate for RNs, which has been low for many years, has recently declined further from 1.5 percent in 1997 to 1.0 percent in 2000, the lowest level in more than a decade. Rising vacancy rates reported by providers provide another indicator of possible excess demand. A survey recently conducted by the Association of Maryland Hospitals and Health Systems reported a statewide average RN vacancy rate for hospitals of 14.7 percent in 2000, up from 3.3 percent in 1997. The Association reported that the last time vacancy rates were at this level was during the late 1980s, during the last reported nurse shortage. As of a June 2001 American Hospital Association survey, 17 state hospital associations reported statewide RN vacancy rate data for 2000 or 2001, and 11 of these states reported vacancy rates of 10 percent or higher. For 2000, California reported an average RN vacancy rate of 20 percent, while in 2001 Florida and Delaware reported nearly 16 percent, and Alabama and Nevada reported an average rate of 13 percent. Other surveys indicate that the difficulty recruiting RNs appears to be affecting a variety of provider types. California reported an RN vacancy rate of 8.5 percent for all employers in 1997, with hospitals reporting a rate of 9.6 percent, nursing homes 6.9 percent, and home health care 6.4 percent. A 2000 survey of providers in Vermont found that nursing homes and home health care agencies had RN vacancy rates of 15.9 percent and 9.8 percent, respectively, while hospitals had an RN vacancy rate of 4.8 percent (up from 1.2 percent in 1996). Job dissatisfaction is reported to be high among nurses. Nurses report unhappiness with a variety of issues, including staffing, respect and recognition, and wages, and this dissatisfaction is affecting their decision to work in nursing. Furthermore, the nurse workforce is aging and fewer new nurses are entering the profession to replace those who are retiring or leaving. Job dissatisfaction may play a significant role in both current and future recruitment and retention problems. A recent Federation of Nurses and Health Professionals (FNHP) survey found that half of the currently employed RNs who were surveyed had considered leaving the patient-care field for reasons other than retirement over the past 2 years. Over one- fourth (28 percent) of RNs in a 1999 study by The Nursing Executive Center described themselves as somewhat or very dissatisfied with their job, and about half (51 percent) were much less satisfied with their job than they were 2 years ago. In that same survey, 32 percent of general medical/surgical RNs, who constitute the bulk of hospital RNs, indicated that they were dissatisfied with their current job. According to a survey conducted by the American Nurses Association (ANA), 54.8 percent of RNs and LPNs responding would not recommend the nursing profession as a career for their children or friends, while 23 percent would actively discourage someone close to them from entering the profession. Almost half (49 percent) of current RNs surveyed in another study said that if they were younger and just starting out, they would pursue a different career, rather than becoming a registered nurse. Inadequate staffing, heavy workloads, and the use of overtime to address staffing shortages are frequently cited as key areas of job dissatisfaction among nurses. Seventy-nine percent of nurses responding to the FHNP survey said they had seen a rise in acuity of patients. When adjusted to reflect the rise in acuity levels, the number of hospital employees on staff for each patient discharged, including nurses, declined by more than 13 percent between 1990 and 1999. This increases the work intensity for individual nurses. According to one survey, of those RNs responding who had considered leaving the patient-care field for reasons other than retirement, 56 percent indicated that they wanted a less stressful and physically demanding job and 22 percent said they were concerned about schedules and hours. The same survey found that 55 percent of current RNs were either just somewhat or not satisfied by their facility’s staffing levels, while 43 percent of current RNs surveyed indicated that increased staffing would do the most to improve their job. Another survey found that 36 percent of RNs in their current job more than one year were very or somewhat dissatisfied with the intensity of their work. Officials of unions representing nurses told us the issues of staffing and overtime have been important for their nursing members during recent negotiations. State legislators have also indicated concern—in the first half of 2001 alone, legislation designed to limit mandatory overtime or protect nurses who refuse to work additional hours has been introduced in 10 states. Registered nurses have also cited the lack of respect and recognition given them, along with their perceived lack of authority, as areas of dissatisfaction. In a survey conducted by The Nursing Executive Center, 48 percent of RNs surveyed who had held their current job more than one year indicated that they were very or somewhat dissatisfied with the recognition they receive, while 35 percent were dissatisfied with their level of participation in decision-making. Over half (53 percent) of RNs responding to a survey from the FNHP were either just somewhat or not satisfied by the degree to which they had a voice in decisions, while 47 percent were either just somewhat or not satisfied by the support and respect they received from management. While surveys indicate that increased wages might encourage registered nurses to stay at their jobs, money is not always cited as the primary reason for job dissatisfaction. According to the FNHP survey, of those RNs responding who had considered leaving the patient-care field for reasons other than retirement, 18 percent wanted more money, versus 56 percent who were concerned about the stress and physical demands of the job.However, the same study reported that 27 percent of current RNs responding cited higher wages or better health care benefits as a way of improving their job. Another study indicated that 39 percent of RNs who had been in their current job for more than 1 year were dissatisfied with their total compensation, but 48 percent were dissatisfied with the level of recognition they received from their employer. The American Hospital Association (AHA) recently reported on a survey that found that 57 percent of responding RNs said their salaries were adequate, compared to 33.4 percent who thought their facility was adequately staffed and 29.1 percent who said that their hospital administration listened and responded to their concerns. Nurses have also expressed dissatisfaction with a decrease in the amount of support staff available to them over the past few years. Fewer than half the RNs responding to the recent study by the AHA agreed that their hospital provided adequate support services. Nurses responding to a survey by the ANA also pointed to a decrease of needed support services. Current nurse workforce issues are part of a larger health care workforce shortage that includes a shortage of nurse aides. Nurse aides support nurses and assist patients with activities of daily living such as dressing, feeding, and bathing. Several state and local-level studies cite nurse aide recruitment and retention as a problem for many providers. The shortage among nurse aides may be linked to difficult work conditions as well as dissatisfaction with wages and benefits. Studies have cited low wages and few benefits as factors contributing to nurse aide turnover. Our recent analysis of national data from the Bureau of Labor Statistics indicated that, on average, nurse aides receive lower wages and fewer benefits than workers generally; this is particularly true for those working in nursing homes and home health care. In 1999, the national average hourly wage for nurse aides working in nursing homes was $8.29, compared to $9.22 for service workers and $15.29 for all workers. For nurse aides working in home health care agencies, the average hourly wage was $8.67, and for nurse aides working in hospitals, $8.94. Our analysis indicated that many nurse aides have sufficiently low earnings and family incomes to qualify for public benefits such as food stamps and Medicaid. Studies have also identified the physical demands of nurse aide work and other aspects of the workplace environment as contributing to retention problems. Nurse aide jobs are physically demanding, and have one of the highest rates of workplace injury, 13 per 100 employees in 1999, compared to the construction industry rate of 8 per 100 employees. Additional factors that affect turnover include workloads and staffing levels, respect from administrators, organizational recognition, and participation in decision-making—all very similar to areas of dissatisfaction identified by nurses. While job dissatisfaction is a primary reason cited for nurse retention problems, demographic changes are also a contributing factor. As shown in figure 1, there has been a dramatic shift upward in the age distribution of registered nurses in the past 10 years. The average age of the RN population in 2000 was 45, almost 1 year older than the average in 1996. Over half (52 percent) of all RNs were reported to be under the age of 40 in 1980; by 2000 fewer than 1 in 3 were younger than 40. While the current nurse population continues to age, fewer young people are choosing nursing as a profession. Over the past 25 years, career opportunities available to women have expanded significantly, and there has been a corresponding decline of interest by women in nursing as a career. A recent study reported that women graduating from high school in the 1990s were 35 percent less likely to become RNs than women who graduated in the 1970s. The decline in nursing program enrollments in recent years reflects this development. According to a 1999 Nursing Executive Center Report, enrollment in diploma programs dropped 42 percent between 1993 and 1996, and enrollment in associate degree programs declined 11 percent. Furthermore, between 1995 and 1998, enrollment in both baccalaureate and master’s programs also dropped. In addition to the reduced number of students entering nursing programs, there is concern about a pending shortage of nurse educators. The average age of professors in nursing programs is 52 years old, and 49 years old for associate professors. The average age of new doctoral recipients in nursing is 45, compared with 34 in all fields. From 1995 to 1999, enrollments in doctoral nursing programs were relatively stagnant. Both Arkansas and California have reported that qualified applicants have been turned away from basic RN education because of a lack of institutional resources, including faculty and facilities. Growth in the number of new RNs has slowed in recent years. The number of new RNs passing the licensing examination declined steadily from 1996 to 2000; in 2000 it was 23 percent lower than in 1996, falling from 96,679 to 74,787. Although the total number of licensed RNs increased 5.4 percent between 1996 and 2000, to a total of 2,696,540—this was the lowest increase ever reported in HRSA’s periodic survey of RNs. In contrast, the highest increase in the RN population occurred between 1992 and 1996, when the total number of RNs increased by an estimated 14.2 percent, from 2,239,816 to 2,558,874. A serious nurse shortage is expected in the future, as pressures are exerted on both demand and supply. The future demand for nurses is expected to increase dramatically when the baby boomers reach their 60s, 70s, and beyond. The population age 65 years and older will double from 2000 to 2030. During that same time period the number of women between 25 and 54 years of age, who have traditionally formed the core of the nursing workforce, is expected to remain relatively unchanged. This potential mismatch between future supply and demand for caregivers is illustrated by the change in the expected ratio of potential care providers to potential care recipients. As shown in figure 2, the ratio of the working age population, age 18 to 64, to the population over age 85 will decline from 39.5 workers for each person 85 and older in 2000, to 22.1 in 2030, and 14.8 in 2040. The ratio of women age 20 to 54 to the population age 85 and older will decline even more dramatically, from 16.1 in 2000, to 8.5 in 2030, and 5.7 in 2040. | Health care providers' difficulties in recruiting and retaining nurses may worsen as the demand for nurses rises with the aging of the population. Demographic changes are widening the gap between the numbers of people needing care and available caregivers. Moreover, the current high levels of job dissatisfaction among nurses because of management decisions to restructure health care delivery and staffing may play a crucial role in the extent of future nurse shortages. Efforts to improve the workplace environment may reduce the likelihood that nurses will leave or consider leaving the profession. More data on the exact scope and nature of the problem are needed to help plan and target corrective measures. Providers, states, and the federal government have the opportunity to collect and analyze critical information on changes in the supply of and demand for nurses. |
Since our May 2002 report on nuclear smuggling, the International Atomic Energy Agency (IAEA) has reported 481 additional confirmed cases of the smuggling of nuclear and/or radiological materials. One of these cases involved nuclear material suitable for use in a nuclear weapon. The majority of new cases IAEA reported involved radiological sources, which could be combined with conventional explosives to create a “dirty bomb.” According to IAEA, the majority of all reported incidents with radiological sources involved criminal activity, most frequently theft. Radiological sources and devices in which they are used can be attractive for thieves because of their perceived high resale value or the value of their ability to shield or encapsulate illegally shipped materials within legal shipments of radioactive materials. Some of the reported cases indicate a perceived demand for radioactive materials on the black market, according to IAEA. From 2003 to 2004, the number of incidents reported by IAEA substantially increased. IAEA indicated that improved reporting may, in part, account for this increase. As of December 2004, 82 of IAEA’s Member States were participating in contributing to the database. Detecting actual cases of illicit trafficking in nuclear material is complicated because one of the materials of greatest concern—highly enriched uranium—is among the most difficult materials to detect because of its relatively low level of radioactivity. Uranium emits only gamma radiation so detection equipment, which generally contains both gamma and neutron detection capabilities, only detects uranium from the gamma detector. However, gamma radiation emissions can be shielded by encasing nuclear material within another high density material, such as lead. Another nuclear material of great concern is plutonium, which emits both gamma and neutron radiation. However, shielding nuclear material generally does not prevent the detection of neutron radiation and, as a result, plutonium can be detected by neutron detectors regardless of the amount of shielding from high density material. According to DOE officials, neutron radiation alarms are only caused by man-made materials, such as plutonium, while gamma radiation alarms are caused by a variety of naturally occurring sources including commercial goods such as bananas, ceramic tiles, and fertilizer, in addition to dangerous nuclear materials, such as uranium and plutonium. The most common types of radiation detection equipment are radiation portal monitors; handheld equipment, including both survey meters and radioactive isotope identification devices; and radiation pagers. The radiation detection equipment that U.S. programs provide to foreign countries is commercially available, off-the-shelf technology. Radiation portal monitors are stationary pieces of equipment designed to detect radioactive materials being carried by vehicles, pedestrians, or railcars. Radiation portal monitors currently being provided by U.S. agencies have the ability to detect both gamma and neutron radiation, which is important for detecting highly enriched uranium and plutonium, respectively. According to DOE, radiation portal monitors with both gamma and neutron detectors cost between about $28,000 and $55,000, plus the additional costs associated with installing the equipment and communication systems necessary to operate it. Figure 1 shows a picture of radiation portal monitors with both gamma and neutron detectors. In 2002, we reported that some U.S. agencies, primarily State, provided radiation portal monitors that did not have the ability to detect neutron radiation to foreign governments. Because this equipment is capable of detecting only gamma radiation, it is less effective in detecting certain nuclear material, such as plutonium that has been shielded with high density material. Replacement cost for similar equipment (capable of detecting only gamma radiation), is about $5,000, not including installation costs, according to DOE officials. Figure 2 shows an example of such a radiation portal monitor. Handheld radiation detection equipment, such as survey meters and radioactive isotope identification devices, are used by customs officials and border guards to conduct secondary inspections, the aim of which is to localize the source of an alarm and determine the nature of the material present. Survey meters can be used to detect the level of radiation by providing a count of the radiation level in the area. Radioactive isotope identification devices, commonly known as RIIDs, identify the specific isotope of the radioactive source detected. In addition, U.S. programs often provide radiation pagers, which are small radiation detection devices worn on belts by border security personnel to continuously monitor levels of radiation in the area. Pagers are considered personal safety devices and, therefore, should not be relied upon to implement secondary inspections. Since fiscal year 1994, DOE, DOD, and State have spent about $178 million to provide radiation detection equipment to 36 countries as part of the overall U.S. effort to combat nuclear smuggling. However, because some U.S. agencies provide radiation detection equipment to foreign countries on an as needed basis, future U.S. government spending requirements for such assistance are uncertain. DOE has spent about $131 million to provide radiation detection equipment and training to 12 countries and to maintain certain types of equipment previously installed by other U.S. agencies in 23 countries. DOD has also spent almost $22 million to provide radiation portal monitors, handheld radiation detection devices, and radiation detection training to 8 countries in the former Soviet Union and Eastern Europe. Similarly, State has spent about $25 million to provide various types of radiation detection equipment and related training to 31 countries. (See table 1.) Since fiscal year 1998, DOE has spent about $130 million through its SLD- Core program to provide radiation detection equipment and training at 83 border sites in Russia, Greece, and Lithuania and to maintain certain types of equipment previously installed by State and other U.S. agencies in 23 countries. DOE recently signed implementing agreements with the governments of Azerbaijan, Georgia, Slovenia, and Ukraine and will begin work in those countries in fiscal year 2006. Through its SLD-Core program, DOE currently plans to install radiation detection equipment at a total of about 350 sites in 31 countries by 2012 at an estimated total cost of $570 million. In addition, DOE spent about $1 million to provide radiation detection equipment to nine countries through its Cooperative Radiological Instrument Transfer project (CRITr), which began in 2004. Through CRITr, DOE refurbishes previously decommissioned handheld radiation detection equipment located at various DOE sites and provides this equipment to foreign law enforcement officers. DOE plans to provide handheld equipment to six additional countries through the CRITr project in fiscal year 2006. Through the end of fiscal year 2005, DOD had spent about $22 million through two programs to provide handheld radiation detection devices to eight countries in the former Soviet Union and Eastern Europe and to install fixed radiation portal monitors in Uzbekistan. Specifically, through its Weapons of Mass Destruction Proliferation Prevention Initiative (WMD- PPI), DOD spent about $0.2 million to provide various types of handheld radiation detection equipment to three countries and about $6.4 million to install radiation portal monitors at 11 sites in Uzbekistan. DOD plans to complete installation at 6 more sites in Uzbekistan by the end of fiscal year 2006 and to finish all associated radiation detection work in Uzbekistan by fiscal year 2009 at a total cost of about $54 million. In fiscal year 2006, DOD plans to transfer responsibility for maintenance of the equipment it has provided to Uzbekistan to DOE’s SLD-Core program. Through its International Counterproliferation Program (ICP), DOD has spent about $15 million to provide handheld radiation detection equipment and training on weapons of mass destruction proliferation prevention to 6 countries in the former Soviet Union and Eastern Europe. In addition, DOD has provided a variety of training on weapons of mass destruction proliferation to 17 additional countries. Through ICP, DOD plans to continue to provide limited amounts of handheld radiation detection equipment to other countries in the future. The Department of State, through three programs—the Export Control and Related Border Security program (EXBS), the Nonproliferation and Disarmament Fund (NDF), and the Georgia Border Security and Law Enforcement program (GBSLE)—has spent about $25 million since fiscal year 1994 to provide radiation detection equipment and related training to 31 foreign countries. State’s EXBS program has spent approximately $15.4 million to provide radiation portal monitors, various types of handheld radiation detection devices, X-ray vans equipped with radiation detectors, and training on how to use this equipment to 30 countries mainly in the former Soviet Union and Eastern Europe. Similarly, through NDF, State spent about $9.1 million from fiscal year 1994 through 2001 to, among other things, install portal monitors in countries other than Russia, provide handheld radiation detectors, and provide vans equipped with X-ray machines to countries, including Estonia, Latvia, Lithuania, and Poland. Lastly, through its GBSLE program, State spent $0.2 million in 1999 to provide border guards and customs officials in the Republic of Georgia with 137 radiation pagers. State has not provided any additional radiation detection equipment assistance through NDF since 2001 or through its GBSLE program since 1999. Because some U.S. programs provide radiation detection equipment to foreign countries on an as needed basis and DOE has yet to gain agreements with all of the countries where it would like to install equipment, future U.S. government spending requirements for radiation detection assistance remain uncertain. For example, although DOE is the primary U.S. agency responsible for installing radiation portal monitors in foreign countries, State selectively funds projects to provide radiation portal monitors to foreign countries through its EXBS program. State officials told us that State coordinates its work in this area with DOE to avoid duplication, and it conducts these projects on an as needed basis to provide a quick response to emerging nuclear smuggling threats. For example, in December 2005, State installed portal monitors and provided handheld radiation detection equipment to one site in Armenia at a cost of about $0.5 million, in part because it believed that the threat of nuclear smuggling warranted immediate installation of this equipment. State officials we spoke with told us that they coordinated with DOE to ensure State’s work in Armenia is consistent with overall U.S. goals and that the specific equipment installed met minimum detection standards. Furthermore, State officials also told us that the newly installed radiation portal monitors at this site in Armenia provide a redundant layer of security with DOE’s planned work to install equipment on the opposite side of the border in the Republic of Georgia. Because State selectively funds portal monitor projects through its EXBS program to provide a quick U.S. government response to emerging security threats of nuclear smuggling, it is uncertain how many other projects State will fund in this area, in what countries these projects will be conducted, or how much they will cost. Additionally, State officials also told us that they have yet to determine whether or not they will fund any future projects to provide radiation detection equipment assistance to foreign countries through the Nonproliferation and Disarmament Fund or the Georgia Border Security and Law Enforcement program. As a result, it is uncertain how many other projects State will fund through either of these two programs or how much they will cost. DOE currently plans to install equipment at a total of about 350 sites in 31 countries by 2012 at an estimated cost of $570 million based on a strategy that analyzes and prioritizes countries for receiving installations. However, it cannot be certain which countries will be included in the SLD-Core program until it signs the necessary agreements with these countries’ governments. For example, DOE planned to complete installations in Georgia, Kazakhstan, Slovenia, and Ukraine in fiscal year 2005. However, installations in Georgia, Slovenia, and Ukraine will not be completed until at least fiscal year 2006 because of delays in signing implementing agreements with these countries. Additionally, DOE is still in the process of trying to reach agreement with Kazakhstan. In fiscal year 2004, DOE reallocated a portion of its funding to directly fund its planned work at certain border sites in Kazakhstan. However, difficulty in reaching agreement with Kazakhstan continues to delay this work. If DOE continues to experience delays in signing agreements with foreign countries, or cannot reach agreements with all of the countries where it currently plans to install equipment, it may need to alter its planned scope of work and overall cost estimates for the program. Furthermore, once DOE reaches agreement with a certain country, it still needs to conduct individual site assessments to determine at which sites providing radiation detection equipment will be cost-effective, as well as the amount of equipment each site will require. Therefore, DOE is limited in its ability to determine the total cost of the SLD-Core program until it signs implementing agreements with the governments of countries where it plans to work and conducts assessments to determine which specific sites within those countries require radiation detection equipment and in what amounts. U.S. programs that provide radiation detection equipment to foreign governments face a number of challenges that affect the installation and effective operation of radiation detection equipment, including: the threat of corruption of border security officials in some foreign countries, technical limitations of radiation detection equipment previously deployed by State and other agencies, inadequate maintenance of some handheld equipment, and the lack of infrastructure necessary to operate radiation detection equipment and harsh environmental conditions at some border sites. DOE, DOD, and State have taken some steps to address these challenges, such as providing multitiered communications systems to mitigate corruption so that alarm data can be simultaneously viewed at several levels of authority and supplying protective casings for radiation portal monitors to prevent damage from vandals or extreme heat. According to U.S. and foreign government officials, corruption is a pervasive problem within the ranks of border security organizations. Specifically, because foreign border guards are often poorly paid and geographically isolated, there are concerns that foreign officials could be bribed and turn off the radiation detection equipment and allow nuclear smuggling to occur. For example, an official might turn off the equipment to allow a nuclear smuggler to pass through a border crossing. According to a Russian press report, in October 2004, a Russian customs agent at a site in western Russia was fired because he was aiding a smuggling ring. Additionally, in July 2005, after the newly elected President of Ukraine took office, he reorganized many agencies within the government, including the Customs Service, because of concerns about corruption. DOE, DOD, and State officials told us they are concerned that corrupt foreign border security personnel could compromise the effectiveness of U.S.-funded radiation detection equipment by either turning off equipment or ignoring alarms. As a result, U.S. programs that provide fixed radiation portal monitors are taking some steps to evaluate the degree to which corruption is present in the countries and regions where they are working or plan to work. For example, DOE’s SLD-Core program commissioned three studies to better understand corruption and the challenges that it could bring to the program. Additionally, DOE includes countrywide corruption assessments as part of its efforts to help program officials prioritize countries to include in the SLD-Core program. In addition, DOD and State also include anticorruption courses as part of the radiation detection training they provide to foreign border security personnel. Some U.S. programs also have taken or plan to take other specific steps to mitigate the threat of corruption, such as (1) providing multitiered communications systems so that alarm data can be simultaneously viewed at several levels of authority, (2) implementing programs to combat some of the underlying issues that can lead to corruption through periodic screening of border security personnel, and (3) installing radiation portal monitors on both sides of a particular border if there are concerns about corruption of personnel in these countries. For example, DOE and DOD are deploying communication systems that link the activities at individual border sites with regional and national command centers. By doing so, alarm data can be simultaneously evaluated by officials both at the site and up the chain of command, thus establishing redundant layers of accountability for responding to alarms. As a result, if a local official turns off the radiation detection equipment at a site, higher level officials can quickly be made aware of the incident and investigate the reasons for the alarm. Additionally, DOD plans to implement an Employee Dependability Program in Uzbekistan that includes background checks, personal interviews of applicants, monitoring of performance and behavior, and annual refresher training to combat some of the underlying issues that can lead to corruption among border security personnel. DOE officials told us that they are considering implementing such a screening program in some countries where the SLD-Core program works. Lastly, U.S. programs are installing radiation portal monitors on both sides of some borders to create redundant coverage to increase the likelihood of detection and interdiction. In fiscal year 2006, DOE plans to install radiation portal monitors at a number of sites in Georgia. At one site in Armenia, across the border from a planned DOE installation, State installed radiation portal monitors in December 2005, in part, because of concerns about corruption on both sides of the border at this location. DOE is also considering employing this type of redundant coverage at other locations throughout Eastern Europe and the former Soviet Union. While DOE has taken steps to determine the level of corruption in some countries and regions where it works and includes countrywide corruption assessments as part of its prioritization model, DOE is still in the process of determining in what countries it will provide specific anticorruption measures and how much it will cost to do so based on its analysis of the corruption threat. For example, DOE estimates that it will spend about $1 million to provide radiation detection equipment and related communications systems at a typical foreign border crossing. DOE officials noted that the standard communication systems the SLD-Core program provides with radiation portal monitors have some anticorruption value because radiation alarms require more than one official to review and close out before the system can be reset. However, DOE has not included the costs associated with other specific anticorruption measures in the long- term cost estimates for its SLD-Core program. In 2002, DOE assumed responsibility for maintaining some radiation detection equipment previously installed by State and other U.S. agencies in 23 countries in the former Soviet Union and Eastern Europe. However, DOE has not upgraded any of this less sophisticated equipment, with the exception of one site in Azerbaijan. Through an interagency agreement, DOE assumed responsibility for ensuring the long-term sustainability and continued operation of radiation portal monitors and X-ray vans equipped with radiation detectors that State and other U.S. agencies provided to these countries. Through this agreement, DOE provides spare parts, preventative maintenance, and repairs for the equipment through regularly scheduled maintenance visits. Through the end of fiscal year 2005, DOE had conducted maintenance and sustainability activities for equipment in 21 of the 23 countries where equipment had been provided. DOE officials told us that, although Belarus received a significant amount of radiation detection equipment from DOD, DOE is currently prohibited from maintaining this equipment by restrictions placed on U.S. assistance to Belarus. As a result, the maintenance status of the 38 portal monitors and almost 200 pieces of handheld radiation detection equipment DOD provided to Belarus is unknown. Additionally, at the request of the Turkish government, DOE no longer maintains 41 portal monitors and over 150 pieces of handheld radiation detection equipment State previously provided to Turkey. As we originally reported in 2002, at some sites in foreign countries, State and other U.S. agencies installed portal monitors that contained only gamma radiation detectors, which are less effective in detecting certain nuclear material, such as plutonium, than detectors with both gamma and neutron detection capability. Although State’s current policy is to install radiation detection equipment with both gamma and neutron detection capability, according to DOE officials, because of their configuration and sensitivity, these older portal monitors are less likely to detect small quantities of highly enriched uranium or nuclear material that is shielded, for example, by a lead container or certain parts of a vehicle. When it assumed responsibility for maintaining this equipment, DOE conducted an initial assessment of these portal monitors to determine whether they were functional and what maintenance was required. During the course of this analysis, DOE found that much of the equipment was damaged and required total replacement or major repairs. In such cases, DOE installed similar equipment with gamma radiation detectors but chose not to upgrade the equipment with newer portal monitors that would be capable of detecting both gamma and neutron radiation. DOE’s policy was to replace this equipment in-kind and wait to upgrade the equipment as part of a countrywide deployment through the SLD-Core program. However, according to SLD-Core program officials, DOE did not have funds earmarked for upgrading the equipment in the absence of a countrywide deployment through the SLD-Core program. Additionally, SLD-Core program officials stated that DOE would need to sign new agreements with the appropriate ministries or agencies within the governments of the countries where State and other agencies had previously installed equipment before DOE could invest “substantial resources” to upgrade the equipment. DOE officials noted that replacing the less sophisticated portal monitors with similar equipment usually costs less than $5,000, plus installation costs, while deploying a comprehensive system comprised of portal monitors that can detect both gamma and neutron radiation, associated communication systems, and related training can cost up to $1 million per site. The agreements are important because they exempt DOE from payment of host government taxes, customs duties, or other charges per congressional guidance. In addition, these agreements require the host government to provide DOE with data on detections of illicit trafficking in nuclear materials gathered as a result of assistance DOE provided through the SLD-Core program. Though the SLD-Core program has signed agreements with some countries where the less sophisticated equipment was installed, such as Ukraine, DOE has yet to upgrade any of the equipment in these countries, with the exception of one site in Azerbaijan, primarily because the details of the countrywide installations are still being determined. According to DOE officials, as countries with older equipment sign agreements with DOE to implement the full SLD-Core program, sites in these countries with less sophisticated equipment will be upgraded. In November 2005, DOE completed an assessment of the maintenance activities it performs on equipment provided by other U.S. agencies. DOE found that equipment failures at many of these sites go unattended, often for months. DOE determined that its maintenance of X-ray vans previously provided by State was not critical to the mission of the SLD-Core program. As a result, DOE is planning to phase out its maintenance of X-ray vans after fiscal year 2007. According to DOE officials, the budget of the SLD- Core program cannot sustain what DOE considers “non-mission critical work.” In fiscal year 2005, DOE bore the full financial responsibility for all maintenance activities because State provided no funding to DOE for this work. In addition to the X-ray vans, DOE evaluated the sites where portal monitors were previously installed by State and other agencies and identified those monitors that should no longer be supported by the SLD- Core program. DOE assessed each location where less sophisticated portal monitors are maintained and prioritized which sites should receive upgraded equipment. DOE plans to work with State to upgrade selected sites and decommission some sites that have equipment that is not being used or is beyond repair. DOE and State signed an interagency agreement in 2002 giving responsibility for maintaining most radiation detection equipment previously installed by State and other U.S. agencies to DOE. However, this agreement did not make DOE responsible for maintaining handheld radiation detection equipment previously deployed by these agencies. State has also not assumed responsibility for maintaining about 1,000 handheld radiation detectors provided by its programs that are vital to border officials for conducting secondary inspections of vehicles and pedestrians, and, as a result, much of this equipment is in disrepair. For example, at one site in Georgia, we observed border guards performing secondary inspections with a handheld radiation detector, previously provided by State, which had not been calibrated since 1997 (see fig. 3). According to the detector’s manufacturer, yearly recalibration is necessary to ensure that the detector functions properly. Furthermore, DOE officials we spoke with told us that—similar to radiation portal monitors—handheld radiation detection devices require periodic maintenance checks and recalibration to ensure that they remain operable and continue to meet minimum detection standards. Batteries used in some handheld radiation detection equipment typically need to be replaced every 2 years and some types of handhelds are fragile and can be easily broken, requiring that replacement devices or spare parts be readily available. At the request of State, DOE is currently evaluating the costs associated with maintaining this handheld equipment. Specifically, DOE has asked its contractor currently responsible for maintaining the portal monitors and X-ray vans in these countries to develop a proposal for assuming responsibility for maintenance of the handheld equipment as well. According to DOE officials, maintenance of handheld equipment could be conducted during regularly scheduled visits for maintenance of portal monitors and X-ray vans. As a result, DOE officials believe that no additional travel funds would be required for this activity. However, DOE officials also told us that if they were to assume full responsibility for maintaining the handheld equipment at sites where they are maintaining radiation portal monitors installed by State and other agencies they would need additional funding for labor and to provide replacement equipment and spare parts. Limited infrastructure and harsh environmental conditions at some foreign border sites create challenges to the installation and operation of radiation detection equipment. For example, many border sites are located in remote areas, which often do not have access to reliable supplies of electricity, fiber optic lines, and other infrastructure needed to operate radiation portal monitors and associated communication systems. Prior to providing radiation portal monitors, U.S. programs typically perform site assessments to determine the details surrounding how radiation detection equipment will be installed at a given site. The assessment includes the operational needs of the equipment depending on the infrastructure available at the site. To address the needs identified, DOE, DOD, and State provide generators at some sites to supply electricity to the radiation detection equipment because the electric power supply shuts down periodically or may be very low at these remote sites. Additionally, the communication systems that are provided to report activities from the radiation detectors require fiber optic cabling for their operation. If no cabling exists, underground cabling or radio wave operated communication systems must be installed to perform this function. Finally, at some border sites, the radiation portal monitors are located significant distances from the control and communication system center. U.S. program officials we spoke with expressed concern that theft could occur because of the remote location of this equipment. To prevent such interference with the equipment, antitampering measures such as protective cages are used to protect the integrity of the portal monitors (see fig. 4). Additionally, environmental conditions at some sites, such as extreme heat, can compromise the effectiveness of radiation detection equipment. Extreme heat can accelerate the degradation of components within radiation detection equipment and, as a result, can affect the performance and long-term sustainability of the equipment. DOD placed a protective casing around the radiation portal monitors it installed in Uzbekistan as a heat shield to ensure the effective long-term operation of the equipment (see fig. 5). State coordinates U.S. radiation detection equipment assistance overseas through an interagency working group and in-country advisors. However, its ability to carry out its role as lead interagency coordinator is limited by deficiencies in the strategic plan for interagency coordination and by its lack of a comprehensive list of all U.S. radiation detection assistance. Specifically, the interagency strategic plan lacks key components, such as overall program cost estimates, projected time frames for program completion, and specific performance measures. Additionally, State has not maintained accurate information on the operational status and location of all radiation detection equipment provided by U.S. programs. As the lead coordinator of U.S. radiation detection equipment assistance overseas, State has taken some steps to coordinate the efforts of U.S. programs that provide this type of assistance to foreign countries. State’s coordination takes place primarily through two methods: an interagency working group and State’s in-country advisors. The main coordination mechanism for U.S. radiation detection assistance programs is the interagency working group, chaired by State, which consists of program representatives from DOE, DOD, State, and DHS. According to State, this working group holds meetings about once every 2 months to coordinate the activities of U.S. programs that provide radiation detection equipment and export control assistance overseas. These interagency meetings attempt to identify and prevent overlap among the various U.S. programs through discussion of such issues as funding, upcoming program activities, and recent trips to countries receiving U.S. assistance. Meetings are attended by program managers responsible for overseeing and implementing radiation detection equipment assistance programs in foreign countries. While DOD and DOE officials we spoke with told us that these interagency meetings are somewhat beneficial, they stated that meetings primarily facilitate coordination at a high level and typically lack the specific detail necessary to identify and prevent program overlap within countries and regions where multiple U.S. programs provide radiation detection equipment assistance. Through this working group, State also maintains an interagency schedule that provides information on planned activities, training, and site visits of U.S. programs. State also coordinates U.S. programs through in-country advisors, stationed in more than 20 foreign countries. While State funds these advisors, State officials told us that they work on behalf of all U.S. programs that provide nuclear detection assistance in their respective countries. According to State officials, these advisors serve as the on-the- ground coordinators of U.S. export control and border security assistance and are the primary sources of information concerning past and present provision of U.S. radiation detection equipment assistance in their respective countries. State officials also noted that frequent informal coordination takes place between program managers at State and their counterparts in Washington, D.C., at other federal agencies. In addition to State’s coordination efforts, DHS recently created the Domestic Nuclear Detection Office (DNDO) with responsibilities including coordinating nuclear detection research and developing a global nuclear detection architecture. According to DHS, though DNDO is principally focused on domestic detection, its coordinating work will enhance U.S. efforts overseas through the design of a global nuclear detection architecture implemented under current agency responsibilities. Equally, while detection technologies developed by DNDO will be directed primarily by operational requirements for domestic applications, many technologies developed could have application in overseas radiation detection equipment assistance programs. However, DOE, DOD, and State officials we spoke with were unclear on what specific future role DNDO would play in coordinating activities of U.S. programs that provide radiation detection equipment assistance to foreign countries. These agencies are working with DNDO to clarify the future role that the office will play. In 2002, we reported that U.S. efforts to help other countries combat nuclear smuggling needed strengthened coordination and planning to link U.S. programs through common goals and objectives, strategies and time frames for providing assistance, and performance measures for evaluating the effectiveness of U.S. assistance. State, as the lead coordinator of U.S. nuclear detection assistance overseas, led the development of a governmentwide interagency strategic plan to guide the efforts of U.S. programs that provide this assistance. The plan broadly defines a set of interagency goals and objectives, establishes minimum technological standards for radiation detection equipment that U.S. programs provide, and outlines the roles and responsibilities of each agency. However, the plan does not include several elements necessary to effectively link U.S. programs together, prevent duplication, and guide their efforts toward completion. While the plan provides U.S. agencies with a broad framework for coordinating this type of assistance by defining a set of interagency goals and outlining the roles and responsibilities of each agency, it does not include specific performance measures, overall program cost estimates, or projected time frames for program completion. Without incorporating these key elements into its plan, State will be limited in its ability, as lead coordinator, to effectively link U.S. programs and guide their efforts toward achieving interagency goals. For example, a primary goal in its plan is that recipient countries possess a comprehensive capability to detect and interdict illicitly trafficked nuclear and radiological material. However, without incorporating specific performance measures into its plan, State has no transparent way to effectively measure the performance of U.S. programs in this regard or to determine the degree to which they are reaching this or other interagency goals discussed in its plan. Finally, without incorporating overall program cost estimates and time frames for program completion into its plan, State cannot effectively determine the amount of U.S. government resources that will be required to achieve interagency goals and objectives or under what time frames these resources will be required. If State does not take steps to include these key elements in its plan, it will continue to be limited in its ability to effectively track the progress of U.S. programs, measure their performance toward achieving interagency goals and objectives, and determine the amount of funding required to achieve these goals and under what time frames these resources will be needed. State, in its role as lead interagency coordinator, has not maintained accurate information on the operational status and location of all the handheld radiation detection equipment previously provided by U.S. programs. While DOE has taken responsibility for maintaining information on previously deployed U.S.-funded radiation portal monitors, State primarily works through its in-country advisors and its interagency working group to gather and maintain information on handheld radiation detection equipment provided by U.S. programs. State, through its EXBS program, assumed direct management of the in-country advisors from DHS in February 2005. As part of their duties, State’s in-country advisors are required to maintain a record of the transfer of all U.S.-provided export/border control equipment, including radiation detection equipment, within their respective countries and to follow up to ensure it is at the locations specified by the recipient government and is properly maintained. However, four of the nine advisors we spoke with, who are stationed in countries that have received a combined total of about 1,000 pieces of handheld radiation detection equipment from U.S. programs, acknowledged that they did not have up-to-date information regarding the present operational status or location of this equipment. Additionally, five of nine advisors we spoke with were unaware that, as part of their duties, they are required to maintain a record of all U.S.-provided equipment within their country. However, some advisors we spoke with stated that they attempt to determine this information but are sometimes limited in their ability to do so because other U.S. programs have not always coordinated with them before providing equipment in their country. As a result, it is necessary for some advisors to follow up with the host government to determine the status and location of U.S.-provided radiation detection equipment. According to some advisors, however, host governments may not always provide accurate information on what equipment has been provided in the past, where it is currently located, and its current operational status. According to State officials, there is no comprehensive interagency list of radiation detection equipment that has been previously provided to foreign governments by U.S. programs. In 2002, we recommended that State, as the lead interagency coordinator, work with DOE and DOD to develop such a list. Officials we spoke with at DOE and DOD stated that having access to accurate information on past provisions of all radiation detection equipment provided by U.S. programs is essential to interagency coordination, preventing overlap among programs, as well as appropriately assessing a specific country’s equipment needs. During the course of our review, program officials at DOE, DOD, and State provided us with lists of radiation detection equipment their programs had provided to other countries. According to information we received from program managers at DOE, DOD, and State, more than 7,000 pieces of handheld radiation detection equipment, including radiation pagers and radioactive isotope identification devices, had been provided to 36 foreign countries through the end of fiscal year 2005. Because much of this equipment was provided to the same countries by multiple agencies and programs, it is difficult to determine the degree to which duplication of effort has occurred. For example, since fiscal year 1994, a total of 17 different countries have received handheld radiation detection equipment from more than one U.S. agency. However, although DOE, DOD, and State programs each maintain their own lists of radiation detection equipment provided to foreign countries, officials at these agencies told us that they do not regularly share such information with each other. Without the development of a comprehensive interagency list of U.S.-funded radiation detection equipment, program managers at DOE, DOD, and State cannot accurately assess the equipment needs of countries where they plan to provide assistance, may unknowingly provide duplicative sets of equipment, and cannot determine if the equipment is being used for its intended purpose or is in need of maintenance and repair. Since the mid-1990s, DOE, DOD, and State have spent about $178 million to provide a variety of radiation detection equipment to countries around the world, and it is important that this equipment be properly maintained so that it can be effectively used to combat nuclear smuggling overseas. Since taking over responsibility for maintaining portal monitors deployed by other agencies in 2002, DOE has worked to ensure that this equipment is functioning and being used as intended. However, because DOE’s interagency maintenance agreement with State did not include maintaining handheld radiation detection equipment previously provided by State and other agencies, much of this equipment may not be properly functioning. Handheld radiation detection equipment is vital for border officials to conduct secondary inspections of vehicles or pedestrians. Without taking steps to ensure that all previously provided radiation detection equipment, specifically handheld equipment, is adequately maintained and remains operational, State cannot ensure the continued effectiveness or long-term sustainability of this equipment. Because corrupt officials could undermine the effectiveness of U.S. radiation detection assistance programs overseas by turning off radiation detection equipment or not properly responding to alarms, it is important for U.S. programs to employ anticorruption efforts, such as multitiered communication systems for radiation alarms, training, employee dependability programs, and redundant installations of equipment when providing such assistance. While we are encouraged that DOE, DOD, and State employ some corruption mitigation measures in their programs, DOE is still in the process of determining in which countries it will provide these specific anticorruption measures and how much such assistance would cost to implement. In addition, though DOE has maintained less sophisticated radiation portal monitors previously deployed by other agencies since 2002, it has not upgraded the equipment at any of these sites. As a result, border sites with less sophisticated radiation portal monitors are more vulnerable to nuclear smuggling than sites with equipment that can detect both gamma and neutron radiation. We originally reported on this problem in our May 2002 report. In its official comments on that report, DOE stated that these less sophisticated monitors “are not as reliable [as monitors with both gamma and neutron radiation detection capabilities], and have limited or no ability to detect shielded plutonium.” Although it is encouraging that DOE has recently undertaken an assessment of the equipment it maintains that was installed by other U.S. agencies, DOE has not yet improved the neutron detection capabilities of any of these less sophisticated monitors, with the exception of one site in Azerbaijan. As a result, these sites remain just as vulnerable to certain types of nuclear smuggling as they were when we first reported this deficiency in May 2002. Finally, we believe that, unless key components such as overall program cost estimates, projected time frames for completion, and specific performance measures are incorporated into the interagency strategic plan, State will be limited in its ability to determine the amount of resources and time needed to achieve the broader interagency goals discussed in its plan or to effectively measure U.S. programs’ progress toward achieving these goals. Furthermore, without accurate information on the current status and location of radiation detection equipment previously provided by U.S. programs, State cannot effectively fulfill its role as interagency coordinator of U.S. assistance. Because there are at least seven U.S. programs at three federal agencies that provide radiation detection equipment to foreign countries, program managers at DOE, DOD, and State need access to a “master list” that shows the status and location of all U.S. radiation detection equipment assistance to more accurately determine the needs of specific countries and to avoid duplication of effort among U.S. programs. Without such a list, the potential exists for programs to provide duplicative sets of radiation detection equipment to the same country. To strengthen program management and effectiveness, we recommend that the Secretary of Energy, working with the Administrator of the National Nuclear Security Administration, take the following two actions: Integrate projected spending on specific anticorruption measures into the long-term cost estimates for the SLD-Core program. Upgrade less sophisticated portal monitors previously installed by other U.S. agencies where DOE has determined this to be appropriate as soon as possible and include funding to accomplish this in DOE’s planning and budgeting process. To strengthen accountability of U.S. radiation detection equipment assistance programs, we recommend that the Secretary of State, working with the Secretaries of Defense and Energy and the Administrator of the National Nuclear Security Administration, take the following three actions: Ensure continued maintenance of all radiation detection equipment provided to foreign governments, including all handheld equipment previously provided by State and other agencies. Strengthen the Strategic Plan for Interagency Coordination of U.S. Government Nuclear Detection Assistance Overseas by including in the plan (1) specific performance measures to more effectively track and measure the progress U.S. programs are making toward achievement of interagency goals and objectives and (2) overall cost estimates and projected time frames for completion of U.S. radiation detection equipment assistance efforts to determine the amount of U.S. government resources required to achieve interagency goals and objectives and under what time frames these resources will be required. To the extent possible, account for all U.S.-funded radiation detection equipment provided to foreign governments, especially handheld equipment, by creating, maintaining, and sharing among all agencies a comprehensive list of such assistance. DOE and State agreed in general with our conclusions and recommendations. DOD had no written comments on our report. DOE, DOD, and State provided technical comments, which we incorporated as appropriate. In its comments, DOE wrote that it does not believe that our report adequately reflects the department’s efforts to maintain handheld radiation detection equipment provided by State and other agencies because DOE has a process in place to identify and replace handheld equipment used at sites where DOE maintains radiation portal monitors installed by State and other agencies. However, we believe that the extent of DOE’s program is fairly presented because this effort does not cover all handheld equipment previously provided by State and other agencies—only equipment at the selected sites visited by DOE’s maintenance teams is maintained. Further, the current operational status of the vast majority of handheld radiation detection equipment previously deployed by State and other agencies cannot be determined, in large part, because State has not maintained a comprehensive list of such equipment. In its comments, State disagreed with our lack of emphasis on the “informal coordination role played by the department’s front-line country program officers.” State considers informal consultations between these officials and their interagency counterparts to be the “primary means of coordination of its efforts concerning radiation detection equipment provisions.” State believes that such informal coordination is “much more important than coordination through the interagency working group or with State’s in-country advisors.” We have added language to our report noting the role of informal coordination in these programs. However, State’s emphasis on them as its primary means of coordinating radiation detection assistance programs conflicts with its own planning documents. In its Strategic Plan for Interagency Coordination of U.S. Government Nuclear Detection Assistance Overseas, State claims that “a standing sub- working group, the International Nuclear Detection Interagency Working Group, will routinely coordinate nuclear detection, interdiction, and investigation assistance provided by U.S. government agencies.” State’s plan emphasizes the role of the interagency working group and states that such coordination is “vital to the overall success of U.S. nuclear detection assistance efforts.” State’s plan does not, however, emphasize or even mention informal coordination mechanisms as a method for State’s coordination of U.S. radiation detection assistance programs. State also believes that its in-country advisors are unfairly criticized for not maintaining comprehensive lists of radiation detection equipment in countries where they are responsible. State cited competing claims on the advisors’ time, their many responsibilities within the EXBS program, and the limited resources at their disposal. However, State’s own guidance to its in-country advisors states that the advisors’ “general duties include…maintaining a record of the transfer of all U.S. government- provided nonproliferation export/border control equipment, and following- up to ensure that it is operational, being used for intended purposes at the locations previously specified by the recipient government, and in accordance with U.S. laws and policies.” As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. We will then send copies of this report to the Secretary of Energy; the Secretary of Defense; the Secretary of State; the Secretary of Homeland Security; the Administrator, National Nuclear Security Administration; the Director, Office of Management and Budget; and interested congressional committees. We also will make copies available to others upon request. In addition, the report will be made available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-3841 or aloisee@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. Key contributors to this report include R. Stockton Butler, Julie Chamberlain, Nancy Crothers, Chris Ferencik, Gregory Marchand, and Jim Shafer. We performed our review of U.S. programs that provide radiation detection equipment assistance to foreign countries at the Departments of Energy (DOE), Defense (DOD), Homeland Security (DHS), and State (State) in Washington, D.C.; Los Alamos National Laboratory in Los Alamos, New Mexico; and Sandia National Laboratories in Albuquerque, New Mexico. Additionally, we also visited a “nonprobability” sample of six countries (Georgia, Greece, Macedonia, Russia, Ukraine, and Uzbekistan) where U.S. agencies have provided radiation detection equipment. We visited these six countries to observe U.S.-funded radiation detection equipment in operation and to discuss the implementation of U.S. programs with foreign officials. We determined which specific countries to visit based on several criteria, such as historic U.S. government spending to provide radiation detection equipment within that country; countries receiving radiation detection equipment from multiple U.S. agencies and programs; countries receiving significant amounts of handheld equipment; countries with an in- country advisor stationed at a U.S. Embassy; countries where DOE maintains radiation detection equipment previously installed by State and other U.S. agencies; the current political environment within the country; and our ability to travel from country to county within a reasonable amount of time. To address the progress U.S. programs have made in providing radiation detection equipment assistance to foreign countries, we reviewed documents and had discussions with officials from DOE’s Second Line of Defense “Core” (SLD-Core) program, Cooperative Radiological Instrument Transfer project, and International Nuclear Export Control program; DOE’s Office of General Counsel; and DOE’s private sector contractors—SI International, Tetra Tech/Foster Wheeler, Bechtel-Nevada, TSA Systems, and Miratek. We also reviewed documents and interviewed relevant officials from DHS’s Customs and Border Protection; State’s Export Control and Related Border Security (EXBS) program, Nonproliferation and Disarmament Fund, and Georgia Border Security and Law Enforcement program; DOD’s Weapons of Mass Destruction Proliferation Prevention Initiative (WMD-PPI), International Counterproliferation Program (ICP), and Defense Threat Reduction Agency; DOD’s private sector contractor—Washington Group International; Los Alamos National Laboratory; Sandia National Laboratories; and Oak Ridge National Laboratory. In addition, in October 2004, we visited Greece and Macedonia to interview Greek and Macedonian officials and to see U.S. radiation detection assistance provided in each country. In August 2005, we visited Georgia, Russia, Ukraine, and Uzbekistan to see where U.S. agencies have provided radiation detection equipment, to observe U.S.-funded radiation detection equipment in operation, and to discuss the implementation of U.S. programs with foreign officials. We also visited Belgium to meet with officials from the European Union to discuss radiation detection equipment assistance provided to foreign countries by that organization. During our visit to Greece, we spoke with Greek officials from the Greek Atomic Energy Commission; the Greek Ministry of Economy and Finance; and Customs Directorate General (Greek Customs Service). While in Greece, we toured two border crossings where DOE had installed radiation detection equipment through the SLD-Core program, SLD-Core installations at Athens International Airport, and a small research reactor in Athens that received physical security upgrades from DOE prior to the 2004 Olympic Games. While in Macedonia, we interviewed Macedonian officials and toured one border site where radiation detection equipment had previously been provided by the International Atomic Energy Agency and the Department of State. While in Russia, we spoke with officials from the Federal Customs Service of Russia, ASPECT (a Russian company that develops radiation detection equipment), and DOE officials responsible for implementing the SLD-Core program in Russia. During our visit to Russia, we toured DOE installations at three airports and one seaport, the Federal Customs Service Central Command Center where Russian Customs officials gather and respond to portal monitor alarm data, and the Federal Customs Service Training Academy in Saint Petersburg. While in Uzbekistan, we spoke with officials from DOD’s WMD-PPI program, Washington Group International, State and DOD officials at the U.S. Embassy in Tashkent, Uzbekistan’s Institute of Nuclear Physics, and the Uzbek State Customs Committee. While in Uzbekistan, we toured the Tashkent Airport and a land border crossing where DOD had provided radiation detection equipment assistance through the WMD-PPI program. We also toured a small research reactor in Uzbekistan that previously received physical security upgrades from DOE, such as barbed-wire fences and video surveillance cameras. During our visit to Georgia, we spoke with officials from State’s Georgia Border Security and Law Enforcement program, Department of Georgian State Border Defense, Georgia Border Security Coordinating Group, and Georgia’s Andronikashvili Institute of Nuclear Physics. We toured a land border crossing where State had previously provided radiation detection equipment and visited the Georgian Border Guard Training Academy. While in Ukraine, we spoke with DOE, DOD, and State officials at the U.S. Embassy in Kiev, Ukraine’s Border Security Coordinating Group, Ukraine’s Border Guard Service, and toured a land border crossing where State had previously provided radiation detection equipment that DOE currently maintains. We discussed coordination issues with U.S. in-country advisors stationed in countries receiving U.S. assistance, including Armenia, Azerbaijan, Georgia, Kazakhstan, Malta, Moldova, Poland, Romania, and Ukraine. We developed a structured interview guide with a standard set of questions, which we asked all of our interviewees. We designed our interview guide with the assistance of a GAO methodologist. The practical difficulties of asking questions may introduce other types of errors. For example, differences in how a particular question is interpreted or the sources of information available to respondents can introduce unwanted variability into the responses, so we included steps to minimize such errors. We pretested the content and format of the interview guide with two individuals and made minor changes as appropriate. We chose which specific in-country advisors to interview based on several criteria that include advisors who are stationed in the countries we would be visiting, advisors who are stationed in countries receiving significant amounts of radiation detection equipment from multiple U.S. agencies and programs, and advisors who are stationed in countries where DOE maintains radiation detection equipment previously installed by State and other U.S. agencies. Once we determined which specific advisors to interview, we created a list, which we then randomly ordered to provide an unbiased approach to conducting our interviews. Our goal was to talk with all the advisors on the list, but we knew that circumstances might prevent that so we used a randomized list to provide the order of contacting the advisors. We initiated contact with each advisor from this list, but if we could not establish contact with that advisor, we attempted to establish contact with the next advisor on our list. In some instances, we slightly modified our list due to unforeseen developments. For example, during our visit to the Republic of Georgia, we became aware of a Department of State project to install radiation detection equipment in Armenia opposite the Georgian border. Since this met our criteria for including a country in our pool of interviewees, we agreed it was appropriate, for the purposes of this review, to add Armenia. We then contacted the in-country advisor stationed in Armenia to learn more about this project. In addition, we removed the responses from the advisor in Russia from our total list of advisors because he failed to respond to more than half of our questions and stated that his role in coordinating this type of assistance in Russia is nonexistent because DOE, through its SLD-Core program, conducts and coordinates radiation detection assistance provided to Russia. Lastly, we interviewed the advisor responsible for overseeing implementation of U.S. assistance to the Republic of Georgia because Georgia has received radiation detection equipment in the past from multiple U.S. programs. To obtain responses to our structured interview questions, we generally used e-mail and phone interviews. However, during our visits to Georgia and Ukraine, we were able to meet with the in-country advisors to obtain responses to our questions. To assess the current and expected future costs of U.S. programs that provide radiation detection equipment assistance to foreign countries, we reviewed documents from DOE, DOD, State, and DHS detailing program expenditures, projected costs, and schedule estimates. We reviewed contract data for expenditures through the end of fiscal year 2005 and met numerous times with officials from DOE, DOD, State, and DHS to discuss the data. We obtained responses from key database officials to a number of questions focused on data reliability covering issues such as data entry access, internal control procedures, and the accuracy and completeness of the data. Follow-up questions were added whenever necessary. Caveats and limitations to the data were noted in the documentation where necessary. For example, in our discussions with the DOD official who manages its financial database, she stated that program support costs were prorated between WMD-PPI’s projects based on usage. Therefore, the expenditure amount added for the program support cost for Uzbekistan is a reasonable approximation but may not be exact. We determined that the data we received were sufficiently reliable for the purposes of this report based on work we performed. To identify challenges U.S. programs face in deploying and operating radiation detection equipment in foreign countries, we examined documents and spoke with officials from DOE, DOD, State, DHS, Los Alamos National Laboratory, Sandia National Laboratories, Washington Group International, and several nongovernmental entities, including the Transnational Crime and Corruption Center at American University. Additionally, during our visits to Georgia, Greece, Macedonia, Russia, Ukraine, and Uzbekistan we spoke with various foreign officials to better understand the challenges they face in operating radiation detection equipment provided by U.S. programs. We also attended a National Academies of Science conference on nonintrusive technologies for improving the security of containerized maritime cargo and the National Cargo Security Council conference on radiation detection and screening. To understand the steps U.S. programs take to coordinate radiation detection equipment assistance provided by multiple U.S. programs, we met with program officials from each of the agencies providing assistance and reviewed pertinent documents, including individual agency’s assistance plans and State’s Strategic Plan for Interagency Coordination of U.S. Government Nuclear Detection Assistance Overseas. We also assessed coordination through the interagency group headed by State and met with the lead official of that effort—the Director of Export Control and Cooperation—and members of his staff. We discussed coordination issues with U.S. advisors stationed in countries receiving U.S. assistance including Armenia, Azerbaijan, Georgia, Kazakhstan, Malta, Moldova, Poland, Romania, and Ukraine. Several of these advisors were responsible for tracking assistance efforts in more than one country. For example, the advisor stationed in Poland is also responsible for Estonia, Latvia, and Lithuania. Finally, we relied on our previous reviews of the U.S. nonproliferation programs within DOE, DOD, and State. At State, we interviewed the Coordinator of U.S. Assistance to Europe and Eurasia and met with officials from the Bureau of International Security and Nonproliferation. We also relied on related prior GAO reports. We performed our review from April 2005 to February 2006 in accordance with generally accepted government auditing standards. The Department of Energy’s (DOE) Second Line of Defense “Core” program provides comprehensive radiation detection equipment packages to foreign countries to combat nuclear smuggling. Its associated maintenance program focuses on maintaining equipment previously provided by the Department of State and other U.S. agencies. In addition, DOE implements another program within its Office of Global Threat Reduction that provides handheld radiation detection equipment to foreign countries. In 1998, DOE established the Second Line of Defense “Core” (SLD-Core) program, which has primarily worked to help Russia detect illicit nuclear materials trafficking by providing radiation detection equipment to the Federal Customs Service of Russia. DOE recently expanded its efforts in the SLD-Core program to include countries other than Russia. SLD-Core activities focus on providing radiation detection equipment, software and hardware communications equipment and support, and training/processes to foreign countries’ border sites. The radiation detection equipment DOE provides is U.S.-made, except in Russia where Russian-made equipment is installed. The communication systems DOE installs provide important information on the radiation detector alarms, such as the radiation profile of the substance detected. In addition to training at sites where equipment is installed, DOE provides other training courses at the Hazardous Materials Management and Emergency Response training center at Pacific Northwest National Laboratory. Through the end of fiscal year 2005, DOE’s SLD-Core program had completed installation of radiation portal monitors at 83 sites in Greece, Lithuania, and Russia at a cost of about $130 million. In fiscal year 2005, DOE planned to complete 29 sites in seven countries: Azerbaijan, Georgia, Kazakhstan, Russia, Slovenia, and Ukraine. However, due to delays in signing implementing agreements with the governments of some of these countries, many of these sites were not completed. As of December 2005, DOE had signed implementing agreements with Azerbaijan, Georgia, Slovenia, and Ukraine, and plans to commence work in these countries in fiscal year 2006 (see fig. 6). Additionally, the SLD-Core program will be installing radiation detection equipment at some foreign ports, referred to as “feeder” ports, to assist the work done by DOE’s Megaports Initiative. DOE has been cooperating with the Federal Customs Service of Russia since 1998, and, coupled with the large number of sites where Russia has installed equipment on its own, the nature of DOE’s work through the SLD- Core program in Russia is evolving. DOE is transitioning its activities in Russia from installation of new equipment to sustainability of equipment it has previously installed. DOE and the Federal Customs Service of Russia signed an agreement in April 2005 that details plans for the long-term sustainability of radiation detection equipment DOE has provided to Russia. DOE is also now supporting other activities in Russia, such as regional radiation alarm response exercises and rechecks of previously installed equipment. Through the end of fiscal year 2005, DOE spent about $66 million installing radiation portal monitors at 78 border sites in Russia, 4 sites in Greece, 1 site in Lithuania, and to conduct preliminary site assessments in other countries. DOE spent about $50 million on various program integration activities, which are costs not directly associated with installing equipment at a particular site within a specific country. Of this amount, about $15 million was spent on advanced equipment procurement activities, which include the purchase and storage of portal monitors and associated spare parts for use at future installations. DOE also spent almost $16 million on program oversight activities, such as program cost and schedule estimating, technical assistance provided by participating national laboratories, and translation services. In addition, DOE spent over $5 million to develop and maintain its prioritization model for the SLD-Core program, maintained by Los Alamos National Laboratory, which is used to rank foreign countries, as well as specific sites within a country, in terms of their attractiveness to a potential nuclear material smuggler. DOE also spent about $4 million on equipment testing and evaluation to test the effectiveness and performance of the radiation detection equipment that it provides through the program. DOE spent over $8 million on the development of materials and curricula for training foreign customs agents on the use of radiation detection equipment. Finally, DOE spent almost $2 million on other program integration activities. See figure 7 for more information on program integration expenditures. Other countries ($5.4) Program oversight ($16.1) Maintenance ($8.4) Other ($1.8) Equipment testing and evaluation ($3.9) Prioritization model ($5.1) Program integration costs ($50.2) Training ($8.4) Russia, Greece, and Lithuania ($65.5) Advanced equipment procurement ($15.0) In 2002, DOE assumed the responsibility for maintaining certain radiation detection equipment, such as radiation portal monitors and X-ray vans with gamma radiation detection capability, previously installed in 23 countries by State and other U.S. agencies (see fig. 8). Through the end of fiscal year 2005, DOE has successfully conducted maintenance and sustainability activities for this equipment in 21 of 23 countries. DOE contractors service these radiation portal monitors annually and X-ray vans biannually. Since 2002, DOE has spent about $8 million to provide spare parts, preventative maintenance, and repairs for this equipment. DOE anticipates that the future scope of the maintenance program will be reduced as the SLD-Core program expands into countries where equipment was previously installed by other U.S. agencies. If DOE is notified that there are problems with the radiation portal monitors in a certain country, they will add this repair onto a scheduled maintenance trip of a nearby country. According to the DOE maintenance contractor, this occurs 5-6 times a year. However, DOE officials often are not made aware of specific problems with equipment prior to arriving at the site to conduct regular servicing. As a result, DOE’s maintenance teams must be equipped with a wide variety of components in the event that major repairs are required. At times, maintenance teams have had to improvise temporary repairs for equipment due to a lack of necessary replacement parts. For example, during our visit to a border site in Ukraine, DOE’s maintenance team discovered that a truck had struck and damaged a pole holding the wiring for the radiation detection equipment’s communication systems. The truck’s impact caused the wiring to snap in numerous places. Because the maintenance team was unaware of this damage prior to our arrival at the site, it had to repair the cable using connectors rather than replacing the entire wire as they would have preferred to do. DOE officials told us that, during the next scheduled maintenance visit to this site, the wiring will be replaced. In 2004, DOE established the Cooperative Radiological Instrument Transfer project (CRITr) within its Global Threat Reduction Initiative. In this project, DOE partners with Interpol, which provides knowledge of foreign law enforcement to determine the countries to select for assistance and coordinates all CRITr training logistics within its member countries. Through the CRITr project, DOE collects and refurbishes handheld radiation detection devices deemed surplus by DOE national laboratories and provides this equipment to first responders in foreign countries. The handheld radiation detection equipment DOE provides through CRITr consists mostly of survey meters and does not include radiation pagers. In addition to providing radiation detection equipment through the CRITr project, DOE provides training for foreign officials on how to use the equipment. DOE originally provided assistance through the CRITr project in Greece by providing over 100 handheld radiation detection devices prior to the Olympic Games in 2004. According to DOE officials, in fiscal year 2004, with Interpol’s assistance, DOE selected seven additional countries to receive assistance through the project: Croatia, Kazakhstan, Kyrgyzstan, Poland, Romania, Turkey, and Uzbekistan (see fig. 9). DOE also provided radiation detection equipment to Tanzania in fiscal year 2005. Through the CRITr project, DOE spent almost $0.5 million in fiscal year 2004 and almost $0.6 million in fiscal year 2005, according to DOE officials. DOE has budgeted almost $0.4 million for fiscal year 2006 to supply instruments and training to law enforcement officials in Albania, Bosnia and Herzegovina, Bulgaria, Macedonia, Serbia and Montenegro, and Uganda and to provide additional equipment to Tanzania. The Department of Defense (DOD) implements two programs that assist other countries in combating nuclear smuggling: the Weapons of Mass Destruction Proliferation Prevention Initiative (WMD-PPI) and the International Counterproliferation Program (ICP). As figure 10 shows, DOD spent about $22 million on these programs between fiscal years 1994 and 2005. WMD-PPI was created as a project within the Cooperative Threat Reduction Program and is implemented by DOD’s Defense Threat Reduction Agency with oversight and policy guidance from the Office of the Undersecretary of Defense for Policy. In the 2003 National Defense Authorization Act, the Congress created WMD-PPI with a $40 million budget to prevent the proliferation of weapons of mass destruction (WMD) and related materials and technologies from the former Soviet Union. WMD-PPI seeks to accomplish this mission through three projects: the Uzbekistan Land Border project, the Caspian Sea Maritime Proliferation Prevention project in Azerbaijan and Kazakhstan, and the Ukraine Land and Maritime Border projects. In Uzbekistan, DOD is installing radiation portal monitors at 17 sites; 11 of which were completed by the end of fiscal year 2005. To date, WMD- PPI has spent over $6 million to install radiation portal monitors in Uzbekistan. However, this spending total is misleading because DOD has obligated over $19 million to three contracts for program costs associated with installing radiation detection equipment, such as communication systems and training. Because DOD only executes spending on these contracts after all work has been completed, these contracts were not paid in fiscal year 2005. DOD projects that the Uzbekistan Portal Monitoring project will cost about $54 million and be completed in fiscal year 2009. Once these portal monitors are installed in fiscal year 2006, DOE will maintain the equipment within its Second Line of Defense “Core” program. The Caspian Sea project focuses on improving command and control, surveillance, detection and interception of WMD, operation, and sustainability along the Caspian Sea border by providing training and associated equipment, including handheld radiation detection devices. In Azerbaijan, the project’s cost is estimated at $63.4 million and, in Kazakhstan, it is estimated at $60.6 million. In Ukraine, WMD-PPI is implementing a similar project along the Black Sea border. The Maritime Border Security Project in Ukraine is expected to cost over $39 million and will be finished in fiscal year 2009. The Ukrainian Land Border Forces Proliferation Prevention project focuses on securing the points of entry and the green border—border that is not a formal crossing point between countries—between Moldova and Ukraine. It seeks to improve Ukraine’s capabilities to detect and interdict WMD and related materials by providing equipment and training. Radiation detection equipment, such as pagers, is included in this equipment assistance. DOD expects this project will cost over $51 million and be completed in fiscal year 2008. The 1995 National Defense Authorization Act directed DOD and the Federal Bureau of Investigation to establish a program to improve efforts to deter the possible proliferation and acquisition of WMD and related materials across the borders and through the former Soviet Union, the Baltic region, and Eastern Europe. Similarly, the 1997 National Defense Authorization Act directed DOD to work with U.S. Customs to carry out programs to assist customs officials and border guards in those regions in preventing unauthorized transfer and transportation of WMD and related materials. DOD established ICP in response to these requirements. The program is implemented by the Defense Threat Reduction Agency. According to DOD officials, ICP policy guidance comes from DOD’s Eurasia Department because of its strong ties and contacts within the regional scope of the program. Through ICP, DOD provides a range of law enforcement and border security training and equipment, including handheld radiation detection equipment, to foreign law enforcement officials in participating countries. According to an ICP official, the program does not currently provide much radiation detection equipment because, in many countries, other U.S. programs have already provided such equipment. ICP coordinates with the Federal Bureau of Investigation to conduct training of foreign government personnel. In some participating countries, ICP provides both equipment and training, and in others it provides only training, depending upon the needs of the country. Through the end of fiscal year 2005, DOD had spent over $14 million to provide radiation detection equipment and radiation detection training to foreign countries through ICP. Of this amount, DOD spent over $0.5 million to provide handheld radiation detection equipment to six countries (see fig. 12). The remaining funds were spent on a variety of training related to radiation detection, WMD interdiction, and crime scene investigation. Figure 13 shows the flowchart of training DOD provides to participating countries through ICP. According to ICP officials, the program has worked in 23 countries, including Bosnia and Herzegovina, Bulgaria, Croatia, Serbia and Montenegro, Ukraine, and Uzbekistan. In the National Defense Authorization Act of Fiscal Year 2005, DOD was given permission by the Congress to expand ICP’s scope outside of the original region. According to a DOD official, ICP plans to initiate programs in Malaysia, Singapore, and Pakistan. Since fiscal year 1994, the Department of State (State) has provided various types of radiation detection equipment assistance to 31 foreign countries. State has provided this assistance, primarily through three programs (1) the Export Control and Related Border Security program (EXBS), (2) the Nonproliferation and Disarmament Fund (NDF), and (3) the Georgia Border Security and Law Enforcement program (GBSLE). As figure 14 shows, State spent about $25 million from fiscal year 1994 through fiscal year 2005 on radiation detection equipment assistance to foreign countries. State’s Export Control and Related Border Security program, which began in 1998, is a comprehensive U.S. government effort to help foreign countries improve their export controls and border security capabilities. The program provides a broad array of assistance to foreign countries, such as workshops to assist foreign countries draft and implement new export control laws and regulations, as well as various types of equipment and training for foreign border control agencies. Assistance provided through the program focuses on five core areas: (1) laws and regulations, (2) licensing, (3) enforcement, (4) government and industry cooperation, and (5) interagency cooperation and coordination. While the original focus of the program was to provide assistance to potential “source countries” in the former Soviet Union or to countries that produce munitions or dual-use items, State later expanded the program’s focus to include states on potential smuggling routes in Eastern and Central Europe, East Asia, Central Asia, the Caucasus, Latin America, and Africa, as well as potential “source countries” in South Asia and countries with major transshipment hubs in the Mediterranean, Middle East, and Southeast Asia. Through the end of fiscal year 2005, State has spent $15.4 million to provide a variety of radiation detection equipment assistance to 30 countries (see fig. 15). In addition, State also provided funding to the Department of Homeland Security’s (DHS) Customs and Border Protection (formerly known as U.S. Customs) to implement certain types of radiation detection equipment assistance on behalf of its Export Control and Related Border Security program. Specifically, from fiscal year 1999 through 2005, DHS and its predecessor organizations spent about $10.5 million to provide radiation detection equipment and training to 30 countries. This equipment included, among other things, radiation pagers that border officials wear on their belts and radioactive isotope identification devices. Training provided by DHS included assistance in operating the X-ray vans equipped with radiation detectors, hands-on instruction in using radiation detection equipment to detect nuclear smuggling, teaching techniques for investigating smuggling operations, and tracking the movements of smugglers between ports of entry. In addition, DHS also stationed 22 in- country advisors covering 25 countries, on behalf of the program, to assist in implementing and coordinating U.S. government assistance in these countries. In February 2005, State, through its EXBS program, assumed direct responsibility of the in-country advisors from DHS. According to State officials, this management change was done to better address coordination and responsiveness issues in the advisor program. In addition to providing radiation detection equipment assistance to foreign countries, State has also provided other types of assistance designed to better ensure the effectiveness of radiation detection equipment previously provided to foreign countries through U.S. programs. Specifically, in fiscal year 2005, State, through its EXBS program, spent about $1.5 million to fund construction of a national command center for the Federal Customs Service of Russia. Through this project, portal monitors located at various Russian border sites can be directly linked to a national command center, located at Federal Customs Service headquarters in Moscow. By doing so, alarm data can be simultaneously evaluated by Russian officials both at the site and up the chain of command, thus establishing redundant layers of accountability for responding to alarms. For example, when a portal monitor alarms at a specific land border site, airport, or seaport, information will immediately be sent from the site directly to the command center enabling Russian officials to identify which specific site an alarm occurred at, quickly analyze it, and respond appropriately. Prior to the initiation of this project, the Federal Customs Service did not have an effective way to coordinate and integrate all of the information at its borders. While the total scope of work to be done at the command center has not been clearly defined yet, State officials told us that the primary activity will be to maintain and respond to alarm data from the various border sites. State officials we spoke with stated that linking alarm data from the local alarm station at individual border sites to a centrally located command center will enhance Russia’s ability to (1) ensure that U.S. provided equipment is being properly operated, (2) mitigate the possibility of corruption or other nefarious acts being committed by its border guards, and (3) effectively respond to any alarms and/or seizures of illicitly trafficked nuclear or radiological materials. State’s Nonproliferation and Disarmament Fund spent approximately $9.1 million, from fiscal year 1994 through 2001, to provide various types of radiation detection equipment assistance to 21 countries (see fig. 16). This assistance included vehicle portal monitors, mobile vans equipped with X- ray machines and radiation detection equipment, handheld radiation detectors, dosimeters, and radiation pagers. For example, in fiscal year 2001, State approved a $1.3 million NDF project to install vehicle portal monitors at 16 sites in one country, and a $0.5 million project to assist another country’s upgrading its domestically produced portal monitors in order to better detect nuclear material. State also provided $0.8 million to DHS to provide radiation detection equipment and training to seven countries under a project called “Project Amber.” Of this amount, DHS spent $0.6 million to implement the project in these countries. In fiscal year 2001, State began to consolidate its assistance provided to foreign countries for the purposes of combating nuclear smuggling under its EXBS program. However, State officials told us that they have not yet determined whether or not they will fund any future projects to provide radiation detection equipment to foreign countries through NDF. As a result, it is uncertain how many other projects State will fund through NDF, in what countries these projects will be conducted, or how much they will cost. State’s Georgia Border Security and Law Enforcement program focuses on developing the Republic of Georgia’s border infrastructure by assisting the Georgian Customs Administration and Georgian Border Guards in gaining control of the country’s borders and seacoast and strengthening its border security against any type of crime. The program primarily focuses on establishing a transparent land border regime with Azerbaijan, Armenia, and Turkey and strengthening border security against nuclear smuggling. As such, the program has provided assistance to enhance the Georgian Border Guards’ capabilities to prevent, deter, and detect potential weapons of mass destruction smuggling. Through the program, State has provided a limited amount of radiation detection equipment assistance. Specifically, in fiscal year 1999, State spent $0.2 million to provide 137 radiation detection pagers to Georgia. According to State officials, no radiation detection equipment has been provided through the program since fiscal year 1999. However, State officials also told us that they have not yet determined if they will provide any additional radiation detection equipment assistance through the program to the Republic of Georgia in the future. As a result, it is uncertain what additional equipment State might provide or how much it will cost. Combating Nuclear Smuggling: DHS Has Made Progress Deploying Radiation Detection Equipment at U.S. Ports of Entry, but Concerns Remain. GAO-06-389. Washington, D.C.: March 14, 2006. Combating Nuclear Smuggling: Efforts to Deploy Radiation Detection Equipment in the United States and in Other Countries. GAO-05-840T. Washington, D.C.: June 21, 2005. Olympic Security: U.S. Support to Athens Games Provides Lessons for Future Olympics. GAO-05-547. Washington, D.C.: May 31, 2005. Preventing Nuclear Smuggling: DOE Has Made Limited Progress in Installing Radiation Detection Equipment at Highest Priority Foreign Seaports. GAO-05-375. Washington, D.C.: March 31, 2005. Weapons of Mass Destruction: Nonproliferation Programs Need Better Integration. GAO-05-157. Washington, D.C.: January 28, 2005. Customs Service: Acquisition and Deployment of Radiation Detection Equipment. GAO-03-235T. Washington, D.C.: October 17, 2002. Nuclear Nonproliferation: U.S. Efforts to Combat Nuclear Smuggling. GAO-02-989T. Washington, D.C.: July 30, 2002. Nuclear Nonproliferation: U.S. Efforts to Help Other Countries Combat Nuclear Smuggling Need Strengthened Coordination and Planning. GAO- 02-426. Washington, D.C.: May 16, 2002. | According to the International Atomic Energy Agency, between 1993 and 2004, there were 662 confirmed cases of illicit trafficking in nuclear and radiological materials. Three U.S. agencies, the Departments of Energy (DOE), Defense (DOD), and State (State), have programs that provide radiation detection equipment and training to border security personnel in other countries. GAO examined the (1) progress U.S. programs have made in providing radiation detection equipment to foreign governments, including the current and expected costs of these programs; (2) challenges U.S. programs face in this effort; and (3) steps being taken to coordinate U.S. efforts to combat nuclear smuggling in other countries. Since fiscal year 1994, DOE, DOD, and State have provided radiation detection equipment to 36 countries as part of the overall U.S. effort to combat nuclear smuggling. Through the end of fiscal year 2005, these agencies had spent about $178 million on this assistance through seven different programs. Primary among these programs is DOE's Second Line of Defense "Core" program, which has installed equipment mostly in Russia since 1998. U.S. efforts to install and effectively operate radiation detection equipment in other countries face a number of challenges including: corruption of some foreign border security officials, technical limitations of some radiation detection equipment, inadequate maintenance of some equipment, and the lack of supporting infrastructure at some border sites. DOE, DOD, and State officials told us they are concerned that corrupt foreign border security personnel could compromise the effectiveness of U.S.-funded radiation detection equipment by either turning off equipment or ignoring alarms. In addition, State and other agencies have installed equipment at some sites that is less effective than equipment installed by DOE. Since 2002, DOE has maintained the equipment but has only upgraded one site. As a result, these border sites are more vulnerable to nuclear smuggling than sites with more sophisticated equipment. Further, while DOE assumed responsibility for maintaining most U.S.-funded equipment, some handheld equipment provided by State and DOD has not been maintained. Lastly, many border sites are located in remote areas that often lack infrastructure essential to operate radiation detection equipment. As the lead interagency coordinator of all U.S. radiation detection equipment assistance overseas, State has taken some steps to coordinate U.S. efforts. However, its ability to carry out its role as lead coordinator is limited by shortcomings in the strategic plan for interagency coordination. Additionally, State has not maintained an interagency master list of all U.S.-funded radiation detection equipment overseas. Without such a list, program managers at DOE, DOD, and State cannot accurately assess if equipment is operational and being used as intended; determine the equipment needs of countries where they plan to provide assistance; or detect if an agency has unknowingly supplied duplicative equipment. |
Parents who need child care services select from different types of child care providers: in-home care, in which a child is cared for by a provider such as an au pair or nanny in the child’s home; family child care or group home care, in which the child is cared for in a private residence other than the child’s home; and center care, in which a child is cared for by providers in a nonresidential setting, such as in a church, school, or business. Additionally, care can be provided by someone related to the child other than the parents, such as grandparents, aunts, uncles, or siblings, which is referred to as relative care. See table 1. In general, states and localities are responsible for regulating child care providers and carry out this responsibility by (1) establishing specific requirements that regulated child care providers must comply with in order to legally operate; and (2) enforcing these requirements through activities conducted by state licensing offices. The stringency of the requirements with which providers must comply and the scope and intensity of state enforcement activities differ among the provider types within states as well as among states overall. Many states do not regulate a significant number of providers. This is because, given the competing priorities for limited funds as well as other factors, states must make choices about the extent to which they can conduct enforcement activities and the types of providers to which these activities will apply. State policies regarding child care regulation are also influenced by the supply of child care and its cost to parents. Research has shown that some types of child care regulation may increase the cost of doing business for providers, particularly for small providers like family and group homes. Federal laws regulate the employment of sex offenders at federal child care facilities, and widely divergent laws govern state child care facilities, especially with regard to licensing requirements and penalties. We did not analyze state regulations or policies, nor any laws, regulations, or policies at the local level. In addition, the scope of this review did not include a review of whether these laws were effectively enforced. For a summary of laws related to the employment of sex offenders at child care facilities in all 50 states, see appendix I. Federal Laws. The National Child Protection Law of 1993 requires the Department of Justice to conduct a criminal-history check at the request of child care facilities or other youth-serving organizations. This check allows for a fingerprint-based criminal-history search of the FBI’s National Crime Information Center database. However, federal law does not require child care facilities to use this service unless the facility is federally owned or operated (or operated under a federal contract). Other laws governing the employment of sex offenders relate to facilities that receive federal grants. For example, Head Start grantees must either conduct a state or national criminal record check before hiring any employee, depending on state law requirements. Grantees are prohibited from permanently hiring an individual until these checks h ave been performed, although they may conditionally hire an individual if it isnot feasible to perform a preemployment check. Employees are also required to sign a declaration to all pending and prior criminal arrests and ith any charges related to child sexual abuse and their disposition, along w convictions related to other forms of child abuse and neglect and convictions of violent felonies. Grantees are then required to determine whether the individual is fit for employment based upon his or her criminal charge or conviction. In addition to requirements for Head Start grantees, CCDF requires that states certify to the federal government that they have requirements in effect to protect the health and safety of children in child care facilities who are subsidized with these funds. However, the block grant does not dictate to states the specificity, stringency, or number of requirements they must have or the manner in which they should enforce them. 45 C.F.R. § 98.41. child care facility. Nine additional states more narrowly impose such a prohibition on offenders whose victims were minors. Four states also specifically prohibit sex offenders from residing at a facility that provides child care services. Criminal-History Check Requirements. Although it is not always clear whether criminal-history checks need to be completed prior to employment, all 50 states require such checks for owners and employees of licensed child care facilities. However, the requirements for licensing vary widely. Only 3 states appear to require criminal-history checks for all licensed and unlicensed child care facilities, while 11 states require that all facilities that receive state or federal funds perform these checks. In addition, 23 states require criminal-history checks for adult residents at licensed child care or group home facilities. Fourteen states and the District of Columbia specifically require checks for volunteers at licensed childcare facilities, and six states specifically require criminal-history checks for contractors. Finally, several states exempt child care facilities associated with schools or religious organizations from the licensing or criminal-history check requirements. Method for Conducting Criminal-History Checks. The vast majority of states require that criminal-history checks for employees and other staff be fingerprint-based and be conducted in both national and state databases, but many do not specify that the checks must be completed prior to an employee’s start date. In four states, statutes require criminal- history checks, but they do not specify the use of either national or state databases. In addition, five states limit the check to state databases, while four states require national database checks only if the employee or applicant has not been a resident of the state for a specified period of time. Four states require by statute that criminal-history checks be performed at specified intervals. Penalties for violations. All 50 states provide some type of penalty for violating requirements related to the employment of sex offenders, but these penalties vary widely. For example, 34 states and the District of Columbia attach criminal penalties to licensing requirement violations, failure of an owner or employee to disclose criminal-history information, or failure to perform criminal-history checks. In 29 states, violation of licensing requirements and failure to perform criminal-history checks may result in civil penalties or fines, ranging from $5 per violation to $10,000 per violation. We did not assess the prevalence of sex offenders working or residing at child care facilities; our 10 cases do provide examples of sex offenders who gained access to such facilities as maintenance workers, spouses or friends of providers, a cafeteria worker, and a carpenter. Seven of these cases involve offenders who previously targeted children, and in at least 3 of the cases, the offenders used their access to children at the child care facility to offend again. As discussed below, we identified instances of relatives and acquaintances who knowingly hired offenders to work at child care facilities and facilities that unknowingly hired offenders because they did not perform preemployment criminal-history checks. Our investigation also found instances where child care facilities employing sex offenders operated without licenses or received federal funds. Relatives or Acquaintances Knowingly Provided Sex Offenders Access to Child Care Facilities. In at least 7 of our 10 cases, sex offenders were hired or allowed to reside at both licensed and unlicensed facilities by relatives or acquaintances who were aware of the offenders’ previous offenses. As shown in the cases, the regulatory consequences for allowing a sex offender to have access to a child care facility differ widely, ranging from, for example, no action being taken to suspension of a child care license to a misdemeanor charge for providing child care services in a home where a sex offender resides. Examples from our case studies include the following: Operators of a licensed child care facility in the District of Columbia hired their son in April 2008 as an after-hours janitor even though he had been convicted for attempting to sexually abuse a very young girl. The terms of the offender’s parole and District of Columbia law prohibited him from being employed at a child care facility. After interviewing the child care provider, we confirmed that the offender was working at the facility in November 2010. The offender’s father told us that employing his son to work at the child care facility was not a cause for concern, even though he was a convicted sex offender; he also stated that his son’s employment was approved by his probation officer and that he only worked after the school was closed. We referred the case to the Metropolitan Police Department, Sex Offender Registry Unit, who told us that they could not take action against the offender because he was no longer under court supervision and the restrictions of his parole no longer applied. We then referred the matter to the Office of the State Superintendent of Education, the office responsible for licensing child care facilities in the District of Columbia. In March 2011, the office required the owners to certify that they had terminated their son’s employment and notify him that he was prohibited from visiting the child care facility, in order to maintain their license. As of March 21, 2011, the office was still investigating the matter. An Illinois woman allowed her husband to reside at her unlicensed home-based child care facility even though he had prior convictions for sexual assault and abuse. In Illinois, sex offenders are not allowed to be present at any child care facility. Over a 6-year period, the offender sexually molested one of the children under his wife’s care. He was sentenced to life in prison and is currently incarcerated. Prosecutors told us that they could not gather enough evidence to prosecute the wife. A Kentucky owner of a licensed child care facility hired a cafeteria worker even though she knew that he had been convicted of sexual abuse in the first degree, because she wanted to help him. Kentucky prohibits child care facilities from hiring sex offenders for any position involving direct contact with minors. A series of anonymous tips led to an investigation of the child care facility, which resulted in a suspension of her license and an order to cease operations. She revoked her right to appeal the suspension. A woman in North Carolina allowed her husband and his son, both of whom were convicted for taking indecent liberties with a minor, to reside in a house where she was providing child care. North Carolina prohibits sex offenders from being present at child care facilities. In February 2010, the mother of two of the children who attended the child care facility reported that one of the children had witnessed the husband sexually abusing her sibling. The husband was convicted on felony charges of being an offender in a home where child care is provided and indecent liberties with a child and sentenced to 19 to 23 months in prison with 5 years probation. The offender’s son was never charged. Police arrested the offender’s wife for the misdemeanor offense of offering child care services in a home where a sex offender resides; her trial was scheduled to begin in September 2011. We could not obtain information regarding the present operation of the child care facility. Child Care Facilities Not Performing Preemployment Criminal- History Checks. At least two cases show examples in which licensed child care facilities unknowingly hired employees who were sex offenders because they did not conduct required criminal-history checks. The documents we reviewed and the officials we spoke with indicated that the child care facilities did not perform these checks because of poor oversight and an unclear understanding of background check requirements. In June 2007, an offender who was convicted for sexually abusing a minor gained employment as a substitute custodian at three child care facilities in New York City. The City of New York requires criminal- history checks on employees of licensed child care facilities; and according to the Director of the child care facility, employees are not authorized to begin working until after the employer receives the results of these checks. However, the offender was not scheduled to have his fingerprints checked for more than 9 months after he began working. He was subsequently terminated as a result of downsizing. The organization only learned of the offender’s criminal past through our investigation. The Director of the facility also told us that it was likely that the organization failed in its oversight role because he was hired when the organization was in flux. The child care facility is now owned and operated by a different organization. A South Carolina child care facility hired an offender in September 2009 who was convicted of committing sexual battery. The person was hired to provide maintenance and repair services at six different child care facilities. South Carolina requires licensed facilities to perform fingerprint-based state and national criminal-history checks on all employees. The owners said they did not perform a criminal- history check on the offender in this case because he was a self- employed contractor and not an employee of the child care facility. In December 2009, the human resource director at the child care facility reported the offender’s employment to law enforcement and child protective services. We could not obtain information regarding the present operation of the child care facility. Some Facilities Operated without Required Licenses. At least 3 of our 10 cases involve child care facilities that allegedly cared for more children than legally allowed without a license or did not operate as permitted by the state. States and localities are responsible for regulating child care providers by establishing specific requirements they must meet and enforcing those requirements. Many states set thresholds at which regulation begins according to the number of children served by different types of providers and exempt from regulation those providers falling below these thresholds. For example, in a given state, providers caring for seven or more children in their home might be regulated, while providers caring for four children in their home might be exempted from regulation. Licensed providers are generally subject to standard oversight, which includes background checks, inspections, technical assistance and training, and the application of sanctions when providers are found to be out of compliance. Unlicensed providers may be subject to less intense scrutiny or none at all. However, the requirements for licensing vary widely. If enforced, penalties for violating licensing requirements also vary widely, ranging from a $5 administrative fine to imprisonment for a term of years. Examples from our case studies include the following: A Missouri child care facility providing care for 31 children employed as a maintenance man a person convicted of attempted child molestation. He had been working at the facility for approximately 2 years when he was discovered in January 2003. In Missouri, fingerprint-based national and state criminal-history checks are required for all employees of licensed child care facilities—those with 5 or more children. However, Missouri exempts from regulation child care facilities that are affiliated with a school system. The child care facility received an exemption from state regulation after it claimed to be a school; however, during the state’s investigation, it found no evidence to support this claim. The facility was eventually condemned after state officials and police conducted investigations into allegations of child abuse and found unsafe conditions. Subsequently, the offender pled guilty to two misdemeanor counts of child endangerment. The child care provider pled guilty to 31 counts of felony child endangerment and received 3 years of probation. The Missouri Department of Health and Senior Services told us that as of November 2010 the child care facility was no longer in operation. Another Missouri offender convicted for having sexual intercourse with a minor subsequently resided in the trailer where his girlfriend provided child care services when he was arrested by police during a domestic dispute. The offender pled guilty to assaulting his girlfriend, receiving a 1-year suspended sentence with 2 years of probation. An August 2004 report by the offender’s probation officer indicated that he was compliant with sex-offender registration requirements; however, he continued to reside at the same home with his girlfriend while he was on probation and she continued to provide child care services. The Missouri Department of Health and Senior Services told us that as of November 2010 the child care facility was no longer in operation. An Arizona offender convicted of indecent exposure to a minor was operating an unlicensed facility with his wife in October 2005. The child care facility provided services for more than 15 children, although Arizona required a license for any facility with 5 or more children. Police discovered the offender operating the child care facility after a parent alleged that he abused her child. The offender fled the state, but was eventually apprehended. He subsequently pled guilty to sexual exploitation of a minor and dangerous crimes against children in the first degree and was sentenced to 13 years’ imprisonment. According to the prosecutor, his wife has not been charged. We could not obtain information regarding the present operation of the child care facility. Several Child Care Providers Received Federal Funds. At least four of the child care facilities—two licensed and two unlicensed—received federal funds from HHS’s Head Start program or its Child Care Development Fund (CCDF). In all four cases, we attempted to determine the amount of funds received during the time that a sex offender was employed or resided at the child care facility, although we can not be certain when offenders began living or working at some facilities because the operators did not keep comprehensive records. The Head Start program delivers comprehensive educational, social, health, nutritional, and psychological services to low-income families and their children who are below the age of compulsory school attendance. These services include preschool education, family support, health screenings, and dental care. The Office of Head Start makes grants directly to approximately 1,600 local organizations, including community-action agencies, school systems, tribal governments and associations, and for- profit and nonprofit organizations. Administered by HHS as a block grant to the states, CCDF subsidizes child care for low-income children under age 13 whose parents work or attend educational or job-training programs. In September 2010, we reported that criminals could obtain CCDF subsidies to provide child care because at least five states did not conduct criminal-history checks, verify SSNs, or compare provider information to sex-offender registries. In our current investigation, we notified the Administration for Children and Families (ACF) at HHS of the four cases where sex offenders worked or resided at child care facilities that received federal funds. Details regarding our four cases follow. In one case, owners of the licensed Washington, D.C., child care facility that hired their son, an offender convicted for attempting to sexually abuse a child, to work as a janitor, received at least $1 million in assistance from the Head Start program between April 2008 and December 2010. Head Start requires that grantees conduct a state or national criminal-history check on prospective employees, depending on state law. The District of Columbia requires both state and national checks for all owners, volunteers, and employees of licensed child care facilities with 6 or more children. ACF has informed us that this facility’s Head Start contract has been terminated. In the three remaining cases, two in Missouri and one in New York, child care facilities received funds from CCDF. In New York, a licensed facility hired a custodian in 2007 who was convicted for sexually abusing a minor and the facility received nearly $750,000 in financial assistance from CCDF between July 2007 and June 2008. In one Missouri case, a man convicted for attempted child molestation worked at a child care facility that received nearly $250,000 in federal assistance from the CCDF between 2001 and 2003. In the other, an offender convicted for sexually assaulting a minor resided in his girlfriend’s unlicensed, home-based day care, which received more than $4,200 in federal assistance from CCDF between 2001 and 2002. Although Missouri is 1 of 11 states that requires facilities that receive state or federal funds to perform criminal-history checks, there are no federal requirements for CCDF grantees to conduct these checks. Table 2 provides a summary of the 10 cases we examined. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this report. Convicted sex offenders may not be employed within 2,000 feet of a child care facility. Fingerprint-based national and state criminal-history checks are required of all employment applicants, employees, and volunteers of licensed child care facilities (1 or more children). Violation of the licensing requirements, including failing to report criminal-history information, is a misdemeanor. Convicted sex offenders with child victims may not operate a licensed child care facility. Fingerprint-based national and state criminal-history checks are required of all owners, employees, contractors, unsupervised volunteers, and other persons present on the premises of licensed child care facilities (5 or more children). Intentional or criminally negligent violation of the licensing requirements related to health or safety is a misdemeanor. Registered sex offenders may not volunteer or be employed at a licensed child care center. Fingerprint-based national and state criminal-history checks are required of all employees and volunteers of licensed child care facilities (5 or more children). Violation of the licensing requirements is a misdemeanor and may also result in civil penalties of up to $100 per violation per day. Registered sex offenders may not operate or serve as a contractor or employee of a child care center. State fingerprint-based criminal- history checks are required of all operators, employees, contractors, and employment applicants of licensed child care facilities (6 or more children or one that accepts state or federal funds). National checks are required if the individual has not been a state resident during the last 5 years. Periodic checks are required every 5 years. Violation of the licensing requirements, including failure to perform criminal- history checks, may result in civil penalties of up to $100 per violation per day. Registered sex offenders with child victims may not be an employer, employee, contractor, or volunteer that involves working with children. Fingerprint-based national and state criminal-history checks are required of all operators, employees, volunteers, and adult residents of child care facilities. Abuse-registry checks are also required of all operators. Willful or repeated violation of the licensing requirements is a misdemeanor. Failure to perform criminal-history checks may result in civil penalties of up to $500 (or $3,000 for repeated offenses). Convicted sex offenders may not operate or be employed or reside at a licensed child care facility. Abuse-registry and fingerprint-based state criminal-history checks are required of all owners, employees, and other adult residents of licensed child care facilities (5 or more children) and those accepting state funds. National checks are required if the individual has not been a state resident during the last 2 years. Violation of the licensing requirements is a misdemeanor and may also result in civil penalties of up to $100 per day. Abuse-registry and national and state criminal-history checks are required of all prospective employees (who will care for children) of licensed day care centers (13 or more children), group day care homes (7 to 12 children cared for in a residence), and family day care homes (1 to 6 children cared for in a residence). Violation of the licensing requirements, including failure to report criminal-history information, may result in civil penalties of up to $100 per day. Failure to report criminal convictions to a day care center by an employee or prospective employee is a misdemeanor. Convicted sex offenders with child victims are prohibited from being employed in a position having direct access to children. National and state criminal-history checks are required of all prospective employees (with regular, direct access to children) of licensed child care centers (1 or more children) and child care facilities receiving federal funds. Failure by a child care center to perform a criminal-history check of an employee is a misdemeanor. Failure by a prospective employee to report accurate sex-offense history is a felony. Convicted sex offenders may not be employed at a licensed day care center. Abuse-registry and fingerprint-based national and state criminal-history checks are required of all owners, volunteers, and employees of licensed child care centers (6 or more children). Failure by a prospective employee or volunteer to report criminal-history information is punishable by fines of up to $1,000 or imprisonment of up to 180 days, or both. Sex offenders on supervised release whose victims were minors may not work or volunteer at any child care facility. Fingerprint-based national and state criminal-history checks are required of all prospective employees of licensed child care centers (6 or more children) or family day care homes (children from more than one family cared for in a residence). Violation of the licensing requirements may result in fines of up to $100 per violation per day ($500 for violations that could cause serious harm). Misrepresentation associated with an employment or licensing application is a misdemeanor. Registered sex offenders may not be employed by or reside at any child care facility. Fingerprint-based national and state criminal-history checks are required of all owners and employees (and adult residents present when children are present) of licensed day care centers (19 or more children), group day care homes (7-18 children), or family day care homes (3-6 children cared for in a residence). Violation of the licensing requirements is a misdemeanor and may also result in civil penalties of up to $500 per day. Fingerprint-based national and state criminal-history and abuse registry checks are required of all operators and employees of licensed child care facilities (generally 3 or more children). Violation of the licensing requirements may result in civil penalties of up to $1,000 for the first violation and up to $3,000 for subsequent violations. Registered sex offenders may not be employed by or be present at any day care center. National and state criminal-history checks are required of all operators, employees, and other persons with unsupervised direct contact with children at child care facilities with 4 or more children. Failure to perform the criminal-history checks is a misdemeanor. Registered sex offenders may not operate, be employed by, volunteer, or be present at any day care center. Fingerprint-based national and state criminal-history checks are required of all owners and employees of licensed child care facilities (1 or more children). Violation of the licensing requirements is a misdemeanor. Convicted sex offenders may not be employed or volunteer at child care facilities. National and state criminal-history checks are required of all employees, volunteers, and adult residents of licensed child care facilities (1 or more children). Violation of the licensing requirements is a misdemeanor and may also result in civil penalties of up to $1,000. Registered sex offenders whose victims were minors may not be employed by, volunteer at, or serve as a contractor for a child care facility. Fingerprint-based national and state criminal-history and abuse-registry checks are required of all operators and employees (with direct responsibility or access to children) and residents of licensed child care facilities (7 or more children) and individuals who accept public funds for child care. Failure to perform criminal-history checks is a misdemeanor. Convicted violent or sexual offenders may not reside, work, or volunteer at a child care facility. Fingerprint-based national and state criminal-history checks are required of all employees, volunteers, and residents of licensed child care facilities (1 or more children). Violation of the licensing requirements that significantly and adversely affect the health or safety of children may result in civil penalties of up to $500 per day. Registered sex offenders may not enter a licensed child care facility without advance permission of the director. Child care centers may not hire sex offenders for any position involving direct contact with a minor. Criminal-history checks are required of all employees of licensed child care facilities (7 or more children) or family child care homes (4 to 6 children). Violation of the licensing requirements may result in fines of up to $500. Violations involving allowing violent and sexual offenders to have contact with children may result in fines between $500 and $1,000. Persons convicted of sexual offenses against victims under 13 may not be present within 1,000 feet of a day care center without permission. Registered sex offenders may not operate, own, or participate in the governance of a child care facility. Licensed child care facilities (7 or more children) must arrange to have criminal background checks on any employees given supervisory or disciplinary authority over children. Abuse-registry checks are required of all owners, operators, employees, and volunteers of licensed child care facilities. Failure by an owner, operator, employee, or volunteer to report abuse history is a misdemeanor. Convicted sex offenders whose victims were under 14 may not initiate contact with a child under 14 at a child care facility. State criminal-history and child- protection checks are required of all employees, owners, and volunteers of licensed child care centers (3 or more children), as well as persons who provide for care for children in their home and accept state or federal funds. Violation of children’s rights, including abuse, may result in financial penalties of up to $50 per incident. Providing false information in the licensure process may result in financial penalties of up to $500 per incident. Registered sex offenders may not enter child care facilities. National and state criminal-history checks are required of all employees, adult residents, and owners of licensed child care centers and registered child care homes. Failure to perform criminal-history checks or to disclose criminal-history information is a misdemeanor. Violation of the licensing requirements is a misdemeanor. The commissioner of probation must establish exclusion zones for persons on probation for sexually violent offenses or offenses against children to minimize contact with children. Criminal-history checks are required of all persons with the potential for unsupervised contact with children (including adult residents) in licensed child care facilities (the nonoccasional care of children). Violation of the licensing requirements may result in criminal sanctions of up to a $5,000 fine or 2-½ years imprisonment, as well as civil fines up to $250 per violation. State criminal-history checks are required of all employees and contractors of licensed child care organizations (1 or more children). Fingerprint-based national and state criminal-history checks are required of all owners and operators of licensed facilities. Violation of the licensing requirements is a misdemeanor. Sexual and violent offenders may not have direct contact with children at a child care facility. Abuse registry and state criminal- history checks are required of all operators, adult residents, and current and prospective employees, volunteers and contractors with direct contact with children of licensed child care facilities (providing care to the children of more than one family). National checks are required if there is reasonable cause to do so. Violation of the licensing requirements, including failure to perform criminal- history checks, may result in fines of up to $200 per violation. Registered sex offenders may not own, operate, work, or volunteer at a child care facility. Abuse registry and fingerprint-based national and state criminal-history checks are required of all operators and adult residents of licensed child care facilities (6 or more children). Failure to perform criminal-history checks may result in a penalty of up to $10,000 per violation. Operation of a child care facility by a sex offender is a felony. Employment of a sex offender by a child care facility is a misdemeanor. Fingerprint-based national and state criminal-history and abuse-registry checks are required of all employees of licensed child care facilities (5 or more children). Individuals receiving federal or state funds for child care and any other residents of their homes must submit to criminal-history checks. Violation of the licensing requirements may result in fines of up to $200. Subsequent violations are misdemeanors. State criminal-history and child- protection checks are required of all owners, employees, and adult residents of licensed day care facilities (3 or more children). National fingerprint-based checks are required if the individual lived outside of the state during the last 5 years. Violation of the licensing requirements may result in license revocation; continued operation after revocation is a misdemeanor. The Nebraska Department of Health and Human Services is authorized to conduct national and state criminal- history checks of the owners and employees of licensed child care facilities (4 or more children). Violation of the licensing requirements may result in civil penalties of up to $5 per child authorized to be enrolled per day. A mandatory condition of probation/parole for sexual offenders is a prohibition of coming within 500 feet of a child care facility. Fingerprint-based national and state criminal-history checks are required of all owners, employees, and adult residents of licensed child care facilities (5 or more children). Violation of the licensing requirements may result in administrative fines of up to $100 per violation. Abuse-registry and fingerprint-based national and state criminal-history checks are required of all employees with regular contact with children and adult residents of licensed and registered child day care centers (4 or more children) and those that receive state funds. Violation of the licensing requirements is a misdemeanor and may also result in administrative fines of up to $2,000 per violation. Felons with violent, sexual, or child- victim convictions are prohibited from employment at a licensed child care center. National and state criminal-history checks are required of all owners, volunteers, contractors, and employees of licensed child care centers (6 or more children). Abuse- registry checks are required of any day care provider and adult residents of their household accepting state subsidies. Violation of the licensing requirements may result in criminal penalties, including up to 18 months imprisonment. Fingerprint-based national and state criminal-history checks are required of all operators, employees, and staff of child care facilities that provide care for children for 20 hours or more per week. Violation of the licensing requirements may result in civil penalties of up to $5,000 per day. A mandatory condition of parole for sexual offenders whose victims were minors is a prohibition on entering any facility used for the care or treatment of children. Sex offenders are prohibited from operating or working or volunteering at a day care center unless the Office of Children & Family Services determines there is no risk to the health, safety, or welfare of the children. Fingerprint-based national and state criminal-history checks are required of all operators, employees, and volunteers of all child care facilities (providing care for children for more than 3 hours per day). Willful violation of the licensing requirements is a misdemeanor. Registered sex offenders may not be present at child care facilities or work or volunteer at any position involving the supervision, care, or instruction of minors. Fingerprint-based national and state criminal-history checks are required of all operators and employees of licensed child care facilities (3 or more children) and all providers who accept federal or state subsidies. Violation of the licensing requirements is a misdemeanor and may also result in civil penalties of up to $1,000 per violation per day. Willful or repeated violations are a felony. Registered sex offenders may not provide child care services. Abuse-registry and fingerprint-based national and state criminal-history checks are required of all operators, residents, and employees of licensed child care facilities (more than 4 infants or 5 children). Violation of the licensing requirements, including employment of a sex offender, is a misdemeanor and may also result in fiscal sanctions of $5 per violation per day. Fingerprint-based national and state criminal-history checks are required of all owners, operators, and employees (with responsibility for the care, custody, or control of children) of licensed child care facilities (7 or more children). Periodic checks are required every 4 years. Failure to disclose criminal-history information is a misdemeanor. Registered sex offenders may not work in businesses providing services to children or loiter within 500 feet of a licensed child care facility. Criminal-history checks are required of all operators, employees, and adult residents and of licensed child care facilities (providing care for more than 15 hours per week). Violation of the licensing requirements or failure to perform criminal-history checks is a misdemeanor. Employment of a sex offender in a child care facility may result in an administrative penalty up to $10,000. Predatory and violent sex offenders may not be on the premises of a child care facility. National and state criminal-history and abuse-registry checks are required of all operators and employees of child care facilities with 4 or more children. Periodic checks are required every 2 years. Violation of the licensing requirements may result in civil penalties of up to $100 per violation or up to $500 for subsequent violations. Violent and sexual felons are prohibited from working at a licensed child care facility. Abuse-registry and fingerprint-based national and state criminal-history checks are required of all employees (with direct contact with children) of licensed child care facilities (7 or more children) and of all employees and adult residents of registered family day care homes (4 or more children). Violation of the criminal-history check requirements may result in civil penalties up to $2,500. Fingerprint-based national and state criminal-history checks are required of all operators and employees of licensed child care facilities (1 or more children) and registered family day care homes (4 or more children cared for in a residence). Violation of the licensing requirements may result in criminal penalties of up to $500 fine or 6 months imprisonment, or both ($1,000 or 1 year imprisonment, or both, for subsequent offenses). Registered sex offenders may not work at a child care center. Fingerprint-based national and state criminal-history checks are required of all operators and employees of licensed child care facilities (13 or more children) or licensed group child care homes (7 to 12 children cared for in a residence) and of operators and adult residents of family child care homes (no more than 6 children cared for in a residence). Violation of the licensing requirements is a misdemeanor. Registered sex offenders may not reside or be employed at any child care facility or day care home. Abuse-registry and fingerprint-based national and state criminal-history checks are required of all operators, administrators, adult residents, and employees or volunteers who provide care or supervision to children in licensed child care facilities (13 or more children). Hiring a sex offender or recent felon or employment by a sex offender or recent felon in a child care facility is a misdemeanor. Registered sex offenders whose victims were minors may not be employed within 1,000feet of any licensed child care facility. Fingerprint-based national and state criminal-history checks are required of all employees and volunteers (who work more than 20 hours per month) of all child care facilities. Misrepresentation in the licensure process, including in regards to the eligibility of employees to work in a child care facility, is a misdemeanor. A mandatory condition of parole for sexual offenders whose victims were minors is a prohibition on entering a day care facility. Fingerprint-based national and state criminal-history checks are required of all operators, owners, employees, and adult residents of licensed child care facilities (more than 1 child). Failure to perform criminal background checks or to preclude an individual with a criminal history from employment or residence at a child care facility is a misdemeanor. Registered sex offenders may not enter the premises of a licensed day care facility. Fingerprint-based national and state criminal-history checks are required of all operators, directors, employees, volunteers, and adult residents of licensed child care facilities and those accepting public funds. Violation of the licensing requirements is a misdemeanor and may also result in civil penalties of up to $1,000 per day if the violation is likely to lead to the harm of a child or $5,000 if actual harm to a child occurs. Abuse-registry and criminal-history checks are required of all employees of licensed child care facilities (3 or more families) and any facility that accepts public subsidies. Violation of the licensing requirements may result in license revocation; continued operation after revocation may result in civil penalties of up to $100 per violation. Sexual or violent offenders may not be employed or volunteer at a day care facility. Registered sex offenders may not operate a family day care home. Abuse-registry and fingerprint-based state criminal-history checks are required of all operators, employees, adult residents, and volunteers of licensed child care facilities (1 or more children cared for in a residence; or 2 or more children cared for elsewhere) and of any facility that receives state funds. Employment of a sexual offender or child abuser is a misdemeanor. Misrepresentation in the licensure process is a misdemeanor. Violation of the licensing requirements may result in civil penalties of up to $500 if the health and safety of children are at risk. A mandatory condition of supervised release for sexual offenders whose victims were minors is a prohibition on serving in a paid or volunteer capacity in a position involving control or supervision of children. Fingerprint-based national and state criminal-history checks are required of all operators and employees who have not lived in the state for the past 3 years of licensed child care facilities. Violation of the licensing requirements may result in civil penalties of up to $250 per violation per day. A mandatory condition of supervised release for sexual offenders whose victims were minors is a prohibition on employment within 1,000 feet of a child care facility. Fingerprint-based national and state criminal-history checks are required of all operators and employees responsible for the care of children in all child care facilities. Violation of the licensing requirements may result in license revocation; continued operation after revocation is a misdemeanor. Convicted sex offenders whose victims were minors may not be employed or volunteer in a position that requires interaction with children. Abuse-registry and fingerprint-based national and state criminal-history checks are required of all operators, adult residents, and employees and contractors with regular, direct contact with children, and adult residents of licensed child care facilities (4 or more children). Periodic checks are required every 4 years. Violation of the licensing requirements may result in civil penalties of up to $1,000 per violation per day. Abuse-registry and state criminal- history checks are required of all staff of licensed child care facilities (3 or more children). Violation of the licensing requirements may result in license revocation; continued operation after revocation is a misdemeanor. | Very little is known about sexual abuse among children that are regularly cared for by more than 1.3 million child care providers every week in the United States. In this context, GAO was asked to (1) provide an overview of federal and state laws related to the employment of sex offenders at child care facilities and (2) examine cases where individuals who were convicted of serious sexual offenses were subsequently employed or present at child care facilities. To provide an overview of selected laws, GAO searched for prohibitions against offenders being present at child care facilities, requirements for conducting criminal-history checks, and penalties for violating these requirements. The cases GAO examined focus only on individuals who were convicted of serious sexual offenses and cannot be generalized to all child care facilities. To identify the cases, GAO reviewed open-source information from 2000 to 2010. GAO also compared the years 2007 to 2009 in employment databases from 20 states and the District of Columbia to data in the National Sex Offender Registry. GAO ultimately selected 10 cases from eight states and the District of Columbia for review. For each case, GAO reviewed court documents and interviewed law enforcement personnel. Our methodology was not designed to assess the prevalence of sex offenders working at child care facilities. This product contains no recommendations. Where applicable, GAO referred its cases for further investigation. Federal laws regulate the employment of sex offenders at federal child care facilities. For example, federally operated facilities are required to conduct criminal-history checks on employees, as are facilities receiving grants from the Department of Health and Human Services' Head Start program. At the state level, laws vary widely. For example, all 50 states require criminal-history checks for owners and employees of licensed child care facilities, but many state laws exempt facilities from licensing if they do not exceed certain thresholds, such as a minimum number of children. Penalties for violating licensing requirements can range from a $5 administrative fine to imprisonment for a term of years. The cases GAO examined show examples of individuals convicted of serious sexual offenses who gained access to child care facilities as maintenance workers, spouses or friends of providers, a cafeteria worker, and a cook. At least seven of these cases involve offenders who previously targeted children, and in three of the cases, the offenders used their access to children at the facilities to offend again. Among the cases, GAO found instances of providers who (1) knowingly hired offenders and (2) did not perform preemployment criminal-history checks. GAO also found examples of facilities operating without licenses, and facilities that employed offenders while receiving federal funds. The following four cases illustrate the nature of the situations GAO identified. |
Sanitary and phytosanitary measures encompass many complex technical and scientific issues. Typically applied to both domestically produced and imported goods, SPS measures may be designed to protect human or animal life or health from food-borne risks, humans from animal- and plant-carried diseases, plants and animals from pests or diseases, and the territory of a country from the spread of a pest or disease. To minimize or avoid exposure to risk, SPS measures may address how goods are produced, processed, stored, and/or transported. They may require exporters to certify that their products meet importing-country requirements and may require imported products to be inspected or treated before entering the country. If a government believes that certain products present a high risk that cannot be reduced through risk-mitigation techniques, it may impose SPS measures to ban product entry altogether. Although SPS measures may result in trade restrictions, governments generally recognize that some of these restrictions are necessary and appropriate in order to protect human, animal, and plant life and health. However, governments may disagree about whether certain SPS measures are necessary and appropriate. SPS measures are not a new issue in global agricultural trade. The United States has long-standing concerns that some SPS measures, such as European Union (EU) measures on meat imports, Chinese measures on wheat imports, and Japanese measures on apple and tomato imports, are unnecessary and have unfairly restricted U.S. agricultural exports. At the same time, other countries have concerns about U.S. SPS measures that restrict agricultural products entering the United States. Because of its concerns, the United States played a lead role during negotiations to establish the WTO and NAFTA; these negotiations developed rules and principles to help minimize the adverse impact of SPS measures on trade. The WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS agreement) and NAFTA’s chapter 7 on Agriculture and Sanitary and Phytosanitary Measures recognize that countries have a right to maintain SPS measures that protect the health and safety of their population and agricultural sector and to determine acceptable levels of risk. However, these agreements stipulate that the application of SPS measures and determination of risk levels should not be arbitrary or constitute disguised restrictions to trade. Therefore, they require SPS measures to be based on scientific principles, including an assessment of relevant risks. (These two agreements are similar, but not identical. App. I contains more information about the WTO SPS agreement.) In addition to these rules and principles, the WTO and NAFTA also provided dispute settlement procedures to help resolve disagreements between countries about their SPS measures. These procedures include consultations (discussions) and review by a dispute settlement panel. Before invoking dispute settlement procedures, countries generally try to resolve their disagreements through more informal means. Although the SPS agreement and NAFTA have established certain standards for the application of SPS measures, disagreements between countries about these measures often involve complex issues not specifically addressed by the texts of the agreements. First, the agreements require measures to be based on scientific principles, but scientific research on certain topics may not exist or existing research may be inconclusive. For example, the lack of sufficient research on certain poultry diseases affects U.S. exports of poultry meat to Australia. Second, the SPS agreement and NAFTA require measures to be based on an assessment of risk, but governments may have different risk tolerances or may disagree about how to ensure certain minimal levels of risk. Such a disagreement exists between the United States and China concerning wheat imports. Finally, because of domestic pressures or larger outstanding trade or political issues, governments may be unwilling or unable to change their SPS measures. An EU ban in place since the mid-1980s that prohibits importing meat treated with growth-promoting hormones appears to be linked, in part, to such issues. Moreover, in attempting to resolve such concerns, the U.S. government may not fully understand a foreign government’s reasons for establishing a measure and therefore may have difficulty determining what strategy will be most effective to resolve the issue or assessing whether its efforts are having any impact. If additional research is required, such research can be time consuming to complete. Finally, the government must work closely with industry officials to determine whether they are willing to perform any risk-mitigation techniques that the foreign government may request. In some cases, although the government may not believe such techniques are necessary, industry officials may be willing to perform risk mitigation in order to gain access to a new market. Because of such issues, addressing and seeking resolution to foreign SPS measures can be a long and complex process that requires substantial negotiation between the United States and foreign governments. The United States has had long-standing concerns about several foreign SPS measures that the new WTO rules on SPS measures have helped resolve. For example, on June 30, 1997, a WTO dispute settlement panel requested by the United States found that the EU hormone ban does not conform with a number of provisions in the WTO SPS agreement. While this represents a significant achievement for the United States, the matter is not yet resolved because the EU has filed an appeal regarding the decision. Examples of other key SPS issues that were resolved in 1997 include a Japanese ban on U.S. tomato imports, EU acceptance of most U.S. meat inspection procedures, long-standing Chinese bans on U.S. grape and sweet cherry imports, Chilean measures on wheat and several types of fruit, and Mexican measures on sweet cherry imports. Examples of prominent measures that were resolved in 1996 and 1995, respectively, include Russian measures on poultry imports and Korean shelf-life standards. However, in spite of these successes, many other SPS measures remain unresolved, and new problems involving SPS measures continually surface. Federal efforts to resolve issues related to foreign SPS measures coincide with new expectations that the management of federal programs will increasingly focus on results. Specifically, the Government Performance and Results Act of 1993 (the Results Act) seeks to improve federal program management by requiring federal agencies to set goals for program performance and to measure the results of their efforts. The Results Act envisions that when multiple federal agencies share responsibility for addressing cross-cutting issues, as is true for SPS measures, programs should be closely coordinated to ensure that goals are consistent, and, as appropriate, mutually reinforcing. Agricultural trade associations and government agencies responsible for promoting agricultural trade regard foreign SPS measures as an important trade issue. Private sector and government officials are concerned that such measures may be used inappropriately to restrict the growth of U.S. agricultural exports. While the government does not know the full scope of the problem, available data indicate that foreign SPS measures affect a broad range of U.S. processed product, meat, poultry, fruit, vegetable, and grain exports. Such measures have disrupted ongoing trade or prevented U.S. products from entering new markets. Many agricultural trade association and U.S. government officials have identified foreign SPS measures as a prominent trade issue. Some U.S. and industry officials attributed this prominence to an increase in the number of SPS measures that appear to affect U.S. exports, while others attributed it to increased visibility of such measures following recent trade agreements. The WTO and NAFTA addressed certain types of policies that have traditionally restricted trade in agricultural products, such as high tariffs and quotas. However, several industry and government officials expressed concern that other countries may be increasing their use of SPS measures as a way to compensate for these required reductions in tariffs and quotas and to continue protecting their markets from imports. We discussed SPS issues with representatives from 19 agricultural trade associations that represent commodities such as meat, poultry, fruits, vegetables, and wheat. Most of the associations regarded foreign SPS measures as an important and growing issue for U.S. agricultural exports, and several representatives told us they consider such measures to be their association’s primary trade concern. These officials provided examples of foreign SPS measures that they believe are inconsistent with WTO provisions and have disrupted their exports to certain markets or caused them to decrease, created additional costs for their producers, or prevented their exports from entering new markets. Some U.S. government agencies have also become concerned about the potentially negative impact of foreign SPS measures on U.S. exports. USTR and the Secretary of Agriculture have both identified foreign SPS measures that they believe are inconsistent with WTO rules as key barriers to exports of U.S. agricultural products. Several USDA officials estimated that the number of complaints and the percentage of time they or their staff spend addressing them have increased substantially over the last few years. For example, the Special Assistant for International Trade to the Secretary of Agriculture told us that while he is supposed to handle all agricultural trade issues, his agenda has been dominated by the proliferation of SPS issues. USTR and the Secretary of Agriculture have established the removal of such barriers as a primary objective of their trade agenda to increase U.S. agricultural exports. Total agricultural exports were just over $60 billion in 1996. Although USTR and USDA are concerned about foreign SPS measures, they have been unable to precisely define the problem that such measures present for U.S. exports, for several reasons. First, USTR and USDA do not know the number of foreign measures that currently affect U.S. exports, in part because the number changes frequently as new complaints surface and old complaints are resolved. Nevertheless, USTR and USDA have both developed information that indicates that foreign SPS measures that have an actual or apparent adverse affect on U.S. exports exist in many countries and apply to a broad range of U.S. agricultural commodities. USTR’s 1996 annual report on foreign trade barriers contained information about SPS measures in 26 of the 46 countries or regions it reviewed. In early 1996, USDA attempted to develop a more comprehensive definition of the problem. It surveyed (1) Foreign Agricultural Service (FAS) attachés posted overseas that collectively covered 132 countries that accounted for 98 percent of the 1996 U.S. export market for agricultural, forestry, and fisheries products; and (2) representatives of agricultural producer groups. It asked the FAS attachés and producer groups to identify foreign technical barriers to trade that, among other things, appeared to violate one or more provisions of recent trade agreements. As of June 1996, USDA had developed a list of 315 technical barriers to agricultural trade in 63 countries, over 90 percent of which were SPS measures. One USDA official observed that measures were frequently identified in countries that were among the top importers of U.S. agricultural products in 1996. While the USTR and USDA data provide some sense of the problem, they do not accurately measure its size. The USDA survey is the best available definition of the problem; it represents a “snapshot” of foreign SPS measures that had been identified as of June 1996 and, therefore, does not reflect information about measures that have been resolved or measures that have emerged after that time. An FAS official told us that, in mid-1997, responsible USDA agencies began to update the survey data on a quarterly basis by adding newly identified measures and deleting resolved measures. USDA officials said that, despite its limitations, the survey has helped them better understand the nature and extent of foreign SPS measures. The second reason that USTR and USDA have had difficulty defining the size of the problem that foreign SPS measures present is because they do not know, of the measures they have identified, how many may be inconsistent with WTO provisions regarding SPS measures. For example, USDA officials said some of the SPS measures identified in the 1996 survey could be legitimate, appropriate measures that the United States should not contest. USTR and USDA officials said that considerable scientific research, testing, and exchange of information is often necessary before the United States can make conclusive determinations about whether or not a foreign measure complies with the WTO SPS agreement. These officials said this process generally takes considerable time. Third, USTR and USDA do not know how the SPS measures they have identified impact the value of trade, in part because such estimates are inherently difficult to develop. USDA unofficially estimated that the 315 measures identified in the 1996 survey threatened, constrained, or blocked almost $5 billion of U.S. agricultural exports at the time the survey was conducted. However, some USDA officials told us they question the accuracy of the estimate for several reasons. For example, USDA officials said it is difficult to predict whether an SPS measure would affect all exports of a given commodity or only selected exports of the commodity. Also, in cases where a U.S. commodity does not yet have access to a market, estimates of the market’s potential size were based on U.S. exports to a similar market, which may not be accurate. USDA officials also told us the estimates were not derived from empirical trade models and therefore should be regarded only as an order-of-magnitude indication of the significance of foreign SPS measures to U.S. exports. Without better data, particularly regarding the number of measures that affect U.S. exports and more reliable estimates of their impact on trade, USTR and USDA are unable to determine the size of the problem or whether the problem is growing. They are also unable to evaluate how their efforts have affected the size of the problem and the value of trade. Foreign SPS measures appear to affect a wide range of agricultural products, involve various health and safety issues, and result in multiple trade effects or additional costs. According to USDA and industry officials, the foreign SPS measures they have identified affect numerous commodities, including processed products, grains, oilseeds, animal products, fruits, vegetables, cotton, seeds, nuts, fish, and forestry products. A large portion of the foreign SPS measures identified involve plant health issues, while others involve food safety or animal health issues. According to U.S. government and industry officials, the way in which foreign SPS measures affect U.S. exports also varies. These measures have threatened or constrained trade to existing markets or prevented U.S. exports from entering new markets. Some measures constrain trade by requiring products to be treated or inspected before entering markets, which may damage the quality and marketability of certain perishable products. Some commodities, such as fruits and vegetables, appear to face a large number of measures while others, such as wheat, appear to face a limited number of measures. USDA and industry officials have estimated that some measures affect several hundred million dollars of trade, while other measures affect $1 million or less. We reviewed six foreign SPS measures that have affected or continue to affect U.S. agricultural exports. These measures impacted various commodities, involved various issues, and were estimated to have a range of impacts on the value of trade (additional information about these measures and federal efforts to address them are contained in app. III). Of these six measures, one was determined to be inconsistent with WTO provisions regarding SPS measures by a WTO dispute settlement panel (the EU ban on growth-promoting hormones). USDA officials told us that four others may also be inconsistent with these provisions and stated their belief that the measures lacked a scientific basis. Since 1974, China has banned wheat shipped from U.S. states in the Pacific Northwest, an area where the TCK fungus is known to occur. China has continued to import wheat shipped from other U.S. ports, but if it detects TCK in these shipments, China requires the price to be discounted and, on a few occasions, has refused to accept such shipments. The impact of the ban on U.S. wheat exports has not been quantified. In anticipation of the 1989 implementation of the EU ban on growth-promoting hormones in livestock production, U.S. beef and veal exports to the EU dropped about 93 percent in 1 year, from about $117 million in 1988 to about $9 million in 1989, and have recovered little since then (see fig. 1). In June 1997, a WTO dispute settlement panel found the measure to be inconsistent with the SPS agreement. The EU has appealed this decision. Since as early as 1983, Japan blocked U.S. tomato exports over concerns that U.S. tomatoes might carry tobacco blue mold (TBM). After USDA conducted 4 years of research to demonstrate that tomatoes were not a host for TBM, Japan lifted the ban on 25 varieties of tomatoes in April 1997. An industry association estimates U.S. tomato exports to Japan could reach $50 million annually. In 1994, a sudden and unexpected change in Korean shelf-life standards blocked the entry of more than $1 million worth of perishable U.S. sausage products that had already arrived in Korean ports. According to USTR, had these and other Korean shelf-life measures not been revised following WTO consultations, they could have affected as much as $1 billion in annual U.S. exports by 1999. Since 1992, Mexico has required U.S. peach and nectarine exports to be treated and inspected before entering Mexico to protect that country from the Oriental fruit moth, a pest that is known to occur in the United States. USDA officials said the quantity of U.S. peach and nectarine exports to Mexico, measured in terms of metric tons, dropped by about 40 percent from 1991 to 1996. In 1996, Russia imposed a brief ban on U.S. poultry exports because of concerns about food safety and poultry disease issues. The ban was in effect for about 1 week before the United States and Russia resolved the issue. The ban did not actually cause U.S. exports to drop, but it appeared to threaten the poultry industry’s largest export market, worth over $900 million in 1996. SPS measures can result in a variety of costs to the agricultural industry and to the government. In addition to the costs associated with a partial or complete loss of sales, industry officials told us that addressing apparently unfair SPS measures or reaching agreement with foreign officials to enable U.S. exports to begin or continue may result in other costs. In several of the six cases we reviewed, industry groups or private companies incurred additional costs for research, treatment, or inspection. For example, when Russian officials said they wanted to inspect the nearly 300 U.S. poultry processing facilities that export poultry to Russia, these processing facilities paid for Russian officials’ travel expenses. Several of the six cases also resulted in additional costs to the U.S. government for such things as research, official travel, or translator services. WTO rules regarding SPS measures have been in place for less than 2 years, and the U.S. approach for addressing SPS measures that restrict U.S. exports is evolving. However, the current approach is not integrated or systematic and exhibits several weaknesses. The approach is based on a complex structure of multiple trade and regulatory entities, but no one entity leads overall federal efforts. In addition, some entities’ roles and responsibilities are unclear, and their efforts have not been adequately coordinated. The process by which measures are addressed lacks comprehensive data and guidance for making key decisions, including what measures the United States should address and what steps it should take to address them. Moreover, although federal agencies are increasingly expected to set goals for program performance and coordinate efforts related to cross-cutting programs, as envisioned by the Results Act, the federal government lacks coordinated goals, objectives, and performance measurements for addressing foreign SPS measures. The federal structure for addressing foreign SPS measures is complex. At least 12 federal entities have some responsibility for identifying and evaluating SPS measures and attempting to resolve bilateral disagreements about measures that appear to be inconsistent with the WTO. No single entity directs and coordinates the entire scope of federal efforts, and the roles and responsibilities of some entities are not clearly defined. Entities’ work loads related to addressing SPS measures vary, as do the resources each entity has allocated to this activity. Concerns exist about insufficient resource allocations in some entities. Concerns also exist that the complex structure contributes to a lack of integration and coordination among responsible entities. Of the multiple entities involved in addressing foreign SPS measures, USTR has the broadest responsibility. USTR has statutory responsibility for developing and coordinating the implementation of U.S. international trade policy, monitoring the implementation of trade agreements reached with foreign governments, and enforcing U.S. rights under those agreements. It is also responsible for issuing and coordinating policy guidance to Departments and agencies on WTO-related matters. Eight USDA entities have collective responsibility for addressing issues related to foreign SPS measures. In addition, the Special Assistant for International Trade to the Secretary of Agriculture has been given a prominent role in addressing SPS measures and coordinating USDA’s efforts in this area. As USDA’s trade agency, FAS carries out USDA’s statutory responsibility for identifying foreign SPS measures that adversely impact U.S. exports and providing relevant information about them to USTR. In addition, FAS participates in negotiations to address such measures and is expected to coordinate its efforts with other USDA agencies and work closely with USTR. USDA has several regulatory entities, including the Animal and Plant Health Inspection Service; Food Safety and Inspection Service; and Grain Inspection, Packers and Stockyards Administration, that have domestic food-related responsibilities and, therefore, are responsible for participating in negotiations to address the technical aspects of foreign SPS measures and evaluating how U.S. trade positions may affect U.S. SPS measures. In addition, USDA’s Agricultural Marketing Service plays a limited technical role because it addresses certain product quality issues which, while not considered SPS issues, are nonetheless related. In addition, scientific and economic research is performed primarily by USDA’s Agricultural Research Service and Economic Research Service. Finally, legal counsel and assistance is provided by USDA’s Office of the General Counsel. In addition to USTR and USDA, other federal entities help address SPS measures. Federal regulatory authorities with domestic food-related responsibilities have the needed technical expertise for addressing foreign SPS measures and evaluating how U.S. trade positions affect U.S. SPS measures; these include the Department of Health and Human Service’s Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA). The Department of State is responsible for facilitating communication with foreign government officials; it also participates in certain bilateral negotiations on SPS issues and contributes to the overall U.S. government policy-making process on SPS issues. Industry groups also play a major role in helping the U.S. government identify foreign SPS measures that affect their actual or potential exports, supporting research on technical issues and advising on strategies to address SPS measures. Overlapping or closely related areas of responsibility among these federal entities can make it difficult to determine which agency should lead federal efforts to address certain SPS measures. For example, USTR and FAS both perform SPS-related activities and have responsibility for monitoring and addressing agricultural trade issues. Overlap also exists within FAS, where some divisions address trade from a commodity perspective and others address trade from a geographic perspective. Food-related responsibilities among the regulatory entities are closely related (see table 1). Because of their areas of responsibility, several federal entities may be involved in addressing a foreign SPS measure. For example, the EU ban on growth-promoting hormones has been addressed by USTR, USDA (FAS and the Food Safety and Inspection Service), and FDA. The ban involved technical issues, some of which were under FDA’s jurisdiction (the use of drugs in animals) and others of which were under the Food Safety and Inspection Service’s jurisdiction (the sale of meat from animals). As discussed later, we found that in certain instances the involvement of multiple entities has caused coordination and communication problems. However, officials from the various trade and regulatory entities stated that the participation of multiple entities is not inherently problematic because each entity brings its own expertise to an issue. No single federal entity is currently directing and coordinating the entire scope of federal efforts undertaken to address SPS measures. During our review, several U.S. government and industry officials expressed concerns that the federal structure for addressing SPS measures lacked clear leadership and caused various undesirable effects, including independent and separate agendas among responsible entities, difficulty making decisions and tracking federal efforts, and uncoordinated activities. The Secretary of Agriculture’s Special Assistant for International Trade was particularly concerned about the difficulty overcoming organizational boundaries among USDA agencies. Several industry representatives said the federal structure made it difficult to know which federal entity should be contacted to report a given problem, how the information the industry provided would be shared among federal entities, or what actions federal entities would take in response to the problem. Certain mechanisms exist at USTR and USDA through which portions of the federal response are directed and coordinated. However, none of the mechanisms is comprehensive enough to include all responsible federal entities and manage all federal efforts to address SPS measures. As a result, substantial coordination among these mechanisms and responsible federal entities is still necessary. One coordination mechanism is led by USTR. USTR created the position of Director for SPS Affairs within its Office of WTO and Multilateral Affairs in the fall of 1996 to work closely with other federal entities responsible for addressing SPS measures. At that time, the Director for SPS Affairs began to more actively use the mechanism established for formal interagency trade policy coordination—the Trade Policy Staff Committee (TPSC)—to establish the U.S. position and approach for addressing certain foreign SPS measures. However, TPSC discussions have focused primarily on determining which individual SPS measures the U.S. government should raise for discussion in meetings of the WTO SPS committee. Neither USTR, because of its limited resources, nor the TPSC addresses all SPS measures that concern the U.S. government. A second coordination mechanism was recently implemented at USDA. Although the bulk of federal efforts to address foreign SPS measures occurs at USDA, neither any of the eight USDA agencies nor the Secretary of Agriculture’s Special Assistant for International Trade has responsibility for directing and prioritizing overall USDA efforts to address SPS measures or allocating resources. We discussed this situation several times with the Special Assistant during the course of our review. In October 1997, the Secretary of Agriculture announced the formation of a Working Group on Agricultural Trade Policy to address SPS and other trade issues. The working group, which will be led by the Special Assistant and comprised of the heads of several USDA agencies, is to coordinate USDA efforts on agricultural trade issues and provide direction regarding the allocation of resources and establishment of priorities. However, because the group’s primary purpose is to improve coordination within USDA on trade issues, participation is to be limited to USDA agencies. The group is to serve as USDA’s point of reference for coordination on trade policy issues with other federal agencies. A group of industry associations representing various commodities has suggested that the federal structure and approach for addressing SPS measures could be improved with the creation of a single office that would be responsible for receiving complaints about SPS measures, coordinating U.S. government activities to address the measure, and communicating with the industry. Absent overall leadership of federal efforts, some federal entities’ specific roles in addressing individual measures as well as their overall responsibility for addressing trade issues have not been clearly defined. Although USTR is statutorily responsible for coordinating U.S. trade policy, USTR and USDA officials told us that initial federal efforts to address SPS measures are often handled by another federal entity, such as FAS or one of the regulatory entities. However, it may be difficult to determine which of these entities should lead initial federal efforts to address an individual SPS measure because their areas of responsibility overlap or are closely related. In discussing federal efforts to address individual SPS measures with responsible officials, we sometimes found examples of a lack of clarity about which entity was considered to be leading federal efforts or disagreement about which entity should be leading federal efforts. For example, it was not clear whether USTR or USDA was leading federal efforts to address the Chinese ban on U.S. wheat imports found to contain TCK, and there were differences of opinion about whether the U.S. strategy should focus on technical issues or trade policy. USTR, FAS, the Animal and Plant Health Inspection Service, and the Food Safety and Inspection Service have all had leadership roles in addressing certain SPS measures and have all supported each other’s leadership in addressing other measures. FDA and EPA officials told us they have generally not led federal efforts to address individual SPS measures but have instead supported such efforts by providing important technical expertise. (As discussed in app. II, FDA has a lead role in other SPS-related activities that were not the focus of this report.) The Agricultural Research Service, the Economic Research Service, and State have also played primarily support roles. In addition to the lack of clarity about leadership roles to address individual SPS measures, several U.S. and industry officials expressed concern about various entities’ overall responsibility for, and commitment to, addressing trade issues. For example, several industry officials expressed concern that USTR has not taken a sufficiently active role in addressing foreign SPS measures. While USTR is the only federal entity that can initiate WTO dispute settlement cases, some industry officials said USTR has appeared reluctant to do so regarding certain SPS measures. USTR officials said they will pursue dispute settlement in all SPS cases that have merit, but said that dispute settlement may not be the only way to resolve a problem. They also said industry groups are sometimes uncomfortable elevating their complaints to such a formal level. Some industry officials also said USTR has appeared reluctant to play a role during bilateral negotiations on certain SPS measures, prior to seeking dispute settlement within the WTO or NAFTA. USTR officials said their role tends to become more active on a bilateral basis when USDA agencies believe they have done all they can to address a case. USTR officials noted they had been heavily involved in several bilateral negotiations on SPS measures. Several government and industry officials also expressed concern that regulatory and research entities’ roles and responsibilities for addressing foreign SPS measures have not been clearly defined. As discussed previously, regulatory and research entities were created to achieve domestic objectives related to ensuring food safety and protecting U.S. agricultural resources but are increasingly expected to help facilitate trade. However, officials from USTR and FAS and several industry officials expressed concern that some regulatory entities do not regard their role in addressing foreign SPS measures as an agency priority. On the other hand, several regulatory officials expressed concern that their role in the trade area has expanded but their resources, which must still be allocated to their primary food-related missions, have not changed. Therefore, they said, increasing their trade facilitation activities would probably require resources to be reprogrammed. Many officials from trade, regulatory, and research agencies, and industry representatives agreed that the participation of regulatory and research entities in this area is necessary because these entities have technical and scientific expertise that trade agencies lack. Beyond their technical expertise, certain USDA entities have a mandated trade role because they are responsible for certifying that exports of products they regulate are healthy and safe. Because the SPS-related roles and responsibilities of federal entities vary, their workloads and the resources they have allocated to addressing SPS measures also vary. Some entities have substantial responsibility regarding SPS measures, while others’ responsibility is more limited. Some entities, accordingly, have increased the staff allocated to this issue. However, the resource allocations of certain entities remained a concern among government and industry officials. In USTR, SPS responsibilities are handled primarily by the Director for SPS Affairs, staff from the Offices of Agricultural Affairs and General Counsel and, as needed, various regional trade specialists. USTR officials acknowledged that its responsibilities for addressing SPS measures are broad, but its resources for doing so are limited. The Director for SPS Affairs, who is currently detailed to USTR from State, estimated that USTR allocates three to four full-time staff year equivalents to addressing SPS issues; other staff are assigned as needed. As a result, USTR officials said they rely on USDA agencies to help them identify SPS measures, perform technical and scientific assessments of the measures, initiate discussions with foreign government officials about measures, and keep USTR informed of their progress. In addition, several USTR and USDA officials said USTR’s small legal staff has been overwhelmed by the growing workload associated with initiating and following dispute settlement cases on behalf of multiple trade sectors. USTR officials said the number of dispute settlement cases involving agricultural products, in particular, has grown since the WTO was created, and the litigation of such cases is extremely resource intensive. (As discussed in app. I, a WTO official also expressed concern about the growing number of dispute settlement cases.) Within USDA, although the Secretary’s Special Assistant has a central role in coordinating USDA efforts to address SPS measures, he does not control any budget or staff resources. FAS, which has broad daily responsibility for addressing SPS measures, has increased its staff resources over the last few years to respond to this problem (see fig. 2). In 1990, it established the Office of Food Safety and Technical Services to better address SPS issues affecting U.S. exports. In 1997, the office was renamed the Food Safety and Technical Services Division. Number of full-time staff years Among regulatory entities, workloads for addressing SPS measures vary according to their food-related responsibilities and technical expertise. USDA officials told us that technical assistance is required most often from the Animal and Plant Health Inspection Service, the Food Safety and Inspection Service, and FDA. Because of varying workloads, as well as the continued lack of clarity about regulatory entities’ growing trade role, these entities have allocated different levels of resources to address SPS measures. For example, officials from the Animal and Plant Health Inspection Service told us that their agency’s mission has been expanded to include trade facilitation of both imports and exports and they have allocated additional staff and budget resources to addressing foreign SPS measures. Officials from the Food Safety and Inspection Service told us that while trade facilitation is important, it is not their primary mission, and they have not allocated additional resources to this activity. Figure 3 shows the full-time staff years that the Animal and Plant Health Inspection Service and the Food Safety and Inspection Service told us they devoted to negotiating with foreign government officials about SPS measures from 1994 to 1997. FDA and EPA officials told us they do not have a mandate or any resources to assist agricultural exports, although they have made resources available when USDA or USTR requested their assistance. FDA officials said the resources required for regulatory entities to address foreign SPS measures and defend U.S. SPS measures have not been adequately evaluated and are likely to be substantial. Several industry and government officials expressed concern that insufficient coordination among federal entities hinders the effectiveness of federal efforts to address SPS measures. Responsible federal officials said inadequate coordination led to a lack of knowledge among responsible entities about which measures each was working on, what activities were planned or had been performed, or the status of each other’s efforts. We found inadequate coordination could be attributed to several factors, including lack of overall leadership, shifting and sometimes unclear roles, and separate management structures. For example, seven of the eight USDA entities report to their own administrators and to one of four undersecretaries or assistant secretaries, who make independent decisions about their agencies’ priorities and how to allocate their agencies’ budget and staff resources. Inadequate coordination among multiple federal entities is not a new problem. For example, in our past work on the U.S. system for ensuring food safety, which is comprised of multiple federal entities, we concluded that agency self-interest and differing regulatory approaches hindered adequate coordination. Moreover, we noted that efforts to improve coordination have traditionally fallen short because federal entities continued to operate under different statutes and appropriation acts. Many of the entities we examined in our past work also have responsibility for addressing the technical aspects of foreign SPS measures. In a March 1997 review of NAFTA implementation, USDA’s Office of the Inspector General also concluded that departmental guidance is needed to improve coordination among USDA trade and regulatory entities on trade issues, particularly regarding the development of unified negotiating strategies. The Inspector General also found that the lack of such coordination had hampered USDA’s progress in negotiating with Mexico about SPS measures and related issues that blocked access for certain U.S. agricultural products. To address coordination problems within USDA, two interagency groups were created in 1995 at the staff and management levels. The staff level group is headed by FAS’ Food Safety and Technical Services Division; it includes staff from all responsible USDA entities and coordinates informally with non-USDA entities. It meets weekly to discuss new developments and the status of ongoing efforts. The management level group, called the “SPS Action Team,” was headed by the Secretary of Agriculture’s Special Assistant and included high-level staff from all responsible USDA entities. The action team met intermittently to coordinate overall USDA efforts regarding certain SPS measures based on information provided by the staff level group. According to the Special Assistant, the action team is being replaced by the Working Group on Agricultural Trade Policy. He said the emphasis of the two groups differs—the action team focused on coordinating USDA efforts to address certain measures, while the working group is to have a broader management focus by addressing overall coordination, resource allocation, and prioritization of efforts. The federal approach for addressing SPS measures encompasses many activities, including negotiating with trading partners about individual measures; performing scientific research; working with international bodies such as the WTO, NAFTA, and certain international standard-setting organizations; and managing the overall federal work load. In this report, we focus on federal efforts to systematically identify, evaluate, prioritize, and address SPS measures that appear inconsistent with WTO provisions and to manage the associated work load. Federal entities seek to address foreign SPS measures through bilateral discussions and within multilateral forums; both approaches may focus on technical issues or international trade rules. Based on our review of federal efforts to resolve six SPS measures, we found that the specific federal efforts undertaken to address each measure differed from case to case. We also found that entities with food-related technical expertise typically lead bilateral discussions on technical issues, in which they assess the necessity of foreign measures and provide data or conduct research to demonstrate the health or safety of U.S. products or the process by which they are produced. Trade entities typically lead bilateral discussions that focus on international trade rules, in which they discuss a foreign measure’s compliance with WTO rules regarding SPS measures. In a few instances, the government has turned to the multilateral arenas of the WTO or NAFTA and invoked dispute settlement procedures to resolve certain issues. USTR is responsible for leading U.S. efforts in multilateral trade arenas. (App. II contains more information about the federal approach for addressing SPS measures and related activities.) The U.S. government lacks centralized, up-to-date information to track its efforts to address foreign SPS measures, such as the number of foreign SPS measures that affect U.S. exports, which of these measures federal entities are addressing, what steps have been taken to address each measure, which measures have been resolved, and how any resolved cases have affected U.S. exports. The federal structure contributes to this problem because information about SPS measures is collected and tracked separately by trade and regulatory entities. For example, several USDA entities have developed their own electronic data bases or management systems for identifying SPS measures and tracking the status of their efforts to address them. However, even though these systems may include some of the same issues, they are not linked and cannot be accessed by other USDA staff. Moreover, whether entities had such systems or not, most were unable to tell us what measures they were working on at any given time. Some centralized information has been developed, but it is of limited use. In 1996, the Animal and Plant Health Inspection Service developed a system to track the status of its efforts to address trade issues, many of which are SPS measures. The system, in which the Animal and Plant Health Inspection Service plans to store certain other entities’ trade issues, can be accessed outside of the agency by authorized USDA staff. So far the system only contains information about a limited number of issues tracked by the Animal and Plant Health Inspection Service and the Agricultural Marketing Service. Officials from the Food Safety and Inspection Service and the Grain Inspection, Packers and Stockyards Administration told us they plan to add their trade issues to the system, but FAS officials said they do not plan to do so. According to several USDA officials, progress on developing this system has been slowed by concern among the participating entities about storing what they view as internal agency information on a system that can be accessed by other USDA agencies or the public. The other centralized information is contained in the 1996 USDA survey. FAS has begun to update the survey on a quarterly basis to add new issues and remove resolved issues. It is not clear whether the Animal and Plant Health Inspection Service system and FAS efforts related to the USDA survey are duplicative. In addition to lacking centralized information about SPS measures and their efforts to address them, the U.S. government does not have a regular process by which entities jointly evaluate complaints about foreign SPS measures to determine which measures the U.S. government should address. Trade entities evaluate foreign SPS measures for their compliance with WTO provisions, while regulatory entities evaluate foreign SPS measures for their technical or scientific basis. However, we found that differences of opinion regarding the consistency of certain foreign SPS measures to relevant WTO provisions or their technical legitimacy may exist among federal entities or between federal entities and the affected industry. The lack of a regular process that ensures that entities with both trade and technical expertise collectively evaluate foreign SPS measures creates the potential that limited government resources may be allocated to addressing measures some federal entities do not regard as problematic. Responsible federal entities receive more complaints about foreign SPS measures than they are able to work on, but the U.S. government does not have a systematic process to prioritize its efforts. We found that responsible federal entities have had different views about which SPS measures should be addressed and in what order. Some entities have made their own decisions about which measures they would address, which sometimes conflicted with the decisions of other entities. Officials from both trade and regulatory entities provided examples of instances in which they had requested help from another entity to address one of their issues, but the other entity did not respond in a timely way or did not appear to place as much importance on the issue. Some USDA officials expressed concern that industry pressure has played a larger role in determining what USDA addresses than has objective analysis of individual measures and their impact on trade. During most of our review, federal entities lacked objective criteria to help them decide which foreign SPS measures should be addressed and prioritize their efforts. In February 1997, USTR developed provisional criteria to help TPSC members determine which of a small subset of measures should be raised for discussion in WTO SPS committee meetings. The criteria included the following factors: (1) domestic producers requested government assistance to address the measure; (2) the measure appears to be inconsistent with the WTO SPS agreement or other WTO provisions or involves the non-use or improper use of international standards, guidelines, and recommendations; (3) bilateral technical discussions or WTO consultations have taken place but have not achieved progress toward resolution; and (4) agencies agree that addressing the measure in the WTO SPS committee will promote resolution of the issue and will not damage other U.S. bilateral interests. In an August 1997 meeting, USTR officials identified other factors that are not among the list of provisional criteria. For example, they told us the TPSC considers whether sufficient scientific evidence exists to refute the measure and whether U.S. efforts to address the measure will undermine U.S. regulatory interests. USDA officials told us the Department does not have formal criteria for determining which foreign SPS measures responsible agencies should address or establishing priorities, but FAS officials identified unofficial criteria they believe are useful. These included the estimated impact of the measure on U.S. exports, an assessment of the industry’s interest in resolving the measure, and the availability of conclusive scientific evidence (or whether additional research must be conducted and, if so, whether the research can be funded and the amount of time required for its completion). The Secretary’s Special Assistant told us the Working Group on Agricultural Trade Policy will establish official criteria to help evaluate SPS measures and determine USDA priorities and resource allocation. The Special Assistant said it is possible USTR’s and USDA’s criteria will differ, but said this is appropriate because USDA’s efforts are focused on evaluating hundreds of measures to determine which ones USDA should address and in what order while USTR’s efforts are focused on evaluating a smaller subset of measures to determine which ones the United States should raise to the more formal WTO level. No guidance exists to help federal entities overcome differences of opinion and develop a unified approach for addressing individual SPS measures. In determining how to deal with any individual SPS measure, several key decisions must be made regarding the U.S. position about a measure, the substance and timing of U.S. communication with the foreign government, the data the U.S. government will supply or the research it will undertake, the agreements or solutions that are acceptable, and the appropriateness of invoking dispute settlement procedures. Several U.S. officials also said the U.S. position about a foreign measure must avoid undermining U.S. regulatory interests. As our review of federal efforts to address six foreign SPS measures shows, various combinations of federal entities and actions may be employed to address such measures. However, federal entities have had difficulty agreeing about what specific actions should be taken in individual cases and what resolutions are acceptable. Federal entities have also had different opinions about whether the approach being followed is effective or needs to be changed. In its NAFTA implementation report, the USDA Inspector General found that USDA entities did not always develop a strategy before meeting with officials of other NAFTA governments to discuss trade issues. It reported concerns that USDA’s objectives for such meetings were not clear. The Inspector General found that differing perspectives among trade and regulatory authorities about the correct approach may have hampered strategy formulation. It also found that USDA trade and regulatory entities differed in their viewpoint about whether bilateral issues should be discussed at meetings of the NAFTA SPS committee—FAS considered this to be a key function of the committee, whereas regulatory entities were reluctant to discuss issues in the committee until they had thoroughly pursued bilateral negotiations. The Inspector General concluded that departmental guidance is needed to overcome these differences of opinion about approach and ensure that coordinated strategies are developed. Like the Inspector General, we found that trade and regulatory authorities, as well as industry representatives, sometimes had different opinions about the appropriateness of a foreign measure or the country’s reason for establishing it. Therefore, they were likely to disagree about the best negotiating approach to resolve the issue. In such instances, government and industry officials often expressed concern that the lack of agreement hampered effective decision-making and progress. We found differences of opinion (such as among government entities, among industry officials, and between the government and industry) throughout the six SPS measures we reviewed. In these cases, and others that we discussed with federal and industry officials, we found that trade authorities and industry officials were more likely to characterize a foreign measure as an unfair trade barrier and favor moving quickly to trade policy discussions with foreign trade authorities. Meanwhile, regulatory authorities were more likely to emphasize the technical complexity of the issue and favor thorough technical discussions with foreign regulatory authorities. We found that conflicting perspectives between trade and regulatory authorities were not unusual. For example, some trade authorities and industry officials expressed frustration that regulatory authorities seemed to lack a sense of urgency regarding trade matters and were willing to engage in technical discussions for many months and years. They expressed concerns that regulatory authorities lacked negotiating expertise, which sometimes precluded them from obtaining the most advantageous result for the U.S. industry. Some regulatory authorities expressed frustration that trade authorities and industry officials did not seem to understand that deliberate and lengthy technical and scientific processes were often necessary to adequately and properly address foreign regulatory authorities’ stated concerns about U.S. products. They stated that, as regulatory authorities, they respected foreign authorities’ efforts to ensure adequate protection for human, animal, and plant life and health. Several U.S. government and industry officials observed that in certain limited circumstances, such as when a foreign SPS measure has threatened a large amount of U.S. exports, responsible federal entities have responded quickly and cohesively. These officials suggested that such cases were unique because high-level officials from a single entity assumed responsibility for directing federal efforts and assigning roles to trade and regulatory authorities. In response to internal concerns about USDA’s efforts, several of the responsible USDA agencies began to meet on a monthly basis in October 1996 to discuss SPS issues affecting U.S. trade, facilitate the exchange of information between the agencies, coordinate joint action to resolve issues, identify medium- and long-term priorities, and improve team building. However, we were unable to determine whether the meetings have achieved their stated purposes because, although we requested thorough documentation of the meetings and their results, USDA could only provide a limited number of meeting minutes. Based on the minutes we did review, the meetings appeared to be focused more on the exchange of information about current efforts than on developing priorities and strategies for addressing SPS measures. In addition to differences of opinion about the best approach to address a foreign SPS measure, federal entities have debated whether and when WTO or NAFTA dispute settlement procedures should be invoked to resolve problems over certain SPS measures. This debate occurs at several levels. Within USDA, responsible entities have had difficulty agreeing that they have done all they can to resolve an SPS issue and that dispute settlement is probably the appropriate next step. This may stem from underlying disagreements about whether current efforts are working or different opinions about whether scientific evidence against a particular measure is strong. When USTR and USDA determine that a more formal process should be considered to address a measure, such as the WTO SPS committee or WTO consultations or dispute settlement, the debate expands to include relevant members of the TPSC. USTR officials said the TPSC discusses the issue according to the provisional criteria USTR established, but said substantial debate among TPSC members still occurs. The debate about whether to refer SPS cases to the WTO for dispute settlement occurs not only among federal entities but between federal entities and the private sector, as shown by several of the SPS cases we reviewed. Dispute settlement procedures were invoked regarding Korean shelf-life standards and the EU ban on hormones and were considered as a possible approach regarding the Japanese ban on tomatoes. In several of these cases, we found evidence of debate among federal entities about whether dispute settlement was the appropriate course of action. In several cases, industry officials told us they were disappointed that the government was slow to decide about moving to dispute settlement. For example, some industry officials told us they expected USTR to invoke dispute settlement procedures in the EU hormone case immediately following the WTO’s implementation in January 1995. Filing this case was delayed until May 1996, however, in part because of indications during 1995 that the EU might revise the measure. Similarly, some industry officials told us they intended to insist that USTR invoke dispute settlement procedures in the Japanese case if it was not resolved by early 1996. While dispute settlement was considered and the possibility may have been mentioned to Japanese officials, it was not pursued. This case was ultimately resolved over a year later, in April 1997. In the Korean shelf-life case, USTR engaged in WTO consultations within 6 months of the WTO’s implementation, and the case was resolved. Responsible federal entities have not developed coordinated goals, objectives, and performance measurements for programs designed to address SPS measures. In response to the Results Act, USTR and USDA prepared strategic plans to outline their agencies’ overall goals and objectives as required by the act. These plans identified foreign SPS measures as a key issue that the United States faces in its goal to expand agricultural exports and contained broad goals for addressing SPS measures. The plans also recognized the need to coordinate with other responsible entities in addressing SPS measures. More specific and better-coordinated goals, objectives, and performance measurements, however, are critical to forming the integrated approach for addressing SPS measures that our work has shown is needed. The principles underlying the Results Act provide guidance that the multiple responsible agencies can use to develop coordinated goals, objectives, and performance measurements and to improve the management of individual agency and overall federal efforts related to SPS measures. For example, the act focuses on clarifying missions, setting program goals, and measuring performance toward achieving those goals. In addition, the act’s focus on results implies that federal programs contributing to the same or similar results, often referred to as “cross-cutting programs,” should be closely coordinated to ensure that goals are consistent and, as appropriate, program efforts are mutually reinforcing. This means that federal agencies are to look beyond their organizational boundaries and coordinate with other agencies to ensure their efforts are aligned. In our work examining implementation of the Results Act, we identified several critical issues that need to be addressed if the act is to succeed in improving management of federal agencies. Among these is the need to improve the management of cross-cutting program efforts by ensuring that those programs are appropriately coordinated. The recognition in USTR’s and USDA’s strategic plans of the need to coordinate with other agencies in addressing SPS issues is an essential first step for developing a more integrated approach. The difficult challenge that lies ahead is for the multiple agencies with responsibility for addressing SPS issues to undertake substantive coordination to ensure that their responsibilities are effectively managed and their agency goals and objectives are complementary. The next phase of implementation of the Results Act requires agencies to develop annual performance plans that are linked to their strategic plans. These plans are to contain annual performance goals, performance measurements to gauge progress toward achieving the goals, and the resources agencies will need to meet their goals. The development of annual plans may provide the multiple federal agencies with SPS-related responsibilities the next opportunity to develop coordinated goals, objectives, and performance measurements for addressing SPS issues. Agricultural industry and U.S. government officials increasingly regard foreign SPS measures that are or appear to be inconsistent with WTO provisions as important issues that must be addressed in order to protect U.S. trade interests. Although the WTO and NAFTA established rules to govern the use of SPS measures in trade, the process of determining whether measures comply with the agreements and developing strategies to address potentially unfair measures is a complex undertaking. In light of the U.S. process that involves multiple federal entities with varying responsibilities for addressing foreign SPS measures, we believe a more organized, integrated, strategic approach with unified and clearly defined objectives would be beneficial. The Results Act offers a useful framework to help federal entities with SPS responsibilities not only to manage their own efforts but also to work together to address foreign SPS measures. By clarifying their respective SPS-related missions, USTR, USDA, and other responsible entities could begin to overcome structural weaknesses that stem from the participation of multiple agencies with unclear roles and overlapping or closely related areas of responsibility. By following the act’s guidance to set program goals and measure their performance toward these goals, USTR, USDA, and the other federal entities could address problems related to inadequate data about SPS measures and the lack of a process to evaluate measures, prioritize federal efforts, and agree on unified approaches. Finally, by undertaking more substantive coordination on this cross-cutting issue, the various agencies could begin to ensure their individual efforts are complementary and not unnecessarily duplicative. We recommend that the U.S. Trade Representative and the Secretary of Agriculture, in consultation with the Commissioner of Food and Drugs, the Administrator of EPA, and the Secretary of State—or their designees—should work together to develop coordinated goals, objectives, and performance measurements for addressing foreign SPS measures that appear to be inconsistent with the WTO SPS agreement. The Government Performance and Results Act and implementing guidance provide a framework for federal agencies to consult on such cross-cutting programs. Further, given USDA’s substantial role in identifying and addressing SPS measures, the Secretary of Agriculture should (1) develop centralized, aggregated data on the number of SPS measures that have been identified, which ones are being addressed, and which ones have been resolved; and (2) establish a more systematic process by which USDA entities evaluate complaints they receive about SPS measures, determine which ones they should address, prioritize their efforts, develop unified approaches, and determine when to recommend consideration of dispute settlement procedures to USTR. This process should be developed and implemented in consultation with the U.S. Trade Representative, the Commissioner of Food and Drugs, the Administrator of EPA, and the Secretary of State, or their designees. We received comments on a draft of this report from USTR, USDA, FDA, and State (see apps. V-VIII); EPA indicated it did not have any comments on the report. The agencies provided a range of views and identified several key issues that the report should address. For example, USDA and State said the report provided an accurate, comprehensive review of the federal process to address foreign SPS measures. However, USTR and USDA said the report should reflect recent initiatives they have adopted regarding these issues. To address this concern, we updated the report to include information about the TPSC process USTR leads and the formation of a USDA Working Group on Agricultural Trade Policy, among other things. While USTR did not offer any comments concerning our recommendations, USDA, FDA, and State did. All three agreed with the thrust of the recommendations. However, FDA and State suggested that the first recommendation should ensure that USTR and USDA consult with other agencies in setting goals, objectives, and performance measurements for addressing SPS measures. In response, we revised the first recommendation to emphasize the need for these agencies to work together to develop coordinated goals, objectives, and performance measurements for addressing SPS measures. USTR and FDA also suggested that the report should address the need for balance between export interests and domestic health and food safety interests and the important role regulatory agencies play in ensuring that U.S. trade positions do not undermine U.S. regulation. We agree with their comments and added information in the report to recognize the importance of domestic concerns for federal efforts to address foreign SPS measures. The following individual comments were also made: USTR said our report exaggerated the usefulness of tracking lists in drawing definitive conclusions about the WTO-legality of SPS measures and their impact on trade. It said that considerable resources have been devoted to such a project, but the results have been of limited use in assessing or managing these issues. We disagree. As we note in the report, USDA officials said that in spite of certain weaknesses, the data they developed on foreign SPS measures improved their understanding of the problem. Thus, we continue to believe that the U.S. government’s data collection and tracking efforts related to foreign SPS measures could be improved. Without better data, executive branch agencies do not know the size of the problem and therefore cannot reasonably assure that they have properly prioritized their efforts or determined the level of resources needed. Moreover, they cannot assess the effectiveness of their efforts to address the problem. FDA said that it sees the roles of the various regulatory agencies involved in resolving SPS disputes as complementary rather than overlapping. In response, we changed our description of regulatory agencies’ responsibilities from “overlapping” to “closely related.” However, we noted that we had found evidence of coordination problems among the regulatory agencies in our past work on the U.S. system for ensuring domestic food safety. FDA also said that the report should recognize that the process outlined in the WTO SPS agreement for determining that other countries’ SPS-related systems are equivalent can be done on a unilateral as well as a mutual basis. We modified our description of this process to reflect FDA’s input. USTR, USDA, and FDA also suggested a number of technical revisions to our draft. In addition, we received technical comments from the WTO Secretariat. We have incorporated these suggestions in the report where appropriate. To address the extent of foreign SPS measures and their impact on U.S. exports, we reviewed USDA, private sector, and academic analyses of the history and impact of technical barriers to trade, including SPS measures. We discussed these issues with knowledgeable government, private sector, and academic officials. We also examined the impact of six foreign SPS measures that we reviewed in detail. To address the federal structure and approach for addressing foreign SPS measures, we developed information on the U.S. trade and regulatory structures for agricultural products, including entities’ missions, staff levels, and budgetary resources related to SPS issues. We developed information on U.S. government actions taken to address six foreign SPS measures that have blocked or continue to block U.S. exports. We also discussed U.S. government efforts with trade and regulatory officials that have been active in addressing questionable foreign SPS measures and reviewed internal USDA assessments of U.S. efforts to address questionable foreign SPS measures. Finally, we discussed the U.S. government’s effectiveness with agricultural trade associations. More information about our scope and methodology is contained in appendix IV. We conducted our work at USDA, USTR, FDA, EPA, and State. Our work at USDA covered the Office of the Secretary; the Agricultural Marketing Service; the Animal and Plant Health Inspection Service; the Agricultural Research Service; the Economic Research Service; FAS; the Food Safety and Inspection Service; the Grain Inspection, Packers and Stockyards Administration; and the Office of the General Counsel. We performed our review from January 1996 to October 1997 in accordance with generally accepted government auditing standards. As agreed with you, we plan no further distribution of this report until 30 days after its issue date, unless you publicly announce its contents earlier. At that time, we will send copies to appropriate congressional Committees, the U.S. Trade Representative, the Secretary of Agriculture, the Commissioner of Food and Drugs, the Administrator of EPA, and the Secretary of State. Copies will be made available to others upon request. This review was done under the direction of JayEtta Z. Hecker, Associate Director. If you or your staff have any questions concerning this report, please contact Ms. Hecker at (202) 512-8984. Major contributors to this report are listed in appendix IX. The World Trade Organization (WTO) Agreement on the Application of Sanitary and Phytosanitary Measures (SPS agreement) represents the first time that comprehensive multilateral rules were enacted specifically to cover the use of sanitary and phytosanitary (SPS) measures in agricultural trade. The agreement became effective on January 1, 1995. U.S. and WTO officials said some of the provisions have had an immediate impact on trade, such as those that enable members to challenge SPS measures in dispute settlement. These officials said other provisions, such as those encouraging broader harmonization of SPS measures, require work to be done by WTO members before they are likely to have a substantial impact on trade. The WTO agreement established members’ rights and obligations regarding SPS measures in relation to trade. WTO member countries have the right to maintain SPS measures that protect the health and safety of their population and agricultural sector and to determine acceptable levels of risk. However, members should not apply SPS measures or determine risk levels in a way that is arbitrary or constitutes a disguised restriction to trade. Therefore, the agreement requires SPS measures to be based on scientific principles, including an assessment of relevant risks. In addition to these criteria, the agreement encourages progress toward achieving three objectives: (1) broad harmonization of SPS measures through greater use of international standards, (2) recognition among members that their SPS measures may differ but still be considered “equivalent” provided they achieve the same level of protection, and (3) adaptation of SPS measures to recognize pest- and disease-free regions. Provisions that address harmonization encourage members to participate in international organizations that establish SPS standards, particularly the Codex Alimentarius Commission, the International Office of Epizootics, and the International Plant Protection Convention. Figure I.1 summarizes selected provisions of the agreement. Measures shall be based on scientific principles, not maintained without sufficient scientific evidence, and applied only to the extent necessary to protect human, animal, or plant life or health. (Article 2.2) In cases where scientific evidence is insufficient, provisional measures may be adopted on the basis of available information from relevant international organizations and other members. (Article 5.7) Measures shall not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail, including between a member country's own territory and that of other countries, and shall not constitute a disguised restriction on trade. (Article 2.3) Measures shall be based on assessment of risk, taking into account relevant scientific, technical, ecological, environmental, and, with regard to animal or plant life, economic factors. (Article 5) Measures shall be based on existing international standards, guidelines, and recommendations, except that measures that achieve a higher level of protection than international standards may be maintained if there is scientific justification or if a country otherwise determines the measure to be appropriate in accordance with the agreement's risk assessment provisions. (Article 3) Members shall recognize the equivalency of measures that differ from their own but are demonstrated to offer the same level of protection. (Article 4.1) Measures shall recognize the concept that regions within one or several countries may be free of, or have a low prevalence of, pets and diseases. (Article 6) Technical factors include relevant processes and production methods and relevant inspection, sampling, and testing methods. Disputes arising under the SPS agreement are subject to the WTO dispute settlement mechanism, which provides for consultations and review by a WTO dispute settlement panel. The agreement authorizes such panels to seek expert advice on scientific or technical issues. As anticipated, member countries have begun to use these mechanisms to resolve disputes about SPS measures. For example, on behalf of the United States, the U.S. Trade Representative (USTR) has invoked WTO dispute settlement procedures regarding five SPS measures or groups of measures since the agreement became effective. Two of these cases have had positive outcomes for the United States, while the other cases have not been resolved yet. A WTO official said that, while increased use of the dispute settlement process was anticipated, the growing number of cases has strained the WTO Secretariat’s limited resources. USDA and USTR officials said that countries generally prefer to resolve issues informally, but the dispute settlement mechanism is an important tool for cases where informal resolution cannot be achieved. For administrative purposes, the SPS agreement established an SPS committee, comprised of member countries, that is responsible for overseeing implementation of the agreement and facilitating consultations among members on specific SPS measures. For example, as part of its responsibility, the WTO committee is expected to develop guidelines on risk management and monitor progress toward harmonization of SPS standards. USDA officials said they are particularly interested in using the committee as a way to raise their concerns about specific SPS measures and have done so in several WTO committee meetings. Another administrative provision requires member countries to publish information about their SPS measures and notify other members before implementing any new measures or modifications that are not based on international standards. The purpose of advance notification is to allow member countries time to adapt their products or processes to the new requirement and to comment on the measure. According to U.S. and WTO officials, some of the SPS agreement’s provisions have had an immediate impact, while the impact of other provisions remains to be seen. These officials said members currently appear to be more focused on provisions that enable them to resolve disputes over SPS measures, such as the requirements that SPS measures be based on scientific evidence and risk assessment, than on provisions that encourage harmonization and the recognition of equivalent systems and pest- or disease-free regions. USDA and WTO officials said that while the latter provisions could help minimize trade disputes, the practices they encourage are not currently widespread. Moreover, many years of bilateral or multilateral discussion may be needed before SPS measures are broadly harmonized or equivalent systems and pest- or disease-free regions are broadly recognized, therefore progress in these areas is likely to be slow. One example supports that viewpoint—the United States and the EU negotiated for 3 years before reaching a partial agreement about the equivalence of their respective inspection systems for animal products. U.S. and WTO officials also said that the interpretation of certain provisions will be clarified through the dispute settlement process. For example, a USDA official said members may have different interpretations regarding whether a country’s right to determine an acceptable level of risk is stronger than its obligation to base risk assessment on scientific evidence. A WTO official characterized the SPS agreement as a framework agreement that articulates certain rules and objectives but does not specify how they should be achieved. In such cases, it is up to the members to decide how the provisions should be interpreted. U.S. efforts to address individual SPS measures are an important component of overall activities related to SPS issues. The U.S. government addresses individual measures through technical- and trade-based approaches. In addition, federal entities perform other activities that are related to SPS issues, such as certifying that U.S. exports are healthy and safe and participating in international organizations that set SPS-related standards. Within USDA, the staff and budget resources allocated to all SPS activities have generally increased since 1994. Approximately one-quarter of USDA’s SPS-related staff resources have been allocated to addressing foreign SPS measures in technical or trade negotiations, the main focus of this report, while about three-quarters of its SPS-related staff resources have been allocated to other activities. USDA officials told us the U.S. approach for addressing foreign SPS measures varies depending on the measure, because each case has unique aspects. Based on our review of federal efforts to address six SPS measures and our discussions with responsible U.S. officials, we found that individual approaches have similar elements. We developed a framework comprised of three phases to help explain how federal entities have addressed SPS measures (see fig. II.1). U.S. regulatory authorities lead bilateral discussions with the foreign government to exchange technical information and determine whether changes to the U.S. product or the foreign measure will enable trade to occur. U.S. trade authorities lead bilateral discussions with the foreign government to argue that the foreign measure is inconsistent with the WTO SPS agreement or NAFTA. U.S. government may provide technical data or conduct research to demonstrate the health or safety of the U.S. product. U.S. government may request formal WTO or NAFTA consultation or review by a dispute settlement panel. U.S. producers and exporters may be required to conform to foreign standards or to perform risk-mitigation techniques. During the first phase (identification), the U.S. government attempts to learn more about an identified SPS measure and determine whether the measure is a minor problem that can be fixed quickly or a more serious problem that will take some time to resolve. During the second phase (technical exchange), regulatory entities usually lead U.S. government efforts, but trade entities may play a supporting role. This phase can last several months or years, depending on how often the two sides meet and what actions they agree to take. During the third phase (trade negotiations), trade entities usually lead U.S. government efforts, but regulatory entities may play a supporting role. Trade negotiations are often viewed as “elevating” the U.S. approach to a higher political level and sometimes become necessary when the U.S. government concludes the foreign government is not responding to technical arguments. In a few cases where neither technical exchange nor trade negotiations have achieved resolution, the U.S. government has decided to request formal WTO or NAFTA consultations or review by a dispute settlement panel. Based on our review of six measures and our discussions with responsible federal officials, federal efforts to address individual SPS measures may include primarily technical exchanges, primarily trade negotiations, or a combination of the two. In addition, it appears that SPS measures may be resolved at any point during the three phases we identify and some disagreements are resolved more quickly than others depending on the circumstances. Our review focused on U.S. government efforts to address foreign SPS measures, but federal entities perform other activities related to SPS issues that are designed to facilitate existing trade or generally enhance global dialogue about SPS measures and their relation to trade. For example, the overall U.S. system for ensuring food safety and protecting animals and plants from pests or diseases facilitates exports by providing safe, healthy products. U.S. regulatory entities, such as the Food and Drug Administration (FDA) and USDA’s Food Safety and Inspection Service (FSIS) and Animal and Plant Health Inspection Service (APHIS) are the lead agencies in this process. In addition, APHIS and FSIS routinely certify the health and safety of U.S. exports to facilitate their entry into foreign markets. Sometimes, as a result of technical exchanges or trade negotiations, these agencies certify that U.S. products conform to specific requirements agreed to by the United States and the foreign government. U.S. trade and regulatory officials participate in several international trade organizations or agreements that have developed or continue to develop trade rules regarding SPS measures. These include the WTO, NAFTA, and a preparatory working group on SPS measures for negotiations on a Free Trade Area of the Americas. U.S. regulatory officials represent the United States in several international and regional organizations, including the Codex Alimentarius Commission, the International Office of Epizootics, and the International Plant Protection Convention, that facilitate discussion of technical issues with a view toward developing international SPS standards. Finally, under the auspices of the WTO, U.S. government officials have participated in training seminars to help developing country officials understand their WTO SPS obligations. Because most federal efforts related to SPS issues are initiated or managed by USDA, we asked the Secretary of Agriculture’s Special Assistant for International Trade to provide information about USDA entities’ staff and budget resources devoted to export-related SPS issues from 1994 to 1997. In some cases, the entities were able to provide full-time staff years that are devoted to these issues; in other cases, entities had to estimate the full-time equivalent because their staff work on other issues as well. We also identified four functional categories that summarize the various USDA activities and asked the entities to indicate which functional categories cover most of their activities. These categories are (1) negotiations, (2) export certification, (3) technical work, and (4) participation in international organizations. In responding to our request, the Secretary’s Special Assistant observed that the majority of USDA’s export-related SPS staff years are allocated to activities that facilitate exports such as the issuance and review of export certificates. These activities take place solely within regulatory entities. Table II.1 shows the actual or estimated full-time staff years that USDA entities allocated to all SPS activities from fiscal years 1994 to 1997 and the functional categories each entity covers. The Special Assistant also observed that staff years devoted to the topic of this report, technical or trade negotiations with other countries, and the establishment of related policies accounted for less than one-fourth of the export-related SPS staff years allocated in 1997. Table II.2 shows the staff years that APHIS, the Foreign Agricultural Service (FAS), and FSIS reported they allocated to technical or trade negotiations from fiscal years 1994 to 1997. Table II.3 shows the estimated budget resources these entities allocated to all SPS-related activities during the same period. To enhance our understanding of the U.S. government structure and approach for addressing foreign SPS measures, we developed information on six cases where another country’s SPS measure(s) have blocked or continue to block U.S. agricultural exports to that country. The six cases involved various commodities and countries, including U.S. wheat exports to China, potential U.S. tomato exports to Japan, U.S. beef and veal exports to the EU, U.S. peach and necterine exports to Mexico, certain U.S. meat product exports to Korea, and U.S. poultry exports to Russia. Information about how we selected these cases and developed information about them is contained in appendix IV. Of the six measures we examined, three have been long-standing, two of which have been resolved (although in one of these cases renewed U.S. exports are not assured). The oldest measure is the Chinese “zero tolerance” for wheat imports found to contain tilletia controversa kuhn (TCK), a common smut fungus. The Chinese ban was established in 1973 and began to affect U.S. wheat exports from the Pacific Northwest in 1974. The second measure is the Japanese ban on the importation of U.S. tomatoes because of concern that such tomatoes could be a host for tobacco blue mold (TBM). That ban was lifted for 25 varieties of tomatoes on April 25, 1997. The third measure is the EU ban on the use of growth-promoting hormones in livestock, which was implemented in 1989. On June 30, 1997, a WTO dispute settlement panel found the ban to be inconsistent with the SPS agreement. However, the EU filed an appeal regarding this decision on September 24, 1997. The three other SPS measures we examined are more recent, and all three have been resolved. The first measure is Mexican preshipment requirements, dating back to 1991, for U.S. peaches and nectarines. The second measure is a 1994 Korean requirement limiting the shelf-life on certain frozen meat products to 30 days. The third measure is the Russian ban on U.S. poultry in 1996 due to concerns about food safety and poultry disease issues. Five of these six measures resulted in disruption of an ongoing U.S. export market. In one case, there was a brief but total ban on U.S. exports (poultry to Russia); while in two cases, there was a partial ban on U.S. exports (beef to the EU and wheat to China). In the other two cases, foreign requirements caused U.S. exports to drop significantly (certain meat products to Korea and peaches and nectarines to Mexico). The sixth measure did not disrupt an ongoing market but, rather, resulted in the exclusion of U.S. exports from a market (tomatoes to Japan). The Chinese “zero tolerance” for TCK was established in 1973, just 1 year following the resumption of diplomatic relations between the United States and China. According to the Agricultural Research Service (ARS), the disease caused by TCK reduces plant height by up to 50 percent, replaces kernels of grain with useless spores in the seed head, and gives wheat a fishy odor. Since 1974, China has banned wheat shipped from the states of the Pacific Northwest, an area where TCK is known to occur, but has continued to import wheat shipped from other U.S. ports. However, in the summer of 1996, China rejected several shipments of U.S. wheat, shipped from Gulf ports, that Chinese officials said were found to contain TCK. The impact of the Chinese ban on U.S. wheat exports is difficult to determine. U.S. exports of wheat to China have fluctuated significantly during the more than 20 years that the United States has exported wheat to China. Figure III.1 shows China’s wheat imports from 1982 to 1992. According to a USDA official, it is not clear that overall U.S. wheat exports to China have decreased as a result of the Chinese ban. Even if the ban were not in place, it is not clear that China would have bought more wheat from the United States and less wheat from other wheat exporters, such as Canada. USDA’s Economic Research Service (ERS) concluded in December 1993 that CEROILS, the Chinese state trading agency that purchases all China’s wheat imports, relies on pricing more than on other factors when making wheat purchase decisions. The Chinese ban on wheat with TCK is the longest-standing SPS measure that we examined. There have been intermittent discussions between the United States and China during the last 24 years, including joint research efforts, but the positions of the two countries have remained substantially unchanged. The Chinese government states that it is very concerned with food security and cannot risk having TCK become established in China. For this reason, China maintains its official “zero” tolerance of TCK. In practice, however, China has accepted some level of risk. For example, during 1988, China accepted wheat from the Pacific Northwest on an experimental basis but stopped this practice because it continued to detect TCK in these shipments. China also reported finding TCK in U.S. wheat shipped from a Gulf port in 1989; USDA retested this shipment but did not find TCK. In the late 1980s, China established a schedule in its contracts with U.S. exporters to discount the price of wheat when TCK is found. (One wheat exporter told us that in 1995, it had shipped 2 million tons of wheat to China on over 40 vessels and had only one $3 claim on one vessel.) The U.S. government has stated that there is minimal risk of TCK becoming established in China from imported wheat because climatic conditions in China are not conducive to allowing TCK spores to germinate. According to a Grain Inspection, Packers and Stockyards Administration (GIPSA) official, although data indicate that China has been importing wheat with some low levels of TCK for years, China continues to state that TCK does not exist in that country. Furthermore, U.S. officials said that one or two other countries have voiced some concern about TCK, but China is the only country that prohibits the import of wheat with TCK. In short, the U.S. position is that China’s zero-tolerance for TCK is not based on sound science. The U.S. position is that China can safely accept some minimal level of exposure to TCK and not risk damage to its wheat production. Several USDA agencies have been involved in attempts to resolve the TCK issue with China over the last 20 years. Agencies that have had major roles at various times have included APHIS, FAS, the Federal Grain Inspection Service (which later was combined with another agency to become GIPSA), ARS, and the Agricultural Marketing Service (AMS). The Office of the Secretary of Agriculture has also been involved, and special task forces have been established over the years. Discussions between U.S. and Chinese officials remained at a technical level for many years. A prominent issue the two sides discussed during the early 1990s was how to correctly distinguish TCK spores from those of other diseases that did not concern China so that U.S. wheat shipments were not detained or rejected inappropriately. ARS and AMS played important roles in conducting joint research with Chinese scientists to develop a common spore-identification methodology. The two sides have also discussed options that would allow U.S. wheat to enter China freely at southern ports that are physically distant from China’s main wheat-production regions. In 1993, the Chinese offered to allow U.S. wheat to enter at Hainan Island, but the United States considered this option unacceptable because grain processing facilities on the island were inadequate. More recently, the issue has been discussed primarily at a trade level. Since 1986, China has been seeking to join the WTO and, at various times, some U.S. officials have stated that the TCK issue will have to be resolved before the United States can support China’s bid for membership. The United States and China signed a memorandum of understanding in 1992, according to which China promised that all SPS standards and testing requirements would be based on sound science and administered in a manner that does not impede trade or create barriers to imported products. The U.S. position is that China must honor that agreement in order to gain access to the WTO. Although Chinese officials have continuously identified the TCK issue as a technical problem, a GIPSA official said that U.S. efforts to resolve the issue through technical exchanges have not produced results and expressed the opinion that the issue can only be resolved through a political solution. For at least 14 years, Japan has blocked the import of U.S. tomatoes because of concerns that such products were a host for TBM. According to U.S. officials, Japan based this concern on citations in scientific literature published in 1933 and 1989 that identified tomatoes as a possible host for TBM. On April 25, 1997, USDA announced that Japan had lifted its ban and would allow the importation of 25 varieties of U.S. tomatoes. According to the announcement, U.S. industry estimated that the size of the Japanese market for U.S. tomatoes could reach approximately $50 million annually. The U.S. position was that TBM does not infest tomatoes. According to APHIS officials, although TBM is present in the United States, there have been no incidents of TBM reported in California, where tomato growers were interested in exporting to Japan. Negotiations between the two countries since 1983 were primarily technical in nature, with APHIS taking the lead for the United States. FAS’ role was more limited and involved prompting movement on the case with Japanese officials. In addition, ARS co-sponsored a study with industry groups to test whether tomatoes could be inoculated with TBM. USTR was consulted regarding the prospects for taking the case to the WTO. The U.S. Ambassador to Japan brought the case up to the Japanese agriculture minister. APHIS began discussing the TBM issue as early as 1983 during annual bilateral meetings with Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF). Although APHIS presented available research that suggested tomatoes were not a host for TBM, Japanese officials remained unconvinced. During 1991, Japan suggested the United States should conduct additional research to demonstrate that tomato plants could not be infected with TBM, even when inoculated with the fungus. In response, APHIS submitted a research proposal that MAFF accepted. ARS conducted the research funded jointly by APHIS and the tomato industry. The results of this research, which conclusively supported the U.S. position, were provided to MAFF in 1995. However, through 1996, Japanese authorities repeatedly asked the U.S. government for additional data and scientific research. The Japanese also asked the U.S. side to correct the USDA Agricultural Handbook (an American Phytopathological Society publication), which made a reference to TBM on tomatoes. In June 1996, APHIS asked the FAS Administrator to meet with Japanese officials and explain that the United States was prepared to bring the case before the WTO if there were further delays by the Japanese. Later that year, MAFF indicated its intention to remove the ban. However, according to Japanese regulations, Japanese authorities had first to obtain comments from and hold public hearings involving Japanese producer groups before making a final decision on whether to lift the ban. Japan initially delayed implementation because of resistance among Japanese tomato growers but finally lifted the ban for 25 varieties of tomatoes in April 1997. Both U.S. industry and government sources have complained about the slow pace of progress in the negotiations. One industry spokesman said that while the Japanese appeared to stall and drag out the negotiations, APHIS’ practice of waiting for formal annual bilateral meetings to raise outstanding concerns did not facilitate rapid progress either. On January 1, 1989, implementation of an EU ban on the use of growth-promoting hormones in livestock and on imports of meat from animals so treated caused U.S. beef and veal exports to drop from about $120 million in 1988 to less than $10 million in 1989. The ban applied to all meat but primarily affected U.S. exports of edible organ meats, the export value of which dropped from $85 million in 1988 to $0.5 million in 1989. U.S. sales of edible organ meat to the EU remain limited, at only $1 million in 1995. The U.S. position on the hormone ban is that the measure is inconsistent with the WTO SPS agreement because, among other things, it is not supported with scientific evidence or risk assessment, it is not necessary for the protection of human health, and it ignores relevant international standards. Further, the United States argued that the measure is designed to protect domestic producers from competition. The U.S. complaint about the EU ban was an important test of the SPS agreement on strengthened rules and procedures for dealing with food safety and health measures that restrain trade and of the WTO’s dispute settlement process. Concerns in Europe about hormone use and its impact on human health began in 1980 when a health scandal in Italy had raised suspicions about school lunches containing veal that may have contained hormone residues. An EU Council Directive of July 1981 prohibited the use of hormones, except for therapeutic purposes. The EU set up a scientific working group (the Lamming Committee) to determine whether the use of five specific hormones (three natural and two synthetic) as growth promotants posed any health risk. The Lamming Committee concluded that the three natural hormones would not present any harmful effects to the health of the consumer. In June 1984, the EU proposed allowing the use of the three natural hormones. In October 1985, however, the European Parliament adopted a resolution claiming that scientific information about the five hormonal substances was “far from complete.” It endorsed a ban on the two synthetic hormones and rejected the proposed authorization of the three natural hormones, with a continued exception for therapeutic purposes. In December 1985, an EU Council Directive banned the use of natural hormones except for therapeutic purposes, the use of synthetic hormones, and the importation of meat from animals to which any hormones had been administered. The directive was to take effect on January 1, 1988, but was delayed 1 year. Much of the negotiations between the United States and the EU concerning the hormone ban have been conducted by trade officials and have been very formal. In September 1986, the United States challenged the EU hormone ban under the GATT Agreement on Technical Barriers to Trade and in 1987 requested that the matter be referred to a group of technical experts. The EU blocked formation of the technical group, and the dispute went unresolved. USTR subsequently developed a retaliation list of EU commodities on which there would be sanctions but suspended application of the list for a year until the scheduled implementation of the EU ban. In January 1989, however, the EU directive went into effect, and the United States reacted by applying the retaliation list that had been suspended. During the 1990s, both sides looked to the Uruguay Round negotiations on SPS measures to provide some new basis for deciding the issue. After the SPS agreement was implemented in 1995, USTR and USDA again tried to resolve this issue. During 1995, USDA officials met several times with EU officials but were unable to obtain resolution. In late 1995, the EU held its Scientific Conference on Growth Promotion in Meat Production. The conference concluded there was no evidence of health risk from the five hormones approved for use in the United States. However, following the conference, the EU reaffirmed its commitment to maintaining the ban. In January 1996, the United States requested WTO consultations with the EU. Consultations were on held March 27, 1996, but failed to resolve the dispute. The United States requested that the WTO Dispute Settlement Body establish a panel to review the case, which was done on May 20, 1996. The U.S. complaint addressed the three natural hormones, the two synthetic hormones, and a sixth hormone. FDA had a major role in developing the technical aspects of the U.S. complaint. On June 30, 1997, the panel found the EU ban to be inconsistent with the SPS agreement. The EU filed an appeal regarding this decision on September 24, 1997. In 1991, the Mexican government established a ban on imports of several types of fresh fruit, including U.S. peaches and nectarines, because of their susceptibility to being attacked by the Oriental fruit moth (OFM). At the same time, Mexico identified several other pests of concern related to U.S. peach and nectarine imports. Before 1991, U.S. peach and nectarine exports to Mexico were not subject to any restrictions. Since 1992, U.S. peaches and nectarines have been exported to Mexico in accordance with the requirements of a work plan agreed to by U.S. and Mexican government officials. For example, the work plan requires U.S. peaches and nectarines to be treated and inspected before shipment. USDA officials said the quantity of U.S. peaches and necatrines exported to Mexico, measured in metric tons, dropped by almost 40 percent between 1991 and 1996. In addition, industry officials told us that the cost associated with treating the fruit for OFM is high. In 1991, the plant health agency of Mexico’s department of agriculture told APHIS officials that the agency believed phytosanitary requirements needed to be established for fresh fruit imports from the United States in order to protect Mexico from exposure to certain pest risks, including OFM. Mexican officials asserted that OFM is not found in Mexico. APHIS officials told us they consider the Mexican concern about OFM and the associated treatment requirements to be legitimate. FAS officials said they agreed with APHIS’ position. However, industry officials said they question a basic premise of the Mexican phytosanitary measure, namely, that OFM does not exist in Mexico. Furthermore, the officials said they believe that the treatment and inspection measures that are required to allow peaches and nectarines to enter Mexico are excessive. APHIS was the primary U.S. agency involved in the Mexican case, and it assumed the lead in technical negotiations with its Mexican counterpart. ARS provided substantial technical support to APHIS. FAS officials also had a supporting role in the resolution of the case. In addition to U.S. government entities, the California Department of Food and Agriculture played a fairly large role in developing the annual work plans. Technical negotiations between APHIS and Mexican plant health authorities began in late 1991. First APHIS convinced the Mexicans to reduce the number of pests that concerned them from eight to three. Between 1992 and 1995, the two sides developed annual work plans that would allow U.S. peaches and nectarines to be exported to Mexico. (Such work plans exist for certain Mexican products being exported to the United States.) The work plan requires the fruit to be fumigated with methyl bromide before shipment. In 1993, the work plan was modified at the request of the Mexican government to require that the U.S. industry pay for Mexican inspectors to be stationed in the United States to monitor the fumigation process. (APHIS inspectors are similarly stationed in Mexico.) Shipments are to be accompanied by an APHIS-issued phytosanitary certificate attesting that all requirements have been met. In 1995, a permanent work plan was adopted, although there have been slight modifications to the work plan since then. For example, in 1997, APHIS persuaded Mexico to accept an alternative treatment method to methyl bromide for 10 percent of the peaches and nectarines being exported to Mexico. Although U.S. industry was pleased with the U.S. government response to the Mexican requirements when they first went into effect, the Mexican case is perhaps the best example of one where there has been strong disagreement between U.S. government and industry officials about the legitimacy of a foreign SPS measure. In February 1994, Korea began to enforce a 30-day shelf-life requirement on cooked frozen meat products, specifically sausages exported to Korea. The permitted shelf life had been 90 days for the 4 years before 1994. According to U.S. officials, by limiting the shelf life of these products to 30 days, Korean authorities effectively denied U.S. products access to the Korean market, since it took at least 35 days for shipments to reach Korea and roughly 30 days for the sausages to clear port. Following WTO consultations in 1995, Korea agreed to accept the manufacturer-determined shelf life by July 1, 1996. Imports of sausages from the United States to Korea in 1993 totaled $7.4 million. In 1994, such imports had dropped to $4 million, a decrease of 45 percent. According to U.S. officials we interviewed and documents we reviewed, there were two major elements in the Korean position regarding the need to establish the 30-day shelf-life requirement. First, Korean experts maintained that cooked sausages were susceptible to infection by microorganisms when the condition of the sausages fluctuated between frozen and unfrozen states, as was often the case for frozen food distributed in Korea. Second, since there was no international standard on the shelf life of cooked frozen sausages, Korean authorities surveyed the practices of major advanced countries. Korean authorities argued that while a number of those countries allowed manufacturers to determine the shelf life of their products, it would be premature for Korea to do the same, given the level of development of its food manufacturing industry. The U.S. government position was that Korea’s 30-day shelf-life requirement was unscientific. U.S. authorities argued that scientific and regulatory data supported a shelf life of about 1 year for cooked frozen sausages. U.S. officials also argued that allowing manufacturers to set their own shelf life is a well-established practice around the world. USTR and FAS had major roles in resolving this case. FSIS and FDA provided technical support to USTR and FAS. The U.S. Ambassador to Korea and FAS and USTR officials met with Korean health authorities soon after the case came to the attention of the U.S. government in March 1994. Over the next few months, USTR, USDA, and embassy officials communicated their disappointment about Korea’s decision to Korean health and foreign affairs authorities. In November 1994, a U.S. industry group filed a petition about the Korean measure with USTR under section 301 of the Trade Act of 1974 (19 U.S.C. 2411). In January 1995, following discussions about the section 301 case, the Korean government reversed itself on shelf-life requirements for certain meat products. However, Korea’s proposal was unsatisfactory to the United States because a system for manufacturer-determined shelf life for these products would not take effect until 1998. Under the auspices of the WTO, in May 1995, USTR requested consultations with Korea on the shelf-life requirements. The consultations addressed shelf-life requirements not only for chilled and frozen meat products but also for a number of other products. According to USTR, damage estimates due to multiple Korean shelf-life requirements ranged from $240 million in 1994 to as much as $1 billion annually by 1999. The consultations led to an agreement, on July 20, 1995, whereby Korean authorities agreed to phase out their government-mandated shelf-life system and accept the manufacturer-determined shelf-life for imported products. The new system became effective for all dried, packaged, canned, or bottled products on October 1, 1995, and for chilled, vacuum-packed pork and beef and all frozen food on July 1, 1996. According to a WTO official, the system for other products was to be phased in over time. After the agreement was announced, USTR and FAS officials said they monitored Korea’s implementation to ensure it adhered to the agreement. These officials said Korea’s initial notification to the WTO of its new measures in July 1995 did not appear to be consistent with the agreement reached, but a subsequent notification in September 1996 seemed to comply with the agreement. In 1996, the Russian poultry ban threatened a U.S. market that had been growing dramatically since the collapse of the Soviet Union, from about $84 million in 1993 to about $608 million in 1995 (see fig. III.2). Russia has become the largest single market for U.S. poultry exports—U.S. poultry exports to Russia represented about 26 percent of total U.S. poultry exports in 1995. Poultry exports have also become the largest single U.S. export to Russia. Because the ban was in effect for only about a week before the United States and Russia reached an agreement, and because U.S. poultry exports to Russia had increased somewhat during January and February of 1996 in anticipation of the ban’s taking effect, total U.S. poultry exports to Russia actually increased during 1996. Nonetheless, the potential loss from a long-term ban was quite substantial. The case had its origins in a shipment of “off-condition” chicken received by a Russian importer in June 1995. In November 1995, Russian veterinary health officials stated they had concerns about the U.S. system for ensuring the safety of U.S. poultry exports and demanded that all U.S. processing and cold storage facilities involved in the export of chicken to Russia be inspected by Russian veterinarians. After consulting with industry officials, USDA officials agreed to the Russian inspection of U.S. facilities, even though an inspection of such magnitude was unusual. Shortly before the arrival of the Russian veterinarians in January 1996, Russia provided standards by which the U.S. facilities were to be judged. USDA and industry officials said the standards were very strict and were not similar to the existing U.S. poultry processing system. After inspecting about 50 of the more than 300 plants that were to be reviewed, a top Russian health official announced in February 1996 that none of the U.S. facilities had met Russian standards. Following this announcement, U.S. (APHIS, FSIS, and FAS) and Russian officials engaged in technical negotiations to attempt to resolve the problem. The negotiations addressed food safety and animal disease issues and lasted for several weeks. The U.S. position was that the U.S. system produces a safe and wholesome product and the Russian import requirements were unreasonable. U.S. officials argued that processing and inspection systems could differ but still offer the same degree of protection. On February 16, 1996, Russian officials announced that a ban on U.S. poultry imports would go into effect within 30 days unless Russian concerns were addressed. U.S. officials who participated in the talks said it became clear to them that technical negotiations were not going to resolve the problem. Following indications by Russian officials that they would ban U.S. poultry imports, the Office of the Vice President became involved, and USTR took the lead in the negotiations. The Russian ban was announced on March 16, 1996. Negotiations between the United States and Russia followed, and a resolution was announced about 1 week later, on March 25, 1996. The two sides reached agreement, among other things, on an updated export certificate and a framework for periodic inspections of U.S. poultry processing and cold storage facilities. According to U.S. officials, in this case, the Office of the Vice President had a unique channel to work through—a committee set up between the Vice President and the Russian Prime Minister that held semiannual meetings to discuss bilateral issues. U.S. industry, which was willing to make certain concessions to protect its market, was heavily involved in developing the U.S. negotiating position. U.S. industry has noted, however, that the ban could perhaps have been avoided had higher level and/or appropriate U.S. officials been involved earlier in the negotiations. Some U.S. officials also expressed concern that allowing Russian veterinarians to come to the United States with the purpose of inspecting all the processing plants that exported poultry to Russia may have set an expensive precedent for both the federal government and the agricultural industry. The objectives of our work were to provide Congress with information and analysis on (1) the extent to which foreign SPS measures may unfairly restrict U.S. agricultural exports and (2) the federal structure and approach for addressing such measures. Our work does not address other countries’ concerns about U.S. SPS measures or federal efforts to ensure the safety of domestically produced and imported food. To address the extent of foreign SPS measures and their impact on U.S. agricultural exports, we reviewed USDA and academic literature that addressed (1) the history of technical barriers to agricultural trade, including SPS measures; and (2) the impact of certain SPS measures on trade; discussed the extent and impact of SPS measures with (1) appropriate trade and regulatory officials at USDA, USTR, FDA, the Environmental Protection Agency (EPA), and the Department of State; (2) representatives of agricultural trade associations for beef, fruits, pork, poultry, seeds, vegetables, wheat, and other commodities; (3) officials from the National Association of State Departments of Agriculture and selected state departments of agriculture; and (4) academic experts at the University of California; reviewed USDA and private sector analyses of how other countries’ SPS measures impact U.S. exports; attended the 1996 and 1997 USDA Agricultural Outlook Conferences, as well as the National Association of State Departments of Agriculture’s 1996 Legislative Conference, where the primary issues facing U.S. agricultural exports were discussed; and reviewed selected official records of meetings from 1991 to 1996 of USDA’s Agricultural Policy Advisory Committee (APAC) and multiple Agricultural Technical Advisory Committees (ATAC) for various commodity groupings to track changes in the level of concern expressed about the impact of foreign SPS measures. To describe and analyze the federal structure and approach for addressing foreign SPS measures, we reviewed studies of the U.S. trade structure for agricultural products and the U.S. regulatory structure for food safety and animal and plant health to determine which entities were responsible for this issue; reviewed responsible entities’ relevant statutory authorities, mission statements, organizational charts, budgets, and staff levels, particularly related to addressing foreign SPS measures; interviewed relevant officials in USDA’s Office of the Secretary; at eight USDA agencies; USTR; FDA; EPA; and State to discuss their Department’s or agency’s role in addressing foreign SPS measures, activities their Department or agency has undertaken to address specific foreign measures, their working relationships with other responsible entities, the extent to which responsible entities have coordinated their efforts, and how key decisions were made in individual cases; attended or reviewed documentation of USDA interagency meetings held to coordinate and share information about the status of efforts to address foreign SPS measures; reviewed structural and procedural limitations of the current approach as well as possible changes that could address certain problems with high-level USDA officials and agency staff, including the Special Assistant for International Trade to the Secretary of Agriculture and the FAS Administrator; reviewed nonpublic agency documents that identified specific problems and suggested possible solutions, including a report by the USDA Office of Inspector General that examined USDA’s response to NAFTA implementation; reviewed documentation of several USDA agencies’ computer data bases that are used to track and manage SPS-related activities; attended APAC and ATAC meetings where concerns about the U.S. government approach to address SPS measures were discussed with USDA and USTR officials; interviewed and obtained documentation from representatives of agricultural trade associations that have requested U.S. government assistance to address SPS measures to assess their experiences, what problems they encountered, and how satisfied they were with U.S. government efforts; and reviewed agricultural trade association documents that identified specific problems in the current structure and approach and suggested possible solutions. To further support this objective, we developed information on U.S. government actions to address six foreign SPS measure(s) that have threatened, constrained, or blocked or continue to block U.S. agricultural exports. To select the six measures, we examined a variety of factors and attempted to develop a group of measures that would allow us to address a range of issues, including (1) commodities affected, (2) countries establishing the measures, (3) duration of the measures (from a few months to many years), (4) impact of the measures on trade (from relatively small to relatively large), (5) status of U.S. efforts to resolve the case (from resolved to unresolved), (6) coverage by multilateral rules (involving WTO members, NAFTA members, and nonmembers of either agreement), and (7) the extent of participation of responsible U.S. government entities in addressing the measure. The measures we examined included a Chinese stated “zero tolerance” on wheat infected with the TCK fungus, a measure in effect since 1973 that has primarily affected certain northwestern U.S. states where the fungus is known to occur; a Japanese ban (encountered as early as 1983) on imports of U.S. tomatoes because of Japanese government concerns that tomatoes carried TBM; a 1989 EU ban on imports of hormone-treated meat that blocks U.S. beef 1991 measures adopted in Mexico to establish multiple preshipment requirements for imports of fresh U.S. peaches and nectarines; a 1994 change to a Republic of Korea shelf-life standard that adversely affected U.S. meat product exports; and a brief 1996 Russian ban on U.S. poultry exports due to Russian dissatisfaction with U.S. inspection processes and disease certifications. For each measure, we developed a chronology of U.S. government and industry actions taken to address the measure, from the time the U.S. government first learned about the measure until the measure was resolved, or if unresolved, to the present time. To do so, we conducted interviews with agency officials who had been involved in addressing the measure; obtained any documents these officials could provide to demonstrate their or their entity’s actions, including chronologies, trip reports, memos, meeting minutes, press releases, and the text of any agreements reached with the foreign government; and reviewed reporting cables between State (headquarters) and embassy officials located abroad during 1994-96 that discussed these cases, including information about meetings with foreign officials and their results. We also met with agricultural trade association officials who had been involved in these cases to discuss what actions they had taken and ascertain their opinions of U.S. efforts. The following are GAO’s comments on the U.S. Trade Representative ’s memorandum dated September 9, 1997. 1. We updated our discussion of USTR’s Government Performance and Results Act (Results Act) strategic plan based on the final version that had not been completed when the draft report was sent to USTR for comment. We also added information about organizational developments at USTR and the interagency Trade Policy Staff Committee (TPSC) that USTR leads. Information throughout the report is based on discussions held with USTR and USDA officials continuously through October 1997 and documents gathered from both agencies. However, we continue to believe that our assessment of the overall U.S. approach and the need for coordinated goals, objectives, and performance measurements is accurate. First, the TPSC process is not a substitute for coordinated management of overall federal efforts. While this process is an important component of the federal approach, it is focused on obtaining interagency consensus on a limited number of SPS issues that the United States may raise for discussion in the WTO SPS committee and possibly refer to dispute settlement. According to USTR and USDA officials, the number of issues addressed in the TPSC process is a small subset of the hundreds that USDA entities address, which accounts for the report’s focus on USDA’s SPS-related activities. Second, we found only broad goals related to SPS measures in USTR’s Results Act plan, rather than the “specific negotiating goals” that USTR said it contained. In our view, these broad goals are not sufficient to ensure the more integrated approach for addressing SPS measures that we believe is necessary. 2. We added information about the important role the regulatory agencies play not only in addressing foreign SPS measures but also in ensuring that U.S. trade policy does not undermine U.S. regulatory interests. However, the focus of this report is, as requested, on the facilitation of U.S. agricultural exports. 3. We discussed our response to this issue in the section of the letter entitled “Agency Comments and Our Evaluation.” See page 35. The following are GAO’s comments on the Department of Agriculture’s letter dated September 11, 1997. 1. The report identifies several SPS measures that have been resolved or regarding which the U.S. government has made progress, including five of our six case studies, and discusses how federal entities have used the provisions of the WTO SPS agreement in their negotiations to address SPS measures. However, we continue to believe that federal entities cannot measure the degree of their success because they lack adequate data on the size and potential impact of the problem, the status of their efforts to address the problem, and the effect of their efforts on U.S. exports. Moreover, we believe that federal efforts to address SPS measures are hampered by the structural and procedural weaknesses we identify. 2. We clarified that our assessment of the U.S. approach applied to the entire scope of federal efforts, not just to measures that might be referred to the WTO. As noted in our response to USTR’s comments (app. V, comment 1), we updated our discussion of recent organizational initiatives but continue to believe our overall assessment of the federal approach is accurate. 3. We understand that informal mechanisms may be a valuable and integral part of any system. However, our review demonstrates that, in the absence of high-level, unified management, the ad hoc and informal nature of USDA’s efforts to address SPS measures has caused coordination, communication, and prioritization problems. USDA notes in its comment letter that increased written guidance is needed to document its informal processes. We encourage USDA to focus this guidance on how federal entities can best use such processes. 4. We added information about monthly strategy meetings held to discuss SPS issues and the planned formation of the Working Group on Agricultural Trade Policy. Based on information USDA officials provided, the working group appears to be an appropriate step toward improving USDA’s management of Departmentwide efforts to address SPS measures, provided the plan is implemented and maintained and the working group’s effectiveness is periodically evaluated. The following are GAO’s comments on the FDA’s letter dated August 22, 1997. 1. We added information to the report to more completely reflect the role that regulatory agencies play, not only in providing technical expertise to help evaluate foreign SPS measures, but also in developing and evaluating U.S. trade positions to ensure they do not undermine U.S. regulatory interests. We also added information to indicate that the potential impact on U.S. regulatory interests is one of several factors that are considered when determining which foreign SPS measures the United States will raise for discussion in the WTO SPS committee. 2. We discussed our response to this issue in the section of the letter entitled “Agency Comments and Our Evaluation.” See page 35. 3. We discussed our response to this issue in the section of the letter entitled “Agency Comments and Our Evaluation.” See page 35. 4. We modified the recommendation to suggest that USTR and USDA consult with FDA, EPA, and State in the development of coordinated goals, objectives, and performance measurements for addressing SPS measures. The following is GAO’s comment on the Department of State’s letter dated August 20, 1997. 1. We modified the recommendation to suggest that USTR and USDA consult with FDA, EPA, and State in the development of coordinated goals, objectives, and performance measurements for addressing SPS measures. Although we recognize that State has played an important role in addressing foreign SPS measures, it does not have the same degree of responsibility for identifying, evaluating, and conducting negotiations on these issues that USTR and USDA have. U.S. Agricultural Exports: Strong Growth Likely But U.S. Export Assistance Programs’ Contribution Uncertain (GAO/NSIAD-97-260, Sept. 30. 1997). Agricultural Inspection: Improvements Needed to Minimize Threat of Foreign Pests and Diseases (GAO/RCED-97-102, May 5, 1997). Food-Related Services: Opportunities Exist to Recover Costs by Charging Beneficiaries (GAO/RCED-97-57, Mar. 20, 1997). World Trade Organization: Status of Issues to Be Considered at Singapore Ministerial Meeting (GAO/T-NSIAD-96-243, Sept. 27, 1996). Agricultural Research: Information on Research System and USDA’s Priority Setting (GAO/RCED-96-92, Mar. 28, 1996). Food Safety: New Initiatives Would Fundamentally Alter the Existing System (GAO/RCED-96-81, Mar. 27, 1996). International Trade: Implementation Issues Concerning the World Trade Organization (GAO/T-NSIAD-96-122, Mar. 13, 1996). Pesticides: The Phaseout of Methyl Bromide in the United States (GAO/RCED-96-16, Dec. 15, 1995). International Trade: Canada’s Restrictions on Certain Salmon Imports (GAO/GGD-95-117, Apr. 20, 1995). U.S.-Canadian Food Safety: Opportunities for Sharing Information and Coordinating Inspections (GAO/RCED-95-45, Nov. 22, 1994). U.S.-Chilean Trade: Pesticide Standards and Concerns Regarding Chilean Sanitary Rules (GAO/GGD-94-198, Sept. 28, 1994). The General Agreement on Tariffs and Trade: Uruguay Round Final Act Should Produce Overall U.S. Economic Gains (GAO/GGD-94-83a and b, July 29, 1994). North American Free Trade Agreement: Assessment of Major Issues (GAO/GGD-93-137a and b, Sept. 9, 1993). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO provided information on the: (1) extent to which foreign sanitary and phytosanitary (SPS) measures may unfairly restrict U.S. agricultural exports; and (2) federal structure and approach for addressing such measures. GAO noted that: (1) despite growing concerns that certain foreign sanitary or phytosanitary measures may be inconsistent with World Trade Organization (WTO) provisions and may unfairly impede the flow of agricultural trade, the U.S. government is not well positioned to address this issue; (2) agricultural trade associations and key government officials have identified such measures as an increasingly important issue in agricultural trade; (3) however, the U.S. Trade Representative (USTR) and the Department of Agriculture (USDA) have had difficulty defining the nature and scope of the problem that foreign sanitary and phytosanitary measures present for U.S. exports, partly because of the complex nature of the issue but for other reasons as well; (4) the available data indicate that foreign sanitary and phytosanitary measures affect the exports of a broad range of commodities, result in a variety of trade effects, and may create additional costs for the U.S. industry and government; (5) the U.S. government approach for addressing foreign sanitary and phytosanitary measures has been evolving in the 2 years since WTO provisions on sanitary and phytosanitary measures took effect; (6) however, the current approach exhibits certain weaknesses; (7) the federal structure for addressing foreign sanitary and phytosanitary measures is complex; (8) at least 12 federal trade, regulatory, and research entities have some responsibility for addressing such measures, but no one entity is directing and coordinating overall federal efforts; (9) some entities' roles and responsibilities for addressing such measures are not clearly defined, and these entities have had difficulty coordinating their activities; (10) federal entities lack comprehensive data on which sanitary and phytosanitary measures are being addressed or what progress has been made to address them; (11) they have not developed a process to jointly evaluate measures and determine which ones the government should address, and in what order; (12) once the government decides to challenge a measure, multiple entities with conflicting viewpoints have made it difficult to develop a unified approach to address measures and decide which cases should be referred to WTO for dispute resolution; and (13) coordinated goals, objectives, and performance measures related to federal efforts to address SPS measures do not yet exist. |
TEA-21 authorized the Job Access program, through which DOT’s FTA provides grants to “qualified entities”—local agencies, nonprofit organizations, transit authorities, and others—to improve the mobility of welfare recipients and low-income individuals seeking employment.DOT’s two major goals for the program are to (1) provide transportation services in urban, suburban, and rural areas to assist welfare recipients and low-income individuals to gain access to employment opportunities and (2) increase collaboration among such parties as transportation providers, human service agencies, employers, metropolitan planning organizations, states, and communities in providing access to employment. TEA-21 requires DOT to conduct a nationwide solicitation for Job Access grant applications and to select grantees on a competitive basis. TEA-21 also identifies factors for DOT to consider in awarding Job Access grants. These include the percentage of the population in the area to be served by a grant applicant who are welfare recipients, the need for additional services in the area to be served, the extent to which the proposed services would meet that need, and the extent to which an applicant identifies long-term financing strategies to support the services. In fiscal year 1999, FTA established a competitive selection process involving the evaluation of grant applications against published criteria, as well as the scoring and ranking of applications against each other on the basis of those evaluations. FTA selected and funded the highest ranked projects. FTA selects program grantees on an annual basis and makes no commitment for funding for more than 1 year. As a result, FTA undertakes a new selection process every year. Under TEA-21, Job Access grants are subject to the terms and conditions applicable to recipients of urbanized area formula grants, as well as other terms and conditions established by DOT. After selecting projects for funding, FTA requires the applicants to provide assurances and documentation of compliance with these standard grant requirements, such as those concerning drug and alcohol testing, federal procurement standards, and state and regional transportation planning. TEA-21 authorized up to $750 million for the program from fiscal year 1999 through fiscal year 2003. It also required DOT to allocate 60 percent of the program’s funds each year to projects in urban areas with populations of at least 200,000; 20 percent of the funds to projects in urban areas with populations of less than 200,000; and 20 percent of the funds to projects in nonurban areas. Job Access grantees are required to provide at least 50 percent matching funds from other sources, including other federal funds available for transportation services—for example, funds from the Temporary Assistance for Needy Families program. In response to funding designations contained in the conference reports accompanying DOT’s appropriations acts for fiscal years 2000 and 2001, FTA changed its selection process and adopted a two-track process for the selection of Job Access projects. Specifically, FTA adopted a noncompetitive process for the entities designated in the conference reports or applicants selected by those entities. FTA set aside funding for the designated entities and selected them without scoring and ranking their applications—that is, comparing them to those submitted by other applicants. FTA continued to implement its existing competitive process for other applicants. In fiscal years 2000 and 2001, FTA selected 199 projects for grants totaling $125 million on the basis of their designations in conference reports, rather than on the basis of its competitive review. According to FTA officials, the agency had determined that these projects met the program’s basic requirements and its selection criteria for competitively awarded grants. These 199 projects comprised about 61 percent of the 327 projects selected for grants during those 2 years and about 71 percent of the $175 million that was made available for the program during those 2 years. The Department of Transportation and Related Agencies Appropriations Act for fiscal year 2000 provided $75 million for the Job Access program, and the conference report accompanying the appropriations act designated a total of $49.6 million in specified amounts for grants to identified states, localities, and other organizations. FTA’s March 2000 request for project proposals provided detailed information to prospective grantees, including requirements for eligibility and guidelines for preparing grant applications. It also set forth selection processes for entities identified in the conference report and other applicants, stating that Congress had allocated $49.6 million for specific states and localities and that the remaining $25.4 million, along with about $4 million in unobligated fiscal year 1999 funds, was available for competitive award. FTA instructed entities identified in the conference report, or applicants selected by those entities, to submit applications responding to the same program selection criteria, including conformity with program requirements, as applicants for competitive awards. In addition, it advised applicants for “competitive grants” that—as in 1999—it would evaluate and score eligible applications according to four factors: (1) the degree of local coordination exhibited when a project was designed, (2) the demonstrated need for additional transportation services, (3) the extent to which proposed services would meet the need, and (4) the ability of an applicant to obtain resources to continue a project without grant funds. The notice indicated that, along with such factors as the time frame for implementation and the geographic distribution of project funding, these award criteria would provide the basis for project selections. The Department of Transportation and Related Agencies Appropriations Act for fiscal year 2001 provided $100 million for the Job Access program, and the accompanying conference report designated about $75 million for identified states, localities, and other organizations. As in 2000, FTA proposed to allocate amounts to entities identified in the conference report for projects meeting basic program requirements, stating that it would “honor those allocated projects that meet the statutory intent of the program.” However, it did not solicit new proposals for competitive award; rather, it decided to make remaining selections from among proposals submitted in fiscal year 2000 that were not funded or only partially funded due to funding limitations in that year. According to FTA, applicants for projects designated in the conference reports were notified by letter from the FTA regional administrators, as well as through its published notices, and instructed to submit project proposals addressing the criteria used for competitive awards, as well as standard FTA grant requirements. FTA officials noted that only those applications meeting the basic eligibility criteria for the Job Access program were awarded grants, explaining that FTA’s practice is to work with entities identified in the conference reports and include them in the program consistent with the underlying statutory requirements. During fiscal years 2000 and 2001, FTA’s two-track process for the selection of Job Access grantees decreased opportunities to fund projects that could have been identified as meritorious through the competitive evaluation process. Also, some projects selected in fiscal year 1999 were not selected for funding in fiscal years 2000 or 2001. As a result, according to grantee officials, some of these projects needed to reduce their services or ceased to operate. In response to TEA-21, FTA designed a competitive process consistent with the factors identified in the statute to help ensure that the projects selected for funding would improve the access of low-income individuals to employment and employment-related services through coordinated efforts of transportation providers, human service agencies, and others. In fiscal year 1999, FTA allocated all of the program funds—$75 million—for projects that it had competitively selected by evaluating, scoring, and ranking them against each other. However, for fiscal years 2000 and 2001, FTA allocated $125 million out of the $175 million available to entities identified in the conference reports, or applicants selected by those entities, and only $50 million to competitively selected entities that were not identified in the conference reports. According to the Coordinator of the Job Access program and other program officials, as a result of funding projects designated in the conference reports, many other worthy projects could not be funded. In fiscal year 2001, FTA did not solicit new proposals. Instead, it selected projects from among project proposals submitted for fiscal year 2000 that, according to FTA, were “meritorious” but had not been funded or had been only partially funded because of funding limitations. This change foreclosed opportunities for FTA to consider projects in fiscal year 2001 that may have been more promising than those actually selected in that year. In addition, FTA decreased the minimally acceptable score for project selection from 76.5 ranking points to 54.5 points. As a result, in fiscal year 2001, FTA selected some projects that it had evaluated and ranked in fiscal year 1999 or 2000 but had not found suitable for award in those years. According to FTA program officials and grantees, the decrease in funding for competitively selected projects during fiscal years 2000 and 2001 meant that about one-fifth of the fiscal year 1999 Job Access projects did not receive continued funding. To explore the impact of the reduction in funding available for competitive grants, we sent a questionnaire to 186 fiscal year 1999 grantees. About 83 percent of these grantees—or 155— responded to our questionnaire. These respondents generally indicated they were satisfied or very satisfied with the Job Access program. Eighty- five percent said that they were satisfied with how the Job Access program has enabled their organization to help people get to work. However, 19 percent of the respondents—or 30 of them—faced reduced or discontinued funding during fiscal years 2000 and 2001. Furthermore, eight grantees reported that funding interruptions caused them to decrease the scope of service of their projects. For example, the Chesapeake Bay Agency on Aging (Urbanna, VA) reported that funding disruptions, accompanied by an inability to secure funding from alternative sources, resulted in some route cancellations and cutbacks in the number of riders served and the lengths of some routes. The Chesapeake Bay Agency on Aging and the Richmond (VA) Transit Authority stated that these service disruptions caused a loss of credibility with their clientele and cost some passengers their jobs. Three grantees that reported funding lapses said that, after their services were interrupted, they could not obtain alternative sources of funding, and their Job Access projects were permanently discontinued. In fiscal years 2000 and 2001, FTA selected 199 projects (about 61 percent of the 327 Job Access projects selected in those years) noncompetitively, based on language in the conference reports that accompanied the fiscal year 2000 and 2001 appropriations acts. This language designated specific dollar amounts for grants to states, localities, and organizations. FTA officials said that in administering the program, FTA complied with applicable statutory requirements for nationwide solicitation and competitive selection, while taking into account congressional views as expressed in this report language. Section 3037 of TEA-21, which established the Job Access program, authorizes the Secretary of Transportation to make grants to assist qualified entities with financing eligible projects. It directs the Secretary to conduct a national solicitation for grant applications, and it requires that grantees be selected on a competitive basis. Although the statute does not define the phrase “competitive basis,” it does identify several factors for the Secretary to consider in awarding grants, including the percentage of welfare recipients in the population of the area to be served, the need for additional services, and the degree of coordination with existing transportation service providers. In implementing TEA-21, FTA combined the statutory factors into the four essential elements referenced in its March 2000 request for grant applications and assigned points to each, on the basis of relative importance. In December 2000, we concluded that FTA’s program guidance and practices of evaluating and comparing program applicants were appropriate for helping to ensure that grantees would be competitively selected on a consistent basis. The fiscal year 2000 and 2001 appropriations acts for the Department of Transportation and Related Agencies made specified amounts available for the award of Job Access grants under section 3037. Although the conference reports accompanying those acts contained language designating entities for project funding, the designations were not carried over into the appropriations acts. It is well established that conference report language and other legislative history, indicating how funds should be spent, do not impose legally binding requirements; nor does legislative history supersede or repeal existing statutory requirements. Accordingly, FTA had no authority to use a noncompetitive process for the selection of Job Access grantees, including those designated in the conference reports. In response to our inquiries concerning FTA’s legal justification for its practices in fiscal years 2000 and 2001, FTA officials emphasized that— notwithstanding the designations in the conference reports—only those applications meeting the eligibility criteria in section 3037 were awarded grants and that projects of questionable eligibility were specifically reviewed by the Office of Chief Counsel to ensure eligibility. FTA officials also said that the selection of Job Access projects reflected the requirement of section 3037 to allocate 60 percent of the available funds to large urban areas, 20 percent to mid-sized urban areas, and 20 percent to rural areas. According to Job Access program officials, including the Coordinator, FTA determined how many of the projects from entities identified in the conference reports fell into each funding category. FTA set aside funds for these projects in anticipation of awarding them grants. FTA then awarded grants with the remaining funds in each funding category to projects selected under the competitive process. FTA acknowledged that it did not undertake any effort to compare applications from entities identified in the conference reports to other applications for Job Access funds. While TEA-21 does not define “competitive basis,” competition necessarily requires the evaluation and comparison of applications for limited funding against other applications before making selections. We have not assessed individual projects selected for Job Access grants in fiscal years 2000 and 2001 for compliance with program eligibility requirements or FTA’s processes for compliance with overall funding limitations. Thus, while we have determined that FTA’s two-track process for the award of Job Access grants did not conform to the statutory requirement to select grantees on a competitive basis, we have no basis to conclude that any specific grants, including those made as a result of conference report language, failed to satisfy the basic eligibility criteria or were otherwise not worthy of funding. In this respect, FTA has acknowledged the importance of ensuring that all grants, including grants to entities designated in conference reports, meet the requirements of the Job Access program. In response to language in conference reports that accompanied DOT’s fiscal year 2000 and fiscal year 2001 appropriations acts, FTA implemented a noncompetitive selection process for entities designated in those reports, or applicants selected by those entities. At the same time, FTA sought to satisfy the requirements of TEA-21 by continuing to use a competitive process for grant applicants not designated in the conference reports. The noncompetitive process implemented by FTA did not satisfy the requirements of section 3037 of TEA-21. In addition, FTA’s manner of implementing the program in fiscal years 2000 and 2001 decreased its opportunities to select projects that were potentially more promising. We recommend that, in the absence of statutory authority to select Job Access grantees on a noncompetitive basis, the Secretary of Transportation ensure that future grants to entities designated in conference reports, including grants to applicants selected by those entities, be made on a competitive basis. We provided copies of the draft report to the Department of Transportation for review and comment. DOT officials, including the Coordinator of the Job Access program and representatives from FTA’s Chief Counsel’s office provided verbal comments regarding our draft report. Overall, DOT officials stated that in implementing the program, FTA complied with applicable statutory requirements for nationwide solicitation and competitive selection, while taking into account congressional views as expressed in appropriations report language. According to DOT officials, TEA-21 requires DOT to (1) conduct a nationwide solicitation for Job Access grant applications, and (2) select grantees on a competitive basis. According to DOT officials, FTA solicited applications through a broad agency announcement published in the Federal Register, and letters addressed to entities identified in appropriations report language. DOT agrees that report language and other legislative history indicating how funds should be spent do not impose legally binding requirements, nor supersede or repeal statutory requirements. However, it also emphasizes that the statutory language does not define the term “competitive selection,” leaving that to agency discretion. According to DOT officials, the agency employed separate competitive selection processes in fiscal years 2000 and 2001 for evaluating applications received in response to the different solicitation methods. DOT indicated that both pools of applicants were required to meet all statutory criteria for award. DOT maintains that both selection methods were competitive and represent a reasonable exercise of agency discretion in complying with applicable statutory requirements for nationwide solicitation and competitive selection, while taking into account congressional views, as expressed in appropriations report language. DOT also stated that the draft report could benefit by more fully discussing the results of GAO’s survey. For example, DOT noted that 85 percent (132 of 155 respondents) were satisfied with the program, while 12 percent (19 of 155) had no opinion, and only 3 percent (4 of 155) were dissatisfied. DOT maintains that this high level of satisfaction among its partners clearly demonstrates FTA’s effective implementation of this very important program. We agree that Congress left the determination of exactly how to implement the requirement of TEA-21 to select grantees “on a competitive basis” to FTA’s discretion. However, we do not agree that FTA employed competitive methods in selecting all Job Access grantees during this period or that the two-track approach it adopted in implementing the Job Access program represented a reasonable exercise of agency discretion. As noted in this report, the competitive selection of grantees necessarily requires a comparison of applications for available funding against each other, rather than a mere determination that they meet the criteria for award. Although DOT asserted that FTA used a competitive selection process for entities identified in the conference reports accompanying the fiscal year 2000 and 2001 appropriations acts, DOT officials also stated that FTA did not compare applications from entities designated in these conference reports, either to each other or to applications from entities that were not so designated. Applications from entities designated in the conference reports were neither scored nor ranked but were selected on the basis of the conference report language. FTA’s public notices support this characterization of FTA’s approach. These notices did not describe FTA’s process for those entities identified in the conference reports as “competitive”; rather, they distinguished between funds “reserved for specific projects” and funds “available for competitive award.” Importantly, FTA’s description of its Job Access formula proposal clearly stated with reference to the fiscal year 2000 and 2001 conference reports that “earmarking of funds does not allow for projects to emerge from a competitive process.” Therefore, DOT has not provided us with any basis to agree with its view that projects for entities identified in conference reports were competitively selected or to change our recommendation. Regarding DOT’s comments concerning the results of our survey of fiscal year 1999 Job Access grantees, we have incorporated additional information about the survey in our report. However, the survey does not show whether FTA implemented the program effectively. Our survey’s respondents made no statement about FTA’s overall effectiveness in implementing the program. Instead, respondents generally indicated they were satisfied or very satisfied with how the program enabled them to help people get to work. As indicated in appendix III, respondents identified areas for improvement in the program’s implementation. TEA-21 requires us to report on DOT’s implementation of the Job Access program. As discussed in appendix I, we have issued four reports addressing various aspects of the program since May 1998. In connection with our last two reviews, we met with FTA officials, grantees, and others who suggested that funding designations contained in the conference reports accompanying the Department of Transportation and Related Agencies Appropriations Acts for fiscal years 2000 and 2001 had a significant impact on the operation of the program. In addition, in proposing the allocation of Job Access funds by formula, FTA stated that the funding designations resulted in many highly worthy applicants not receiving funding and pointed out that such designations did not allow some projects to emerge successfully from a competitive process. Accordingly, this report examines the Job Access program in fiscal years 2000 and 2001. Specifically, this report addresses (1) how DOT implemented the program in fiscal years 2000 and 2001, including its response to funding designations contained in conference reports in those fiscal years; (2) the impact on the program of DOT’s response to the funding designations; and (3) whether the manner in which DOT interpreted and applied the conference report funding designations in fiscal years 2000 and 2001 was consistent with applicable statutory requirements. To address the first and second objectives, we interviewed FTA officials, examined Job Access program documentation, and conducted a mail survey of all of the fiscal year 1999 Job Access program grantees (see app. III). The rate of response to our survey was about 83 percent. A detailed description of our scope and methodology appears in appendix II. We also reviewed the strategic plans and reports that DOT filed under the Government Performance and Results Act of 1993. To address the third objective we reviewed the requirements of TEA-21, the appropriations acts for fiscal years 2000 and 2001, and applicable case law. We also sent a letter of inquiry to FTA to obtain its explanation of the actions taken in response to the designations in the conference reports that accompanied DOT’s appropriations acts for fiscal years 2000 and 2001. Our review focused on FTA’s processes for implementing the Job Access program. Our objectives did not include reviewing individual grants made in fiscal years 1999, 2000, or 2001 and the associated projects, or individual grant applications under the Job Access program. We conducted our review from July 2001 through November 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to the cognizant congressional committees; the Secretary of Transportation; the Administrator, Federal Transit Administration; and other interested parties. We will make copies available to others on request. If you have any questions about this report, please call me at (202) 512-2834 or E-mail me at heckerj@gao.gov. Key contributors to this report are listed in appendix IV. Without adequate transportation, welfare recipients face significant barriers in moving from welfare to work. In 1998, Congress found that three-fourths of welfare recipients lived in central cities or rural areas, but two-thirds of new, entry-level jobs were located in the suburbs. Public transportation facilities, such as buses or subways, often offer limited or no access to many of these jobs. Although the jobs can be reached by car, many welfare recipients do not have cars. To address this mismatch, the Transportation Equity Act for the 21st Century (TEA-21) authorized up to $750 million for fiscal years 1999 through 2003 to implement the Job Access and Reverse Commute (Job Access) program. The program authorizes the Department of Transportation (DOT) to provide grants to local agencies, nonprofit organizations, transit authorities, and others to improve transportation to employment. Within DOT, the Federal Transit Administration (FTA) is responsible for implementing the program. From fiscal year 1999 through 2001, FTA selected Job Access projects for grants totaling $247 million for 368 Job Access projects. To date, we have issued four reports on the program: in May 1998—before the program was established—as well as in November 1999, December 2000, and August 2001. In May 1998, we reported that the proposed Job Access program would support reform of the nation’s welfare system by, among other things, providing additional resources to transport welfare recipients to work. We recommended that DOT (1) establish specific objectives, performance criteria, and goals for measuring the program’s progress; (2) require grantees to coordinate transportation strategies with local job placement and other social service agencies; and (3) work with other federal agencies to coordinate welfare-to-work activities. TEA-21 reflected these recommendations and required appropriate action by DOT. In November 1999, we reported on the implementation of the program in fiscal year 1999—its first year. We found that DOT had implemented our second and third recommendations in carrying out TEA-21. DOT had also taken preliminary steps to implement our recommendation that it establish specific objectives, performance criteria, and goals for measuring the program’s progress. However, we also found that DOT’s process for selecting Job Access grant proposals was not consistent in fiscal year 1999, and the basis for some selections was unclear. Our December 2000 report examined DOT’s implementation of the program in fiscal year 2000. We found that DOT had taken steps to improve its process for selecting Job Access proposals. For example, to promote greater consistency in the evaluation and selection of grantees, DOT developed a standard format for reviewing Job Access proposals and provided more detailed guidance to its reviewers. Almost 90 percent of the fiscal year 1999 Job Access grantees that responded to a GAO survey were satisfied with the goals and intent of the program. However, 51 percent said that satisfying various standard FTA grant requirements took too long—about 9 months, on average. As a result, about one-third of respondents reported experiencing problems in obtaining matching funds. Also, seven projects were withdrawn (about 4 percent of Job Access projects) for varied reasons, including, in one case, the loss of matching funds. Also, DOT implemented our recommendation that it develop specific objectives, performance criteria, and measurable goals for the Job Access program by developing an evaluation plan and by requesting specific data from the grantees. DOT developed a goal to increase new employment sites by 4,050 in fiscal year 2000 and 8,050 in fiscal year 2001. Our August 2001 report provided our preliminary observations on (1) DOT’s proposal to use a formula for allocating grant funds to the states, (2) the status of obligations for the Job Access program, and (3) DOT’s plans for reporting on the program to the Congress. At the time of our report, DOT had proposed a change to the Job Access program, beginning in fiscal year 2002, under which it would allocate funding to the states via a formula, instead of to individual grantees. DOT proposed this change in response to language in the conference reports accompanying DOT’s appropriations acts for fiscal years 2000 and 2001 that designated Job Access funding for specific states, localities, and organizations. Second, as of August 7, 2001, DOT had obligated 94 percent of the funds for fiscal year 1999, 67 percent of the funds for fiscal year 2000, and 20 percent of the funds for fiscal year 2001. Third, DOT had missed its June 2000 deadline for a status report to the Congress but expected to report instead in September 2001. However, as of November 26, 2001, DOT had not sent the report to Congress. TEA-21 requires us to report on FTA’s implementation of the Job Access program. This report examines (1) how DOT implemented the Job Access program in fiscal years 2000 and 2001, including its response to funding designations in conference reports in those fiscal years; (2) the impact on the program of DOT’s response to the funding designations; and (3) whether the manner in which DOT interpreted and applied the conference report funding designations in fiscal years 2000 and 2001 was consistent with applicable statutory requirements. To describe FTA’s continued implementation of the Job Access program in fiscal years 2000 and 2001, we obtained and analyzed documents and interviewed FTA officials about the agency’s solicitation, selection, and award procedures and how these were implemented. We also asked agency management to explain any changes made in the implementation of the program for projects selected in fiscal years 2000 and 2001. We examined the consequences of changes in the manner in which FTA selected Job Access proposals by obtaining and analyzing FTA’s records regarding projects selected for award during fiscal years 1999 through 2001, including the operating status of the associated projects during those years and those projects that were withdrawn. In addition, we conducted a mail survey of the fiscal year 1999 grantees. (See app. III for the questionnaire and the results.) FTA identified 186 Job Access projects for fiscal year 1999. We mailed questionnaires to each of these grantees and received responses from 155 of them—a response rate of 83 percent as of September 30, 2001. To examine the legality of FTA’s approach to the solicitation and selection of grantees in fiscal years 2000 and 2001, we reviewed TEA-21, the appropriations acts for fiscal years 2000 and 2001, and applicable case law. We also obtained the views of cognizant agency officials. Specifically, we asked FTA about its legal justification for its approach to implementing the Job Access program regarding entities identified in the conference reports accompanying recent DOT appropriations acts. Our examination was limited to FTA’s processes and did not include a review of awards designated to particular states, local governments, or organizations. In addition, Sam Abbas, Alan Belkin, Helen Desaulniers, Ernie Hazera, Alex Lawrence, Bonnie Pignatiello Leer, Sara Ann Moessbauer, LuAnn Moy, and Frank Taliaferro made key contributions to this report. | In 1998, three-fourths of welfare recipients lived in central cities or rural areas, but two-thirds of new, entry-level jobs were in the suburbs. Public transportation, such as buses or subways, often offer little or no access to these jobs, and many welfare recipients do not have cars. To address this mismatch, the Transportation Equity Act for the 21st Century authorized up to $750 million through fiscal year 2003 for the Job Access and Reverse Commute (Job Access) program. Under the program, the Department of Transportation (DOT) can provide grants to improve transportation to employment sites. DOT must conduct a nationwide solicitation for grant applications and select grantees on a competitive basis. DOT adopted a two-track process for the selection of grantees. A noncompetitive process set aside funds for entities identified in conference reports, or applicants selected by those entities, and they were chosen without scoring or ranking their applications. The previously established competitive process for other applicants was continued. This two-track process for selecting Job Access grantees decreased opportunities to fund projects identified as "meritorious" through the competitive selection process. Although grantees must be chosen on a competitive basis, the allocation of program funds on a noncompetitive basis to entities designated in conference reports, or applicants selected by those entities, was not consistent. Furthermore, the conference reports did not impose legally binding requirements and did not provide a legal basis to deviate from the act's requirements. Therefore, the use of a noncompetitive process for the selection of program grantees in fiscal years 2000 and 2001 was not authorized. |
U.S. military forces are engaged in a number of missions that are different from most of those of the Cold War period. The U.S. defense strategy calls for the maintenance of military forces that are flexible enough to accomplish diverse missions. Peace operations are among these missions.Within the last 5 years, U.S. combat units have participated in peace operations in locations such as Somalia, Macedonia, Bosnia, Haiti, the Sinai, and northern and southern Iraq. According to the President’s February 1995 National Security Strategy, the primary mission of U.S. military forces is to deter and, if necessary, fight and win conflicts in which the most important interests of the United States are threatened. Nevertheless, to support the administration’s strategy of engagement, the United States has adopted a defense strategy that calls for the maintenance of robust and flexible military forces that can accomplish a number of missions. The National Security Strategy and other defense planning documents have identified peace operations among the missions that U.S. military forces must be prepared to undertake. According to these documents, U.S. forces deployed to these operations should be provided with sufficient capabilities to fulfill their assigned missions. In many cases, this may require specialized training. According to the May 1995 Report of the Commission on Roles and Missions, peace operations warrant appropriate training and equipment because of the often unique characteristics of these operations. The report also states that the difficulty of these operations cannot be underestimated. For example, in peace operations, the enemy is no longer easily identified approaching in a tank or an armored personnel carrier. Also, military tasks common to both war and peace—such as patrolling or escorting convoys—may have a fundamentally different purpose and be conducted in a vastly changed environment. Finally, the use of overwhelming and decisive force, the central tenet of U.S. war-fighting doctrine, often has little relevance to peace operations. DOD is still coming to terms with the unique challenges associated with peace operations. As part of this effort, the Army recently published a new field manual to assist commanders and their staffs in planning and conducting these operations. Similarly, the Marine Corps is revising its Small Wars Manual concerning experiences the naval services have gained in operations other than war since the end of World War II and is developing a handbook to assist commanders who may be participating in peace and foreign humanitarian assistance operations. DOD is increasingly recognizing the importance of providing education and training for peace operations, particularly at the institutional level. Within the last year, a number of DOD and non-DOD reports have been published that identify and assess the education and training opportunities DOD provides for peace operations and for additional operations other than war. For example, in September 1994 the DOD Inspector General issued a report on specialized military training for peace operations and a catalog of peace operations training activities that identify and discuss various U.S. and international peace operations training programs, primarily at the institutional level. The report identifies gaps in three areas where U.S. preparation for peace operations could be enhanced in the near term: (1) U.N. observer training; (2) use of existing U.S. and foreign training programs and educational opportunities; and (3) staff and interagency training, particularly joint task force training for peace operations. A February 1995 report prepared for the Assistant Secretary of Defense (Strategy and Requirements) by a non-DOD organization provides additional detail concerning training and education requirements for peace operations, assesses current programs in the U.S. military, and recommends strategies to enhance preparedness for such missions. In April and May 1995, a two-phase conference and follow-on exercise on peace and humanitarian operations sponsored by the I Marine Expeditionary Force (I MEF) and the U.S. Department of State, was conducted at Camp Pendleton, California. A summary report highlights the policy, strategy, and operational issues that resulted from the conference. The former Chairman and Ranking Minority Member of the Subcommittee on Oversight and Investigations, House Committee on Armed Services, asked us to examine (1) how the services incorporate peace operations into their various training programs, (2) what effect peace operations have on maintaining combat readiness, and (3) whether the services have the weapon systems and equipment they need for these operations. We did not assess whether the United States should participate in peace operations. To determine how the services incorporate peace operations into their institutional, staff, and unit training programs, we reviewed training plans, lessons learned from recent operations, and published DOD and non-DOD reports on peace operations training. We concentrated our efforts on unit training and supplemented information already available on institutional and staff training. We visited the home bases of various Army, Navy, Air Force, and Marine Corps units that participated in peace operations and talked with personnel about the training they received. We also talked with officials and personnel at various advanced-level training facilities, such as the Army’s Joint Readiness Training Center (JRTC) and the Combat Maneuver Training Center (CMTC), to obtain an understanding of the peace operations training provided. To understand the U.S. Atlantic Command’s role in preparing joint forces for peace operations missions, we talked with command representatives and reviewed relevant documentation. To determine the impact of peace operations on combat readiness, we reviewed the experiences of combat, support, and special operations forces who participated in Operations Uphold Democracy in Haiti, Able Sentry in Macedonia, Deny Flight in Bosnia, and Provide Comfort in northern Iraq. We also obtained some information on the experiences of Army and Marine Corps personnel who had participated in the 1992-93 Somalia peace operations and the impact that these operations had on the units’ ability to return to combat readiness. We visited the home bases of units that had participated in peace operations, and to the extent possible, visited actual operations, such as the one in Macedonia. We talked with and obtained documentation from personnel attached to the Army’s 10th Mountain Division (Light), II Marine Expeditionary Force (II MEF), and units from the 1st Armored and 3rd Mechanized Infantry Divisions in Europe concerning the extent of combat skill atrophy after participating in peace operations and the effort required to return to combat readiness. We visited Air Force units at their home bases and at their deployed locations in Aviano, Italy, and Incirlik, Turkey, near Operations Deny Flight and Provide Comfort. We talked with and reviewed documentation from military commanders concerning the combat proficiency of their units after participating in peace operations and their plans for restoring full war-fighting capabilities. We discussed the effect of Navy participation in Caribbean peace operations with representatives of various elements of the U.S. Atlantic Fleet and examined documents describing the impact of peace operations on Navy training cycles. To determine whether the services have the weapon systems and equipment they need for these operations, we examined reports by DOD agencies and documents from the military services involved in identifying technological requirements. We discussed the involvement of the Office of the Secretary of Defense in identifying new technologies and also examined a draft policy statement on the use of nonlethal weapons. I MEF officials from Camp Pendleton, California, and from the Marine Corps Combat Development Center in Quantico, Virginia, provided us with information concerning their experiences in obtaining, training with, and using nonlethal systems and equipment during Operation United Shield, protecting the withdrawal of U.N. forces from Somalia. Our review was conducted at Army, Navy, Air Force, and Marine locations, Office of the Secretary of Defense, and component and unified command headquarters within the United States and Europe. We contacted by telephone any relevant organizations we did not visit, such as the 25th Infantry Division (Light) at Schofield Barracks, Hawaii; the Multinational Force and Observers (MFO), Fort Bragg, North Carolina; and the Army Dismounted Battlespace Battle Laboratory at Fort Benning, Georgia. In many cases, we received written responses to our questions. We did not address the financial impact on the services as a result of participating in peace operations. This issue was addressed in a previous GAO report. We also did not report on the participation of reserve forces in peace operations. While we did some limited examination of reserve component participation in peace operations, the training provided for these missions was not significantly different than training for standard reserve missions. Except in a few cases, the number of reserve component forces participating in these operations was relatively small. Our review was performed from November 1994 to September 1995 in accordance with generally accepted government auditing standards. Since the end of the Persian Gulf War, DOD has provided a variety of education and training opportunities to military personnel to prepare them for participation in peace operations. Each service has a different approach to training its forces for peace operations. The services and the regional Commanders in Chief (CINC) have exposed at least some of their personnel to basic operating concepts through institutional training and education, specialized staff training, and unit training. At the unit level, peace operations training primarily involves ground combat forces. Commanders of major ground combat forces differ on when peace operations should be provided; some commanders include aspects of peace operations in standard unit training, and others prefer to maintain an exclusive combat focus until they are advised that their units are about to deploy to a peace operation. Naval and aviation forces perform similar tasks in peace operations and in war. Each of the services conducts a number of comparable courses at training facilities and schools in which peace operations are addressed as part of a progressive program of military training and education. The services’ officer and noncommissioned officer courses, command and staff colleges, war colleges, professional schools for particular military specialties (e.g., infantry, amphibious warfare, and military police), and joint military education programs all include some discussion of peace operations in their curriculums, often as part of a broader discussion of operations other than war. Since DOD and non-DOD organizations have issued a number of reports on this subject, we are brief in describing DOD initiatives in this area. Historically, the Army and the Marine Corps have had the greatest involvement in peace operations. They have developed and implemented the widest variety of programs on peace operations as part of their institutional training and education. The Army provides peace operations training and education at a variety of institutions such as the Army War College; Command and General Staff College; Army Infantry School; Combat Training Centers; U.S. Military Observer Group; Army Peacekeeping Institute; and School for Advanced Military Studies at Fort Leavenworth, Kansas. Humanitarian assistance and peace operations require new ways of thinking and planning. Identifying an enemy, finding centers of gravity, and applying overwhelming force do not translate directly, and so, do not necessarily fit neatly into traditional operational planning. There may not be a direct military threat. In order to prepare military officers for future humanitarian operations, professional military education should increase emphasis on operations other than war case studies, humanitarian assistance operation wargaming and situational exercises, and role-playing scenarios. The services and regional CINCs recognize that a key element in the successful execution of a peace operation is the training of the commanders and staff who plan and lead the operation both at the service and the joint task force levels. Consequently, regional CINCs have conducted workshops and seminars to prepare their staffs for leading peace operations in their areas of responsibility; the U.S. Army Peacekeeping Institute held a peace operations training program, at the request of the Chairman of the Joint Chiefs of Staff, for command level personnel serving on the staffs of Unified Commands, which was attended by interagency, Joint Staff, potential joint task force commanders, and the Chairman of the Joint Chiefs of Staff; the Army’s Battle Command Training Program and the Center for Army Lessons Learned provided mobile training teams, training support packages, and operational lessons to prepare staff prior to a peace operation deployment; the Expeditionary Warfare Training Groups, under CINCs, Atlantic Fleet and Pacific Fleet, will provide, starting with a pilot planned for November 1995, a 5-day class on peace operations for Naval Expeditionary Force staff officers and senior noncommissioned officers; and the Partnership for Peace program, utilizing peace operations training as a venue for military-to-military contact, sponsored a 3-week seminar and a large peace operations field exercise that included representatives from the U.S. military and from Ministries of Defense and General Staffs of other Partnership for Peace countries. Unit training is conducted at home stations and at training facilities to help prepare units for their missions. Unit level training for peace operations primarily is an issue involving ground forces—principally infantry and mechanized infantry units. Naval and aviation forces, and other ground forces such as special operations, logistics, and military police units train similarly for peace operations and for war. However, even these forces have to adapt to the different conditions and rules of engagement they encounter in these operations. The extent of additional preparation needed for peace operations depends on the type of operation and the type of forces assigned to participate. Some types of military forces adapt more easily to peace operations. For example, support units providing food and supplies to troops participating in the Somalia peace operation performed the same functions they would in a more traditional combat operation but in a less centralized fashion because forces were spread out over 21,000 square miles. They also had additional responsibilities because they had to provide most of their own security. The tasks an infantry unit performs in a peace operation may be similar to the tasks it would encounter in combat, but they may be performed differently because the operating conditions, including rules of engagement, will be different. The peace operation in Haiti, for example, required that infantry units conduct mounted and dismounted patrols day and night, perform cordon and search, carry out reconnaissance, and provide security. These tasks are typically performed in a combat operation. However, in Haiti the night patrols were conducted under full illumination, as a show of presence, rather than in a more stealthy manner, as is the case in war. Further, in the cordon and search operations, before the military entered a building, occupants were given an opportunity to leave peacefully, and searches were conducted with limited inconvenience to the populace. This procedure reduced the level of violence and collateral damage that is likely to occur in war. DOD and non-DOD studies and our own work on this subject indicate that, even though there can be considerable overlap between skills required for peace operations and those required in war, personnel assigned to peace operations missions need some degree of additional preparation. Increasingly, military officials have recognized that peace operations pose a different set of challenges for the military, particularly ground forces. The Army’s peace operations field manual states that units selected for these duties may be required to perform tasks that may be different from their wartime tasks and that training will be required. Military officials have noted that forces must learn to adjust to the unique rules of peace operations, such as restrained use of force. In addition, special training is needed to sensitize forces to local conditions, cultures, and laws, since ground forces will have extensive contact with the local populace and with government and nongovernment organizations. While aviation forces perform similar tasks in peace operations and war, they, too, have to adjust when participating in peace operations. As a result of the shoot down of two U.S. Army Black Hawk helicopters participating in Operation Provide Comfort in Turkey in April 1994, the Air Force has increased training requirements for many of the Air Force units participating in peace operations. For example, to better prepare for peace operations missions, the Airborne Warning and Control System (AWACS) crews are undergoing (1) increased and improved study of the rules of engagement, including situational exercises, prior to deployment; (2) better predeployment training, including a certification briefing for their squadron commanders demonstrating their readiness for flying in the specific area of responsibility; and (3) increased training at the deployed location, including another formal, documented certification process. In addition, the Air Force has issued guidance for (1) fighter combat crew training to incorporate theater-specific rules of engagement and situational training into academic, simulator, and flying training; (2) major commands to develop a standard training program on theater orientation; and (3) the fielding of a computer-based aircrew visual identification training program. Traditionally, Army and Marine Corps units begin training for the unique aspects of peace operations after the units have been notified of their participation. However, several commanders of major combat forces in the Army and the Marine Corps have incorporated some peace operations training into standard unit training. They have done so for several reasons. First, they believe that as infantry, their units likely will be the ones tasked to respond to peace operations. Second, they believe that regular training for some peace operations tasks and conditions reduces the preparation time needed prior to deployment and allows their units to focus on more mission-specific requirements. Third, the commanders believe that they will encounter some of the peace operations tasks and conditions, such as the media, refugees, and civilian communities, on future complex battlefields. Following are descriptions of the training approaches of U.S. Army, Europe, units, the 25th Infantry Division (L), and I MEF. The major Army combat units in Europe—the 3rd Infantry Division (Mechanized) and the 1st Armored Division—have incorporated peace operations tasks as a regular part of their collective training events because of current involvement and likely future involvement in peace operations. In addition, U.S. Army, Europe, officials stated that the training used for peace operations is also part of what is required to operate successfully on complex battlefields. Peace operations training is incorporated both at home stations and into rotations at the Army’s CMTC.In 1993, U.S. Army, Europe, incorporated a peace operations training module into each of its maneuver battalion’s annual 21-day CMTC rotations. This module, which lasts 2 to 5 days, is mandatory for all U.S. Army, Europe, units. CMTC utilizes a complex battlefield environment to test a battalion’s ability to accomplish missions under two separate U.N. mandates—peacekeeping and peace enforcement. Peacekeeping missions tested in the module include establishing, operating, and reinforcing observation posts and checkpoints and securing convoy operations. Peace enforcement missions include, for example, monitoring the separation zone between belligerent parties, attacking and defending. As of October 1994, 20 U.S. Army, Europe, maneuver battalions had completed the module, and many battalions have gone through the program twice. U.S. Army, Europe, has identified the following critical tasks as fundamental to peace operations: conduct patrols, establish/operate observation posts, set up/operate checkpoints, plan for media, conduct liaison/negotiate, escort a convoy, react to an ambush, respond to indirect fire, establish lodgment, provide command and control, conduct mine clearance, and secure a route. CMTC uses these critical tasks in its rotations and suggests that U.S. Army, Europe, leaders also use them to prepare and train for peace operations and evaluate unit readiness. In addition to identifying tasks and missions, CMTC developed a Peacekeeping Operations Mission Training Plan to (1) assist units in home station training, (2) serve as a training readiness standard for assessing how well a unit performs its mission essential tasks, and (3) establish a foundation for predeployment training for units tasked to support a U.N.-sponsored peace operation. The training plan combines the previously identified tasks with corresponding training and evaluation outlines. According to 25th Infantry Division (L) officials, the Division Commanderbelieved that incorporating some peace operations training in standard unit training can enhance combat skills and capabilities, since troops will likely encounter many of these tasks and conditions on complex future battlefields. Further, the Commander believed that by preparing for peace operations in advance, the Division can focus on more mission-specific requirements once tasked to respond to a peace operation. The Commander regularly included the following elements in the 25th Infantry Division (L)’s battalion and brigade exercises: civilians on the battlefield, interaction with nongovernmental organizations, the media, coalition and U.N. forces, and use of crowd control measures. From January to April 1995, the Division participated in the Haiti peace operation with the primary mission of maintaining a stable and secure environment. The Division had about 7 weeks’ notice of its deployment and spent about 3 of those weeks planning for the mission. Representatives went to Haiti to obtain a clear understanding of the mission and the operating environment. The Division also worked closely with a representative from the Center for Army Lessons Learned to gain additional perspectives on the operating environment and training needed, coordinated with the 10th Mountain Division (L), and received assistance from a JRTC Mobile Training Team. The remaining time was devoted to mission-specific training and other deployment requirements. According to Division officials, each infantry battalion spent about 7 days on weapons qualification/close quarters combat training, 10 days on situational exercises, and 6 days on leader training. Combat support and combat service support units spent approximately 10 days on specialized training for Haiti. Finally, equipment and order preparation, deployment briefings, and loading of equipment on the ships consumed the remaining time. In its training, the Division concentrated on 31 tasks that had been identified through mission analysis and coordination with 10th Mountain Division (L) and Center for Army Lessons Learned representatives. Each task was instructed in the classroom, discussed in relation to the rules of engagement and the uses of graduated responses, and then the task was practiced under field conditions in hands-on situational training exercises. Tasks included day and night patrols, checkpoint operations, convoy operations, civil disturbance, military operations in urban terrain, and political rallies security. The Division had not previously participated in a peace operation; however, one of its brigades had completed a peace enforcement rotation at JRTC a few months earlier, and the other brigade had just completed an internal evaluation exercise that included operations other than war tasks. According to Division officials, both experiences provided a good base from which to add other mission-specific peace operations training and significantly contributed to their successful performance in Haiti. Based upon his experiences in Haiti and the training received at JRTC, the Commander articulated a 5-pronged training strategy that would more extensively integrate the tasks and conditions of operations other than war into standard unit training for light Army infantry units. He directed most of his points to the training conducted at Army combat training centers, in particular JRTC. They are as follows: Integrate operations other than war factors into conventional training. Periodically participate in a peace enforcement rotation at an Army combat training center. Integrate a 1-or 2-day optional peace enforcement package into the leadership training program at Army combat training centers. Integrate peace operations into a program of instruction at the command and general staff college and at the war college. Dedicate some operations other than war training for leaders in the following areas: intelligence, coalition logistics, measures of effectiveness, negotiation skills, country team relations, nongovernmental organizations, U.N. agencies, media management, and psychological operations. The I MEF Commanding General at Camp Pendleton, California, believes that standard unit training may need to address some aspects of peace operations that differ from more traditional combat operations, such as the employment of nonlethal systems and equipment. Incorporation of those aspects can be done, he believes, without degrading the combat capability of U.S. military forces and may in fact enhance combat capabilities, based on his past participation in peace operations. While the General believes that the most effective training for peace operations is training centered on basic Marine fundamentals, he also believes that operations other than war are here to stay and that the U.S. military needs to be able to respond effectively to them. The General was tasked with forming the command element of a Combined Task Force to secure the withdrawal of U.N. peacekeepers from Somalia. Operation United Shield, which began in February 1995, involved the 13th Marine Expeditionary Unit—Special Operations Capable (which at that time was forward-deployed in the Persian Gulf), command staff from I MEF, and certain other Air Force, Navy, and Army personnel. Standard training in combat and operations other than war prepared the forces for this operation. However, when it became clear that unarmed hostile elements in Somalia could pose a substantial threat to withdrawing U.N. forces, the I MEF Commander trained his forces while en route to Somalia to use nonlethal systems and equipment to provide a graduated response capability. (Ch. 4 provides detail on nonlethal systems and equipment.) As part of its regular training for operations other than war, I MEF has conducted an exercise in each of the last 2 years, called Emerald Express, to test, validate, and refine a concept of operations for conducting emergency humanitarian relief and peace operations. The 1994 exercise was computer-generated; the 1995 exercise included a two-phase conference preceding a joint task force-oriented staff exercise. According to I MEF officials, the Emerald Express exercise will enable I MEF to meet its required mission as the joint task force for a peace or humanitarian operation in the U.S. Central Command operating area and will support a number of longer-term efforts, such as a Commander’s handbook for humanitarian assistance and peace operations. The 1995 conference and exercise resulted in a number of recommendations. In the area of preparedness and training, the summary report states that disciplined and adaptable military forces are well-suited to meet the demands of most missions. Nevertheless, the report states that humanitarian assistance and peace operations require certain skills that justify increased training emphasis, even though the military currently trains in most of these areas. In particular, the report recommends that the military bolster skills in military operations in built-up (urban) areas, crowd control methods, and negotiating. Some commanders in the Army and the Marine Corps prefer to place exclusive emphasis on combat-oriented training. They believe that this training is the best preparation for peace operations, particularly given the potential that violent scenarios may erupt that will require more combat-oriented skills. They also believe that peace operations-specific training can be provided to forces after they have been notified of their participation in such an operation. Following are descriptions of the training approaches of the 10th Mountain Division (L) and II MEF. The Commander of the 10th Mountain Division (L), which deployed to Haiti from September 1994 through January 1995 and participated in the Somalia peace operation in 1992 and 1993, stated that standard Army training is the best preparation for peace operations. He believes that many combat tasks are also applicable to peace operations. During unit training at home stations and at Army training facilities, the 10th Mountain Division (L) focused on combat training. When tasked to respond to a peace operation, the Division has provided mission-specific training, time permitting, during the period prior to deployment. The Division received formal notification of its Haiti tasking approximately 30 days prior to deployment. Based on initial operational plans, the Division was to make a forced entry. Therefore, preparatory training had a combat-orientation. It then assembled a group of officials from the U.S. Atlantic Command, the Army, and other U.S. government organizations to help prepare the Division for its mission. In early August 1994, the Division Commander issued training guidance in preparation for the Haiti mission, including tasks for particular emphasis. These included convoy and convoy security, security of nongovernment/private volunteer organizations, cordon and search, embassy security, noncombatant evacuation operations, aviation deck qualification (to operate from aircraft carriers), air assault, strike force operations, port security, and military operations in urban terrain. The Division had about 15 days for training once it had analyzed its mission, built a mission training plan, and accomplished the myriad of other tasks required to deploy. The tasks were rehearsed through the combined joint task force and maneuver forces and then carried out in company level live fire exercises, day and night, involving combined arms, AC-130s, and Cobra gunships. According to Division officials, the objective was to tune the force to the roughest situation that might be encountered, such as a night fire fight in downtown Port-au-Prince. The soldiers and leaders would then be ready for whatever might happen. Some Division units trained to a limited extent on peace operations-specific conditions during this period, such as dealing with the local populace, crowd control, use of cayenne pepper spray and riot control gear, and specifics concerning the cultural environment. Because of the limited preparation time, however, units primarily stressed standard combat skills. According to Division personnel we interviewed, the Division’s previous peace operations experience in Somalia was key to its ability to deal with some of the challenging peace operations-specific tasks it undertook in Haiti. However, in a written response to us about predeployment training, one brigade official stated that crowd control and country training (e.g., culture and language) should have been stressed further during predeployment training. In recent peace operations, Marine forces have provided initial force presence and then were replaced by other forces, usually Army, that remained for a longer time period. As a result, some Marine commanders believe that Marine forces may not need as much special peace operations training as does the Army. The Commanding General, II MEF, believes that standard Marine training should maintain a strong combat focus rather than include additional peace operations tasks. Furthermore, he believes that standard Marine training already includes some of the tasks Marine personnel may perform in a peace operation, such as noncombatant evacuation operations, military operations in urban terrain, and crowd control, and that more mission-specific training should be provided after notification of deployment. In a case recently with one of his units, the limited notification time prevented much training prior to deployment, but the unit did have time once in theater to train to special requirements. Specifically, in the summer of 1994, the 2nd Battalion of the 2nd Marine Division and other Marine forces were tasked to respond to worsening conditions in Haiti. With no more than 3 weeks to prepare, the battalion focused on high-priority training requirements and on other necessities such as ensuring all personnel had required immunizations. The battalion conducted additional training en route and in the Caribbean area of operation. According to battalion officials, the additional training time was beneficial, particularly since the unit had received limited predeployment training. The training included a noncombatant evacuation exercise, a tactical recovery of aircrew and personnel, live fire and maneuver training, and some training in civil disturbance and crowd control techniques. When units are identified well in advance for an operation, special training has been provided. Units involved in long-standing peacekeeping operations, such as in Macedonia and in the Sinai, have received extensive predeployment training. These units are notified from 4 months to 1 year before their deployment and obtain about 3 months’ training depending on the type of unit and its function in the operation. Since July 1993, the U.S. Army, Europe, has regularly supplied between about 300 and 500 Army personnel, on a 6-month rotation, to support Operation Able Sentry in the former Yugoslav Republic of Macedonia. This U.N. operation requires deployed units to monitor the border areas of Macedonia, with Albania, Serbia, and Montenegro and report any development that could undermine confidence and stability in Macedonia or threaten its territory. Of the five deployments since June 1993, four involved mechanized infantry units and one involved an infantry unit. A mechanized infantry unit typically devotes a majority of its time training with the Bradley Fighting Vehicle. Since Operation Able Sentry requires basic infantry skills, the mechanized infantry units train significantly differently for this operation than they would for a combat operation involving their Bradley Fighting Vehicles. Units deploying to the Sinai as part of a 6-month rotation to the MFO typically are light infantry units based in the United States. Their primary mission in the Sinai is to observe and report all military activities in the area of operations to all parties to the Treaty of Peace between Egypt and Israel. Some of the tasks MFO infantry battalions perform as part of the mission, and for which they obtain training, include conducting vehicle patrols, establishing and occupying temporary observation posts, and observing and reporting (1) incidents and possible violations and (2) navigation of ships through the Strait of Tiran and within the Gulf of Aqaba. When operations result from developing world conditions, initial deploying units may not have time to conduct special training prior to deployment. For example, the Marine Corps battalion that deployed to Haiti in August 1994 received 3 weeks’ notice. Units from the Marine Corps’ I MEF and the Army’s 10th Mountain Division (L) received fewer than 3 weeks’ notice before deploying to Somalia in 1992. Initially deploying units to the 1994 humanitarian operation in Rwanda received less than 2 weeks official notification of their participation. Under these circumstances, units tasked to the Haiti and Somalia peace operations focused on ensuring that priority combat skills and capabilities were practiced before deployment. They tried to obtain additional training en route to the operation and/or in the operating theater. A June 1995 interim report by the Center for Army Lessons Learned confirms that with little advance notice, units designated for a peace operation spend most of their time executing their deployment standard operating procedures and have little time left for special training. It is difficult to assess the effect that receiving or not receiving peace operations training can have on a unit’s ability to carry out its mission in a peace operation. A number of factors are involved in such an assessment, including the nature of the operation and the unit’s prior peace operations experience, if any. In addition, measures of success for a peace operation are not easily identified. The Center for Army Lessons Learned, for example, has provided after-action reports and lessons learned, based on anecdotal information, concerning the positive effect of providing training in the unique aspects of peace operations. However, there is little evidence that links the lack of specific training to the failure to perform a task or to respond effectively to a particular situation. Despite this difficulty, a growing number of military and nonmilitary officials are acknowledging that some training in operations other than war should be incorporated into standard unit training for units likely to perform these missions because the time may not be available prior to deployment. The Director of the Army Peacekeeping Institute, for example, stated that he believes a well-trained and disciplined unit is the best foundation upon which to prepare for a peace operation, but he stated that he also firmly believes that additional peace operations specific training is needed and that it cannot be delayed until the unit is alerted for a mission. Other Army and Marine Corps officials with whom we spoke said that familiarizing military personnel with the types of conditions they may encounter in a peace operation, on a regular basis, increases confidence, may benefit combat capabilities, and reduces the likelihood of incidents that may cause political embarrassment to the United States. Combat skills can atrophy if not used or practiced repeatedly. Each peace operation offers unique conditions that may affect combat capabilities differently, depending upon the nature and duration of the mission and other variables (such as the type of unit involved and skills employed). These variables also affect the amount of time needed to recover war-fighting skills after a peace operation. The recovery period is longest for ground combat forces. According to various senior military commanders who participated in peace operations, the erosion of combat proficiency can be alleviated by (1) selecting units with the most applicable skills for a peace mission, (2) limiting the length of the deployment by rotating forces if necessary, and (3) providing quality in-theater training opportunities. According to DOD, readiness for combat is the highest priority for U.S. military forces in order for them to fight and win the nation’s wars, should deterrence fail. Forces engaged in a peace operation could be called upon either during or shortly after the operation to redeploy to a higher intensity conflict where combat skills will be critical to mission success and the survival of individual service men and women. Each peace operation differs in terms of its effect on a unit’s combat capability. Some operations provide excellent experience that can improve the ability of various types of military units to operate in combat scenarios; others may benefit only certain types of units. The following variables determine the extent to which peace operations affect combat capability and the time needed to recover from a peace operation: skills used/not used, length of participation, and in-theater training opportunities. Of the ground combat forces, mechanized infantry, armored units, and units that are heavily equipment dependent (such as artillery) face the greatest combat skill erosion when they participate in a peace operation, particularly when they participate without their equipment and perform tasks that are significantly different than the combat tasks to which they train. This has been the case in recent operations. For example, a mechanized infantry unit from the 3rd Infantry Division in Europe experienced significant combat skill degradation during its 6-month deployment to Operation Able Sentry in 1994. Most of the required tasks were different from the unit’s war-fighting tasks. For example, the major task in Macedonia was to observe and report. However, the unit’s combat tasks included breaching an obstacle, attacking, defending, and supporting by fire. The unit deployed without its primary tactical vehicle, the Bradley Fighting Vehicle, and did not have access to a Bradley simulator while in Macedonia. Furthermore, U.N. guidelines prohibited the unit from engaging in maneuver or other collective training in Macedonia. Lack of training in gunnery and maneuver skills resulted in degraded combat capabilities. Upon redeployment, the unit received the lowest score in its divisionwide Bradley qualification test. With 3 months of training, the unit increased its readiness ranking to satisfactory. Infantry units also experience combat degradation, particularly in maneuver and collective skills, when they participate in a peace operation.However, the skill degradation is less than for the heavier, more equipment-dependent units. In its comments to a draft of this report, DOD noted that the greatest impact comes from removing a unit from its normal training cycle managed by its higher headquarters. Each of the services requires repetitive, cyclical collective training events that are progressive in nature. At the higher end of this progression, resources such as training areas and ranges, unit combat equipment, and access to simulators become critical in maintaining combat capability. In most instances, these resources are not available at deployed peace operations locations. This problem can be exacerbated if a unit is separated from its basic combat equipment, as is the case with Operation Able Sentry in Macedonia. Further, the quality of the maintenance on that stay-behind combat equipment during the deployment is key to the eventual retraining process back to a war-fighting focus upon return. Commanders of Army and Marine Corps support units that have participated in peace operations stated that the operations did not significantly degrade their capabilities. In most cases, their capabilities were enhanced, they said, because the support requirements for a peace operation are similar to those for war. For example, officials from the 10th Division Support Command of the 10th Mountain Division (L) stated that the Command’s expertise was enhanced by supporting a real logistics mission. The primary limitation to maintaining skills, according to these officials, was placing units in static locations as opposed to a fluid battlefield environment, which requires coordinated actions. Similarly, the Commander of the 10th Military Police Battalion told us that the Haiti mission coincided with military police training and doctrine. However, some skills directly related to the military police combat mission, such as attack skills, did deteriorate because they were not used in the operation. The return and maintenance of equipment is an important factor in restoring combat readiness to support forces, since equipment such as trucks, engineering equipment, and water purification units is an integral part of support operations. After participating in the Somalia peace operation, for example, some 10th Mountain Division (L) support units encountered readiness difficulties due to the slow return of their equipment and its poor condition once returned. Representatives from special operations units stated that for Civil Affairs, Psychological Operations, and most Special Forces units, the skills they use in peace operations are similar to those they expect to use in war.They point out, however, that the different operating conditions may require that some of their skills be used differently. For example, while message dissemination is a requirement of Psychological Operations units in both war and peace operations, the method of dissemination may differ. Peace operations require more face-to-face contact with the local population. While peace operations have generally enhanced the combat capabilities of special operations units, representatives noted that the high operating tempo since the end of Operation Desert Storm has, in some cases, made it difficult for personnel to attend schools and accomplish other requirements to maintain special skills (e.g., languages and other regional skills). Peace operations can provide excellent experience in many of the skills a light infantry unit might require in a combat operation, such as command and control, intelligence, logistics, individual and team training, deployment training, and staff experience. The Commanders of the 10th Mountain and 25th Infantry Divisions (L) stated that their forces received valuable experience by participating in the Haiti peace operation and that many capabilities improved by participation. In responding to a question from the Chairman of the Joint Chiefs concerning his division’s combat readiness, the Commander of the 25th Infantry Division (L) stated that because of this participation, the Division’s overall mission capability improved from a 7+ score (on a 10-point scale) before deployment to a 9 afterwards. While participating in a peace operation can improve a unit’s overall operating capabilities, certain skills and capabilities may be degraded because they are not practiced during the operation. According to the I MEF Commander, the skills at greatest risk for atrophy during an operation other than war are technical skills that are not employed and maneuver skills that require close coordination and integration. In Haiti, there was no need for artillery, air defense, or Tube-launched, Optically-tracked, Wire-guided (TOW) missile fire, nor was there an opportunity to practice those skills at a training range. The 10th Mountain Division (L) deployed with some of its artillery personnel, but they performed staff, security, and miscellaneous functions. Since the personnel did not deploy with their howitzers, they could not engage in fire support activities or train with their primary mission equipment. Upon return from Haiti, artillery units rated lowest (along with air defense) of all 10th Mountain units in combat readiness. However, according to unit commanders, the units recertified their ability to deliver artillery fire within 6 weeks. Even light infantry forces that participate in peace operations do not always have the opportunity to fully use the skills they might encounter in war. For example, the static security mission in Haiti (guarding the Presidential Palace and other key facilities) required only limited combat skills; however, commanders rotated military personnel to the training range on a regular basis where they could practice to some extent the skills not used in the actual operation. Traditional peacekeeping operations, such as those ongoing in the Sinai and in Macedonia, involve significantly different operating conditions than can be expected in war, and many combat skills cannot be exercised. In the Sinai, for example, U.S. battalion-size light infantry units are assigned to the MFO for 6-month rotations to operate checkpoints and observation posts and conduct reconnaissance patrols in security zones within the Sinai Desert, Egypt, and Israel along the international border. While some skills such as common soldier skills, individual weapons proficiency, land navigation, and situation reporting can be practiced during MFO deployments, training for many combat skills, particularly at the company level and above, is prohibited under the terms of U.S. participation in the MFO. According to MFO officials, the following training cannot be conducted during MFO deployments: movement to contact (at company level and above), military operations in urban terrain, crew-served weapons, platoon-level patrolling, ambushes, secure communications, and airborne/airmobile operations. DOD sources stated that once MFO units return to their home stations, they generally require a month to restore individual skills and up to 3 months to restore collective skills. Unit commanders estimated that missions lasting 4 to 6 months and longer are more likely to cause more significant degradation of combat readiness and require more extensive restoration periods than shorter missions. The Commanders of the 10th Mountain Division (L) and the 25th Light Infantry Division (L) attributed the relatively limited combat degradation of their units during the Haiti operation in part to their limited participation—about 4 months each. Similarly, the average deployment time for Army units participating in the Somalia operation was 3 to 4 months. Units remaining beyond that time experienced more significant combat skill degradation, according to unit commanders. Because the Marine Corps’ role in peace operations generally has been of shorter duration than the Army’s, the impact on Marine Corps combat skills has been relatively minimal, according to Marine officials. In Haiti, for example, the Marine Corps’ mission was to establish a secure and stable environment in the Cap-Haitien area of northern Haiti. Since they were replaced by Army troops after only about 2 weeks in-country, commanders said that combat skills deteriorated very little and recovered quickly once training resumed. Recent peace operations have provided various opportunities for in-theater training, particularly in individual skills. According to the I MEF Commanding General, for example, commanders need to be creative and take the initiative with regard to in-theater training. He firmly believes that in most cases, in-theater training can be provided to minimize combat skill loss. In Haiti, 10th Mountain and 25th Light Infantry Division (L) personnel rotated regularly to a sophisticated training facility constructed at a former Haitian military firing range. The facility enabled units to conduct live fire and maneuver training. According to 25th Infantry Division (L) officials, infantry companies trained 2 or 3 days every 3 weeks, time permitting, and support unit training occurred at the squad and team levels as time allowed. This prevented skill loss, particularly for infantry personnel assigned static security missions where they could not utilize all of their infantry capabilities. During the 1992-93 peace operation in Somalia, numerous training sites were available to reduce combat skill atrophy. While the sites were not as sophisticated as the training facility in Haiti, forces were still able to practice individual weapon skills. While in-theater training facilities enable general infantry forces to maintain many of their combat skills, these facilities typically have not provided training opportunities, beyond basic soldier skills, for artillery and mechanized infantry personnel that participate in peace operations. Using combat simulators is a way to obtain this training; however, simulators have not always been available to deploying units, as in the case discussed earlier of mechanized units that deployed to Macedonia. Some Army commanders are making an effort not to deploy units whose primary mission skills will degrade significantly by participating in a peace operation. Because of a need for personnel, the 10th Mountain Division Commander used artillery personnel to perform miscellaneous functions in Haiti; however, they generally did not stay for more than 2 months at a time. According to the Secretary of Defense, it is difficult to estimate the amount of time required to restore a unit’s combat effectiveness across the full range of missions after participating in a peace operation because restoration time varies greatly depending on the nature of the operation and the type of unit involved. While each peace operation is different, Army commanders generally estimate a range of 3 to 6 months to fully restore a unit’s war-fighting readiness after a peace operation. This period includes block leave (usually 2 weeks), administrative duties, return and maintenance of equipment, and retraining in combat skills. In addition, a large amount of personnel turbulence can occur during this period, particularly if it is summer. After returning from an operation, personnel often move to other units, change jobs, or attend required training courses at service schools. This turbulence affects the ability of the unit to return to combat ready status. Table 3.1 shows the various phases a unit goes through while returning to combat readiness. The 3-to-6 month recovery period is based on units’ rotating or redeploying from a peace operation absent the requirement to reinforce other forces involved in a major regional conflict. Under more urgent conditions, according to DOD, the recovery period would almost certainly be shortened by freezing reassignments, curtailing leave and nonessential temporary duty, and taking other measures. As previously noted, the recovery time for Marine ground combat forces generally has been less because the Marine Corps’ participation has been for shorter duration. For all ground combat forces, maneuver and collective skills require the greatest attention once participation in a peace operation is completed. After participating in the Haiti operation, combat skills for Army ground combat forces were restored in about 3 months. In assessing the condition of their divisions following participation, the Commanders of the 10th Mountain and 25th Infantry Divisions (L), whose units were in Haiti for approximately 4 months, believed that it would take about 3 months for their Divisions to return to combat ready status. The Commander of the 10th Mountain Division (L) reported the Division as combat ready on May 1, 1995, about 90 days after returning from its 4-month deployment to Haiti. He attributed the relatively quick recovery period in part to the limited deployment time—from September 1994 to January 1995, the high level of readiness beforehand, and the construction of a live fire range in Haiti. Of key battlefield capabilities, fire support and air defense, in particular, required the most training because they were not practiced in Haiti. During the restoration period, the Commander emphasized the need for division and brigade combined arms operations and synchronization of all operating systems. In addition, collective training needed emphasis, with an objective of building up to rigorous brigade-level combat exercises scheduled for October and November 1995 at the Army’s JRTC. Although the Division was designated as combat ready, unit commanders have identified key mission essential tasks that still require a training emphasis. In April 1995, for example, both brigade commanders assessed the movement to contact, attack, and defend tasks as requiring additional training. The 25th Infantry Division (L), which replaced the 10th Mountain Division (L) in Haiti, reported some atrophy in skills not practiced in Haiti such as maneuver (company level and above), combined arms integration, marksmanship, and rapid strategic deployment procedures. Upon redeployment, the Division planned to concentrate its training effort on these four skills. Division officials estimated that battalion size units would be combat ready after one 6-week training cycle. Building up to higher level unit readiness would take longer. For example, the Commander of the 2nd Brigade, who returned from Haiti in June 1995, stated that it would take about 3 months for his brigade to be combat-ready. The brigade could have been ready in 1 month if it had been able to focus exclusively on training. However, other obligations, such as assuming guard and other miscellaneous duties, supporting National Guard annual training, attending required schools, and taking leave, meant that the brigade could not train continually. Furthermore, the Division was reorganized, which disrupted the remaining two brigades through downsizing. According to the 2nd Brigade Commander, indirect fire (artillery and mortars) and maneuver integration were the functions most degraded as a result of the Haiti peace operation. Although the brigade attained a combat ready status by the end of August 1995, he estimates that the brigade will be fully trained in all mission essential tasks by November or December 1995. The aviation skills required for war are not substantially different from those required for peace operations. However, the flying conditions are sufficiently different that retraining is required for most aircrew members to restore combat proficiency. In March 1995, we reported that peace operations have resulted in (1) missed training exercises that provide the most realistic combat training; (2) waivers for aircrews who could not complete required training events; and (3) shortages of aircraft at home stations, which limit training opportunities. The Air Force has taken some measures to reduce the stress on their aviation units, but the operational requirements of peace operations still affect their ability to train for more combat-oriented missions. Aircrews flying extended hours in peace operations sometimes do not get the opportunity to train to the broad range of skills necessary for maintaining combat proficiency. U.S. Air Forces in Europe said that participation in peace operations requires most aircrews to retrain in one or more combat events, such as air-to-air (basic fighter maneuvers, air combat, and low altitude intercepts) or air-to-ground (weapon delivery, surface attack, and terrain following radar at low levels). As a result, it can take up to a month to ready these aircrews for a major conflict. The Air Force believes the erosion of combat proficiency is manageable in the short term by expanding the involvement of other units, particularly from the United States, to allow participating units time to recover sufficiently from an operation. Due to Operation Deny Flight, F-15E squadrons forward deployed in Aviano, Italy, had to defer much of their normal training in fiscal year 1994. Consequently, as of September 1994, all major war-fighting skills were degraded, and half the pilots had not dropped a practice bomb 2 months into the training cycle. F-15E and F-15C squadrons from Lakenheath, United Kingdom, said that although 4- to 6-week rotations help minimize the erosion of combat proficiency, over the long-term pilots progress more slowly in their training for high-threat scenarios because of periodic deployments to peace operations. They pointed out that postponing or canceling major live-fire exercises, as was done in 1994, exacerbates the problem. Because of Operations Deny Flight and Provide Comfort, the squadrons would need 3 weeks of combat training to be ready for a major conflict. According to Air Force officials at Lakenheath, no major exercise participation had been deferred or canceled in fiscal year 1995. F-15C, F-16, and A-10 squadrons based in Spangdahlem, Germany, also encountered difficulty in maintaining currency on selected training events as a result of their participation in peace operations. The recovery period for an individual varied from a day or 2, to up to 3 weeks, depending on the length of the peace operation deployment. One A-10 squadron commander estimated a 4-week retraining period would be required to regain full combat readiness. The only EF-111 squadron in the Air Force participated in Operations Deny Flight, Provide Comfort, and Southern Watch. EF-111 crews gained valuable experience during the operations, but they did not get to practice low-level flight, terrain following radar, or emergency procedures. Squadron officials said several sorties would be needed to prepare for combat. As with the Air Force, representatives of the naval air community said that peace operations interrupt combat training and that patrolling no-fly zones, for example, provides minimum combat training value. Also, quality training time is difficult to obtain during peace operations either because of flying restrictions (e.g., no bombing runs or low-altitude flight) or because of the lack of time. These operations have required naval aviation units to compress the time typically devoted to combat training. Army and Marine Corps helicopter personnel have encountered similar experiences in peace operations as personnel flying fixed-wing aircraft. While they agree that peace operations can erode combat readiness, they stressed that each operation is different in terms of skills used and not used. According to 10th Mountain Division (L) officials, the Somalia operation provided excellent training in helicopter attack, assault, and support skills. The Haitian operation provided more limited experience. For example, attack helicopters in Haiti had a surveillance, force presence, and security role but did not engage in scenarios using more combat-oriented skills. Unlike in combat, they flew high and slowly. At night they used lights. While there were some training opportunities for attack helicopters to practice low level, instrument, and night flying in Haiti, as the mission progressed, assault and lift helicopters were in great demand, and aircrews had little time to engage in more combat-oriented skills. Some Army and Marine Corps helicopter pilots expressed concern that certifications such as flying with night vision goggles could lapse during peace operations. However, they pointed out that recertification could be obtained quickly after returning to home station. Peace operations have affected the Navy through lost training opportunities and disrupted training schedules. Forward-deployed Navy and Marine forces are designed so that they can respond rapidly to contingency operations, such as peace operations, as well as to war-fighting requirements. Deployed naval forces regularly participate in Operations Deny Flight and Sharp Guard in Southern Europe and Operation Southern Watch in Southwest Asia. Recent peace operations in the Caribbean, however, required that nondeployed ships and crews be used to meet mission requirements. In these cases, ships and their crews were pulled out of basic training and sent to the Caribbean, generally anywhere from 2 weeks to 3 months, with 1 month being the average.According to the Navy, ships were also pulled off other operations and other ships had to rapidly fill the holes, affecting the entire Atlantic Fleet schedule. According to the Navy, this domino effect disrupted the entire training program. Maintenance and training schedules were accelerated, shifted, or deleted as a result of participating in these operations, creating a bow wave of requirements that will carry through fiscal year 1995 and beyond. For example, the Navy estimated that training for the USS Roosevelt carrier battle group was reduced by 20 percent due to the Caribbean operations. According to the Navy, although priority scheduling and a compressed training period aided the participating ships in attaining predeployment readiness status, the stress of having ships participate in these peace operations at the same time they were to be preparing for their regular 6-month deployments was a factor in the Navy’s recent decision to create a special force to handle naval operations in the Western Hemisphere. Navy officials said it is difficult to quantify the impact of lost or delayed training opportunities on combat readiness since various factors affect how a unit performs during its 6-month deployment. According to naval officials, some ships pulled from basic training have not performed as well as other ships on the Combat Systems Inspection, the Total Ship Survivability Test, and the Operational Propulsion Planning Exam—the final evaluations before moving on to intermediate training. Also, naval officials believe that participation in these operations has been a significant drain on the crews and their families because the time ships spend in port has been reduced. The time spent in the Caribbean and any make-up training have come out of this period. The Office of the Secretary of Defense, the military services, and DOD research organizations have been cooperating to identify requirements for applying higher technology to operations other than war as well as to combat. DOD agencies and offices have issued several reports that discuss equipment and technology requirements relevant to such operations. The requirements center on three broad classifications: (1) force protection, (2) equipment for military operations in urban areas, and (3) nonlethalweapons. The Army has conducted much of the research and development toward meeting the requirements and is cooperating with the Marine Corps in studying how to apply new technology to urban warfare. The field is evolving, and to date the new technology has been used in only one peace operation. Because U.S. military vehicles have been vulnerable to land mines and rocket-propelled grenades, the Army has been developing ways for vehicles to provide better protection. An improved armored HUMVEE will help protect Army and Marine Corps personnel against some types of land mines, armored tiles have been tested that can help protect personnel in Bradley Fighting Vehicles from rocket propelled grenades and other munitions, and a new armored security vehicle will enhance the protection of military police. Research and development requirements to improve force protection include methods to locate and neutralize explosives through the use of robotics, unmanned vehicles, air sampling, chemical trace detection, and imaging. Another requirement is better protective armor for individuals against small arms fire or shell fragments. An Advanced Research Projects Agency report placed priority on the following requirements to improve the capabilities of U.S. forces for operations other than war, which often occur in urban areas: advanced night vision equipment to improve current limitations in spatial orientation, range, weight, and power; low-signature unmanned aerial vehicles for reconnaissance, intelligence gathering, chemical testing, communications, and deceptions; mission-kill devices to disrupt equipment or weapons; invisible soldier technology to avoid detection by sensors or night vision devices; reduced visibility aircraft to insert and retrieve troops and equipment in common language voice recognition translator to translate English language voice communications into a foreign language (and the reverse) in real time. Among the additional desired capabilities—when technology and resources permit—were antimortar, antisniper, stand-off precision breaching, underground facilities destruction, and see-through capability for buildings. It is likely that future operations at any level of intensity will involve urban areas; thus, the Army and the Marine Corps plan to jointly sponsor a demonstration project (starting in fiscal year 1996) intended in part to show what types of technologies can be applied to military operations in urban areas. There are a number of potential applications of technology to such operations. The Marine Corps, for example, is interested in improving its artillery target acquisition capabilities, perhaps by combining cellular communications technology with global positioning system technology. According to a Marine Corps official, examples of potential applications of technology to military operations in urban areas include reconnaissance, surveillance, and target acquisition; situational awareness; communications; navigation; discriminate application of power; antisniper; mission planning; and combat service support. Nonlethal weapons are particularly applicable to the lower end of the spectrum of conflict: humanitarian and peace operations. The weapons can be used to discourage, delay, or prevent hostile actions, and they can help prevent or limit the escalation of violence or allow military intervention where lethal force would be undesirable. For example, sticky or slippery substances can be used to impede the mobility of hostile forces, and nonlethal munitions can be used to control crowds or deal with combatants who are intermingled with civilians. Further, nonlethal weapons can help protect U.S. forces. At the higher end of the spectrum, nonlethal weapons may also be applicable in certain situations to deny an enemy the use of assets without destroying them or to avoid costly reconstruction of infrastructure after the conflict. The Dismounted Battlespace Battle Laboratory at the Army Infantry School, Fort Benning, Georgia, has the key responsibility within the Army for identifying user needs for nonlethal weapons throughout the Army. Because of its familiarity with the use of nonlethal weapons in law enforcement, the Military Police School at Fort McClellan, Alabama, has also played an important role in identifying nonlethal technology. Through a Nonlethal Requirements Working Group, the Army has brought together representatives of the Army Training and Doctrine Command and the Army Materiel Command to plan for the use of nonlethal weapons. In the near term (1995-97), the Army is researching and developing technologies such as nonpenetrating projectiles, less-than-lethal antipersonnel mines, foams and nets that entangle and immobilize individuals, stun weapons to subdue or immobilize personnel, low-energy lasers to temporarily disrupt vision, and calmative agents to incapacitate personnel. For the long term (1997 and beyond), the Army has identified technology programs to ensnare vehicles with nets and meshes, make traction difficult, disable or destroy engines, prevent the movement of personnel with super adhesives, disorient and confuse personnel with high-intensity pulse lights, and disorient or incapacitate personnel with noise. Because peace operations usually take place in urban environments and, therefore, involve combatants and noncombatant civilians, technology and equipment requirements are predominantly a ground force issue. The Air Force and the Navy have not been as involved in identifying technology that applies to operations other than war because they operate similarly in peace operations and combat operations. However, the Advanced Research Projects Agency report suggested that technological improvements will be needed to improve force projection capabilities through all-weather, low-cost strategic airlift platforms to rapidly transport multipurpose forces. The aircraft characteristics would include high speed, high payload, long-range, and quick turn-around delivery. The report also suggests an offshore airlift and sealift capability in terms of a floating logistics base that can be used for uninterrupted sustainment of on-shore operations while minimizing the exposure of personnel and equipment in-theater. The first use of nonlethal equipment by U.S. forces occurred during Operation United Shield to safely withdraw U.N. forces from Somalia. In planning for the mission, the force Commander was concerned about the potential intermingling of combatants with noncombatants in Somalia, a tactic used by armed militiamen in the past. He decided to use nonlethal weapons to avoid harming unarmed civilians and to keep mobs away from U.S. or U.N. positions and activities. Marines applied sticky foam, aqueous foam, and road spikes to help protect the forces withdrawing from Somalia. These nonlethal weapons were used as obstacles and barriers to prevent Somalis from coming into direct contact with U.S. and U.N. forces. A number of other such weapons were available had the situation required their use. For example, the Marines brought stinger grenades and a variety of nonlethal munitions, including rubber pellet cartridges, bean bag rounds, foam rubber rounds, and wooden baton rounds. The Marines also had lasers for illumination and targeting purposes. The Commander obtained approval within the Marine Corps to acquire and provide training on nonlethal systems. DOD authorized the use of selected lower technology nonlethal weapons in Somalia under rules of engagement similar to those for using lethal weapons. Because the nonlethal weapons were not standard and approved systems, Marine Corps officials reported delays in obtaining approval for using the equipment and in receiving the rules of engagement. Some higher technology items were not approved for use because they were not fully developed and tested or because of legal and policy concerns. These items included blinding lasers (which destroy or degrade optics or electronic devices) and several antipersonnel systems such as dazzling lasers, low frequency infrasound, and radio frequency systems. The Marine Corps formed a team that (1) developed and provided training on nonlethal systems and tactics to a selected battalion and (2) served as advisors in Somalia. One company within the battalion was designated as the primary force to use nonlethal equipment ashore. Marines from this company, however, also carried lethal weapons or lethal ammunition that could be used in lieu of nonlethal weapons or munitions if the situation required the use of deadly force. In addition, other Marines were armed with lethal weapons to ensure force protection. The unit equipped with nonlethal weapons received about 30 days of training on the equipment. The Marine Corps learned a number of lessons from its experience with nonlethal technology in Somalia. In responding to our questions on the use on nonlethal equipment, senior I MEF officials who planned and participated in the operation stated that the experience revealed shortcomings in the U.S. capability to identify and deploy military nonlethal systems. Specifically, because a joint task force commander should have a wide range of alternatives to control belligerents, they stated that nonlethal systems need to be developed and acquired in sufficient quantities to deploy with a task force. In a written response to us, the I MEF Commanding General expressed the need for separate, distinct, and flexible rules of engagement for nonlethal weapons and for training exercises to stress rules of engagement decisions at the tactical level. According to the response, limiting the use of less lethal technologies to the same conditions as deadly force in the rules of engagement caused confusion at all levels during Operation United Shield and was self-defeating. The systems could only be used under the same circumstances as lethal weapons, which would be when the security situation had already become critical. While the Marines made the situation work, it was not how they would have preferred to operate, according to the Commanding General. In responding to a draft of this report, DOD took issue with I MEF’s position on rules of engagement, stating that there should be one clear, unambiguous set of rules of engagement. Because nonlethal weapons are new and evolving, neither the Marine Corps nor any other service has doctrine or training standards for their use. Consequently, to ensure the availability of nonlethal equipment and trained personnel for future operations, the officials recognized the need for doctrine, training, and approved nonlethal systems. The officials also suggested that public information on the military’s use of nonlethal weapons needs to convey that nonlethal means will be used to control unarmed crowds and will not substitute for deadly force when it is justified. Also, personnel using nonlethal weapons will always be protected by others armed with lethal weapons. Lastly, the Marines learned how certain equipment is best used, and they pointed out that the decision to employ nonlethal options needs to be made at the lowest possible level due to the fluidity of situations and short response time. Nonlethal weapons present unique legal and policy concerns. Because of these concerns, the Office of the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict has drafted a policy statement—currently under review—governing the use of nonlethal weapons. The draft policy defines nonlethal weapons and would establish the policy of using them to allow the maximum possible flexibility in the employment of U.S. military forces across the spectrum of conflict. It points out that nonlethal weapons might be used in some circumstances to achieve military or political objectives while minimizing human fatalities and undesired harm to property or the environment. In operations other than war, the draft policy states that nonlethal weapons can be used to discourage, delay, or prevent hostile actions; limit escalation; take military action where intervention is desirable but use of lethal force would be inappropriate; and better protect U.S. forces once deployed. Nonlethal weapons can provide an effective, reversible, or more humanitarian means of denying an enemy the use of human and material assets and may also reduce the postwar economic cost of rebuilding. The draft policy places responsibility on the military services for developing and acquiring nonlethal weapons and developing doctrine, employment concepts, tactics, training, and logistics support for fielded systems. Priority is to be placed on acquiring the technology to support the following tasks: neutralizing combatants intermingled with noncombatants; controlling crowds; disabling or disrupting military logistics; disabling or disrupting communication, transportation, and energy infrastructure; and incapacitating/immobilizing weapons or weapon development and production processes. The military services recognize the need to develop doctrine and training programs for this rapidly developing technology. The Army Training and Doctrine Command has drafted a concept paper for nonlethal capabilities in Army operations. It points out that crowd control in conducting peacekeeping and humanitarian operations is as likely a task for the Army as is destroying enemy armor and infantry forces in war. The paper discusses how the Army will use nonlethal capabilities as a component of “overwhelming, decisive power” in military operations at the strategic, operational, and tactical levels and describes implications for doctrine, training, leadership development, organization, materiel, and support. Types of capabilities needed include those that (1) immobilize, disorient, impair, or disperse people; (2) disable systems; (3) provide security and surveillance; and (4) attack material support systems and infrastructure. The Marine Corps’ experience with nonlethal weapons in Somalia underscored the need to ensure the proper use of nonlethal equipment in the future. On the basis of lessons identified from I MEF, the Marine Corps is considering doctrine for the use of nonlethal weapons. DOD concurred with a draft of this report but noted that it should include discussions of (1) peace operations training that has been conducted as part of the Partnership for Peace Program and (2) reserve force participation in peace operations. We have revised the report to include information about training provided by recent Partnership for Peace initiatives. We also revised our Objectives, Scope, and Methodology section to state that we did not report on reserve component participation in peace operations because the training provided for these missions was not significantly different than training for standard reserve missions, and, except in a few cases, the number of reserve component forces participating in these operations was relatively small. DOD took issue with I MEF’s view described in our report concerning rules of engagement for the employment of nonlethal weapons, stating that there should be one clear, unambiguous set of rules of engagement. We believe that the difference of views within DOD on this matter underscores the evolving nature of nonlethal technology and the need for DOD to examine this issue further, particularly with regard to the operational use of this technology. | Pursuant to a congressional request, GAO examined: (1) how the services incorporate peace operations into their various training programs; (2) what effect peace operations have on maintaining combat readiness; and (3) whether the services have the weapons systems and equipment they need for these operations. GAO found that: (1) commanders of ground combat units differ on when special peace operations should be provided; (2) some commanders include aspects of peace operations in standard unit training; (3) other commanders prefer to maintain an exclusive combat focus until their units are formally assigned to a peace operation, in which case the amount of notification before deployment to a peace operation becomes an important factor; (4) aviation, naval, support, and special operations forces perform similar tasks in peace operations and in war and therefore do not need as much special training; (5) participation in peace operations can provide excellent experience for combat operations, but such participation can also degrade a unit's war-fighting capability; (6) the extent of degradation depends on a number of factors, such as the type of peace operation, the type of unit participating, the length of participation, and the opportunities available for training in theater; (7) it can take up to 6 months for a ground combat unit to recover from a peace operation and become combat ready; (8) the recovery period for aviation units is relatively short compared with that for ground forces; (9) participation in peace operations may interrupt naval training schedules, but there is little difference in the naval skills required for peace and for other operations; (10) determining whether the services have the appropriate weapon systems and equipment for peace operations is an ongoing process taking place primarily at the service level; (11) the services have identified requirements in three areas: (a) force protection; (b) equipment for military operations in built-up areas; and (c) nonlethal weapons; and (12) except for the recent withdrawal operation from Somalia, few nonlethal weapons have been used to date in peace operations. |
The GAO Act contains several distinct and critical components. A number of provisions are designed to benefit our employees and to provide a means to continue to attract, retain, and reward a top-flight workforce, while other provisions are aimed at helping us improve our operations and increase administrative efficiencies. We ask for your support of these measures and have outlined each of them below. Permit the GS-15 statutory cap to rise to the Executive Level III Our pay surveys indicated that certain higher-level economists, attorneys, management positions, and specialists would warrant salaries above GS- 15, step 10. This authority would enable GAO to compensate these skilled professionals and managers up to Executive Level III when justified, thus aiding GAO in its recruitment and retention efforts. This authority is similar to flexibilities exercised by other agencies. For example, the Federal Deposit Insurance Corporation and other agencies concerned with financial matters are not subject to the GS-15 cap. The Departments of Defense and Homeland Security likewise have the ability to pay their staff more than this limit. If this authority is granted, GAO would use its increased pay flexibility only when justified by pay surveys or other compensation data. Allow GAO to incur recruiting expenses for meals and related expenses GAO’s work requires skilled professionals for whom GAO must compete with leading private sector and public organizations. GAO would like the ability to incur recruiting expenditures for meals and related expenses. This small, but important, step would enhance GAO’s effort to attract top talent. At this time, both the Department of Defense for recruiting military members (10 U.S.C §520c) and the Coast Guard (14 U.S.C. §468) have similar provisions. We would use this authority frugally. Achieve equal footing regarding voluntary separation incentive payments (VSIP) The law authorizing GAO to provide VSIPs requires GAO to make a substantial payment to the retirement fund—no less than 45 percent of an employee’s final basic pay—which renders the flexibility virtually unusable. This contrasts with the flexibility given to the executive branch for VSIPs. While the Department of Defense has agency-specific VSIP authority, and executive branch agencies—with Office of Personnel Management (OPM) approval—have general VSIP authority, in both instances the statutory authority for these programs does not require any payments to the retirement fund for the granting of a VSIP. Removing this requirement would put GAO on an equal footing with other agencies, make VSIPs more practical, and provide an important flexibility to help GAO reshape its workforce should such authority become necessary. Include performance-based bonuses in calculating non-Senior Executive Service and non-Senior Level employees’ “high-three” average salary for retirement purposes GAO’s performance-based compensation system provides a nonpermanent bonus component for some of our employees. As our employees have pointed out, under current law, they do not get credit for these bonuses when OPM calculates their “high-three” average salary for retirement purposes. The GAO Act would remedy the situation by directing that bonuses be included in the “high-three” calculation. This provision does not apply to Senior Executive Service (SES) and Senior Level employees. Before turning to provisions in the GAO Act related to operational improvements and administrative efficiencies, let me address two important proposals related to employee compensation that—while not included in H.R. 3268—have been under discussion as well. Adopting a “floor guarantee” for future annual pay adjustments We support the adoption of a “floor guarantee” provision for future annual pay adjustments. We first raised a similar concept with Members of the Subcommittee last May. Just last month, our negotiating team introduced the idea to the GAO Employees Organization, IFPTE, which agreed to adopt a floor guarantee as part of the agreement governing 2008 pay adjustments. We were pleased to reach a prompt agreement and believe the floor guarantee reasonably balances our commitment to performance- based pay with an appropriate degree of predictability and equity for all GAO employees. A statutorily based floor guarantee would provide GAO employees with greater certainty about future salary increases and ensure at least pay parity with the executive branch. We support the floor guarantee approach because we believe it will preserve the incentives and rewards of GAO’s performance-based compensation system, while ensuring—subject to the conditions explained below—that GAO employees receive an annual increase in their permanent pay that is at least equal to GS across-the- board increase for each locality area. The floor guarantee would ensure that all employees performing at the “meets expectations” level or better would receive an annual adjustment to their basic rate that is at least equal to the total annual increase under the General Schedule (GS) system for the employees’ geographic area. The only exceptions would be employees (1) receiving ratings below the “meets expectations” level, (2) participating in development programs under which they receive performance reviews and permanent merit pay increases more than once a year, (3) occupying positions covered by the Federal Wage System, or (4) occupying SES or Senior Level positions. The floor guarantee would be implemented in the following manner. We would continue to apply the system we implemented in 2006, as authorized by GAO’s 2004 legislation. Thus, we first would determine for each employee the amount of GAO’s annual adjustment and performance- based compensation, which includes both permanent merit pay adjustments and any nonpermanent bonuses. Then, if the sum of the employee’s annual adjustment and permanent merit pay is less than the increase the employee would have received under the annual adjustment to the GS in the employee’s geographic area, we would increase the employee’s permanent pay to equal the increase that would have been received under the annual adjustment to the GS system that year. If an employee receives an additional adjustment as a result of the floor guarantee, the additional amount would be deducted from any bonus an employee would have received. We understand that consideration has been given to including a legislative provision that would compensate GAO employees who did not receive the full base pay increases of 2.6 percent in 2006 and 2.4 percent in 2007. At the invitation of subcommittee staff, we have engaged in fruitful discussions about a reasonable and practical approach should the Congress decide to accomplish this objective legislatively. We appreciate the subcommittee’s willingness to consider providing GAO with the necessary legal and funding authorities to address this issue. Resolution of this matter would be helpful and would permit us to move forward on other important human capital initiatives. The GAO Act also contains a number of provisions to promote operational improvements and efficiencies. These include establishing a statutory Inspector General at GAO, providing the Congress with more information on the level of executive branch cooperation received by GAO in the conduct of our work, authorizing reimbursement for certain financial audits, allowing GAO more flexibility in administering oaths, receiving gifts that do not impair our independence, and clarifying financial disclosure requirements. Establish a statutory inspector general The GAO Act would replace our current inspector general (IG) position with a statutory position. GAO supports the IG concept and administratively has created an IG who performs many of the roles of the statutory IGs. GAO’s statutory IG would be similar to the statutory IGs in the other legislative branch agencies. Although appointed by the heads of their respective agencies (or by the Capitol Police Board, in the case of the Capitol Police IG), these statutory IGs are provided with independence and autonomy from the heads of their agencies. They conduct and supervise audits and investigations, and they endeavor to prevent and detect fraud and abuse in their agencies’ programs and operations. This is the model followed in H.R. 3268 for GAO’s statutory IG. Report on executive branch cooperation Although the Comptroller General has certain statutory mechanisms available to aid in conducting GAO audits and investigations, voluntary cooperation of agency officers and employees of audited agencies is essential to the efficiency of GAO’s work. The GAO Act includes two new reporting requirements to provide more transparency related to the level of cooperation GAO is receiving from audited agencies. The first would require an annual report card on the overall cooperation of federal agencies in all aspects of GAO’s work, including any unreasonable delays in making personnel available for interviews, providing written answers to questions, granting access to records, providing timely comments on draft reports, and responding appropriately to report recommendations. The second reporting requirement would require that the Comptroller General inform the Congress as soon as practicable regarding specific impediments, such as when an agency or other entity does not make personnel available for interviews or does not provide written answers to questions. Obtain reimbursement of certain financial audit costs The GAO Act also includes a provision to enable GAO to be reimbursed for the financial audits it performs that, in the first instance, are the specific responsibility of an executive branch agency. Since 1997, the Comptroller General has elected to exercise his statutory discretion to audit the financial statements of the Internal Revenue Service and the Schedule of Federal Debt, issued by the Bureau of the Public Debt, in lieu of the Treasury IG or an independent Certified Public Accountant hired by the IG. As a result, the Department of the Treasury has received these audit services at no cost and without reimbursing GAO. This legislation would require, beginning in fiscal year 2009, any executive branch agency covered by the Chief Financial Officers Act (CFO Act) and Accountability for Tax Dollars Act for which GAO elects to audit financial statements or related schedules to reimburse the Comptroller General for the cost of performing such audits. Such payment would be consistent with the principle that agencies should pay for financial statement audit services, as they otherwise must when the audit is conducted by their IGs or independent contracted auditors. This principle already has been applied to reimbursements made to GAO by the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, as well as other government corporations for financial statement audits conducted by GAO under separate legal authorities. Provide GAO with greater flexibilities in administering oaths Currently, the Comptroller General is authorized to administer oaths to witnesses when auditing and settling accounts. Although in 1921, when the Congress established GAO, auditing and settling accounts represented the bulk of our work, that is not the case today. The Comptroller General has been called upon to perform many other audit, investigative, and adjudicative roles for the Congress. These roles periodically raise situations involving, for example, potential criminal or ethical violations, or conflicting testimony or assertions of material and sensitive subjects. In such situations, the ability to administer oaths would be a useful and important tool for the Comptroller General to accomplish his work for the Congress. The new authority is not expected to be widely used or to have broad impact. Give GAO the same gift authority as other agencies Under the GAO Act, the Comptroller General would receive the same authority presently available to many agency heads to aid them in accomplishing their mission. Specifically, the Comptroller General would be authorized to accept and dispose of gifts given for the purpose of aiding and facilitating the work of the office. To implement this authority, we would promulgate regulations to ensure that no conflict or appearance of a conflict would arise when accepting any gifts. GAO is seeking a revision to the law regarding the financial disclosure requirements of its employees to address an unintended result of GAO’s revised pay system that vastly increased the number of employees who must file a public financial disclosure report. Under GAO’s new pay system, GAO employees no longer receive severable locality pay adjustments, as compensation differences in local markets are already taken into account in setting the pay ranges for GAO’s various locations. The inability to exclude amounts formerly attributable to locality pay has roughly doubled the number of GAO employees who must file a public disclosure report. This amendment would remedy this situation by deducting these amounts from employees’ annual rate of pay for purposes of determining who must file a public financial disclosure report. This would substantially reduce administrative burden while assuring that GAO’s senior employees remain required to file a public financial disclosure report. The employees who no longer would be required to file a public report would still be required to file a confidential financial disclosure report for review within GAO under GAO’s ethics rules. In the draft bill that we transmitted to the committee last July, there were a number of provisions related to the Office of the Comptroller General and the positions of Comptroller General and Deputy Comptroller General. These provisions are also contained in the GAO Act, as introduced by Chairman Waxman. While we recognize the prerogative of the Congress to address these issues, we believe they should now be placed in abeyance pending confirmation of a new Comptroller General. As you know, on September 19, 2007, our Band I and Band II Analysts, Auditors, Specialists, and Investigators voted to be represented by the International Federation of Professional and Technical Engineers (IFPTE) for the purpose of bargaining with GAO management on various terms and conditions of employment. GAO management is committed to working constructively with employee union representatives to forge a positive labor-management relationship. Since September, GAO management has taken a variety of steps to ensure it is following applicable labor relations laws and has the resources in place to work effectively and productively in this new union environment. Our efforts have involved: postponing work on several initiatives regarding our current performance delivering specialized labor-management relations training to our Band III, Band III-equivalent, SES, and Senior Level staff; establishing a new Workforce Relations Center within our Human Capital Office that is responsible for providing employee relations and labor relations advice and services to GAO management and leadership; hiring a Workforce Relations Center director, who also serves as our chief negotiator in collective bargaining deliberations. In addition, we routinely notify union representatives of meetings that may qualify as formal discussions, so that a representative of the GAO Employees Organization, IFPTE, can attend the meeting. We also regularly provide the GAO Employees Organization, IFPTE, with information about projects involving changes to terms and conditions of employment over which the union has the right to bargain. As mentioned earlier, we were pleased that GAO and the GAO Employees Organization, IFPTE, reached a prompt agreement on 2008 pay adjustments. The agreement was overwhelmingly ratified by bargaining unit members on February 14, 2008, and we have applied the agreed-upon approach to the 2008 adjustments to all GAO staff, with the exception of the SES and Senior-Level staff, regardless of whether they are represented by the union. The agreement embodies the floor guarantee described earlier in this statement. Recruiting, rewarding, and retaining a high-performing diverse workforce is critical if GAO is to successfully carry out its mission in support of the Congress. As you know, an effective GAO requires a first-rate workforce that is representative of our society and steeped in a wide variety of disciplines that can gather the facts and develop innovative solutions to both old and new problems challenging the federal government. Meeting these challenges requires top leadership commitment, sustained effort, and a focus on continuous improvement. For example, we enhanced our professional development programs for entry level staff; initiated a formal agencywide mentoring program; and continue our strong support for flexible work schedules and teleworking to help GAO employees balance the demands of work and home. GAO’s two most recent testimonies before this subcommittee outlined many other support measures and safeguards in place to help ensure fair and equitable treatment of all employees. As circumstances warrant, we also are committed to studying areas in depth where we have reason to believe that actions and improvements are needed. One such example is GAO’s decision in August 2007 to contract with the Ivy Planning Group (Ivy) for an independent assessment of differences in the averages of African-American Analysts’ performance compared with white Analysts and to provide the Ivy team with complete access to relevant data and staff. Shortly after the contract award, we provided Ivy with all requested data on appraisals; employee demographics; employee education and skills; and information on GAO’s performance management, pay, development, and recruitment programs. Further, in response to additional Ivy requests after they conducted employee and management interviews and focus groups, we provided information related to hires and separations, employee feedback scores, and exit survey results. We tasked Ivy with reviewing African-American and white Analysts’ performance appraisal data from 2002 through 2006—which was the data available at the time Ivy’s study began. In addition, we charged Ivy with assessing and comparing the skills, assignments, engagement roles, training, educational attainment, and recruiting practices at GAO for African-American and white Analysts, as well as with identifying best practices internally and externally that might enhance GAO’s performance management systems and assist us in reducing any gaps. Ivy has been asked to recommend further steps that GAO can take to ensure fair, consistent, and nondiscriminatory application of GAO’s performance management system. Ivy has not yet finished its analysis and is not scheduled to issue a final report until April 2008. We are looking forward to receiving the final report and its recommendations. We will keep this subcommittee and other interested parties informed as we address the recommendations contained in this final report. As we implement necessary improvements to address this issue, as well as others, we are fortunate to have a solid foundation upon which to build. For example, while we missed a few of the targets we established, our employee feedback survey scores, as shown in appendix I, for our “people” measures on staff development, staff utilization, leadership, and organizational climate have remained relatively stable even in a period of significant change. Further, we are proud that GAO was named second among large agencies across the federal government in the 2007 ranking of best places to work, which was issued by the Partnership for Public Service and the Institute for the Study of Public Policy Implementation at American University. In addition, when results were analyzed by demographic groups, GAO ranked second among female, African- American, and Hispanic employees. This overall positive work environment is one of many reasons GAO’s dedicated and talented workforce is able to effectively serve the Congress and produce solid results for the American people. Last fiscal year, our work contributed to hundreds of improvements in government operations and benefits, as well as $45.9 billion in financial benefits or a $94 return for every dollar the Congress invested in us. We also contributed to over 270 congressional hearings and provided hundreds of valuable products to assist the Congress on topics as wide ranging as food safety, border patrol, and tax compliance. In closing, I want to reiterate our appreciation for the subcommittee’s consideration of these legislative proposals to strengthen GAO. We look forward to continuing our constructive dialogue with the subcommittee on these and other issues in the future. Thank you for the opportunity to share our views. Mr. Chairman, I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. Since fiscal year 2004, we have collected data from our client feedback survey on the quality and timeliness of our products, and in fiscal year 2006, we began to use the independent feedback from this survey as a basis for determining our timeliness. CN/A indicates that the data are not applicable because we did not collect it from our client feedback survey this period. Our employee feedback survey asks staff how often the following occurred in the last 12 months: (1)my job made good use of my skills, (2) GAO provided me with opportunities to do challenging work, and (3) in general, I was utilized effectively. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | Today's testimony discusses several important topics: (1) provisions of H.R. 3268, the GAO Act, that would bolster our ability to attract and retain a highly skilled and diverse workforce needed to serve the Congress and provide for operational improvements and administrative efficiencies; (2) steps we are taking to establish and maintain a constructive working relationship with the GAO Employees Organization, International Federation of Professional and Technical Engineers (IFPTE); and (3) my commitment to ensure fair and equitable treatment for all segments of our diverse workforce, as reinforced by our commissioning of a study of various performance assessment issues related to African-American Analysts at GAO. The GAO Act contains several distinct and critical components. A number of provisions are designed to benefit our employees and to provide a means to continue to attract, retain, and reward a top-flight workforce, while other provisions are aimed at helping us improve our operations and increase administrative efficiencies. We ask for Congressional support of these measures and have outlined each of them below. On September 19, 2007, our Band I and Band II Analysts, Auditors, Specialists, and Investigators voted to be represented by the International Federation of Professional and Technical Engineers (IFPTE) for the purpose of bargaining with GAO management on various terms and conditions of employment. GAO management is committed to working constructively with employee union representatives to forge a positive labor-management relationship. Since September, GAO management has taken a variety of steps to ensure it is following applicable labor relations laws and has the resources in place to work effectively and productively in this new union environment. Our efforts have involved: (1) postponing work on several initiatives regarding our current performance and pay programs; (2) delivering specialized labor-management relations training to our Band III, Band III-equivalent, SES, and Senior Level staff; (3) establishing a new Workforce Relations Center within our Human Capital Office that is responsible for providing employee relations and labor relations advice and services to GAO management and leadership; (4) hiring a Workforce Relations Center director, who also serves as our chief negotiator in collective bargaining deliberations. In addition, we routinely notify union representatives of meetings that may qualify as formal discussions, so that a representative of the GAO Employees Organization, IFPTE, can attend the meeting. We also regularly provide the GAO Employees Organization, IFPTE, with information about projects involving changes to terms and conditions of employment over which the union has the right to bargain. We are pleased that GAO and the GAO Employees Organization, IFPTE, reached a prompt agreement on 2008 pay adjustments. The agreement was overwhelmingly ratified by bargaining unit members on February 14, 2008, and we have applied the agreed-upon approach to the 2008 adjustments to all GAO staff, with the exception of the SES and Senior-Level staff, regardless of whether they are represented by the union. Recruiting, rewarding, and retaining a high-performing diverse workforce is critical if GAO is to successfully carry out its mission in support of the Congress. An effective GAO requires a first-rate workforce that is representative of our society and steeped in a wide variety of disciplines that can gather the facts and develop innovative solutions to both old and new problems challenging the federal government. This overall positive work environment is one of many reasons GAO's dedicated and talented workforce is able to effectively serve the Congress and produce solid results for the American people. Last fiscal year, our work contributed to hundreds of improvements in government operations and benefits, as well as $45.9 billion in financial benefits or a $94 return for every dollar the Congress invested in us. We also contributed to over 270 congressional hearings and provided hundreds of valuable products to assist the Congress on topics as wide ranging as food safety, border patrol, and tax compliance. |
Money laundering is the process used to transform monetary proceeds derived from criminal activities into funds and assets that appear to have come from legitimate sources. Terrorist financing is generally characterized by different motives than money laundering and the funds involved often originate from legitimate sources. However, the techniques for hiding the movement of funds intended to be used to finance terrorist activity—techniques to obscure the origin of funds and the ultimate destination—are often similar to those used to launder money. Therefore, Treasury, federal law enforcement agencies, and the federal financial regulators often employ similar approaches and techniques in trying to detect and prevent both money laundering and terrorist financing. Following the September 11 terrorist attacks, Congress passed the USA PATRIOT Act, which was enacted on October 26, 2001. Title III of the PATRIOT Act amended the BSA. The BSA was enacted by Congress in 1970 and requires that financial institutions file reports and maintain records with respect to certain transactions in currency and monetary instruments that are determined to have a high degree of usefulness in criminal, tax, or regulatory investigations and, as amended by the PATRIOT Act, these records and reports also have a high degree of usefulness in the conduct of intelligence or counterintelligence activities. As a result, the BSA helps to provide a paper trail of the activities of money launderers for law enforcement officials in pursuit of criminal activities. Congress has amended the BSA several times to give the U.S. government a wider variety of regulatory tools to combat money laundering. In addition to requiring regulations for information sharing and customer identification programs, Title III of the PATRIOT Act expands Treasury’s authority to regulate the activities of U.S. financial institutions and requires a wide variety of types of financial institutions to maintain anti-money laundering programs. Agencies under the Departments of the Treasury, Justice, and Homeland Security are to coordinate with each other and with federal financial regulators in combating money laundering and terrorist financing. Within Treasury, FinCEN, under delegated authority from the Secretary of the Treasury, is the administrator for the BSA and supports law enforcement agencies by collecting, analyzing, and coordinating financial intelligence information to combat money laundering. As a bureau of Treasury, FinCEN clears all BSA regulations through Treasury. In August 2004, FinCEN created an Office of Compliance to oversee and work with the federal financial regulators on BSA examination and compliance matters. FinCEN signed a Memorandum of Understanding (MOU) with the banking regulators in September 2004 that laid out procedures for the exchange of certain BSA information. The MOU requires that the federal banking regulators provide information on examination policies and procedures and on significant BSA violations or deficiencies that have occurred at the financial institutions they supervise, including relevant portions of examination reports and information on follow-up and resolution. FinCEN will also provide information to the banking regulators, including information on FinCEN enforcement actions and analytical products that will identify various patterns and trends in BSA compliance. FinCEN has been working on similar MOUs with SEC and CFTC; however, as of March 25, 2005, no effective dates have been set for either of them. Department of Justice components involved in efforts to combat money laundering and terrorist financing include the Criminal Division’s Asset Forfeiture and Money Laundering Section and Counterterrorism Section, the FBI, the Bureau of Alcohol, Firearms, and Explosives, the Drug Enforcement Administration, and the Executive Office for U.S. Attorneys (EOUSA) and U.S. Attorneys Offices. The Department of Homeland Security’s Bureau of Immigration and Customs Enforcement (ICE) also investigates cases involving money laundering and terrorist activities. The federal financial regulators who oversee financial institutions and examine them for compliance with anti-money laundering laws and regulations include the federal banking regulators—the Federal Reserve, OCC, OTS, FDIC, and NCUA—and SEC, which regulates the securities markets, and the CFTC, which regulates commodity futures and options markets. Because the U.S. securities and futures markets are regulated through a combination of self-regulation (subject to federal oversight) and direct federal regulation, the SROs also oversee compliance with anti- money laundering laws and regulations. Two of the SROs—NASD and NYSE—oversee registered broker-dealers. NFA oversees futures commission merchants and introducing brokers in commodities. In addition to NFA, a number of the futures commission merchants are overseen by futures exchanges, including the New York Mercantile Exchange, CME, and CBOT. Treasury and the federal financial regulators encountered numerous challenges as they developed regulations to implement sections 314 and 326. Key challenges related to implementing section 326 included developing regulations that could be applied consistently across a financial industry that has diverse business models, customer relationships, and financial products. In addition, many financial institutions have arrangements with other institutions to process customer transactions. These arrangements and the need to build in a risk-based approach to customer identification created concerns among the regulators and industry about reasonable levels of accountability for verifying the identity of customers. Developing regulations for section 314 presented practical problems on how to develop a process for information sharing between law enforcement and industry and a process that allows financial institutions to share information with each other. Treasury and the federal financial regulators had to resolve several issues through an interagency process when developing the regulations for CIP, such as defining “customer” and “account” for the purposes of the regulations and determining how much flexibility to give firms in verifying the identity of customers. Because the regulations for CIP would apply to a diverse financial industry, FinCEN and the regulators formed a working group and gathered information from industry officials about their different business models and customer relationships. According to FinCEN officials, the interagency process employed to issue joint regulations was the first that included Treasury and the seven federal financial regulators. Specifically, Treasury and the five banking regulators (FDIC, Federal Reserve, NCUA, OCC, and OTS) jointly adopted a CIP rule covering banks, thrifts, and credit unions. Treasury and SEC jointly adopted separate rules for broker-dealers and mutual funds. Treasury and CFTC jointly adopted a rule for futures commission merchants and introducing brokers. As shown in figure 1, the rulemaking process took over a year and a half to complete. Following the issuance of the joint notices of proposed rulemaking in July 2002, Treasury and the federal financial regulators collectively received approximately 500 comments, many of which expressed concerns about the types of accounts and customers that should be subject to CIP. For instance, some comments questioned whether an account established as part of an employee benefit plan should be subject to CIP regulations, the extent to which the risk-based approach should be used, and the need for Treasury and the federal financial regulators to be more specific about the methods of verification. Other comments proposed that the entire process be risk-based without any minimum requirements. Some comments also addressed how financial institutions could rely on or share responsibility with another institution for verifying the identity of a shared customer account. This reliance aspect is important for some types of financial institutions that have securities and futures products. For example, in the securities industry, many brokers interact with customers (introducing brokers) but rely on another broker for clearance, settlement, and custody purposes (clearing firms). Typically under this arrangement the introducing broker interacts with the customer by taking orders and making recommendations and the clearing firm holds the customer assets. Treasury and the regulators also considered how financial institutions could verify customer identities for customers who open accounts by mail, by phone, or over the Internet. Treasury and the federal financial regulators ultimately established minimum identification requirements and mandated that financial institutions develop risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable. The verification procedures included documentary and nondocumentary methods to cover the variety of approaches customers use to open accounts. The final rules published on May 9, 2003, provide a framework with minimum standards for identifying customers, while allowing financial institutions flexibility to design and implement CIPs according to risk-based procedures for verifying identity based on their business lines, types of customers, and methods of opening accounts. Figure 2 illustrates requirements for identification and verification procedures. In addition to establishing minimum identification standards and a risk- based approach for verification procedures, the final rule requires that financial institutions develop CIPs that include procedures for (1) making and maintaining a record of information required to be obtained from the customer at the time the account is opened and retaining the information for five years after the date the account is closed, (2) providing notice to the customer that their identity will be verified, and (3) determining whether a person appears on any list designated by Treasury (in consultation with the federal financial regulators) as a federal government list of known or suspected terrorists or terrorist organizations that must be checked by financial institutions as part of the CIP requirement. Treasury has not designated a list for the CIP requirement at this time. The final rule also allows financial institutions to rely on another financial institution to perform any procedures of its own CIP for customers that the two financial institutions share provided that, among other requirements, the financial institution that is being relied on enter into a contract certifying annually to the relying financial institution that it has implemented its own anti-money laundering program and that it will perform the specified requirements of the relying financial institution’s CIP. The rule also requires that the financial institution being relied on is regulated by a federal functional regulator. The final rules stated that financial institutions were expected to be in compliance with the final rules no later than October 1, 2003. Treasury issued a Notice of Inquiry in July 2003 (see fig. 1) approximately 2 months after the final CIP rules had been adopted, soliciting additional comments about two aspects of the final CIP rules that concerned some interested parties, including members of Congress and law enforcement officials. The Notice of Inquiry sought additional comments on (1) whether and under what circumstances financial institutions should be required to retain photocopies of identification documents relied on to verify customer identity and (2) whether there are situations when the regulations should preclude reliance on certain forms of foreign government-issued identification to verify customer identity. Treasury received over 34,000 comments in response to the Notice of Inquiry from a wide variety of individuals and entities, including members of Congress, the Department of Justice, the financial services industry, advocacy groups, and interested citizens. Treasury did not make any changes to the final CIP rules for two reasons. First, it concluded that requiring photocopies in all cases is not consistent with the risk-based approach for CIP. In its official disposition of comments to the notice, Treasury said that the decision to make photocopies should be at the discretion of the financial institution rather than an across-the- board requirement. Second, Treasury decided that specifying individual types of documents that cannot be relied upon to verify customer identities did not make sense from a regulatory perspective because the relative security and reliability of various identification documents that are available is constantly changing. The comments received in response to the Notice of Inquiry primarily related to encouraging Treasury to take an official position on whether the Mexican consular identification document, the Matricula Consular is a reliable document for verifying identification. Treasury concluded that because the relative security and reliability of identification documents are constantly changing, any list of unacceptable documents would quickly become outdated and may provide financial institutions with an unwarranted sense of security concerning documents that do not appear on such a list. Therefore, Treasury decided not to prescribe a specific list of documents that are acceptable or not acceptable in the regulation, but rather committed to providing financial institutions with information relating to the security and reliability of identification cards. When developing section 314 regulations, Treasury (through FinCEN) had to determine the extent to which financial institutions should share information about customers with law enforcement officials and with each other. Treasury adopted final regulations in September 2002. Figure 3 shows the key dates in the rulemaking process for section 314. For section 314(a), FinCEN implemented a process in which law enforcement agencies provide information on potential suspects to FinCEN. FinCEN distributes these 314(a) information requests across the country to financial institutions that are required to search their accounts and transactions to identify any matches. The process was temporarily suspended in November 2002, based on feedback from financial institutions that they were overwhelmed or confused by the process. Some institutions did not know what to do with the information requests, while others were not sure which accounts or transactions to search. Following consultations with law enforcement and the federal financial regulators to streamline the process, FinCEN resumed 314(a) information requests in February 2003. FinCEN and industry officials agreed that, since the moratorium, FinCEN has implemented a more streamlined process that has improved the clarity and efficiency of 314(a) information requests. Officials from FinCEN and law enforcement agencies have also established procedures to vet requests sent by law enforcement agencies to ensure that they are related to terrorist or significant money laundering activities. (See fig. 4.) Before putting a name on the information request list, FinCEN officials said that they follow up with the requesting law enforcement agent to obtain more information to determine whether the case merits the use of the 314(a) process and to verify that the agent will be available to respond to any financial institution that finds a match when the request goes out. FinCEN also sends each law enforcement requester a feedback form on the usefulness of the information obtained. For example, the feedback form asks if law enforcement officials served grand jury subpoenas based on the information obtained from the 314(a) process. In addition, law enforcement officials said that they have taken steps to caution agents against overusing the 314(a) process, and that the 314(a) process is not meant to replace the need for a subpoena or more rigorous investigation methods. FinCEN sends out the 314(a) information request list every 2 weeks. The information requests include suspects related to terrorist cases and significant money laundering investigations. FinCEN tries to limit the number of subjects on the bi-weekly information request. The request contains as much identifying information as possible, such as dates of birth, social security numbers, and addresses as well as aliases so the number of records that are to be searched for can be extensive. Financial institutions have 2 weeks to respond. Urgent requests can also be distributed with shorter turnaround time when deemed necessary. The rulemaking process for section 314(b) addressed the need to encourage information sharing among financial institutions while still protecting customers’ right to privacy and established a mechanism for financial institutions to satisfy the statutory notice requirement. Section 314(b) of the PATRIOT Act allows financial institutions, upon providing notice to Treasury, to share information regarding individuals, entities, and countries suspected of possible terrorist or money laundering activities. The final rule requires that to be protected by the safe harbor from liability for sharing information pursuant to section 314(b), financial institutions must comply with the procedures prescribed by the rule, including providing notice annually to FinCEN of their intent to share information with other institutions. The rule also requires that prior to sharing information, a financial institution must verify that the financial institution with which information will be shared has also filed a notice with FinCEN. FinCEN determines that the notice requirement sufficiently reminds financial institutions of their need to safeguard information that is obtained using section 314(b). Treasury and the federal financial regulators have taken several steps to help the financial industry understand and comply with the CIP and 314 information sharing regulations; however, the need for agency coordination has slowed the issuance of additional guidance. Industry officials said that although the government’s guidance has been helpful, it does not completely address their questions and compliance concerns particularly related to the CIP rule. The implementation of the 314(a) information sharing process has highlighted the tension between law enforcement officials’ duty to protect sensitive information and the need for information from law enforcement to help industry monitor, identify, and report possible financial crimes, including terrorist financing and money laundering. Finally, industry officials said that they appreciate the safe harbor provided by 314(b), but some officials said distinguishing possible money laundering and terrorist activities from other types of financial crimes not covered by section 314(b), such as fraud, has been difficult. Treasury and the federal financial regulators have sought to educate the financial community to help it understand the new requirements, but the need for interagency coordination has slowed regulators’ issuance of additional guidance. Regulators and SROs used established, formal channels (such as Web site postings and existing regulatory memorandums distribution channels) to distribute guidance to firms describing the regulations, clarifying when the regulations would become effective, and offering advice about implementation. Officials from the regulatory agencies and SROs also informed firms of the regulations and addressed practical issues during numerous industry-related conferences, conference calls, and training sessions. Moreover, agency officials said that during compliance exams conducted before and soon after the regulations became effective, examiners clarified particular aspects and helped firms establish compliant programs. Treasury and the federal financial regulators have provided specific guidance related to the CIP rule and section 314 in the form of responses to “frequently asked questions” or “FAQs.” In August and October 2003, Treasury and SEC issued limited FAQ guidance related to mutual funds and broker-dealers, respectively. In January 2004, Treasury and the banking regulators jointly issued FAQ guidance that addressed several issues related to CIP. Among other topics, the answers clarified the definitions of a customer and an account in different situations and discussed how firms should apply the rules to existing customers. In July 2004, Treasury and CFTC issued FAQ guidance concerning CIP that was similar to the banking regulators’ guidance. FinCEN issued FAQs for the 314 information sharing regulations in February 2003. These FAQs were initially posted on FinCEN’s public Web site but, according to FinCEN officials, they were removed due to law enforcement concerns that this guidance could give criminals an advantage. FinCEN officials said they have now posted these FAQs to its secure Web site that financial institutions access to obtain the 314(a) information requests and will send the FAQs to a financial institution upon request. According to FinCEN, because of the joint nature of the CIP rules, all of the affected regulators and FinCEN must coordinate when issuing guidance to assure consistency in the implementation of the regulations. Such coordination has slowed the issuance of further guidance. Similar to the challenges they encountered in the rulemaking process, the financial regulators and FinCEN face continuing challenges in developing guidance that applies to diverse types of financial products and businesses. FinCEN and the federal financial regulators began developing a second series of CIP FAQs pertaining primarily to banks in early 2004. Some officials told us that this guidance has taken longer to finalize because of difficulties reaching agreements on which questions to address and how to answer them. FinCEN officials told us that although some of the officials had signed off on the draft FAQs, agreement was not reached among two of the regulators on one outstanding question until February 2005. FinCEN officials told us that, although these are questions pertaining to CIPs, some questions have broader policy implications for the affected agencies. FinCEN released the draft for internal approval by the financial regulators on March 25, 2005, and the final CIP FAQs were jointly issued by Treasury, FinCEN, and the banking regulators on April 28, 2005. Officials from CFTC and FinCEN told us that they hoped guidance in the form of an FAQ addressing the CIP issue related to customers of executing and carrying brokers would be released soon, but it has also taken some time to finalize the guidance. SEC officials told us that they have been waiting for the second set of banking FAQs and will then adapt the first and second set of CIP FAQs for securities firms. The industry officials we spoke with largely agreed that the regulators have provided valuable information and services helping them to understand the regulations. Some officials lauded the time and effort regulators have taken to inform firms of the new regulations and answer difficult, practical questions. Industry officials we met with said that while regulators’ guidance has been helpful, it does not address all of their questions and concerns, thus making it difficult for them to know if they are in full compliance with the requirements. Industry officials said that although their institutions had customer identification procedures in place prior to the PATRIOT Act, they revised their forms, processes, and systems to meet the minimum CIP requirements. Many industry officials said that CIP regulations have challenged them to organize and document their identification procedures, create new forms and processes to notify customers of the new procedures, and reconfigure systems in order to store information required by the regulations for the specified period. Industry officials also said that implementing CIP has improved the consistency of customer identification procedures across different business lines in their own institutions and should improve consistency across the various financial sectors. CIP FAQs that FinCEN and the federal financial regulators issued for bank, securities, and futures firms in 2003 and 2004 responded to several of the industry’s implementation concerns. For example, the FAQs for banks discussed two issues banks raised during the public comment period in the rulemaking process—(1) the extent to which banks should verify existing customers and (2) how banks may identify customers using nondocumentary sources of identification information. The one CIP FAQ for securities firms clarified when an intermediary will be deemed the customer for purposes of the CIP rule when opening a domestic omnibus securities account to execute transactions for the intermediary customers. Despite the guidance, industry officials remain concerned about some challenges they raised during the comment period and have additional concerns. For example, industry officials said they are still uncertain how examiners determine that firms have taken appropriate steps to verify the identity of customers when the CIP regulations allow firms to take a risk- based approach and give them the flexibility to tailor their procedures for verifying customers’ identities according to their location, customers, and products. Industry officials believe that they and their examiners may reasonably disagree on the risks posed by certain customers and subsequently disagree about when to take extra steps to verify the identity of the customers. The officials expressed concern that examiners will sanction firms who differed with them, despite the fact that the firms followed what they believed were reasonable steps to determine the risk of the customers and subsequently took reasonable steps to verify their identity. For example, one industry representative told us that in a recent exam an examiner questioned the firm’s designation of high-risk countries-- the firm planned to take more stringent steps to verify the identity of customers depending on the risk ranking of high-risk countries. According to the industry official, the examiner thought that two of the countries on the risk matrix should have been placed in a higher risk category but did not provide a basis for believing that certain countries should be higher on the firm’s risk ranking. Some industry officials also said that they were unsure how examiners expected them to verify the identity of institutions and people when reliable identification information is unavailable, such as for people from countries where sources of identification may not be reliable. CIP rules require that financial institutions collect a government identification number for corporations as well as individuals. Some industry officials said that a foreign government identification number for institutions or corporations can be very difficult to verify and therefore the collection of the identification number is virtually worthless. Also, one of the documentary methods for verifying the identity of a corporation is to obtain the articles of incorporation, but these documents can also be difficult to use to verify identities for foreign entities. Some securities industry officials told us that foreign incorporation documents are difficult to obtain and sometimes impossible because the country does not make this information available to the public. Similarly, officials from mutual fund firms expressed uncertainty concerning how examiners will assess their practices for verifying the identity of some customers processed online or over the telephone. The officials explained that they often use credit reports and other nondocumentary sources to verify these types of customers, and such sources are not always available for some customers, such as young customers or some senior customers. Additionally, some industry officials expressed uncertainty about the reliance provision of the CIP rule. Specifically, industry officials said that they did not know the scope of a reasonable reliance agreement and which firm is liable for mistakes. Even after regulators issued guidance on the reliance provision in the first series of CIP FAQs, some industry officials said that they remain uncertain about the scope of reasonable reliance agreements in some instances. Industry officials in the futures industry told us that they hope that the federal government will provide guidance on how the CIP requirement affects the relationship between executing brokers and carrying brokers in “give up” relationships. CFTC and NFA officials said that the regulations suggest that for an executing broker to invoke the reliance provision in give-up transactions, carrying brokers must certify that they have verified the identity of each customer whose trades are given up to the carrying broker, thus requiring numerous verifications, which could overwhelm the daily operations of the firms with CIP requirements. In February and March 2005, CFTC and FinCEN officials told us that they were working to issue additional guidance concerning these give-up relationships and they hoped it would be issued shortly. In addition, some industry officials said that they avoid relying on other firms because they did not know how examiners would determine which firm will be responsible for mistakes. During the rulemaking process, officials from the securities sector expressed this same concern. Some industry officials told us that examiners did not fully understand the reliance provision. The securities industry officials told us that the reliance provision was meant to ensure that the CIP requirement did not result in duplicative efforts. Because of these concerns, some firms may not take advantage of the provision. The implementation of the 314(a) information sharing process has created some practical challenges and highlighted the tension between law enforcement officials’ duty to protect sensitive information and industry’s need for information useful in identifying and reporting financial crimes, including terrorist financing and money laundering. One challenge industry officials said they faced was their inability to simultaneously search the multiple customer databases they are required to search, which forces them to search numerous databases individually. Some industry officials told us that they have dedicated significant staff hours to conduct the searches, developed search programs specifically for 314(a) information requests, and hired third-party vendors to conduct the searches. Despite the attempts to lessen the burden of the 314(a) process, some industry officials said that they have been disappointed with how federal law enforcement agencies appear to be using the process. Industry officials said that they expected law enforcement officials to request information only for select, serious threats and primarily terrorist-related activities; however, they questioned the significance of some of the information requests they have received because requesting law enforcement agents have not followed up matches by sending subpoena requests or returning telephone calls concerning the matches. FinCEN and law enforcement agency officials responded that they continue to refine the process for vetting requests and preventing agents from overburdening financial institutions with unnecessary requests. Also, some industry officials asked why law enforcement officials could not provide more information about cases involving their institutions, how to treat particular suspicious customers, and profiles of terrorists and other criminals. The industry officials said that such information would help them to recognize and report a potential criminal or terrorist and enable them to update their criteria for assessing the risk of individual customers, thus strengthening due diligence systems and improving their contributions to law enforcement officials’ anti-money laundering and anti-terrorism efforts. Law enforcement and FinCEN officials said that although they greatly appreciate the information provided by firms via the 314(a) process, providing feedback to firms on particular cases can be a challenge, particularly when cases involve sensitive information. In August 2004, the FBI created a list of terrorist financing indicators to assist financial institutions in identifying and reporting suspicious activity that may relate to terrorism. FinCEN forwarded this information to financial institutions through the 314(a) distribution channels. Consistent with the statements of the law enforcement officials we spoke with, the 9-11 Commission praised the benefits of the section 314(a) information sharing process, but also expressed concerns about the extent to which law enforcement should share sensitive law enforcement or intelligence information. The 9-11 Commission noted that providing financial institutions with information concerning ongoing investigations opens up the possibility that the institutions may leak sensitive information, compromise investigations, or violate the privacy rights of suspects. In response to the industry’s request for more information concerning the value of the 314(a) process, FinCEN periodically publishes 314(a) fact sheets. These fact sheets provide industry with summary data on 314(a) requests over a specific time period, including the law enforcement agencies making requests and the number of search warrants, grand jury subpoenas, and indictments attributable to information firms provide through the 314(a) process. Regulators, industry officials, and law enforcement officials also jointly publish semiannual Suspicious Activity Report (SAR) Activity Reviews, which provide information on trends and patterns in financial crimes and how industry’s contributions through reporting suspicious activity and responding to 314(a) requests have helped investigations. Furthermore, as stated in its Fiscal Year 2006-2008 Strategic Plan, released in February 2005, FinCEN plans to seek faster and more efficient technical channels for dialog between government and the financial industry. For example, FinCEN officials told us that they hope to use FinCEN’s new secure information sharing system to provide financial institutions additional feedback information. Although industry officials said section 314(b) is a helpful tool and has enabled them to share information in a new way, some officials said it is not always easy to determine if the suspicious activity is money laundering or terrorist activity or other financial crimes. As noted earlier, section 314(b) of the PATRIOT Act provides a safe harbor for financial institutions to protect them from liability for sharing information only if it relates to individuals, entities, organizations, and countries suspected of possible terrorist or money laundering activities. Some industry officials stated that sometimes it is difficult to distinguish fraudulent activity from possible money laundering, thus making it hard to determine if a firm can share information about that activity with other firms participating in the 314(b) network. As a consequence, some financial institutions may be reluctant to use the 314(b) process. On the positive side, industry officials who had used the process said that the 314(b) provision has allowed firms to share useful information regarding potential money laundering or terrorist activities with other institutions that they previously had little or no interaction with. The officials said that such sharing has helped them efficiently collect otherwise unattainable information about customers, enabling their firms to practice better due diligence. Furthermore, some officials from the banking industry said the 314(b) safe harbor provision has encouraged them to give and receive information that uncovers diverse criminal activities because money laundering is a predicate to a wide variety of crimes. Since February 1 and October 1, 2003—when financial institutions were to be in compliance with regulations for sections 314 and CIP of the PATRIOT Act, respectively—banking, securities, and futures regulators and SROs issued examination guidance and trained examiners to assess firms for compliance with both provisions. The five banking regulators jointly issued guidance for CIP and section 314. The SEC and the securities SROs we reviewed issued final guidance for both provisions individually, and the futures SROs we reviewed issued final guidance jointly in February 2004 through the Joint Audit Committee—a consortium of futures exchanges. NFA updated and issued its guidance by October 2003 for both provisions. All federal financial regulators and SROs continue to update staff on changes to examination procedures and have trained examiners to assess firms for compliance with CIP and section 314. The banking regulators jointly issued guidance and procedures for section 314 on October 20, 2003, and for CIP on July 28, 2004. Although banking regulators did not issue final examination guidance for CIPs until several months after the regulations took effect, examiners were assessing firms’ CIPs using draft or interim guidance beginning in October 2003. SEC issued final guidance and procedures for broker-dealers in September 2003 and April 2002 for mutual funds. SEC’s guidance for mutual fund examination does not address examination for compliance with section 314(a) requests to mutual funds. SEC officials told us that FinCEN is currently not including mutual funds in the 314(a) process. Also, SEC officials said that because mutual fund shares are typically purchased through a principal underwriter, which is a registered broker-dealer, most mutual fund accounts would likely be covered by broker-dealers who receive 314(a) information requests. Development of examination guidance for all of the federal financial regulators and the SROs continues to evolve as events change the requirements financial institutions must adhere to in order to maintain sound anti-money laundering programs. FinCEN is working to provide support to regulators that have been delegated compliance examination responsibilities for financial institutions and has become more involved in helping regulators develop examination guidance and best practices. For example, federal banking regulators, working on an interagency basis through the Federal Financial Institutions Examination Council (FFIEC) and with FinCEN, have drafted joint examination guidance that was being field tested as of March 2005. The targeted issue date for this guidance is June 30, 2005. Banking agency officials told us that this is the first time they have developed joint anti-money laundering guidance and procedures and that they are more comprehensive than any they have issued in the past. As part of this effort, the banking regulators plan to distribute the new examination manual to examiners on a CD that will also include the most current anti-money laundering examination guidance and procedures. SEC officials told us that they also plan to revise the examination guidance and procedures for broker-dealers and mutual funds based on lessons learned from examinations conducted last year. FinCEN officials told us they intend to also work jointly with SEC and CFTC to coordinate efforts among securities and futures regulators and work together on new or revised guidance and procedures. However, FinCEN officials told us that they have not been involved with SEC and CFTC in developing examination guidance to date and they are still in the process of establishing MOUs with the two regulators. All of the SROs in our review issued final examination guidance and procedures for the CIP rule and section 314 of the PATRIOT Act. The securities SROs issued final examination guidance for both provisions by October 2003. However, NASD and NYSE began examining firms for compliance with section 314 as early as October 2002 and January 2003, respectively. The futures exchanges jointly issued final guidance for both provisions in February 2004 through a consortium of futures exchanges called the Joint Audit Committee. The CFTC, which performs regulatory oversight of the Joint Audit Committee, conducts an annual review of all Joint Audit Committee programs. The anti-money laundering program used by the Joint Audit Committee is among the programs reviewed annually by the CFTC. CME and CBOT had begun assessing firms for account verification, which closely resembles the CIP requirement, by May 2002. NFA updated its guidance to reflect the CIP requirement in October 2003 and April 2003 for section 314 and immediately began assessing firms for compliance with both provisions. NFA officials said they expect to issue revised examination guidance in 2005 for section 326 to address whether, and under what circumstances, an executing broker in a give-up transaction is required to apply its CIP to the give-up customer. The federal financial regulators and the SROs included in our review told us they have updated staff about changes to examination guidance and procedures using a variety of techniques including teleconferences, monthly or biannual staff meetings, interagency bulletins, email notifications, and training sessions. For example, banking and securities regulators including the Federal Reserve, OCC, FDIC, SEC, and NASD use teleconferences that are broadcast to headquarters and district offices to update staff on changes to examination guidance, post updates on the organization’s Intranet, or use biannual and monthly staff meetings. CFTC and the futures SROs including, CBOT, CME, and NFA update staff through monthly staff meetings and email. NCUA and NYSE send emails to staff that outline or highlight major changes to examination guidance. The banking regulators also issue agencywide regulatory bulletins and letters to update examiners. All federal financial regulators and SROs in our review updated their anti- money laundering training to include CIP and section 314. The federal financial regulators and SROs began including CIP and section 314 in training for anti-money laundering examination staff between January 2002 and June 2003. Banking and securities regulators use formal training courses that are both instructor-led and computer-based and industry experts to train staff administering anti-money laundering examinations. Banking regulators also send examiners to training offered by FFIEC. Training at most futures SROs we interviewed is more informal and occurs mostly on the job due to the relatively small examination staffs at these organizations. However, NFA and CFTC offer instructor-led training. All of the federal banking regulators provide instructor-led courses in anti- money laundering and Web-based training. This training introduces BSA and PATRIOT Act requirements and includes standard presentations and theoretical as well as hands-on training. Their anti-money laundering training curriculum includes instruction in various examination techniques designed to help examiners recognize potential money laundering risks confronting financial institutions and to learn procedures for assessing the soundness of an institution’s anti-money laundering program. The federal banking regulators also send staff to conferences sponsored by trade associations that offer multiday focused courses and provide informal resources for self-training such as subscriptions to online newsletters. However, each banking regulator approaches training differently. For example, OTS and NCUA require all new staff to attend a basic training course in anti-money laundering. According to OTS officials, regional conference training, which is attended primarily by examiners, is an important part of bringing examiners up to speed on anti-money laundering examination procedures. NCUA also uses regional conferences to train large numbers of its examination staff. For example, in 2002, NCUA used regional conferences to provide training on sections 314 and 326 of the PATRIOT Act to all examination staff. FDIC and the Federal Reserve both have examiners that are anti-money laundering specialists who serve as a training resource to other examiners. Both agencies train examiners who are primarily responsible for conducting anti-money laundering examinations. At the Federal Reserve, anti-money laundering examination specialists interact on a daily basis with examination staff engaged in anti-money laundering examinations to offer case-specific guidance regarding the requirements. The Federal Reserve also provides on-site examiner training at the individual Reserve Banks, which emphasizes requirements under section 314 and 326 of the PATRIOT Act as warranted. Similar to the Federal Reserve, FDIC uses staff experienced in conducting anti-money laundering examinations as a resource for examiners. Currently, FDIC has 321 anti-money laundering specialists who serve as a resource and as trainers for other examiners. However, FDIC recently trained every examiner on staff, approximately 1,721 as of 2004, in anti-money laundering requirements. In addition, many of its supervisory and legal professionals are pursuing anti-money laundering specialist certifications. OCC has four different training schools, which all provide live, instructor-led training in anti-money laundering requirements. Finally, in an effort to build up staff with anti-money laundering expertise, OCC has a formal on-the-job training program for anti-money laundering and finances certifications in anti-money laundering examination for some of its examiners. Banking regulators also send examiners to FFIEC’s interagency anti-money laundering training workshops. We were able to attend one of these workshops and observed that the course covered the CIP requirement and section 314, in addition to other anti-money laundering requirements. The course included lectures by experienced examiners, presentations by FBI and Internal Revenue Service officials, reading materials, and case study exercises. Many of the case study exercises demonstrated how to identify suspicious transactions and how transaction testing could reveal weaknesses in a financial institution’s anti-money laundering program. Table 1 provides additional information about training at each of the banking regulators. Similar to the banking regulators, the securities regulators and SROs also provide formal classroom instruction in anti-money laundering review and some Web-based training, but their approaches differ. SEC provides training to more seasoned staff in anti-money laundering while anti-money laundering training is available to all staff at the securities SROs. However, SEC and NASD are beginning to tailor training in anti-money laundering review for newer staff. For example, beginning in 2005, SEC’s training for new examiners will include an anti-money laundering workshop. According to SEC, this effort responds to the increasing importance of anti- money laundering issues and serves to alert less experienced examiners to SEC’s new coordination efforts with FinCEN. Similarly, NASD has recently enhanced its new examiner training program through the implementation of a formal classroom training program. As part of this 6-week course, participants will go through 2 full days of training devoted to anti-money laundering requirements, including the CIP requirement and section 314 of the PATRIOT Act. NYSE provides training using a combination of internal and industry experts. Its training program includes several sessions on anti- money laundering and is administered by both internal employees who have an extensive knowledge of the area and outside experts from law and accounting firms. Securities regulators also coordinate with each other to provide joint training for their examiners. In February 2005, SEC, NASD, and NYSE prepared a 2-day training session devoted to anti-money laundering requirements. This training included presentations from FBI, FinCEN, industry experts, and officials from each of the three securities regulators. The SROs also work together to provide training about timely and relevant examination and compliance topics. According to NASD and NYSE officials we interviewed, the SROs periodically prepare joint training sessions, which cover topics such as anti-money laundering requirements. Table 2 provides additional information about training at SEC and the securities SROs. Futures SRO officials at CBOT and CME told us that anti-money laundering training was conducted primarily on the job because these organizations have relatively small examination staffs. According to officials at these organizations, more seasoned, senior staff is responsible for training new staff on how to conduct anti-money laundering reviews. NFA also provides on-the-job training; however, all examiners are required to attend formal training in anti-money laundering such as instructor-led training sessions and technical roundtables on various anti-money laundering issues. In June and July 2004, the NFA’s compliance department conducted two technical roundtables, which focused primarily on CIP requirements. In addition to in-house training, NFA also hosts outside agencies, such as FinCEN, to make presentations on relevant and timely issued related to anti-money laundering requirements. NFA invites other futures SROs including CME and CBOT to most of their training sessions. According to officials at all of the futures SROs, on-the-job and formal, classroom training for examination staff on the CIP requirement and section 314 started as early as May 2002. The CFTC also provides in-house training opportunities for its entire staff, which includes examiners who conduct oversight examinations of SROs. The training covers all aspects of the anti-money laundering regulatory requirements applicable to futures firms. The federal financial regulators and SROs responsible for examining financial institutions’ compliance with anti-money laundering laws and regulations have conducted examinations that cover compliance with, and have taken enforcement actions concerning, violations of both the CIP requirement and section 314 and its corresponding regulations, but coverage of these requirements varied in the examinations we reviewed. Most of the examinations in our sample assessed whether financial institutions had developed CIPs and procedures for complying with the regulations implementing section 314(a), but specific aspects of the procedures reviewed were not always documented. Some examinations highlighted the difficulties examiners and financial institutions have encountered in understanding CIP requirements. Compliance with section 314(b) and the implementing regulations was not routinely assessed in part because information sharing under 314(b) is voluntary. The regulators and SROs used informal actions to address the deficiencies or apparent violations identified in the examinations in our sample. Since the regulations became effective, some of the regulators have also taken formal enforcement actions that include violations of the CIP requirement and the regulations adopted under section 314(a). Finally, in conducting our work for this objective, we encountered difficulties in obtaining the information on examinations and violations from two of the regulators that revealed weaknesses in their processes for tracking anti-money laundering compliance. As shown in table 3, about 95 percent of the examinations in our sample (168 of 176) documented some type of review of financial institutions’ CIP procedures. However, coverage varied when we looked for (1) evidence that the examiner reviewed CIP and (2) documentation of specific aspects of the examiners’ reviews, such as reviewing the financial institution’s methods of verifying customers’ identities or testing the CIP procedures. When we reviewed the examinations for coverage of the CIP requirement, we specifically looked for documentation that the examiner assessed whether (1) the financial institution had developed a CIP and written procedures for CIP; (2) the CIP procedures included collecting appropriate customer information including the minimum requirements, such as date of birth for individuals; (3) the CIP procedures included verifying customer information using documentary or nondocumentary methods; (4) the financial institution was using risk-based procedures for verification, such as determining how much information to verify depending on its assessment of the risk of the customer or type of account or collecting additional information; and (5) the CIP had been adequately implemented by testing a sample of accounts. Generally, we saw documentation showing that examiners reviewed the financial institution’s written CIP procedures. Most examinations in our sample had evidence that the review included assessing written procedures for CIP (157 of 176 or 89 percent), and the procedures included appropriate customer identification information (144 of 176 or 82 percent) and methods of verification (143 of 176 or 81 percent). Fewer examinations— approximately 56 percent (99 of 176)—assessed whether the financial institution was using a risk-based approach. Our review leads us to believe that the risk-based aspect of CIP is an area that could be difficult for both financial institutions and examiners to interpret consistently, because determining the level of risk of a customer or account can be difficult and depends on several factors, such as the customer’s line of business, the process used to open the account, and whether the customer is in the United States or overseas. Because it can be difficult to determine the customer’s risk level, it is not surprising that some examiners would focus on reviewing the minimum requirements, such as the requirements to collect minimum information on customers. OCC officials told us that they developed some internal guidance to assist OCC examiners in understanding the risk-based aspect of CIP early in 2004 because some examiners were confused about it. This guidance explained that limited identification and verification procedures may be appropriate for local residents and businesses, but enhanced procedures may be needed for nonlocal customers, non face-to-face customers (such as customers who conduct transactions by mail, telephone, and Internet), and high-risk accounts (such as private investment corporations, offshore trusts, and foreign customers). The guidance also provided examples of types of enhanced verification procedures, such as customer callbacks, credit verification, and on-site visits that could be used to verify the identity of higher-risk customers. Finally, the guidance stated that for most banks a single set of procedures for verifying the identity of customers would not be adequate. FDIC had also incorporated some examples in examination guidance updated in December 2004 that included examples of how CIP procedures may differ depending on the risk of the customer or type of account. One example in FDIC’s guidance explained when a bank may want to obtain more information on a business or company. The guidance said that although obtaining information on signatories, beneficiaries, principals, and guarantors is not a minimum requirement for CIPs, in the case of opening an account for a relatively new or unknown firm, it would be in the bank’s interest to obtain and verify a greater volume of information on signatories and other individuals with control or authority over the firm’s account. It is important that examiners determine whether financial institutions have developed risk-based procedures in addition to developing procedures that meet the minimum requirements, because (1) the regulations require that financial institutions develop risk-based procedures and (2) the risk-based procedures allow for more rigorous verification procedures on those types of customers thought to be more at risk of engaging in money laundering or terrorist activities. The results of our review of examinations showed considerable variation when we looked for documentation showing whether the examiner tested CIP procedures. We found that only about 43 percent (75 out of 176) examinations tested procedures, in part because our review looked at examinations during the early implementation phase and the examination guidance issued by some regulators does not require that they test procedures. Federal Reserve and FDIC officials said that during the early phase of implementation examiners may have focused on reviewing the procedures with the intent of testing procedures in the next examination cycle. SEC officials said that since many of their broker-dealer examinations that we reviewed were oversight examinations of examinations conducted by NASD or NYSE, SEC examiners would not always conduct testing. Officials from NASD and NYSE told us that some of the smaller broker-dealers may not have opened any new accounts between October 1, 2003, and the time of the examination and, therefore, the examiner would not have tested accounts. NYSE officials also said that CIP was not reviewed in one examination in our sample because the examiner determined that the firm did not have any customers and did not interact with the public. The regulators and SROs varied in their examiner guidance for testing procedures. The banking regulators use a risk-based approach to their examinations that determines what procedures are performed. Under this risk-based approach to examinations, the examiners first determine whether the financial institution has a strong compliance program and a history of compliance and then tailors the examination procedures based on this risk assessment and review of past examinations. For example, Federal Reserve officials explained that an examiner’s review of the independent testing of an institution’s anti-money laundering procedures may reduce the need for the examiner to also test certain procedures. When the banking regulators issued their joint examination guidance and procedures for CIP in July 2004, the guidance directed examiners to determine whether and to what extent to test CIP procedures based on a risk assessment, prior examination reports, and a review of the bank’s audit findings. Although the SEC examination procedures for broker-dealers that we reviewed did not include procedures for testing, an SEC official told us that the initial request letters sent to institutions include a request for customer account information so that examiners can test those accounts for CIP compliance. SEC’s procedures that we reviewed for mutual funds included procedures for sampling accounts and testing CIP procedures for examinations of funds’ transfer agents that maintain customer account information. NASD and NYSE have instructions that include sampling accounts to determine whether the financial institution’s CIP procedures are being implemented properly. The examination procedures used by NFA and the futures exchanges also include procedures to test the CIP procedures against a sample of high-risk accounts. We also looked to see if examiners conducted any testing of high-risk accounts because the results of such testing would provide a clearer indicator of whether the financial institution was exercising more due diligence on riskier accounts. We saw evidence that examiners tested a sample of high-risk accounts for CIP compliance in 8 of 176 of the examinations. Several regulatory officials told us that the institutions in our sample may not have had high-risk accounts. For example, many of the NFA examinations included documentation saying that the institution did not have any high-risk accounts and therefore a sample of such accounts were not tested. Also, NCUA and OTS officials said that the probability that the institutions they regulate would have high-risk accounts was small. Although most of the examinations had documentation that the examiner had reviewed CIP, the documentation, such as the examination report or a summary written by an examiner, did not always specify how the review was conducted. Therefore, some of the variation in the results from our examination review may also be due to differences in the way examiners document their work. We observed a variety of methods for documenting examination procedures that were conducted and examination results. Some of the federal financial regulators and SROs used a system of recording the completion of examination procedures, such as a questionnaire or worksheet, which generally made it easy to follow what the examiner had done but did not always include the same aspects that we were reviewing. For example, NCUA examiners document their examinations using a questionnaire. However, this questionnaire does not ask the examiner to document whether he or she tested CIP procedures. In the one instance in which we saw documentation of testing by NCUA, the NCUA examiner had documented a deficiency in the credit union’s CIP procedures based on looking at a sample of accounts. An FDIC official told us that examiners may not document that they tested procedures unless it showed a deficiency. Some examiners documented their review by making notes on copies of the financial institution’s procedures. Finally, some examinations, such as a few of the examinations conducted by the Federal Reserve and OCC, used memorandums that discussed the findings of the examination. However, the memorandums may not have specified all of the aspects of CIP that were reviewed. In addition, OCC officials told us that OCC does not require examiners to document every procedure that they complete or what they do not do in an examination. Our review of some of the examinations in the sample revealed that examiners and financial institutions may not always understand the requirements for CIP or interpret them in the same way. The aspects of CIP that raised questions about whether examiners or financial institutions understand them are (1) the differences between CIP and know-your- customer procedures; (2) the differences between the requirements to check government lists for CIP versus other government lists such as OFAC; and (3) the extent to which a financial institution performs CIP procedures for existing customers. Some confusion or lack of understanding is to be expected during the early phases of implementing new requirements. However, these differences in understanding have resulted in inconsistencies in the examination process and may have created further confusion and misunderstandings. A potential challenge to assessing compliance with CIP are the similarities among CIP requirements and other procedures that require customer identification for anti-money laundering purposes, including what has been called “know-your-customer” or “customer due diligence” (CDD) procedures. Also, although not an issue in the examinations we reviewed, section 312 of the PATRIOT Act adds another customer due diligence requirement and could lead to misunderstandings about appropriate due diligence. Section 312 requires appropriate, specific and, where necessary, enhanced, due diligence for correspondent accounts and private banking accounts established in the United States for non-U.S. persons. FinCEN adopted an interim final rule for section 312 on July 23, 2002. In the interim rule, FinCEN noted that the requirements of this provision placed on financial institutions are significant and therefore, additional time was necessary to consider what is appropriate for the final rule. As shown in table 4, CIP, know-your-customer procedures, and section 312 have some similarities. All three require some level of collecting customer identification information and taking steps to verify that information and the risk-based aspect of CIP could overlap or duplicate know-your- customer procedures and section 312 requirements. However, know-your- customer procedures typically require more information than CIP. According to the 1997 BSA examination manual issued by the Federal Reserve, a know-your-customer policy begins with obtaining identification information and taking steps to verify information—similar procedures to CIP. However, know-your-customer procedures also include obtaining information on the source of funds used to open an account and determining whether to obtain information on beneficial owners of certain types of accounts such as trusts. One goal of know-your-customer procedures is to collect sufficient information so that the financial institution knows what to expect in terms of customer account activity so that it can adequately monitor for unusual or suspicious activities. In 6 examinations in our sample of 176, we found evidence that examiners were confusing know-your-customer procedures with CIP. For example, in 1 examination, the examiner documented a review of CIP but the documentation included a copy of the financial institution’s know-your- customer procedures that had been in place since 1997 and had not been updated to include the minimum identification standards and other CIP requirements, such as recordkeeping procedures. As a consequence, this institution may be doing less than what CIP requires. In another examination, the examiner reviewed the institution’s know-your-customer procedures, which included the minimum CIP requirements but also directed employees to do more due diligence than CIP may require depending on a risk assessment of the account and customer. As a consequence the examiner and institution may believe that compliance with CIP requires more procedures than necessary. Draft examination guidance that the banking regulators intend to issue in June 2005 may improve understanding of the difference. The draft guidance explains that customer due diligence begins with customer identification and verification but also involves collecting information in order to evaluate the purpose of the account to be able to detect, monitor, and report suspicious activity. One regulatory official told us that the banking regulators now refer to know-your–customer procedures as “customer due diligence.” In 7 examinations, we found that the examiner confused the CIP requirement to check government lists of suspected terrorists with another government requirement to freeze assets and block transactions of designated persons and entities. Treasury’s Office of Foreign Assets Control (OFAC) requires financial institutions to freeze assets or block transactions of people and entities on the List of Specially Designated and Blocked Persons. Therefore, financial institutions check customers against this list to ensure that they are in compliance. In these 7 examinations, the examiners noted that the financial institution was not compliant with the CIP requirement to check government lists because the institution was not checking customers against the OFAC list. However, as FinCEN and the banking regulators noted in the first set of CIP FAQs, lists published by OFAC whose independent requirements stem from statutes other than the PATRIOT Act and are not limited to terrorism, have not been designated for purposes of the CIP rule. Two examinations documented disputes or confusion about the extent to which financial institutions should apply the CIP requirement to existing customers who open new accounts. In one examination, the examiner cited a CIP deficiency because the institution had not updated the address information for all of its existing customers. However, the CIP rule only applies when an existing customer is opening a new account and the CIP rule does not expect institutions to update records on existing customers if it has a reasonable belief that it knows the true identity of its customers. As stated in FAQs for the CIP rule issued by FinCEN and the banking regulators, a bank can demonstrate it has a reasonable belief that it knows its customers’ true identities if it had comparable procedures in place prior to October 1, 2003, or provide documentation showing that it has had a long-standing relationship with a particular customer. In the other examination, the institution and the examiners were familiar with the CIP requirements but differed in interpreting the extent to which an institution can develop a policy that exempts existing customers who open new accounts. The institution disputed the examiners’ finding that it was not in compliance with CIP because it had assumed it knew the identity of all of its customers who had opened accounts prior to January 2000. The institution argued that it had procedures in place prior to 2000 that were similar to CIP procedures and therefore did not have to apply the CIP requirement to existing customers who open new accounts. As shown in table 5, most of the examinations in our sample—about 76 percent—included a review of compliance with section 314(a), but documentation of specific aspects of section 314(a) were somewhat less. We found documentation in 58 percent (91 of 157) of the examinations in which the examiner determined that the financial institution was receiving 314(a) information requests from FinCEN. We also looked for evidence of whether the examiner tested the 314(a) procedures and found documentation of testing for about 16 percent (25 of 157) of the examinations. Although many of the examinations had documentation that the examiner had reviewed section 314(a), the documentation, such as the examination report or a summary written by an examiner, did not always provide enough specificity for us to determine if the examiner had verified that the financial institution was receiving the requests or tested the procedures. Also, in some cases, the examination procedures did not require that examiners test 314(a) procedures. Neither NFA nor the exchanges require in their examination guidance that examiners test the 314(a) procedures to check if all of the required types of records are searched, but they do require that the examiner determine if the financial institution responded within 2 weeks if it had a customer account that matched a subject on the 314(a) request. An SEC official told us that it would be difficult to test the 314(a) procedures in many cases because many financial institutions destroy the 314(a) information requests after they have searched their accounts. The examination procedures for section 314(a) issued by the banking regulators are also conducted under a risk-based approach. Under the risk-based approach, examiners may determine the need to select a sample of positive matches or recent 314(a) requests to test the procedures. The samples for SEC and NFA are smaller in our review of section 314(a) because certain types of financial institutions do not typically receive the 314(a) information requests from FinCEN. According to SEC and FinCEN officials, under the 314(a) process, information requests are generally sent out to banks, credit unions, broker-dealers, and futures commission merchants because these types of financial institutions have an established infrastructure for capturing point of contact information. Also, SEC officials told us that because mutual fund shares are typically purchased through a principal underwriter, which is a registered broker-dealer, most mutual fund accounts would likely be covered by broker-dealers who receive 314(a) information requests. Therefore, SEC does not examine mutual funds for compliance with section 314(a) at this time. SEC officials said that because many of the examinations of broker-dealers in our sample were oversight examinations of NASD and NYSE, some examinations would not necessarily review all aspects of a financial institution’s anti- money laundering program. The number of examinations in our sample of NFA examinations that covered section 314(a) is fewer than for CIP because most of the examinations included in our NFA sample were examinations of introducing brokers. NFA officials explained that introducing brokers do not typically receive 314(a) requests because under industry regulation every customer of an introducing broker must also be a customer of a futures commission merchant. Therefore, if introducing brokers were required to conduct 314(a) searches, they would be searching the same universe of customers covered by the 314(a) requests sent to futures commission merchants. Also, two of the NFA examinations of futures commission merchants did not cover section 314(a) because (1) NYSE and NASD had recently examined one of the firms and had covered it and (2) NFA limited the scope of the examination of the other firm based on prior NFA examinations that found the procedures were adequate. The two CBOT examinations did not cover section 314(a) because the examinations we reviewed were conducted prior to the issuance of the futures exchanges’ revised examination guidance and procedures in February 2004 that were updated to include section 314(a). Some of the OCC and NYSE examinations also did not cover a review of section 314 procedures because our review occurred during the early implementation phase and their examination approaches were still evolving. According to OCC officials, OCC examinations in our sample did not always cover section 314(a) procedures because during this time period OCC was in the process of implementing its approach to reviewing the PATRIOT Act provisions. In February 2004, OCC issued guidance to its examiners to identify those banks with a high risk money laundering profile with the intent of giving those institutions a higher priority in the examination cycle for covering the PATRIOT Act provisions. Because OCC examiners were just beginning to review the PATRIOT Act provisions during the time of our review, some examinations may have not covered all aspects of the PATRIOT Act. OCC officials also said that some examiners may have focused on CIP because CIP procedures are more complex. OCC officials said that compliance with section 314 and the CIP requirement would be examined in all large banks by March 2005 and in all small and mid-sized banks by end of 2006. NYSE examinations did not always cover section 314(a) procedures, in part, because NYSE examination procedures were not clear about how examiners should review section 314(a) procedures. Initially, NYSE had included an examination procedure covering section 314(a) within its examination objective covering the firm’s anti-money laundering program. NYSE officials created a separate examination objective for section 314(a) while we were conducting our review and told us that the revised questions and procedures were incorporated into the anti-money laundering examination module in December 2004. As shown in table 6, about 55 percent of the examinations in our sample covered section 314(b). The sharing of information with other financial institutions pursuant to section 314(b) is voluntary. As a consequence, some examiners may have chosen not to examine for compliance with section 314(b) regulations and some federal financial regulators and SROs did not develop examination procedures for determining compliance with section 314(b) regulations. SEC did not include section 314(b) in its examination procedures for mutual funds because it is voluntary. The futures SROs—NFA, CME, and CBOT—also did not include procedures for examining compliance with section 314(b) regulations. An NFA official told us that they did not review 314(b) because it is voluntary. Most of the regulators and SROs that examined section 314(b) procedures emphasized in their guidance that the provision is voluntary and financial institutions can choose not to share customer information with other financial institutions or share customer information without the benefit of the safe harbor. However, financial institutions may choose to share information without providing notice to FinCEN and be at risk of violating privacy laws. An NYSE official told us that they assess compliance with section 314(b) regulations to ensure that the financial institution will not violate privacy laws. The procedures issued jointly by the federal banking regulators state that the failure to follow the section 314(b) procedures is not a violation of section 314(b) but could lead to a violation of privacy laws or other laws and regulations. Because the regulations were new and many deficiencies and violations were technical mistakes, the federal financial regulators and SROs mostly took informal actions to address deficiencies and apparent violations associated with section 314 and CIP. In our sample of 176 examinations, 32 examinations reported deficiencies or apparent violations related to section 314(a) and 79 examinations reported deficiencies or apparent violations relating to CIP requirements. The federal financial regulators and SROs used different terms to classify problems associated with section 314 and CIP and other elements of institutions’ anti-money laundering programs. For example, some regulators would generally identify section 314 or CIP problems as “violations” or “apparent violations,” while some of the banking regulators would use the term “deficiency” in some cases and “violation” in other cases. Officials from one of the banking regulators told us that they are in the process of developing guidance on the matter. To allow for comparison and aggregation across the different regulators and SROs, we examined problems identified as both violations and deficiencies for our analysis. The varying terminology has an impact on the banking regulators’ reporting systems, since some regulators track apparent violations but do not track deficiencies. This issue will be examined in more depth in other work we are conducting on the banking regulators and BSA examinations and enforcement. The types of section 314(a) deficiencies and violations in our sample varied. Table 7 lists examples of the types of deficiencies and violations in the examinations we identified as being minor or significant. We defined those deficiencies and violations as minor when the financial institution was generally receiving 314(a) requests and searching its accounts, but its procedures needed enhancements. Those deficiencies and violations that we defined as significant were situations in which the institution was not receiving 314(a) requests or adequately searching accounts. The severity of CIP deficiencies and violations also varied. We defined CIP deficiencies and violations as being minor when the financial institution generally had CIP procedures, but some aspects needed enhancements or were incomplete according to the regulatory requirements. Situations in which the institution did not have any CIP procedures or the examiner found that the institution was generally not following its CIP procedures we defined as significant. Table 8 lists some examples of minor and significant CIP deficiencies and violations in our sample of examinations. In many cases, the examinations included documentation showing that institution management agreed to correct deficiencies or violations. In several instances, the examination included documentation in which the board of directors of the institution is directed to address the deficiencies. For example, the Federal Reserve required a board of directors to address a bank’s failure to maintain documentation of its 314(a) searches and to address the violation within 30 days of the examination. Similarly, NCUA noted that a credit union lacked CIP policies and procedures and directed its board of directors to address the apparent violation within a specific timeframe. Additionally, in a few cases, examiners documented that deficiencies or violations were corrected during the exam. For example, a financial institution examined by NASD updated its procedures for addressing FinCEN information requests while examiners were on-site. Although none of the examinations in our sample resulted in formal enforcement actions, recent formal enforcement actions involved violations of the CIP requirement and the regulations under section 314(a). The federal financial regulators have independent statutory authority to institute formal enforcement actions themselves, and they may also refer BSA violations to FinCEN for formal enforcement action. Under delegated authority, FinCEN is the administrator of the BSA and has the authority to enforce BSA regulations. FinCEN’s Office of Compliance and Regulatory Enforcement evaluates enforcement matters that may result in a variety of remedies, including the assessment of civil money penalties. The federal banking regulators have the authority to take formal enforcement action if they determine that a financial institution is engaging in unsafe or unsound practices or has violated any applicable law or regulation. According to officials from the federal banking regulators, they would take formal action, such as issuing a cease and desist order, if they detected systemic or willful violations of the BSA. Violations of formal agreements or orders, such as a cease and desist order, may result in the assessment of civil money penalties. According to a September 2004 MOU among the federal banking regulators and FinCEN, the federal banking regulators have agreed to promptly notify FinCEN of significant BSA violations or deficiencies by financial institutions under their jurisdiction. SEC officials said that significant and willful BSA violations would be referred to its enforcement division, as well as FinCEN. Similarly, NASD and NYSE have their own rules to enforce anti-money laundering regulations and officials from NASD and NYSE said that they would take formal actions and may make a formal referral to FinCEN if they encountered certain BSA violations. Officials from CFTC and the three futures SROs in our review also said that they would take formal action for significant BSA violations under their own rules to enforce anti-money laundering regulations as well as refer the violations to FinCEN. We identified several formal enforcement actions taken by the federal banking regulators and FinCEN that included violations of CIP that demonstrate how violations of CIP and section 314(a) are enforced (see table 9). Only one enforcement action—AmSouth—included a violation of section 314(a). These enforcement actions generally consisted of civil money penalties, supervisory or written agreements, or cease and desist orders. In each of these actions, the financial institution agreed to comply with the enforcement action. Two of these enforcement actions provide additional examples of how CIP has been confused with know-your-customer policies. In two of the cases above, Beach Bank and BAC Florida Bank, FDIC’s cease and desist orders cited institutions for violations of 31 C.F.R. § 103.121 by “failing to implement an effective customer identification program and/or effective ‘Know Your Customer’ policies and procedures.” While 31 C.F.R. § 103.121 requires banks to implement a CIP appropriate for their size and type of business, it does not require banks to adopt know-your-customer policies and procedures. Know-your-customer procedures generally require more information than CIP. We also identified five formal enforcement actions brought against broker- dealers for violations of CIP and section 314(a) requirements. According to NASD, the firms that were the subject of the NASD enforcement actions in table 10 were generally firms with limited risk profiles. Most of the firms did not have extensive client bases, a large number of registered representatives, and multiple branch offices. Therefore, the fine amounts reflect both the smaller size and financial resources of the firms and the lower risk of money laundering inherent in their business models. Reviewing examination data and 176 examinations across six regulators and five SROs provided us an opportunity to see a wide range of practices for managing anti-money laundering oversight programs. One of the key practices that varied across programs was the tracking system used to track examination information. The information that was provided to us on the examinations and apparent violations that covered section 314 and CIP raised broader issues about how the regulators and SROs track anti-money laundering compliance information. To select our sample of examinations, we requested information on the examinations and apparent violations that covered section 314 and CIP, but two of the regulators could not easily obtain this information from their tracking systems. Although we assessed the reliability of the data we received, we did not conduct broad assessments of the information systems and processes regulators and SROs use to track examinations in this report, in part, because we have other work reviewing the banking regulators’ anti-money laundering examinations and enforcement programs and SEC’s examination programs that both include reviewing how they track examinations. However, we highlight the problems we encountered in this review because the problems could affect regulators’ ability to monitor compliance with sections 314 and CIP as well as other anti-money laundering requirements. Generally, OCC, FDIC, OTS, and NCUA were able to respond to our data request using their examination tracking systems and provide information on examinations that would most likely cover section 314 and CIP by identifying examinations that covered anti-money laundering compliance and information on apparent violations. The information varied in determining whether the examinations actually covered CIP and section 314 during the period of time between October 1, 2003, and May 31, 2004, because the regulators began examining for these provisions at different times. For example, OCC’s system is designed to capture examination areas but examiners were not provided guidance to begin reviewing PATRIOT Act provisions until late February 2004, and therefore, the system was not always recording that they had performed modules covering the PATRIOT Act sections for the period of our review. Also, NCUA officials told us that we were more likely to be able to review examinations that covered section 314 and CIP in examinations completed on or after February 2004, because those examinations were more likely to have used the revised examination questionnaire for anti-money laundering compliance that had been installed on computers in December 2003. The Federal Reserve had some difficulty responding to our request because the Federal Reserve’s existing automated tracking system for examinations did not capture sufficient detail on whether its examinations cover a review of anti-money laundering compliance. Although full-scope examinations are all supposed to cover anti-money laundering compliance, many of the Federal Reserve’s target examinations may also cover anti-money laundering compliance, but their tracking system does not capture this level of detail. Therefore, the Federal Reserve could not readily identify the population of examinations that would most likely cover CIP and section 314. Also, although the Federal Reserve tracks information on apparent violations, its tracking system does not track deficiencies. This distinction was important to our information request because the Federal Reserve had not had any apparent violations related to section 314 or CIP, but its Federal Reserve Banks had reported deficiencies in quarterly reports to the Federal Reserve Board. However, the information in the quarterly reports was not sufficiently detailed enough for identifying specific examinations that had deficiencies related to CIP or section 314. Therefore, the Federal Reserve Board had to request this information from the 12 Federal Reserve Banks who had to manually go through examination files and compile the information. Federal Reserve officials told us that they are making significant enhancements to the tracking system to capture additional information on Bank Secrecy Act and anti-money laundering compliance. SEC’s examination tracking system is supposed to capture information on whether the examination included certain focus areas, such as a review of anti-money laundering compliance. However, when attempting to respond to our information request on broker-dealer examinations, SEC discovered that the information from its tracking system did not appear to be accurate. According to an SEC official, SEC information on anti-money laundering examinations for broker-dealers was not always accurate because examiners were not always inputting all of the focus areas that they covered, including anti-money laundering. Therefore, SEC conducted a word search through its database of examination reports to identify examinations that covered section 314 and CIP and identified about 26 examinations to respond to our information request. After our data request, SEC officials emailed a reminder to examination staff of the importance of accurately filling out all examination information in the tracking system, including identifying when anti-money laundering is a focus area, and asked that they review the accuracy of this information for completed examinations and update it as necessary. For mutual fund examinations, SEC used the same tracking system to identify all routine examinations of mutual funds during our examination review period because anti-money laundering was expected to be a focus area for all routine examinations and did not encounter the same problem. NASD and NYSE were able to identify examinations and apparent violations of section 314 and CIP using their examination tracking systems. The futures SROs provided us information without any difficulty. According to an NFA official, once NFA had identified through its tracking system the population of examinations that covered anti-money laundering compliance and those examinations that included an apparent violation, the examinations were reviewed to identify whether the apparent violation was related to section 314 or CIP. CME and CBOT each only have approximately 30 to 40 futures commission merchants at any point in time that they track and had only completed a few examinations during the time period for our examination review and therefore did not have difficulty responding to our information request. Law enforcement officials praised the 314(a) process, stating that it has improved coordination between law enforcement agencies and financial institutions and indicated that CIP has also assisted investigations. The 314(a) process has resulted in discovery of additional accounts held by suspects and issuance of grand jury subpoenas, search warrants, arrests, and indictments. Most law enforcement officials we interviewed also believed that CIP requirements have helped investigators by ensuring that better and more detailed information is collected and maintained at financial institutions. Although CIP and 314(a) processes are useful tools for investigating money laundering and terrorist financing cases, the decision to bring charges in specific cases is always discretionary. Officials from the Department of Justice and other law enforcement agencies told us that the 314(a) process has improved coordination between law enforcement agencies and financial institutions and has increased the speed and efficiency of investigations. Department of Justice officials, including supervisory prosecutors in two U.S. Attorneys Offices, with whom we spoke, said that the 314(a) process facilitated the flow of information between financial institutions and law enforcement officials by connecting FinCEN to approximately 20,000 financial institutions. Investigators use the information FinCEN gathers from these financial institutions as evidence in building cases against potential money launderers and terrorist financers. FinCEN recently reported that the 314(a) system has processed 381 requests since it resumed operation in February 2003. Of the total number of requests processed, 137 of them were submitted by federal law enforcement agencies in the conduct of terrorist financing investigations and 244 in the conduct of money laundering investigations. FinCEN also reported that 314(a) feedback from law enforcement requesters has been overwhelmingly positive. In approximately 2 years, February 2003 through March 2005, 314(a) requests submitted by law enforcement have resulted in the identification of thousands of new accounts and transactions. According to information that law enforcement provides to FinCEN, the 314(a) process has provided information that helped support the issuance of more than 800 subpoenas, 11 search warrants, and 9 arrests. However, FinCEN officials cautioned that this information represents feedback from only 10 percent of the cases for which 314(a) information requests were made and that FinCEN does not verify the accuracy of the data provided by law enforcement officials. Almost all of the law enforcement officials we interviewed said that the 314(a) process improved the speed and efficiency of investigations by allowing investigators to query a large number of financial institutions in a short amount of time. One FBI official we interviewed showed us information on how a 314(a) request led to identification of additional suspect accounts across 23 states and 45 financial institutions. Prior to submitting the request, the FBI was aware of only four accounts. One law enforcement official told us that prior to section 314, law enforcement officials often sent subpoenas to individual banks for information. They could not, however, simultaneously request financial institutions across the country to search accounts or transactions for groups of individuals or even one person. According to FBI officials, the 314(a) process improves the efficiency of investigations because agents spend less time finding the suspect’s specific financial transactions or accounts. The results from a 314(a) request may also help law enforcement to eliminate false leads. One prosecutor told us that the 314(a) process had been used 3 or 4 times during investigations of terrorist financing or money laundering cases. However, all of the law enforcement officials we interviewed told us that they are very judicious in their use of 314(a) requests, in part, because they were aware of the costs to the financial services industry and also because submitting the request can expose a covert operation. For instance, it is possible that a financial institution will take some action, permissible under the law, but which has the unintended effect of compromising the investigation. According to some law enforcement officials, the 314(a) process also allows investigators to track down sophisticated criminals who might normally elude typical investigative approaches. For example, one prosecutor told us that a potential money launderer or terrorist financer with a lot of knowledge and sophistication about financial institutions might have been able to circumvent traditional approaches used to collect information, such as surveillance or tracing financial transactions to individual financial institutions. However, in her view, the 314(a) process has allowed investigators to cast a wider net thereby significantly improving the investigative effort. Many of the law enforcement officials we interviewed said financial institutions are collecting and maintaining better and more detailed information as a result of CIP requirements. One prosecutor told us that as a result of section 326 regulations, grand jury subpoenas can be used to obtain more substantive and detailed information on accounts. This improvement was due to the fact that the CIP rule requires financial institutions to consistently gather more information from a customer when an account is opened. For example, investigators and prosecutors are now able to receive social security numbers, dates of birth, and complete addresses when they issue subpoenas. The same prosecutor told us that in the past, subpoenaed account information concerning criminal suspects was often incomplete. For instance, instead of a physical address they would receive only a P.O. Box or mailbox associated with the account. Standardization of account opening procedures has also made it easier for law enforcement to make positive matches with suspects on 314(a) lists. Prior to the enactment of the PATRIOT Act, some financial institutions already had established policies and procedures to verify customer identities, but the financial services industry overall was not subject to uniform minimum requirements for identifying and maintaining customer information. As a result, law enforcement officials did not always know what kind of information they would acquire from institutions pursuant to a subpoena or warrant. Although the CIP requirement and 314(a) requests have made useful information available to federal prosecutors who are investigating and prosecuting terrorist financing and money laundering cases, prosecution of specific cases is always discretionary. Department of Justice officials, including prosecutors in U.S. Attorneys Offices, said that case specific factors continue to determine whether or not a prosecutor will bring charges on a terrorist financing or money laundering case. There are no specific monetary thresholds or criteria that determine when a prosecutor will pursue a money laundering or terrorist financing case. One prosecutor told us that these provisions helped prosecutors better understand the financial lay of the land in anti-money laundering and terrorist financing and that the use of the provisions by law enforcement leads to better investigations. It is not feasible, however, to enumerate how many cases were successfully prosecuted as a direct result of Suspicious Activity Reports or 314(a) requests since each prosecution is unique and based on many factors. Prosecutors in two U.S. Attorney’s Offices also told us that the provisions, while helpful, could not alter the fact that anti-money laundering and terrorist financing cases are resource intensive and complex. Prosecutors told us that reviewing transactions for a typical money services business or currency exchange was time consuming and may typically involve review of voluminous daily transaction records. Once the transaction analysis is performed, the information then must be reviewed in coordination with other evidence to determine if it can support proof beyond a reasonable doubt, and whether the evidence used to build the case is suitable for presentation in court. Since the passage of the PATRIOT Act, the U.S. government and the financial industry have worked together to develop and implement the regulations required by the PATRIOT Act. It was challenging to develop joint regulations that covered so many sectors of the financial industry. The financial industry has implemented procedures to comply with the PATRIOT Act’s regulations, including the CIP requirement and the information sharing provisions in section 314, but it has encountered several challenges along the way and there are some concerns and issues that remain outstanding. FinCEN, the federal financial regulators, and SROs have made a concerted effort to reach out to and educate the industry on its responsibilities for customer identification and sharing information with law enforcement. However, the interagency process has delayed the release of additional guidance for CIP. The implementation challenges that industry officials shared with us demonstrate that the government will need to continue its education efforts and work with industry to resolve outstanding issues. Primarily, industry officials are unclear about the regulators’ views on what constitutes sufficient verification procedures for certain high-risk customers, such as foreign individuals and companies and whether they and their examiners would view a customer and the appropriate level of verification in the same way. Therefore, industry officials would like to receive more guidance from FinCEN and the regulators on issues such as these. FinCEN, the federal financial regulators, and SROs have also taken steps to implement section 314 and CIP and have begun examining financial institutions and taking enforcement action for violations. However, our review revealed examiner difficulties in assessing compliance with CIP that could reduce its effectiveness at uncovering suspicious or questionable customers or lead to inconsistencies in the way examiners conduct examinations. Because our review found that not all examinations documented a review of the risk-based aspect of CIP, we believe that some examiners and financial institutions may not fully understand how the CIP requirements should be applied to higher risk customers. The primary reason that Treasury and the federal financial regulators adopted the risk- based approach to verifying customer identity was so that financial institutions would be able to focus more effort on high-risk customers. Also, some of the other difficulties we found in our review of examinations highlight how inconsistent interpretations can occur during examinations. For example, some examiners came to different conclusions about how the CIP requirement is applied to existing customers that open new accounts. Because examination findings can cause a financial institution to change its practices, such inconsistencies could lead to significant variations in policies and procedures among financial institutions based on differing interpretations of the CIP requirements by examiners. Although our review focused on two specific anti-money laundering regulations, the enforcement of these regulations occurs under the broader BSA regulatory structure and, hence, the results of our review should be understood in this broader context. Enforcing the BSA, as amended by the PATRIOT Act, is a shared responsibility among FinCEN and the federal financial regulators. As the administrator of BSA, FinCEN has responsibility for enforcement of the provisions added by the PATRIOT Act, but FinCEN relies on the federal financial regulators to conduct examinations and alert it to violations that warrant an enforcement action. This arrangement is even more complicated for securities and futures financial institutions because SEC and CFTC largely rely on the SROs to conduct examinations and enforce rules and regulations. Since the passage of the PATRIOT Act, FinCEN and the financial regulators have been working more closely together to better coordinate BSA examinations and enforcement and to improve the consistency of the information they provide to the financial industry. FinCEN’s new Office of Compliance and MOU with the federal banking regulators are good first steps in better BSA oversight and enforcement. In addition, FinCEN and the federal banking regulators have worked together to develop interagency anti-money laundering examination procedures for the first time. FinCEN is in the process of reaching similar MOU agreements with SEC and CFTC. Whether in issuing guidance for industry or examiners, FinCEN will need the continued cooperation of all seven financial regulators to effectively address problems and inconsistencies in the U.S. anti-money laundering regulatory system. To improve implementation of sections 326 and 314 of the PATRIOT Act, we are making two recommendations: To build on education and outreach efforts and help financial institutions subject to the CIP requirement effectively implement their programs, we recommend that the Secretary of the Treasury, through FinCEN and in coordination with the federal financial regulators and SROs, develop additional guidance covering ongoing implementation issues related to the CIP requirement. Specifically, additional guidance on the CIP requirement that provides examples or alternatives of how to verify the identity of high-risk customers, such as foreign individuals and companies, could help financial institutions develop better risk- based procedures. To enhance examination guidance covering the CIP requirement and ensure that examiners are well-informed about CIP requirements, we recommend that the Director of FinCEN work with the federal financial regulators to develop additional guidance for examiners to use in conducting BSA examinations. Specifically, the guidance should clarify that complying with the CIP requirement is more than determining whether the minimum customer identification information has been obtained—the examiner should determine whether a financial institution’s CIP contains effective risk-based procedures for verifying the identity of customers. Secondly, the guidance should clarify how CIP fits into other customer due diligence practices, such as know-your- customer procedures. Finally, the guidance should reflect the FAQs on CIP issued for industry, which addressed the difficulties in interpretation we observed for checking government lists and applying the CIP requirement to existing customers. We provided a draft of this report for review and comment to the Departments of the Treasury, Justice, and Homeland Security; seven federal financial regulators (Federal Reserve, FDIC, OCC, OTS, NCUA, SEC, and CFTC) and five SROs (CBOT, CME, NFA, NASD, and NYSE). We received written comments from the Department of the Treasury, NCUA, and SEC. These comments are reprinted in appendixes II, III, and IV. The Departments of the Treasury and Justice, the Federal Reserve, FDIC, OCC, SEC, CFTC, NASD, NYSE and NFA also provided technical comments and clarifications, which we incorporated in this report where appropriate. The Department of Homeland Security, OTS, CME, and CBOT had no comments. In its written comments, Treasury said that despite the considerable educational and outreach efforts already undertaken by FinCEN, there was still some confusion and lack of clarity on the part of both the federal financial regulators and SROs, and the regulated industries and examiners who conduct compliance inspections of these industries. Treasury concurred with our recommendations that additional guidance would improve implementation of these regulations. Treasury also commented that, with the diversity of financial institutions that must comply with CIP regulations, firms need the flexibility to implement programs tailored to their own size, location, and type of business and to allow them to use a risk-based approach to verify the identity of their respective customer bases. In its written comments, NCUA also supported our recommendations. Both agencies commented that Treasury and the federal banking regulators plan to issue new BSA examination procedures in June 2005. In its written response, SEC commented that consistent with our recommendation, the federal financial regulators are continuing to work cooperatively to ensure that they provide consistent guidance on interpretive and compliance issues. Concerning difficulties SEC had with its examination tracking system when responding to our information request, SEC also said that its staff is formulating improvements to the existing automated tracking system. Unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this report. At that time, we will send copies of this report to the Departments of the Treasury, Homeland Security, and Justice; the Federal Reserve Board, FDIC, OCC, OTS, NCUA, CFTC, SEC, NASD, NYSE, NFA, CBOT, CME, and interested congressional committees. We will also make copies available to others on request. In addition, this report will be available at no cost on our Web site at http://www.gao.gov. If you or your staff have any questions about this report please contact me at (202) 512-2717 or Barbara Keller, Assistant Director, at (202) 512-9624. GAO contacts and key contributors to this report are listed in appendix V. To determine how Treasury and the federal financial regulators developed the regulations for CIP and section 314 and identify challenges, we reviewed documents related to the rulemaking process including comment letters and the Federal Register notices of the final rules and interviewed officials from Treasury (FinCEN), Justice, the federal financial regulators, and SROs. To identify the government’s education and outreach efforts, we interviewed officials from Treasury (FinCEN), the federal financial regulators, and SROs about how they have informed and educated the industry and reviewed education and outreach materials provided to us. To identify implementation challenges encountered by financial institutions, we interviewed company officials and industry trade associations representing banks, credit unions, securities broker-dealers, mutual funds, futures commission merchants, and futures introducing brokers. We also reviewed letters that company officials and industry representatives sent to Treasury and the federal financial regulators during the rulemaking process as well as after the final rules were issued that expressed concerns and challenges they had about implementing procedures to comply with CIP and section 314 regulations. To determine the extent to which the federal financial regulators and SROs have updated examination guidance and trained examiners on CIP and section 314, we reviewed copies of draft and final versions of guidance; collected information on examiner training courses related to anti-money laundering and the number of examiners trained in 2002, 2003, and 2004; and interviewed officials on their examination guidance and training programs. We also observed one anti-money laundering training course taught by the Federal Financial Institutions Examination Council (FFIEC) that provides training to bank examiners. To determine the extent to which the federal financial regulators have examined for compliance and taken enforcement actions on CIP and section 314 regulations, we collected data on the number of exams completed from October 1, 2003, through May 31, 2004, and the number of violations for CIP and section 314 regulations for the same time period from six federal financial regulators and five SROs. The data from the regulators and SROs generally came from information systems and reporting processes used to collect and track information on examinations and violations. There was some variability in how the regulators and SROs defined examinations, violations, and the start and end dates for examinations and therefore the data are not comparable. However, we determined that the data provided to us were generally reliable for our purposes. Our data reliability assessments generally involved interviewing officials about the management of the data and basic tests of the data to determine if it appeared accurate. We attempted to select approximately 20 examinations from each regulator and SRO. To ensure that we would be able to review a sufficient number of examinations with the types of violations related to CIP and section 314 requirements and how the regulators and SROs addressed violations, we sampled proportionally more examinations that included violations of CIP and section 314 than examinations without violations, though in some cases the number of examinations that had such violations were less than 10 and, therefore, the sample would not include proportionally more examinations with violations. We reviewed a total of 176 examinations. However, the number of examinations varied widely between organizations, and in the cases of CBOT and CME, all available examinations were selected because the number of examinations was small. While the selections of individual examinations were made randomly within the subsets of violation and nonviolation examinations to minimize the possibility of bias in our sample, the arbitrary totals selected were small in number and not representative of the true ratio of violation to nonviolation examinations within the organization nor the volume of examination activity across the organizations. Therefore, these samples are not statistically representative. However, our review of the examinations enabled us to describe the approaches used by the regulators to examine for compliance and highlight issues that may present challenges for examiners in interpreting the new regulations and appropriately assessing financial institutions for compliance. Table 11 displays the final sample size for each of the regulators and SROs and also explains why some examinations initially selected were not part of our final sample. After selecting our sample of examinations, we requested the examination reports and related workpapers associated with each examination from each of the regulators and SROs. We developed a data collection instrument to review the examination documentation. The data collection instrument was developed by reviewing the regulation requirements for CIP and section 314 and the examination procedures developed by the regulators and SROs. After each examination was reviewed once using the data collection instrument, a second person reviewed the examination using the data collection instrument a second time to ensure the reliability of our coding of the review questions and accuracy of data entry. We used the results from the data collection instrument to determine how the regulators and SROs reviewed compliance and how regulators and SROs dealt with deficiencies and violations related to CIP and section 314. We also identified formal enforcement actions that were completed during the time of our review and included violations of CIP or section 314 regulations. Finally, we interviewed officials from FinCEN, the federal financial regulators, and SROs about their examination and enforcement policies. To determine how these new regulations have and could improve law enforcement investigations and prosecutions of money laundering and terrorist activities, we interviewed officials representing several law enforcement agencies, including the FBI and ICE, and Department of Justice officials. We interviewed supervisory prosecutors from two U.S. Attorneys offices as well as supervisory officials at the Asset Forfeiture and Money Laundering Section and the Counter-Terrorism Section at the Department of Justice who have been involved with money laundering and terrorist cases and had experience with section 314 and CIP to better understand the factors that are considered when deciding whether to prosecute a money laundering or terrorist financing case. We also reviewed information that FinCEN collects from law enforcement agencies on the results of the 314(a) process. We conducted our work in New York City, NY; Chicago, IL; and Washington, D.C., between February 2004 and March 2005 in accordance with generally accepted government auditing standards. William Bates, Davi M. D’Agostino, David Nicholson, Carl Ramirez, Omyra Ramsingh, Adam Shapiro, and Kaya Leigh Taylor made key contributions to this report. Anti-Money Laundering: Issues Concerning Depository Institution Regulatory Oversight. GAO-04-833T. Washington, D.C.: June 3, 2004. Combating Money Laundering: Opportunities Exist to Improve the National Strategy. GAO-03-813. Washington, D.C.: September 26, 2003. Internet Gambling: An Overview of the Issues. GAO-03-89. Washington, D.C.: December 2, 2002. Interim Report on Internet Gambling. GAO-02-1101R. Washington, D.C.: September 23, 2002. Money Laundering: Extent of Money Laundering through Credit Cards is Unknown. GAO-02-670. Washington, D.C.: July 22, 2002. Anti-Money Laundering: Efforts in the Securities Industry. GAO-02-111. Washington, D.C.: October 10, 2001. Money Laundering: Oversight of Suspicious Activity Reporting at Bank- Affiliated Broker-Dealers Ceased. GAO-01-474. Washington, D.C.: March 22, 2001. Suspicious Banking Activities: Possible Money Laundering by U.S. Corporations Formed for Russian Entities. GAO-01-120. Washington, D.C.: October 31, 2000. Money Laundering: Observations on Private Banking and Related Oversight of Selected Offshore Jurisdictions. GAO/T-GGD-00-32. Washington, D.C.: November 9, 1999. Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering. GAO/T-OSI-00-3. Washington, D.C.: November 9, 1999. Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering. GAO/OSI-99-1. Washington, D.C.: October 30, 1998. Money Laundering: Regulatory Oversight of Offshore Private Banking Activities. GAO/GGD-98-154. Washington, D.C.: June 29, 1998. Money Laundering: FinCEN’s Law Enforcement Support Role Is Evolving. GAO/GGD-98-117. Washington, D.C.: June 19, 1998. Money Laundering: FinCEN Needs to Better Manage Bank Secrecy Act Civil Penalties. GAO/GGD-98-108. Washington, D.C.: June 15, 1998. Money Laundering: FinCEN’s Law Enforcement Support, Regulatory, and International Roles. GAO/GGD-98-83. Washington, D.C.: April 1, 1998. Money Laundering: FinCEN Needs to Better Communicate Regulatory Priorities and Timelines. GAO/GGD-98-18. Washington, D.C.: February 6, 1998. Private Banking: Information on Private Banking and Its Vulnerability to Money Laundering. GAO/GGD-98-19R. Washington, D.C.: October 30, 1997. Money Laundering: A Framework for Understanding U.S. Efforts Overseas. GAO/GGD-96-105. Washington, D.C.: May 24, 1996. | Title III of the USA PATRIOT Act of 2001, passed after the September 11 terrorist attacks, amended U.S. anti-money laundering laws and imposed new requirements on financial institutions. Section 326 of the act required the development of minimum standards for verifying the identity of financial institution customers. Section 314 required the development of regulations encouraging the further sharing of information between law enforcement agencies and the financial industry and between the institutions themselves. Because of concerns about the implementation of these new provisions, GAO determined how (1) the government developed the regulations, educated the financial industry on them, and challenges it encountered; (2) regulators have updated guidance, trained examiners, and examined firms for compliance; and (3) the new regulations have affected law enforcement investigations. Treasury (including its Financial Crimes Enforcement Network (FinCEN)), the federal financial regulators, and self-regulatory organizations (SRO) overcame challenges to create regulations that apply consistently to a diverse financial sector and have used several outreach mechanisms to help the financial industry understand and comply with Customer Identification Program (CIP) requirements under section 326 and information sharing requirements under section 314. However, several implementation challenges remain. Industry officials told us some of their concerns have been addressed but they are still concerned about (1) how some CIP requirements will be interpreted during compliance examinations, (2) the lack of feedback from law enforcement on information provided by financial institutions through section 314(a), and (3) the extent to which they can share information with each other under section 314(b). The six federal financial regulators and five SROs in our review have issued examination guidance covering sections 326 and 314, subsequently trained examiners, and begun examining financial institutions for compliance with CIP and section 314. GAO's review of examinations showed progress, but coverage varied in part because the examinations were conducted during early implementation. One aspect of CIP that was not always covered in examinations was whether financial institutions had adequately developed a CIP appropriate for their business lines and types of customers. However, this aspect of CIP is critical for ensuring that the identification and verification procedures are appropriate for types of customers and accounts that are at higher risk of being linked to money laundering or terrorist activities. Some examinations also revealed implementation difficulties related to CIP that could lead to inconsistencies in the way examiners conduct examinations. For example, some examiners did not differentiate between the CIP requirement and other procedures that require customer identification information. Coverage in the examinations GAO reviewed of how institutions had implemented section 314 requirements was somewhat lower than for CIP, in part, because CIP received more attention from examiners and information sharing between financial institutions is voluntary. In the examinations GAO reviewed, apparent violations of the CIP requirement and section 314(a) regulations were mostly addressed through informal actions between the institution and the regulator. Officials from the Department of Justice and other law enforcement agencies told us that CIP and section 314 have assisted them in the investigation of money laundering and terrorist financing cases. Some officials said that CIP has been useful because financial institutions have more information on their customers so they obtain more useful information when issuing grand jury subpoenas and other requests for information. Many officials said the 314(a) process had improved coordination between the law enforcement community and the financial industry and increased the speed and efficiency of investigations. |
Since the first public 2-year college opened more than 100 years ago, community colleges have experienced considerable change in their purpose and mission. They have expanded beyond their original academic or vocational focus to meet a wide variety of educational, economic, and social needs. Community colleges have kept their “transfer function,” preparing students for 4-year institutions, while assuming a role in occupational skills training and adult basic education. With open admissions and low tuition policies, community colleges serve the needs of a diverse student body, ranging from people without any type of educational credential to those with advanced academic degrees. Between 1980 and 2000, the number of community colleges grew about 14 percent with enrollments increasing about 32 percent; enrollments are projected to increase about 14 percent from 2001 to 2013. According to data compiled by NCES, community college students are more likely than 4-year college students to be 24 years of age or older, not enroll directly after high school, attend part-time and work full-time while enrolled, be financially independent for federal financial aid purposes, have dependents, be a single parent, or not have a high school diploma. Community colleges and technical schools have a wide variety of program types from which to draw. The programs include traditional academic courses for students intending to obtain an associate degree or transfer to a baccalaureate-granting institution as well as remedial education to bring students to college-level proficiency and basic skills training for people who want to improve their employability or pass the General Educational Development examination. Separate from these program types, other programs offer credit and noncredit occupational, professional, and technical training leading to degrees, certificates, licenses, or diplomas for new and existing workers; training developed for specific employers; and other programs to meet the personal and professional interests of the local community. Such training can range from a 2-year program that prepares students to take a certification test to single, short-term introductory courses in a subject such as introduction to the Internet. Community colleges and technical schools offered a mix of credit and noncredit education and training programs that served to help students transition from high schools to postsecondary institutions, prepare people for college-level learning, and provide new and existing workers with new or upgraded job skills. While the education and training options are many, the primary focus of schools and students remains academic credit programs that may lead to a degree, credential, or transfer to a 4-year institution. Noncredit training is substantial at some schools, however, and most colleges and schools offer contract training that can be customized for employers seeking new or upgraded skills for their employees. The majority of community colleges and technical schools responding to our survey reported offering a wide range of academic and training programs in addition to their college credit curriculum. Nearly all schools reported offering two types of credit programs—those that lead either to a 2-year degree or transfer to a baccalaureate-granting institution (93 percent), and those that lead to an occupational, professional, or technical credential (96 percent). Each of the four types of noncredit programs was offered by at least 61 percent of the schools that responded to our survey. These programs provided skill proficiency ranging from better academic preparation to training that leads to an occupational license or certificate (see fig. 1). Some officials we talked with during site visits indicated that states and colleges consider occupation projections when establishing training programs. Two states we visited had strategies to help guide schools in establishing programs that address the needs of local businesses and the workforce. Florida, for example, created a targeted occupations list to guide program offerings at community colleges. Colleges may offer programs from the list without obtaining special permission or review from the state. In Washington State, community college officials said that colleges proposing new professional or technical programs must show that the estimated output of the proposed program along with similar programs statewide does not exceed the projected employment need. Our survey data show many schools offer programs in occupations with projected growth. Schools reported that the most frequently offered fields of study, whether offered for credit or noncredit, were in the areas of health, business, and computer/information technology. According to Department of Labor projections, these three fields should experience high growth in employment. Credit programs were the most likely programs to be offered by the 758 community colleges and technical schools that responded to our survey and they were also the program areas with the greatest median number of enrolled students. While students were often enrolled in more than one type of program, the median percent of students enrolled in academic credit programs was 49 percent, and the median percent of students enrolled in occupational, professional, or technical training programs for credit was 33 percent. The median percent of students enrolled in five noncredit programs ranged from 1 to 14 percent. (See fig. 2.) Most community colleges and technical schools made their credit curriculums available to high school students through transition programs that link secondary and postsecondary academic and vocational education. Among schools responding to our survey almost all community colleges and technical schools were involved in at least one of three such programs: Over 90 percent of schools participated in dual or concurrent enrollment programs that allowed high school students to attend college-level classes and earn both high school and college credit. Nearly 75 percent of schools had “Tech-Prep” programs that consist of 2 years of high school and 2 years of higher education or an apprenticeship program leading to a credential in specific career fields such as welding or accounting. Slightly less than half of schools participated in school-to-career programs that link the high school with the business community to improve student transitions to work. At the schools we visited, the demand for these programs could be seen in the size of the enrollments. Concurrent enrollment at one community college in Texas, for example, included more than 1,400 high school students in spring 2002 and was expected to exceed 1,800 the next fall. These students could earn up to 1 year of college credit prior to high school graduation. A community college in Washington State with a total headcount enrollment of 39,020 was serving 816 high school students under a dual credit program in the 2002-03 academic year. While schools reported higher student enrollment in credit courses overall, at some schools large proportions of students were enrolled in noncredit programs. Figure 3 shows the relative number of students enrolled in four types of credit and noncredit programs in the fall term of 2002, as reported by the surveyed schools. Noncredit programs offer various benefits to schools and employers. School administrators have found that noncredit courses allow them to address shifts in local labor markets, often in a short time. They can develop and deliver noncredit courses more quickly than credit courses because noncredit courses have a less complicated review and approval process. Schools may use noncredit courses as a transition to adding or deleting programs from the curriculum. In Florida, for example, a community college official said the college collaborated with a local hospital to develop a course for interpretive services that train intermediaries to work between English speaking staff and foreign language patients. The college started the course as noncredit with the view of later converting the course to credit if interest and enrollment grew. In contrast, declining numbers of students in a real estate program led the college to change it from credit to noncredit. Benefits to students enrolled in noncredit programs often include low or no tuition and fees, simpler enrollment procedures, less formal classroom settings, and more flexible class schedules. Noncredit education helps students wanting to upgrade skills, retrain for a new career, prepare for a licensing exam, or pursue vocational interests. An administrator at a North Carolina community college noted that many noncredit courses are intended for students who do not want or need a degree—or another degree. For some people, completion of a few short-term noncredit courses serves as a transition to the credit academic or occupational pathway that leads to a degree or certificate. Perhaps one of the biggest benefits of noncredit programs is to provide transitional education for people who leave high school unprepared for college-level programs. Community colleges, with their open admissions policies, are a prime source of instruction for the great number of students needing remediation. Overall, more than a dozen states estimated that half of students entering community colleges required some type of remedial education, according to a state survey conducted by the Education Commission of the States in 2001. The remaining 14 states providing such data estimated the proportion of entering students needing remediation ranged from a low of 10 to a high of 49 percent. States report continuing demand for remedial education. Washington State, for example, reported in 2004 that about half of students entering community colleges and technical schools within 3 years of high school take at least one remedial course, most often in math. One other type of noncredit program—contract training—is treated separately here because many colleges administer their contract training separately from other college programs, and less may be known about it. Contract training programs typically offer flexibility and responsiveness in meeting the needs and schedules of trainees and their employers. In consultation with the business or organization, the school may provide an existing or specially created course, hold the training at the worksite or on campus, and use existing faculty or hire instructors. Training may focus on management, computer, language, customer service, or any other subject that an employer considers important to improving its workforce. More than three-quarters of schools responding to our survey offered contract training in the 2002-03 academic year. Schools responding to our survey reported serving a total of over 1 million trainees through contract training during the 2002-03 academic year, with a median of 982 trainees per school. More than half of the reported contracts were with private companies, but schools also contracted with government and nonprofit agencies. (See fig. 4.) Contract training was provided to employers with 100 or fewer employees about one-quarter of the time. (See fig. 5.) A workforce development expert we spoke with said that larger employers are more likely to provide the minimum class size that community colleges need to make customized training financially viable. Community colleges and technical schools have pursued contract training for such reasons as the following: to meet the training needs of local employers, to cultivate potential employers for their students, and to develop an additional revenue source. However, contract training presents an entrepreneurial challenge to community colleges and technical schools since employers are free to choose other training sources, including in- house instructors, private contractors or consultants, 4-year colleges, or other community colleges. This competition provides an incentive for community colleges to develop networks among local employers and market their training services. For example, a community college administrator in Florida stressed the importance of partnerships with local businesses and chambers of commerce in identifying potential clients. States have historically contributed the largest share of funding for public community colleges compared with other public and private funding sources. State funding policies generally differ among programs, however, in that states often provide less funding to support schools’ noncredit education and training programs. Overall the share of federal funding to public community colleges has been stable, but comparatively small. The level of federal funding each school receives generally depends on participation in a number of grant programs and may flow directly to schools or indirectly through grants to states or other entities. State funding has been a major source of revenue for public community colleges for years. Data collected by the National Center for Education Statistics show that the share of their revenue from state governments has remained relatively stable between 40 and 45 percent of all revenue from 1992-93 through 2000-01, the latest year that published NCES data are available. As figure 6 shows, states provide about double the amounts received from student tuition and fees and local governments, which are the next two largest revenue sources. Every public community college system in the country receives some level of state support. Survey results reported by the Education Commission of the States in 2000 showed that 29 states used funding formulas to determine the amount to be appropriated for community colleges as a whole, the amount to be distributed to each college, or both. The primary elements used in the state formulas were enrollment, space utilization, and comparison with peer institutions. Community colleges receive less funding for noncredit academic and occupational training programs than for credit programs for two main reasons. First, less than half of all states, according to national surveys conducted by the Education Commission of the States and the National Council for Continuing Education and Training, fund noncredit programs at community colleges. Second, most of those states that do provide funding for noncredit programs based on numbers of full-time equivalent students provide funding at a lower rate–generally 50 to 75 percent of the rate provided for credit programs. Our survey responses indicated that states often provided lower levels of funding for courses offered without college credit in three areas—basic skills; noncredit occupational, professional, and technical training; and contract training. Nearly 40 percent of schools responding to our survey reported receiving less state funding for basic skills courses (Adult Basic Education, English as a Second Language, and General Educational Development) compared with funding received for credit courses (see fig. 7). A somewhat lower percentage of schools reported receiving about the same or higher level of state funding for these courses. Schools often rely heavily on state and federal funding sources to support their basic skills programs, as these developmental courses are often offered at little or no cost to students in order to increase accessibility to all populations. However, increased demand for such services has created challenges for schools in states such as Texas, where state funding for adult education and literacy has been insufficient to meet current and growing demand for these services, according to a 2003 state report. Nearly two-thirds of community colleges and technical schools responding to our survey reported receiving state funds for noncredit occupational, professional, or technical training courses, while nearly one-fifth reported that they were not permitted to use state funds to support these training courses. As shown in figure 8, of the schools that did receive direct state funding, over half reported receiving lesser amounts for these noncredit training courses than courses offered for credit. About one-third of schools received the same level of state support for credit and noncredit occupational programs. Lower levels of state funding for noncredit training courses provided both challenges and benefits to schools, according to college officials. An official from the North Carolina Community College System said that because the state funds noncredit occupational programs at 75 percent of credit programs, schools face challenges in operating training programs in areas (such as biotechnology) that have high demand among local employers but also higher operating costs in terms of teacher salaries and equipment. On the other hand, a representative from a community college in North Carolina said that lower state funding for noncredit programs encouraged the school to charge tuition at a level that would make the program self-supporting, providing an additional revenue stream as schools in this state are allowed to keep tuition received instead of returning it to the state. Nearly two-thirds of community colleges and technical schools responding to our survey reported receiving state funds to defray costs of delivering employee training under contract to businesses, government entities, or other employers, as shown in figure 9. For the majority of schools (54 percent), the state funded only a portion (about half or less) of their contract training costs, while a few (11 percent) received state funds covering all or most of their costs in providing contract services to customers. States we visited funded contract training at community colleges differently from their other academic and training programs. Some states had established separate grant programs for this purpose. Florida, for example, funds contract training primarily through two state grant programs. The first of these—the Quick Response Training Program—is designed to retain and attract businesses creating new high-quality jobs. A representative from one Florida community college said that the college used a Quick Response Training grant to prepare a labor pool as an incentive for DHL, an express shipping company, to relocate to the county. The second program—the Incumbent Worker Training Program—is targeted to maintain the competitiveness of existing businesses by upgrading employee skills. Since their inception in 1993 and 1999, respectively, these programs have funded training for over 100,000 employees across the state. In North Carolina, the state funds contract training at community colleges for companies creating 12 or more new jobs in a 1-year period through the New and Expanding Industry Training Program, first established in 1958. During fiscal year 2001-02, this state-funded program served nearly 15,000 trainees. In addition, the state’s Focused Industrial Training program allows industries related to manufacturing, computers, and telecommunications to upgrade employees’ technological skills. State funding under this program allowed community colleges throughout the state to train more than 10,000 employees of over 750 companies during fiscal year 2001-02. The federal share of public community college funding has been fairly stable over time, but relatively small compared with other funding sources. Excluding federal student financial aid, federal funding provided about 5 percent of total public community college revenue between 1992-93 and 2000-01 as previously shown in figure 6. These revenues are provided through a number of federal programs operated by various agencies, including the Departments of Education and Labor. However, information on the extent that community colleges receive federal funds through each of these programs is limited at the federal level. While some funds–such as those available under Title III of the Higher Education Act—-are provided directly from federal agencies to schools, other funds—such as those under the Workforce Investment Act—are provided to states that subsequently determine whether community colleges or other entities will receive funding. There are no clear federal requirements to report this information back to the federal agency—the Department of Labor— distributing these state-based grants. We surveyed community colleges and technical schools to determine the level of federal support through each of nine different programs. Our results, however, are not comprehensive because only 71 percent of schools responded to our survey, and of those schools—between 22 and 41 percent of respondents—did not provide data for individual federal funding sources. What our survey results did show was that these nine programs provided a minimum of nearly $700 million, or about 4 percent of total revenues, to the schools that reported receiving funds. As shown in table 2, less than 30 percent of federal funds from these 9 programs were provided directly to community colleges; the rest was provided indirectly through the states. Community colleges and technical schools that responded to our survey, on average, each received funds from three of these nine federal sources. Community colleges and technical schools reported considerable differences in the amounts received under each of the nine different federal programs. Colleges and schools reported receiving the least amount of median funding from the Vocational Rehabilitation program (median of about $40,000) and the most median funding from programs under Title III of the Higher Education Act (median of over $350,000). Overall, seven of the nine programs provided a median of under $200,000 to the one-third or less of colleges and schools responding to our survey that reported receiving revenue from these programs. Most community colleges and technical schools responding to our survey have systems in place to measure education and employment outcomes for students enrolled in at least some programs, but differences in how these schools and states measure and report such data preclude using them to report nationally on the proportion of community college and technical school students who graduate, transfer to 4-year institutions, pass licensing examinations, or gain employment. Likewise, while several federal programs each have a methodology to collect outcomes such as graduation rates from schools, this methodology is often applied to relatively few students and, therefore, the results may not represent outcomes for students nationwide. The best national outcome data, which stem from studies conducted by the National Center for Education Statistics, show that between half and two-thirds of community college students seeking an academic credential were successful in doing so or in transferring to a 4-year institution within 6 to 8 years of enrolling in community college programs. Almost all community colleges and technical schools responding to our survey developed some type of student education or employment outcome measures for their students, but they most frequently collected such data for students enrolled in for-credit academic and occupational, professional, or technical training programs. For example, as shown in table 3, over half of community college and technical schools responding to our survey tracked both education and employment outcomes for both types of for-credit programs, but only about a sixth of community colleges and technical schools tracked these data for noncredit occupational, professional, or technical training programs. To some extent, the difference in community colleges’ and technical schools’ data collection for credit and noncredit programs reflects the extent to which such data are needed to meet federal and state reporting requirements. For example, a community college official in Oregon said that his community college collects and reports student completion and graduation rates for credit courses to meet eligibility requirements for participation in federal student aid programs, but the school is less likely to collect such information for noncredit courses. In the absence of specific federal requirements to collect and report outcome data, some states have developed outcome measures for noncredit programs, but these outcome measures may differ from those used to measure credit programs. Community college officials from North Carolina, for example, said that most student outcome measures, including those required by the state, are focused on credit courses, and the success of noncredit programs is measured by conducting satisfaction surveys of businesses whose employees have attended classes. While less than half of community colleges and technical schools measured outcomes for noncredit occupational, professional, or technical training programs, they were much more likely to measure outcomes for students enrolled in noncredit remedial courses (such as mathematics, English, or reading) or basic skills courses (such as English as a Second Language). As table 4 shows, community colleges and technical schools were more likely to report education outcomes for students, such as enrollment in college-level programs and degree attainment, than outcomes related to employment and wages. Community colleges and technical schools used several different methods to collect education and employment data for students who had been enrolled in academic and occupational, professional, or technical training programs but, as table 5 shows, relied most heavily on student self- reported data obtained through follow-up surveys for each type of program. Many community colleges and technical schools supplemented this data source for education and employment outcomes by obtaining data from institutions students had transferred to and, to a much lesser extent, tracking unemployment insurance wage data. While many community colleges and technical schools reported measuring both education and employment outcomes through student surveys, one study showed that the specific performance measures that individual states require their schools to report on differed substantially from each other. The Education Commission of the States reported in November 2000 that 27 states required community colleges to report on performance measures and indicated that each state required schools to use a different set of measures. While 19 states had no performance measures in use or under development, others used more than 30. The most common performance measures (rates for graduation, certificates and degrees awarded, transfer to 4-year institutions, and job placement) were required in only 16 or 17 states. While methodological differences preclude aggregating performance data for national use, 6 states we visited or contacted required community colleges to report on specific performance measures. The Texas Higher Education Coordinating Board, for example, collected information on student pass rates from agencies and professional organizations responsible for administering 45 licensure/certification examinations, including aircraft mechanic, court reporter, and nuclear medicine technician. These licensing examination pass rates were used as part of the Board’s overall assessment of the effectiveness of vocational education programs at community and technical colleges in the state. Similarly, for 15 years the North Carolina Community College System has annually published school performance measures for purposes of accountability and performance funding and for use in evaluating the College System’s strategic plan. In February 1999, the North Carolina Board of Community Colleges adopted 12 performance measures for accountability, including pass rates on licensure and certification examinations, employment status of graduates, pass rates of students in developmental courses, as well as employer satisfaction with graduates. The federal government has some reporting requirements for measuring education and employment outcomes across schools and states, but these requirements sometimes pertain only to participants in a federal program and results may not be nationally representative of all community college students and schools. For example: Postsecondary institutions eligible for federal student aid are required to disclose completion or graduation rates and transfer rates of first-time, certificate- or degree-seeking, full-time students who begin their studies in the fall term. These data are collected annually by the National Center for Education Statistics through its Integrated Postsecondary Education Data System. Outcome data from community colleges and technical schools that do participate in this annual survey are not representative of student outcomes as a whole because most students do not fall under the reporting requirement. For example, in the 1999-2000 school year, only about a third of community college and technical school students attended school full-time. A community college in Washington, for example, estimated that less than 20 percent of students who entered school in fall, 1996, were included in the IPEDS reporting requirements. The Carl D. Perkins Vocational and Technical Education Act provide grants to states to help provide vocational-technical education programs and services to youths and adults at the secondary and postsecondary level. Under the Perkins Act, states are required to develop measures of student performance such as competency attainment, job or work-skill attainment, and retention in school or placement in a school, job, or the military. Our survey showed that less than three-fourths of community colleges and technical schools reported receiving vocational education funds and would, therefore, be required to report such outcomes. Further, while several states have created data links between unemployment insurance earnings information and community college administrative records to collect earnings data, each state varies in its ability to collect such data because state laws, reporting procedures and higher education agency organizations differ by state. Job training programs under Title I of the Workforce Investment Act require states and localities to track participant performance. The performance measures gauge program results in areas of job placement, employment retention and earnings changes, as well as skill attainment and customer satisfaction. Our survey results, however, showed that only 27, 62, and 63 percent of community colleges and technical schools reported participating in WIA Youth, Adult Education and Dislocated Worker programs, respectively, and are thus subject to these reporting requirements. In addition, as we previously reported, these data are not comparable across states for a variety of reasons. Given the differences in outcome data collection efforts by schools, states, and federal programs, the most reliable data on community college student outcomes flow from national studies conducted by the National Center for Education Statistics. National data are unavailable showing education and employment outcomes for students enrolled in noncredit occupational programs. However, NCES has conducted several studies that provide some insight on the extent to which community college students who are enrolled in accredited academic and occupational programs meet their educational or employment goals. An NCES report issued in June 2003 draws upon three earlier studies to provide data on student outcomes based on representative samples or cohorts of students that attended community colleges. The findings of this report suggest that the national success rate for community college students, as measured by transfer to a 4-year institution or completion of a degree or certificate, is between half and two-thirds of students who enroll with intentions to transfer or earn a credential. For example: Results from one study showed that 51 percent of community college students seeking some type of academic credential either received a degree or certificate (39 percent) or transferred to a 4-year institution (12 percent) within 6 years of initiating their studies. A second study found that for a group of 1992 high school graduates that enrolled in public 2-year institutions by December 1994, 63 percent of students seeking an academic credential either received a degree, certificate, or license (50 percent) or had attended a 4-year institution (13 percent) as of 2000. Both studies asked students who did and did not achieve their goals to assess the impact of their postsecondary education on a variety of labor market outcomes. Results showed that students who completed a degree or certificate were more likely to say that their postsecondary education increased their employment prospects (job opportunities, job responsibilities, or salary) than those who left without obtaining a credential. In 1995, NCES conducted a survey on remedial education in higher education institutions and found that about two-thirds or more of community college students successfully completed remedial courses taken in reading (72 percent), writing (71 percent), and mathematics (66 percent). Our recent survey of community colleges and technical schools found similar results, as shown in table 6, for both remedial and three types of basic skills courses. Community colleges and technical schools are playing an important role in helping to build and sustain the U.S. workforce. In the coming decade, this role may take on greater importance as both the demand for educated and trained workers and the number of Americans needing additional education and training to escape poverty continue to increase. These institutions can adapt quickly to changing local economic needs, in part, through noncredit programs and contract training that offer both individuals and employers an array of education and vocational experiences needed to support shifting workforce demands. At the same time, these schools are maintaining their position as a critical vehicle for students seeking 2-year degrees or moving on to 4-year institutions. National studies conducted by the Department of Education provide some information about community college student outcomes for those enrolled in these degree programs. However, much less is known about the outcomes of contract and noncredit training initiatives—and because many of these efforts are customized to meet specific local employer needs, national studies may not be the most appropriate methodology. Rigorous, localized research studies may provide information about the extent to which these efforts are addressing the needs of local economies and the employers and workers in them. We provided a draft of this report to the Departments of Education, Health and Human Services, and Labor for their review and comment. The Departments of Education and Labor had no comments on the report. The Department of Health and Human Services provided technical comments, which we incorporated as appropriate. We will send copies of this report to the Secretaries of Education, Health and Human Services, and Labor; to appropriate congressional committees; and to other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions or wish to discuss this material, please call me at (415) 904-2272 or Cindy Ayers at (206) 654-5591. In conducting our work, we administered a Web-based survey to all public, regionally accredited, less than 4-year institutions throughout the country; conducted telephone interviews of community college experts and relevant associations; visited 3 states; and interviewed representatives from a fourth state by telephone. We also interviewed officials at the Departments of Education, Health and Human Services, and Labor, and reviewed existing data and literature to gather what is known about community colleges and technical schools, their outcomes and the policies and funding sources that support academic preparation and workforce development at these schools. We relied on the findings of national outcomes studies regarded to be authoritative by researchers and other experts in the field. A social science analyst examined each study to assess the validity and reliability of selected results for use as evidence in this report. We examined descriptive information from the National Center for Education Statistics, including the Beginning Postsecondary Students Longitudinal Study and the Digest of Education Statistics. The American Association of Community Colleges and the Association for Career and Technical Education provided letters of support for our national survey. We conducted our work from May 2003 to August 2004 in accordance with generally accepted government auditing standards. To document the academic preparation and workforce training programs offered by public community colleges and technical schools, the students they serve, the education and employment outcomes of former students in these programs and efforts to measure outcomes, as well as to obtain information on the state policies and federal funds that support schools’ workforce development activities, we conducted a Web-based survey of all public, regionally accredited, less than 4-year institutions throughout the country and received a 71 percent response rate. We sent the survey to keyholders of the Integrated Postsecondary Education Data System, and asked them to coordinate responses with school officials most knowledgeable about particular issues raised in the survey. While we did not independently verify the accuracy of the self-reported information provided by these schools, we took a series of steps, from survey design through data analysis and interpretation, to minimize potential errors and problems. We analyzed the survey data by calculating descriptive statistics of community colleges and technical schools. We used 2000-01 data from the Department of Education’s Integrated Postsecondary Education Data System to identify the study population. Education administers IPEDS surveys to collect data from all primary providers of postsecondary education. In order to identify our study population of 2-year public community colleges and technical schools from this list, we systematically eliminated the records of institutions that were inactive, that were private, that offered 4-year degrees, and that were not regionally accredited. There were 1,070 institutions that met these criteria and that became our study population. We assessed the reliability of the IPEDS database through a review of related documentation and by conducting electronic checks, and we found it to be sufficient for the purpose of identifying the study population. To identify potential questions, we spoke with numerous researchers as well as officials at organizations relevant to community colleges and technical schools, including the American Association of Community Colleges, Association for Career and Technical Education, Community College Research Center, League for Innovation in the Community College, National Governors Association, National Association of Manufacturers, and the US Chamber of Commerce, among others. During these discussions, we focused on (1) the general categories of programs offered by community colleges and technical schools; (2) various measurements of the extent of a school’s offerings in a given program category; and (3) limitations of existing data on community colleges and technical schools and areas for further exploration. We received formal endorsement for our survey from the American Association of Community Colleges and the Association for Career and Technical Education through letters of support to their member institutions encouraging participation in our forthcoming survey. In addition, throughout our survey design, we sought feedback on the questionnaire from community colleges and technical schools themselves, many of which participated in various survey pretests and a full-scale pilot survey test sent to a small random sample of 12 community colleges and technical schools that represented different sizes and levels of state support in November 2003. We conducted the survey between February and May 2004 via the World Wide Web. We sent a link to the survey via e-mail to the IPEDS keyholder at each of the schools. IPEDS keyholders are responsible for responding to the IPEDS surveys. We obtained the e-mail addresses of these keyholders from the IPEDS database. The practical difficulties of conducting any survey can result in nonsampling errors. For example, measurement errors can be introduced if respondents have difficulty interpreting a particular question, if they do not have access to information necessary to answer a particular question, or if they make errors in navigating a Web-based questionnaire. In order to minimize these errors, we conducted in-depth pre-testing of the questionnaire with IPEDS keyholders and their designees. During these pretests, we assessed the extent to which questions and response categories were interpreted in a consistent manner, the length of time needed to complete the survey, and the extent to which respondents had information available to answer our survey questions. In addition to conducting pretests, we performed computer analyses of completed questionnaires in order to identify obvious errors and internal inconsistencies among responses. Depending upon the extent of a particular error, we either corrected responses or deleted responses altogether. Finally, all computer syntax used to both identify inaccurate responses and to calculate summary statistics presented in this report was verified by independent programmers to ensure that it was written and executed correctly. We took several steps to maximize response rates. We sent our study population two follow-up email messages, one on February 26, 2004, and the other on March 8, 2004. Each of these messages contained instructions for completing the survey and contact information to submit questions. We extended the initial deadline from March 12, 2004, to May 7, 2004, in order to allow additional institutions to submit completed questionnaires. Finally, we hired contractors to telephone institutions that had not yet responded between April 6, 2004, and April 13, 2004, to remind them to complete the questionnaire. Of the 1,070 questionnaires sent to our study population, we received 758, for a total response rate of 71 percent. In spite of this overall response rate, many of the questionnaires were incomplete with item response rates ranging from 51 to 100 percent. Because we found evidence of pre-existing differences between respondents and nonrespondents and excessive missing data on some questions, we did not use the survey data to generalize to the entire study population. Rather, our conclusions reflect the responses of those who participated in the survey and provided substantive answers to our questions. We noted in the report the number of responses to any questions with item response rates less than 90 percent. We supplemented our survey data with in-depth information from state officials and community colleges and technical schools in Florida, North Carolina, Texas, and Washington. We chose these states based on recommendations that considered factors such as credit and noncredit course funding, outcome tracking, workforce development efforts, and geographic location. We interviewed a variety of officials from state education and labor agencies in order to understand the unique interplay between community colleges and technical schools and workforce development programs and policies at the state and local levels. We also examined two or more schools in each state, except for Texas where we visited one, basing our decisions on recommendations from community college, technical school, and workforce experts; school enrollment; and locale. In addition, we visited community colleges in four other states— California, Maryland, Oregon and Virginia—to pretest the survey. In all, we pretested the survey at 14 schools in 6 states across the country, which included a mix of community colleges and technical schools, and an adult education center. Cindy Ayers (206) 654-5591 (ayersl@gao.gov) Robert Miller (206) 287-4812 (millerr@gao.gov) In addition to the individuals named above, Carolyn Boyce, Mark Braza, Ellen Chu, Susan Lawless, Avani Locke, Brittni Milam, John Mingus, Charles Novak, and Stanley G. Stenersen made key contributions to this report. | The goal of most American workers--a well-paying job--will be increasingly linked to adequate training in the coming years. Such training will be key to competing for the 21 million new jobs the Department of Labor projects will be created in the 2002 to 2012 period. People already in, or seeking to enter, the workforce often turn to the nation's more than 1,100 public community colleges and technical schools to obtain needed skills. Nearly 6 million students were enrolled in for-credit courses in the fall term 2000 and millions more participated in noncredit courses at these schools. GAO was asked to examine: (1) the extent to which community colleges and technical schools are involved in remedial education and workforce training efforts as well as academic preparation activities; (2) how state and federal funding support these academic and training efforts; and (3) what is known about schools' efforts to measure outcomes, including the rates at which students graduate, transfer to 4-year institutions, pass occupational licensing exams, and gain employment. The scope of our review included a Web-based survey of 1,070 public community colleges and technical schools, 758 (71 percent) of which completed the survey. The majority of community colleges and technical schools are offering a broad spectrum of academic and training programs--everything from traditional courses for degree-seeking students to remedial education and contract training customized for individual employers. In addition, 61 percent of schools offer noncredit occupational, professional, or technical training. States have long provided the greatest share of funding for public community colleges between 40 and 45 percent of schools' total revenue, while federal funding, exclusive of student financial assistance, has been much smaller about 5 percent. Most states provide more funding for credit programs than noncredit programs. Most community colleges and technical schools track some education and employment outcomes for their students, but differences in state reporting requirements preclude aggregating these outcomes nationally. However, national studies of representative samples or cohorts of students conducted by the National Center for Education Statistics show that between half and two-thirds of community college students seeking some type of academic or occupational credential succeed in transferring to a 4-year institution or earning a degree, license, certificate, or diploma within 6 to 8 years of initiating studies. GAO's survey indicated that more than half of students enrolled in remedial and 3 types of basic skills courses completed them successfully. |
The Children’s Advocacy Center model was developed in the 1980s to improve the response to child abuse. CACs are designed to coordinate a multidisciplinary response to child abuse and reduce the additional stress on child abuse victims and families created by the investigation process. CACs provide a centralized child-friendly environment in which children and families receive services and support from multiple professionals (e.g., law enforcement officers, child protective services investigators, prosecutors, and mental health and medical providers). Nationwide, 777 CACs were operating in all 50 states and the District of Columbia as of 2014. As shown in figure 1, these local CACs receive support from the following larger organizations within the national CAC network: National Children’s Alliance (NCA)—NCA is a not-for-profit membership organization for CACs whose mission is to promote and support communities in providing a coordinated investigation and comprehensive response to child victims of abuse. NCA is the accrediting body for CACs and state chapters. NCA sets national standards for CACs and provides training, technical assistance, funding, and other support to state chapters and local CACs. Regional CACs—In 1992, amendments to VOCA established the Regional CAC Program—with one regional CAC in each of the four U.S. Census regions. The regional CACs provide training, technical assistance, and other support to state chapters and local CACs. The regional CACs and NCA work collaboratively to develop and improve CACs across the country. Each regional CAC is hosted by a local CAC. The current hosts are the Philadelphia Children’s Alliance (Northeast Regional CAC), the National Children’s Advocacy Center (Southern Regional CAC), CAC of the Pikes Peak Region (Western Regional CAC), and Children’s Health Care (Midwest Regional CAC), although the hosts have changed since the program began in 1995. State chapters—Forty-nine states have chapters that are accredited by NCA. State chapters assess child abuse trends and victims’ needs within their state. They work with the regional CACs and NCA to provide training and technical assistance that meets the specific needs of CACs within their state. Both the regional CACs and NCA pass through part of their VOCA grant awards to state chapters. From fiscal years 2010 through 2013, OJJDP awarded about $74 million in funding under the following five VOCA grant programs established in response to the Victims of Child Abuse Act. Annual funding ranged from about $23 million in fiscal year 2010 to about $16 million in fiscal year 2013 (see app. II for annual funding awarded under each program). Children’s Advocacy Center Subgrant Program—The largest of the VOCA grant programs, the CAC Subgrant Program funds a national grant program designed to support CACs nationwide. Since the program’s inception, OJJDP has exclusively awarded this grant to NCA. The average annual award amount from fiscal years 2010 through 2013 was $10.6 million. NCA largely passes this funding through to the 49 state CAC chapters. The funding amount differs by state, but on average, NCA provided each state chapter with an annual award of $177,000 from fiscal years 2010 through 2013. The state chapters use some of this funding to support basic operational expenses, and they also further pass through the funds to local CACs. NCA also makes a selected number of awards directly to local CACs. Regional CAC Program—This program supports the four regional CACs, which are exclusively funded through the VOCA grant. From fiscal years 2010 through 2013, OJJDP awarded an average of $1.2 million annually to each regional CAC. The regional CACs use this funding to provide training and technical assistance to existing and developing CACs and state chapters. Each of the regional CACs subawards a portion of its grant funds. From fiscal years 2010 through 2013, the regional CACs subawarded an average of 13 percent of their VOCA grants each year. Primarily, these subawards took the form of annual chapter support grants to the state CAC chapters. These subawards averaged about $7,000, and were often designated for specific expenses related to training and technical assistance. CAC Membership and Accreditation Program—Also awarded exclusively to NCA, this program provides funding to support NCA’s role as a national membership and accreditation organization for CACs and to enable the development and implementation of accreditation standards. The average annual award amount from fiscal years 2010 through 2013 was $886,000. Training and Technical Assistance for Child Abuse Prosecutors—Awarded exclusively to the National District Attorneys Association, this program funds a national training and technical assistance program to enhance the effectiveness of attorneys and others who investigate and prosecute child abuse cases. From fiscal years 2010 through 2012, OJJDP awarded an annual average of $1.5 million to the National District Attorneys Association. OJJDP did not make an award under this program in fiscal year 2013. Training and Technical Assistance for Child Abuse Professionals—Awarded exclusively to the National Children’s Advocacy Center, this program provides funding for the development and implementation of training and technical assistance for child abuse professionals in order to improve the judicial system’s handling of child abuse and neglect cases and the coordinated multidisciplinary investigation of and response to child abuse. From fiscal years 2010 through 2013, OJJDP awarded an annual average of $800,000 to the National Children’s Advocacy Center for this program. OJJDP releases VOCA grant solicitations and interested parties apply—OJJDP awards funding under each of the five VOCA programs through a competitive application process. OJJDP outlines the application process in an annual grant solicitation—the formal announcement of a new funding opportunity and a call for applications. The solicitation also provides applicants with key information about the grant program, such as eligibility requirements, allowable costs, and performance measures. Although VOCA grants are awarded annually, applicants only compete for funding every 3 years. Successful applicants are awarded 12 months’ worth of funding during the initial competition year, and are then invited to apply for two additional 12-month grants under continuation solicitations. The Regional CAC Program solicitation was last competed in fiscal year 2013, and the other four solicitations were last competed in fiscal year 2012. In the past, there has been limited competition for these grant programs. OJJDP uses a peer review process to evaluate applications— OJJDP uses a peer review process to evaluate applications when more than one qualified grant application is submitted. The peer review panel consists of three or more program-area experts (internal or external to DOJ) who review and score applications based on the criteria outlined in the grant solicitation. The peer reviewers’ evaluations are reviewed by the grant manager, who then writes a funding recommendation memo. The peer review process serves an advisory function, as DOJ retains the final decision regarding funding. According to OJJDP officials, in noncompete years, this peer review process is not used, since only existing grantees are eligible for continuation funding. Instead, applications are reviewed by a program manager and OJP’s Office of the Chief Financial Officer (OCFO) to ensure solicitation requirements are met and that the grantee is in good financial standing. OCFO must approve grantee budgets—Once DOJ has selected the applicants to receive funding, OCFO must review and approve the proposed project budgets that grantees submit with their application packets before the grantees can begin expending their funds. In consultation with OJJDP, OCFO reviews the budget to ensure that project costs are accurately explained, and to determine whether costs are reasonable, necessary, and allowable under applicable federal cost principles, agency regulations, and solicitation guidelines. Grantees must comply with several reporting requirements— During the grant performance period, OCFO and OJJDP are responsible for financial and programmatic monitoring of VOCA grantees. To accomplish this oversight, and in accordance with Office of Management and Budget (OMB) guidance, grantees must submit the following periodic reports: Federal financial reports—Filed quarterly, these reports provide information on grant funds expended and remaining. Semi-annual progress reports—Filed semiannually, the progress reports include both narrative information and quantitative performance measures. Narrative progress reports—VOCA grantees must submit a narrative progress report that outlines the grant activities completed during the reporting period. Data Collection and Technical Assistance Tool (DCTAT)—In conjunction with the narrative progress reports, VOCA grantees are to electronically input quantitative performance data using OJJDP’s DCTAT, a standardized reporting tool that all OJJDP grantees use. Grantees must expend funds within the project period or obtain a no-cost grant extension—VOCA grantees have a 12-month project period in which to expend their grant funds. If grant funds remain unexpended at the end of the project period, they are returned to OJJDP unless OJJDP provides the grantee with a no-cost grant extension. OJJDP has several administrative review and approval processes in place that have contributed to delays in VOCA grantees’ ability to begin spending their funds, and OJJDP may have set an unrealistic project period in light of the time it takes to complete these processes. We found that none of the VOCA awards included in our review was fully expended at the end of the original 12-month project period. Specifically, for the 28 VOCA awards included in our review, we found that grantees had expended an average of 18.4 percent of their award by the end of their original 12-month project period. We identified several grant requirements and related administrative processes that delayed when VOCA grantees were able to begin expending their grant funds. Specifically, as shown in figure 2, we identified three main sources of delay for VOCA grants that OJJDP awarded from fiscal years 2010 through 2013: (1) project period start date and award notification, (2) budget approval, and (3) conference cost approval. Project period start date and award notification—As shown in figure 2, OJJDP notified grantees that they had been selected to receive VOCA awards—and officially obligated the federal funds—33 days, on average, after the start of the project period for VOCA grants OJJDP awarded from fiscal years 2010 through 2013. However, we identified variation in the average length of time between the project period start date and the award notification date across the grant years we reviewed. Specifically, for fiscal years 2010 through 2012, the project period start date was August 1, and OJJDP notified grantees of their award an average of 41 days after the project period start date. OJJDP does not obligate award funds to grantees until OJJDP makes this award notification, and accordingly, VOCA grantees in these years were, on average, unable to expend grant funds for more than a month out of their 12-month project period. Beginning in fiscal year 2013, OJP changed the project period start date for all of its awards from August 1 to October 1. As in prior years, OJJDP notified selected VOCA grantees of their award in late August or in September, but this notification now took place an average of 14 days before the project period start date. OJJDP retained the October 1 project period start date for fiscal year 2014 VOCA awards. OJJDP officials stated that notifying grantees before the project period start date—as was done in fiscal years 2013 and 2014—is ideal because it maximizes the amount of time within the 12- month project period when grantees have access to their awarded grant funds. Budget approval—Before VOCA grantees can begin expending their grant funds, they must also wait until OCFO has reviewed and given final approval to the project budget that they submitted with their application packets. This budget review process took 39 days from the date award notification was made, or 72 days from the project period start date, on average, for fiscal years 2010 through 2013. OCFO officials told us that they strive to complete this budget review before OJJDP notifies applicants that they will receive an award, but that this rarely happens because of the timing of the congressional appropriations process and other relevant procedural factors, such as when the solicitation is posted, the duration of the peer review process, and the total volume of budgets that OCFO has to review across the universe of OJJDP grant programs. After the program office reviews the applications internally to ensure that the budgets align with the programmatic goals of the VOCA program, OJJDP passes the budgets on to OCFO, which reviews the budgets to ensure compliance with federal financial regulations. OCFO officials can begin their preliminary budget review upon receipt of the budgets from the program office, but they cannot finalize their budget review process until DOJ receives its annual appropriation—the timing of which varies by year—and OJJDP finalizes available award amounts based on this appropriation. Once OJJDP notifies grantees of their award amounts, and OCFO provides final budget clearance, grantees are able to begin expending their grant funds. As with the award notification process, we identified year-to-year variation in the length of the budget review process. For example, budget approval took 11 days for fiscal year 2011 VOCA awards and 71 days for fiscal year 2012 VOCA awards, on average, from the award notification date. The OCFO officials we spoke with could not explain the specific reasons for this variation, but noted that, generally, OCFO’s ability to approve grantees’ budgets in a timely manner depends, in part, on the volume of grantee budgets OCFO is reviewing at any given time. Conference cost approval—DOJ requires, in accordance with OMB guidance, that grantees obtain pre-approval before incurring conference expenses. Through its OJP Financial Guide, OJP broadly defines conferences to include meetings, retreats, seminars, symposia, events, and group training activities. OJP officials stated that DOJ established this preapproval requirement in October 2011 following a September 2011 DOJ Office of the Inspector General audit that found that some DOJ components had not minimized conference costs as required by federal and DOJ guidance. When the conference cost requirement was first implemented, in October 2011, OJJDP officials stated that review and approval of conference cost requests took as long as 5 to 6 months. However, DOJ has subsequently made changes to reduce the amount of time it takes to review and approve conference cost requests. For example, according to OJP officials, DOJ released an official policy in July 2012 outlining the requirements for conference cost approval submissions and also instituted a more streamlined approval process for requests under $100,000. Additionally, OJP officials noted that OCFO developed improved software solutions and provided grantees the opportunity to submit blanket requests for approval of multiple events that are similar in nature and scope. OJP officials stated that approval now generally takes about 2 to 3 months, and a VOCA grantee stated that the process has improved since the requirement was first implemented. While these improvements have reduced the conference cost review and approval time, OJJDP officials acknowledge that the conference cost approval submission requirement has hindered grantees’ ability to expend grant funds within the allotted 12-month project period, and VOCA grantees confirmed this. Specifically, DOJ requires grantees to submit planned expenses associated with training and conferences for preapproval at least 90 days before the event is to take place. Further, OJJDP officials stated that in order for a grantee to have enough time to finalize the event logistics, notify attendees, and make other necessary arrangements following DOJ approval of the grantee’s request, the grantee really needs to submit its conference cost approval request about 6 months before the event is to take place. This would provide the grantee with about 3 months to finalize the event once DOJ had approved the request. VOCA grantees cannot submit these conference cost approval requests to DOJ until OCFO has approved their grant project budgets—a process that has taken more than 2 months, on average, from the project period start date, as discussed above. Accordingly, one VOCA grantee reported being unable to conduct training and conference activities for the first 6 to 7 months of the grant’s 12-month project period. VOCA grantees reported that complying with the preapproval requirement has hindered their ability to expend grant funds because they are not able to hold any conference or training events—a key purpose of their grants—during the initial months of their grant project period while they are awaiting pre-approval. One VOCA grantee reported having to cancel a planned training event because DOJ did not approve the request in time, another grantee stated that the conference cost approval process creates a lot of work for both the grantee and DOJ and makes it more difficult to expend grant funds, while another grantee stated that the process hinders its ability to provide training and technical assistance, which are key grant program goals and objectives. Despite efforts to reduce these sources of delay, the administrative requirements described above continue to contribute to challenges in VOCA grantees’ ability to fully expend their grant awards within the original 12-month project period that OJJDP has established in the VOCA grant solicitations. Grantees also commit to fully expending their funds in 12 months when outlining their budget and project plans in their grant applications. However, because we found that VOCA grant activities are not being completed within the time parameters OJJDP established for the grant program, this may affect the ability of grantees to complete their grant goals and objectives. The OJP Grant Manager’s Manual states that program managers are responsible for setting a realistic project period that accounts for the true length of projects to ensure that the grantee has the full project period to complete activities and draw down funds, thereby minimizing the need for no-cost extensions. According to OJP officials, the selection of the VOCA grants’ project period length is an OJJDP policy decision. OJJDP officials stated that they have always had a 12- month project period in place for VOCA awards because funding for VOCA is appropriated on an annual basis and OJJDP expects the grant award to cover 12 months of expenses. However, in the event that OJJDP is unable to further expedite the administrative review and approval processes discussed above, it would benefit from reexamining whether 12 months is an appropriate project period length to ensure that VOCA grantees are well positioned to fully expend their grant funds. Such an assessment would help ensure that the project period length is realistic in light of the irrevocable administrative delays. OJJDP routinely approved VOCA grantees’ requests for no-cost grant extensions, but often did so without adhering to extension approval guidelines, which we found to be inconsistent. By the end of fiscal year 2014, 15 of the 28 VOCA awards we included in our review had been fully expended. Among these 15 VOCA awards, OJJDP approved an average of 3 extensions per award, which extended the award for a total of 18 months, on average, beyond the initial 12-month project period. Specifically, we found that OJJDP had approved all 73 extensions requested by grantees across the 28 VOCA awards included in our review, but often did so without adhering to guidance established in the OJP Financial Guide, as shown in table 1. For example, the OJP Financial Guide requires that grantees submit a narrative outlining both the extraordinary circumstances that would justify the proposed extension and the effect a denial of the request would have on the project or program. However, of the 73 grant extension requests OJJDP approved from fiscal years 2010 through 2013, 72 did not contain such a narrative. Further, while the OJP Financial Guide states that generally only 1 extension per award will be permitted, of the 73 extension requests that OJJDP approved, 45 extended the award more than once. Finally, while the OJP Financial Guide states that the maximum extension allowable is generally 12 months, OJJDP approved extensions for 3 awards that were longer—1 for 13 months and 2 for 17 months. We also found that OJP does not have clear and consistent guidance for when a grant extension should be approved. In addition to the guidelines contained in the OJP Financial Guide—as outlined above in table 1—the OJP Grant Manager’s Manual also contains guidance on extensions. In at least one instance, the guidance within these two documents is inconsistent. For example, the OJP Grant Manager’s Manual states that grant awards are eligible to be extended for up to 12 months at a time for up to 5 years in total. However, the OJP Financial Guide states that, generally, only one extension per award should be granted, and that, generally, the maximum allowable extension is for 12 months. The VOCA program manager told us that when approving more than one extension on the same award, she follows the OJP Grant Manager’s Manual, and that she was not familiar with the guidance in the OJP Financial Guide that states that grant awards should generally be extended only once. According to OCFO officials, the OJP Financial Guide represents the general guidelines and preferences for no-cost extensions but allows OJP the flexibility, if needed, to grant extensions outside of those general guidelines. Further, OCFO officials stated that the guidance in the OJP Grant Manager’s Manual represents the upper limit on the flexibility that OJP is afforded in the OJP Financial Guide. We have previously reported on instances in which DOJ grant guidance was inconsistent, and we stressed the importance of establishing mutually reinforcing strategies and harmonizing program requirements to ensure consistency. Further, Standards for Internal Control in the Federal Government states that information should be communicated to management in a form that enables management to carry out its responsibilities. Without clear guidance on the circumstances and requirements for approving no-cost extension requests, the VOCA program manager cannot ensure that she is consistently adhering to the relevant requirements. In combination with the administrative process delays described earlier, OJJDP’s routine extension of VOCA grants’ project periods—made without adherence to stated guidance—has led VOCA grantees to maintain unexpended balances from prior-year grants while continuing to receive new grant awards from OJJDP. Some VOCA grantees also reported expending past years’ grant funds conservatively to ensure that grant funds would be available to expend as they awaited administrative clearance of their current-year award. For example, OJJDP awarded VOCA grantees $15.6 million in fiscal year 2013, even though about $8.7 million in VOCA grant funding awarded to these same grantees in fiscal year 2012 remained unexpended when the fiscal year 2013 grants were awarded. In some cases, very little of the grant funding awarded in fiscal year 2012 had been expended when the fiscal year 2013 grants were awarded. For example, in September 2013, OJJDP awarded the Western Regional CAC with a fiscal year 2013 VOCA grant of over $1 million when the grantee had expended less than 1 percent of its fiscal year 2012 award. As seen in figure 3, this trend is consistent over the period of our review, though grantees have made some progress in more fully expending prior years’ grants since fiscal year 2010, when an average of 73 percent of grant funding had not been expended when OJJDP awarded fiscal year 2011 grant funding. Two years later, grantees had not expended an average of 59 percent of the fiscal year 2012 awards when OJJDP awarded the fiscal year 2013 VOCA grants. However, this reduction was not shared broadly across all of the VOCA grant programs. In some cases, the percentage of unexpended grant funds increased over this time period. For example, for the Regional CAC Program, grantees’ percentages of unexpended grant funds increased from 73 percent of fiscal year 2010 grant funding when OJJDP awarded fiscal year 2011 grant funding to 86 percent of fiscal year 2012 funding when OJJDP awarded fiscal year 2013 grant funding. By carrying over unexpended grant funds beyond the terms of their initial project periods, grantees are using prior years’ awards to pay for current activities. Thus, grantees may be delaying implementation of more recently approved planned projects and activities to improve the investigation, prosecution, and treatment of child abuse. Establishing and enforcing clear requirements for approving no-cost grant extensions would better enable OJJDP to ensure that VOCA funds are being used in a timely manner to support those directly assisting victims of child abuse. OJJDP does not have the performance data necessary to assess VOCA grantees’ performance because the measures it has established to assess performance do not fully align with the tools it has created to collect desired performance information from grantees. Each time OJJDP announces available funding through a specific grant program, OJJDP develops a solicitation to describe the program to applicants and to outline the set of performance measures to which grantees will be held accountable once funded. OJJDP expects grantees to report on these performance measures using its Data Collection and Technical Assistance Tool—developed in 2005 as a comparable way to collect quantitative performance data from grantees across all of its grant programs that it could analyze in a quick and efficient manner. As described earlier, all OJJDP grantees, including VOCA grantees, are required to submit performance data reports using the DCTAT twice per year, in conjunction with their semiannual narrative progress reports. These narrative reports allow the grantees to provide qualitative data describing their activities in a more general manner, but these reports do not provide OJJDP with information to assess grantee performance against the performance measures they established in the grant solicitations. According to the OJJDP performance measures coordinator, when developing solicitations, each grant program manager should be selecting and including specific performance measures from the universe of DCTAT measures. Further, the solicitations contain instructions directing grantees to use the DCTAT system to report on these measures. However, we found a misalignment between the performance measures contained in the VOCA grant solicitations and the universe of DCTAT measures. Specifically, OJJDP outlined a total of 44 performance measures across the 5 fiscal year 2012 VOCA grant solicitations that it wanted grantees to address, but the DCTAT had corresponding measures available for just 33 of these 44 measures. We also found that even when corresponding DCTAT measures were available, VOCA grantees did not include all such measures in their DCTAT reports (see fig. 4). Specifically, of the 33 solicitation performance measures that had corresponding DCTAT measures available, grantees included just 13 in their fiscal year 2012 DCTAT reports. For example, the fiscal year 2012 Regional CAC Program solicitation contained 10 performance measures, but the grantees included information on just 1 of these 10 measures in their DCTAT submissions. Accordingly, OJJDP did not have information to assess these grantees’ performance against the other 9 measures that OJJDP had established in its Regional CAC Program grant solicitation. When we discussed with OJJDP officials the misalignment between the solicitation measures and the measures grantees include in their DCTAT reports, they could not explain the discrepancy. Further, OJJDP officials told us that they have made certain DCTAT measures, such as those addressing the use of evidence-based practices, mandatory to help ensure that all grantees are reporting on common elements. These mandatory DCTAT measures are used to inform DOJ’s annual performance report, strategic plan, and other similar activities. However, these mandatory measures do not necessarily relate to the performance measures outlined in each individual grant solicitation. In addition to the mandatory measures, OJJDP officials also explained that they designed the DCTAT to include an array of optional measures, such as those addressing the provision of technical assistance, through which grantees can report on data elements of greatest salience to their work. Through these optional measures, OJJDP expects grantees to respond to the performance measures outlined in the grant solicitation. Nevertheless, as shown in figure 4, the DCTAT submissions that VOCA grantees provided OJJDP in fiscal year 2012 were not fully responsive to the performance measures outlined in the VOCA grant solicitations. Accordingly, OJJDP does not have complete data to assess grantees’ performance against the performance measures it established in the solicitation. VOCA grantees told us that when completing their DCTAT reports, they complete the mandatory measures that the DCTAT system prompts them to respond to, and may also report on optional measures. However, five of the six VOCA grantees told us that they have not received guidance or feedback from OJJDP on which optional DCTAT measures to include in their reports. Accordingly, the grantees use their best judgment when determining whether to include optional measures in their DCTAT reports. For example, one grantee included eight optional measures in its fiscal year 2012 DCTAT reports, but none of these optional measures corresponded to the performance measures contained in the respective VOCA grant solicitation. This grantee told us that it selected these optional measures because they seemed to align with the goals, objectives, and outcomes of its grant. OJJDP does offer some training to grantees on the DCTAT system, but our review of this training content showed that the training focused on reporting against the mandatory measures and did not include a discussion of the need to use the DCTAT optional measures in order to respond to the performance measures outlined in the grant solicitation. Standards for Internal Control in the Federal Government requires agencies to engage in control activities—such as establishing and reviewing performance measures—to ensure that management directives are carried out. These standards further require that information should be recorded and communicated to stakeholders in a form that enables them to carry out their responsibilities. Because it has not developed performance measures in the grant solicitations that correspond to DCTAT measures, OJJDP does not have the information it needs to measure and monitor grantee performance. The VOCA grant programs are designed to help improve the investigation and prosecution of child abuse cases, largely by providing funding, training, and technical assistance to child abuse professionals and CACs throughout the nation. Given the importance of addressing and reducing child abuse, it is critical that the limited amount of federal funding available for the VOCA grant programs be expended in a timely and effective manner. However, OJJDP’s administrative requirements have contributed to VOCA grantees’ challenges in fully expending their grant awards within the original 12-month project period. Additionally, OJJDP’s inconsistent and irregularly enforced extension guidance has resulted in grantees’ spending down a backlog of VOCA funding, even while accumulating new grant awards. Further, OJJDP does not have complete information by which to evaluate the performance of VOCA grantees against established performance measures to ensure that VOCA grant funds are being used effectively to support improvements in the investigation and prosecution of child abuse. The VOCA grant programs are relatively small—with total awards of less than $16 million in fiscal year 2013. However, many of the processes we examined—including those related to grant expenditures and performance management—are broadly applicable to other OJJDP discretionary grant programs. Accordingly, the VOCA grant programs could provide important lessons that may be applicable to other grant programs. To ensure the timely expenditure of VOCA grant funds and thereby limit the carryover of unexpended grant balances, minimize the need for multiple grant extensions, and strengthen OJJDP’s capacity to collect and assess grantee performance information, we recommend that the Assistant Attorney General for OJP work with the Administrator of OJJDP to take the following four actions: 1. conduct a study to examine whether any of its administrative processes contribute to unnecessary delays in grantees’ ability to expend VOCA funds within the established 12-month project period and make modifications to these processes as appropriate; 2. considering the results of this study, examine whether the current 12- month project period is realistic in light of any administrative processes that cause delay but cannot be modified and extend the project period if necessary; 3. establish and enforce clear requirements for approving no-cost grant 4. ensure that the performance measures outlined in its VOCA grant solicitations correspond to existing DCTAT measures and clarify to VOCA grantees that they are to report on such measures using the DCTAT system. If existing DCTAT measures do not provide ample coverage for the specific measures that the VOCA program wishes to collect when posting the solicitation, then the Administrator should ensure that the VOCA program provides clear, written instruction requiring VOCA grantees to use their semiannual progress reports for reporting on the specific performance measures that the solicitation outlines that are not available in the DCTAT system. We provided a draft of this report to DOJ for review and comment. OJP provided written comments, which are reprinted in appendix IV, and agreed with all four of the recommendations. OJP also provided technical comments, which we incorporated as appropriate. With respect to the first recommendation, OJP concurred and noted that OJJDP will examine the extent to which any of its administrative processes contribute to unnecessary delays in grantees’ ability to expend VOCA funds within the established 12-month project period. OJP also noted that OJJDP will make modifications to these processes as appropriate. Regarding the second recommendation, OJP concurred and stated that OJJDP will consider the results from the study it has planned in response to our first recommendation in determining whether the current 12-month project period is realistic. If OJJDP determines that a longer project period is warranted, it has agreed to make the change prospectively. OJP further stated that in the interim, beginning in fiscal year 2015, OJJDP will modify its approach to providing supplemental awards. policies and procedures, as appropriate, and communicate all changes during periodically scheduled OJJDP staff meetings. Finally, for the fourth recommendation, OJP concurred and stated that OJJDP will add the performance measures outlined in the VOCA grant solicitations to the DCTAT system by fiscal year 2016. Additionally, OJP stated that OJJDP will contact all the VOCA grantees in fiscal year 2015 to clarify their requirement to submit performance measurement data. OJP also stated that OJDP will provide VOCA grantees with training on the collection and reporting of performance measures data. We are sending copies of this report to the Attorney General of the United States, the Assistant Attorney General for the Office of Justice Programs, the Administrator for the Office of Juvenile Justice and Delinquency Prevention, and interested congressional committees as appropriate. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about our work, please contact me at (202) 512-9627 or MaurerD@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. This appendix provides information on grantees’ executive compensation from fiscal years 2010 through 2013 for five grant programs established in response to the Victims of Child Abuse Act (VOCA). The Office of Justice Programs (OJP) instituted a policy in 2007 capping the amount of grant funds that could be used for employee compensation. This policy applies to all recipients of OJP discretionary grant awards over $250,000. In accordance with Office of Management and Budget (OMB) Circular A- 87, which requires federally funded compensation be “reasonable,” OJP set the cap at 110 percent of the maximum amount payable to a member of the federal government’s Senior Executive Service (SES). Specifically, grantees were prohibited from using grant funds to pay for any portion of an employee’s cash compensation if that employee’s total cash compensation (from all sources) exceeded the cap. In 2010, in response to departmental concerns that the restrictions were hindering OJP’s ability to attract experienced, high-quality researchers and experts, OJP revised its compensation cap policy. The revised policy permits grantees to compensate employees at rates above the 110 percent cap provided that the portion of an employee’s total annual compensation paid with federal funds does not exceed the cap. For example, the maximum SES salary for fiscal year 2013 was $179,700, meaning that the OJP compensation cap applies for salaries of $197,670 or more—110 percent of the SES salary level. Under the original 2007 policy, a grantee seeking to pay an employee a total of $200,000 in annual cash compensation—$100,000 paid with OJP grant funds and $100,000 paid with revenue from private donors—could not do so. However, under the revised 2010 policy, the grantee would be allowed to contribute $100,000 in federal funding toward the $200,000 salary because the new policy limits the amount of federal funds that a grantee may direct toward an employee’s compensation rather than limiting the total compensation that an employee may receive. Both the 2007 and 2010 policies include a provision stating that grantees may apply for a waiver of the compensation restrictions. OJP officials stated that they consider several factors when evaluating a waiver request, including the particular qualifications and expertise of the individual, the uniqueness of the service being provided, and the individual’s specific knowledge of the program or project being undertaken with award funds, among other factors. For the VOCA grant programs, OJP has approved three waivers since the compensation cap policy was instituted, in fiscal year 2007. These waivers were filed by the Midwest Regional Children’s Advocacy Center (CAC) in fiscal years 2007, 2008, and 2009 in order to compensate two physicians with specific expertise in child abuse and neglect above the compensation cap. For example, in fiscal year 2007, the Midwest Regional CAC sought to use VOCA funds to support the physicians’ annual salaries of $201,905 and $187,200. These salaries exceeded the cap by 9 percent and 1 percent respectively, although the grantee charged only 10 percent ($20,191) and 25 percent ($46,800) of these salaries to the VOCA grant. Under the 2010 policy, this grantee would not have needed to apply for a waiver since the portion of grant funds being used for the salary did not exceed the 110 percent cap. Since OJP adopted its revised policy, in 2010, no VOCA grantee has sought a waiver of the compensation restrictions. In addition, we found that from fiscal year 2010 through fiscal year 2013, no VOCA grantee reported plans to pay any employee a total annual salary in excess of the cap, regardless of the source of funding. As shown in table 2, we found that VOCA grantees planned to pay their executive directors an average annual salary of $137,759, of which an average of $52,569, or 38 percent, was funded through a VOCA grant. Aside from the executive directors, VOCA grantees collectively used their VOCA awards to support the salaries of between 44 and 62 employees annually, among other uses of the funds. As shown below, the average salary VOCA grantees paid non-executive directors was $46,194, of which, an average of $36,019, or 78 percent, was paid with VOCA funds. This appendix provides information on funding for the VOCA grant programs from fiscal years 2010 through 2013, as well as the purposes and recipients of this funding. Specifically, table 3 shows funding for the five grant programs established in response to subtitle A of VOCA: the Children’s Advocacy Center (CAC) Subgrant Program, the Regional CAC Program, the CAC Membership and Accreditation Program, Training and Technical Assistance to Child Abuse Professionals, and Training and Technical Assistance to Child Abuse Prosecutors. This appendix provides a graphical presentation of how delays as a result of the Office of Juvenile Justice and Delinquency Prevention’s (OJJDP) administrative review processes and routine approval of grant extension requests contribute to a backlog of grant funds amongst grant recipients. For example, as shown in figure 5, the National Children’s Alliance (NCA) was awarded a $13.19 million grant under the Children’s Advocacy Center (CAC) National Subgrant Program in late fiscal year 2010. OJJDP approved NCA’s requests for more than 2 years of no-cost grant extensions on this grant, and NCA did not fully expend the grant until the middle of fiscal year 2014. During this time, OJJDP awarded NCA 3 new grants under the CAC Subgrant Program—1 each in fiscal years 2011, 2012, and 2013. In addition to the contact named above, Joy Booth (Assistant Director), Katherine Lee (Analyst-in-Charge), Claudine Brenner, Michele Fejfar, Eric Hauswirth, Susan Hsu, Jasmine Masand, Linda Miller, Janet Temko- Blinder, Sarah Turpin, and Stephen Yoder made key contributions to this report. | The Department of Justice's (DOJ) OJJDP, housed within the Office of Justice Programs (OJP), awarded about $74 million in VOCA grants from fiscal years 2010 through 2013. VOCA grants are designed to help improve the investigation and prosecution of child abuse cases. Senate Report 113-78 included a provision for GAO to conduct a review related to the administration of OJJDP grant programs. This report addresses the extent to which OJJDP (1) ensures the timely expenditure of VOCA grants and (2) assesses the performance of VOCA grantees. GAO analyzed OJJDP documentation—such as program guidelines, grantee progress reports, and expenditure data—from fiscal years 2010 through 2013. Additionally, GAO interviewed DOJ officials and the universe of VOCA grantees about their experiences with the program. For the 28 Victims of Child Abuse Act (VOCA) grants the Office of Juvenile Justice and Delinquency Prevention (OJJDP) awarded from fiscal years 2010 through 2013, grantees expended less than 20 percent, on average, of each grant they received during the original 12-month project period. OJJDP has several administrative review and approval processes in place that have contributed to delays in grantees' ability to begin spending their funds. For instance, grantees cannot access their funds until OJJDP completes its internal review of grantees' budgets, a step that has taken more than 2 months, on average, after the project period began. Further, OJJDP's guidance on grant extensions is unclear and irregularly enforced. For example, one document states that generally only one extension per award is permissible, while another states that multiple extensions may be granted for up to a total of 5 years. OJJDP guidance further requires grantees to submit a narrative justification with their requests. However, OJJDP approved 72 of 73 extension requests from fiscal years 2010 through 2013 without such justification. Examining the delays associated with its administrative review processes and clarifying and enforcing the extension policy for VOCA grants would help OJJDP ensure the effective administration and timely use of grant funds. a The Assistant Attorney General for OJP is responsible for officially notifying applicants that they have received an award. OJJDP does not have complete data to assess VOCA grantees' performance against the measures it has established. Specifically, OJJDP establishes performance measures in the VOCA grant solicitations and requires grantees to submit data on these measures. However, the performance measures it has established for the VOCA grant program do not fully align with the tools it has created to collect data for all OJJDP grants. Further, five of the six VOCA grantees reported that they have not received guidance on which measures to include in their required reports. Accordingly, grantees did not consistently report on the established performance measures as required. Better aligning the established VOCA performance measures with existing data collection tools and clarifying grantee reporting requirements would better ensure OJJDP has the data it needs to assess the effectiveness of the VOCA grant programs. To ensure the effective administration of VOCA grant funds, GAO recommends, among other things, that OJP work with OJJDP to examine and address its administrative review processes to reduce delays in VOCA spending, establish and enforce a clear grant extension policy, and better align the VOCA performance measures with available data collection tools while also clarifying grantee reporting requirements. OJP concurred with our recommendations. |
Almost all Americans have sought the services of SSA at some point in their lives, and for many, their first experience is applying for a Social Security number (SSN). SSA offers a range of services, which includes providing financial assistance to eligible individuals through the following three major benefit programs: Old-Age and Survivors Insurance (OASI) provides benefits to retired workers and their families and to survivors of deceased workers; Disability Insurance (DI) provides benefits to eligible workers who have qualifying disabilities, and their eligible family members; and Supplemental Security Income (SSI) provides income for aged, blind, or disabled individuals with limited income and resources. In fiscal year 2007, these three benefit programs provided a combined total of approximately $613 billion to about 54 million beneficiaries. SSA projects that the benefit payments and number of beneficiaries for the three programs will increase in fiscal years 2008 and 2009 (see tables 1 and 2). Besides paying benefits through these three programs, SSA issues Social Security cards, maintains earnings records, and performs various other functions through a network of field office and headquarters operations using an administrative budget of over $10 billion. SSA’s field operations consist of field offices, which serve as the agency’s primary points for face-to-face contact, perform a full range of services, including making eligibility determinations for Social Security benefits; Social Security Card Centers, which issue SSNs; Teleservice Centers, which offer national toll-free telephone service; and Program Service Centers, which make entitlement decisions for benefits, as well as assist in answering toll-free calls. Table 3 shows the type of work that is performed by various SSA field components. Field offices, which served approximately 42 million customers in fiscal year 2007, are a vital component for delivering SSA services to the public. Field offices are located in communities across the United States, the Virgin Islands, Puerto Rico, and Guam, and deliver services through face- to-face contact, over the phone, and through the mail. Field offices range in size from large urban offices with 50 or more employees to very small offices in remote areas called resident stations. In August 2007, there were approximately 1,271 field offices and 37 resident stations. Resident stations have more limited services and are staffed by one or two individuals in their homes or in a separate office (other than an SSA field office). Field offices also offer services to the public through about 1,200 contact stations. These stations provide very limited functions and are staffed with one SSA field office employee who travels to certain locations, such as a hospital, once a month. Additionally, SSA has begun using video conferencing to take claims and provide other services to customers in remote locations in North Dakota, Wyoming, and South Dakota. SSA is planning to expand the video network to provide additional sites and services. While SSA field offices take applications and determine if claimants meet basic, nonmedical eligibility requirements for DI and SSI disability claims, state Disability Determination Services (DDS) that are under contract with SSA make medical eligibility determinations for these claims. SSA’s Hearing Offices and Appeals Council make decisions on appeals of these determinations. Appendix II describes the functions of each of these entities in the medical disability determination process for DI and SSI claims. DDSs also conduct continuing disability reviews for DI and SSI beneficiaries to ensure that they are still medically eligible for payments. In addition to field offices, SSA offers customers a variety of other options for conducting their business. Individuals may call SSA’s toll-free helpline to file for benefits or to obtain general information. They may also use the Internet to file for benefits or visit a Social Security Card Center to request a Social Security card. Figure 1 shows the various options by which customers may conduct their business with SSA. Despite operating with fewer staff from fiscal year 2005 to 2007 and an increased demand for services, field offices largely met work demands; however, staffing reductions may have contributed to some adverse effects. SSA and its field offices used various strategies to manage work demands, such as sharing work among offices, redirecting staff to serve critical needs outside of their usual responsibilities, encouraging customer use of the internet and telephone services, and deferring certain work. Despite these efforts, many field office managers and staff stated that they cannot keep up with their work. Reduced field office staffing may have contributed to customers waiting longer to be served, and customer calls to field offices are not always being answered. These factors may have contributed to a 4 percent drop in SSA’s customer satisfaction rating between fiscal years 2005 and 2007. In addition, staff are experiencing high stress levels, lacking sufficient time for training, and facing other adverse effects according to field office managers and staff. Despite a 7.1 percent staffing decline during fiscal years 2005 to 2007, the amount of work that field offices produced decreased by only 2.5 percent. As a result, the average amount of work produced by field office staff increased by 4.9 percent between fiscal years 2005 and 2007 (see table 4). The field office staffing reduction comprised nearly 60 percent of SSA’s overall reduction (from 65,112 to 61,594 between fiscal years 2005 and 2007). SSA officials attribute the staffing reductions to inadequate appropriations and are concerned about growth in work required for other federal agencies. Table 5 shows the Commissioner’s and the President’s budget requests and SSA’s final appropriations for fiscal years 2002 to 2008. The table also shows the recent staffing decline. The table does note that SSA received a $500 million budget increase in 2005 to manage the implementation of the Medicare Prescription Drug program and hire associated staff. In addition, other work that SSA conducts on behalf of other federal agencies has grown. For example, new state laws requiring federal government verification of work authorization are resulting in additional work and field office visits associated with the Department of Homeland Security’s E-Verify program. Despite the staffing reductions, field offices served are serving a growing volume of visitors. Comparing the first 3 months of calendar years 2006 to 2008, visitor volume increased by almost 450,000 (about 4 percent). SSA field managers and staff told us that they also expect visitor volume to increase with the retirement of the baby boomers. As figure 2 shows, from fiscal years 2005 to 2007, SSA processed more OASI claims; post- entitlement actions (other than for continuing eligibility reviews); enumerations; and Medicare actions. During the same time period, SSA processed fewer DI and SSI claims (nonmedical determinations only); continuing disability reviews; and SSI redeterminations. SSA attributes the high volume of post-entitlement actions to the growth in beneficiary populations. SSA is shifting work among field offices based on their workloads in an effort to increase overall efficiency. If a field office has work demands that it cannot immediately cover, that office can request that some work be transferred to another office. Offices that have a particular expertise in a certain type of work make themselves available, as they can process it more quickly. Field managers told us, however, that sometimes they are reluctant to share work because the office that receives and processes the work receives numerical credit, which helps an office justify a greater staff level for the future. Managers are also using claims processing personnel to fill in as necessary to perform the duties typically done by lower-graded employees, and in some cases, even office managers take on the duties of their employees. Such duties include answering the telephone, providing initial services to arriving customers, processing requests for new or replacement Social Security cards, and conducting some administrative duties. While all field office personnel recognize the need to serve visitors, many also told us that such work is taking away from time spent processing claims and managing the office. SSA is encouraging customers to use automated services to help field offices accomplish their work. However, many field staff said that real gains in the use of automated services will only likely be achieved by future generations of customers. SSA’s vision for its “eService” program is that the public, businesses, and government agencies will be able to conduct all business through secure, electronic channels—thereby increasing the efficiency with which the agency can serve the public. SSA reported that in 2007 the public performed 2.9 million electronic transactions, such as applying for disability benefits or requesting a change of address. SSA’s electronic services are available to the public over the Internet and by telephone, using the voice recognition capabilities of SSA’s toll-free number. While field office staff and managers welcome automated tools that the public can use, some added that relatively few customers use them, and that due to erroneous or missing information in online forms, field staff can lose time having to contact the customers for clarification or more information. While they believe that automated tools should continue to be developed, many managers and staff told us that these tools are not a sufficient to compensate for reduced staffing levels. Finally, with fewer staff available, SSA focused on field office work it considered essential to its “core workloads,” such as processing new claims for Social Security benefits and issuing Social Security cards, but deferred other types of work. Field office managers and staff told us that certain post entitlement actions are typically delayed or deferred, when an office is under stress, including changes of address, changes to direct deposit information, and reviews to determine beneficiaries’ continuing eligibility for DI and SSI benefits. Reviews of continuing eligibility, however, are key activities in ensuring payment accuracy. SSA estimates that continuing disability reviews yield a lifetime program savings of $10 for every dollar invested, and SSI redeterminations yield a lifetime program savings of $7 for every dollar invested. In recent years, SSA has not been able to conduct as many reviews as it had planned, citing budget limitations and an increase in core work (see fig. 3). When reviews of benefits are delayed, some beneficiaries may continue to receive benefits when they no longer qualify. While delays in these reviews relieve work pressure, some field managers and staff told us that such delays cause future challenges when staff attempt to obtain necessary documentation over multiple years, and overpayments accrue to the point that beneficiaries have difficulty repaying benefits for which they were not eligible. Despite SSA’s efforts to manage work with reduced staff, managers responding to a survey conducted in February and March 2007 by the National Council of Social Security Management Associations (NCSSMA) stated that many of them are finding it increasingly difficult to keep up with the work. On average, the managers responding to the survey estimated that they would need a staffing increase of 16.7 percent to provide adequate public service. In the offices we visited, most of the managers also told us that they did not have an adequate number of staff. According to SSA officials, staffing imbalances resulted in a buildup of 1,000 workyears, for work that SSA was not able to complete by the end of fiscal year 2007. SSA projects that the buildup will grow to 4,800 workyears by the end of fiscal year 2009; however, officials said that they are re-evaluating this figure in light of increases in productivity and overtime. Staff reductions may have also led to longer customer waiting times. Between fiscal years 2002 and 2006, the average waiting time to first contact for all customers increased by 40 percent from 15 to 21 minutes (see fig. 4). Nationally, 8 percent of customers—about 3 million people— waited more than 1 hour, which included 420,000 customers who waited more than 2 hours for service in fiscal year 2007 (see table 6). We also found significant variation in waiting times among field offices for customers without appointments. For example, for customers without appointments, more than 300 offices had average waiting times of less than 10 minutes, while 23 offices had average waiting times that exceeded 1 hour in fiscal year 2007. Further, customers without appointments during that period waited more than 1 hour on average at four of the offices we visited. In contrast, customers at the office in Devils Lake, North Dakota, waited on average for less than 1 minute (see table 9). We found that customers with appointments waited significantly less time than those without appointments. For example, SSA reported that 1,214 offices had waiting times of less than 10 minutes for customers with appointments, while only two had waiting times of more than 1 hour. Insufficient staffing may have also been a factor in poor office phone coverage and other adverse effects on customer service. SSA’s 2006 Field Office Caller Survey found that 51 percent of customer calls to 48 randomly selected field offices went unanswered. Because SSA based its results only on customers who were ultimately able to get through to the field offices, the actual percentage of calls that went unanswered may have been higher. In addition, staff at 13 of the 21 offices we visited characterized their phone service as inadequate, while 2 of these offices did not answer their offices’ phones at all. Employees we interviewed also cited inadequate telephone service as a common customer complaint at 15 offices. In 2007, officials told us they initiated a pilot program called “Forward on Busy” in 25 field offices to address these deficiencies. Under the pilot, calls receiving a busy signal at field offices are automatically forwarded to a Teleservice Center. SSA plans to expand the pilot to a total of 100 field offices. In addition to poor phone service, staff at some of the offices we visited indicated that they now have less time to spend with customers. This limited time potentially could lead to mistakes and limit the ability of staff to ensure that customers fully understand their options and benefits. These factors may have contributed to a 4 percent drop in SSA’s customer satisfaction rating between fiscal years 2005 and 2007. SSA has not established performance standards for customer waiting times and field office telephone service, nor does the agency measure customer service at individual field offices. Without such standards and measures, SSA has no systematic way of evaluating field office performance, or identifying offices that need improvement. While SSA provides field offices with customer comment cards, at 10 of the 21 offices we visited, officials told us they did not use them, and where the cards were available, the results were not always systematically tabulated. Work demands and staffing reductions have increased the pressure placed on the field office staff, resulting in higher stress and lower morale, according to field office staff. We asked 153 SSA employees at the 21 offices we visited to rate the stress that they experienced in attempting to complete their work in a timely manner, and 65 percent of those surveyed reported feeling stress to a “great” or “very great” extent on a daily basis. The stress of expanding workloads and staffing constraints was felt most acutely by the office managers, 74 percent of whom described high levels of stress. At many offices, staff indicated that mounting workload pressures have led to cutbacks in the amount of time allocated for training and mentoring new staff. In addition, managers and staff told us that they often do not have time to take their breaks, including lunch. Some staff told us they feel they are letting down their colleagues and feel guilty about taking time off, regardless of whether they use credit hours or annual leave. While these responses may not be indicative of the opinions of the overall field office workforce, they do suggest that increasing demands placed on SSA staff may be diminishing their job satisfaction, potentially with long-term implications for employee retention. SSA officials acknowledged that growing workloads have seriously compromised agency morale and that they have tried to ease the stress on staff by authorizing the use of overtime. Retirement and disability filings by the nation’s approximately 80 million baby boomers are projected to significantly increase SSA’s workload, providing additional stress on the field office workforce. SSA estimates a 13 percent rise in claims filed among its three major claims types over the next 10 years, rising from 9.4 million in fiscal year 2008 to 10.7 million in fiscal year 2017 (see fig. 5). A growth of 22 percent in the number of beneficiaries, from about 49.6 million in calendar year 2007 to about 60.5 million in calendar year 2015, is also projected. By 2050, there will be an estimated total of 95.6 million OASI and DI beneficiaries (see fig. 6). SSA’s ability to meet its growing workload challenges will be more difficult with the anticipated retirements of many of the agency’s most experienced field office workers. Today, 25 percent of all SSA employees are eligible to retire, and that figure will grow to 39 percent in the next 5 years. Based on the agency’s projections, 44 percent of today’s SSA workforce will retire by 2016. The peak of these retirements began in 2007 and is expected continue into 2009, before starting to decline gradually (see fig. 7). SSA’s projections suggest that the ranks of SSA’s supervisors will be most affected, with 71 percent eligible to retire in the next 10 years. These will be the agency’s most experienced staff, which will mean a loss of decades of institutional knowledge. For 2008 in particular, SSA estimates that it will lose about 2,000 staff to full or early-out retirements. Field office managers and staff at many of the locations we visited stated that it typically takes 2 to 3 years for new employees to become fully proficient. Therefore, staff hired now may not reach full proficiency before the peak of the retirement wave. Also, new hires would benefit from being mentored by veteran employees before the latter retire. As a result of the approximately $150 million that SSA was appropriated above its request in the President’s budget for fiscal year 2008, SSA will hire an additional 3,900 staff for operations. This will include 2,350 new hires for regional and field office operations, almost all of whom will go to field offices. SSA officials stated that the increase in staffing will put the agency back at its fiscal year 2005 staffing level. SSA has used a variety of strategies to maintain adequate staffing. SSA offers recruitment, relocation, and retention bonuses to individuals with needed skills and considers employees’ private sector experience when computing annual leave. SSA also offers workplace flexibilities to assist workers in balancing work and family. Additionally, SSA uses dual compensation (salary offset) waivers from the Office of Personnel Management (OPM) to respond to emergency conditions and to hire for certain hard-to-fill positions. For example, SSA was granted a waiver to re- employ federal annuitants who retired under an early-out authority to provide relief in areas affected by Hurricanes Katrina and Rita. Further, SSA has developed recruiting efforts that reach out to a broader pool of candidates. For example, SSA began recruiting retired military and disabled veterans in 2002 because of its commitment to helping veterans. SSA currently lacks a plan to address the mounting service delivery challenges that it faces, though officials told us that they are currently working to finalize the agency’s Annual Strategic Plan, which is expected to address these issues. We recommended, as early as 1993 and most recently in 2000, that the agency develop a plan to meet its responsibilities in the context of resource constraints and other challenges. At that time, we suggested that the plan take into account changing customer needs and expectations; the views of oversight bodies and interest groups; and other future challenges, such as growing workloads. We also specified that the plan should spell out, for the future, who will be providing what type of services and where these services will be made available. In the absence of this kind of overarching strategy, SSA may be unable to effectively marshal its key resources to meet the challenges described above. Recent staffing declines may have been a factor in reducing field offices’ ability to complete all of their work while providing quality customer service. In managing staffing reductions, customers are waiting longer to be served, their calls to field offices frequently go unanswered, certain stewardship activities are being deferred, and staff are stressed. Projected increases in claims for benefits from the nation’s approximately 80 million baby boomers and a large retirement wave among SSA’s most experienced staff will place additional pressure on field offices, and SSA may find it increasingly difficult to manage without a clear plan for addressing these challenges. SSA is currently working to finalize its Fiscal Year 2008 Annual Strategic Plan. Strategic planning for service delivery and staffing before SSA’s workload grows beyond available resources is essential. In a time of budgetary constraints, thinking creatively about service delivery and how best to operate efficiently and effectively will be important aspects of SSA’s planning effort. The time for SSA to prepare itself for the future is running out and without a clear direction SSA will not be prepared to meet its service delivery challenges. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the committee may have at this time. For further information regarding this testimony, please contact Barbara D. Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Blake Ainsworth (Assistant Director), Mary A. Crenshaw, Paul Wright, Matthew Lee, and Charlie Willson. We provided SSA with a draft of our testimony for their comment. In their response, SSA said that the testimony understated the connection between the stress that field offices are under from increased work demands and the agency’s funding shortfalls. SSA stated that its current business model is non-sustainable and that past underfunding has forced the agency to shift resources from less visible—though vital—areas to process the most critical workloads. SSA also said that it is using its current strategic plan and operational plan to meet its many challenges. In order for its plans to succeed, SSA stated that it must be properly and timely funded on a sustained basis. In response, we acknowledge the service delivery challenges that SSA faces, and believe that we have fairly characterized field office staffing declines as a significant factor in meeting work demands and the resulting adverse effects. Ensuring that SSA has the resources to meet future service deliver challenges is essential. However, we continue to believe that SSA must employ a more strategic and creative approach to meet these challenges. Social Security Disability: Better Planning, Management, and Evaluation Could Help Address Backlogs (GAO-08-40, Dec. 7, 2007). Social Security Administration: Additional Actions Needed in Ongoing Efforts to Improve 800-Number Service (GAO-05-735, Aug. 8, 2005). SSA Customer Service: Broad Service Delivery Plan Needed to Address Future Challenges (GAO/T-HEHS/AIMD-00-75, Feb. 10, 2000). SSA’s Management Challenges: Strong Leadership Needed to Turn Plans Into Timely, Meaningful Action (GAO/T-HEHS-98-113, Mar. 12, 1998). Social Security Administration: Significant Challenges Await New Commissioner (GAO/HEHS-97-53, Feb. 20, 1997). Social Security Administration: Effective Leadership Needed to Meet Daunting Challenges (GAO/HEHS-96-196, Sept. 12, 1996). Social Security: Sustained Effort Needed to Improve Management and Prepare for the Future (GAO/HRD-94-22, Oct. 27, 1993). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | Millions of people rely on the services of Social Security Administration (SSA) field offices. In fiscal year 2007, SSA's approximately 1,300 field offices provided service to about 42 million customers. People use these offices to apply for Social Security cards, apply for retirement and disability benefits, establish direct deposit, and a host of other services. While customers may conduct their business using SSA's online, telephone, or other service options, many prefer the personalized contact provided in field offices. Over the last several years, staffing reductions have challenged field offices' ability to manage work, while continuing to deliver quality customer service. To assess how field offices are managing these challenges, GAO was asked to determine (1) the effect that reduced staffing levels may be having on field office operations and (2) the challenges that SSA faces in meeting future service delivery needs. This statement is drawn from GAO's ongoing study on field offices for the committee, which is expected to be issued later this year. To conduct this work, GAO interviewed SSA officials in headquarters, and other components, and analyzed various data on SSA's workloads and other data. In commenting on a draft of this testimony, SSA said that GAO understated the connection between staffing stresses from increased work demands and the agency's funding shortfalls. SSA field offices largely met work demands between fiscal years 2005 and 2007 despite operating with fewer staff and an increased demand for services, but staffing reductions may have had some adverse effects. Field offices were able to minimize the impact of staffing reductions on work because staff productivity increased by 4.9 percent. SSA and its field offices used various strategies to manage its work with fewer staff. Field offices shared work among offices and redirected staff to meet critical needs. SSA also encouraged customers to make greater use of Internet and other electronic services. Additionally, SSA deferred work that it deemed a relatively low priority, such as conducting reviews of beneficiaries' continuing eligibility. Deferring these reviews, means that beneficiaries who no longer qualify for benefits may still receive payments--which may decrease SSA's chances of recovering the erroneous payments. Despite SSA efforts to manage the staffing reductions, customers experienced longer waiting times and more unanswered calls to field offices, according to SSA data. Also, staff reported experiencing high stress levels and insufficient time for training. Growth in claims from the nation's baby boomers and a retirement wave of its most experienced staff may pose serious challenges for SSA if the agency does not have a clear plan. The first wave of approximately 80 million baby boomers is reaching the age of retirement eligibility, and SSA estimates that retirement and disability filings will increase the agency's work by approximately 1 million annual claims by 2017. To further compound this challenge, SSA projects that 44 percent of its workforce will retire by 2016. Because retirements will occur among the agency's most experienced staff, this will have a serious impact on field offices' institutional knowledge. SSA is planning on hiring an additional 2,350 new employees this fiscal year for regional and field office operations, almost all of whom will go to the field offices. Agency officials stated, however, that it typically takes 2 to 3 years for staff to gain the experience they need to function independently. SSA is using various strategies to recruit new employees to fill knowledge gaps. SSA is finalizing its Annual Strategic Plan which will describe the agency's strategies for addressing these issues. |
SSA conducts periodic reviews called work continuing disability reviews (work CDRs) to determine if beneficiaries are still eligible or are working above the SGA level. While work CDRs can be prompted by several events, most are generated by SSA’s Continuing Disability Review Enforcement Operation (enforcement operation). This process involves periodic data matches between SSA’s Master Beneficiary Record database and IRS earnings data. The enforcement operation generates alerts for cases that exceed specified earnings thresholds, which are then forwarded to 1 of 8 processing centers for additional development by SSA staff. In fiscal year 2010, the enforcement operation flagged approximately 2 million records of which more than 531,000 were sent to SSA’s processing centers and field offices for review. Medical and work-related overpayments in the DI program detected by SSA grew from about $860 million in fiscal year 2001 to about $1.4 billion in fiscal year 2010. Though the true extent of overpayments due to earnings is currently unknown, our review suggests that most of them are related to beneficiaries who work above SGA while receiving benefits. SSA officials estimate that from fiscal years 2005 through 2009, about 72 percent of all projected DI overpayments were work-related, or to beneficiaries who returned to work and were no longer eligible. SSA officials attribute increases in the percentage of overpayments that are work-related during this period to improved detection by its enforcement operation, and to changes in how the agency estimates the overpayment numbers. Agency officials also explained that the approximately half of the increase in overpayment dollars during the 10 year period may be due to the increase in DI program benefit levels. Beyond SSA’s estimates, we found that detected overpayments could be even larger than SSA’s data reflect because some overpayments have been accidentally removed from SSA records due to manual processing errors. In our current review of 60 work CDR cases, we found two manual processing errors which resulted in overpayments totaling $53,097 being removed from agency records. In one case, staff entered a code to correct an overpayment amount but instead deleted the overpayment entirely. As a result of our detection, SSA officials reentered the overpayment debts into the system and indicated they would proceed with debtor notification and recovery. Because the results of our case review are not generalizable, the incidence of such occurrences is currently unknown and thus the potential impact on total DI overpayments owed by ineligible beneficiaries is not clear. SSA officials said that they do not have a mechanism for detecting, or a process of supervisory review to catch, such errors. A beneficiary’s total DI overpayment debt can also increase because of multiple periods of employment. DI beneficiaries may reenter and leave the workforce based on their ability to perform SGA. As a result, a beneficiary could be subject to multiple periods of DI overpayments if he or she does not report increased earnings to SSA in a timely manner, as regulations instruct. In 49 of the 60 cases we randomly selected for review, there was no indication in the file that the individual had reported his or her earnings to SSA, and in 15 of the 60, SSA had detected two or more separate periods of earnings which resulted in overpayments. In one of these cases, the ineligible beneficiary owed SSA a total of $69,976. SSA does not currently have formal, agency-wide performance goals for debt recovery. Specifically, the agency does not have goals for the percentage of DI overpayment debt recovered within the 36 month timeframe as required by its own policy. Under the Government Performance Results Act of 1993 (GPRA), federal agencies are required to establish performance goals to define level of performance and establish performance indicators to be used in measuring relevant outputs, service levels, and outcomes for each program activity. SSA’s policy manual (POMS) requires staff to ask for full repayment within 36 months, but the agency has not made this time frame a performance goal. SSA officials said they are currently working to develop debt recovery goals. In the meantime, without agency-wide performance goals for debt recovery, SSA cannot adequately measure its performance or fully leverage and target its resources to recover overpayments from ineligible beneficiaries and reduce the total owed to SSA. Despite a substantial increase in DI debt collections—$340 million to $839 million from fiscal year 2001 through fiscal year 2010—outstanding DI debt grew from $2.5 billion to $5.4 billion during this time, including a $225 million increase in fiscal year 2010. (see fig. 2) Most overpayment debt is collected by SSA through offsets, or the withholding of future DI benefits for which a beneficiary is still eligible. SSA attributes 77 percent of the approximately $839 million of debt collected in fiscal year 2010 to withholding of DI benefits. The amount withheld from benefits to recoup previous overpayments may be negotiated with the debtor and based on a monthly amount the debtor can afford. The remainder of overpayment debt is collected in a variety of ways, including payments by the debtor and return of uncashed DI benefit checks; withholding of other SSA benefits, such as Supplemental Security Income (SSI); or through external collection including federal salary offset, administrative offset (other than against SSA benefits), tax refund offset, and administrative wage garnishment. SSA estimates that only about 11 percent of collections is through external means. Of the 60 cases, 5 were referred for external collection at the time of our review, for a total owed of $79,950, but just $2,478 had been recovered through these methods. SSA does not require supervisory review of repayment plans prior to approval, including those in which repayment periods exceed the recommended 36 months. The agency reported that in fiscal year 2010, the median time to collect a DI overpayment debt in full was 48 months. However, in our review of 60 cases, we found that SSA agreed to some initial repayment plans which will take many decades. We analyzed the initial payment plans established for individuals in these cases and found 42 of the 60 had a payment plan in place, with a median repayment time for all 42 of approximately 34 months. While SSA’s POMS require that staff should seek full repayment within 36 months, SSA officials reported that no supervisory approval is needed to exceed the 36 months. Of the 42 cases with a payment plan, 19 had initial plans requiring more than 36 months for payment in full and 7 of these required 20 years or more. Repayment time frames for the 42 cases ranged from less than 1 year to nearly 223 years for a case with a 60-year-old debtor who was paying $10 a month on $26,715 owed. (See fig. 3.) SSA officials told us they are often unable to increase monthly payment amounts and thus shorten repayment time frames because of a debtor’s limited income. For instance, in a case we reviewed with an initial repayment plan of 148 years for $44,465 in overpayments owed to SSA, SSA records show the individual earned less than $100 in 2010. In the course of analyzing repayment plans, we found that the ROAR system cannot capture and track overpayment debt scheduled to be collected beyond the year 2049. As a result, the overpayment debt on the agency’s books, and reported to the Department of the Treasury for the federal government’s consolidated financial statements, is understated to some unknown extent. This ROAR system limitation stems from a program modification used to address the change of the century (Y2K) computer issue, and which extended the debt recovery date in ROAR from “1999” to “2049”. Under existing SSA policies and procedures, SSA staff manually remove from the ROAR system the portion of any debt that cannot be collected before the year 2050, and create a reminder in the system to recover that balance beginning in the year 2050. However, because this is a manual process, the intended recovery action could be potentially missed by staff. For example, 3 of the 60 cases we reviewed had a total of $43,285 in overpayments removed from ROAR system records because collection of these payments will occur after the year 2049. Because the results of our case review are not generalizable, we could not determine how many additional disability overpayment cases detected by SSA fell into this category. Unless corrected, more overpayments will likely to continue to be underreported as the years progress. Since bringing this issue to their attention, SSA officials told us that the agency has begun to study this ROAR system limitation and an agency working group will recommend a course of action to correct the problem. SSA officials also reported several initiatives either planned or under way that could improve the recovery of overpayment debt, including charging interest and penalties, offsetting state payments, and eliminating the 10-year limit on making referrals of some debts for external collection. SSA conducts periodic computer matches with wage data from the Internal Revenue Service to independently verify beneficiaries’ earnings. However, earnings data provided through the IRS match are often more than a year old when SSA staff begin the work CDR prompted by the IRS data. Managers and staff at the four processing centers we visited cited this delay as a major obstacle to limiting the occurrence and size of overpayments. Our work shows that this has delayed processing of work CDRs. In the 60 cases we reviewed, the earnings data were already between 6 and 26 months old by the time they were available to SSA staff for performing work CDRs. (See fig. 4). While DI beneficiaries are responsible for notifying SSA when they return to work as a condition of receiving benefits, they sometimes fail to make such notifications. Our review of 60 cases found no indication in 49 that the individual had reported earnings to SSA as instructed by regulation. In the other 11 cases, beneficiaries had reported returning to work, including the name of their employer and the amount of their wages, at some point. Yet 6 of these cases resulted in about $78,000 in total overpayments, even though the beneficiary reported returning to work more than a year prior to initiation of the work CDR. In the remaining 5 cases, the beneficiary reported working only after the CDR was initiated. Earnings data from IRS or from beneficiaries may age further once received by SSA because staff sometimes do not begin a work CDR immediately. From the date of the initial IRS alert to the date staff begin work on the CDR, it is categorized as a case “pending development”. In the 60 cases we reviewed, the median time cases were pending development was 205 days, or about 7 months, and ranged from 2 to 466 days, or more than 15 months. For example, in the 466-day case, the IRS alert came to SSA in September 2007, when earnings (for 2006) were already 15 months old, then aged an additional 15 months until SSA staff began developing the work CDR. SSA officials could not explain what caused the delay in initiating development of this case or of several others we reviewed. The delays that occur when staff do not act promptly to begin a work CDR, in combination with the initial delays in receiving beneficiary earnings data (either from the IRS enforcement operation, or beneficiaries’ failure to self-report earnings), result in multiple DI overpayments which may continue to accrue for extended periods of time before they are addressed. For example, in the 60 cases we reviewed, delays which occurred after IRS alerts were delivered to SSA resulted in individual beneficiaries being overpaid for up to 38 months. Most received fewer than 12 months of overpayments, but 19 of the cases received 18 or more months of overpayments. According to an SSA official, staff shortages and the need to focus resources on competing workloads, such as initial DI claims and medical CDRs, are among the factors delaying development of work CDRs in SSA’s processing centers once earnings information is received. (See fig. 5) In 2004, we recommended that SSA seek to use large scale batch matches with an alternative database of earnings, the National Directory of New Hires (NDNH), which was originally established to help states locate noncustodial parents for child support payments. The NDNH could provide SSA with quarterly wage information on existing employees within four months of the end of a calendar quarter. Several federal programs and agencies currently use the NDNH to verify program eligibility, detect and prevent potential fraud or abuse, and collect overpayments. SSA already has the authority to obtain NDNH earnings data on a case by case basis, but as we previously reported lacks the authority to match SSA and NDNH data on a large scale, or batch, basis. In 2009, SSA conducted a cost effectiveness study on use of the NDNH, but SSA officials told us the study showed such matches would generate a large number of alerts needing development that were not of high quality due to data reliability issues, or “false positives”. They also said the study found return on investment of only about $1.40 in savings for each $1 spent. SSA provided GAO with a limited overview of the study but we were unable to independently verify its accuracy or completeness because the information provided lacked sufficient detail. However, the agency’s experience with the NDNH in its SSI program suggests it may be more cost-effective than indicated by SSA’s analysis. The NDNH provides SSA staff with access to more comprehensive and timely employment and wage information, according to SSA officials, and the match has resulted in an estimated $200 million in SSI overpayment preventions and recoveries per year. Moreover, even if the benefit-to-cost ratio of using the NDNH for identifying DI beneficaries’ earnings is only 1.4 to 1.0, as reported by SSA, this still represents a 40 percent rate of return. SSA does not have agency-wide performance goals or a consistent approach for processing work CDRs across its processing centers. Specifically, the agency lacks performance goals for the number of cases that are pending development or for number of days taken to process a work CDR. While SSA has established an agency-wide goal for processing a certain number of medical CDRs in a fiscal year, and includes this goal in the agency’s annual performance plan, SSA officials told us they have not established similar goals for work CDRs. Instead, they have established targets for the processing centers. For example, SSA has set targets for 95 percent of IRS alerts on earnings generated in 2008 or earlier to have a work CDR completed by September 24, 2010, and for processing centers to complete development of cases within 270 days. SSA officials said work CDRs completed were generally not tracked prior to fiscal year 2010. We also found that while SSA’s policies establish steps for work CDR processing to be followed across all processing centers, processing times across the four centers we visited varied widely once development was initiated. More specifically, we found that processing times for the 60 cases we reviewed ranged from 82 to 992 days (with a median of 396 days) and resulted in combined overpayments totaling more than $1 million. We also found processing times varied depending on processing center. For example, while the median processing time for the cases we reviewed from three centers ranged from 307 to 397 days, median processing time at the fourth center, which processes about 50 percent of all work CDRs, was 626 days. (See fig. 6) Within the last year, SSA has started work on some new initiatives to identify CDR enforcement alerts that pose a greater likelihood of resulting in large overpayments. These include prioritizing IRS alerts with reported earnings that are greater than or equal to 12 times the current SGA level in an effort to better target cases for work CDRs, as well as working to update and streamline existing procedures regarding the initiation, follow- up timeframes, and overall completion of work continuing disability reviews for processing center personnel. While these and other recent initiatives represent promising steps, it is too early to assess what impact they may have on the prevalence and size of DI overpayments. Chairmen, Ranking Members, and Members of the Subcommittees, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the subcommittees may have at this time. Daniel Bertoni at (202) 512-7215 or bertonid@gao.gov In addition to the contact mentioned above, Jeremy Cox, Assistant Director; Arthur T. Merriam Jr., Analyst-in-Charge; Susan Aschoff; James Bennett; David Forgosh; Monika Gomez; Angela Jacobs; Joel Marus; Sheila McCoy; Cady Panetta; Nyree Ryder Tee; Vanessa Taylor; Walter Vance; and Craig Winslow made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The Social Security Administration's (SSA) Disability Insurance (DI) program paid almost $123 billion in benefits in fiscal year 2010 to more than 10 million workers and dependents. The program has grown rapidly in recent years and is poised to grow further as the baby boom generation ages. GAO examined (1) what is known about the extent SSA makes work-related overpayments to, and recovers overpayments from, DI beneficiaries, and (2) SSA's policies and procedures for work continuing disability reviews (work CDRs) and potential DI program vulnerabilities that may contribute to overpayments to beneficiaries who have returned to work. To answer these questions, GAO reviewed work CDR policies and procedures, interviewed SSA headquarters and processing center officials, and visited 4 of 8 processing centers. We reviewed a random nongeneralizable sample of 60 CDR case files across those 4 centers to ensure we had a wide range of cases for our review (15 cases from each). These 4 centers received almost 80 percent of all work CDRs from SSA's Internal Revenue Service enforcement data match in fiscal year 2009. Disability Insurance overpayments detected by SSA increased from about $860 million in fiscal year 2001 to about $1.4 billion in fiscal year 2010, though the full extent of overpayments to beneficiaries who have returned to work and are no longer eligible is unknown. Overpayments may also go to beneficiaries who are no longer eligible due to medical improvement, but SSA estimates about 72 percent of all projected DI overpayments were work related during fiscal years 2005 through 2009. While the agency collected, or recovered, $839 million in overpayments in fiscal year 2010, monies still owed by beneficiaries grew by $225 million that same year, and total DI overpayment debt reached $5.4 billion. SSA does not have agency-wide performance goals for debt collection, for example, the percent of outstanding debt collected annually. And while SSA does have a policy for full repayment within three years, 19 of the 60 continuing disability review (work CDR) cases we reviewed had repayment plans exceeding three years. SSA officials told us lengthy repayment plans are often the result of an individual's limited income, but SSA does not review or approve repayment plans which exceed agency policy. During the course of our review, we also found a limitation in SSA's Recovery of Overpayments, Accounting and Reporting (ROAR) system. Used to track overpayments and collections, ROAR does not reflect debt due SSA past year 2049 so the total balance due the program is unknown, and likely larger than the agency is reporting. SSA officials acknowledged this issue, but are unable to determine the extent of the problem at this time. They told us they have a work group which will recommend action to correct the problem. But until this issue is addressed, SSA officials told us the agency can only track and report on overpayments scheduled to be repaid through 2049. The amount owed after that year is unreflected in current totals even as it annually increases. SSA has numerous policies and processes in place to perform work CDRs, though two key weaknesses have hindered SSA's ability to identify and review beneficiary earnings, which affect eligibility for DI benefits. First, SSA lacks timely earnings data on beneficiaries who return to work. In 49 of the 60 CDR cases we reviewed, there was no evidence in the file that the beneficiary reported returning to work, as required by the program. To identify these unreported earnings, SSA primarily relies on data matching with the Internal Revenue Service (IRS), then sends these matches to staff for a work CDR. However, the IRS data may be more than a year old when received by SSA, and SSA says it is not cost effective to gain access to and use other sources of earnings information, such as the National Directory of New Hires database. In addition, we found cases may wait up to 15 additional months before SSA staff begin work on the CDR. Second, SSA lacks formal, agency-wide performance goals for work CDRs. While it targets 270 days to develop a case, actual processing time taken ranged from 82 to 992 days (with a median of 396 days) in the 60 cases we reviewed, and overpayments which accrued as a result topped $1 million total. SSA officials reported several initiatives to more effectively prioritize work CDR cases, for example, those with the largest potential overpayment amounts, but these efforts are in the early stages and we could not yet assess their effectiveness. GAO has ongoing work on this issue and has no recommendations at this time. |
IRS’s mission is to provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. To fulfill this mission, IRS has more than 100,000 employees deployed among more than 600 offices nationwide and in select international cities. Some of these offices are part of eight IRS campuses, which have the physical facilities for processing tax forms and some of the facilities to respond to customer inquiries. In response to the increased electronic filing of taxes, IRS is consolidating the physical facilities it uses for processing tax forms, also called processing centers. The rest of IRS’s work is completed in noncampus offices and on-site at taxpayer offices, such as large corporations. Following the IRS Restructuring and Reform Act of 1998, IRS organized itself into four business units to serve different types of taxpayers. The Wage and Investment (W&I) business unit works with individual taxpayers; the Small Business/Self-Employed (SB/SE) business unit works with full or partially self employed individuals and small businesses; the Large and Mid-Size Business (LMSB) works with corporations and partnerships with assets greater than $10 million; and the Tax Exempt and Government Entities (TE/GE) business unit works with employee plans, tax exempt organizations, and governments. The concept of resilience has gained particular importance and application in a number of areas of federal planning. Both the Congress and executive branch agencies have addressed resilience in relation to the importance of the recovery of the nation’s critical infrastructure from damage. Accordingly, most of the current focus is on assets, systems, and networks rather than agencies or organizations. In February 2006, the Task Force of the Homeland Security Advisory Council defined resiliency as “the capability of a system to maintain its functions and structure in the face of internal and external change and to degrade gracefully when it must.” Later in 2006, the Department of Homeland Security’s National Infrastructure Protection Plan—again focusing on critical infrastructure, not agencies—defined resilience as “the capability of an asset, system, or network to maintain its function during or to recover from a terrorist attack or other incident.” In May 2008, the House Committee on Homeland Security held a series of hearings focusing on resilience at which government and private sector representatives, while agreeing on the importance of the concept, presented a variety of definitions and interpretations of resilience. For the purposes of this report, when we discuss resilience, we will be referring to organizational resilience. At the agency level, the current focus is primarily on continuity of operations and the recently issued Federal Continuity Directives. According to the Federal Continuity Directive 1, “an organization’s continuity capability—its ability to perform its essential functions continuously—rests upon key components and pillars, which are in turn built on the foundation of continuity planning and program management.” The Federal Continuity Directive states that an organization’s resilience is directly related to the effectiveness of its continuity capability. In contrast to continuity of operations, organizational resilience looks at more than just essential functions, and accordingly, we have developed the five categories described below. Because there is no widely accepted definition, we defined organizational resilience for the purposes of our report and developed a framework to assess a federal agency’s resilience. Organizational resilience is the quality that would enable an organization to restore itself or thrive following a disruption that has the potential to substantially compromise the organization’s ability to accomplish its mission. A highly resilient organization is identified by the speed and agility it demonstrates in achieving a return to its normal state (or new normal state) and its resulting enhanced ability to respond to future disruptions. To make our definition of organizational resilience more practical and observable, we identified 21 attributes particularly associated with resilience and assigned them to five related categories. These categories provide a useful assessment framework. (See figure 1.) These related categories are networked organizations. However, whatever assessments are undertaken, it is important to note that the severity or circumstance of a particular disruption to an organization may be so severe or unusual as to make recovery not attainable even if the organization has evidenced attributes of resilience prior to the disruption. Similarly, given the specific nature of the disruption or the specific circumstances of the disruption, perhaps one attribute relative to others may prove particularly useful in helping the organization to recover successfully. The attributes associated with organizational resilience are discussed in summary below and each attribute is discussed in greater detail in appendix II. Emergency planning identifies disruptions that could potentially affect an organization and defines and tests strategies to face those disruptions or similar challenges. For example, in 2004, the Federal Emergency Management Agency’s (FEMA) Hurricane Pam exercise simulated a category 3 hurricane. In the exercise scenario, 15 to 20 feet of water inundated New Orleans. This scenario was similar to the actual conditions of Hurricane Katrina. Based on this exercise, FEMA was able to implement some strategies which proved helpful during Hurricane Katrina, such as FEMA’s working with hospital and university officials to create temporary medical operations around the state. However, FEMA’s exercise also identified other problems that it did not address, such as the need to plan for evacuating those with special needs. A resilient organization has a workforce that can respond to a range of disruptions with appropriate purpose, initiative, and comfort with change. One aspect of organizational flexibility is an ability to accept change as a learning opportunity. For example, the 9/11 Commission report criticized the Federal Aviation Administration for failing to consider in its planning the possibility of certain types of terrorist attacks. Specifically, the commission determined that if the agency had examined a possible suicide hijacking and reviewed existing security provisions, they could have identified vulnerabilities. According to the commission, agencies tend to accept the status quo, and accept that efforts to identify or fix certain vulnerabilities are too costly, controversial, or disruptive to fix. This inability to tackle necessary change can leave an organization with unaddressed vulnerabilities, as was the case with the Federal Aviation Administration. Additionally, knowing when to change rules helped give federal agencies access to additional resources during the Year 2000 (Y2K) Computing Challenge. Specifically, increased latitude with human capital practices in the federal government allowed agencies to access a larger pool of skilled employees that could be allocated as needs arose. The Office of Personnel Management recognized that personnel would need to be increased to meet Y2K compliance and provided additional, more flexible hiring authorities for agencies who needed employees to work on the conversion. This included changing some authorities for re-hiring federal retirees, exceptions on limitations on premium pay, and providing retention allowances. Prior GAO work credited creative human capital decisions and an adequate pool of human resources as contributing to the federal government’s ability to meet the Y2K challenge. Leaders who demonstrate respect for their employees and are accountable for results are more likely to garner the employee commitment that will be needed after a disruption that substantially compromises the organization’s ability to accomplish its mission. Additionally, when leadership abilities are distributed broadly through the workforce, an organization is more likely to be resilient. For example, the Senate Homeland Security and Governmental Affairs Committee found that, after Hurricane Katrina, the Coast Guard had empowered front-line leaders to make decisions when they needed to be made, which it found was perhaps more important to their resilience than their regular training. Also, once it was known that the September 11 hijackers entered the United States on valid visas, the Department of State devolved leadership authority by empowering consular staff to distinguish legitimate visitors from potential terrorists through antiterrorism training, access to databases with names of potential terrorists, foreign language training, and more staff to handle the workload. Within a workforce that is committed to the organization, individuals are motivated to make significant personal investments and provide the knowledge that may be necessary for organizational success following a disruption. One aspect of employee commitment is understanding the ways that the organization works. One expert referred to this attribute as the ability to “have the organization in your head.” For example, a bipartisan House of Representatives committee reported after Hurricane Katrina that a lack of understanding of the command and control structure among employees slowed and complicated the response effort after the hurricanes. Another key aspect of this category is a workforce with the needed skills to meet the organization’s mission. The committee report also noted that, after Hurricanes Katrina and Rita, the Department of Homeland Security and FEMA were not prepared, in part, due to a lack of experienced and trained staff. Solid internal and external networks can facilitate and strengthen other resilience attributes. For example, having dependable connections will likely expand and expedite an organization’s access to resources when the organization is faced with a disruption. Specifically, being aware of interdependencies, knowing when reinforcement is needed, and being able to communicate among interdependent units can give an organization an extended reach for information, resources, and advice. Furthermore, an organization’s knowledge of its supply chain interdependencies can help identify vulnerabilities, which can inform risk assessments and emergency planning. For example, after the terrorist attacks of September 11, 2001, many companies in the financial sector found that they relied on the same electronic data system backup sites, which were also affected by the attacks. As a result, key institutions realized that their individual plans for preparedness for disasters or other crises significantly affected others, both directly and indirectly. Accordingly, the Securities and Exchange Commission recommended that financial institutions explore the usefulness of coordinated testing of plans. Additionally, the Y2K challenge was met through the collaborative efforts of the Congress, the administration, federal agencies, state and local governments, and the private sector. Had any of these sectors failed to take the Y2K problem seriously, neglected to remedy computer systems, or failed to work together with partners on common issues such as contingency planning, critical services could have been disrupted. Although these five categories of attributes contribute to organizational resilience, all disruptions are individual situations and even a relatively resilient organization may not be able to restore operations under certain circumstances. Furthermore, during a disruption, some attributes may prove to be more important than others. For example, IRS found that, after the 2006 flood of IRS headquarters, IRS did not have to activate its headquarters continuity of operations plan. Alternate work space was quickly made available for all headquarters employees, so identifying critical personnel, a required step of continuity of operations planning, was much less important. Additionally, with many attributes, excess of a positive attribute becomes negative. For example, too much experience with change could make employees suffer from innovation fatigue and become less open and receptive to change. IRS has a record of responding to external events, which have offered lessons and opportunities for IRS to strengthen practices that enhance resilience. The examples below show how IRS was able respond to unanticipated external events because it had learned from prior experiences. IRS was able to improve the speed of its response to disruptions by adapting its information technology processes. After Hurricanes Katrina and Rita in August and September 2005, IRS deployed more than 5,000 employees at its call sites to help register disaster victims with FEMA. During the response effort, IRS officials estimated that IRS staff may have handled more than 50 percent of FEMA’s calls. In order to fill this increased need for capacity, IRS expanded the size of its workforce by bringing back about 4,000 seasonal employees, who are typically hired to assist with the tax filing season. IRS completed a similar service for FEMA during Hurricanes Ike and Gustav in 2008, and was able to incorporate lessons learned from the response to Hurricanes Katrina and Rita. Specifically, during the response to Katrina and Rita, IRS employees were able to log into either the IRS system or the FEMA system but not quickly able to transition between the two to serve the needs of the individual callers. After this experience, IRS’s information technology staff identified ways for IRS employees to toggle between the two systems and thus work where demand was greatest. IRS implemented lessons from past stimulus payments and delivered a generally successful tax filing season. During the peak of the 2008 taxpayer filing season, IRS also had to process payments to taxpayers as directed by the 2008 economic stimulus legislation. IRS processed stimulus payments totaling $94 billion and handled more than twice as many calls from individuals looking for assistance than they received in 2007. In addition, IRS processed almost 9 million “economic stimulus only” tax returns from individuals who would not otherwise have had to file a return. Because many of these individuals had never filed a return, the error rate on these returns was higher than usual. Because of the timing of the economic stimulus package, IRS did not have time to hire, conduct background checks for, and train additional staff to handle the increased volume of telephone calls for taxpayer assistance. Instead, IRS maximized the use of its workforce by asking its compliance staff to answer incoming calls from taxpayers about the stimulus. IRS knew the adjustments that it would have to make to its workforce based on its experience implementing past economic stimulus bills. As a result, even with this increased workload, IRS was also able to deliver a generally successful filing season. Nevertheless IRS had to make trade-offs in other key areas. As a result of decisions to shift staff from collection cases to telephone assistance, IRS estimated that its costs and foregone revenues would reach up to $960 million. IRS has been generally successful in the face of past disruptions. However valuable these experiences have been, though, they can not provide experiences for all possible disruptions nor provide experience to all IRS employees. For example, an influenza pandemic, in which a large portion of the workforce could be absent from work for extended periods, would entail a different type of response from the experiences required by past events. Accordingly, IRS relies on its emergency planning process and its test and exercise plans to assist in preparing for disruptions it has not yet experienced. IRS’s test and exercise strategy focuses on four types of tests and exercises. First, call tree tests check the accuracy and completeness of contact information for key emergency personnel. Second, IRS staff annually check that all four types of IRS business continuity plans are up to date and accurate. Third, key emergency response personnel from each business unit are required to complete a tabletop exercise in which they familiarize themselves with the business resumption plan, their roles within the plan, and the steps they would take in case of an emergency. Participants in the tabletop exercise then walk through possible scenarios to discuss ways they would respond. Last, in large geographic areas, emergency personnel from multiple business units participate together in an integrated tabletop exercise. The goal of the integrated tabletop exercise is to provide a better understanding of how emergency response personnel from different organizations work together and identify the required time needed for resumption and recovery activities. The tabletop exercises—while required agencywide since September 2006—are not regularly conducted. TIGTA found that more than half of the business resumption plans they sampled had not been tested through tabletop exercises in calendar year 2007. In addition, IRS officials noted that the tabletop exercises are not always well designed. For example, they said that one tabletop exercise presented so many scenario events that participants found the exercise to be unrealistic and, during the exercise, chose to decrease the number of scenario events and the duration of the exercise. In response to the need to improve exercises across IRS and implement new requirements from the Federal Continuity Directives, IRS assembled its Emergency Management and Preparedness Working Group, which coordinates emergency activities among its business units, for a 2-day workshop. With the goal of reducing the variation in the quality of the tabletop exercises, the workshop leaders discussed and encouraged sharing among all the participants of how to prepare and conduct successful tabletop exercises. Headquarters has also recently made additional resources available to assist the business units with implementing the tabletop exercises. For example, they recently established the Incident Management Business Resumption Group as a resource available to the business units to plan and conduct training, testing, and exercises. In addition to tabletop exercises, FEMA has identified and recommended two additional types of tests and exercises: Functional exercise: fully simulated interactive exercise that tests the capability of an organization to respond to a simulated event. This type of exercise strives for realism, short of actual deployment of equipment and personnel. Full-scale exercise: a simulated emergency event, as close to reality as possible. It involves all emergency response functions and requires full deployment of equipment and personnel. The value of exercises that involve simulation was underscored by the experts we interviewed. They noted that a resilient organization provides opportunities for employees to respond to stressful circumstances. The simulations involved in these types of exercises create more realistic conditions and a better experience to prepare employees to contend with an actual emergency event. The senior IRS official responsible for emergency preparedness believes that these more in-depth tests and exercises would be beneficial because they would stretch IRS leadership and emergency personnel to confront and learn from more realistic challenges. As part of this discussion, he acknowledged that these more extensive tests and exercises are more expensive than tabletop exercises and require a significant time commitment from agency personnel. Accordingly, he thought that it would be better to initially implement these tests on a limited pilot basis. According to the experts we interviewed, some of the benefits of a functional or full-scale exercise may be accomplished with the investment of fewer resources, by simply making routine drills more stressful by taking steps such as withholding an expected resource. For example, one IRS campus held a fire drill in which use of cell phones was prohibited. This experience taught employees to practice different modes of communication and to use “runners” to spread information among employees. This same campus held an additional evacuation drill where selected employees remained in the building during the drill to test the ability of the employees tasked with assuring the building was cleared of occupants to locate missing employees. IRS has a strategy to build resilience through geographic dispersion of leadership, data systems, personnel, and other capabilities. Accordingly, IRS’s campus operations are carried out at eight locations across the country; each campus has the capability to handle taxpayer calls and process tax returns. (See figure 2.) The network of IRS campuses is geographically dispersed and also highly redundant in function. IRS officials have stated that, after a disruption, all campus operations could be transferred to another campus if needed. Also, work is routinely shifted among campuses if the workload of one campus exceeds the campus’s capacity. IRS has made strategic decisions based on the importance of flexibility to its overall resilience. Specifically, to reduce unneeded capacity caused by the increase in the number of taxpayers submitting tax returns electronically, IRS is in the process of consolidating its total number of paper processing centers. However, in considering the optimal number of paper processing centers to retain for individual returns, IRS officials used an analysis of the potential effects, in the face of an emergency, of losing some campus redundancies. Based on this analysis, IRS will keep three— rather than two—individual tax return sites open. When combined with two paper processing centers for small business tax returns, IRS will have a total of five centers that process paper tax forms, making it better able, in its view, to maintain the degree of flexibility that it needs for resilience. In other IRS operations that do not require as much access to IRS equipment and facilities, distributed capacity is achieved through moving work among a dispersed workforce. To move work among noncampus employees—who typically work in field offices or on site with a taxpayer—the business units have developed electronic case management files and have given employees access to laptops so that work can be completed from any site. This is important because, in many cases, the work of the noncampus employees is highly specialized, and accordingly, IRS officials said that they preferred to keep workload within a business unit after a disruption rather than redistributing it to other business units. In contrast, the call center operations are routinely shifted among individuals—located at 26 call sites nationwide—who respond to taxpayer questions. The Joint Operations Center, located at the Atlanta campus, routes incoming calls for taxpayer assistance to available assistors. This center monitors the number of calls and customer waiting times and distributes calls across its nationwide network of call centers. This process allows IRS to ensure that taxpayer calls are promptly answered by directing the workload to the first available individual who is able to provide taxpayer assistance. Furthermore, the Joint Operations Center itself is redundant; another fully capable Joint Operations Center is located in Memphis, Tennessee. Within a campus, many employees can perform multiple tasks and can be reassigned within the campus as needed. As workload needs change, employees are routinely shifted between managing telephone and paper correspondence from taxpayers. Furthermore, as needed, employees who process paper returns are routinely shifted between jobs, such as sorting or examining envelopes to ensure that checks have not been left behind. This provides the flexibility needed for the campus operations to respond to change. In past disruptions, IRS has used its seasonal workforce to respond to changing circumstances. IRS has a seasonal workforce of about 30,000 workers, who are needed to assist IRS as the workload increases during tax filing season. IRS contacts seasonal employees needed for each day’s workload, allowing the IRS campus workforce to expand and contract as needed. During emergencies, IRS has called on these employees for other purposes as well. For example, as discussed above, IRS called on 4,000 seasonal workers to assist FEMA in responding to calls for assistance after Hurricanes Katrina and Rita. IRS has also demonstrated the ability to be flexible after disruptions and reallocate physical resources quickly. For example, as a result of a flood at IRS headquarters building during a period of record rainfall in June 2006, the building sustained extensive damage to its infrastructure, and critical parts of the building’s electrical and mechanical equipment were destroyed or heavily damaged, requiring the headquarters building to be closed until December 2006 to allow for repairs. Within 1 month of the flood, over 2,000 employees normally assigned to the headquarters building were relocated to 15 other locations throughout the Washington, D.C., metropolitan area. IRS has many systems in place to develop its overall leadership capability. Among these are readiness programs to develop managers and executive leadership (see table 1 for details). Through coursework and—in the case of executive development programs—rotational opportunities, these programs are designed to help employees develop leadership skills and assess whether a manager position fits their career interest and abilities. Participants can learn about and try manager competencies without committing to a position, and managers can identify talented future managers without promising every participant a manager position. After completing a program, interested participants are selected for positions on a competitive basis. Not only are these programs intended to help address IRS’s projected need for managers, they allow nonmanagers to be trained in leadership skills, which distributes leadership skills throughout the IRS workforce and could be helpful in assisting IRS during a disruption. For the past five years, the IRS Commissioner and Oversight Board have received quarterly updates on the percent of managers completing these programs in a timely manner. We have reported that attention from high level agency officials to training initiative performance measures can directly contribute to the development of employees who are capable and motivated to accomplish the agency’s mission and goals. Accordingly, based on the performance information he has received, the IRS Commissioner determined that employees would be better able to fulfill agency needs by making adjustments to IRS’s criterion for timeliness. Specifically, IRS managers are now expected to receive training before or within 9 months of their promotion, a shorter time frame than was the case in the past. IRS’s performance management system is structured to build employees’ understanding of the organization’s mission and values and their roles within the organization. Through the performance management system, all managers are expected to set employee expectations and align these expectations with the IRS mission and strategic objectives. We have reported that an explicit alignment of employee expectations with broader organizational goals is a defining feature of an effective performance management system in high performing organizations. We have noted that these organizations use their performance management systems to improve performance by helping individuals see the connection between their daily activities and organizational goals, and this type of system encourages individuals to focus on their roles and responsibilities to help meet their goals. Accordingly, IRS employees have communicated through employee interviews and surveys that they know their roles in the organization’s mission. The 2008 IRS Employee Survey found that more than 85 percent of respondents IRS-wide agree with the statement, “I know how my work relates to the agency’s goals and priorities.” Managers are also held accountable for the engagement of the employees whom they supervise, an asset to resilient organizations. All managers are held directly accountable for their workgroup’s score on an Employee Engagement Index, which is based on the annual IRS Employee Survey. (See table 1 for details.) IRS defines employee engagement as the degree of employees’ motivation, commitment, and involvement in the mission of the organization, and has created IRS-wide annual targets to increase engagement scores. Managers of workgroups that receive a score in the bottom 10 percent of all IRS workgroups are automatically enrolled in the Leadership Coaching Program. (See table 1 for details.) The coaching program is intended to give these managers greater tools for improving or addressing employee concerns. Managers in all four IRS business units broadly praised the program. Additionally, according to IRS, scores on questions in the engagement index improved by almost 40 percent between 2007 and 2008 for workgroups with managers in the coaching program. Another IRS-wide initiative aimed at bolstering management accountability for employee engagement is ES Tracker. (See table 1.) Issues from the Employee Survey, workgroup issues, or other concerns are entered into a database by workgroup managers. Managers are responsible for taking action on the items or elevating them up the management chain until an individual or committee addresses the issue. For example, in a recent meeting of one workgroup, current employees expressed frustration with the skill sets of newly hired employees. They mentioned a past practice that included an additional level of screening before hiring employees, and asked that management explain why this screening was no longer in place. This question was entered into ES Tracker and elevated for management to address. Through ES Tracker, employees have also shared new and useful technologies to make work more efficient and improve taxpayer relations. For example, workgroups identified the need for financial market data terminals which would assist IRS staff. The employees said that the software would validate source information that taxpayers provided to TE/GE revenue agents. These technologies were provided to workgroups after management was alerted through ES Tracker. The Human Capital Office can track trends in the system across IRS. This transparency helps increase accountability by allowing employees to see what issues management has addressed. Although IRS has a number of programs in place to build staff motivation, less than half of respondents in the 2008 IRS Employee Survey agree with the statement, “In my organization, leaders generate high levels of motivation and commitment in the workforce.” This is lower than the percentage of IRS employees responding positively to most other survey questions, with which an average of more than 65 percent agreed. According to IRS managers, this response may be due to the geographic dispersion of IRS offices and hierarchical distance between employees and leadership. In many cases, IRS employees will only see IRS senior leaders once a year, if at all. Many of the IRS managers we talked to expressed concern about this disconnect and have developed individual methods in addition to the IRS and division initiatives to bridge the geographic and professional distance between leadership and frontline workers. Managers and leaders have reported including their pictures on e-mail messages, creating intranet pages to communicate with employees, and making visits to IRS sites. Formal initiatives include town hall meetings, which are run by IRS leadership and provide employee exposure to senior leadership and a forum for leadership to address employees. Additionally, E-talk, a Web- based comment submission system, allows employees in one business unit to anonymously share positive and negative comments directly with senior leadership. IRS has included this survey question in the above discussed employee engagement index, and accordingly, the steps taken in response to the index—such as the coaching initiative—may affect this score. Despite IRS’s large size and distributed workforce, there are many formal ways for employees to communicate across different parts of the agency. At the time of our review, IRS had a number of cross-business-unit initiatives, including over two dozen internal advisory committees to address human capital, technology, security, and other operational issues. Also, business units have established working groups, as needed, to address cross-functional tax administration issues, and in some cases, teams of employees from multiple units do the work. Some of IRS’s formal and informal human capital practices further enhance internal networks. Formally, participants in the Executive Readiness Program may complete assignments in other units of IRS. This helps employees make contacts throughout the agency and observe the operations of other units, which may better enable them to call on others for assistance in the face of a disruption. IRS is also developing corporatewide training for its Revenue Agent staff, a position that is common to many of the business units. The training will help employees to make contacts throughout the agency. Many IRS employees move between business units during their careers. For example, IRS’s Workforce Plan shows that it is common for SB/SE employees to move to LMSB. IRS also works with a number of outside groups. Table 2 highlights examples of such groups. Federal Continuity Directive 1 requires that agencies perform annual tests of the internal and external interdependencies identified in their continuity plan, with respect to performing mission-essential functions. Agencies are also required to have an opportunity to demonstrate inter- and intra- agency communication capabilities and to test equipment used in internal and external communication. However, the Federal Continuity Directive does not specify whether representatives of external entities need to be present at the tests and exercises, or whether they can simply be represented by agency personnel. IRS is currently implementing the requirements from the Federal Continuity Directive. IRS guidelines require business units to include internal stakeholder groups in tests and exercises but do not have parallel requirements for external stakeholder groups. Internal groups include Modernization and Information Technology Services and Agency Wide Shared Services that move resources throughout IRS and provide services necessary for employees to do their jobs. Internal interdependencies are tested through integrated tabletop exercises, which IRS requires for large geographic regions as part of its annual test and exercise strategy. However, IRS currently has no requirement for including external stakeholders in tests and exercises. As a result, tests and exercises involving these entities have been inconsistent across IRS. The few IRS exercises involving external entities tend to be centered on a large city or on IRS campuses. In the exercises in which external partners participated, IRS benefited by identifying important lessons to integrate into its plans. In one case, IRS held an integrated tabletop exercise with FEMA and the Central U.S. Earthquake Consortium—an educational organization that coordinates multistate efforts in emergency planning for an earthquake in the central United States—where IRS managers and Business Resumption Plan coordinators reacted to a detailed earthquake scenario. FEMA was able to provide IRS with a specific impact analysis on its facilities, which showed that the affected area would be much larger than IRS had anticipated. As a result of the exercise, IRS recognized that an alternative computing site would be unusable after an earthquake, and now plans to relocate the site. In some cities, IRS also participates in exercises hosted by the local Federal Executive Boards that bring together federal agencies located in the same city. By participating in an Atlanta Federal Executive Board exercise, IRS was able to establish important contacts with local government officials. However, even in campus locations, some exercises occur without participation from external entities. For example, IRS’s Atlanta campus has its own on-site post office, and is co-located with the Centers for Disease Control and Prevention, but neither the post office nor the Centers for Disease Control and Prevention participates in IRS exercises. In a recent exercise, participants from IRS have discussed the possible response of the post office, but postal representatives were not included in the tabletop exercises. By not having regular external participation in tests and exercises, IRS missed several opportunities for strengthening ties that could play a critical role during a disruption. For example, an SB/SE office in New Jersey that faced a possible anthrax contamination learned that the local authorities on whom IRS relies in such situations were ill prepared and even unaware of how to put on protective suits. Rather than learning these deficiencies during a no-risk situation, such as an exercise, IRS identified the local authorities’ lack of preparedness during a situation that could have proved harmful. The need to include stakeholders is particularly relevant for providers of electronic tax software and Electronic Return Originators. As we recently reported, electronic tax software and the associated electronic return originators, which electronically submit returns to IRS, are key to the tax administration system. In 2007, 39 million tax returns were prepared using commercial software and the majority of electronically submitted returns went through electronic return originators. Even though these organizations are a critical component of the tax administration system, they are not formally included as part of IRS’s test and exercise strategy. We recently recommended that IRS develop and plan for effectively monitoring compliance with recommended security and privacy standards for the 2010 filing season. We should note, however, that with one recent exception which did not have a significant effect, tax software companies have been generally reliable providers of electronic filing services. In the face of tax law changes and natural disasters, IRS has exhibited a considerable degree of resilience. After these experiences, it has also demonstrated it is able to incorporate lessons from these past disruptions into its planning and policies. IRS’s strategic flexibilities and tools to distribute leadership capabilities through the workforce and hold individuals accountable are additional ways that IRS builds its capacity for resilience. While IRS has been generally successful in the face of past disruptions, its current test and exercise strategy does not include simulations of real events through functional or full-scale exercises, which limits the ability of IRS staff to gain experience in responding to more realistic circumstances. Realistic and stressful circumstances are important to include in tests and exercises, because they build in employees the capacity to respond to the stress of actual events. At the same time, functional and full-scale exercises require greater financial and staff investment than do tabletop exercises. Accordingly, these types of tests and exercises could be done on a limited basis and the results evaluated to assess the costs and benefits before conducting them more widely. At the same time, stressful circumstances can still be included in routine drills, which affect a wider range of employees than specific planning exercises, with a lower cost and less time commitment. Furthermore, the innovation required in the face of some disruptions includes knowing how to draw on the agency’s own resources and the resources of others. This capacity cannot be achieved with simple planning exercises alone or in isolation, but requires individuals to have the opportunity to practice responding to stressful circumstances with key stakeholders. To improve the resilience of IRS operations, we recommend that the Commissioner of the Internal Revenue Service direct the appropriate officials to take the following three actions: 1. Establish a plan to conduct a limited number of functional or full-scale exercises to include IRS leadership and emergency personnel. These tests and exercises should be followed by an evaluation of their costs and benefits. Based on the evaluations, IRS emergency plans should be revised to reflect the degree to which the tests should be replicated more broadly. 2. Establish plans for the inclusion of some degree of stressful circumstances in the routine evacuation and shelter-in-place drills in which all IRS employees participate. 3. Modify test and exercise standards to include involvement of external stakeholders. We provided a draft of this report to officials at IRS for their review and comment. IRS’s comments are reproduced in appendix III. In its comments, IRS agreed with all three of our recommendations. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Commissioner of the IRS. The report also is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-6543 or steinhardtb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix IV. The objectives of this report were to define organizational resilience and its dimensions, determine the degree to which selected IRS field operations exhibit the attributes of organizational resilience, and identify challenges and opportunities to improve organizational resilience at IRS. To define organizational resilience and the attributes of resilience we reviewed academic literature from the fields of psychology, ecology, organizational and management science, high-reliability organizations, continuity, and disaster management, as well as relevant GAO and Treasury Inspector General for Tax Administration (TIGTA) reports. In addition, we interviewed 11 academic and practitioner experts—in emergency preparedness and disaster management, management and organizational psychology, critical infrastructure, and strategic planning— regarding organizational resilience. These experts were chosen based on their publications, contributions to their field, and the frequency with which other experts cited their work. Through an iterative process with the experts, we developed a list of 21 attributes related to organizational resilience. These attributes were then arranged into five broad categories: emergency planning, organizational flexibility, leadership, committed workforce, and networks. To identify the ways that the Internal Revenue Service (IRS) exhibits the attributes of organizational resilience and the opportunities that IRS has to take on additional practices which would make it more resilient we selected relevant parts of IRS, completed a document review, observed organizational meetings, and held interviews with IRS officials. The four business units of IRS were selected for review: Wage and Investment (W&I), Small Business/Self-Employed, Large and Mid-Size Businesses, and Tax Exempt/Government Entities. We selected these divisions because their work fulfills the statutory authority of IRS. Additionally, we examined the specific units and offices within IRS headquarters and functional units which support the work of the business units including the Human Capital Office, Agency-Wide Shared Services (AWSS), and Modernization Information and Technology Services (MITS) office. To learn about IRS practices which relate to organizational resilience, we reviewed GAO and TIGTA reports, IRS documents, and interviewed IRS representatives. For each of the four business units and IRS headquarters, the Commissioner or designated representatives as well as representatives from the offices of human capital and emergency planning were interviewed. For the functional unit AWSS, representatives from the offices of emergency planning, facilities management, and the Senior Commissioner Representatives were interviewed. For the functional unit MITS, representatives of relevant offices to organizational resilience, including End-User Services and Cyber Security, were interviewed. Representatives from the cross-IRS working groups of Workforce of Tomorrow, Emergency Management and Preparedness Working Group, and Security Services and Privacy Executive Steering Committee also were interviewed. Additionally, we interviewed the president of the National Treasury Employees Union. To gain perspectives on the views and working relationships of IRS employees, we reviewed survey data and observed selected meetings and offices. We reviewed IRS Employee Survey results for 2007 and 2008; IRS provided the raw data for these surveys to GAO. We determined that available data were sufficiently reliable for the purposes of this report. However, we should note that the response rate to the survey was about 60 percent, a rate which typically raises concerns about possible bias due to nonresponse. To address this concern, we reviewed IRS’s response bias analysis that had determined no adjustments were required to correct for nonrespondents. In addition, based on the average positive response rate of about 65 percent, we set a threshold for reportable positive responses of more than 80 percent and a threshold for negative responses of less than 50 percent, and selected only responses from those that exceeded these thresholds. Additionally IRS provided documentation and analysis related to the IRS Employee Engagement Index, which is based on the IRS Employee Survey data. Furthermore, we observed IRS employees at the Emergency Management and Planning Working Group monthly meetings; the AWSS-sponsored Federal Continuity Directives 1 and 2 seminar for emergency planning representatives from all IRS business, headquarters, and functional units; and the W&I call center routing center, submissions processing, and accounts management facilities. We conducted this performance audit from January 2008 to April 2009, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We assessed the reliability of data used in this report by (1) performing electronic testing of required data elements, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purpose of this report. Organizational resilience is the quality that would enable an organization to restore itself or thrive following a disruption, by which we mean a sudden and externally imposed circumstance that has the potential to substantially compromise an organization’s ability to accomplish its mission. A highly resilient organization is identified by the speed and agility it demonstrates in achieving a return to its normal state (or new normal state) and its resulting enhanced ability to respond to future disruptions. To make our definition of organizational resilience more practical and observable, we identified 21 attributes that can be placed in five related categories. We found that organizational attributes related to emergency planning, organizational flexibility, leadership, workforce commitment, and networked organizations are particularly associated with resilience and provide a useful assessment framework. These characteristics can help an organization be resilient after a disruption, but under certain circumstances, even a relatively resilient organization might not be able to recover. (See figure 3.) Emergency planning identifies disruption that could potentially affect an organization and defines and tests strategies to face disruptions. An organization that performs regular tests and exercises of their emergency plans will likely better know how to handle a real disruption. According to Federal Emergency Management Administration (FEMA) training materials, an exercise is a practice that “places the participants in a simulated situation requiring them to function in the capacity that would be expected of them in a real event. Its purpose is to promote preparedness by testing policies and plans and training personnel.” An exercise program should include long-range goals, schedules, and roles and responsibilities for executing the tests and exercises. Tests and exercises should be challenging and include a variety of scenarios. As one of our experts suggested, organizations should occasionally withhold an expected resource, which forces participants to improvise and use creativity. Aside from learning how to react to a scenario, tests and exercises are an opportunity to expose flaws in plans. After a test or exercise, participants should be debriefed and participate in a discussion about lessons from the scenario. Resulting lessons should be incorporated into revisions to plans, guidance, training or other related documents. Not implementing such changes leaves organizations vulnerable to recommitting mistakes. To demonstrate this attribute, an organization should have after-action reports from tests and exercises, and documentation of implementing changes that result from the reports. An organization that is aware of its surroundings and takes its risks and vulnerabilities into account during decision making could diminish effects of a disruption. A couple of our experts emphasized the importance of having realistic views of hazards and vulnerabilities, with one of them emphasizing the need for identifying consequences and possible solutions. Prior GAO work has defined risk management as a strategic process for helping decision makers make decisions about assessing risk, allocating finite resources, and taking actions under conditions of uncertainty. The risk management process includes setting strategic goals, objectives, and constraints; performing threat, vulnerability, and criticality assessments; evaluating alternatives; selecting an alternative; and implementing and monitoring decisions. Aside from the content and implementation of plans, it is important for an organization to have an open and participative process for creating emergency plans. This includes acknowledging and, as appropriate, including employee feedback in the planning process. Giving employees a relationship with a plan helps ensure that they are familiar with it, according to one of our experts. Evidence for this attribute could be found in rosters of participants in emergency planning sessions or membership lists of any planning committees, or documentation of any employee- initiated changes. A flexible organization that is receptive to change has a workforce that can respond to a range of disruptions flexibly and with agility. When employees have a wide breadth of expertise and the ability to work in different positions and areas of the organization, the organization has a broader array of human resources to draw on and compensate for any losses after a disruption. Employees with experience in different locations, levels, units, or occupations within an organization likely have the type of broad knowledge necessary to act quickly and fill in when an organization is lacking in resources. Breadth of expertise can be obtained through crosstraining, serving on details or rotations among different organizational units, or by having different roles through natural career progression. An organization with physical and human resources that are geographically dispersed is more likely to be resilient because of an ability to relocate operations should a facility need to close. An increased number of pathways for operating decreases the effect of a disruption at any one site. Redundancies can be physical or equipment-based, such as having a field office structure, designating alternative sites, or having storage areas for backup files or equipment that are not co-located with office sites. Redundancies can also exist in human resources, meaning that more than one employee is capable of performing a specific job should some employees be unable to work. This attribute can be demonstrated through the existence of multiple work sites and plans that identify alternative sites and backup personnel. An organization’s breadth of expertise and distributed capacity will likely be effective only if adequate assets are in reserve to support reallocating employees and resources. Specifically, an organization needs the ability to free employees, budget, and physical and technology resources during a disruption, sometimes referred to as margin. Organizations with overstretched resources and excessive workloads will likely find it difficult to shift employees, finances, or office space into alternate configurations. This attribute can be seen in looking at the organization’s workload inventory, identification of any chronic staff shortages, or assessments of how an organization works under budgetary constraints. Employees who have demonstrated an ability to think independently and use creative problem-solving skills will likely be more resourceful and able to improvise after a disruption. Organizations can encourage and facilitate the development of these skills by giving employees opportunities to propose solutions to workplace challenges, and to involve employees in identifying improvements. An organization that supports these skills may also offer related training, or it may have job descriptions or competencies for employees that set performance expectations for their ability to think creatively and apply new ideas. Similarly, the organization may recognize employees who introduce new processes and ideas with awards that are visible within the organization. An organization that resists rigidity and accepts that improvements can accompany change will likely be better able to address vulnerabilities, respond with agility during a disruption, and thrive afterwards. This includes having a tolerance for ambiguity and a willingness to keep multiple options open when faced with decisions. Rigidity or an overreliance on bureaucratic structures can increase vulnerability to disruption and can paralyze an organization during a disruption. Furthermore, after change occurs, the organization should be able to grow its competence based on increased knowledge and experience. Observing ways the organization has dealt with change or assessing the levels of employee or outside involvement in decision making can serve as anecdotal evidence for this attribute. Additional evidence might include training on change management to employees, or job descriptions or competencies for employees that set performance expectations for ability to accept change. Leaders who demonstrate respect for their employees and are accountable for results are more likely to garner the employee commitment that will be needed after a disruption. Additionally, when leadership abilities are distributed broadly through the workforce, an organization is more likely to be resilient. Leaders who understand and accommodate the needs of their employees and acknowledge a necessary work/life balance, particularly after a disruption, can increase resilience, as it is important to help resolve employees’ personal problems because of the problems’ potential to affect the workplace. As one of our experts stated, leaders should acknowledge the emotion and uncertainties that surround an event, be realistic about its effects, and have strong communication with employees. Respect could be seen in availability of support or counseling services for employees after a disruption, or through work/life balance provisions such as telework. As one of our experts said, leaders need to be empowered in a crisis to take initiative and make logical decisions without fear of punishment. This autonomy can come from a management style that encourages independent action. An organization should have provisions that enable individuals to exercise judgment, discretion, and to make and recover from mistakes, according to one expert. Rather than strictly relying on hierarchy, leaders of a resilient organization should delegate to enhance employee development and to maximize the achievement of organizational goals. This requires an awareness of employee strengths and skills. One of our experts emphasized the need to devolve authority to the employees equipped to deal with a specific situation and who know the work. Leaders must then support employee decisions by granting autonomy and providing the necessary coordination and resources. This attribute could be seen in managers’ use of horizontal teams and task forces for decision making, and managers having a knowledge and skills database to catalog special employee skills. An organization that supports continuing education, professional development, and expanded leadership opportunities will be more likely to be resilient. As one of our experts said, leaders can help employees learn to have confidence in their ability to perform a task or achieve an outcome. Competence is based on training, experience, and development of specialized knowledge, and as competence grows so does one’s ability to respond and recover from unfamiliar or challenging situations. Opportunities for employees to further their professional knowledge and experiences lead to increased confidence and competence. Organizations with mechanisms to hold individual leaders accountable for unit and organizational performance will likely have a pre-existing focus on responsibilities for organizational accomplishments that will aid in resilience. Accountability is especially important during catastrophic disasters, as it helps to ensure that resources are used appropriately. Prior GAO work has shown that performance management systems can help reinforce individual accountability for organizational results. This includes creating pay, incentive, and reward systems that link employee knowledge, skills, and contributions to organizational results. In addition, requiring and tracking follow-up actions on performance gaps and requiring follow-up actions to address organizational priorities can increase accountability. A workforce that is committed to the organization provides individual motivation to make significant personal investments and provide the organizational knowledge that may be necessary for organizational success following a disruption. An explicit alignment of daily activities with broader results helps individuals see the connection between their daily activities and organizational goals and encourages individuals to focus on their roles and responsibilities to help achieve those goals. This helps with employee accountability, but can also provide employees with a sense of purpose, both of which are an advantage for resilience. If an organization faces a disruption and employees know their roles in achieving the organization’s mission and goals, they will have organizational principles to guide their actions. Leaders can dispense and reinforce this knowledge through including specific goals in individual employee performance plans and job elements, and updating employees on progress on organizational goals. Not only should employees know their roles in the organizational mission, but if they are committed to that mission there is an increased likelihood that employees will extend themselves and give the organization momentum during a disruption. According to one of our experts, the commitment should be to the organization’s mission, not the organization itself. Thus employees’ self interest should overlap with the interests of the organization. This attribute can be observed through employee feedback and employee involvement in organization-wide initiatives. An organization that has few critical skill gaps will likely be better able to meet the daily needs of the organization and those that could arise during a disruption. Similar to having a workforce with a breadth of expertise, an organization’s employees should have some universal skill sets beyond those needed for their current duties. In the words of one of the experts we spoke with, the more skills that an employee has, the more problems they are able to see, thus enabling them to interact and intervene earlier during a disruption; if someone is lacking in skills they will likely overlook potential problems. Additionally, employees should be able to act under ambiguous and unstructured circumstances. Organizations can demonstrate this attribute by performing regular skill gap analyses and taking steps to fill any deficiencies, by providing for continuous education and career development, particularly through cross-functional assignments or training. An organization that has an alert workforce and a culture in which employees can call attention to errors will be better off during and after a disruption. According to one author, employees in a resilient organization need to seek and examine potentially disturbing information. This includes doing scans of the environment and understanding the risks and priorities of the organization; or, in the words of another expert, having a “broad horizon.” The information gathered through situational awareness and other sources helps inform the risk management process. An organization can demonstrate this attribute by providing ways for employees to report problems, and rewarding employees who identify and suggest ways to address potential problems. Solid internal and external networks can facilitate and strengthen other resilience attributes. For example, having dependable connections will likely expand and expedite an organization’s access to resources when faced with a disruption. Specifically, being aware of interdependencies, knowing when reinforcement is needed, and being able to communicate among interdependent units can give an organization an extended reach for information, resources, and advice. Furthermore, an organization’s knowledge of its supply chain interdependencies can help identify vulnerabilities, which can inform risk assessments and emergency planning. Having a plan to communicate with employees, clients, and other stakeholders in the event of a disruption will likely help an organization to acquire and share information during a disruption, and correct any misinformation. Communication with employees about the status of the organization (i.e., building closures and leave policies) and any revised expectations for performance can reduce uncertainty and help employees adjust to change. Communication with clients about any changes in service can help to manage reputations after a disruption. Communication should occur through multiple formats, and should occur through a designated official source. An organization can demonstrate this attribute by having information hotlines or Web sites ready to disseminate information, or by having a media relations public affairs office. Having connections with partners or peer organizations could also prove helpful in delivering a message. Collaboration and connections among employees can increase an organization’s resilience by decentralizing information and decision making, thereby strengthening knowledge, commitment, and problem- solving abilities. Networks throughout the organization can also help build other resilience attributes. For example, employees’ ability to connect with one other to access resources from other units or locations can increase the organization’s distributed capacity and make better use of the organization’s breadth of expertise. A collaborative and connected workforce is also more likely to be aligned and committed to the organization, according to a couple of our experts. This attribute can be observed through the presence of cross-functional working groups, classes, or information-sharing sessions. Resilient organizations need a sense of where to go if there is a disruption and no ordinary means to obtain resources, according to one expert. Both internal and external interdependencies should be assessed as part of the risk management process, and should be checked through tests and exercises. An organization can demonstrate this attribute by having contracts with backup suppliers, putting in supplier contracts expectations during a disruption, and involving internal and external entities in tests and exercises. An organization that has a network of partners and alliances with other organizations will likely have access to additional advice, help, and resources during a disruption. Partners could include peer organizations, professional organizations, government entities, or co-located organizations. In addition to providing resources to increase an organization’s margin, partners can provide employees with opportunities to build breadth of expertise through professional contacts and programs, they can provide feedback from customers, and they can give a broader perspective on emergency preparedness. This attribute can be seen in employee participation in professional organizations, employee participation in conferences or external training, or formalized agreements for resource sharing with other organizations. All of these attributes contribute to potential organizational resilience but do not ensure it, because all disruptions are individual situations and even a resilient organization may not be able to restore operations after a disruption. Furthermore, during a disruption, some attributes may prove to be more important than others. For example, we found after the 2006 flood of IRS headquarters that IRS did not activate the headquarters continuity of operations plan because of the specific conditions of the flood. Specifically, alternate work space was available for all headquarters employees within a relatively short period, reducing the importance of identifying critical personnel, a required step of continuity of operations planning. Additionally, with many attributes, there is the potential for condition where the excess of a positive attribute becomes negative. For example, too much experience with change could make employees suffer from innovation fatigue and become less open and receptive to change. In addition to the contacts listed above, William J. Doherty (Assistant Director) and Mallory Barg Bulman (Analyst-in-Charge) supervised the development of this report. Lindsay Welter, Colleen A. Moffatt, and Daniel Berring made significant contributions to all aspects of the report. James R. White and Neil A. Pinney provided expertise on tax administration. Martin De Alteriis, Beverly Ross, and Karen O’Connor assisted with design, methodology, and data analysis. Sabrina Streagle provided legal counsel. Melanie H. Papasian provided editing assistance. William Trancucci verified the information in the report. In addition, Robert Love, John F. Mortin, and James R. Sweetman made key contributions to this report. | The Internal Revenue Service (IRS) collects the revenues that fund the federal government and issues billions of dollars in refunds. Consequently, IRS's ability to demonstrate agility and speed in restoring its functions after a disruption is vital to the government and the economy. GAO (1) identified the definition and attributes of organizational resilience; (2) examined the extent to which these attributes are exhibited within IRS; and (3) reviewed the challenges and opportunities faced by the IRS in becoming more resilient. GAO gathered and analyzed the attributes of resilience based on discussions with academic and practitioner experts in the field. GAO then reviewed IRS human capital and emergency preparedness policies and strategic plans, observed campus operations and emergency working group meetings, and interviewed officials from headquarters and each of the four business units. Organizational resilience is the quality that would enable an organization to restore itself or thrive following a disruption that substantially compromises its ability to accomplish its mission. Five categories of attributes can help an organization be more resilient: robust emergency planning, flexible organizational assets that can be accessed during times of change, leadership capacity distributed through the organization, a committed and skilled workforce, and strong relationships with internal networks and outside organizations. Although each of these categories is important, the characteristics of whatever disruption an organization faces may make some attributes more valuable than others. In its emergency planning, IRS has learned from experiences requiring organizational resilience. For example, during the peak operations of the 2008 filing season, the economic stimulus legislation required that the IRS process stimulus payments totaling $94 billion. Through adjustments to the workforce, IRS was able to implement the change and delivered a generally successful filing season, while making key trade-offs. Although the IRS has learned from past events, its current test and exercise strategy is limited. Functional or full-scale exercises--which are not part of IRS's strategy-- provide more realistic conditions and a better experience to prepare the leadership and emergency personnel to contend with an actual event. Demonstrating the ways that IRS has flexible organizational assets that can be accessed during times of change, IRS strategically has made some operations redundant, which allows work to be shifted between offices when needed. The IRS has also exhibited the capability to use seasonal workers to increase its workforce after a disruption, as was the case in the support it provided to the Federal Emergency Management Agency after Hurricane Katrina. In building leadership and a committed workforce, the IRS has numerous formal training and development initiatives to build the leadership capability of both its management team as well as its non supervisory employees. While IRS employees understand how their work contributes to the IRS's goals and priorities, currently less than half of IRS employees believe that agency leaders and managers generate motivation and commitment in the workforce. A number of IRS initiatives are now in place to address this issue, including coaching of managers based on employee feedback survey data and outreach by managers to IRS employees. Lastly, IRS is highly networked both within and outside of IRS, which provides opportunities for accessing additional resources after a disruption. IRS has requirements for including internal stakeholders in tests and exercises. When IRS has involved external stakeholders in tests and exercises, it has proven useful, but this practice is neither formalized nor widespread. |
A considerable amount of federally owned or managed land lies adjacent to the international borders with Mexico and Canada. As shown in figure 1, of the total 1,900-mile United States-Mexico border, about 43 percent, or 820 linear miles, are federally owned or managed lands. Of that, the National Park Service has the largest percentage, 19 percent, or 365 linear miles, of federal land on the Mexican border. On the total 4,000 linear miles of United States-Canadian border, about 1,016 miles, or 25 percent, border federal lands. The Forest Service is responsible for the largest percentage of miles along the Canadian borderlands—about 417 miles, or 10 percent. Of the 562 federally recognized Indian tribes, 36 tribes have lands that are close to, adjacent to, or crosses over international boundaries with Mexico or Canada. In total, the federal government owns or has significant responsibility for the management of about 711 million acres of approximately 2.3 billion acres of land in the United States. Of the 711 million acres, the federal government owns 655 million acres, which include forests, parks, grasslands, arctic tundra, and deserts. The four federal agencies responsible for administering the majority of these lands are the Bureau of Land Management, Fish and Wildlife Service, and National Park Service in the Department of the Interior, and the Forest Service in the Department of Agriculture. The remaining 56 million acres is held in trust by the United States for American Indians, Indian tribes, and Alaska Natives. The Department of the Interior’s Bureau of Indian Affairs is responsible for assisting in the administration and management of these tribal lands. For this report, we refer to these five agencies as land management agencies. Each land management agency has a distinct mission and set of responsibilities. These missions involve managing the land for a variety of purposes relating to the conservation, preservation, and development of natural resources, as well as limited responsibility for land set aside for the use, occupancy, development, and governance by federally recognized tribes. Land management agencies employ different types of law enforcement officers to enforce their respective federal laws and regulations and to protect natural, cultural and historic resources; national icon parks; gas and oil pipelines; dams; and electric transmission lines. The land management agencies’ law enforcement authority generally extends to the boundaries of their respective lands. To carry out their respective missions, the Bureau of Land Management and National Park Service employ law enforcement rangers and criminal investigative agents. The Fish and Wildlife Service employs refuge officers and criminal investigative agents, the Forest Service employs law enforcement officers and criminal investigative agents, and the Bureau of Indian Affairs and tribal nations primarily employ police officers and criminal investigative agents. For this report, we refer to all these types of federal land management agency law enforcement officers as law enforcement officers. The primary mission of the Border Patrol, within U.S. Customs and Border Protection (CBP) in the Department of Homeland Security, is to detect and prevent the entry of terrorists, terrorist weapons, contraband, and illegal aliens into the United States between designated ports of entry. Other units within CBP are responsible for inspecting persons presenting themselves for entry into the United States at designated ports of entry. The Border Patrol primarily employs Border Patrol agents, whose law enforcement authority extends along the entire boundaries of the United States on both federal and nonfederal lands. The Border Patrol is organized into 21 different sectors—9 of which are along the Mexican border, 8 along the Canadian border, and 4 along Pacific Ocean and Gulf of Mexico coastal areas and Puerto Rico. While the Border Patrol is the agency responsible for border security, its mission also calls for it to work with other law enforcement agencies to prevent illegal trafficking across the borders. DHS’s U.S. Immigration and Customs Enforcement has responsibility for conducting criminal investigations of drug and alien smuggling cases, as well as processing, detaining and removing aliens apprehended by the Border Patrol. While land management agencies’ and Border Patrol’s missions are separate and distinct on federal lands near the borders, some of the issues that their law enforcement officers address can be similar. When faced with illegal activities in areas adjacent to the borders, both the land management law enforcement officials and Border Patrol agents work to prevent these illegal activities from occurring. However, differences in their missions and responsibilities may dictate different approaches and different results on federal borderlands. Both land management law enforcement officers and Border Patrol agents have the authority to carry firearms and make arrests, perform duties related to criminal investigation, and enforce federal laws and regulations. As shown in table 1, each of these five federal agencies owns or manages differing amounts and types of land and has a variety of responsibilities in managing resources on the lands. Congress has designated areas within some federal lands as wilderness under the Wilderness Act of 1964 and subsequent legislation, while the Fish and Wildlife Service has designated certain areas as critical habitat for endangered and threatened species under the Endangered Species Act. Federal law enforcement officers told us that these designations can hinder their efforts. For example, motorized vehicles must generally remain on designated roads in wilderness areas, and the Wilderness Act generally prohibits construction of permanent structures such as communications towers in wilderness areas. Exemptions can be obtained from these restrictions imposed by wilderness or critical habitat designation. The National Environmental Policy Act requires all federal agencies to analyze the potential environmental effects of major proposed federal actions that significantly affect environmental quality, including a detailed analysis of alternatives to the proposed actions. However, federal law enforcement officers told us obtaining these exemptions can be costly and time-consuming. In 1994, the Immigration and Naturalization Service, which at the time oversaw the Border Patrol, designed and implemented a national strategy to systematically regain control of our nation’s borders—that is, to restrict illegal traffic and encourage legal entrance at designated ports of entry. The strategy called for “prevention through deterrence” by raising the risk of apprehension to a level so high that prospective illegal entrants would consider it futile to attempt to enter the United States illegally. The strategy’s objectives were to close off the routes most frequently used by smugglers and illegal aliens (generally through urban areas near ports of entry) and shift traffic either to ports of entry, where travelers are inspected, or to areas that are more remote and difficult to cross. With the traditional crossing routes disrupted, the Border Patrol expected that illegal alien traffic would either be deterred or forced over terrain less suited for crossing, where the Border Patrol believed its agents would have a tactical advantage. The strategy called for the Border Patrol to concentrate personnel and technology in a four-phased approach, starting first with the sectors with the highest levels of illegal immigration activity (as measured by the number of illegal aliens apprehended) and later moving to areas with the least activity. The strategy’s four phases called for allocating additional Border Patrol resources to sectors along the borders in the following order, beginning in 1994, with no established timeframes for subsequent phases. Phase I—the San Diego sector in California and El Paso sector in Texas. Phase II—the Tucson sector in Arizona and three sectors in south Texas— Del Rio, Laredo, and McAllen. Phase III—the remaining three sectors along the southwest border. Phase IV—the northern border, gulf coast, and coastal waterways. Since the beginning of the strategy, the number of authorized positions for Border Patrol agents has increased significantly for the Mexican border. By the beginning of fiscal year 2004, these positions had risen to about 9,700 on the Mexican border, compared with about 3,400 in fiscal year 1993. The Border Patrol has completed phase I and is currently in phase II of the strategy, during which time it has been deploying resources such as agents, technology, and infrastructure into the Tucson sector. Phase II is not complete. Border Patrol officials told us that areas remain where they have not deployed significant levels of resources because of limited resources. The September 11 terrorist attacks and continued threats of future attacks have directed congressional attention to security-related issues on the Canadian border and accelerated the implementation of the Border Patrol’s strategy. The USA PATRIOT Act of 2001, passed within weeks of the September 11 attacks, authorized appropriations to triple the number of inspectors at ports of entry and Border Patrol agents along the Canadian border and to improve monitoring technology on that border. Accordingly, the Border Patrol began increasing its presence on the Canadian border. Prior to September 11, 368 Border Patrol agents were stationed along the nation’s border with Canada. By the end of fiscal year 2002, a total of 613 agents were stationed there, and by the end of December 2003, a total of 1,000 agents. Illegal aliens and drug smugglers have increasingly been entering the United States from Mexico through federal borderlands in Arizona, according to land management agency and Border Patrol officials. This situation creates challenges for land management law enforcement officers responsible for protecting employees, visitors, and natural resources—all of which face dangers from illegal border traffic. Land management and Border Patrol officials attribute the increased illegal activity on federal lands to the Border Patrol’s strategy of concentrating its resources primarily in populated areas, thus shifting much of the illegal traffic to less patrolled federal lands. The Border Patrol is beginning to address some of the effects of its strategy in Arizona by increasing resources on federal lands. In Washington, federal lands have been less affected by Border Patrol’s strategy, but officials are concerned they will continue to see increases in illegal activity as the Border Patrol concentrates more resources on more populated areas of Canadian Border. Officials from the five land management agencies and the Border Patrol told us that illegal border traffic, including drug smuggling and illegal alien crossings, on federal borderlands in Arizona has been increasing by some measures since the mid to late 1990s. Comprehensive data on drug seizures are not readily available, in part because law enforcement officers from multiple agencies, including land management agencies and the Border Patrol, make seizures on federal lands. Nevertheless, information we obtained regarding drug seizures indicates a significant level of illegal activity. For example: More than 100,000 pounds of marijuana, 144 grams of cocaine, and 6,600 grams of methamphetamine were seized on the Tohono O’odham Nation in 2003, according to its police department; whereas in the previous year, more than 65,000 pounds of narcotics were confiscated. About 19,000 pounds of marijuana were seized by the Bureau of Land Management on Bureau properties in Arizona—primarily Ironwood Forest National Monument—in fiscal year 2003, according to a Bureau official, up from about 2,600 pounds the year before. About 4.6 tons of marijuana were seized in the National Park Service’s Coronado National Memorial in 2002 and an estimated 35 tons of marijuana pass through this property annually, according to a National Park Service report. Nearly 400,000 pounds of marijuana were seized from 2000 to 2003 in National Forests on the southwest border, primarily in Arizona, according to information the Forest Service provided to Congress regarding border issues. The number of illegal aliens crossing federal borderlands appears to be increasing as well. According to the Department of the Interior, the number of illegal aliens apprehended on its lands in Arizona within 100 miles of the border increased substantially between 1997 and 2000—from 512 to 113,480—and agency officials told us the number of illegal crossers continues to increase. Because it is difficult to know the number of illegal aliens who crossed federal borderlands without being apprehended, agencies have estimated the extent of such crossings on their border properties in Arizona. For example: An estimated 1,500 undocumented aliens cross the Tohono O’odham Indian Reservation each day, according to the Tohono O’odham Police Department. Total apprehensions from October 2001 to November 2002 were 65,000—representing a 172 percent increase from the previous year. An estimated 200,000 undocumented aliens illegally entered the United States through the National Park Service’s Organ Pipe Cactus National Monument in 2001, according to the Park Service. An estimated 1,000 undocumented aliens cross the Fish and Wildlife Service’s Cabeza Prieta National Wildlife Refuge each week, according to refuge officials. Figure 2 identifies federal lands along the Arizona’s international border with Mexico, as well as the official land border ports of entry. This illegal border-related activity poses dangers to law enforcement officers, other agency employees, residents, and visitors to national parks, forests, wildlife refuges, and tribal nations. For example, in August 2002, a National Park Service officer was shot and killed on national parkland while helping Border Patrol agents pursue two men suspected in a drug- related murder. A review board examining the incident found that “Illegal smuggling activities . . . are threatening the existence of the park and the fundamental agency mission to protect its employees, visitors and resources.” In addition, law enforcement officers have been attacked on federal borderlands in Arizona, and officers and their families have been the subject of threats. In some cases, smugglers are escorted across federal lands by heavily armed scouts who are equipped with automatic assault weapons, encrypted radios, and night vision optics. Due to potential dangers, land management agencies require their law enforcement officers to wear bulletproof vests and carry assault weapons while on duty. Incidents reported on federal borderlands in Arizona include break-ins at employees’ homes, visitor carjacking, assaults, and robberies. Employees and visitors have been run off the road by smugglers traveling at high speeds. Certain federal lands can no longer be used safely by the public or federal employees, according to a 2002 report on the impacts of undocumented aliens crossing federal lands in Arizona, due to the significance of smuggling illegal aliens and controlled substances in the United States. The Forest Service reported in 1999 that it designated over 400,000 acres on one property as a “constrained area”—not safe to use or occupy because of high levels of illegal activity. People seeking to enter the United States illegally, whether on their own or accompanied by alien smugglers, also face danger. In fiscal year 2003, about 150 undocumented aliens died trying to cross Arizona borderlands— 139 within the Border Patrol’s Tucson sector, alone, which is responsible for most of Arizona’s border with Mexico. In the Tucson sector, the number of deaths associated with illegal crossings has been increasing annually since fiscal year 1999, when 29 such deaths were recorded. The majority of these immigrants succumbed to dehydration and heat exposure in remote stretches of Arizona’s western desert, often during the harsh summer months. Illegal border activity on federal lands not only threatens people, but endangered species and the land, itself. Illegal aliens and smugglers have created hundreds of new trails and roads while crossing borderlands (see figs. 3 and 4), and in doing so have destroyed cactus and other sensitive vegetation that can take decades to recover, including habitat for endangered species, according to a report on the impacts of undocumented aliens crossing federal lands. These roads and trails disturb wildlife, cause soil compaction and erosion, and can impact stream bank stability. According to the report, vehicles abandoned by smugglers are routinely found on federal lands and are not only expensive to remove, but towing them from remote areas can result in additional resource damage (see fig. 5). Tons of trash and human waste are left behind each year, affecting wildlife, vegetation, and water quality. According to the Tohono O’odham Nation, located along Arizona’s Mexican border, illegal border crossers left behind close to 4,500 abandoned vehicles in fiscal year 2002 and an estimated 4 million pounds of trash each year as they crossed over the lands (see fig. 6). According to the Tohono O’odham Nation Police Department, it removed over 7,000 such vehicles in 2003. One land management official described another federal property on Arizona’s border as so unsafe and with resources so destroyed that it is now primarily used for illegal activities and no longer visited by the legal public. The volume of illegal activities on federal borderlands poses resource challenges in addition to risks. Land management law enforcement officials told us that responding to increasing levels of illegal drug smuggling and border crossings into Arizona have diverted their staff from more traditional law enforcement activities, such as routine patrols, traffic control, and wildlife enforcement activities. Finally, illegal border activity is affecting federal lands beyond those immediately along the border and creating law enforcement challenges there. For example, a Bureau of Land Management property we visited in Arizona, Ironwood Forest National Monument, sits more than 60 miles north of the Mexican border, adjacent to the northeast boundary of the Tohono O’odham Indian Reservation, yet Bureau officials told us it shares many of the border-related problems of federal lands right on the border. (See fig. 2.) Bureau officials told us that as a result of one officer being nearly run over by illegal aliens in vehicles, as well as other assaults on officers, the Bureau requires that officers travel in patrol teams (two vehicles) to help ensure their safety. The monument’s vulnerable ecosystem, with over 600 animal and plant species—some of them endangered—has been damaged by illegal border traffic. According to Bureau officials, smugglers and other illegal aliens in route from Mexico have established more than 50 illegal roads through the monument that damage plants. In addition, the illegal aliens and smugglers have abandoned about 600 vehicles each year and leave behind waste that creates biohazards. According to land management agency and Border Patrol officials, the increased drug trafficking and illegal immigration on federal lands in Arizona, and the challenges they present for law enforcement, are a consequence of the Border Patrol’s increased enforcement efforts to deter illegal entry along other parts of the Arizona border. In fiscal year 1995, the Border Patrol began increasing the number of agents and resources it deployed to its Tucson sector in Arizona. From fiscal years 1993 to 2004, the number of Border Patrol agents grew more than sixfold—from about 280 to about 1,770 agents—in keeping with its strategy of prevention through deterrence. In addition to deploying more agents, the Border Patrol installed fencing, lighting, and remote video surveillance system sites to deter and detect illegal entry. The Border Patrol focused these resources primarily in more populated areas with a history of illegal traffic—first in the area around the Nogales, Arizona, port of entry, and later, in the areas surrounding the Douglas and Naco, Arizona, ports of entry, in response to increased illegal alien apprehensions (see fig. 2). The strategy has resulted in a reduction in illegal alien apprehensions in these areas but, according to the Border Patrol, the Tucson sector continues to experience the highest levels of illegal cross border activity of any sector in the country. In 2003, agents in the Tucson sector apprehended about 366,000 illegal aliens attempting to cross the Arizona border. Land management agency and Border Patrol officials told us that as a result of increased enforcement efforts in these areas, much of the illegal traffic has shifted to federal lands, where Border Patrol resources are fewer. Although the intent of the Border Patrol strategy is to eventually deploy enough resources to deter illegal entry along the entire state border, resources have yet to be concentrated on federal borderlands, which comprise the majority of Arizona’s border with Mexico. For example, the strategy calls for installing barriers and fencing, where appropriate, to deter illegal entry. Although the Border Patrol has installed fencing along other sections of the state’s border, the border along federal lands remains virtually wide open or marked by barbed wire fencing that is easily and frequently broken, as seen in figure 7. Furthermore, there are fewer law enforcement officers and Border Patrol agents to patrol these areas compared with other more populated parts of the border. Consequently, according to land management agency and Border Patrol officials, many undocumented aliens and smugglers who seek to enter the country illegally and evade detection have found remote, less-patrolled and unrestricted federal lands increasingly attractive. These officials are also concerned that would-be terrorists could enter this country undetected through federal lands. This is not the first time the implementation of the Border Patrol’s strategy has shifted illegal activity to other locations. Part of the strategy has been to shift illegal traffic to areas that are more remote and more difficult to cross. In 1999, we reported that implementing the strategy and deploying resources in traditionally high entry points like San Diego, California, and El Paso, Texas, had several anticipated interim effects, including shifting illegal alien apprehensions to other border locations. In 2001, we reported that in implementing its strategy in other locations along the Mexican border, the Border Patrol found many aliens risked injury and death by trying to cross mountains, deserts, and rivers in attempting to illegally enter the United States. At that time, officials told us that as traffic shifted, they did not anticipate the sizable number that attempted to enter through these harsh environments. We further reported that when the Border Patrol’s Tucson sector began increasing enforcement in Nogales, Arizona, it anticipated illegal alien traffic would shift to Douglas, Arizona, but at the time the sector did not have enough agents to simultaneously build up its agent resources in both Nogales and Douglas. During our visit to the sector in August 2003, Border Patrol officials told us that these areas remain challenging with respect to deterring illegal entry. According to land management agency officials, they were unprepared for the increased illegal border activity on their lands. They said the Border Patrol did not coordinate with them when it began implementing its strategy in Arizona. For example, the Border Patrol did not share its deployment plans nor alert land management agencies that these increased enforcement efforts in populated areas might have the effect of shifting illegal activity onto federal lands. Border Patrol officials in the Tucson sector told us they were surprised when their border strategy resulted in so much illegal activity shifting to these federal lands; rather, they had expected the remoteness and harsh conditions found across much of these areas would deter illegal crossings. Border Patrol officials told us that despite the “gravity” of problems on these federal lands, these lands have not been the sector’s priority. In keeping with its strategy, the Border Patrol’s priority has been to first focus on more populated areas where there is more illegal traffic so that they can reduce the impacts of illegal border activity on area residents. Border Patrol officials say they are taking steps to address some of the effects of their strategy in Arizona. During the spring and summer of 2003, the U.S. Attorney’s Office in Arizona spearheaded a joint effort by state; local; tribal; and federal agencies, including the Border Patrol and land management agencies; to reduce the number of immigrants who die each summer crossing the Arizona desert and cut crimes associated with smuggling. As part of this effort, the Tucson sector temporarily moved some of its agents and equipment to areas on or near several federal borderland locations in the western desert region of Arizona—Organ Pipe Cactus National Monument, Cabeza Prieta National Wildlife Refuge, and the Tohono O’odham Indian Reservation. In March 2004, as part of another joint effort to control illegal immigration and reduce migrant deaths, the Border Patrol announced plans to deploy 260 additional Border Patrol agents to the Tucson sector, including temporarily assigning 60 agents from other sectors for the summer months. According to a Border Patrol official, some of these agents—60 on temporary assignment and 75 on permanent assignment—will be deployed to Arizona’s western desert, where the vast majority of land is federally owned or managed. Overall, evidence suggests federal lands on the Canadian border have not been affected by the Border Patrol’s strategy to the extent they have in Arizona, where the Border Patrol has deployed much higher concentrations of resources. For example, the level of illegal border crossings in Washington pales in comparison to those in Arizona, based on statewide illegal apprehension data, which the Border Patrol uses as one measure of illegal activity. In 2003, the two Border Patrol sectors responsible for Washington apprehended about 2,300 illegal aliens, compared with about 422,000 illegal aliens apprehended in two Arizona sectors. Likewise, according to a drug threat assessment of Washington public lands in 2003, although there is smuggling of contraband across the Canadian border through public lands in Washington, the level of activity has resulted in very little impact to the environment. The Congressional Research Service reported in 2003 that “the southern border has seen more illegal activity over the years” than the Canadian border. (Fig. 8 identifies the location of federal borderlands in Washington, as well as designated ports of entry.) Since September 11, Congress has appropriated funds to deploy additional technology and Border Patrol agents along the Canadian border, adding about 630 more agents to bring the total number agents to 1,000. In Washington, this translates to an increase in the number of Border Patrol agents stationed in two sectors by 155 agents over fiscal years 2002 and 2003. In addition, the Border Patrol installed additional ground sensors and a remote video surveillance system covering 43 miles. Following a similar strategy employed along the Mexican border, the additional agents and technology improvements have generally been deployed to the more populated areas near the ports of entry—not on remote federal lands. In addition, since September 11, the U.S. Customs and Border Protection has shored up enforcement efforts at ports of entry by increasing the number of inspectors and deploying more technology. According to a Department of the Interior official stationed on the Canadian border, increased staffing and improvements in technology both at and near Canadian border ports of entry appear to have forced smuggling activities to more remote locations, such as the properties managed by Interior. Land management officials in Washington with whom we spoke expressed concern that as enforcement efforts increase in populated areas along the Canadian border, illegal activity—particularly drug smuggling—will continue to shift onto the more remote federal lands. According to the Interior official mentioned above, although only certain locations have experienced an increase in smuggling activity, it is only a matter of time before other Interior lands are affected, too. A Border Patrol official in Washington explained that as a result of concentrating resources around one port of entry, drug smugglers are searching for locations with the least resistance and moving their activities onto nearby federal lands. National Park Service and Forest Service law enforcement officials in Washington were concerned that if enforcement resources continue to be deployed both at and near ports of entry, remote locations—like federal lands—will continue to see an increase in illegal activity. Park Service officials in Washington consider drug smuggling across the Canadian border through federal lands to be a problem that shows little sign of slowing. Law enforcement officers there are especially concerned with the smuggling of high-quality marijuana grown in British Columbia into the United States from Canada (see fig. 9). In addition, since the September 11 terrorist attacks, the Congress and others have been particularly concerned about the potential for terrorists to enter the United States across the vast, largely unpatrolled, stretches of the Canadian border. As the Congressional Research Service recently reported, the southern border has seen more illegal activities over the years, but there has been growing concern over the insufficient number of personnel assigned to the Canadian border, the increasing level of illegal activity that takes place there, and the potential for terrorists to sneak into the United States across the Canadian border. In Washington, land management law enforcement officers also voiced concerns that would-be terrorists might enter the country through their federal lands. According to the Washington public lands drug threat assessment, the potential threat to national security is a grave concern because these borderlands serve as smuggling routes for contraband, including drugs, weapons, and currency. Land management agency and Border Patrol officials point out that a limited law enforcement presence along the Canadian border has made it difficult to assess the scope of crimes, notably drug smuggling, that occurs on the border and on federal lands. The vast mountain ranges, waterways, and often inaccessible terrain that cover much of the Canadian border only adds to the difficulties quantifying the extent of the problem. In 2000, the Department of Justice’s Office of Inspector General reported that the Border Patrol could not accurately quantify how many illegal aliens and drug smugglers it fails to apprehend because it lacked the resources to monitor the Canadian border. Even with 1,000 Border Patrol agents along the 4,000-mile Canadian border, the Border Patrol’s presence is relatively sparse compared with the Mexican border, where 9,700 agents patrol 1,900 miles. Land management agencies have received varying levels of law enforcement staffing and resource increases to address the effects of illegal border-related activity. Officials from all five land management agencies we reviewed said that staffing and resource levels have not kept pace with the increases in illegal border activities affecting their lands and have been insufficient to address the full impact of these activities. We did not independently assess their proposals or the adequacy of the funds they received. However, we discussed these proposals with representatives of the Office of Management and Budget (OMB)—the executive branch office that helps prepare the federal budget. While they declined to comment on specific budget decisions, they explained that the administration’s budget is a result of a deliberative process between agencies and OMB, during which agencies decide how to prioritize limited resources. Between September 2001 and September 2003, regarding four of the five land management agencies we reviewed, excluding Bureau of Indian Affairs, officials estimated that their combined law enforcement staffing levels declined by about 2 percent—from an estimated 2,526 full-time officers to 2,472 full-time officers nationwide. This included officers stationed in the interior of the country as well as border locations. While these four agencies collectively experienced a decline of 54 officers at the national level, law enforcement staffing levels along the Mexican border increased by about 25 officers, from an estimated 76 to 101 full-time officers. Law enforcement staffing along the Canadian border increased by about 6 officers, from an estimated 92 to 98 full-time officers for the four agencies, combined. Thus, as of September 2003, these land management agencies had about 200 law enforcement officers on the Mexican and Canadian borders, combined. Bureau of Indian Affairs officials told us that about 50 law enforcement officers were stationed on tribal lands bordering Mexico in September 2001 compared to about 47 officers in September 2003. Regarding officers stationed on tribal lands bordering Canada, Bureau officials estimated 250 and 277 law enforcement officers, respectively, over the same time period. Regarding the National Park Service, in 2000, the International Association of Chiefs of Police (IACP) conducted a study that focused on the responsibilities, capabilities, and requirements of the Park Service’s law enforcement officers and found the law enforcement function to be understaffed and under-resourced. Its review of 35 national parks found “intolerable” officer safety conditions and a diminishing capacity to protect visitors and natural resources. As such, the study recommended “an aggressive program of staff augmentation and resource leveraging initiatives,” including the addition of 615 full-time law enforcement officers nationwide—roughly the equivalent to the number of Park Service officers who do not work year round. According to the study, replacing these seasonal officers with full-time officers would almost triple the Park Service’s law enforcement capacity supplied by seasonal officers. Other assessments have focused on specific National Park Service borderland properties. For example, in 2002, at the request of the House Committee on Appropriations, the Park Service—one of four land management agencies that provided cost estimates—estimated it would need about $844,000 for law enforcement and safety and about $268,000 for maintenance and resource management to mitigate and prevent environmental damage for 1 year caused by illegal immigrants crossing through Park Service properties in southeast Arizona and to restore safe public use and management of these lands. This estimate addressed the needs of four Park Service properties affected by illegal border activity in southeast Arizona, including one directly on the border. In another border area of Arizona, a multiagency review board found that “Understaffing of has compromised employee and visitor safety, and reduced the capability of the park to protect natural and cultural resources.” Along the Canadian border, the Park Service found in 2003 that one of its parks was staffed at about half of the level needed. Its needs assessment, which included such elements as visitation patterns and trends, criminal activity, and current staffing, concluded that the park needed about 8 additional officers. In fiscal years 2003 and 2004, combined, the Park Service received an increase of about $2.4 million for law enforcement and resource protection at specific border parks along the Mexican and Canadian borders. These funds were to support the total equivalent of 25 additional full-time positions to be allocated among six parks along the Mexican border and about 8 additional officers for one park along the Canadian border. The administration’s fiscal year 2005 budget includes $1.5 million to support 18 additional full-time law enforcement positions for six Mexican border area parks and two Canadian border area parks. In 2000, in response to concerns over the noticeable deterioration of natural resources from increased illegal border traffic at Organ Pipe Cactus National Monument in Arizona, the National Park Service regional office responsible for the park conducted a review of border-related protection issues and concluded that increased staffing and a vehicle barrier were needed. However, this project was not included in the Park Service’s official 5-year construction plan at that time. In 2002, before action on the barrier was taken, a Park Service officer was shot and killed in the line of duty in Organ Pipe. According to a Park Service official, the agency subsequently raised the issue of funding for the vehicle barrier, and a congressional conference report provided $7 million in fiscal year 2003 for the first phase of the project. The administration’s fiscal year 2004 budget requested another $4.4 million for this project, which the Park Service subsequently received. In its fiscal year 2004 budget justification, the Park Service said it needed 32 miles of vehicle barrier to eliminate illegal vehicle entry from Mexico, thereby improving the safety and welfare of employees and visitors and allowing for the recovery of much of the disturbed acreage. The administration’s fiscal year 2005 budget request includes the final $6.6 million needed to complete this $18 million construction project. Regarding the Fish and Wildlife Service, IACP also conducted a nationwide study of 27 refuges in the National Wildlife Refuge System (within the Fish and Wildlife Service) in 2000, and concluded that that an increase in law enforcement officers, particularly full-time officers, was justified. Only about 10 percent of the National Wildlife Refuge System’s 602 officers were full-time, resulting in a workforce equivalent to 244 full- time officers. The report considered this level of staffing to be “modest” at a time when officer demands, including drug trafficking and illegal alien activity, were increasing. In a study focusing on southeast Arizona, the Fish and Wildlife Service estimated in 2002 that it would need about $1.8 million for law enforcement and safety expenditures and about $1.5 million for maintenance and resource management costs to mitigate and prevent environmental damage for 1 year caused by illegal immigrants crossing through three properties along the border in southeast Arizona and to restore safe public use and management of these lands. The administration’s fiscal year 2005 budget request for the Fish and Wildlife Service includes a request for an additional $3 million for the National Wildlife Refuge System’s law enforcement budget—$900,000 of which is identified for borderlands. However, according to an agency official, this is half the amount the National Wildlife Refuge System said it needed for border law enforcement. If approved, the official said these funds will be used to hire five refuge officers for the Mexican border (four to be deployed in Arizona) and two to support operations on the Gulf Coast. National Wildlife Refuge System officials told us that they developed a proposal to construct a vehicle barrier along the Mexican border of its Cabeza Prieta National Wildlife Refuge, immediately to the west of Organ Pipe Cactus National Monument. Based on the experience of how the Border Patrol’s strategy resulted in a shift in illegal traffic in Arizona, the Fish and Wildlife Service anticipates that once Organ Pipe’s barrier is in place, much of the park’s illegal border traffic will be diverted to the adjacent Cabeza Prieta refuge. Thus, to protect its own resources, the Fish and Wildlife Service wants to extend the park’s barrier onto its refuge and has said it needs $2 million in fiscal year 2005 for planning and design—the first of three project phases. The Fish and Wildlife Service estimates the project’s total cost will be between $15 million and $26 million. The administration’s fiscal year 2005 budget request does not include funds for this project. In 2002, the Bureau of Land Management, at the request of the House Committee on Appropriations, estimated it would need about $2.3 million for law enforcement and safety expenditures and about $1.5 million for maintenance and resource management costs to mitigate and prevent environmental damage for 1 year caused by illegal immigrants crossing through four properties along the border or affected by illegal border activity in southeast Arizona and to restore safe public use and management of these lands. As a result of these estimates, the House Appropriations Committee provided $2 million in fiscal years 2003 and 2004, combined, to restore these lands. After further congressional action and a rescission, the Bureau received about $1.5 million for these 2 years, combined. According to the Bureau, it has used the funds primarily to remove tons of trash and abandoned vehicles; to repair damaged fences, gates, roads and washes resulting from illegal aliens and smugglers crossing federal lands; and to increase security for crews working in remote areas and to provide emergency care for those found in distress. In fiscal year 2004, the Bureau of Land Management also received $2 million to increase protection on its lands within 100 miles of the borders. The Bureau is using the $2 million for, among other things, five additional law enforcement officers—four on the Mexican and one on the Canadian border—and to support those officers with vehicles, gear, and interagency dispatch technology to better track the location of all officers in border areas. According to an agency budget official, the Bureau has not received the $1.5 million it proposed after the September 11 terrorist attacks for increasing patrols on other remote public lands or other funding proposals to upgrade and replace firearms and radios, and procure satellite telephones and special equipment that would aid all officers, including those along the borders. Agency officials told us that, as a result, they continue to repair equipment that should be replaced. The administration’s fiscal year 2005 budget does not include any funding for the Bureau’s borderlands. Regarding law enforcement on tribal lands, the IACP held a summit in 2001 on improving safety and issued numerous recommendations that included increasing funding for tribal law enforcement. That same year, the National Institute of Justice issued a report citing existing research that suggested tribes have relatively fewer officers compared to non- Indian communities, but that this comparison may underestimate needs because the violent crime rate for tribal lands is about two and half times the rate for the nation. Regarding tribal lands, the Tohono O’odham Nation Police Department estimated it spent about $3.4 million in fiscal year 2003 on activities directly related to illegal border activity on its land. This included processing drug smuggling cases, towing stolen vehicle abandoned by smugglers, investigating deaths and homicides, and conducting autopsies. According to Tohono O’odham officials, the Nation wants to recoup these costs, either through direct funding to the Nation, or through responsible law enforcement agencies. The administration’s fiscal year 2005 budget includes $1.4 million specifically for law enforcement for the Tohono O’odham Nation. According to Bureau of Indian Affairs officials, this amount will not cover the annual cost of addressing the Nation’s border- related problems. The officials also noted that the St. Regis Band of Mohawk Indians of New York, located on the Canadian border, has serious, longstanding illegal activity that is border-related. The St. Regis Band of Mohawk Indians has said it needs $600,000 for its tribal police department, but the administration’s fiscal year 2005 budget does not include such funding. The Forest Service estimated in 2002 that it would need about $2.6 million for law enforcement and safety expenditures and more than $12 million for maintenance and resource management costs to mitigate and prevent environmental damage for 1 year caused by illegal immigrants crossing through a national forest in southeast Arizona and to restore safe public use and management of this property. Officials said they developed funding proposals for, among other things, a border security coordinator, on-site DHS liaisons for the Canadian and Mexican borders, and an image- based remote sensing system to be placed along national forest border locations. However, the administration’s fiscal year 2005 budget for the Department of Agriculture does not include such funding. OMB representatives said that some of the funding land management agencies have proposed has not been consistent with their missions. OMB representatives explained that when considering agency requests for funding, they focus on each agency’s mission and how requests relate to mission. OMB staff indicated that they view the construction of vehicle barriers along federal properties to be primarily in keeping with the Border Patrol’s border security mission and generally not land management agencies’ mission. The administration’s budgets for fiscal years 2004 and 2005 requested funds for the National Park Service to complete a vehicle barrier initially funded in fiscal year 2003 as specified in the conference report to the Department of the Interior appropriations act for 2003. However, the administration’s fiscal year 2005 budget did not request funds for the Fish and Wildlife Service to begin constructing a similar vehicle barrier on its neighboring property. From the land management agency officials’ perspective, the distinction between border security and resource protection is not always clear. In the case of barriers, both the Park Service and the Fish and Wildlife Service consider vehicle barriers for their Arizona properties necessary to carry out their mission of protecting resources and people—not to perform a border security mission. Although enhancing the coordination of law enforcement activities along the Mexican and Canadian borders is a goal of DHS at the department level and of the Border Patrol, at the agency level, broad strategic coordination and information sharing has been minimal. Land management agency and Border Patrol officials have made efforts to improve coordination of law enforcement resources on federal lands in Arizona and have identified issues, such as Border Patrol’s access to environmentally sensitive federal lands, that can be worked on in a collaborative manner. Despite these efforts, land management agencies told us about instances in the field where coordination could be improved. As a result of limited coordination, land management agency and Border Patrol officials told us that threats may not be fully assessed, limited funds may not be efficiently used, and deployment of personnel and other resources may be inefficient or negatively affect other agencies. DHS’s first departmentwide strategic plan, issued in February 2004, includes objectives to “Secure our borders against terrorists, means of terrorism, illegal drugs and other illegal activity…” and to “Ensure national and international policy, law enforcement and other actions to prepare for and prevent terrorism are coordinated.” The plan states that DHS “…will effectively coordinate and communicate with other federal agencies; and, state, local and tribal governments; the private sector, and the American people. Increasing and coordinating information sharing between law enforcement, intelligence and military organizations will improve our ability to counter terrorists everywhere.” In keeping with the broad-based plan citing coordination among federal agencies as a goal, Border Patrol officials said that more detailed documents—such as the Border Patrol strategic plan and implementation plans—will specify detailed instructions and action items regarding which agencies are involved and how these agencies are to coordinate their efforts. According to Border Patrol officials, they plan to eventually add a component to their strategic plan, which focuses on coordinating its activities with land management agencies on federal borderlands. However, as of May 2004, the Border Patrol strategic plan and implementation plan were not yet issued. Federal land management agencies have stated the need for, and importance of, enhancing the coordination of law enforcement activities with DHS generally and Border Patrol in particular. For example, Interior’s May 2003 draft International Border Coordination Strategy emphasizes that that coordination with DHS is vital, and states, “DOI’s [Department of the Interior’s] strategy of protecting the integrity of its borderlands involves close cooperation with the Department of Homeland Security….Overall, it is DOI’s intention to work closely with all relevant and affected parties in the formulation and implementation of a realistic, responsive, and effective strategy that responds to the challenges presented by illegal activities on its borderlands.” In addition, an Agriculture Inspector General’s report, dated January 2003, emphasized cooperative efforts and concluded, “…the Forest Service should coordinate with DHS to play a more active role in improving security on the Nation’s borders. Until DHS is fully staffed and operational, the Forest Service needs to actively participate with U.S. Customs and the U.S. Border Patrol in developing a cohesive, multiagency strategy for securing U.S. borders. Such a strategy would make the most efficient use of available Forest Service resources.” Generally, Forest Service headquarters and field officials agreed that a multiagency strategic approach is vital to improving border security. However, DHS, Interior and Agriculture officials told us that as of March 2004, agencies had not yet coordinated their strategies or developed a broad interagency approach at the national level to combat illegal activities along federal borderlands. Our review found several areas where coordination and information sharing among Border Patrol and the land management agencies was minimal at both the Mexican and Canadian borders. For example, in the area of intelligence sharing, the Border Patrol did not coordinate with land management agencies on some matters of concern to the agencies. For example, while the Border Patrol has developed threat assessments in 2003 for areas along the Mexican and Canadian borders, many of which include vast areas of federal lands, Border Patrol officials told us that they have not shared these documents with the relevant land management agencies, nor worked with them in developing these assessments. None of the land management agency officials we interviewed during our audit site visits to Arizona and Washington were aware of the existence of Border Patrol’s threat assessments, which included detailed assessments of their respective lands. All these land management officials told us that they would have liked to participate in the development of the threat assessments of their lands so that they could be better informed of intelligence related to incidents taking place on their lands and reports of potential threats. Additionally, they believed that they had particular knowledge of the terrain, infrastructure, and reports of illegal activities on their own lands that might be relevant to the Border Patrol’s threat assessments. In addition, federal land management officials said that their agencies’ incident reports might have been useful to the Border Patrol in preparing the various threat assessments. Moreover, Border Patrol officials responsible for the threat assessments told us that they did not consult with any land management agencies in developing the assessments and that they did not know of any Border Patrol sector officials who had asked neighboring land management agencies for input. Most of the threat assessments for sectors along the Canadian and Mexican borders do not list land management law enforcement agencies under their listing of law enforcement agencies in their respective geographic areas. As one land management official pointed out, in his opinion, this oversight is an indication that the Border Patrol does not coordinate its activities with law enforcement agencies and does not see them as full partners in federal law enforcement efforts. When we asked about this omission, Border Patrol headquarters officials told us that future iterations of the threat assessments will be more inclusive of other federal law enforcement agencies with jurisdiction in the areas of interest, including land management agencies. They added that the land management agencies have valuable insights about protecting border areas, and the Border Patrol would be willing to coordinate with them in the future. In the area of funding, land management agencies did not coordinate the funding, planning, and construction of an infrastructure project—namely, a vehicle barrier—that could help protect neighboring federal properties. National Park Service officials said that they were aware that constructing a vehicle barrier along Organ Pipe Cactus National Monument would shift more illegal traffic to their neighbors—the Fish and Wildlife Service’s Cabeza Prieta National Wildlife Refuge to its west and the Tohono O’odham Indian Reservation to its east—but did not inform these parties of their plans to construct the barrier until after their plans were underway. Similarly, the Park Service did not inform Forest Service officials at the Coronado National Forest about Park Service plans to construct a vehicle barrier at the Coronado National Memorial and that, as result, illegal traffic would likely shift to the Coronado National Forest (see fig. 10). According to Department of the Interior officials, the Park Service did not adequately coordinate with officials from the parks’ neighboring federal lands, and the idea of developing a coordinated funding proposal for a barrier that would extend onto neighboring federal lands was never considered. In March 2004, in order to protect the Nation from increasing border crime, the Tohono O’odham Nation passed a resolution to support the construction of a vehicle barrier extending from the adjacent Organ Pipe property across the Nation’s border with Mexico. Thus, as one land management agency official pointed out, agencies are in effect proposing one long barrier in a piecemeal manner. The official noted that all these neighboring properties need protection, and the boundaries separating them are arbitrary. OMB staff told us that they encourage agencies to coordinate funding proposals with each other when programs or activities are closely related to help ensure the most efficient use of taxpayer dollars. Although such coordination is not mandated, they said they look favorably on such efforts during the budget formulation process and would expect agencies to coordinate interrelated projects along the borders in future budget proposals. In the area of staffing, Border Patrol and land management agency officials told us that they have never coordinated their deployment plans to explore the possibility of staffing efficiencies. In Arizona, there has been very little coordination or planning between the Border Patrol and land management agencies, even as border agencies’ staffing levels have increased in recent years. The Border Patrol did not consult with land management agencies or share its deployment plans for the additional 400 agents it received in 2003—some deployed to areas near federal lands along the Canadian border. Since the summer of 2003, land management agency officials and Border Patrol officials have been meeting to improve coordination among the federal agencies, and we attended some of these meetings. The meetings were held to identify issues that can be worked on in a collaborative manner to better accomplish their missions, particularly in Arizona. Agency officials involved in this effort told us that a congressional inquiry regarding the Border Patrol’s inability to access and effectively patrol certain federal lands in Arizona was the primary impetus for these interagency meetings. Department of the Interior officials told us they also plan to hold meetings with land management agency and Border Patrol officials at various Canadian border locations in the future. In addition, the Border Patrol officials told us that they have sponsored meetings with border tribal police departments in 2002 and 2003 to strengthen the law enforcement partnerships on tribal lands adjacent to the Mexican and Canadian borders. As a result of these interagency meetings, the Border Patrol and land management agencies are working towards increasing Border Patrol’s access to environmentally sensitive federal lands and began a 1 year pilot project in November 2003. The Buenos Aires National Wildlife Refuge, which is located along the Arizona border and has critical habitat areas but no designated wilderness areas, has struggled for several years to combat illegal activities across its land, according to the refuge manager. The Border Patrol is using all terrain vehicles and horse patrols as alternative methods to patrol the refuge in environmentally sensitive areas. After 1 year, this pilot project will be evaluated to see if it should be continued or expanded. According to a refuge official, while the Border Patrol has always had some presence on the refuge, the number of Border Patrol agents on the land has increased since the pilot project began. To address issues regarding access to federally protected areas, such as wilderness areas, the Interior Deputy Assistant Secretary for Law Enforcement and Security, in February 2004, asked the department’s Solicitor to review various legal issues on a national scale regarding the Border Patrol’s access to federal lands. Currently, land managers use applicable environmental regulations and statutes to determine access and their interpretations can vary. Border Patrol officials told us the lack of consistent determinations of their access to federally protected lands has been frustrating. According to the Deputy Assistant Secretary, he has asked for the Solicitor’s guidance and legal opinion to assist Interior land managers in developing a consistent, departmentwide approach when responding to Border Patrol requests for increased access to protected federal lands. In commenting on our draft report, Interior officials told us that the Solicitor’s Office had issued a letter to CBP’s Office of the Chief Counsel in May 2004 that addressed, in part, one of the legal issues raised by the Deputy Assistant Secretary. The letter outlined Border Patrol’s statutory authority to manage interdiction and related cross-border traffic issues on federal lands in Arizona on a 60-foot strip along the international border between the United States and Mexico. However, Interior officials told us that other issues involving Border Patrol access on federally protected lands, such as wilderness areas and federal lands along the Canadian border, are being handled on a case-by-case basis. A representative from the Solicitor’s Office explained that since the laws and regulations were not the same for every federally protected land, determinations about the extent of Border Patrol access to those federal lands can vary, and a “common legal blueprint” is not possible. For example, the representative told us they were drafting three individual memorandums of understanding between CBP and Interior regarding Border Patrol access for three separate federal lands in Arizona. Interior and the Border Patrol have each designated border coordinators to support interagency coordination efforts. According to Forest Service officials, the Forest Service would like to also have a full-time border coordinator, but due to funding constraints, has assigned coordination tasks to an officer as one of several responsibilities. To help resolve land management officials’ environmental resource protection-related concerns, Interior and Border Patrol coordinators have facilitated meetings in the field with land management and Border Patrol officials in Arizona. Forest Service officials have attended Interior and Border Patrol’s coordination meetings at the headquarters level, but have limited staff available to participate in meetings, especially at the field level. Forest Service officials told us that they believe these meetings are important, and by not participating in them, they may be unaware of plans affecting their lands. In addition, DHS officials, with the assistance of Interior officials, have drafted a declaration of principles to guide interagency efforts to enhance border security and control and prevent environmental degradation and lessen the threat of danger on land managed by Interior caused by illegal cross-border traffic. As stated in the December 2003 draft, DHS and Interior will work together on legislative initiatives, regulations, and funding initiatives to support mutual goals. An Interior official said the declaration is intended to provide the national guidelines and that probably officials in the field would develop more detailed and site- specific guidelines to direct interagency efforts in the field. As of March 2004, the draft declaration had not been finalized by DHS or Interior. Although broad strategic coordination has been minimal, DHS Border Patrol and the land management agency officials told us during visits to Arizona and Washington about numerous instances where law enforcement efforts were coordinated at the field level among federal agencies. For example, at the field level, land management agency and Border Patrol officials worked together to allow Border Patrol agents to use horses to patrol a wilderness area close to a major smuggling route to which they would otherwise not have access. In order to allow the horses in a wilderness area, the Border Patrol fed the horses a special diet to ensure that the horses’ manure would not introduce nonindigenous plant species. In another case, one land management law enforcement officer was providing training to some newly assigned Border Patrol agents. The training included an orientation of the area, including restricted access areas, and environmentally sensitive areas of the land. Another field land management official told us of being added to the Border Patrol’s distribution of intelligence reports so that the official could be better informed of events taking place in and around the federal lands. The official told us that these intelligence reports contain information on drug seizures, suspicious vehicles, or reports of suspicious activities in the area, which was useful in identifying vulnerable areas along the border. Border Patrol officials in Arizona described another case of how coordinated efforts can benefit both of the agencies involved. The Border Patrol set up “camp details” on the Tohono O’odham Indian Reservation as part of broader, multiagency effort to reduce migrant deaths in the summer of 2003. According to Border Patrol officials, as a result of these agents camping out on tribal land during the summer months, the Nation saw a 60-perecent decline in illegal activity and a 40-percent reduction in medical cases referred to the Nation’s hospital. This enforcement approach proved less intrusive than the Border Patrol’s more traditional enforcement efforts. Despite these examples of coordination, land management agency officials also told us about instances where coordination efforts could be improved at the field level. For instance, one land management official told us that significant officer and visitor safety concerns were raised when the Border Patrol did not alert federal land management officials of an impending special enforcement operation the Border Patrol executed on their land. The special enforcement operation included armed and camouflaged Border Patrol agents conducting clandestine surveillance operations on a federal land without alerting the land management agency. After hearing reports of suspicious activity, the land management law enforcement officers approached the Border Patrol agents, fortunately without incident. The land management agency official told us that both land management agency employees and visitors could have potentially been at risk because of this lapse in communication. Law enforcement officer and visitor safety concerns were also elevated when land management officials were not notified of a Border Patrol temporary checkpoint set up a short distance from a federal land near a heavily used smuggling trail. As a result, illegal traffic was diverted into other parts of the federal land, thus increasing potential encounters with unsuspecting law enforcement officers. A land management official from another agency told us that the Border Patrol did not coordinate when planning the deployment of infrastructure such as towers for remote video surveillance cameras on another federal land. The same official said that they may have been able to help expedite the necessary environmental requirements required to place these infrastructure on or near federally protected lands. Given the enormous law enforcement challenges along the borders, the increased awareness about the threat of terrorists entering the country, and the need to maximize the effectiveness of limited government resources, it is critical that the Border Patrol and land management agencies closely coordinate their efforts to ensure that appropriate strategies and best use of limited resources are developed to respond to increased illegal border activity—in populated areas as well as rugged wilderness. Sharing information regarding threats, daily operations, funding plans for infrastructure and technology enhancements, and short- and long-term deployment plans, are all essential to maximizing efficiency and keeping all affected parties apprised of important information affecting them. Officials from all the agencies we reviewed agree that coordinating with each other is essential in carrying out their responsibilities and that they each bear some responsibility in ensuring this takes place. The Border Patrol does not currently have the resources to control the borders in their entirety, nor do land management agencies have the resources to always enforce applicable laws or fully protect employees, visitors, and natural resources. In addition, no single department has responsibility for setting federal priorities for all lands located along the borders—for example, deciding whether concentrating on reducing illegal immigration in the most populated areas of the border or protecting resources on federal lands is the more immediate need. It is too soon to know whether the development of the Border Patrol’s strategic plans at the national level, or a pilot project at the field level, will mean more effective law enforcement for all parties, but these appear to be steps in the right direction. However, without a coordinated, interagency approach along the Mexican and Canadian borders that takes into account a broader federal perspective, individual federal agencies will continue to consider and fund only their own priorities. To help ensure that federal law enforcement resources are being effectively focused on the areas of greatest need along the Mexican and Canadian borders, we recommend that the Secretaries of Homeland Security, the Interior, and Agriculture require their respective law enforcement components to consult with each other when developing their strategic plans and accompanying implementation plans and to ensure these plans establish, at a minimum, goals regarding the following: Coordinating the development and sharing the results of threat assessments and other risk assessments of border areas encompassing federal lands. Coordinating the development of plans for infrastructure and technology improvements to be placed on or near federal lands. Coordinating and sharing information about changes in the number and uses of law enforcement personnel on or near federal lands and the potential consequences for all the agencies. We requested comments on a draft of this report from the Secretaries of Agriculture, Homeland Security, and the Interior, as well as the Attorney General and the Director of the Office of Management and Budget. The Chief of the U.S. Forest Service responded for Agriculture and concurred with our findings and recommendations. The Forest Service said that as border initiatives take place at or near federal lands, it looked forward to more dialogue with the Department of Homeland Security. The Forest Service’s comments are reprinted in appendix II. DHS agreed with our overall observations and recommendations and said that it was taking steps to address issues raised in this report. To improve coordination between CBP and land management agencies, CBP stated that it was holding ongoing meetings to discuss how to share threat assessments, strategies and infrastructure plans, and changes in the number and uses of law enforcement personnel on or near federal lands. Further, officials from CBP and the land management agencies were meeting to develop memorandums of understanding regarding specific federally protected lands in Arizona to establish agencies’ law enforcement access and define roles and responsibilities. While we are encouraged by CBP’s ongoing and planned actions in some areas, these actions are not fully responsive to our recommendations. We are recommending that the agencies’ strategic plans and accompanying implementation plans establish, at a minimum, goals regarding the sharing of threat assessments, coordination of plans for infrastructure and technology improvements on or near federal lands, and sharing of information about changes in the number and uses of law enforcement personnel on or near federal lands. While we acknowledge CBP’s efforts to coordinate operations along the Mexican border in Arizona should have significant benefits, we continue to believe that specific goals in their strategic plans need to be established to institutionalize this interagency coordination and to help ensure that coordination is not episodic or limited to one border area. DHS’s comments are reproduced in appendix III. The Department of the Interior said that, in general, it agreed with the findings and recommendations in the report. It noted that since our audit work was completed, the Solicitor’s Office has taken some steps to address land managers’ concerns about how to respond to the Border Patrol’s requests for access to federally protected areas, such as wilderness areas. The Solicitor’s Office has determined that a “common legal blueprint” to guide land managers’ response to requests for Border Patrol access to protected lands is not often possible; rather they have begun working with staff from CBP’s Office of the Chief Counsel to address these issues on a case by case basis. Interior officials also provided technical comments on the report, which we incorporated as appropriate. Interior’s comments are reproduced in appendix IV. The Attorney General, U.S. Department of Justice, said that overall it found our report to be accurate. Justice also commented on the Federal Bureau of Investigation’s (FBI) responsibilities related to several criminal violations occurring on or near the border areas. The FBI’s jurisdiction includes violations occurring on federal reservations and tribal lands, as well as assaults on federal law enforcement officers, and drug and alien smuggling violations. Accordingly, Justice suggested that any strategic planning on the part of the Border Patrol or land management agencies include affected FBI field and headquarters offices so that FBI staff can be prepared for any shift in illegal activities in their area of jurisdiction. Although the FBI’s role and responsibilities regarding border security was outside the scope of this report, we would support the inclusion of the FBI in strategic planning activities among federal agencies in border areas. We received oral comments from representatives of OMB's Resource Management Office and Office of General Counsel on May 26, 2004. These representatives generally agreed with our findings and recommendations. In addition, they noted that the Border Patrol is the federal agency with primary responsibility for securing the borders and, as such, it has received significant funds to carry out this responsibility. Our report discusses the roles and responsibilities of the Border Patrol, and the considerable law enforcement challenges faced by land management agencies in protecting resources and people from illegal border traffic. Because these agencies share law enforcement responsibilities along the borders, it is important that agencies coordinate their efforts to ensure the best use of federal resources. OMB representatives also provided technical comments, which we incorporated into our report as appropriate. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies of this report to interested congressional committees and subcommittees. We will also make copies available to others on request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staffs have any questions about this report or wish to discuss the matter further, please contact me at (202) 512-8777 or Michael Dino at (213) 830-1000. Additional contacts and key contributors to this report are listed in appendix V. We reviewed law enforcement challenges facing federal land management agencies that protect assets along the Mexican and Canadian borders. Specifically, this report discusses law enforcement challenges land management agencies face along the international borders in Arizona and Washington, the resources federal land management agencies and tribal nations have received to address border-related law enforcement challenges on federally managed lands, and how the Border Patrol and federal land management agencies coordinate their law enforcement efforts along the Mexican and Canadian borders and steps taken to meet joint challenges. To identify law enforcement challenges land management agencies face along the international borders in Arizona and Washington, we reviewed relevant reports and agency documents regarding the Border Patrol’s strategy and, more broadly, reviewed relevant reports regarding federal agencies’ law enforcement challenges nationwide, and specifically in border areas. In August and September 2003, we visited various federal lands in Arizona along the Mexican border and in Washington along the Canadian border because these areas had experienced the highest levels of illegal activities for each border. When visiting these federal lands, which included national parks and monuments, national forests, tribal lands, and wildlife refuges, we interviewed federal land management field and law enforcement officials and reviewed agency documents. We also toured these lands where we observed, among other things, environmental damage and a lack of barriers or fencing along international borders. During our field visits, we interviewed Border Patrol sector officials responsible for federal lands, and in Arizona, we interviewed the U.S. Attorney regarding his involvement in efforts to coordinate federal and other agencies with interests along the border. Additionally, we interviewed headquarters officials and analyzed agency documents from Interior’s Office of Law Enforcement and Security, as well as the individual bureaus—Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, and National Park Service. We also interviewed officials and analyzed documents from the Department of Agriculture’s Forest Service Office of Law Enforcement and Investigations and Department of Homeland Security’s Border Patrol. As a measure of illegal activity, we cite Border Patrol data on the number of illegal aliens agents apprehended, which were compiled from a system used to process, detain, and remove the aliens. To assess the reliability of these data, we interviewed agency officials knowledgeable about the data and determined that they were sufficiently reliable for the purposes of our report. To determine the additional resources land management agencies received to address border-related challenges, we interviewed headquarters budget officials and analyzed budget-related documents. We did not independently assess their proposals or the adequacy of the funds they received. We interviewed representatives from the Office of Management and Budget to obtain their views on various budget issues. Regarding the land management agencies’ staffing data, each agency provided estimates on the number of law enforcement staff on-board nationwide and the number stationed on federal borderlands for September 2001 and September 2003; estimates were used because precise data for these timeframes were not always available. To assess the reliability of these estimates, we interviewed agency officials knowledgeable about the data and, where available, reviewed existing reports about the data. We determined that these data were sufficiently reliable for this report. We reviewed reports regarding land management law enforcement staffing that were prepared by the Department of the Interior’s Office of Inspector General, the Department of Justice’s National Institute of Justice and Bureau of Justice Statistics, and the International Association of Chiefs of Police. We reviewed these reports’ findings as well as their methodologies and found that they were sufficiently reliable for the purposes of our report. To determine the extent that Border Patrol and federal land management agencies coordinated their law enforcement efforts along the Mexican and Canadian borders, we conducted site visits to Arizona and Washington to interview field officials from land management agencies and the Border Patrol. We interviewed headquarters officials and reviewed documents from the land management agencies and Border Patrol, including the Border Patrol Special Coordination Center. Furthermore, we reviewed these agencies’ documents regarding their strategies, threat assessments, deployment plans, interagency agreements, and procedures and policies as they relate to law enforcement programs, and specifically border-related activities. In order to assess ongoing interagency coordination efforts, we attended several meetings between land management agencies and Border Patrol from September 2003 through March 2004, and interviewed staff from DHS’s Border and Transportation Security Directorate. Additionally, we interviewed Interior’s and Agriculture’s Inspector General staff and reviewed relevant Inspector General reports. For the background section of the report, we relied on the Department of the Interior’s U.S. Geological Survey and the Department of Agriculture Forest Service’s Geospatial Service and Technology Center data to determine the number of linear miles of federal lands along the borders (see fig. 1). The U.S. Geological Survey data were developed by using maps with a scale of 1:2,000,000 and included federal lands as of July 2001. The Geospatial Service and Technology Center data were reported as of July 2003 and estimated to be accurate to plus or minus 3 percentage points. Since these data were used for background purposes, they were not verified. In this report, we did not include some of the land management agencies’ significant law enforcement activities because we determined they were not within the scope of this review. For example, we did not include the Bureau of Reclamation or the National Park Service’s U.S. Park Police within the Department of the Interior because they do not have significant amounts of property that lie on or near the Mexican or Canadian borders. Furthermore, the Fish and Wildlife Service’s law enforcement programs for inspection activities at the ports of entry, in part, to monitor wildlife imports and exports, were determined to be outside the scope of this review. Although we include some data on federal land management agencies and their law enforcement programs nationwide, our review focused primarily on the law enforcement programs and activities near the Mexican and Canadian land border areas, excluding the Alaska-Canada border. Regarding the Border Patrol, while it has responsibility over the coastal areas near the Pacific and Atlantic Oceans and Gulf of Mexico, we limited our review to those activities on or near the Mexican and Canadian land border areas. We conducted our work from July 2003 through March 2004 in accordance with generally accepted government auditing standards. In addition to the above contacts, Nancy Kawahara, Lori Weiss, and Gary Stofko made significant contributions to this report. Leo Barbour, Amy Bernstein, Michele Fejfar, and Nancy Finley also made key contributions to this report. | Since the mid-1990s--and especially since September 11--the government has focused attention and resources on preventing illegal aliens, drug smugglers, and potential terrorists from entering the United States across its land borders with Mexico and Canada. The Border Patrol is responsible for protecting the nation's borders. However, a significant portion of the borderlands are federal or tribal lands managed by the Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, National Park Service, and Forest Service. Realizing the importance of coordinating federal law enforcement efforts, GAO agreed to assess: (1) border-related law enforcement challenges for land management agencies in Arizona and Washington, (2) resources land management agencies have received to address these challenges, and (3) how the Border Patrol and land management agencies coordinate border-related law enforcement efforts. Illegal border activities, including alien border crossings and drug smuggling, on federal and tribal lands in Arizona have been increasing since the mid-to late-1990s, creating law enforcement challenges for land management agencies. This situation poses dangers to law enforcement officers, visitors, and employees and damages fragile natural resources. Rising illegal activity on these federal lands results from the Border Patrol's strategy to deter illegal entry by concentrating resources in populated areas--thus shifting illegal traffic to more remote federal lands, where Border Patrol has placed fewer resources. Although the problem is less acute along the Canadian border, land management agency officials in Washington are concerned that as the Border Patrol increases resources in populated areas, more illegal traffic will shift to remote federal lands. Officials from the five land management agencies believe their resource levels have not kept pace with increases in illegal border activities on their lands. Agencies have sought more federal funds to address these problems and have received varying levels of law enforcement staffing and resource increases. According to Office of Management and Budget representatives, agency funding is mission-driven. Thus, land management agencies' proposals for certain border projects have not been included in the administration's fiscal year 2005 budget because they were considered to be more in keeping with the border security mission of the Border Patrol. At the national level, interagency coordination of strategic plans and activities among Border Patrol and land management agencies is minimal regarding the Mexican and Canadian borders. Thus, limited funds may not be used most efficiently, and the impact of one agency's actions on another agency may not be considered. As of May 2004, the Border Patrol had not issued detailed plans to ensure that interagency coordination occurs, nor had it coordinated with land management officials regarding funding for infrastructure and technology improvements. Some coordination had occurred at the field level, as officials from the various agencies had begun meeting to improve operations and to share threat assessments in Arizona. |
The widespread use of U.S. currency abroad, together with the outdated security features of the currency, makes it a particularly vulnerable target for international counterfeiters. According to the Federal Reserve, the proportion of U.S. currency in circulation abroad has increased from 40 percent in 1970 to over 60 percent today. High foreign inflation rates and the relative stability of the dollar have contributed to the increasing use of U.S. currency outside the United States. And, in fact, the United States benefits from this international use. When U.S. currency remains in circulation, it essentially represents an interest-free loan to the U.S. government. The Federal Reserve has estimated that the U.S. currency held abroad reduces the need for the government to borrow by approximately $10 billion a year. Despite this benefit, its increasing international use has made U.S. currency a target for counterfeiting. Furthermore, with the exception of two changes introduced in 1990, the security features of the currency have not substantially changed since 1929, which has resulted in the U.S. dollar’s becoming increasingly vulnerable to counterfeiting. (See fig. 1 for the existing security features of the currency.) Congressional groups and the media have continued to highlight their concerns that the counterfeiting of U.S. currency abroad is becoming an increasingly serious problem. Concerns about counterfeiting abroad were heightened in 1992 with the issuance of the first of two reports by the House Republican Research Committee’s Task Force on Terrorism and Unconventional Warfare. These reports charged that a foreign government was producing a very high-quality counterfeit note, commonly referred to as the Superdollar, to support terrorist activities. In 1993, the House Appropriation Committee’s Surveys and Investigations staff completed a report on the Secret Service’s counterfeiting deterrence efforts and briefed the House Appropriations Committee. In the same year, a bill—the International Counterfeiting Deterrence Act—was introduced to address international counterfeiting and economic terrorism; however, it was not passed. The Secretary of the Treasury is responsible for issuing and protecting U.S. currency. Treasury, including the Secret Service and the Bureau of Engraving and Printing, and the Federal Reserve have primary responsibilities for combating the counterfeiting of U.S. currency. The Secret Service conducts investigations of counterfeiting activities and provides counterfeit-detection training. The Bureau of Engraving and Printing designs and prints U.S. currency, which includes the incorporation of security features into the currency. The Federal Reserve’s role is to distribute and ensure the physical integrity of U.S. currency. It receives currency from financial institutions around the world and uses specialized counting and verification machines to substantiate the authenticity of all U.S. currency received. The various counterfeiting deterrence efforts are coordinated through the Advanced Counterfeit Deterrence Steering Committee, which was formed in 1982. The Secret Service is the U.S. agency responsible for anticounterfeiting efforts abroad. At the time of our work, the Secret Service primarily used its six overseas offices, three task forces, two temporary operations, and resources from six domestic offices to conduct this task. (See app. I for a description of Secret Service offices responsible for locations abroad.) Secret Service offices outside the United States typically are staffed by one to six agents. Agents working abroad are involved in the same issues as their domestic counterparts, such as detecting counterfeits, investigating financial crimes, and protecting dignitaries. However, the majority of a typical agent’s time abroad is spent on counterfeiting deterrence efforts. In pursuing these efforts, agents must rely on the cooperation of foreign law enforcement agencies and sometimes are allowed to provide only investigative support. This situation is different from that in the United States, where agents have direct investigative authority. The Secret Service also provides other staff to support international counterfeiting deterrence activities. For example, the Secret Service has assigned two Counterfeit Division staff to work with the Four Nations Group and three agents to work with Interpol—the International Criminal Police Organization. To obtain information on the nature and extent of counterfeiting of U.S. currency abroad, as well as U.S. efforts to combat this activity, we obtained views and material from (1) U.S. government agencies in the United States and abroad; (2) foreign law enforcement and financial organization officials in seven European countries, as referred to us by U.S. embassy officials; (3) Interpol officials in the United States and abroad; and (4) individuals researching the Superdollar case, including the author of the House Republican Task Force on Terrorism and Unconventional Warfare reports on the Superdollar. We performed our review in the United States, England, France, Italy, Germany, Hungary, Poland, and Switzerland. Interpol, State Department, and Secret Service officials recommended these countries for our review on the basis of their knowledge of counterfeiting abroad. To obtain U.S. government perspectives on the nature and extent of counterfeiting as well as on efforts to deter this activity, we interviewed and obtained documentation from senior Treasury officials in Washington, D.C.; Secret Service officials in Washington, D.C.; New York, New York; San Francisco, California; England; France; Italy; and Germany; and Bureau of Engraving and Printing officials in Washington, D.C. We also interviewed Federal Reserve Board officials in Washington, D.C.; Federal Reserve Bank officials in San Francisco and New York; and State Department officials in Washington, D.C., and abroad. To secure information on the extent of the problem of counterfeit U.S. currency abroad, we obtained Secret Service data on domestic and international counterfeit detections. We then reviewed the Secret Service’s counterfeit-detection data for fiscal year 1987 through fiscal year 1994. We also reviewed Interpol’s 1991 to 1993 annual reports on international counterfeiting activity. We did not independently verify the accuracy of the data that the Secret Service and Interpol provided. To gain perspective on both counterfeiting and deterrence efforts abroad, we obtained input from foreign law enforcement and financial organization officials in the countries we visited. (See app. II for a listing of foreign agencies and organizations we contacted while abroad.) In conducting our interviews, we did not pose the same questions to all officials. Thus, the responses we obtained cannot be generalized. The scope of our work was limited by a number of factors related to national security and investigative concerns. First, due to the criminal nature of counterfeiting, the actual extent of counterfeiting abroad cannot be determined. Second, since current known counterfeiting activities involved ongoing investigations, we were not able to fully explore and discuss these investigations with law enforcement and intelligence officials. Third, due to the sensitive nature of the ongoing investigation of the so-called Superdollar, we were unable to fully explore this extremely high-quality, allegedly foreign government-sponsored, counterfeiting operation. As a result of these limitations, this report is not evaluative, and it thus contains no conclusions or recommendations. This report was prepared using unclassified sources of information. The draft report underwent a security classification review by the appropriate agencies, including Treasury and the Secret Service, and was released as an unclassified report. Although they initially stated that some of the information was or should have been classified, Treasury and the Secret Service later rescinded this statement after they performed a full security classification review and we reached agreement with them on a minor revision to appendix VII. (See app. VIII, pages 66 and 67, for Treasury and Secret Service statements that the report is unclassified.) We conducted our review from September 1994 to May 1995 in accordance with generally accepted government auditing standards. In June and then again in November 1995, we updated our work on Secret Service staffing abroad. We obtained written agency comments on a draft of this report from the Departments of the Treasury and State and from the Federal Reserve. These comments are discussed at the end of this report and presented in appendixes VIII through X. The nature of counterfeiting of U.S. currency abroad is diverse, including various types of perpetrators, uses, and methods. The relative sophistication of the counterfeiter and method used results in counterfeit notes of differing quality. According to a National Research Council report requested by Treasury, the counterfeiting problem will increase as technologies improve and are made more accessible to the public. Already, the Secret Service has been troubled by some very high-quality counterfeits of U.S. currency identified as originating abroad. Perpetrators include both the casual and the professional counterfeiter. The casual counterfeiter is a person who commits the crime because it is convenient or easy to do. For example, an office worker may use a copying machine to counterfeit U.S. currency. The number of casual counterfeiters is expected to increase with the greater accessibility of and improvements to modern photographic and printing devices, according to the National Research Council report. Conversely, the professional counterfeiter may be a member of a gang, criminal organization, or terrorist group. Foreign law enforcement and Secret Service officials that we interviewed told us of suspected links between counterfeiting and organized crime. Counterfeit U.S. currency is used for economic gain and is sometimes linked to other crimes. According to foreign law enforcement and Secret Service officials, counterfeit U.S. currency is sometimes distributed in conjunction with drug trafficking, illicit arms deals, and other criminal and/or terrorist activities. Moreover, Secret Service and foreign law enforcement officials told us that counterfeit U.S. currency is now sometimes produced by counterfeiters in one country for export to another country. For example, in Milan, Italy, counterfeiting has become an industry in which counterfeit U.S. currency is produced for export, according to Italian law enforcement officials. They added that the counterfeits typically were exported to the former Soviet Union and Eastern Europe. The methods used by counterfeiters of U.S. currency abroad are the same as those used within the United States, according to Secret Service officials. Common techniques include using black and white, monochromatic, or color photocopiers; cutting and taping or gluing numerals from high denomination notes to the corners of a note of lower denomination, also known as making “raised notes”; using sophisticated computers, scanners, and laser or ink jet printers; bleaching good notes and reprinting higher denominations on the genuine paper; and using photomechanical or “offset” methods to make a printing plate from a photographic negative of a genuine note. Depending upon the sophistication of the counterfeiter and the method used, the quality of counterfeit notes can vary a great deal. The Secret Service has found good, fair, and poor quality notes for each method used. For example, a good color copier-produced note could be better than a poor ink jet-produced note. However, the offset printing method generally results in the highest quality counterfeits, whether produced abroad or domestically. (See app. III for descriptions of common methods used and some examples of counterfeit notes.) Recently, very sophisticated counterfeiters have been producing very high-quality notes using the offset process. High-quality counterfeit notes are difficult for the general public to discern, but according to Federal Reserve officials, the notes can be detected by experienced bank tellers. (See app. IV for case examples of high-quality counterfeit notes produced in Canada, Colombia, and the Middle East.) The criminal nature of the activity precludes determination of the actual extent to which U.S. currency is being counterfeited abroad. The best data available to reflect actual counterfeiting are Secret Service counterfeit-detection data. However, these data have limitations and thus provide only a limited measure of the extent of counterfeiting activities. Use of these data should be qualified to reflect these limitations so that conclusions reached using the data do not mislead. Overall, detected counterfeits have represented a minuscule amount of the currency in circulation. According to Secret Service officials, the data that they gathered was supplemented by intelligence information and field experience to demonstrate an increase in counterfeiting activity abroad. However, our analysis of the same counterfeit-detection data proved inconclusive. Moreover, foreign officials’ views about the seriousness of the problem of counterfeit U.S. currency were mixed. Foreign financial organization and law enforcement officials that we interviewed reported no significant numbers of chargebacks and few reported instances of U.S. currency not being accepted abroad. On the basis of the number of Secret Service counterfeit-detections, Treasury officials concluded that counterfeiting of U.S. currency was economically insignificant and thus did not pose a threat to the U.S. monetary system. According to Secret Service and Treasury officials, detected counterfeits represented a minuscule portion of U.S. currency in circulation. Secret Service and Federal Reserve data showed that, in fiscal year 1994, of the $380 billion in circulation, $208.7 million had been identified as counterfeit notes, a figure which represented less than one one-thousandth of the currency in circulation. However, while Treasury and Secret Service officials agreed that, overall, counterfeiting was not economically significant, they considered any counterfeiting to be a serious problem. The Secret Service reported that counterfeiting of U.S. currency abroad was increasing. It used counterfeit-detection data, supplemented with intelligence information and field experience, to support this claim. It also employed two counterfeit-detection data measures to illustrate the extent of counterfeiting abroad: (1) counterfeit-detections abroad and (2) domestic detections of counterfeits that were produced abroad. Counterfeits detected abroad are categorized as “appearing abroad,” while counterfeits detected domestically are divided into two separate categories. Domestic detections of counterfeits not yet in circulation are called “seizures,” and those counterfeits detected while in circulation are called “passes.” The Secret Service has reported a significant recent increase in detections of counterfeit U.S. currency abroad. In one analysis, it reported that the amount of counterfeit currency detected abroad increased 300 percent, from $30 million in fiscal year 1992 to $121 million in fiscal year 1993, thereby surpassing domestic detections in the same period (see fig. 2). The Secret Service has also reported that, in recent years, a larger dollar amount of the notes detected as domestic passes has been produced outside the United States. Since 1991, the dollar amount of counterfeit U.S. notes detected while in circulation and produced abroad has exceeded the dollar amount of those produced domestically (see fig. 3). In fiscal year 1994, foreign-produced notes represented approximately 66 percent of total domestic passes detected. The true dimensions of the problem of counterfeiting of U.S. currency abroad could not be determined. Treasury and the Secret Service use Secret Service counterfeit-detection data to reflect the actual extent of counterfeiting. However, although these data are the best available, they have limitations. Specifically, they are incomplete and present only a partial picture of counterfeiting. If these limitations are not disclosed, the result may be misleading conclusions. First of all, the actual extent of counterfeiting could not be measured, primarily because of the criminal nature of this activity. Secret Service data record only those detections that are reported to the Secret Service; they do not measure actual counterfeiting. As a result, the data provide no information about the number of counterfeiters operating in any given year or the size and scope of their operations. More importantly, these data could not be used to estimate the volume of counterfeit currency in circulation at any point in time. In the case of counterfeit currency appearing abroad, reasons for this include the following: (1) the data do not distinguish between how much counterfeit currency was seized and how much was passed into circulation; (2) they could not provide information about how long passed counterfeits remained in circulation before detection; and (3), most critically, they provide no indication of how much counterfeit currency was passed into circulation and not detected. Second, counterfeit detection data may in part be a reflection of where the Secret Service focuses its efforts. Use of these data thus may not identify all countries with major counterfeiting activity, but simply countries where agents focused their data collection efforts. For example, in fiscal year 1994, almost 50 percent of detections abroad occurred in the six countries where the Secret Service was permanently located. In other countries, counterfeit-detection statistics tend to be more inconsistent. For example, in fiscal year 1994, certain African and Middle Eastern countries reported no counterfeiting activity to the Secret Service. This lack of reported detections, however, does not necessarily indicate that counterfeiting activity did not occur in these countries. Third, detection data for high-quality notes may be underreported. The Secret Service has said that, because so few Superdollars have been detected, this indicates that there are not many in circulation. However, according to the Task Force on Terrorism and Unconventional Warfare report, the majority of Superdollars are circulating outside the formal banking system and therefore would not be reported to the Treasury if detected. Also, as we discovered on our overseas visits, many foreign law enforcement and financial organization officials had inconsistent and incomplete information on how to detect the Superdollar. Thus, financial institutions abroad may be recirculating the Superdollars. Fourth, reported increases in counterfeiting abroad, as supported by Secret Service detection data, may be due to a number of factors other than increased counterfeiting activity. For example, in 1993, the Secret Service changed its reporting practices abroad to be more proactive in collecting counterfeit-detection data. Instead of relying solely on reports from foreign officials, agents abroad began to follow up on Interpol reports and intelligence information in order to collect additional data. Also, according to Treasury officials, foreign law enforcement officials have improved their ability to detect counterfeit U.S. currency and report it to the Secret Service. Furthermore, although domestic reporting and detection practices have been more consistent, the increase in domestic detections of counterfeits produced abroad is also subject to interpretation. For example, rather than foreign-produced notes increasing, it is possible that the Secret Service’s ability to determine the source of counterfeit currency has simply improved over time. Fifth and finally, counterfeit-detection data fluctuate over time, and one large seizure can skew the data, particularly for detections abroad. For detections outside the United States, the Secret Service has relied heavily on information provided by foreign law enforcement organizations, and has obtained little information from financial organizations. Thus, counterfeit detections “appearing abroad” have primarily been seizures reported by foreign law enforcement organizations, and the size of these seizures can have a significant impact on detection data. For example, according to the Secret Service, several large seizures accounted for the jump from $14 million in counterfeit detections abroad in fiscal year 1988 to $88 million in fiscal year 1989. The following year, the data indicated a significant drop in detections (see fig. 2). Overseas law enforcement and financial organization officials’ views on the extent of the problem of counterfeit U.S. currency varied. Foreign law enforcement officials tended to be more concerned about counterfeit U.S. currency than foreign financial organization officials. Financial organization officials we met with said that they had experienced minimal chargebacks, and most expressed confidence in the ability of their tellers to detect counterfeits. Furthermore, we heard few reports from foreign financial organization and foreign law enforcement officials about U.S. currency not being accepted overseas because of concerns about counterfeiting. Most foreign law enforcement officials we spoke with believed that the counterfeiting of U.S. currency was a problem, but their opinions on the severity of the problem differed. While the Swiss, Italian, and Hungarian law enforcement officials said that it was a very serious problem, French and English law enforcement officials said that the problem fluctuated in seriousness over time; German, French, and Polish officials said that the counterfeiting of U.S. currency was not as serious a problem as the counterfeiting of their own currencies. Some of these law enforcement officials expressed concern over increases in counterfeiting in Eastern Europe and the former Soviet Union. Some also expressed particular worry about their ability, and the ability of financial organizations in their countries, to detect the Superdollar. Conversely, most foreign financial organization officials we spoke with were not concerned about the counterfeiting of U.S. currency. Of the 34 organizations we visited in 7 countries, officials from 1 Swiss and 1 French banking association and 2 Hungarian banks viewed the counterfeiting of U.S. currency as a current or increasing problem. According to other foreign financial organization officials, they were not concerned about U.S. counterfeiting activity because it did not have a negative impact on their business. For example, none of the 16 financial organization officials with whom we discussed chargebacks told us that they had received substantial chargebacks due to counterfeit notes that they had failed to detect. In addition, some of these officials cited other types of financial fraud and the counterfeiting of their own currency as more significant concerns. For example, officials from one French banking association were more concerned with credit card fraud, and officials from two financial organizations in Germany and one financial organization in France said counterfeiting of their country’s currency was a greater problem. Furthermore, foreign financial organization officials we spoke with were confident about their tellers’ ability to detect counterfeits and, in some countries, tellers were held personally accountable for not detecting counterfeits. In most of the countries we visited, detection of counterfeit U.S. currency relied on the touch and sight of tellers, some of whom were aided by magnifying glasses or other simple detection devices, such as counterfeit detection pens. Other counterfeit-detection devices used abroad, like ultraviolet lights, did not work effectively on U.S. currency. While foreign financial organizations appeared confident of their tellers’ ability to detect counterfeits, some of these organizations had incomplete information on how to detect counterfeit U.S. currency, particularly the Superdollar. Finally, foreign financial organization and law enforcement officials provided a few isolated cases in which U.S. currency was not accepted abroad. For example, when it first learned about the Superdollar, one U.S. financial organization in Switzerland initially stopped accepting U.S. $100 notes, although it later resumed accepting the U.S. notes from its regular customers. Also, Swiss police, Hungarian central bank, and French clearing house officials reported that some exchange houses and other banks were not accepting $100 notes. We were unable to confirm these reports. However, a State Department official commented that, because drug transactions tended to involve $100 notes, some foreigners were reluctant to accept this denomination, not because of counterfeiting concerns, but rather because of the notes’ potential link to money laundering. The U.S. government, primarily through the Treasury Department and its Secret Service and the Federal Reserve, has been increasing its counterfeiting deterrence efforts. These recent efforts include redesigning U.S. currency; increasing exchanges of information abroad; augmenting the Secret Service presence abroad; and undertaking efforts to stop production and distribution of counterfeit currency, including the Superdollar. In an effort to combat counterfeiting both domestically and abroad, Treasury is redesigning U.S. currency to incorporate more security features intended to combat rapid advances in reprographic technology. This change, the most significant to the U.S. currency in over 50 years, is, according to some U.S. and foreign officials, a long overdue one. The redesigned currency is planned for introduction in 1996 starting with changes to the $100 note, with lower denominations to follow at 9- to 12-month intervals. According to Treasury officials, the currency redesign will continue, becoming an ongoing process, because no security features are counterfeit-proof over time. These officials also said that the old currency would not be recalled and would retain its full value. Moreover, Treasury is leading a worldwide publicity campaign to facilitate introduction of the redesigned currency, ensure awareness and use of the overt security features, and assure the public that the old currency will retain its full value. Through this campaign, the Federal Reserve hopes to encourage the public to turn in old currency for the redesigned notes. (See app. V for further information on the currency redesign.) In addition, the Secret Service, through its team visits abroad in company with Treasury Department and Federal Reserve officials, has both gathered further information on counterfeiting and provided counterfeit-detection training. As of May 1995, the team had met with law enforcement and financial organization officials in Buenos Aires, Argentina; Minsk, Belarus; London, England; Zurich, Switzerland; Hong Kong; and Singapore. According to Secret Service officials, their visits were successful because they were able to develop better contacts, obtain further information about foreign financial institutions’ practices, learn more about tellers’ ability to detect counterfeits, and provide counterfeit detection training seminars for both law enforcement and financial organization officials. Future trips were planned to Russia and possibly the Middle East. Further, the Secret Service has been attempting to increase its presence abroad, although it has encountered difficulties in obtaining approval. The Secret Service has over 2,000 agents stationed in the United States, but it has fewer than 20 permanent positions abroad. The Secret Service first requested additional staff in February 1994 for permanent posting abroad beginning in fiscal year 1996. However, due to uncertainties over the funding of the positions as well as to other priorities within the Treasury Department, as of June 21, 1995, the Secret Service had secured approval for only 6 of 28 requested positions abroad. Subsequent to our discussions with the Secret Service, Treasury, and State, on July 21, 1995, Treasury approved the remainder of the positions and passed them on for State’s approval. As of November 30, 1995, the respective chiefs of mission had approved only 13 of the 28 positions, and only 1 agent had reported to his post abroad. (See app. VI for further information on increasing the Secret Service presence abroad.) Additionally, the U.S. government has undertaken special efforts to eradicate the highest quality counterfeit note—the Superdollar. These efforts include the use of task forces and diplomatic efforts among senior policy-level officials of the U.S. and certain foreign governments. Due to the sensitivity and ongoing nature of this investigation, we were made generally aware of these efforts but not provided with specific information. (See app. VII for further information on U.S. efforts to eradicate the Superdollar.) The Department of the Treasury, including the Secret Service, the Department of State, and the Federal Reserve provided written comments on a draft of this report. (See apps. VIII, IX, and X.) These comments included technical changes and/or factual updates that have been incorporated where appropriate. However, Treasury, including the Secret Service, also raised and later rescinded issues of security classification and sensitivity and did not fully agree with our characterization of the limitations of the Secret Service counterfeit currency detection data and other supporting methods for estimating trends in counterfeiting. In their comments, Treasury and the Secret Service made frequent reference to activities that they believed provided additional support for the conclusions they drew from the detection data. These activities included contacts with foreign law enforcement and financial organization officials, vault inspections of banks abroad, and analysis of Federal Reserve data. Although the Secret Service recognized the limitations of its counterfeit currency detection data, Treasury and Secret Service conclusions provided in hearings and reports have not always reflected these limitations. Thus, in this report, we discuss the data limitations and conclude that any use of the data should be qualified to recognize these limitations. Although the Secret Service has the best counterfeit-detection data available, this does not negate the potential for the limitations of this data to foster misleading conclusions. First, the actual extent of counterfeiting cannot be determined because of the criminal nature of this activity. Second, counterfeit-detection data may be a reflection of where the Secret Service focuses its efforts. Third, detection data for high-quality notes, which may more easily circumvent detection and reporting abroad, may be even less representative of the actual extent of the problem. Fourth, increases in counterfeiting detections abroad may be due to a number of factors other than increased counterfeiting, such as improved information gathering and reporting. Also, counterfeit-detection data fluctuate over time, and one large seizure abroad can skew the data. We acknowledge in this report that the Secret Service supplements its detection data with intelligence information and field experience. Even though we did not evaluate these specific methods, our work did yield some information on these activities. With regard to Treasury and Secret Service contacts with foreign law enforcement and financial organization officials, in our discussion of additional U.S. counterfeit currency deterrence efforts, we acknowledge that Treasury and Secret Service officials have recently increased their contacts with foreign financial organizations in preparation for the U.S. currency redesign effort. However, almost all of the foreign financial organization officials we met with in September 1994 had had little or no contact with Treasury and/or Secret Service officials before that time. Regarding vault inspections of banks abroad, Secret Service officials initially told us that they were conducting vault inspections during their joint team visits with Treasury and Federal Reserve officials. However, according to Federal Reserve officials, and as subsequently confirmed by Secret Service officials, vault inspections had been conducted in only one of the six locations visited during our review. Secret Service officials told us that the inspections had been conducted in Argentina but were then discontinued because of the limited results obtained there. The officials told us that the inspections might be reinstituted in other countries if it was subsequently decided that the effort was warranted. Finally, regarding the use of Federal Reserve data, the Secret Service and the Federal Reserve confirmed that the Federal Reserve data were actually a component of the Secret Service data, and thus were effectively addressed in our evaluation of the Secret Service data. As agreed with your office, unless you publicly announce the contents earlier, we plan no further distribution until 30 days from the date of this report. At that time, we will provide copies of the report to interested congressional committees, to the Departments of the Treasury and State, and to the Federal Reserve. We will also make copies available to others on request. Please contact me at (202) 512-8984 if you have any questions concerning this report. Other major contributors to this report are listed in appendix XI. | Pursuant to a congressional request, GAO provided information on counterfeiting of U.S. currency abroad and U.S. efforts to deter these activities. GAO found that: (1) counterfeit U.S. currency is used for economic gain and illegal activities, such as drug trafficking, arms sales, and terrorist activity; (2) there are several techniques used to counterfeit U.S currency, including photocopying, the raised note technique, computer assisted printing, bleaching and reprinting, and photomechanics; (3) the offset printing method offers the highest quality of counterfeit notes and can only be detected by experienced bank tellers; (4) it is difficult to determine the extent of counterfeiting abroad because of the lack of accurate counterfeit detection data and foreign officials reluctance to view counterfeiting as a serious problem; (5) of the $380 billion in U.S. currency circulated in fiscal year 1994, $208.7 million was counterfeit, which represented less than one one-thousandth of U.S. currency in circulation at that time; and (6) the U.S. government is involved in various counterfeit deterrence activities, including redesigning U.S. currency, increasing the presence of the Secret Service and the exchange of information abroad, and seizing the production and distribution capabilities used in counterfeiting of U.S. currency. |
The Navy has 690,000 men and women in the Ready Reserve, the Standby Reserve, and the Retired Reserve. The Ready Reserve, which at the time of the zero-based review, consisted of 85,900 members in the Selected Reserve and 65,066 in the Individual Ready Reserve, is the primary manpower pool for the Navy Reserve. The Selected Reserve contains those units and manpower that are most essential to the wartime missions because it provides mission-capable units and individuals to augment the active Navy force when required. For example, the Selected Reserve consist of Naval aviation units, Naval coastal warfare groups, medical personnel, and submarine forces personnel. The Individual Ready Reserve consists of individuals who have received training in the active Navy force or Selected Reserve. Members of the Selected Reserve receive priority over other reservists for training and equipment and they generally are the first to be called to active duty by a presidential order. In August 2003, the Chief of Naval Operations directed the Commander of the Fleet Forces Command to validate the Navy Selected Reserve manpower requirements and determine the ability of the Navy Reserve to provide required capabilities to the Navy forces. To accomplish this, the Fleet Forces Command conducted a zero-based review over a 10-month period, from October 2003 to August 2004. Based on the review, the Command recommended reducing the size of the Selected Reserve from 85,900 authorized positions to about 70,000 by fiscal year 2011—a decrease of about 16,000 authorized positions. The Chief of Naval Operations approved the zero-based review results for implementation in August 2004. The zero-based review is a component of the Navy’s ongoing active/reserve integration initiative. This initiative is an essential element of the Department of the Navy’s Human Capital Strategy, which was announced in June 2004. According to the Assistant Secretary of the Navy as well as Navy and Marine Corps manpower officials, accelerating manpower costs, changes in the global military environment, and evolving military requirements prompted the Department of the Navy to develop this strategy. The overall goal of the strategy is to have the best people with the proper skills, training, and experience in the right jobs. The strategy serves as high-level guidance for the Navy and Marine Corps to use in developing their own implementation plans. As shown in figure 1, the strategy consists of three elements: civilian personnel transformation, naval military personnel transformation, and Navy active/reserve integration. Implementing the National Security Personnel System will facilitate the Department of Defense’s civilian personnel transformation efforts, while the Navy military personnel transformation is driven by the implementation of the Navy’s Sea Warrior Initiative. The active/reserve integration segment of the human capital strategy is aimed at ensuring the proper balance between the Navy’s active and reserve forces. Although the Navy initiated the zero-based review prior to the announcement of the human capital strategy, the review is intended to satisfy a major tasking of the active/reserve integration element—validating the requirements for reserve manpower. The Navy’s zero-based review process included specific criteria and guidance on how to evaluate the number of reservists needed and involved consistent reporting and documentation by Navy activities. The Navy’s iterative review process allowed extensive communications between Navy activities, the Fleet Forces Command, and others to finalize proposals for reserve manpower requirements and validate the results. However, our analysis showed two review limitations. First, Navy activities identified capability gaps by comparing its current active force to mission requirements, but did not conduct analyses to determine the most cost effective mix of active and reserve manpower. Second, some activities used outdated mission documents which were critical for determining the manpower needed to perform missions. These limitations could have adversely impacted the results of the review. performing the zero-based review by providing detailed guidance and specific criteria to determine the reserve manpower needed to augment the active forces to perform current and future Navy missions. The guidance was provided to 37 active component activities, consisting of 664 functions. The criteria for assessing reserve manpower requirements included the importance of the reserve component to the mission, reserve component’s warfighting capability, current status of the reserves’ capability, and the reserves’ warfighting capability role in the Sea Power 21 operational concept. In following the guidance and applying these criteria, the functions conducted a capability gap analysis by determining (1) the extent to which the active forces could meet the mission requirement and (2) how many reserve personnel would be required to fill any remaining gaps in the active forces’ capability. The zero-based review guidance also required review results to be reported and documented in a standardized format. Our review of 10 of 37 activity packages submitted to the Fleet Forces Command confirmed that each of the 232 functions associated with the 10 activities completed a structured electronic spreadsheet containing pertinent information about mission capability requirement, current manpower authorizations, and proposed manpower changes to justify the reserve manpower needed to perform its assigned mission. Each function also cited that its mission linked to one of the pillars of Navy Sea Power 21. For example, all eight of the Naval Security Group activity’s functions linked their missions to Sea Shield, the pillar that provides sea-based theater and strategic defense. The functions also considered the manpower needs of emerging mission requirements. For example, the Naval Coastal Warfare Groups from the Naval Surface Forces activity identified the need for an additional 1,028 reserve positions to support homeland defense by increasing port security and harbor defense at our port facilities in the United States and overseas. The zero-based review involved substantial interaction between Navy activities, the Fleet Forces Command, and outside subject matter experts to develop the final justification for reserve manpower and perform multilevel reviews of proposed reserve manpower changes. While the active component conducted the review, the Navy activities occasionally relied on the Navy Reserve Command for needed manpower data according to a command official. The Commander of the Navy Reserve Force also participated in the high-level review of the proposed reserve manpower changes. The process allowed multiple two-way communications to finalize proposals for reserve manpower requirements and validate the results. In instances where the Fleet Forces Command disagreed with an activity’s initial proposal, the activity revised and resubmitted its proposal or provided additional justification until the disagreement was resolved. After the Fleet Forces Command made a decision about the number of authorized reserve positions, it notified the activities and allowed them to again officially request reconsideration by providing additional documentation and support. For example, the Naval Air Systems Command first submitted justification for 652 reserve positions. However, after reviewing the justification package, the Fleet Forces Command recommended eliminating all of the Naval Air Systems Command’s reserve positions because they were not linked to mobilization requirements. The Naval Air Systems Command resubmitted justification for 226 reserve positions to provide special skills and support for contingency operations. The justification convinced the Fleet Forces Command to approve 226 reserve positions. Within the Fleet Forces Command, the activities’ packages were first reviewed by analysts and an initial review board. A subject matter expert review board then reviewed the proposals before passing them on to an executive board of senior officers. After the executive board approved the results, they were given to the Commander of the Fleet Forces Command, who also reviewed and approved the results. The criteria the Fleet Forces Command used for validating the reserve manpower requirements included whether (1) the particular mission is suitable for the reserve component, (2) the position is required to be filled by a military person, (3) the position fills a gap in the active component’s capabilities, and (4) the reserve component can perform the mission. The validation process included a mission risk assessment by the Fleet Forces Command of how important the reserve forces were to performing the mission. The Command then assigned a low, moderate, or high-risk designation as to whether the active component could perform the mission without the planned contribution from the reserve component. For example, the Fleet Forces Command assessed that there was a low risk that the Maritime Patrol Reconnaissance function could not perform the mission without the reserves’ contribution. After the results were validated, they had to be approved by the Total Force Flag Steering Group, a group of senior officers, including the Commander of the Navy Reserve Force, charged with ensuring continued progress in the integration of Navy active and reserve forces. At the end of the review, the Fleet Forces Command recommended reserve manpower changes to the Chief of Naval Operations for his approval. The Navy’s zero-based review had two limitations that could have changed the number of active and reserve manpower recommended to the Chief of Naval Operations. The Navy (1) did not assess the most cost-effective mix of active and reserve manpower to perform the mission and (2) used outdated critical mission documents as a baseline for manpower requirements. The Navy’s zero-based review process focused on identifying the extent to which the active force could perform Navy missions and then determining whether reserve manpower could fill any remaining gaps, which may not have resulted in the most cost-effective mix of active and reserve forces. Given the Department of the Navy’s affordability challenges and the Assistant Secretary of the Navy’s concern about accelerating manpower costs, the service must find ways to ensure it is accomplishing its mission with the most cost-effective mix of active, reserve, and civilian forces. In his guidance for 2004, the Chief of Naval Operations stated his commitment to fully integrating the active, reserve, and civilian forces. However, he also noted the need to minimize the total number of personnel on payroll and stated, “but we do not want to spend one extra penny for manpower we do not need.” Additionally, the Department of Defense’s directive that covers manpower management states that missions should be accomplished using the least costly mix of manpower. We have shown that when the reserve force can successfully meet deployment and operational requirements, it can generally perform missions at a lower cost than the active force because active units have all full-time personnel assigned whereas reserve units have mostly part-time personnel assigned.By identifying capability gaps in the active force as the primary criterion for determining the required reserve manpower, the Navy failed to assess whether the lower cost reserve force could be used to meet capabilities currently provided by the active force. While the Fleet Forces Command’s general guidance indicated that the manpower requirements review should consider cost in determining an adequate return on investment, it also stated that the return on investment should be based on commanders’ judgment. However, the Command did not require the activities to perform cost analyses to determine the most cost-effective mix of active and reserve forces needed to perform assigned missions as a basis for proposing the future mix of active and reserve manpower. If the most cost-effective mix of active and reserve forces had been a major criterion in the review process, the results might have been different and the Navy may have been able to realize additional savings for some activities. For example, our current analysis of Navy data showed that the manpower costs for a reserve squadron of nine P-3 Maritime Patrol and Reconnaissance aircraft would be approximately $20 million annually—about $8 million or 29 percent less than the estimated manpower cost of $28 million for an active squadron. Outdated Mission Documents May Have Resulted in Inaccurate have resulted in inaccurate recommendations about the Navy reserve Manpower Recommendations manpower needed to perform missions in the future. According to the Navy’s instruction, the documents that provide information about a unit’s mission and the specific operating environment of the units are the most critical element for developing manpower requirements. Additionally, our prior work has shown that decisions about the manpower needed to perform government functions should be driven by valid and reliable data.However, in its briefing to the Chief of Naval Operations, the Fleet Forces Command acknowledged that many of these critical mission documents were outdated. Our analysis confirmed this shortcoming. For example, 25 of the 31 functions belonging to the five activities we visited did not have recently validated mission documents on which to base their manpower reviews. The Fleet Forces Command stated that the critical mission documents had not been updated because of the large amount and rapidity of change and the lack of sufficient manpower analysts to keep up with changes. According to a Command official, the activities’ commanders generally applied their judgment to update the most recently approved mission documents before conducting their analyses to mitigate the risks. However, this official agreed that use of these outdated mission documents may have increased the likelihood that manning was not correct in the associated manpower documents. Without validated and accurate mission documents to serve as a baseline for manpower numbers, some of the zero based review’s determinations about capabilities and manpower requirements may have been inaccurate. Implementation of the Navy’s zero-based review’s recommendations will change the mix of active and reserve forces by decreasing the number of reserve personnel and increasing the number of active and civilian personnel. Some cost savings are projected as a result of the recommended changes. The zero-based review’s recommendations will also have the active force assume greater command and control responsibility over the reserve force. The Navy’s zero-based review’s recommendations will substantially decrease the number of reserve personnel and slightly increase the number of active and civilian personnel. As indicated in table 1, the Chief of Naval Operations approved a net reduction of over 16,000 reserve positions, a net increase of about 880 positions in the active force, and a net increase of 450 civilian personnel positions. At the activities we visited, we found that the reasons for these recommended changes in manpower varied. For example, the Bureau of Medicine and Surgery recommended cutting 2,198 reserve positions because it had reduced the requirement for the number of fleet hospitals from three to two and had rarely filled all of its specialized medical reserve positions in the past. By contrast, the Naval Security Group expected a net increase of 156 manpower positions because the National Security Agency had a need for two new capabilities (cryptologic linguists and signal intelligence analysts) totaling 200 new positions, while anticipated technology improvements would allow the Naval Security Group to eliminate 44 reserve positions. The Mine Warfare Command will make its airborne and surface mine countermeasure units an all active force by cutting 1,016 reserve positions from their airborne and surface mine countermeasures mission and converting 537 full-time reserve positions to active duty positions because the command could not recruit sufficient manpower to fill its reserve positions. With the additional active duty positions, the Command stated that the airborne and surface mine countermeasures missions could be fully accomplished without the reserve component’s participation. The Navy’s zero-based review results for the five activities that we visited are shown in appendix II. The Fleet Forces Command initially estimated that implementing the manpower changes recommended by the zero-based review would save approximately $283.5 million annually. However, these original estimated savings are changing. Some active component activities are reexamining their manpower requirements and submitting changes to their original proposals because of organizational changes and other ongoing refinements to manpower requirements. For example, the Naval Air Forces now plans to eliminate an additional 378 reserve positions because the Navy plans to retire additional P-3 Maritime Patrol and Reconnaissance aircraft due to airframe fatigue problems. In another case, subsequent to the zero-based review, the Navy established the Maritime Force Protection Command that assumed reserve functions that were previously within the Surface Forces and the Military Sealift Commands. However, upon its establishment, the Maritime Force Protection Command determined that 5,250 reserve positions would be needed versus the 5,840 positions the Fleet Forces Command originally approved. Although the Chief of Naval Operations approved the zero-based review results in August 2004, the changes were not included in the Department of the Navy’s fiscal year 2005 budget. The Fleet Forces Command has required each Navy activity to complete a transition plan and the Navy has included the recommended manpower changes in the Future Years Defense Program beginning in fiscal year 2006. All changes resulting from the zero-based review are to be completed by 2011. The zero-based review prompted changes in the command and control relationships between the Navy active and reserve forces, whereby the active force will assume greater command and control over the reserve force. Under the recommended changes, the active force will assume responsibility for the training and readiness of the reserve force. For example, the Commander, Navy Reserve Force, will now report to the Commander, Fleet Forces Command, for the training and readiness of the reserve force. In addition, the Commander, Naval Air Force Reserve, has physically moved from New Orleans to San Diego to be colocated with the Commander, Naval Air Forces, to whom he reports for readiness and training of reserve aviation forces. This realignment of responsibility is consistent with the Chief of Naval Operations’ objective to create a more integrated total force. The Navy’s zero-based review was an important first step in its overall strategy to assess the role of the Navy reserve in the total Navy force. The review is also a critical element in helping the Navy achieve its desire to reduce manpower costs and move toward a more affordable total force. However, the Navy’s approach of using capability gaps in the active force as the means to determine Navy reserve manpower requirements was too narrow. Without consideration of manpower cost-effectiveness as directed by Department of Defense guidance, this approach did not provide assurance that the Navy will have the most cost-effective mix of active and reserve forces in the future. Furthermore, using outdated mission documents as a baseline for determining manpower requirements substantially reduced assurance that the Navy activities started with the best data for making quality manpower assessments. As the Navy continues to update and review its manpower requirements and identify ways to reduce its manpower costs in order to make resources available for other investments, it is important that all future assessments consider the most cost-effective force mix and be based on current mission documents. Recommendations for To assist the Navy in meeting its human capital strategy goals and ensure Executive Action that ongoing and future Navy active and reserve manpower requirement assessments result in the most cost-effective force, we recommend that the Secretary of Defense direct the Secretary of the Navy to take the following two actions: develop and implement guidance to ensure that (1) ongoing and future workforce reviews include cost analyses to determine the most cost effective mix of active and reserve manpower and (2) the methodology for and results of cost analyses are documented and allocate the required resources to maintain current Navy mission documents that would provide a valid baseline for ongoing and future workforce reviews. Agency Comments and In written comments on a draft of this report, the Department of Defense Our Evaluation concurred with our recommendations. The department provided technical comments, which we incorporated as appropriate. The department’s comments are reprinted in their entirety in appendix III. We are sending copies of this report to the Secretary of Defense, the Secretary of the Navy, and other interested congressional committees and parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-4402 or stlaurentj@gao.gov if you or your staff have any questions concerning this report. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix IV. To determine the criteria and process the Navy used to conduct its zero based review of reserve manpower requirements and the limitations that could affect the Navy’s analyses and implementations plans, we obtained and analyzed the guidance and expectations the Chief of Naval Operations provided to the Fleet Forces Command concerning the zero-based review. We also obtained and analyzed detailed information about the guidance and instructions the Fleet Forces Command provided to Navy activities concerning (1) the criteria to use for determining the required reserve manpower, (2) how the activities should report their review results to the Fleet Forces Command, (3) the review and validation process for the results reached during the zero-based review, and (4) plans for implementing the zero-based review results. Additionally, we met with Fleet Forces Command officials, as well as officials from the five activities we visited, and analyzed 10 of 37 justification packages the activities submitted to the Fleet Forces Command to further understand how the zero-based review was conducted at the different command levels, identify the extent to which cost-effectiveness of manpower changes was considered, and assess the consistency with which the activities reported their review results. Moreover, we analyzed prior GAO reports and applicable Navy publications for criteria and best practices in conducting manpower requirement reviews. To determine how the recommendations from the zero-based review will affect the reserve’s manpower, funding, and command and control relationships with the active force, we obtained and analyzed the justification packages submitted by the 10 Navy activities, the recommended changes in the number of required reserve manpower and the cost factors used to calculate manpower savings as well as the corresponding projected funding requirements for reserve manpower. We also obtained information about, and discussed how the Navy plans to implement the results from the zero-based review with officials at the Fleet Forces Command and the five activities we visited. Additionally, we reviewed communications from the Chief of Naval Operations and discussed how the zero-based review would change command and control relationships between the active and reserve forces with officials at the Fleet Forces Command and the Navy Reserve Command. We assessed the reliability of pertinent data about information supporting the activities’ proposals for reserve manpower changes and projected manpower changes. We examined 10 activity justification packages for consistency in the Navy’s validation and reserve manpower requirements reporting processes. We also verified the manpower budget programming factors the Navy used to calculate projected manpower savings and performed a sample calculation to test the reliability of the projections. Except for the problem with outdated mission documents we noted in the body of the report, we concluded that the data were sufficiently reliable for the purpose of this report. We performed our review from September 2004 through September 2005 in accordance with generally accepted government auditing standards. After performing substantial review work at Navy Headquarters and the Fleet Forces Command to obtain overall review results and general information about how the Navy conducted its zero-based review, we visited five Navy activities to obtain more detailed information: Headquarters, Naval Air Forces; Headquarters, Naval Submarine Forces; Bureau of Medicine and Surgery; Naval Security Group; and Headquarters, Mine Warfare Command. We selected these particular activities because of special interest from the professional staff of the Senate and House Armed Services Committees and because the zero-based review results involved major changes to reserve manpower requirements for these activities. The purpose of our visits was to understand in detail the review procedures at the activity level and assess the consistency with which the activities (1) followed the guidance and criteria provided by the Fleet Forces Command and (2) reported their review results. During our visits at these activities, we also discussed with officials the rationale for recommending major changes to their reserve manpower requirements. The information below summarizes the results of the zero-based review for each of the five activities we visited. These summaries are based on the activities’ justification packages and our discussions with Fleet Forces Command and activity officials about the rationale for their changes to reserve manpower requirements. All Navy reserve positions have been approved by the Chief of Naval Operations (CNO) as of August 2004. Activity 1: Headquarters, Naval Air Forces, San Diego, management. As shown in table 2, the zero-based review recommended California almost a 25 percent reduction in naval aviation reserve manpower. Headquarters, Naval Air Forces provides combat-ready and sustainable naval air forces that are trained and equipped to operate in an environment that emphasizes safety, interoperability, and efficient resource Of the 2,742 total decrease in reserve positions in naval aviation forces, 2,242 (82 percent) are from the Maritime Patrol and Reconnaissance (P-3 aircraft), Helicopter, and Aviation Intermediate Maintenance Division communities. The decreases in these three communities were supported by different rationales. First, Naval Air Forces decided to cut 1,323 positions from the Maritime Patrol and Reconnaissance units because P-3 airframe fatigue problems caused the Navy to remove some aircraft from the active inventory. To provide the active force with additional aircraft, the activity decommissioned four reserve squadrons, totaling 24 aircraft, and formed three fleet response units, totaling 18 aircraft. As a result, the activity needed fewer personnel and 6 additional aircraft were provided to the active force. Additionally, the activity cut 491 positions from helicopter squadrons to better provide projected surge capability for the Fleet Response Plan. The activity combined five reserve helicopter squadrons of 36 aircraft into three fleet response units of 24 aircraft. As a result, the activity needed fewer personnel. Finally, the activity cut 428 positions from the aviation intermediate maintenance divisions. The Fleet Forces Command decided to eliminate all reserve positions from functions in which reserve personnel were not able to meet deployment requirements. The Naval Submarine Forces provide antisubmarine warfare, antisurface ship warfare, precision land strike, mine warfare, intelligence, surveillance and early warning, and special warfare capabilities to the U.S. Navy, and strategic deterrence capabilities to the U.S. Strategic Command. As shown in table 3, the zero-based review recommended more than a 41 percent reduction in naval submarine forces reserve manpower. Of the total 1,105 decrease in reserve positions in Naval Submarine Forces, 1,061 (96 percent) resulted from decommissioning a submarine tender (maintenance support ship) and decreasing reserve positions for logistics and administrative support operations. The activity cut 939 positions from an inactive submarine tender because the Fleet Forces Command decided that this mission was not essential and could be performed by a contractor. The activity also cut 122 positions from logistics and administrative support operations because, according to officials, the reservists’ part-time duty status would not allow them to participate in submarine training deployments. The Bureau of Medicine and Surgery provides health care to about 700,000 active duty Navy and Marine Corps members and to 2.6 million family contingency, humanitarian, and joint operations around the world. As shown in table 4, the zero-based review recommended almost a 29 percent reduction in medical reserve manpower. Of the total 2,241 decrease in reserve positions for the Bureau of Medicine and Surgery, 2,198 (98 percent) are from cuts in medical treatment facilities and fleet hospitals. The activity cut 1,388 positions from medical treatment facilities because most of these positions were associated with special medical skills that were never filled. The activity also cut 810 positions due to a reduction in the number of fleet hospitals. The Navy reduced the number of fleet hospitals from three to two because it does not expect to need as many hospitals to meet mission requirements under new defense planning guidance. The Naval Security Group performs cryptologic and logistics support functions for the fleet. As shown in table 5, the zero-based review recommended more than a 16 percent increase in naval security reserve personnel. The activity had a net increase of 156 reserve positions, which was achieved through reductions of some positions and additions of other positions. The activity added 180 cryptologic linguists and 20 applied research and development positions. The number of positions for intelligence collection and analysis increased because the National Security Agency agreed to pay for the additional positions to meet its operational requirements. At the same time, the activity cut 44 information operations positions because anticipated technological advances in telephone and computer security allowed the activity to reduce the number of personnel. The Mine Warfare Command develops and evaluates mine warfare doctrine, tactics, and equipment to conduct offensive and defensive mine warfare operations throughout the world. It is responsible for removing all types of mine threats, providing intelligence on foreign mine capabilities, and developing tactics to counter other nations’ mining capabilities. As shown in table 6, the zero-based review recommended more than a 90 percent decrease in mine warfare reserve manpower. Of the total 1,158 decrease in reserve positions for the Mine Warfare Command, 1,016 (88 percent) were taken from the Airborne and Surface Mine Countermeasures Units. This decrease was a result of converting reserve positions to active positions. The activity cut 541 Airborne Mine Countermeasures positions by reorganizing its two Airborne Mine Countermeasures squadrons, each of which consisted of six active aircraft and four reserve aircraft, into two squadrons of eight active aircraft each. The activity decided to man the two squadrons with only active manpower because the reserve functions could not recruit sufficient manpower needed in specific specialties. The activity also cut 475 Surface Mine Countermeasures positions. The activity decided to convert all reserve positions authorized for its 15 ships to active positions because it had experienced reduced operational effectiveness due to the inability to fill the reserve positions. Janet St. Laurent, (202) 512-4402 (stlaurentj@gao.gov) Richard G. Payne, Assistant Director; George O. Morse; Willie J. Cheely, Jr.; Nicole L. Collier; Bethann E. Ritter; Renee S. Brown; Jonathan Clark; and Rebecca Shea also made significant contributions to this report. | In 2004, the Navy completed a study of how many selected reserve personnel are needed to support the active force in meeting current and future mission requirements. The Ronald W. Reagan National Defense Authorization Act for 2005 mandated that GAO assess several aspects of the Navy's study. This report addresses (1) the criteria and process the Navy used to conduct the review and what limitations affected the Navy's analyses and implementation plan; and (2) how the recommendations from the review will affect the reserve's personnel, funding, and command and control relationship with the active force. In conducting its review of Selected Reserve personnel requirements, the Navy established criteria and followed a structured process, but GAO noted two limitations that could have potentially affected the quality of the results. The Navy did not analyze the most cost-effective mix of active and reserve personnel and in some cases used outdated mission documents as the baseline for analysis. The Department of Defense personnel directive states that missions should be accomplished using the least costly mix of personnel. In addition, GAO's prior work has shown that when reserve forces can successfully meet deployment and operational requirements, they can perform missions for less cost than active forces, and that decisions about the number of personnel needed to perform government functions should be driven by valid and reliable data. The 10 activities' justification packages GAO reviewed did not indicate if or how commanders evaluated the cost-effectiveness of using active or reserve personnel. A key reason why cost-effectiveness was not evaluated is that the Fleet Forces Command provided no guidance requiring that such an analysis be conducted or submitted as part of the activities' justification packages. Additionally, because the Navy had not devoted the resources to update some of its baseline mission documents prior to the start of the review, some of the activities' analyses did not start with the best possible data, which may have resulted in inaccuracies in their determinations about capabilities and personnel requirements. Including cost-effectiveness in the criteria for the zero-based review and documenting such analyses, as well as ensuring data accuracy, could have better demonstrated a sound basis for the recommended personnel changes and, in some cases, may have led to different recommendations. The review's recommendations will result in a change in the force mix, some cost savings, and the active force assuming greater command and control over reserve forces. The Chief of Naval Operations approved personnel changes that would result in a net reduction of over 16,000 reserve positions, a net increase of about 880 positions in the active force, and a net increase of about 450 civilian personnel positions. The reasons for these recommended changes varied by activity. The Fleet Forces Command also initially estimated that the Navy could save approximately $283.5 million annually by implementing the personnel recommendations, although this estimate is changing as some activities reexamine their personnel requirements using more recent data. In addition to total force personnel changes, the active force is assuming greater command and control responsibility for the reserve force. For example, the active force is now responsible for the training and readiness of the reserve forces and is receiving their status reports. This realignment of responsibility is consistent with the Chief of Naval Operation's expectations for creating a more integrated total force. |
The six selected federal programs have varying purposes and are designed to target different segments of the low-income population, according to information confirmed by the administering agencies (see table 1). For example, EITC targets working families, whereas SSI targets the elderly, blind, and disabled. Because potential participants must generally meet a test of financial need in order to be eligible for benefits, these programs are commonly referred to as “means-tested programs.” Three of the programs—EITC, SSI, and TANF—provide direct cash assistance to recipients, while the other programs provide an in-kind benefit, meaning that the recipient receives a good or service rather than cash. The six programs serve millions of low-income people, ranging from nearly 69 million individuals a month for Medicaid to about 4 million individuals a month for TANF in fiscal year 2015, according to our analysis of agency data, as confirmed by the agencies. Medicaid is the largest program in terms of expenditures on benefits among the six selected programs, according to information provided by the administering agencies, totaling $329.73 billion in federal spending for the entire Medicaid population in fiscal year 2015 (see fig.1). Federal spending on benefits for the five other programs ranged from $4.16 billion for TANF cash assistance to $66.60 billion for SNAP in that year. In TANF and Medicaid, states and the federal government generally share in the cost of benefits, whereas benefits are entirely federally funded for EITC, SNAP, SSI, and Housing Choice Vouchers. Several federal departments and agencies or offices administer and oversee the six selected low-income programs (see table 2). The funding structure of these low-income programs differs, which to some extent may affect the number of program recipients. SNAP, EITC, SSI, and Medicaid are open-ended entitlement programs, which means that the government is legally required to make payments to individuals or families who meet the requirements established by law. As a result, all individuals or families who apply for these programs and are eligible are entitled to benefits. In contrast, the Housing Choice Voucher and TANF cash assistance programs are not entitlement programs, and the number of recipients may be limited, in part, by these programs’ funding amounts. Programs also differ in their source of funding: some programs are entirely federally-funded, while in other programs, the states and the federal government each contribute some funding for benefits, program administration, or both. Partly because the programs have different purposes and to some extent target different populations, the six low-income programs vary in the extent of their reach. Figure 2 shows the number of program recipients, according to agency data, as a percentage of the total U.S. population. As a general comparison, in 2015, Medicaid served 22 percent of the population, or more than 1 in 5 people, while TANF served 1 percent of the total U.S. population in that year. Common basic elements exist in how the six low-income programs determine program eligibility. Figure 3 provides a conceptual overview of the types of elements typically considered when determining eligibility for these low-income programs. Generally, several factors are taken into consideration to assess applicant eligibility. For determining financial eligibility, the factors commonly considered include how much income the applicant has (both earned, such as wages, and unearned, such as income from other public benefit programs), as well as, for some programs, the applicant’s assets. Further, certain nonfinancial factors may be taken into consideration to assess applicant eligibility, such as whether the applicant has a dependent child or a disability or is working. If an applicant is found to be eligible for a program, the benefit amount they are eligible for is then determined using the benefit rules for that particular program. In addition to having different program purposes, the six programs we reviewed target a range of low-income populations, including people with some earnings, people who are elderly or disabled, or families with dependent children, according to our analysis of agency documents, as confirmed by the agencies (see table 3). The programs’ nonfinancial eligibility rules establish the specific characteristics an individual or household must have, if any, in order to be eligible for the program. For example, to qualify for TANF, families generally must have a dependent child, while for SSI, the applicant must be 65 years old or older, blind, or have a disability that meets certain requirements. Federal low-income programs sometimes have overlapping target populations, and program rules for some programs allow those who qualify for one program to be automatically eligible for another—also known as categorical eligibility—which, as we have previously reported, can both ease access to these programs as well as reduce administrative costs. For example, according to SSA, in most states SSI recipients are automatically eligible for Medicaid, and we have previously reported that some TANF recipients are automatically eligible for SNAP. Specifically, TANF cash assistance recipients are categorically eligible for SNAP, and some states have opted to extend categorical eligibility to households authorized to receive certain TANF or state maintenance of effort (MOE)- funded noncash services under broad-based categorical eligibility (BBCE) policies. Nonfinancial eligibility rules for some of the programs we reviewed also include requirements that participants must comply with as a condition of eligibility for benefits or services, such as participation in work or work- related activities in three of the programs (see table 4). For example, federal TANF rules require states to engage a certain percentage of families receiving cash assistance in specified work-related activities, such as job search and job readiness assistance, if there is an individual in the family who is generally required to work. EITC is unique in that its target population is working low-income people, and therefore, EITC rules require work for initial eligibility. Since EITC is administered through the tax system, it generally requires tax filers who claim the credit to have earned income—as its name suggests—unlike the other programs we reviewed. The six low-income programs we reviewed use different rules to determine the financial eligibility of program applicants, according to our analysis of agency documents, as confirmed by the agencies. These variations affect whose income is counted, what income is and is not counted, whether expenses are deducted from income, and how much income applicants may have and still be eligible. The six programs we reviewed differ not only in their definitions of who the benefit is provided to once eligibility is determined—which we refer to as the “applicant unit”—but also in how they count the income of different people when determining applicant eligibility. For some programs, such as SSI, the applicant unit is the individual, while for others, such as SNAP, the unit is the household (see table 5). Further, while programs may use similar terminology, there is no single definition of “family” or “household” used across these low-income programs—the same term may mean different things depending on the program. For purposes of counting income, for example, both TANF and the Housing Choice Voucher program count the income of individuals in a “family.” However, in the case of the Housing Choice Voucher program, for example, a single person living alone or a group of persons living together is considered a “family,” while for TANF cash assistance, states determine what constitutes a “family” and the family must generally include a dependent child. In addition, in some programs, the applicant unit differs from whose income is counted when determining financial eligibility. For example, in SSI, while the applicant is typically an individual, the income of the applicant’s parent or spouse may be considered when determining eligibility, if that person is living in the applicant’s household. The programs we reviewed also differ in how they treat an applicant’s earned income—or income earned from working—for the purposes of eligibility determination, according to our analysis of agency documentation, as confirmed by the agencies, with some programs structuring their earned income rules to incentivize work, as we have previously reported (see table 6). For example, when determining income eligibility for SNAP, federal rules disregard 20 percent of the applicant household’s earned income. In other words, if an applicant has $1,000 in monthly earned income, only $800 is considered when calculating the household’s income eligibility for SNAP. For TANF, states determine earned income rules, and according to HHS, almost all states disregard some earned income, either as a percentage of earnings, a set dollar amount, or both, although the percentage or amount differs by state. The programs we reviewed also differ greatly in how they treat an applicant’s unearned income—which may include benefits received from other federally-funded programs for low-income people—for the purposes of eligibility determination (see table 7). A low-income family is likely to be eligible for and may participate in more than one low-income program. However, not all of those eligible received a benefit. We have previously reported that families receiving TANF cash assistance generally also receive Medicaid and SNAP. However, because of differences in these programs’ eligibility rules related to unearned income, TANF benefits are counted as income when determining SNAP eligibility but not counted as income when determining Medicaid eligibility, according to our analysis of agency documents, as confirmed by the agency. In contrast, the cash benefit received from the refunded portion of EITC is not counted as income when determining eligibility for any of the other selected programs. According to a 2015 CRS analysis, of those who received a benefit from one of nine major federally funded low-income programs, an estimated 41 percent received benefits from one program and an estimated 27 percent received benefits from two programs. The remaining families received benefits from three or more programs. According to CRS, 18 percent of families received benefits from three programs, 9 percent received benefits from four programs, and less than 5 percent received benefits from five or more programs. The nine low- income programs in CRS’s analysis included five of the six we reviewed for this report. In calculating applicants’ income levels to determine eligibility, some of the low-income programs we reviewed deduct certain types of expenses from income, such as those for child care, utilities, and shelter, according to our analysis of agency documentation and information provided by agencies, as confirmed by the agencies. Programs may allow the deduction of certain types of expenses when determining applicant eligibility to ensure that the applicants’ financial circumstances and ability to meet certain basic needs are more fully captured. For example, Housing Choice Voucher and SNAP both deduct child care expenses when determining program eligibility, while EITC and Medicaid take these expenses into account in other ways (see table 8). (For additional deductions for selected other expenses, see appendix II.) A fundamental difference among the six programs we reviewed is the variation in the income limits used for determining applicants’ program eligibility, according to our analysis of agency data and documentation, as confirmed by agencies. These programs differed in the ways they measure applicants’ income, the standards and methods used to determine the maximum amount of income an applicant may have and still be eligible for the program, whether this amount is set nationwide or varies by state or locality, and the amount of the income limit itself. The various standards and methods used to set income limits by the selected programs include a fixed dollar amount, a percentage of the federal poverty guidelines (FPG) or Area Median Income (AMI), or Modified Adjusted Gross Income (MAGI)(see table 9). For two of the programs— EITC and SSI—the maximum amount of income an applicant may have to be eligible is a federally-set dollar amount that applies nationwide; however, that amount differs by program. For the other four low-income programs we reviewed, the rules for determining the maximum amounts of income an applicant may have and still be eligible, the amounts themselves, and whether they are set nationwide or vary by state or locality, vary significantly, according to our analysis of agency data as confirmed by agencies. For Medicaid, TANF, and in states that have implemented SNAP BBCE policies, states or localities determine financial eligibility rules for applicants, generally within certain federal guidelines. For example, under SNAP BBCE policies, states have the flexibility to adopt policies that allow certain applicants with incomes up to 200 percent FPG to be eligible, whereas federal rules generally allow applicants with incomes up to 130 percent FPG to be eligible. In the case of TANF, states have flexibility in how they establish eligibility, including choosing both the type of measure and income level they use. For Medicaid and the Housing Choice Voucher program, there are also different income limits for different populations within the program. To illustrate the different income limits used for these programs, we analyzed maximum allowable income using a common metric—dollars per month—for programs that have nationally set income limits (see figure 4) and for programs with a range of maximum allowable income due to state variation (see figure 5). For the purposes of illustrating maximum allowable income across these programs, we use a family of three—a single mother with two children—living in their own household, because we have previously found this to be a common recipient unit in federal low-income programs, such as TANF. Although these are the maximum allowable amounts of income such families may have to be eligible for each program, these amounts are not fully comparable because the calculation of this amount differs for each program by the factors discussed earlier in this report, such as whose income is counted. Also as already discussed, for an applicant, having income below the relevant threshold is one of the multiple factors that may be assessed when determining eligibility for each program. (For a comparison of maximum monthly income for all six programs, see app. III.) In addition to having income tests, some programs set certain limits on the assets that an individual or family may hold in order to be eligible for the program, while others do not, according to our analysis of agency data and documentation, as confirmed by the agencies. Assets—referred to as “resources” by some programs—generally include financial resources—such as cash held in checking and savings accounts, individual retirement accounts, 401(k)s, and other accounts that can be readily transferred into cash—and nonfinancial resources, such as a home or car. Similar to income limits, three of the six selected programs—SSI, TANF, and SNAP under federal rules—have federally set limits on the amount or type of financial assets that an individual or family may have in order to be determined eligible for benefits. For example, to qualify for SSI, the limit for countable assets is $2,000 for an individual and $3,000 for a married couple. However, certain nonfinancial assets, such one vehicle, do not count toward this limit. For SNAP, under federal rules, there is a limit of $2,250 in countable resources or $3,250 in countable resources if at least one person is age 60 or older or is disabled, and since 2008, these limits have been adjusted annually and rounded to the nearest $250 based on changes to the Consumer Price Index (CPI). In recent years, some states have moved away from having asset limits for certain low-income programs. For example, as of August 2016, 34 states and the District of Columbia have adopted SNAP BBCE policies that removed asset limits from their financial eligibility determinations for those deemed eligible using BBCE. In TANF, asset limits are determined by the state, and as of August 2016, 8 states did not have asset limits, while 43 states had set varying limits on assets (see figure 6). Other low- income programs we reviewed—EITC, Housing Choice Vouchers, and Medicaid for non-elderly, non-disabled (MAGI) populations—have no restrictions on assets. However, financial assets that produce unearned income can be taken into account when determining applicant eligibility. For example, for EITC, applicants’ income from any investments must be $3,400 or less per year. Asset tests are further complicated because of the differences in how the equity in vehicles is treated when determining assets. Vehicle asset rules exist in certain programs, and these rules vary, not only across programs, but across states as well. In one program, a vehicle used to access work may be disregarded; in another program, a certain portion of the value of the vehicle may be disregarded. In TANF, treatment of vehicles is at the state’s discretion and most states disregard $4,650 or more of the value of one vehicle. For SNAP, certain vehicles are excluded in their entirety, or states may opt to substitute their TANF vehicle rules, according to USDA. Average benefits vary across the six selected programs due in part to differing benefit purposes and other factors, according to our analysis of agency documentation and information, as confirmed by the agencies. For the four programs that provide monthly benefits—Housing Choice Vouchers, SNAP, SSI, and TANF—average benefit levels ranged from $258 monthly for SNAP to $626 monthly for Housing Choice Vouchers in fiscal year 2015. These average benefit amounts—for Housing Choice Vouchers, SNAP, and TANF—are per household, while the SSI average benefit is per individual. The EITC provided a one-time annual benefit of more than $2,455 on average in 2016, based on tax returns filed for 2015, which, for comparison, converts to $205 per month. (See table 10). There is no average benefit amount for Medicaid since its benefits are provided in the form of health care services to individuals. These variations in average benefit amounts are due in part to differing program and benefit purposes and other factors, according to our analysis of agency documentation and other governmental reports. For example, the SNAP benefit amount is structured to make up the difference between the cost of purchasing a nutritionally adequate low-cost diet and 30 percent of net household income, because a household is expected to spend about 30 percent of its net income on food, according to FNS. Alternatively, the SSI benefit is meant to provide a basic level of income for those who are elderly, blind, and disabled. Four of the five programs that provide benefit amounts to recipients directly or indirectly adjust benefits for inflation, while one program varies by state. Whether or not benefits are adjusted for inflation affects the value of the benefit over time. EITC, SSI, and SNAP explicitly adjust benefits for inflation, while the amount of a Housing Choice Voucher is adjusted in response to changes in area rental costs. According to CRS, TANF benefits for families are not automatically adjusted for inflation by the states and have lost considerable value in terms of their purchasing power over time. We have previously estimated that annual aggregate cash benefits under 2005 TANF rules were 17 percent lower than they were under 1995 rules. More recently, CRS has found that between 1981 and 2013, the inflation-adjusted value of the maximum TANF cash assistance benefit for needy families in the median state declined by 45 percent. Legal, administrative, and financial constraints pose challenges to streamlining or better aligning varying eligibility rules for low-income programs, according to our previous work. The issue of streamlining, and its feasibility, has been a concern for decades. As we noted in our earlier work, the complexity and variability in programs’ financial eligibility rules have had negative consequences for both program administration and family access to assistance, according to policy experts and researchers. For example, in 2002 we found that staff administering each program collected much of the same personal and financial information from applicants to determine program eligibility, leading to time-consuming and inefficient administrative processes that can contribute to overall costs. Further, people seeking aid from more than one low-income program often must visit multiple offices and provide the same information numerous times, according to our prior work. However, just as the advantages of simplifying financial eligibility rules have been acknowledged, there has also been a general recognition that achieving substantial improvements in this area is difficult. A key challenge to streamlining eligibility rules for these low-income programs is that the programs are authorized by different federal statutes, which establish many of the program rules. These different statutes were enacted—and amended—at different times in response to differing circumstances. The statutes originate with numerous congressional authorizing committees. For example, the House Energy and Commerce Committee and the Senate Finance Committee are the authorizing committees for Medicaid, while the House Financial Services Committee and Senate Banking, Housing, and Urban Affairs Committee are the authorizing committees for the Housing Choice Voucher program (see fig. 7). Other laws, such appropriations acts, can also have an impact on federal programs and their rules. Modifying eligibility rules to bring them more in line with each other would require changing many laws and coordination among a broad set of lawmakers, including multiple congressional committees. Another challenge to streamlining stems from the multiple government entities involved in administering and funding each program and the varied administrative relationships between the federal and state levels of government by program. To start with, a different federal agency or office administers each program we reviewed. For example, FNS administers SNAP, CMS administers Medicaid, and the Office of Public and Indian Housing within HUD administers the Housing Choice Voucher. These different federal agencies generally develop regulations separately for each program, which may affect program rules. Furthermore, as discussed earlier, state governments are also involved in administering and funding some of these programs. Specifically, for programs that allow state flexibility, state governments also establish some program rules, making it more difficult to streamline or align program rules within or across these programs at the federal level. For example, for TANF cash assistance, the development of eligibility and benefit rules is primarily delegated to state agencies administering the program, while for SNAP, state agencies have some flexibility in determining eligibility rules within federally-established parameters. Regarding program funding, while states may partially fund TANF cash assistance benefits, the federal government funds the full cost of SNAP benefits. As a result of these different roles, streamlining eligibility rules and benefits across multiple programs would entail, in part, modifying and realigning complex administrative relationships among a range of federal and state government entities. Finally, financial or program cost implications pose a major challenge to streamlining financial eligibility and benefit rules for low-income programs, according to our previous work. Modifying financial eligibility rules for purposes of simplifying them or making them more consistent across programs will likely result in changes to the number of people who are eligible for assistance, and may also affect the benefit amounts they receive, as well as overall program costs. Depending on the modification, and the current rules of each program affected, changes made to streamline rules will affect each program’s recipients and costs differently. On the one hand, if such rule changes have the effect of raising a program’s income eligibility limits, more people will be eligible for assistance and that program’s costs may increase, particularly for entitlement programs. For example, according to our earlier work, SNAP program participation more than doubled and costs quadrupled over a 10- year period, largely due to the 2008 recession; however, a factor that contributed to both increases was that some states aligned their SNAP income eligibility limits with the higher limits used in other low-income programs under the BBCE policy option. On the other hand, if such rule changes have the effect of lowering a program’s income eligibility level, some people will no longer be eligible for assistance from that program, thereby potentially lowering program costs. Despite these challenges, Congress, federal agencies, and states have taken some steps to streamline eligibility rules, according to our prior work. These include establishing automatic or categorical eligibility among programs, making greater use of technology and data-sharing among low-income programs, and aligning application and eligibility determination processes for multiple programs. Automatic or categorical eligibility: These policies—where allowed under federal law—can simplify the eligibility determination process for both applicants and caseworkers by increasing consistency in income and resource limits across programs. For example, in addition to SNAP BBCE policies already discussed (which make households that receive noncash services funded by TANF categorically eligible for SNAP in some states), SSI recipients in most states are automatically eligible for Medicaid health insurance, and if they live alone or in households in which all members receive SSI benefits, they are automatically eligible for SNAP. In another example, recipients of Medicaid, TANF, or SNAP are automatically deemed income-eligible for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)—a WIC policy known as adjunctive eligibility that is similar to categorical eligibility. Finally, under the federal school meals programs’ direct certification policy, students who receive SNAP benefits are automatically certified as eligible for free school meals. According to our prior work, this policy not only eased access for eligible students but also improved program integrity, because of SNAP’s more detailed certification process compared to the school meals programs. Overall, we found in our prior work that such policies can ease the administrative burden for participants as well as save resources, improve productivity, and allow staff to focus more time on performing essential program activities. Technology and data sharing: Computer systems can be used as a tool to carry out joint eligibility determination processes that streamline program administration for staff. Data-sharing arrangements, where permitted by federal law, allow programs to share client information that they otherwise would each collect and verify separately, thus reducing duplicative effort, saving money, and improving integrity, according to our earlier work. More specifically, with data sharing, staff may use existing data sources to prepopulate forms, thereby reducing the need for clients to provide the same information and documentation to multiple agencies. Staff may also use existing reliable data sources to automate the verification of information instead of conducting manual checks. For example, state agencies administering SNAP were able to determine SSI recipients’ eligibility for SNAP benefits by receiving verified electronic data from SSA, without having to separately collect and verify applicant information, an arrangement that officials said saved administrative dollars and reduces duplicative effort across programs, according to our prior work. In contrast, we recently found that states are experiencing barriers to using data matches for certain other low-income programs. For example, in a 2016 report we found that state staff who administer both SNAP and Medicaid were not allowed to use benefits or earnings information from a federal data services hub created for Medicaid to determine SNAP eligibility; as a result, staff would need to conduct duplicative data matches to verify some of the same information for the same household. Flexibility to align application and eligibility determination processes: In addition to helping streamline the application process by making greater use of call centers and online applications in some programs, some states have also taken other steps to align application and eligibility determination processes, according to our prior work. Exercising such flexibilities, when available to states, can help ease access and streamline the process for both recipients and administrators. For example, some states reported that they integrated aspects of the SNAP eligibility process with those of other programs, such as through combined applications, common eligibility workers, or integrated or linked eligibility systems, according to our 2017 report. Overall, according to our state survey in this report, we found that SNAP eligibility processes were most commonly integrated with state TANF cash assistance programs (44 states), as well as with state Medicaid programs, although to a somewhat lesser degree. In another example, known as the Express Lane Eligibility option, states can choose to evaluate children’s eligibility for Medicaid or CHIP by using findings—such as determinations regarding a family’s income—made by other agencies, such as those administering SNAP or TANF. Further, while states administer the Medicaid program, SSI recipients’ eligibility for Medicaid is sometimes determined by the Social Security Administration (SSA). We previously reported that as of May 2016, 33 states and the District of Columbia had agreements with SSA to determine SSI recipients’ eligibility for Medicaid, according to SSA. In these states, the SSI application is also the Medicaid application. We provided a draft of this report to the Departments of Agriculture (USDA), Health and Human Services (HHS), Housing and Urban Development (HUD), and the Treasury; and the Social Security Administration (SSA). With the exception of HUD, which provided no comments, the agencies provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees; the Secretaries of the Department of Agriculture, HHS, HUD, and the Treasury; the Acting Commissioner of the SSA; and other interested parties. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-7215 or larink@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. One measure of a program’s reach is the program participation rate, or the percentage of those eligible who receive benefits from a program. According to a December 2015 Congressional Research Service (CRS) analysis of the latest data available for subsidized housing, Supplemental Security Income (SSI), the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF), the estimated proportion of those eligible who received benefits in 2012 varied substantially, and not all of those eligible actually received benefits. (See fig. 8.) For the entitlement programs—those legally required to provide benefits to all those who apply and qualify (SNAP, EITC, and SSI)—the estimated proportion of eligible people who were enrolled ranged from 66.6 percent to 80 percent. In contrast, for the non- entitlement programs, the estimated proportion of eligible people who were enrolled was 18.2 percent for subsidized housing and 28.4 percent for TANF. The gap between those eligible for these programs and those receiving benefits may be explained by several factors, including program funding structure, the type of benefits provided, ease of access to the programs, and applicants’ lack of awareness and misperceptions about the programs, among other things. The program’s funding structure may contribute to a gap between the number of eligible people and the number of recipients. For example, for non-entitlement programs, such as TANF and Housing Choice Vouchers, funding amounts may limit the number of people served. Because of this, states and localities sometimes ration aid, using mechanisms such as waiting lists for housing. The type and amount of benefits can also affect program participation. In our earlier work, we reported that participation rates tended to be higher among subgroups of people eligible for larger benefits and among programs that provide cash benefits rather than direct services. Specifically, in our previous work, one of the reasons we found for the decline in TANF participation was a decline in the annual aggregate cash benefit amounts, which were 17 percent lower under 2005 program rules than they were under 1995 program rules. Factors that influence the ease with which potential participants can access a program—including office location and hours as well as the ease with which program participants can use their benefits—can also affect the participation rate. For example, a 2012 Congressional Budget Office report found that the increase in the rate at which eligible people received SNAP benefits between 2007 and 2011 was likely due in part to changes in the program’s administration that made it easier for people to apply for and continue receiving benefits—such as greater use of online applications, mail-in renewals, and phone interviews—as well as to the poor economy, which reduced people’s income and caused longer periods of need, prompting more people who were already eligible for the program to apply. In contrast, we found in our 2005 report that it was difficult for some participants to use Housing Choice Vouchers and Medicaid, as some service providers, such as landlords or health care providers, would not exchange their services for program benefits. Lack of awareness about program benefits on the part of the eligible population or misconceptions about eligibility can affect the overall number and characteristics of people who participate. In our 2005 work, we reported that several EITC, Medicaid, Food Stamp, and SSI studies indicated that one of the primary barriers to participation was that individuals did not know that they were eligible for these benefits. We further reported that for some individuals—like the elderly and non-English speakers—this unfamiliarity with program benefits was even more widespread, creating a larger barrier to participation and an under-representation of these individuals in the caseload. Finally, eligible families also choose whether to participate in a program in response to their personal feelings about government assistance programs and their individual circumstances. For example, according to our previous work, changes made to allow households to apply for SNAP online or by phone lowered the stigma associated with going to a public assistance office and may have contributed to an increase in SNAP participation. Also as we previously reported, the sharp declines in eligible families’ participation in TANF cash assistance from 1995 to 2005 resulted from, among other things, the dynamics of family decision-making in response to TANF policies, such as mandatory participation in work activities. Specifically, we found that families eligible for TANF cash assistance often had characteristics that make employment difficult, such as poor health, low educational attainment, or limited English proficiency, which may affect their decisions to apply for TANF. There is no single maximum income amount an applicant may have to be eligible for the six federal low-income programs we reviewed, and the amount of allowable income varies significantly among the programs, according to data confirmed by the administering agencies. Figure 9 shows this variation by presenting the maximum income limits for EITC, SSI, and SNAP under federal rules, as well as the median amount (50th percentile) of the range of maximum income limits for the 48 contiguous states and Washington D.C. for the programs with varying income limits— Housing Choice Vouchers, Medicaid, SNAP under state BBCE policies, and TANF. EITC has the highest maximum income allowed, and TANF, at well under the federal poverty guideline, has the lowest median maximum income allowed. In addition to the contact named above, Rachel Frisk (Assistant Director), Deborah A. Signer (Analyst-in-Charge), Kay E. Brown, Gale C. Harris, Kelly Snow, and Srinidhi Vijaykumar made key contributions to this report. Also contributing to this report were James Bennett, Sarah Cornetto, Kirsten Lauber, David Lin, Theresa Lo, Sheila McCoy, Jessica Orr, Jason Palmer, Gloria Proa, David Reed, Almeta Spencer, Rebecca Kuhlmann Taylor, and Max Sawicky. | Various federal programs provide cash assistance, food, housing, and health care to millions of individuals, families, and households whose income falls below defined levels and who meet other eligibility requirements. As GAO previously reported, the numerous financial and nonfinancial rules for determining eligibility for such low-income programs can confuse applicants and increase program administration challenges. GAO was asked to examine eligibility rules for low-income programs. This report examines (1) the ways in which eligibility rules and benefits for selected federal low-income programs vary across the programs; and (2) what is known about challenges associated with efforts to streamline these rules. GAO reviewed relevant agency guidance and other information provided by agencies and analyzed financial eligibility rules and benefits across six low-income programs. GAO confirmed all information on program rules with the respective administering agencies. GAO selected these programs because they are among the largest of the federally funded programs addressing low-income people's basic needs and they illustrate variations in eligibility rules among low-income programs. GAO also reviewed previous GAO reports and selected reports from the Congressional Research Service and other knowledgeable research and policy organizations. Six key federally funded programs for low-income people vary significantly with regard to who is eligible, how income is counted and the maximum income applicants may have to be eligible, and the benefits provided. In fiscal year 2015, the most current data available, the federal government spent nearly $540 billion on benefits for these six programs—the Earned Income Tax Credit (EITC), Medicaid, the Housing Choice Voucher program, Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), and Temporary Assistance for Needy Families (TANF). The target population for each of these programs differs, for example, people who are elderly or disabled or who have dependent children. Further, some programs have conditions for continued eligibility, such as participation in work activities under TANF. The six programs also vary in what income is and is not counted when determining an applicant's eligibility. For example, certain programs, such as SNAP, disregard a portion of earned income, while others do not. The maximum amount of income an applicant may have and still be eligible for benefits, which is determined for some programs at the federal level and for others at the state or local level, also differs significantly. As of December 2016, this amount ranged from $5,359 per month for one state's Medicaid program to $0 per month in one state for TANF cash assistance, for a single parent with two children. Benefit levels also differed across the six selected programs, with average monthly benefits for these programs ranging in fiscal year 2015 from $258 for SNAP to $626 for Housing Choice Vouchers, and four of the six programs adjust benefits annually. Legal, administrative, and financial constraints pose challenges to efforts to streamline varying eligibility rules for federal low-income programs, according to GAO's current and previous work. A key challenge is that the programs are authorized by different federal statutes enacted at different times in response to differing circumstances. Other laws, such as appropriations laws, can also have an impact on federal programs and their rules. As a result, streamlining eligibility rules would require changing many laws and coordination among a broad set of lawmakers and congressional committees. A further challenge is that a different federal agency or office administers each program GAO reviewed. For some of these programs, such as TANF, state governments also establish some program rules, making it more difficult to streamline rules at the federal level within or across these programs. Finally, financial constraints may also affect efforts to streamline program rules. For example, if rule changes raise the income eligibility limit in a program, more people may become eligible and that program's costs may increase. Despite these challenges, Congress, federal agencies, and states have taken some steps to streamline program administration and rules, such as by making greater use of data-sharing where permitted by federal law and aligning programs' applications and eligibility determination processes. For example, SSI recipients in most states are automatically eligible for Medicaid, and GAO previously reported that some states have integrated the SNAP eligibility process with other low-income programs, such as through combined applications and common eligibility workers. GAO is not making recommendations in this report. |
As has been the case for the previous 10 fiscal years, the federal government did not maintain adequate systems or have sufficient and reliable evidence to support certain material information reported in the U.S. government’s accrual basis consolidated financial statements. The underlying material weaknesses in internal control, which generally have existed for years, contributed to our disclaimer of opinion on the U.S. government’s accrual basis consolidated financial statements for the fiscal years ended 2007 and 2006. Appendix I describes the material weaknesses that contributed to our disclaimer of opinion in more detail and highlights the primary effects of these material weaknesses on the accrual basis consolidated financial statements and on the management of federal government operations. The material weaknesses that contributed to our disclaimer of opinion were the federal government’s inability to satisfactorily determine that property, plant, and equipment and inventories and related property, primarily held by the Department of Defense (DOD), were properly reported in the consolidated financial statements; implement effective credit reform estimation and related financial reporting processes at certain federal credit agencies; reasonably estimate or adequately support amounts reported for certain liabilities, such as environmental and disposal liabilities, or determine whether commitments and contingencies were complete and properly reported; support significant portions of the total net cost of operations, most notably related to DOD, and adequately reconcile disbursement activity at certain agencies; adequately account for and reconcile intragovernmental activity and balances between federal agencies; ensure that the federal government’s consolidated financial statements were (1) consistent with the underlying audited agency financial statements, (2) properly balanced, and (3) in conformity with Generally Accepted Accounting Principles; and, identify and either resolve or explain material differences that exist between certain components of the budget deficit reported in Treasury’s records, used to prepare the Reconciliation of Net Operating Cost and Unified Budget Deficit and Statement of Changes in Cash Balance from Unified Budget and Other Activities, and related amounts reported in federal agencies’ financial statements and underlying financial information and records. Due to the material weaknesses and the additional limitations on the scope of our work, as discussed in our audit report, there may also be additional issues that could affect the accrual basis consolidated financial statements that have not been identified. In addition to the material weaknesses that contributed to our disclaimer of opinion, which were discussed above, we found three other material weaknesses in internal control as of September 30, 2007. These weaknesses are discussed in more detail in appendix II, including the primary effects of the material weaknesses on the accrual basis consolidated financial statements and on the management of federal government operations. These other material weaknesses were the federal government’s inability to determine the full extent to which improper payments occur, identify and resolve information security control weaknesses and manage information security risks on an ongoing basis, and effectively manage its tax collection activities. Further, our audit report discusses certain significant deficiencies in internal control at the governmentwide level. These significant deficiencies involve the following areas: preparing the Statement of Social Insurance for certain programs, and monitoring and oversight regarding certain federal grants and entities that offer Medicare health plan options. Individual federal agency financial statement audit reports identify additional control deficiencies which were reported by agency auditors as material weaknesses or significant deficiencies at the individual agency level. We do not deem these additional control deficiencies to be material weaknesses at the governmentwide level. Regarding agencies’ internal controls, in December 2004, OMB revised OMB Circular No. A-123, Management’s Responsibility for Internal Control, which became effective for fiscal year 2006. In fiscal year 2006, agencies began to implement the more rigorous requirements of the revised OMB Circular No. A-123, which include management identification, assessment, testing, correction, and documentation of internal controls over financial reporting for each account or group of accounts, as well as an annual assurance statement from the agency head as to whether internal control over financial reporting is effective. OMB recognized that due to the complexity of some agencies, implementation of these new requirements may span more than 1 year. Accordingly, certain agencies have adopted multiyear implementation plans. According to OMB’s Federal Financial Management Report for 2007, 16 of the 24 CFO Act agencies have performed assessments required by OMB Circular No. A-123 for all key processes, while the remaining 8 CFO Act agencies are phasing in implementation of the requirements by testing a portion of the key processes and providing plans for testing the remaining processes within 3 years. Also, according to that report, to achieve its strategic goal of improving effectiveness of internal control over financial reporting, OMB has developed priority actions that include updating guidance, as necessary, based on lessons learned from agencies’ implementation of the circular. It will be important that OMB continue to monitor and oversee federal agencies’ implementation of these new requirements. Three major impediments to our ability to render an opinion on the U.S. government’s accrual basis consolidated financial statements continued to be: (1) serious financial management problems at DOD, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements. Extensive efforts by DOD officials and cooperative efforts between agency chief financial officers, Treasury officials, and OMB officials will be needed to resolve these serious obstacles to achieving an opinion on the U.S. government’s accrual basis consolidated financial statements. Essential to further improving financial management governmentwide and ultimately to achieving an opinion on the U.S. government’s consolidated financial statements is the resolution of serious weaknesses in DOD’s business operations. DOD is one of the largest and most complex organizations in the world. Since the first financial statement audit of a major DOD component was attempted almost 20 years ago, we have reported that weaknesses in DOD’s business operations, including financial management, not only adversely affect the reliability of reported financial data, but also the economy, efficiency, and effectiveness of its operations. DOD continues to dominate GAO’s list of high-risk programs designated as vulnerable to waste, fraud, abuse, and mismanagement, bearing responsibility, in whole or in part, for 15 of 27 high-risk areas. Eight of these areas are specific to DOD and include DOD’s overall approach to business transformation, as well as business systems modernization and financial management. Collectively, these high-risk areas relate to DOD’s major business operations, including financial management, which directly support the warfighters, including their pay, the benefits provided to their families, and the availability and condition of equipment and supplies they use both on and off the battlefield. Successful transformation of DOD’s financial management operations will require a multifaceted, cross-organizational approach that addresses the contribution and alignment of key elements, including sustained leadership, strategic plans, people, processes, and technology. Congress clearly recognized, in the National Defense Authorization Act for Fiscal Year 2008, the need for executive-level attention in ensuring that DOD was on a sustainable path toward achieving business transformation. This legislation codifies Chief Management Officer (CMO) responsibilities at a high level in the department—assigning them to the Deputy Secretary of Defense—and establishing a full-time Deputy CMO and designating CMO responsibilities within the military services. However, in less than a year, our government will undergo a change in administrations, which raises questions about the continuity of effort and the sustainability of the progress that DOD has made to date. As such, we believe the CMO position should be codified as a separate position from the Deputy Secretary of Defense in order to provide full-time attention to business transformation over the long term, subject to an extended term appointment. Because business transformation is a long-term and complex process, we have recommended a term of at least 5 to 7 years to provide sustained leadership and accountability. Importantly, DOD has taken steps toward developing and implementing a framework for addressing the department’s long-standing financial management weaknesses and improving its capability to provide timely, reliable, and relevant financial information for analysis, decision making, and reporting, a key defense transformation priority. Specifically, this framework, which is discussed in both the department’s Enterprise Transition Plan (ETP) and the Financial Improvement and Audit Readiness (FIAR) Plan, includes the department’s Standard Financial Information Structure (SFIS) and Business Enterprise Information System (BEIS). DOD intends this framework to define and put into practice a standard DOD-wide financial management data structure as well as enterprise-level capabilities to facilitate reporting and comparison of financial data across the department. DOD’s efforts to develop and implement SFIS and BEIS should help to improve the consistency and comparability of the department’s financial information and reporting; however, a great deal of work remains before the financial management capabilities of DOD and its components’ transformation efforts achieve financial visibility. Examples of work remaining include data cleansing; improvements to current policies, processes, procedures, and controls; and implementation of fully integrated systems. In 2007, DOD introduced refinements to its approach for achieving financial statement auditability. These refinements include the following: Requesting audits of entire financial statements rather than attempting to build upon audits of individual financial statement line items. Focusing on improvements in end-to-end business processes, or segments that underlie the amounts reported on the financial statements. Using audit readiness validations and annual verification reviews of segment improvements to help ensure sustainability of corrective actions and improvements. Forming a working group to begin auditability risk assessments of financial systems at key decision points in their development and deployment life cycle to help ensure that the processes and internal controls support repeatable production of auditable financial statements. We are encouraged by DOD’s efforts and emphasize the necessity for consistent management oversight toward achieving financial management capabilities and reporting of meaningful and measurable transformation effort benchmarks and accomplishments. We will continue to monitor DOD’s efforts to transform its business operations and address its financial management challenges as part of our continuing DOD business enterprise architecture and financial audit readiness oversight. Federal agencies are unable to adequately account for and reconcile intragovernmental activity and balances. OMB and Treasury require the chief financial officers (CFO) of 35 executive departments and agencies to reconcile, on a quarterly basis, selected intragovernmental activity and balances with their trading partners. In addition, these agencies are required to report to Treasury, the agency’s inspector general, and GAO on the extent and results of intragovernmental activity and balances reconciliation efforts as of the end of each fiscal year. A substantial number of the agencies did not adequately perform the required reconciliations for fiscal years 2007 and 2006. For these fiscal years, based on trading partner information provided to Treasury via agencies’ closing packages, Treasury produced a “Material Difference Report” for each agency showing amounts for certain intragovernmental activity and balances that significantly differed from those of its corresponding trading partners as of the end of the fiscal year. Based on our analysis of the “Material Difference Reports” for fiscal year 2007, we noted that a significant number of CFOs were unable to adequately explain the differences with their trading partners or did not provide adequate documentation to support responses. For both fiscal years 2007 and 2006, amounts reported by federal agency trading partners for certain intragovernmental accounts were not in agreement by significant amounts. In addition, a significant number of CFOs cited differing accounting methodologies, accounting errors, and timing differences for their material differences with their trading partners. Some CFOs simply indicated that they were unable to explain the differences with their trading partners with no indication when the differences will be resolved. As a result of the above, the federal government’s ability to determine the impact of these differences on the amounts reported in the accrual basis consolidated financial statements is significantly impaired. In 2006, OMB issued Memorandum No. M-07-03, Business Rules for Intragovernmental Transactions (Nov. 13, 2006), and Treasury issued the Treasury Financial Manual Bulletin No. 2007-03, Intragovernmental Business Rules (Nov. 15, 2006). This guidance added criteria for resolving intragovernmental disputes and major differences between trading partners for certain intragovernmental transactions and called for the establishment of an Intragovernmental Dispute Resolution Committee. OMB is currently working with the Chief Financial Officers Council to create the Intragovernmental Dispute Resolution Committee. Treasury is also taking steps to help resolve material differences in intragovernmental activity and balances. For example, Treasury is requiring federal agencies to provide a plan of action on how the agency is addressing certain of its unresolved material differences. Resolving the intragovernmental transactions problem remains a difficult challenge and will require a strong commitment by federal agencies to fully implement the recently issued business rules and continued strong leadership by OMB and Treasury. Although further progress was demonstrated in fiscal year 2007, the federal government continued to have inadequate systems, controls, and procedures to ensure that the consolidated financial statements are consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles (GAAP). Treasury has showed progress by demonstrating that amounts in the Statement of Social Insurance were consistent with the underlying federal agencies’ audited financial statements and that the Balance Sheet and the Statement of Net Cost were consistent with federal agencies’ financial statements prior to eliminating intragovernmental activity and balances. However, Treasury’s process for compiling the consolidated financial statements did not ensure that the information in the remaining three principal financial statements and notes were fully consistent with the underlying information in federal agencies’ audited financial statements and other financial data. During fiscal year 2007, Treasury, in coordination with OMB, continued to develop and implement corrective action plans and milestones for short-term and long-range solutions for certain internal control weaknesses we have reported regarding the process for preparing the consolidated financial statements. Resolving some of these internal control weaknesses will be a difficult challenge and will require a strong commitment from Treasury and OMB as they execute and implement their corrective action plans. Under the Federal Financial Management Improvement Act of 1996 (FFMIA), as a part of the CFO Act agencies’ financial statement audits, auditors are required to report whether agencies’ financial management systems comply substantially with (1) federal financial management systems requirements, (2) applicable federal accounting standards, and (3) the U.S. Government Standard General Ledger (SGL) at the transaction level. These factors, if implemented successfully, help provide a solid foundation for improving accountability over government operations and routinely producing sound cost and operating performance information. As shown in figure 1, 19 out of the 24 CFO Act agencies received an unqualified opinion on their financial statements in fiscal year 2007; however, 8 of these 19 agencies’ systems did not substantially comply with one or more of the three FFMIA requirements. This shows that irrespective of these unqualified “clean” opinions on the financial statements, many agencies still do not have reliable, useful and timely financial information with which to make informed decisions and ensure accountability on an ongoing basis. The modernization of federal financial management systems has been a long-standing challenge at many federal agencies. As shown in figure 1, auditors reported that 13 of the 24 CFO Act agencies’ systems did not substantially comply with one or more of the three FFMIA requirements for fiscal year 2007. This compares with 17 agencies for fiscal year 2006. Although the number of agencies reported as not substantially compliant has declined, the federal government’s capacity to manage with timely and useful data remains limited, thereby hampering its ability to effectively administer and oversee its major programs. For fiscal year 2007, noncompliance with federal financial management systems requirements was the most frequently cited deficiency of the three FFMIA requirements. One of the federal financial management systems requirements is for agencies to have integrated financial management systems. Based on our review of the fiscal year 2007 audit reports, we identified the lack of integrated financial management systems to be one of the six problem areas for the 13 agency systems that are reported as not being substantially compliant with FFMIA. Figure 2 summarizes these six areas and the number of agencies with problems reported in each area. The lack of integrated financial management systems typically results in agencies expending major time, effort, and resources, including in some cases, hiring external consultants to develop information that their systems should be able to provide on a daily or recurring basis. In addition, nonintegrated systems are more prone to error which could result in information that is not reliable, useful, or timely. Figure 2 also shows that auditors for 11 CFO Act agencies had reported the lack of accurate and timely recording of financial information as a problem in fiscal year 2007. Accurate and timely recording of financial information is essential for effective financial management. Furthermore, the majority of participants at a recent Comptroller General’s forum on improving financial management systems agreed that financial management systems are not able to provide, or provide little, information that is reliable, useful, and timely to assist management in their day-to-day decision making, which is the ultimate goal of FFMIA. Participants at the forum also discussed current financial management initiatives and the strategies for transformation of federal financial management. To reduce the cost and improve the outcome of federal financial management systems implementations, OMB continues to move forward on a key initiative—the financial management line of business (line of business), by leveraging common standards and shared solutions. OMB anticipates that the line of business initiative will help achieve the goals of improving the cost, quality, and performance of financial management operations. OMB and the Financial Systems Integration Office have demonstrated continued progress toward implementation of the line of business initiative by issuing a common governmentwide accounting classification structure, financial services assessment guide, and exposure drafts of certain standard business processes. However, as we previously recommended, OMB needs to continue defining standard business processes. A critical factor for success will be ensuring that agencies cannot continue developing and implementing their own stovepiped systems. Failure to do so may require additional work, increase costs to adopt these standard business processes, and further delay the transformation of federal financial management systems. In a January 2008 memo, OMB recognized the risks associated with nonstandardized processes and updated its guidance on the line of business. Current plans are for the Financial Systems Integration Office to continue developing business standards and incorporate them into software requirements and permit agencies and shared service providers to utilize only the certified products as configured. Along with these changes, continued high-priority and sustained top-level commitment by OMB and leaders throughout the federal government will be necessary to fully and effectively achieve the common goals of the line of business and FFMIA. The nation’s long-term fiscal challenge is a matter of utmost concern. The federal government faces large and growing structural deficits due primarily to rising health care costs and known demographic trends. There is a need to engage in a fundamental review of what the federal government does, how it does it, and how it is financed. Understanding and addressing the federal government’s financial condition and the nation’s long-term fiscal challenge are critical to maintain fiscal flexibility so that policymakers can respond to current and emerging social, economic, and security challenges. While some progress has been made in recent years in addressing the federal government’s short-term fiscal condition, the nation has not made progress on its long-term fiscal challenge. However, even this short-term deficit is understated: It masks the fact that the federal government has been using the Social Security surplus to offset spending in the rest of government for many years. If the Social Security surplus is excluded, the on-budget deficit in fiscal year 2007 was more than double the size of the unified deficit. For example, Treasury reported a unified deficit of $163 billion and an on-budget deficit of $344 billion in fiscal year 2007. While the federal government’s unified budget deficit has declined in recent years, its liabilities, contingencies and commitments, and social insurance responsibilities have increased. As of September 30, 2007, the U.S. government reported in the 2007 Financial Report that it owed (i.e., liabilities) more than it owned (i.e., assets) by more than $9 trillion. Further, the Statement of Social Insurance in the Financial Report disclosed $41 trillion in social insurance responsibilities, including Medicare and Social Security, up more than $2 trillion from September 30, 2006. Information included in the Financial Report, such as the Statement of Social Insurance along with long-term fiscal simulations and fiscal sustainability reporting can help increase understanding of the federal government’s long-term fiscal outlook. Over the next few decades, the nation’s fiscal challenge will be shaped largely by rising health care costs and known demographic trends. As the baby boom generation retires, federal spending on retirement and health care programs—Social Security and Medicare, and Medicaid—will grow dramatically. The future costs of Social Security and Medicare commitments are reported in the Statement of Social Insurance in the Financial Report. We were able to render an unqualified opinion on the 2007 Statement of Social Insurance—a significant accomplishment for the federal government. The statement displays the present value of projected revenues and expenditures for scheduled benefits of social insurance programs. For Social Security and Medicare alone, projected expenditures for scheduled benefits exceed earmarked revenues (i.e., dedicated payroll taxes and premiums) by approximately $41 trillion over the next 75 years in present value terms. Stated differently, one would need approximately $41 trillion invested today to deliver on the currently promised benefits not covered by earmarked revenues for the next 75 years. Table 1 shows a simplified version of the Statement of Social Insurance by its primary components. Although these social insurance commitments dominate the long-term outlook, they are not the only federal programs or activities that bind the future. GAO developed the concept of “fiscal exposures” to provide a framework for considering the wide range of responsibilities, programs, and activities that may explicitly or implicitly expose the federal government to future spending. In addition to the social insurance commitments, the federal government’s fiscal exposures include about $11 trillion in liabilities reported on the Balance Sheet, $1 trillion of other commitments and contingencies, as well as other potential exposures that cannot be quantified. So beyond dealing with Medicare and Social Security, policymakers need to look at other policies that limit the federal government’s flexibility—not necessarily to eliminate all of them but to at least be aware of them and make a conscious decision to reform them in a manner that will be responsible, equitable, and sustainable. Long-term fiscal simulations of future revenues and costs for all federal programs offer a comprehensive assessment of the federal government’s long-term fiscal outlook. Since 1992, GAO has published long-term fiscal simulations of what might happen to federal deficits and debt levels under varying policy assumptions. GAO’s simulations—which are neither forecasts nor predictions—continue to show ever-increasing long-term deficits resulting in a federal debt level that ultimately spirals out of control. The timing of deficits and the resulting debt buildup varies depending on the assumptions used. For example, figure 3 shows GAO’s simulation of the deficit path based on recent trends and policy preferences. In this simulation, we start with the Congressional Budget Office’s (CBO) baseline and then assume that (1) all expiring tax provisions are extended through 2018—and then revenues are brought to their historical level as a share of gross domestic product (GDP) plus expected revenue from deferred taxes—(2) discretionary spending grows with the economy, and (3) no structural changes are made to Social Security, Medicare, or Medicaid. Over the long term, the nation’s fiscal challenge stems primarily from rising health care costs and, to a lesser extent, the aging of the population. Absent significant changes on the spending or revenue sides of the budget or both, these long-term deficits will encumber a growing share of federal resources and test the capacity of current and future generations to afford both today’s and tomorrow’s commitments. Figure 4 looks behind the deficit path to the composition of federal spending. It shows that the estimated growth in the major entitlement programs leads to an unsustainable fiscal future. In this figure, the category “all other spending” includes much of what many think of as “government”—discretionary spending on such activities as national defense, homeland security, veterans health benefits, national parks, highways and mass transit, and foreign aid, plus mandatory spending on the smaller entitlement programs such as Supplemental Security Income, Temporary Assistance for Needy Families, and farm price supports. The growth in Social Security, Medicare, Medicaid, and interest on debt held by the public dwarfs the growth in all other types of spending. A government that in one generation does nothing more than pay interest on its debt and mail checks to retirees and some of their health providers is unacceptable. The federal government’s increased spending and rising deficits will drive a rising debt burden. At the end of fiscal year 2007, debt held by the public exceeded $5 trillion. Figure 5 shows that this growth in the federal government’s debt cannot continue unabated without causing serious harm to the economy. In the last 200 years, only during and after World War II has debt held by the public exceeded 50 percent of GDP. But this is only part of the story. The federal government for years has been borrowing the surpluses in the Social Security trust funds and other similar funds and using them to finance federal government costs. When such borrowings occur, Treasury issues federal securities to these government funds that are backed by the full faith and credit of the U.S. government. Although borrowing by one part of the federal government from another may not have the same economic and financial implications as borrowing from the public, it represents a claim on future resources and hence a burden on future taxpayers and the future economy. If federal securities held by those funds are included, the federal government’s total debt is much higher—about $9 trillion as of the end of fiscal year 2007. As shown in figure 6, total federal debt increased over each of the last four fiscal years. On September 29, 2007, the statutory debt limit had to be raised for the third time in 4 years in order to avoid being breached; between the end of fiscal year 2003 and the end of fiscal year 2007, the debt limit had to be increased by about one-third. It is anticipated that actions will need to be taken in fiscal year 2009 to avoid breaching the current statutory debt limit of $9,815 billion. A quantitative measure of the long-term fiscal challenge measure is called “the fiscal gap.” The fiscal gap is the amount of spending reduction or tax increases that would be needed today to keep debt as a share of GDP at or below today’s ratio. The fiscal gap is an estimate of the action needed to achieve fiscal balance over a certain time period such as 75 years. Another way to say this is that the fiscal gap is the amount of change needed to prevent the kind of debt explosion implicit in figure 5. The fiscal gap can be expressed as a share of the economy or in present value dollars. Under GAO’s alternative simulation, closing the fiscal gap would require spending cuts or tax increases equal to 6.7 percent of the entire economy over the next 75 years, or about $54 trillion in present value terms. To put this in perspective, closing the gap would require an increase in today’s federal tax revenues of about 36 percent or an equivalent reduction in today’s federal program spending (i.e., in all spending except for interest on the debt held by the public, which cannot be directly controlled) to be maintained over the entire period. Policymakers could phase in the policy changes so that the tax increases or spending cuts would grow over time and allow people to adjust. The size of these annual tax increases and spending cuts would be more than five times the fiscal year 2007 deficit of 1.2 percent of GDP. Delaying action would make future adjustments even larger. Under our alternative simulation, waiting even 10 years would require a revenue increase of about 45 percent or noninterest spending cuts of about 40 percent. This gap is too large for the federal government to grow its way out of the problem. To be sure, additional economic growth would certainly help the federal government’s financial condition and ability to address this fiscal gap, but it will not eliminate the need for action. Understanding and addressing the federal government’s financial condition and the nation’s long-term fiscal challenge are critical to the nation’s future. As we reported in December 2007, several countries have begun preparing fiscal sustainability reports to help assess the implications of their public pension and health care programs and other challenges in the context of overall sustainability of government finances. European Union members also annually report on longer-term fiscal sustainability. The goal of these reports is to increase public awareness and understanding of the long-term fiscal outlook in light of escalating health care cost growth and population aging, to stimulate public and policy debates, and to help policymakers make more informed decisions. These countries used a variety of measures, including projections of future revenue and spending and summary measures of fiscal imbalance and fiscal gaps, to assess fiscal sustainability. Last year, we recommended that the United States should prepare and publish a long-range fiscal sustainability report. I am pleased to note that the Federal Accounting Standards Advisory Board (FASAB) will soon issue a draft of a proposed standard on fiscal sustainability reporting. Here in the first half of 2008, the long-term fiscal challenge is not in the distant future. In fact, the oldest members of the baby boom generation are now eligible for Social Security retirement benefits and will be eligible for Medicare benefits in less than 3 years. The budget and economic implications of the baby boom generation’s retirement have already become a factor in CBO’s 10-year budget projections and that impact will only intensify as the baby boomers age. The financial markets also are noticing. Earlier this year, Moody’s Investors Service issued its annual report on the United States. In that report, it noted that absent Medicare and Social Security reforms, the long- term fiscal health of the United States and the federal government’s current Aaa sovereign credit rating were at risk. Likewise, Standard and Poor’s noted in a recent report that Medicare and Social Security reform is necessary to prevent a much worse long-term fiscal deterioration. These comments serve to note the significant longer-term interest rate risk that the federal government faces absent meaningful action to address these long-range challenges. Higher longer-term interest costs would only serve to complicate the nation’s fiscal, economic, and other challenges in future years. At some point, action will need to be taken to change the nation’s fiscal course. The sooner appropriate actions are taken, the sooner the miracle of compounding will begin to work for the federal budget rather than against it. Conversely, the longer that action to deal with the nation’s long- term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing and future generations will have to bear a greater burden of the cost. Simply put, the federal government is on an imprudent and unsustainable long-term fiscal path that is getting worse with the passage of time. Meeting this long-term fiscal challenge overarches everything. It is the nation’s largest sustainability challenge, but it is not the only one. Aligning the federal government to meet the challenges and capitalize on the opportunities of the 21st century will require a fundamental review of what the federal government does, how it does it, and how it is financed. In addressing the growing costs of the major entitlement programs and reexamining other major programs, policies, and activities, attention should be paid to both the spending and the revenue sides of the budget. Programs that run through the tax code—sometimes referred to as tax expenditures—must be reexamined along with those that run through the spending side. Moving forward, the federal government needs to start making tough choices in setting priorities and linking resources and activities to results. Meeting the nation’s long-term fiscal challenge will require a multipronged approach bringing people together to tackle health care, Social Security, and the tax system as well as strengthening oversight of programs and activities, including creating approaches to better facilitate the discussion of integrated solutions to crosscutting issues; and reengineering and reprioritizing the federal government’s existing programs, policies, and activities to address 21st century challenges and capitalize on related opportunities. Regarding the tax system, although tax reform may need to play a role in meeting our challenges, any system will need to include design features and reasonable service and enforcement efforts to maximize compliance. Under the current system, the tax gap—the difference between the tax amounts taxpayers pay voluntarily on time and what they should pay under the laws—contributes to the nation’s long-term fiscal challenges and can undermine compliance if those who comply see their friends, neighbors, and business competitors avoiding their tax obligations. According to the latest Internal Revenue Service (IRS) estimates for tax year 2001, the federal government falls $345 billion short of collecting all of the taxes owed before voluntary late payments and IRS enforcement actions and $290 billion afterwards. Although the extent to which we can reduce the tax gap is unknown, meaningful reductions can contribute resources to dealing with our long-term challenges. There are also some process changes that might help the discussion by increasing the transparency and relevancy of key financial, performance, and budget reporting and estimates that highlight the fiscal challenge. Stronger budget controls for both spending and tax policies to deal with both near-term and longer-term deficits may also be helpful. In summary, to effectively address the nation’s long-term fiscal challenge, tackling health care cost growth and other existing entitlement programs will be essential. However, this entitlement reform alone will not get the job done. The federal government also needs to reprioritize and constrain other spending and consider whether revenues at the historical average of 18.3 percent of GDP will be sufficient—that may involve discussion of the tax system. I am pleased that GAO has been able to offer you specific analysis and tools to assist you in this important work. However, only elected officials can and should decide which issues to address as well as how and when to address them. Addressing these problems will require tough choices, and the fiscal clock is ticking. The Financial Report provides useful information on the government’s financial position at the end of the fiscal year and changes that have occurred over the course of the year. However, in evaluating the nation’s fiscal condition, it is critical to look beyond the short-term results and consider the overall long-term financial condition and long-term fiscal challenge of the government—that is, the sustainability of the federal government’s programs, commitments, and responsibilities in relation to the resources expected to be available. The current federal financial reporting model does not clearly, comprehensively and transparently show the wide range of responsibilities, programs, and activities that may either obligate the federal government to future spending or create an expectation for such spending. Thus, it does not provide the best possible picture of the federal government’s overall performance, financial condition, and future fiscal outlook. Accounting and financial reporting standards have continued to evolve to provide adequate transparency and accountability over the federal government’s operations, financial condition and fiscal outlook. However, after 11 years of reporting at the governmentwide level, it is appropriate to consider the need for further revisions to the current federal financial reporting model, which could affect both consolidated and agency reporting. While the current reporting model recognizes some of the unique needs of the federal government, a broad reconsideration of the federal financial reporting model could address the following types of questions: What kind of information is most relevant and useful for a sovereign nation? Do traditional financial statements convey information in a transparent manner? What is the role of the balance sheet in the federal government reporting model? How should items that are unique to the federal government, such as social insurance commitments and the power to tax, be reported? In addition, further enhancements to accounting and financial reporting standards are needed to effectively convey the long-term financial condition of the U.S. government and annual changes therein. For example, the federal government’s financial reporting should be expanded to disclose the reasons for significant changes during the year in scheduled social insurance benefits and funding. It should also include (1) a Statement of Fiscal Sustainability that provides a long-term look at the sustainability of social insurance programs in the context of all federal programs, and (2) other sustainability information, including intergenerational equity. The Federal Accounting Standards Advisory Board is currently considering possible changes to social insurance reporting and has initiated a project on fiscal sustainability reporting. Engaging in a reevaluation of the federal financial reporting model could stimulate discussion that would bring about a new way of thinking about the federal government’s financial and performance reporting needs. To understand various perceptions and needs of the stakeholders for federal financial reporting, a wide variety of stakeholders from the public and private sector should be consulted. Ultimately, the goal of such a reevaluation would be reporting enhancements that can help the Congress deliberate on strategies to address the federal government’s challenges, including its long-term fiscal challenge. In closing, it is important that the progress that has been made in improving federal financial management activities and practices be sustained by the current administration as well as the new administration that will be taking office next year. Across government, financial management improvement initiatives are underway, and if effectively implemented, they have the potential to greatly improve the quality of financial management information as well as the efficiency and effectiveness of agency operations. However, the federal government still has a long way to go before realizing strong federal financial management. For DOD, the challenges are many. We are encouraged by DOD’s efforts toward addressing its long-standing financial management weaknesses, but consistent and diligent management oversight toward achieving financial management capabilities, including audit readiness is needed. Federal agencies need to improve the government’s financial management systems. The civilian CFO Act agencies must continue to strive toward routinely producing not only annual financial statements that can pass the scrutiny of a financial audit, but also quarterly financial statements and other meaningful financial and performance data to help guide decision makers on a day-to-day basis. Addressing the nation’s long-term fiscal challenge constitutes a major transformational challenge that may take a generation or more to resolve. GAO is committed to sustained attention to this fiscal challenge to help ensure that this is not the first generation to leave its children and grandchildren a legacy of failed fiscal stewardship and the hardships that would bring. Given the size of the projected deficit, the leadership and efforts of many people will be needed to put the nation on a more prudent and sustainable longer-term fiscal path. Given the federal government’s current financial condition and the nation’s long-term fiscal challenge, the need for the Congress and federal policymakers and management to have reliable, useful, and timely financial and performance information is greater than ever. Sound decisions on the current and future direction of vital federal government programs and policies are more difficult without such information. We will continue to stress the need for development of more meaningful financial and performance reporting on the federal government. Until the problems discussed in this testimony are effectively addressed, they will continue to have adverse implications for the federal government and the taxpayers. Finally, I want to emphasize the value of sustained congressional interest in these issues. It will be key that, going forward, the appropriations, budget, authorizing, and oversight committees hold agency top leadership accountable for resolving the remaining problems and that they support improvement efforts. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other members of the subcommittee may have at this time. For further information regarding this testimony, please contact McCoy Williams, Managing Director; and Gary Engel, Director; Financial Management and Assurance at (202) 512-2600, as well as Susan Irving, Director; Federal Budget Analysis, Strategic Issues at (202) 512-9142. Key contributions to this testimony were also made by staff on the Consolidated Financial Statement audit team. The continuing material weaknesses discussed below contributed to our disclaimer of opinion on the federal government’s accrual basis consolidated financial statements. The federal government did not maintain adequate systems or have sufficient reliable evidence to support information reported in the accrual basis consolidated financial statements, as described below. The federal government could not satisfactorily determine that property, plant, and equipment (PP&E) and inventories and related property were properly reported in the consolidated financial statements. Most of the PP&E and inventories and related property are the responsibility of the Department of Defense (DOD). As in past years, DOD did not maintain adequate systems or have sufficient records to provide reliable information on these assets. Other agencies, most notably the National Aeronautics and Space Administration, reported continued weaknesses in internal control procedures and processes related to PP&E. Without reliable asset information, the federal government does not fully know the assets it owns and their location and condition and cannot effectively (1) safeguard assets from physical deterioration, theft, or loss; (2) account for acquisitions and disposals of such assets; (3) ensure that the assets are available for use when needed; (4) prevent unnecessary storage and maintenance costs or purchase of assets already on hand; and (5) determine the full costs of programs that use these assets. Federal agencies that account for the majority of the reported balances for direct loans and loan guarantee liabilities continue to have internal control weaknesses related to their credit reform estimation and related financial reporting processes. While progress in addressing these long-standing weaknesses was reported by certain federal credit agencies, certain deficiencies in the Department of Agriculture’s credit reform processes contributed to its auditor being unable to obtain sufficient, appropriate evidence to support related accounts. As such, for fiscal year 2007, we have added this area to the list of material weaknesses contributing to our disclaimer of opinion on the accrual basis consolidated financial statements. These issues and the complexities associated with estimating the costs of lending activities significantly increase the risk that material misstatements in agency and governmentwide financial statements could occur and go undetected. Moreover, these weaknesses continue to adversely affect the federal government’s ability to support annual budget requests for federal lending programs, make future budgetary decisions, manage program costs, and measure the performance of lending activities. The federal government could not reasonably estimate or adequately support amounts reported for certain liabilities. For example, DOD was not able to estimate with assurance key components of its environmental and disposal liabilities. In the past, DOD could not support a significant amount of its estimated military postretirement health benefits liabilities included in federal employee and veteran benefits payable. These unsupported amounts related to the cost of direct health care provided by DOD-managed military treatment facilities. This year, the auditor’s report on the financial statements that include the estimated military postretirement health benefits liabilities had not been issued as of the date of our audit report. Further, the federal government could not determine whether commitments and contingencies, including those related to treaties and other international agreements entered into to further the U.S. government’s interests, were complete and properly reported. Problems in accounting for liabilities affect the determination of the full cost of the federal government’s current operations and the extent of its liabilities. Also, weaknesses in internal control supporting the process for estimating environmental and disposal liabilities could result in improperly stated liabilities as well as affect the federal government’s ability to determine priorities for cleanup and disposal activities and to appropriately consider future budgetary resources needed to carry out these activities. In addition, if disclosures of commitments and contingencies are incomplete or incorrect, reliable information is not available about the extent of the federal government’s obligations. The previously discussed material weaknesses in reporting assets and liabilities, material weaknesses in financial statement preparation, as discussed below, and the lack of adequate disbursement reconciliations at certain federal agencies affect reported net costs. As a result, the federal government was unable to support significant portions of the total net cost of operations, most notably related to DOD. With respect to disbursements, DOD and certain other federal agencies reported continued weaknesses in reconciling disbursement activity. For fiscal years 2007 and 2006, there was unreconciled disbursement activity, including unreconciled differences between federal agencies’ and Treasury’s records of disbursements and unsupported federal agency adjustments, totaling billions of dollars, which could also affect the balance sheet. Unreliable cost information affects the federal government’s ability to control and reduce costs, assess performance, evaluate programs, and set fees to recover costs where required. If disbursements are improperly recorded, this could result in misstatements in the financial statements and in certain data provided by federal agencies for inclusion in The Budget of the United States Government (hereafter referred to as “the President’s Budget”) concerning obligations and outlays. Federal agencies are unable to adequately account for and reconcile intragovernmental activity and balances. OMB and Treasury require the chief financial officers (CFO) of 35 executive departments and agencies to reconcile, on a quarterly basis, selected intragovernmental activity and balances with their trading partners. In addition, these agencies are required to report to Treasury, the agency’s inspector general, and GAO on the extent and results of intragovernmental activity and balances reconciliation efforts as of the end of the fiscal year. A substantial number of the agencies did not adequately perform the required reconciliations for fiscal years 2007 and 2006. For these fiscal years, based on trading partner information provided to Treasury via agencies’ closing packages, Treasury produced a “Material Difference Report” for each agency showing amounts for certain intragovernmental activity and balances that significantly differed from those of its corresponding trading partners as of the end of the fiscal year. Based on our analysis of the “Material Difference Reports” for fiscal year 2007, we noted that a significant number of CFOs were unable to adequately explain the differences with their trading partners or did not provide adequate documentation to support responses. For both fiscal years 2007 and 2006, amounts reported by federal agency trading partners for certain intragovernmental accounts were not in agreement by significant amounts. In addition, a significant number of CFOs cited differing accounting methodologies, accounting errors, and timing differences for their material differences with their trading partners. Some CFOs simply indicated that they were unable to explain the differences with their trading partners with no indication when the differences will be resolved. As a result of the above, the federal government’s ability to determine the impact of these differences on the amounts reported in the accrual basis consolidated financial statements is significantly impaired. While further progress was demonstrated in fiscal year 2007, the federal government continued to have inadequate systems, controls, and procedures to ensure that the consolidated financial statements are consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles (GAAP). In addition, as discussed in our scope limitation section of our audit report, Treasury could not provide the final fiscal year 2007 accrual basis consolidated financial statements and adequate supporting documentation in time for us to complete all of our planned auditing procedures. During our fiscal year 2007 audit, we found the following: Treasury has showed progress by demonstrating that amounts in the Statement of Social Insurance were consistent with the underlying federal agencies’ audited financial statements and that the Balance Sheet and the Statement of Net Cost were consistent with federal agencies’ financial statements prior to eliminating intragovernmental activity and balances. However, Treasury’s process for compiling the consolidated financial statements did not ensure that the information in the remaining three principal financial statements and notes were fully consistent with the underlying information in federal agencies’ audited financial statements and other financial data. At the federal agency level, for fiscal year 2007, auditors for many of the CFO Act agencies reported material weaknesses or other significant deficiencies regarding agencies’ financial reporting processes which, in turn, could affect the preparation of the consolidated financial statements. For example, auditors for several agencies reported that a significant number of adjustments were required to prepare the agencies’ financial statements. These and other auditors are also required to separately audit financial information sent by the federal agencies to Treasury via a closing package. In connection with preparing the consolidated financial statements, Treasury had to create adjustments to correct significant errors found in agencies’ audited closing package information. To make the fiscal years 2007 and 2006 consolidated financial statements balance, Treasury recorded net decreases of $6.7 billion and $11 billion, respectively, to net operating cost on the Statement of Operations and Changes in Net Position, which it labeled “Other – Unmatched transactions and balances.” An additional net $2.5 billion and $10.4 billion of unmatched transactions were recorded in the Statement of Net Cost for fiscal years 2007 and 2006, respectively. Treasury is unable to fully identify and quantify all components of these unreconciled activities. The federal government could not demonstrate that it had fully identified and reported all items needed to reconcile the operating results, which for fiscal year 2007 showed a net operating cost of $275.5 billion, to the budget results, which for the same period showed a unified budget deficit of $162.8 billion. Treasury’s elimination of certain intragovernmental activity and balances continues to be impaired by the federal agencies’ problems in handling their intragovernmental transactions. As previously discussed, amounts reported for federal agency trading partners for certain intragovernmental accounts were not in agreement by significant amounts. This resulted in the need for intragovernmental elimination entries by Treasury that recorded the net differences between trading partners as “Other – Unmatched transactions and balances,” in order to force the Statements of Operations and Changes in Net Position into balance. In addition, differences in other intragovernmental accounts, primarily related to transactions with the General Fund, have not been reconciled, still remain unresolved, and total hundreds of billions of dollars. Therefore, the federal government continues to be unable to determine the impact of unreconciled intragovernmental activity and balances on the accrual basis consolidated financial statements. We have consistently reported that certain financial information required by GAAP was not disclosed in the consolidated financial statements. In 2006, the Federal Accounting Standards Advisory Board issued a new standard that eliminated or lessened the disclosure requirements for the consolidated financial statements related to certain information that Treasury had not been reporting. While Treasury made progress in addressing some of the remaining omitted information, there continue to be disclosures required by GAAP that are excluded from the consolidated financial statements. Also, certain material weaknesses noted in this report, for example, commitments and contingencies related to treaties and other international agreements, preclude Treasury from determining if a disclosure is required by GAAP in the consolidated financial statements and us from determining if the omitted information is material. Further, Treasury’s ability to report information in accordance with GAAP will also remain impaired until federal agencies, such as DOD, can provide Treasury with complete and reliable information required to be reported in the consolidated financial statements. Other internal control weaknesses existed in Treasury’s process for preparing the consolidated financial statements, involving inadequate or ineffective (1) documentation of certain policies and procedures; (2) management reviews of adjustments and key iterations of the financial statements, notes, and management discussion and analysis provided to GAO for audit; (3) supporting documentation for certain adjustments made to the consolidated financial statements; (4) processes for monitoring the preparation of the consolidated financial statements; and (5) spreadsheet controls. The consolidated financial statements include financial information for the executive, legislative, and judicial branches, to the extent that federal agencies within those branches have provided Treasury such information. However, as we have reported in past years, there continue to be undetermined amounts of assets, liabilities, costs, and revenues that are not included, and the federal government did not provide evidence or disclose in the consolidated financial statements that the excluded financial information was immaterial. As in previous years, Treasury did not have adequate systems and personnel to address the magnitude of the fiscal year 2007 financial reporting challenges it faced, such as weaknesses in Treasury’s process for preparing the consolidated financial statements noted above. We found that personnel at Treasury’s Financial Management Service had excessive workloads that required an extraordinary amount of effort and dedication to compile the consolidated financial statements; however, there were not enough personnel with specialized financial reporting experience to help ensure reliable financial reporting by the reporting date. In addition, the federal government does not perform quarterly compilations at the governmentwide level, which leads to almost all of the compilation effort being performed during a condensed time period at the end of the year. Both the Reconciliation of Net Operating Cost and Unified Budget Deficit and Statement of Changes in Cash Balance from Unified Budget and Other Activities report a budget deficit for fiscal years 2007 and 2006 of $162.8 billion and $247.7 billion, respectively. The budget deficit is calculated by subtracting actual budget outlays (outlays) from actual budget receipts (receipts). For several years, we have been reporting material unreconciled differences between the total net outlays reported in selected federal agencies’ Statement of Budgetary Resources (SBR) and Treasury’s central accounting records used to compute the budget deficit reported in the consolidated financial statements. OMB and Treasury have continued to work with federal agencies to reduce these material unreconciled differences. However, billions of dollars of differences still exist in this and other components of the deficit because the federal government does not have effective processes and procedures for identifying, resolving, and explaining material differences in the components of the deficit between Treasury’s central accounting records and information reported in agency financial statements and underlying agency financial information and records. Until these differences are timely reconciled by the federal government, their effect on the U.S. government’s consolidated financial statements will be unknown. In fiscal year 2007, we again noted that several agencies’ auditors reported internal control weaknesses (1) affecting the agencies’ SBRs, and (2) relating to monitoring, accounting, and reporting of budgetary transactions. These weaknesses could affect the reporting and calculation of the net outlay amounts in the agencies’ SBRs. In addition, such weaknesses also affect the agencies’ ability to report reliable budgetary information to Treasury and OMB and may affect the unified budget outlays reported by Treasury in its Combined Statement of Receipts, Outlays, and Balances, and certain amounts reported in the President’s Budget. The federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007. In addition to the material weaknesses discussed in appendix I that contributed to our disclaimer of opinion on the accrual basis consolidated financial statements, we found the following three other material weaknesses in internal control. Although showing progress under OMB’s continuing leadership, agencies’ fiscal year 2007 reporting under the Improper Payments Information Act of 2002 (IPIA) does not reflect the full scope of improper payments. For fiscal year 2007, federal agencies’ estimates of improper payments, based on available information, totaled about $55 billion. The increase from the prior year estimate of $41 billion was primarily attributable to a component of the Medicaid program reporting improper payments for the first time totaling about $13 billion for fiscal year 2007, which we view as a positive step to improve transparency over the full magnitude of improper payments. Major challenges remain in meeting the goals of the act and ultimately better ensuring the integrity of payments. For fiscal year 2007, four agency auditors reported noncompliance issues with IPIA related to agencies’ risk assessments, sampling methodologies, implementing corrective action plans, and recovering improper payments. We also identified issues with agencies’ risk assessments such as not completing risk assessments of all programs and activities or not conducting annual reviews of any programs and activities. OMB’s current guidance allows for annual risk assessments to be conducted less often than annually (generally every 3 years) for programs where baselines are already established, are in the process of being measured, or are scheduled to be measured by an established date. For fiscal year 2007, we noted that 4 agencies were implementing a 3-year cycle for conducting risk assessments. Furthermore, select agencies have not reported improper payment estimates for 14 risk-susceptible federal programs with total program outlays of about $170 billion for fiscal year 2007. Lastly, we found that major management challenges and internal control weaknesses continue to plague agency operations and programs susceptible to significant improper payments. For example, in the Department of Education’s fiscal year 2007 Performance and Accountability Report, the Office of Inspector General reported that its recent investigations continue to uncover problems, including inadequate attention to improper payments and failure to identify and take corrective action to detect and prevent fraudulent activities by grantees. Although progress has been made, serious and widespread information security control weaknesses continue to place federal assets at risk of inadvertent or deliberate misuse, financial information at risk of unauthorized modification or destruction, sensitive information at risk of inappropriate disclosure, and critical operations at risk of disruption. GAO has reported information security as a high-risk area across government since February 1997. During fiscal year 2007, federal agencies did not consistently implement effective controls to prevent, limit, or detect unauthorized access to computing resources. Specifically, agencies did not always (1) identify and authenticate users to prevent unauthorized access; (2) enforce the principle of least privilege to ensure that authorized access was necessary and appropriate; (3) apply encryption to protect sensitive data on networks and portable devices; (4) log, audit, and monitor security-relevant events; and (5) restrict physical access to information assets. In addition, agencies did not consistently configure network devices and services to prevent unauthorized access and ensure system integrity, such as patching key servers and workstations in a timely manner; assign incompatible duties to different individuals or groups so that one individual does not control all aspects of a process or transaction; and maintain or test continuity of operations plans for key information systems. Such information security control weaknesses unnecessarily increase the risk that the reliability and availability of data that are recorded in or transmitted by federal financial management systems could be compromised. A primary reason for these weaknesses is that federal agencies have not yet fully institutionalized comprehensive security management programs, which are critical to identifying information security control weaknesses, resolving information security problems, and managing information security risks on an ongoing basis. The administration has taken important actions to improve information security, such as issuing extensive guidance on information security and requiring agencies to perform specific actions to protect certain personally identifiable information. However, until agencies effectively and fully implement agencywide information security programs, federal data and systems, including financial information, will remain at risk. During fiscal year 2007, material internal control weaknesses and systems deficiencies continued to affect the federal government’s ability to effectively manage its tax collection activities, an issue that has been reported in our financial statement audit reports for the past 10 years. Due to errors and delays in recording taxpayer information, payments, and other activities, taxpayers were not always credited for payments made on their taxes owed, which could result in undue taxpayer burden. In addition, the federal government did not always follow up on potential unreported or underreported taxes and did not always pursue collection efforts against taxpayers owing taxes to the federal government. Moreover, the federal government did not have cost benefit information, related cost-based performance measures, or a systematic process for ensuring it is using its resources to maximize its ability to collect what is owed and minimize the disbursements of improper tax refunds. As a result, the federal government is vulnerable to loss of tax revenue and exposed to potentially billions of dollars in losses due to inappropriate refund disbursements. | The Congress and the President need to have reliable, useful and timely financial and performance information to make sound decisions on the current and future direction of vital federal government programs and policies. Unfortunately, except for the 2007 Statement of Social Insurance, GAO was again unable to provide assurance on the reliability of the consolidated financial statements of the U.S. government (CFS) due primarily to certain material weaknesses in the federal government's internal control. GAO has reported that unless these weaknesses are adequately addressed, they will, among other things, (1) hamper the federal government's ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; and (2) affect the federal government's ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities. This testimony presents the results of GAO's audit of the CFS for fiscal year 2007 and discusses the federal government's long-term fiscal outlook. For the 11th consecutive year, three major impediments prevented GAO from rendering an opinion on the federal government's accrual basis consolidated financial statements: (1) serious financial management problems at the Department of Defense, (2) the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government's ineffective process for preparing the consolidated financial statements. In addition, financial management system problems continue to hinder federal agency accountability. Although the federal government still has a long way to go, significant progress has been made in improving federal financial management. For example, audit results for many federal agencies have improved and federal financial system requirements have been developed. In addition, GAO was able to render an unqualified opinion on the 2007 Statement of Social Insurance. Further, for the first time, the federal government issued a summary financial report which is intended to make the information in the Financial Report of the U.S. Government (Financial Report) more accessible and understandable to a broader audience. It is important that this progress be sustained by the current administration as well as the new administration that will be taking office next year and that the Congress continues its oversight to bring about needed improvements to federal financial management. Given the federal government's current financial condition and the nation's long-term fiscal challenge, the need for the Congress and federal policymakers and management to have reliable, useful, and timely financial and performance information is greater than ever. Information included in the Financial Report, such as the Statement of Social Insurance along with long-term fiscal simulations and fiscal sustainability reporting, can help increase understanding of the nation's long-term fiscal outlook. The nation's long-term fiscal challenge is a matter of utmost concern. The federal government faces large and growing structural deficits due primarily to rising health care costs and known demographic trends. Simply put, the federal government is on an imprudent and unsustainable long-term fiscal path. Addressing this challenge will require a multipronged approach. Moreover, the longer that action is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Finally, the federal government should consider the need for further revisions to the current federal financial reporting model to recognize the unique needs of the federal government. A broad reconsideration of issues, such as the kind of information that may be relevant and useful for a sovereign nation, could lead to reporting enhancements that might help provide the Congress and the President with more useful financial information to deliberate strategies to address the nation's long-term fiscal challenge. |
Experts agree that chemical facilities present an attractive target for terrorists intent on causing massive damage. Terrorist attacks involving the theft or release of certain chemicals could significantly impact the health and safety of millions of Americans; disrupt local or regional economies; or impact other critical infrastructures that rely on chemicals, such as drinking water and wastewater treatment systems. The disaster in Bhopal, India, in 1984, when methyl isocyanate—a highly toxic chemical—leaked from a tank, reportedly killing about 3,800 people and injuring anywhere from 150,000 to 600,000 others, illustrates the potential threat to public health from a chemical release. As we reported in 2003, Justice has been warning of the terrorist threat to chemical facilities for a number of years and has concluded that the risk of an attempt in the foreseeable future to cause an industrial chemical release is both real and credible. On the basis of analysis of trends in international and domestic terrorism and the burgeoning interest in weapons of mass destruction among criminals and terrorists, Justice warned of potential targeting of chemical facilities by terrorists even before the events of September 11, 2001. In fact, according to Justice, domestic terrorists plotted to use a destructive device against a U.S. facility that housed millions of gallons of propane in the late 1990s. According to news reports, terrorists also have targeted chemical facilities in Europe. Furthermore, on May 15, 2005, bombs were detonated in Spain by suspected Basque separatists at two chemical plants, a paint factory, and a metal works facility, leading to minor injuries from toxic fume inhalation. No one has yet comprehensively assessed security at the nation’s chemical facilities. In April 2005 testimony before the Senate Committee on Homeland Security and Governmental Affairs on chemical facility security, experts from the Council on Foreign Relations and the Brookings Institute underscored the threat that U.S. chemical facilities pose and expressed concern about the adequacy of security at these facilities. While federal and state governments and the chemical industry have taken steps to address security at chemical facilities, recent studies and media exposés have raised doubts about security at some plants. According to media accounts, every year from 2001 to 2005, reporters and environmental activists gained access to chemical tanks and computer centers that control manufacturing processes at a number of facilities, including American Chemistry Council (ACC) member company facilities. In addition, a 2004 survey of employees at 189 chemical facilities conducted for the Paper, Allied-Industrial, Chemical, and Energy Workers International Union found that employees had doubts about the effectiveness of facilities’ efforts to prevent a terrorist attack. Less than half of the respondents (44 percent) indicated that their companies’ preventative actions, including security efforts, were effective in reducing facility vulnerabilities to terrorist attack. The U.S. Chemical Safety and Hazard Investigation Board also testified in April 2005 that gaps in safety and emergency response preparedness at chemical facilities leave Americans vulnerable. Furthermore, some environmental and advocacy groups believe reducing safety risks should be an integral part of facilities’ efforts to reduce the potential consequences of a terrorist attack. These groups advocate reducing the inherent risks that toxic chemicals present by substituting safer chemicals or switching to inherently safer technologies. EPA regulates about 15,000 facilities under the Clean Air Act because they produce, use, or store more than certain threshold amounts of specific chemicals that would pose the greatest risk to human health and the environment if they were accidentally released into the air. These facilities must take a number of steps, including preparing a risk management plan (RMP), to prevent and prepare for an accidental release and, therefore, are referred to as RMP facilities. These facilities fall within a variety of industries and produce, use, or store a host of products, including (1) basic chemicals used to manufacture other products, such as fertilizers, plastics, and synthetic fibers; (2) specialty chemicals used for a specific purpose, such as a functional ingredient or a processing aid in the manufacture of a range of products, including adhesives and solvents, coatings, industrial gases and cleaners, and water management chemicals; (3) life science chemicals consisting of pharmaceuticals and pesticides; and (4) consumer products, such as hair and skin products and cosmetics. Some of these facilities are part of critical infrastructure sectors other than the chemical sector. For example, about 2,000 of these facilities are community water systems that are part of the water infrastructure sector. In addition, other facilities that house hazardous chemicals that are listed under the RMP regulations are not subject to RMP requirements because the quantities stored or used are below threshold amounts. However, these facilities could also potentially be at risk of terrorist attacks. Table 1 outlines the number and percentage of processes in different industry sectors that involve more than threshold amounts of hazardous chemicals. The Homeland Security Act established DHS and set forth its mission to, among other things, prevent terrorist attacks within the United States, reduce the nation’s vulnerability to terrorism, and minimize the damage from and assist in the recovery from terrorist attacks that occur within the United States. The act also established DHS’s IAIP and made it responsible for critical infrastructure protection and information analysis functions. As part of its statutory responsibilities, IAIP must develop a comprehensive national plan for securing the key resources and critical infrastructure of the United States. IAIP’s other responsibilities include identifying threats, conducting comprehensive assessments of the vulnerabilities of key resources, conducting risk assessments to determine the risks posed by certain types of terrorist attacks, identifying priorities for protective measures, and recommending measures to protect critical infrastructure and key resources. The Secretary of the Department of Homeland Security has given IAIP responsibility for creating and managing private sector advisory councils composed of representatives of industries and associations designated by the Secretary to advise the Secretary on various matters, including private sector products, applications, and solutions, as they relate to homeland security challenges. This act and the December 2003 presidential directive established the framework under which IAIP carries out its responsibilities for coordinating the overall national critical infrastructure protection effort. The directive designates a lead federal agency for each critical infrastructure sector, such as agriculture, banking and finance, and chemical. DHS is now the lead, or sector-specific agency, for the chemical infrastructure, which is a change from national strategies issued in July 2002 and February 2003 that named EPA as the lead agency. IAIP is responsible for infrastructure protection activities for the chemical sector, including developing a plan for protecting the chemical sector by July 2004. Other IAIP chemical sector responsibilities include collaborating with relevant federal agencies, state and local governments, and the private sector; conducting or facilitating vulnerability assessments of the chemical encouraging risk management strategies to protect against and mitigate the effects of attacks against chemical sector assets; and collaborating with the appropriate private sector entities and continuing to encourage the development of information-sharing and analysis mechanisms and to support sector coordinating mechanisms. In February 2005, DHS released an Interim National Infrastructure Protection Plan that also outlines the responsibilities of sector-specific agencies. As the lead agency for the chemical sector, the national plan calls for DHS to identify and prioritize critical chemical facilities, evaluate the chemical sector’s vulnerabilities and risks, develop and implement protective programs for high-priority chemical facilities, identify regulatory options for protective measures, and maintain a relationship with all stakeholders. Currently, federal requirements address security at some U.S. chemical facilities. A small number of chemical facilities must comply with the Maritime Transportation Security Act of 2002 (MTSA). MTSA and its implementing regulations require maritime facility owners and operators to conduct assessments of certain at-risk facilities to identify vulnerabilities, develop security plans to mitigate these vulnerabilities, and implement the measures discussed in the security plans. MTSA and implementing regulations also require that the United States Coast Guard conduct inspections at these facilities and prohibit operation of facilities that do not have required security plans approved by the Secretary or that are not operating in compliance with these plans. According to July 27, 2005, testimony before the Senate Homeland Security and Governmental Affairs Committee, the Coast Guard has reviewed and approved facility security plans for 300 chemical facilities. Some states and localities have also created security requirements at chemical facilities. For example, Maryland’s Hazardous Material Security Act requires RMP facilities in the state to perform vulnerability assessments, develop and implement security measures, and report to the state Department of the Environment. Under New York’s Anti-Terrorism Preparedness Act of 2004, the state Office of Homeland Security, subject to available appropriations, must require certain chemical facilities to conduct vulnerability assessments. Under the Domestic Security Preparedness Task Force established by New Jersey law, New Jersey Department of Environmental Protection officials work with the state’s chemical facilities to adopt security best practices. In addition, Baltimore, Maryland, requires chemical manufacturers to follow a set of safety and security regulations devised by its fire and police commissioners; noncompliance can result in penalties, such as the withholding or suspension of facility operating permits. Separate from its responsibilities for enhancing the protection of the chemical sector from terrorist attacks, the federal government imposes safety and emergency response requirements on chemical facilities that may incidentally reduce the likelihood and consequences of terrorist attacks. For example, the Emergency Planning and Community Right to Know Act requires owners and operators of facilities that maintain specified quantities of certain extremely hazardous chemicals to annually submit information on their chemical inventory to state and local emergency response officials. This information is used to help prepare community response plans in the event of a chemical incident. Furthermore, under the Clean Air Act, EPA requires owners and operators of RMP facilities to prepare and implement a plan to detect and prevent or minimize accidental releases. In addition to evaluating “worst-case” accidental release scenarios, facility owners and operators must implement a program to prevent accidental releases that includes safety precautions and maintenance, and monitoring and training measures, and they must have an emergency response plan. The Department of Labor’s Occupational Safety and Health Administration’s process safety management standard also requires facilities to assess and address the hazards of their chemical processes. All of these requirements could potentially mitigate a terrorist attack by (1) providing an incentive to facilities to reduce or eliminate chemicals below regulated threshold levels, (2) requiring facilities to implement measures to improve the safety of areas that are vulnerable to a chemical release, and (3) facilitating emergency response planning that increases preparedness for a chemical release—whether intentional or unintentional. Since 2001, the Congress has considered a number of legislative proposals that would give the federal government a greater role in ensuring the protection of the nation’s chemical facilities. These legislative proposals would have granted DHS or EPA, or one of these agencies in consultation with the other, the authority to require chemical facilities to conduct vulnerability assessments and implement security measures to address their vulnerabilities. In the 109th Congress, three bills have been introduced but have not yet been acted upon: H.R. 1562, H.R. 2237, and S. 2145. Table 2 provides an overview of the major provisions of these legislative proposals. Also in the 109th Congress, the conference committee for H.R. 2360, making appropriations for DHS for fiscal year 2006, directed DHS to submit a report to the Senate and House Committees on Appropriations by February 10, 2006, describing (1) the resources needed to implement mandatory security requirements for the chemical sector and to create a system for auditing and ensuring compliance with the security standards and (2) the security requirements and any reasons why the requirements should differ from those already in place for chemical facilities that operate in a port zone; complete vulnerability assessments of the highest risk U.S. chemical facilities by December 2006, giving preference to facilities that, if attacked, pose the greatest threat to human life and the economy; and complete a national security strategy for the chemical sector by February 10, 2006. As part of an overall National Infrastructure Protection Plan (NIPP), DHS is developing a plan for protecting the chemical sector that will establish a framework for reducing the overall vulnerability of the sector in partnership with the industry and state and local authorities. The NIPP will outline how DHS and relevant stakeholders will develop and implement the national effort to protect infrastructures across all sectors. In February 2005, DHS released an interim NIPP that provides a strategy for critical infrastructure protection and a means for discussion with critical stakeholders. The NIPP states that each sector-specific agency is responsible for developing, implementing, and maintaining a sector- specific plan for their sector. Each plan is supposed to outline strategies for (1) collaborating with all relevant federal departments and agencies, state and local governments, and the private sector; (2) identifying assets; (3) conducting or facilitating vulnerability assessments; and (4) encouraging risk management strategies to protect against and mitigate the effects of an attack. The Chemical Sector-Specific Plan will be an appendix to the NIPP. While DHS did not provide an estimated completion date for either the Chemical Sector-Specific Plan or the NIPP, DHS stated that the plan and the plans for the other critical infrastructure and key resource sectors will be completed within 6 months of approval of the NIPP. As the agency with lead responsibility for the chemical sector, DHS is responsible for developing the chemical sector-specific plan. DHS completed a draft of the plan in July 2004. Since that time, DHS has worked to revise the plan to accommodate changes to DHS’s risk management strategy, comments from stakeholders’ review of the NIPP, and consultation with chemical sector stakeholders. While DHS officials told us that the structure of the final plan will differ from the July 2004 version, they said that the basic principles and content described in that draft will still be included in the final plan. On the basis of our review of the draft plan and discussions with DHS officials, the final plan will present background information on the sector, including a description of (1) the types of assets that are considered part of the chemical sector; (2) the regulatory authority of key federal agencies relative to the chemical industry and the key stakeholders in the sector; (3) the roles and responsibilities of each stakeholder; and (4) DHS’s coordination with federal, state, and local agencies, such as law enforcement and emergency management departments, and with the private sector on efforts that include sharing intelligence and security information; describe the process DHS will use to develop a comprehensive inventory of assets in the chemical sector, including plans for working with the private sector to develop this inventory, since the critical infrastructure in the chemical sector is predominantly privately owned and operated; describe DHS’s efforts to identify and assess the vulnerabilities of chemical facilities and how DHS plans to prioritize these efforts on the basis of the vulnerability assessments; outline the protective programs that will be created to prevent, deter, mitigate, and recover from attacks on chemical facilities, and describe how DHS will work with private sector and government entities to implement these programs; explain the performance metrics DHS will use to measure the effectiveness of DHS and industry security efforts and ensure that DHS meets its overall critical infrastructure goals, including (1) identifying and assessing the vulnerability of the nation’s critical infrastructure and key resources; (2) ensuring the protection of the nation’s critical infrastructure and key resources from terrorist attack; (3) establishing a collaborative environment across all levels of government and with the private sector to better protect the nation’s critical infrastructure and key resources; and (4) coordinating and integrating, as appropriate, with other federal emergency management and preparedness activities, including the National Response Plan; document DHS’s plans to work with stakeholders to review current federal research and development initiatives for prioritization and to identify gaps between the chemical sector’s requirements and current projects in order to identify research and development needs; and outline challenges the department faces in coordinating the efforts of the chemical sector, such as collecting information about facilities from a large number of owners; communicating with chemical facility owners who do not belong to industry associations; coordinating the roles of sector stakeholders; and working without federal regulatory authority. Furthermore, in September 2005, the conference committee, in the conference report for the Department of Homeland Security Appropriations Act, 2006, directed DHS to complete a national security strategy for the chemical sector by February 10, 2006. According to DHS, the department is preparing a high-level strategic document—the National Strategy for Securing the Chemical Sector—that is separate but complementary to the Chemical Sector-Specific Plan. Our March 2003 report on chemical security recommended that DHS develop a comprehensive national chemical security strategy that is both practical and cost-effective. We recommended that the strategy identify high-risk facilities, collect information on industry security preparedness, specify the roles and responsibilities of each federal agency partnering with the chemical industry, and develop appropriate information-sharing mechanisms. If the final Chemical Sector-Specific Plan includes the elements DHS has described, it should meet the criteria set out in this recommendation. DHS has taken initial action to identify the chemical sector’s critical assets, prioritize facilities, develop and implement protective programs, exchange information with the private sector, and coordinate efforts with EPA and other federal agencies. In this regard, DHS has identified about 3,400 chemical facilities as posing the greatest hazard to human life and health, and it is developing a new risk assessment methodology to compare and prioritize all critical infrastructure assets according to their level of threat, their vulnerability to attack, and the consequences of an attack on the facility. Furthermore, DHS has implemented a number of programs to assist the private sector and local communities in protecting chemical facilities, conducted site vulnerability assessments at 38 facilities, and installed cameras at some high-consequence facilities. DHS is also distributing threat information to the industry and coordinating sector activities with the Chemical Sector Coordinating Council, an industry-led working group that acts as a liaison for the chemical sector. Finally, DHS is coordinating with EPA and other federal agencies through a government coordinating council. As the chemical sector-specific agency, one of DHS’s key responsibilities under the interim NIPP is to identify the assets of the chemical sector and prioritize them according to risk. DHS’s ongoing efforts in this regard, once completed, should produce a methodology for identifying critical assets in the chemical sector and comparing assets across sectors. DHS has identified approximately 3,400 chemical facilities that it believes pose the greatest hazard to human life and health in the event of a terrorist attack. To develop an inventory of the chemical sector’s critical assets, DHS first had to define what the sector includes. According to DHS officials, in general, they consider the chemical sector to include facilities that manufacture, distribute, and store chemicals, but not retail facilities. The chemical sector also includes facilities that overlap with other critical infrastructure sectors. For example, refineries, while considered part of the energy sector, use large amounts of chemicals and are often colocated with chemical manufacturing facilities. In addition, water purification and sanitation facilities are part of the water sector, but they store large amounts of chemicals on-site. Similarly, agricultural facilities house toxic chemicals, such as fertilizers and pesticides. While the chemical sector includes a large number of facilities, DHS is focusing its efforts for the sector by identifying high-priority facilities. As a starting point, DHS has adapted EPA’s RMP database of facilities with more than threshold amounts of certain chemicals to develop an interim inventory of chemical facilities of concern in the event of a terrorist attack. DHS officials told us that, to prioritize facilities, they reduced the list of RMP facilities in the database by eliminating entries that were redundant and 3,000 facilities that were no longer in business or were no longer RMP facilities (e.g., they had reduced the volume of chemicals on-site below the RMP threshold). Furthermore, DHS determined that 8,000 of the remaining sites were the responsibility of another critical infrastructure sector. For example, DHS removed water treatment and distribution facilities because they fall under the water critical infrastructure sector, which is the responsibility of EPA. In addition, DHS removed agricultural facilities, such as fertilizer and pesticide distributors. DHS’s analysis resulted in approximately 4,000 facilities. According to DHS officials, DHS then conducted a consequence analysis of these remaining facilities to identify those that, if attacked, would endanger the largest number of lives. According to DHS, the analysis included the following: Reviewing the amount and toxicity of RMP materials stored at sites. For example, DHS eliminated some facilities with flammable chemicals because they would not create catastrophic effects when released. DHS focused on toxic chemicals that pose inhalation hazards and very high- order flammables and explosives. Reviewing the population density in the vicinity of facilities with large amounts of toxic chemicals. DHS modeled potential toxic plumes from facilities and revised the population estimates of the RMP worst-case scenarios to develop what they believe is a more realistic estimate of the population that a terrorist attack would harm. Evaluating possible impacts of an intentional attack, instead of using the accidental release model used in the RMP program. For example, DHS evaluated the daytime versus the nighttime population surrounding facilities and the possible impact resulting from the release of the entire volume of chemicals at a facility during an attack. By contrast, the RMP analysis considers the impacts of the release of the chemical volume in the single largest container. Consulting with industry experts to identify facilities that, if attacked, could cause serious economic harm or the shortage of critical materials. On the basis of this analysis, DHS identified approximately 3,400 chemical facilities where a worst-case scenario release potentially could affect over 1,000 people. According to DHS, 272 of these facilities could potentially affect more than 50,000 people. These 272 facilities include chemical manufacturing plants as well as some refineries located with petrochemical facilities, wastewater treatment facilities, and other types of chemical facilities. In commenting on our report, DHS noted that it did not intend wastewater treatment facilities to be incorporated in the list of top facilities. DHS is developing a new process known as Risk Analysis Management for Critical Asset Protection (RAMCAP) that will allow the department to apply a risk management approach to prioritize assets in all critical infrastructure sectors. According to DHS, RAMCAP will provide a common methodology, terminology, and framework for homeland security risk analysis and decision making that is intended to allow consistent risk management across all sectors. According to DHS, RAMCAP will improve DHS’s ability to collect information on critical infrastructure assets, compare risks across assets, and increase owners’ and operators’ awareness of the vulnerabilities and consequences at their sites. DHS contracted with the American Society of Mechanical Engineers to assist it in creating the RAMCAP methodology. In 2004, the society presented the methodology to academic and industry officials and incorporated their comments. The feedback from many industry officials conveyed that the methodology was complex, and that industry officials completing the methodology would need assessment tools with terminology specific to their sector. As a result, the society hired subcontractors with industry expertise to develop sector-specific vulnerability assessment methodologies for five sectors: (1) chemical, (2) nuclear power, (3) nuclear fuel storage, (4) petroleum refining, and (5) liquefied natural gas storage/terminals. According to a society official, the subcontractor developing the chemical sector methodology studied and incorporated elements from existing methodologies, such as those developed by Sandia National Laboratories and the American Institute for Chemical Engineers’ Center for Chemical Process Safety. The RAMCAP chemical sector methodology differs from these methodologies in that it uses terminology and processes that will be consistent with other sector methodologies and will allow comparisons to be made from the results of facility assessments across sectors. To assist in the development of the chemical sector tools, the subcontractor created a committee composed of representatives from chemical companies, such as Dow, DuPont, and Air Products; trade associations; national laboratories; and other entities with expertise, such as the Center for Chemical Process Safety. In the first step in the RAMCAP process, chemical facility owners/operators will voluntarily complete a screening tool (top screen) through a secure Web site. The top screen helps identify the consequences of an attack at a facility, including the human, economic, and psychological impacts. It would also identify such things as whether a facility produces a product that is essential to the military or pharmaceutical industry, or that is critical to the delivery of water or energy. On the basis of the results of the screening tool, DHS will identify facilities of highest concern and ask them to voluntarily complete a security vulnerability assessment, the second step in the RAMCAP process. Facility owners/operators will be able to use the results of previous vulnerability assessments they may have conducted to assist them in completing the RAMCAP process. The security vulnerability assessment will include the following steps: assessment of facility characteristics, such as potential target areas and facility attractiveness to attack; threat characterization of specific scenarios of concern—these “benchmark threats” of concern to the government will allow cross- sector comparison; consequence analysis of the impacts that could be produced by an vulnerability assessment of a facility’s existing security measures in place, including mitigation, detection, and response capability. According to DHS officials, DHS will work with industry associations to distribute the RAMCAP screening tool to the highest consequence chemical facilities. DHS officials expect that between 5 and 10 percent of those chemical facility owners/operators will be asked to complete the self- vulnerability assessment. DHS has tested both the screening tool and the vulnerability assessment, and several private sector companies have also volunteered to pilot test the vulnerability assessment. In 2005, New York’s Office of Homeland Security, working with DHS, requested all chemical facilities in the state to complete the RAMCAP screening tool. According to industry officials, however, the companies that pretested the vulnerability assessment found the exercise valuable but difficult to complete. They said that DHS officials assisted their companies in completing the assessment and expressed concern that some owners/operators may have difficulty completing the assessment without DHS’s help. Some chemical company officials who had not participated in the pilot told us that they would be reluctant to complete the RAMCAP assessment, citing concerns about the work involved, the need for DHS to collect the information, and the ability of DHS to safeguard information on the facilities' security vulnerabilities. In addition, DHS recognizes that it will have difficulty in collecting information about chemical facilities and verifying these data due to the large number of facilities in the sector. While DHS plans to work with industry associations to encourage owners/operators to share information, private sector participation will be voluntary, and some companies do not belong to industry associations and, therefore, may not be easily contacted. According to DHS’s draft Chemical Sector-Specific Plan, DHS does not have the resources to verify asset data for all chemical facilities and will have to rely in large part on the accuracy of information submitted by the owners/operators and federal, state, and local agencies. However, DHS plans to verify submitted information relating to high-consequence facilities. DHS has implemented a number of programs designed to assist the department in assessing chemical industry vulnerabilities, develop best practices, and assist the private sector and law enforcement in improving the security of high-risk chemical facilities. These programs will help DHS gather needed information on facilities and the level of security preparedness of the industry. Buffer Zone Protection Program: Through this program, DHS works with local law enforcement officials and facility owners to improve the security of the area surrounding the facility or “outside of the fence.” Improving the security of this buffer zone makes it more difficult for a terrorist to conduct surveillance or launch an attack. In general, a DHS team will visit a chemical plant and consider the facility’s vulnerabilities and the community’s capability to prevent and respond to an attack. Then, DHS brings together the appropriate local emergency response officials and provides training on how to assess buffer zone security and identify specific measures to reduce or eliminate vulnerabilities. Local officials conduct an assessment and summarize their work and the protective measures needed in a Buffer Zone Protection Plan. DHS reviews the plan and provides funding assistance to the community for some of the protective measures. According to DHS officials, the process helps facilitate relationships between owners/operators and the various response and law enforcement entities in the community. Several company officials we contacted who had participated in buffer zone assessments agreed with DHS’s assessment of the process. For example, one company told us that the process helped them develop a relationship with the local police, who are not always involved in emergency response planning at facilities. After the buffer zone assessment, the local police now patrols the company’s fence on every shift. Prior to March 2005, the Buffer Zone Protection Program was a loan program. DHS purchased equipment directly for loan to the states for a 1-year period prior to formal transfer of ownership. DHS received buffer zone plans for 10 chemical facilities and loaned over $260,000 in equipment to these jurisdictions. DHS also has conducted 63 technical assistance visits to assist chemical facility owners/operators and local law enforcement in assessing their buffer zone security. In March 2005, DHS announced a targeted grant program for states to purchase equipment that will enhance security measures around facilities. DHS identified 259 chemical manufacturing plants and storage and stockpile supply areas that are eligible under program guidelines for $12.95 million from the Buffer Zone Protection Plan grant program. According to DHS officials, these are sites with 50,000 people living in close enough proximity that, if attacked, some portion of this population would be at risk of death or serious injury. States may apply for these grants on the behalf of local jurisdictions that plan to implement protective measures. The local jurisdictions must conduct a buffer zone assessment and prepare a plan requesting funds for equipment on an approved list. Before the state can allocate funds, the guidelines state that DHS must approve the buffer zone plan and spending plan. States have until April 30, 2006, to apply for these funds. Site assistance visits: To assess and identify vulnerabilities at chemical facilities, DHS deploys teams of experts from both government and industry to facilities to conduct a site assistance visit. The teams conducting the visits have subject matter expertise in various areas, including physical security measures, system interdependencies, and terrorist attack planning. The teams have a field template to guide their efforts, and a typical visit lasts 1 to 2 days. Officials at participating facilities receive assistance in addressing security issues at their sites and obtain current threat information. At the conclusion of the visit, DHS suggests mitigation measures for the company to consider. As a result of these visits, DHS learns valuable information about chemical facility vulnerabilities and obtains information to assist in developing reports and identifying training for industry. As of June 15, 2005, DHS had conducted 38 site assistance visits at chemical facilities. These visits included trips to water/wastewater treatment facilities that store and use chemicals, major refineries, and chemical manufacturing facilities. DHS selected facilities to visit on the basis of a variety of factors, including whether the facility (1) would have significant economic or public health effects if attacked, (2) is near a special event of national significance, or (3) is in the vicinity where another site assistance visit is planned and whether the visit was requested by the owner/operator. DHS plans to conduct additional site assistance visits to chemical facilities in fiscal year 2006 on the basis of need. Maritime Transportation Security Act: The Coast Guard, now under DHS, is responsible for the MTSA program at facilities located along waterways, including 238 chemical sites. Program regulations established a process and deadlines for maritime facilities to follow in assessing their security risks and preparing related plans to include actions to mitigate any identified vulnerabilities. The Coast Guard has approved plans for all of these facilities and completed on-site compliance inspections. The Coast Guard has stated that it will continue to visit annually these and all facilities subject to MTSA to ensure compliance. The Coast Guard has awarded Port Security Grants to a number of chemical facilities to provide assistance for physical security enhancements. Other protective measure programs: DHS will place 68 protective security advisors in metropolitan areas across the country. The advisors have experience related to vulnerability reduction and physical security and many have law enforcement or military backgrounds. The advisors serve as a liaison between federal efforts and those by the state, local, and private sector. The advisors have responsibility for assisting in identifying high- priority facilities, providing the local community with information on threats and best practices, and coordinating training and facility visits. In addition, DHS has installed cameras for security monitoring at 10 high- consequence chemical facilities. These are facilities that could have a significant effect on public health or the national or regional economy if attacked. The cameras provide local law enforcement authorities with the ability to conduct remote surveillance of the areas surrounding the facility during elevated threat levels. State homeland security offices and DHS also have access and may monitor the facilities. Prior to the installation of cameras, Buffer Zone Protection Plans were completed at the sites that determined the need for additional surveillance. According to DHS officials, they are considering equipping additional sites with Webcams. DHS also is planning a series of Comprehensive Reviews in areas with a large number of chemical facilities, focusing on facilities’ security as well as emergency response capabilities in the local area. A team of federal officials from multiple agencies will plan and conduct the work in coordination with state and local officials. The goal of these reviews is to assess the current security and response capabilities of individual facilities, local law enforcement, and emergency response organizations. The results of the review should help reduce disconnects between emergency response, law enforcement, and facilities and identify training, processes, and resources needed for the community. For these reviews, DHS will rely heavily on cooperation with facility owners/operators. DHS plans to conduct one visit to a cluster of facilities and then determine if it needs to improve the processes. DHS hopes to complete six visits to clusters of facilities during 2006. DHS is responsible for collaborating with the private sector in protecting critical infrastructure. DHS’s two main vehicles for coordinating and sharing information on threats, vulnerabilities, and best practices are the chemical sector Information Sharing and Analysis Center (ISAC) and an industry-led Chemical Sector Coordinating Council. DHS also is creating a new secure computer system to share information, provide best practice reports, and conduct training and drills. In 2002, the federal government and ACC created the chemical sector ISAC to collect and share threat information for the chemical industry. Through ISAC, DHS provides the private sector with threat information by means of daily electronic mail and a secure Web site. While ISAC was initially designed to allow companies to report unexplained or suspicious incidents involving chemical facilities, the system can no longer provide this function because of technical constraints. To operate the center, ACC uses its existing 24-hour communication network for sharing information about chemical emergencies. Any company engaged in the production, storage, transportation, sale, or delivery of chemicals may participate in ISAC’s activities. ISAC has almost 600 participants representing more than 430 chemical companies that receive daily intelligence reports as well as episodic alerts and warnings. Some industry officials have complained about the lack of specific threat information they receive from DHS, and, in recent testimony, ACC called for more frequent and more detailed threat briefings that are specific to the chemical sector. DHS also is developing the Homeland Security Information Network– Chemical, a secure network for sharing information among DHS, state and local governments, law enforcement, and private sector critical infrastructure, including the chemical industry. Through the network, the chemical industry will receive immediate reports of threats to the sector directly from the Homeland Security Operations Center and DHS chemical sector specialists. The system also will allow owners/operators to report information to the government and each other. The network will allow for collaboration and coordination among chemical sector stakeholders, a shared document repository for best practices and planning activities, and forums for discussion. The chemical sector is one of the first sectors to pilot test the new system—approximately 25 industry officials have access to it. DHS plans to eventually enroll in the system all chemical company employees with a need for access to sensitive security information. According to ACC, legal concerns, such as who will operate the system and how DHS will protect the information provided by industry from release under the Freedom of Information Act, have delayed the use of the system. DHS is working with the industry on drafting agreements on the use of the network and information protection. The Chemical Sector Coordinating Council was formed voluntarily by trade associations within the chemical sector in June 2004, and it currently comprises representatives from 16 key industry stakeholder associations. The council is a single point of contact to facilitate organizing and coordinating sector policy developments, infrastructure protection planning, and plan implementation activities. In addition to serving as a routine information-sharing mechanism, the council has helped DHS develop an emergency response exercise and industry guidance and is working closely with DHS to develop, refine, and disseminate the RAMCAP methodology. Furthermore, DHS provided the council with a draft of its Chemical Sector-Specific Plan for comments in September 2005. According to DHS, the council represents the majority of chemical facility owners/operators through its broad membership. The council defines the chemical sector as “entities engaged in the production of chemicals, as well as those engaged in the storage, transportation, delivery, and use of chemicals not adequately addressed by other critical infrastructure sectors.” The council does not include water treatment facilities or chemical transportation modes (rail, truck, and barge) since both have separate sector coordination mechanisms. DuPont’s Director of Global Operations Security currently serves as the chair of the council to provide a specific, frontline perspective and guidance. The industry associations participating on the council include the following: The Adhesive and Sealant Council American Forest & Paper Association Chemical Producers and Distributors Association Institute of Makers of Explosives International Institute of Ammonia Refrigeration National Association of Chemical Distributors National Paint and Coatings Association National Petrochemical and Refiners Association The Society of the Plastics Industry, Inc. Synthetic Organic Chemical Manufacturers Association According to ACC, the interchange between DHS and the council has been hampered by DHS’s slow progress in determining whether the Federal Advisory Committee Act (FACA) applies to the council. Among other things, under FACA, federal advisory committee meetings must generally be open to the public, and agencies are required to prepare meeting minutes and make them available to interested parties. The Homeland Security Act allows the Secretary of DHS to establish and use the services of advisory committees and to exempt such committees from FACA. In June 2005, the Homeland Security Advisory Council recommended that the Secretary exempt both Sector Coordinating Councils and ISACs from FACA because of the critical value of this information-sharing relationship. To share industry best practices, DHS has prepared three guidance documents that highlight common issues across the chemical sector and identify measures for protecting chemical facilities. These reports are (1) the Common Characteristics and Vulnerabilities report, (2) the Potential Indicators of Terrorist Activity report, and (3) the Protective Measures report. DHS has provided copies of these reports to state Homeland Security Offices and the Chemical Sector Coordinating Council for distribution to owners/operators of chemical facilities and the law enforcement community. DHS also hosts training and tabletop exercises for facility owners/operators; state, local, and tribal governments; and local law enforcement agencies. DHS has developed a number of courses on such topics as surveillance detection, terrorism awareness, and buffer zone protection. DHS has hosted tabletop exercises at six high-risk chemical facilities and invited industry officials to participate in TopOff3, the third in a series of congressionally mandated emergency response exercises. These extensively planned exercises simulate a terrorist attack and test federal, state, local, and private sector responses. Industry officials we spoke with said both government and private sector participants learned valuable lessons from the exercises. Both DHS and the Homeland Security Advisory Council recognize the challenges in sharing information with the industry. According to department officials, DHS has difficulty reaching all members of the chemical sector. To address this issue, DHS plans to utilize ISAC as well as the Chemical Sector Council, other federal agencies, and state and local authorities to assist in identifying and communicating with chemical facilities. The Homeland Security Advisory Council recently recommended ways to improve information sharing between DHS and the industry. Homeland Security Presidential Directive Number 7 directs DHS to work closely with other federal departments and agencies, state and local governments, and the private sector to identify and prioritize the nation’s critical infrastructure and key resources and to protect them from terrorist attacks. DHS coordinates its chemical security efforts with EPA and other federal agencies through a government coordinating council. As outlined in DHS’s Interim National Infrastructure Protection Plan, government coordinating councils are intended to include representatives from DHS and the appropriate federal agencies to work with the Sector Coordinating Council in supporting the nation’s homeland security mission. According to DHS’s 2004 draft Chemical Sector-Specific Plan, DHS views government coordinating councils as the future of sector coordination and communications activities. Participants in the chemical sector government coordinating council include officials from the Department of Commerce’s Bureau of Industry and Security; Justice’s Bureau of Alcohol, Tobacco, Firearms, and Explosives and the Federal Bureau of Investigation; the Department of Transportation’s Federal Railroad Administration, Federal Motor Carrier Safety Administration, and Pipeline and Hazardous Materials Safety Administration; and EPA’s Office of Emergency Management and Water Security Division. DHS also recently invited officials from the Department of Energy, the Department of Labor’s Occupational Safety and Health Administration, and the Department of Defense to participate on the council. As of October 2005, the council had met four times to discuss issues related to chemical sector security. DHS officials told us that recent meetings included discussions of such topics as comparing the work of different government agencies on modeling chlorine incidents. In addition to interactions through the coordinating council, EPA has provided DHS with a copy of the RMP database and participates on a RAMCAP committee to develop chemical sector tools. According to EPA officials, however, EPA has not played a major role in analyzing these or other data on chemical risks to identify or prioritize chemical facilities. EPA officials believe that the agency could further assist DHS by providing analytical support in identifying high-risk facilities that should be targeted in DHS’s chemical sector efforts. These officials also believe that the agency has expertise in a number of other areas that has not been tapped and could support DHS’s activities. In addition to EPA’s expertise on RMP data and its familiarity with RMP facilities, EPA maintains information on hazardous chemicals and related facilities. For example, EPA collects some information under the Toxic Substances Control Act on industrial chemicals that may pose environmental or human health hazards and collects information about oil and pesticides facilities under other authorities. Furthermore, as the lead federal agency for hazardous materials emergency response, EPA has infrastructure in place around the country with designated on-site coordinators for hazardous materials incidents. These officials, as well as field inspectors who visit chemical facilities under a variety of environmental programs, are familiar with chemical facilities across the country and have general knowledge of process safety issues and expertise on hazardous material releases. EPA officials also told us that EPA staff have garnered extensive knowledge about the chemical sector through informal information sharing about facility practices. For example, EPA officials explained that before the RMP program, EPA collected and shared general information about facility safety problems as well as strategies facilities have used to address these problems. Finally, as the lead agency for the water sector, EPA has developed knowledge on security issues related to drinking water facilities. In this regard, under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, EPA is responsible for receiving vulnerability assessments from community water systems serving more than 3,300 people. DHS officials believe that their coordination with EPA has been sufficient; they told us that they do not see a need for additional coordination with EPA on data analysis or other efforts because EPA has no expertise relating to chemical industry security matters, as does DHS. Furthermore, the DHS officials stated that EPA is a safety agency and can add little to modeling or analysis of RMP data from a security perspective. DHS officials also told us that the department has not involved EPA in site assistance or Buffer Zone Protection Plan visits at chemical facilities because the owners/operators would strongly oppose EPA’s involvement, given its role in regulating other aspects of the chemical industry. These officials explained that, while EPA will be involved in the planning and preparation aspects of DHS’s chemical sector Comprehensive Reviews—which will bring together groups of government officials to visit clusters of chemical facilities in specific geographic areas—EPA will not participate in the site visits for the same reason. The chemical industry, led by its industry associations, has undertaken voluntary efforts to address plant security, but faces challenges in preparing facilities against terrorism. Some industry associations require member companies to assess their facilities’ vulnerabilities and make security enhancements. For example, ACC requires, as a condition of membership, that companies conduct vulnerability assessments, develop and implement plans to mitigate vulnerabilities, and have a third party verify that the security enhancements identified in the plans were implemented. Other industry associations have encouraged their members to address security by developing security guidelines, best practices, and other tools. Although the chemical industry has taken these actions, industry officials told us that they face a number of challenges in preparing facilities against a terrorist attack. For example, they reported that the cost of security improvements can be a burden, particularly for smaller companies that may lack the resources larger chemical companies have to devote to security. With few federal security requirements, industry associations have been active in promoting security among member companies. As we reported in March 2005, some industry associations require member companies to assess their facilities’ vulnerabilities and make security enhancements, requiring as a condition of membership that they conduct security activities and verify that these actions have been taken. Appendix II includes a description of security efforts that individual industry associations are undertaking. ACC, representing 135 chemical manufacturing companies with approximately 2,000 facilities, has led the industry’s efforts to improve security at their facilities. In 1988, ACC initiated its Responsible Care® Management System, which is a comprehensive management system for its members to follow to continuously improve safety performance; increase communication; and protect employees, communities, and the environment. In June 2002, as part of its Responsible Care® Management System, ACC adopted a security code requiring its members to adhere to a set of security management principles. For physical site security, member companies are to perform vulnerability assessments using an approved methodology. Companies also must develop plans to mitigate vulnerabilities, take actions to implement the plans, and have an independent party verify that the facilities implemented the identified physical security enhancements. Third-party reviewers can include insurance representatives, local emergency responders, or local law enforcement officials. These reviewers do not verify that a vulnerability assessment was conducted appropriately or that actions taken by a facility adequately address security risks. However, the Responsible Care® Management System requires member companies to periodically conduct independent third-party audits that include an assessment of their security programs and processes and their implementation of corrective actions. According to ACC, all members have completed their physical security vulnerability assessments and almost all have had their physical security enhancements verified. The Responsible Care® Security Code also established requirements for cyber assets, such as computer systems that control chemical facility operations, and the distribution chain, which covers the complete “value chain” for chemicals, from suppliers to customers, including transportation. ACC member companies must perform vulnerability assessments of cyber assets and the distribution chain and implement plans to mitigate any vulnerabilities. Examples of security improvements in distribution include measures such as additional screening of transportation providers. ACC asked each member company to provide a signed statement from a company executive that the company had management systems in place for the entire security code by June 30, 2005. According to ACC, as of October 1, 2005, 95 percent of its member companies affirmed that they had implemented a security management system for physical security, cyber security, and the distribution chain. The Coast Guard recognized the Responsible Care® Security Code as an alternative security program for purposes of fulfilling security requirements under MTSA. The Synthetic Organic Chemical Manufacturers Association (SOCMA), which includes 160 specialty chemical manufacturers that operate about 300 small- to medium-sized facilities in the United States, also adopted the Responsible Care® Security Code in December 2002. SOCMA developed its own vulnerability assessment methodology that is designed to address the unique needs of its members, which are primarily small businesses. According to SOCMA officials, all of its member companies have reported completing vulnerability assessments, and 98 percent of these companies reported that they had implemented security enhancements and obtained third-party verification, as of September 2005. However, beginning in October 2005, SOCMA no longer required its members to adhere to the Responsible Care® Management System because it has developed its own environmental, health, safety, and security performance program. SOCMA’s new program, called ChemStewardsSM, still requires members to conduct vulnerability assessments for physical security and implement appropriate countermeasures. In addition, facilities that are subject to RMP must have third parties verify implementation of security measures. Furthermore, the National Association of Chemical Distributors (NACD)— which represents 253 companies with approximately 1,380 facilities in the United States and Canada that package, distribute, and blend chemicals, typically in warehouse facilities—has developed an environment, health, safety, and security management protocol called the Responsible Distribution Process. Created in 1991, adherence to the Responsible Distribution Process is a condition of NACD membership. Since January 1998, NACD members have been required to undergo and successfully complete on-site third-party verification of the company’s implementation of all required membership practices once every 3 years. NACD contracted with an internal auditing company to be the third-party reviewer for its members. The first 3-year cycle of Responsible Distribution Process verification ended in December 2001. In April 2002, NACD added security measures to the process that require its members to develop security programs, scrutinize security measures taken by for-hire motor carriers, check that customers are purchasing chemicals for the appropriate use (as prescribed by government regulations), and verify implementation of security measures by an independent firm designated by NACD. The second 3-year cycle for process verification began in January 2003 and will end in December 2005. NACD has terminated the membership of 20 companies that failed to comply with Responsible Distribution Process requirements and to complete and pass third-party verification. Beginning in January 2006, NACD’s Responsible Distribution Process includes a requirement that members conduct security vulnerability assessments. Members will be expected to have completed their assessment by June 2006. NACD also developed its own vulnerability assessment methodology specific to its members. Other industry associations have encouraged their members to address security by a variety of means, rather than only by establishing security requirements that include steps to verify compliance. Most of the associations we spoke with have taken steps to educate their members about security by developing security guidelines and best practices. For example, the Compressed Gas Association, representing 138 companies that manufacture or distribute gases and related products, developed guidance for its members on site security, transportation security, and security steps to check that customers are purchasing gas products for the appropriate uses. The Institute of Makers of Explosives, representing 40 companies of which 30 are explosives manufacturers and distributors, also provided recommended guidelines for security to its members. The guidelines recommend security practices specific to the manufacture, transportation, storage, and use of explosives products and also recommend that facilities conduct vulnerability assessments and develop security plans. In addition, the International Institute of Ammonia Refrigeration, representing facilities such as food storage warehouses, developed site security guidelines tailored to ammonia refrigeration facilities and provides information about security resources to members. All 16 associations we met with told us they keep members apprised of security issues and discuss security at meetings, training courses, and conferences. In addition to these efforts, several industry associations have developed vulnerability assessment methodologies to assist their member companies in evaluating security needs. For example, the National Petrochemical and Refiners Association, in partnership with the American Petroleum Institute, developed a vulnerability assessment methodology tailored to refineries and petrochemical facilities. The methodology was developed in cooperation with the Department of Energy and DHS and has been approved by the Center for Chemical Process Safety. In addition, an agribusiness working group comprising members of the Agricultural Retailers Association, CropLife America, and the Fertilizer Institute, developed a Web-based security vulnerability assessment tool for agricultural facilities that has also been approved by the Center for Chemical Process Safety. According to the Fertilizer Institute, approximately 2,000 retail agricultural facilities have used the tool to date. Furthermore, the Chlorine Institute, which represents approximately 220 companies involved in the production, distribution, and use of chlorine, developed a seven-step process that smaller chlorine manufacturing and distribution companies can use to assess their vulnerabilities. The process takes companies through a series of steps that score facilities in different areas to identify vulnerabilities. Security experts have reviewed and approved the institute’s process. Some associations also recommend or require that member companies follow security programs, but they do not require steps to verify compliance. The National Paint and Coatings Association, which represents over 300 paint and coatings manufacturing and supply companies, worked with its members to develop a safety and environmental management system called Coatings Care. This system includes security steps such as analyzing threats, vulnerabilities, and consequences and implementing security measures. Member companies have 1 year from the time they join the association to agree to follow Coatings Care principles. However, the association does not require third- party verification of security steps. Similarly, the Chlorine Institute requires executives at all member companies to sign an agreement stating that they will meet nine safety and security requirements, including complying with the Responsible Care® Management System, NACD’s Responsible Distribution Process, or another industry security program. While companies that do not sign the agreement are not eligible for Chlorine Institute membership, the institute does not require that companies take steps to verify compliance with security programs. In addition, the Fertilizer Institute, which represents approximately 190 companies that make, sell, or transport fertilizer products, recommends but does not require that members follow a Security Code of Management Practices that involves screening facilities into priority tiers on the basis of potential security hazards and conducting a vulnerability assessment, following a timeline that is based on their tier level. Despite industry associations’ efforts to encourage or require members to voluntarily address security, the extent of participation in the industry’s voluntary initiatives is unclear. DHS has not estimated the extent of participation in voluntary initiatives across the chemical sector. Furthermore, not all chemical companies belong to the associations that represent their industry sectors. DHS does not have data on the number of RMP facilities that belong to these associations. Chemical industry officials told us they face a number of challenges in preparing facilities against a terrorist attack. Most of the chemical associations we contacted stated that the cost of security improvements is a challenge for some chemical companies. Industry officials we spoke with said that some companies have already made significant investments to improve security. For example, ACC reports that its members have spent an estimated $2 billion on security improvements since September 11, 2001. However, industry associations told us that while some companies have implemented security enhancements, others may not be implementing security measures because of cost concerns. Representatives of the American Forest & Paper Association and the National Paint and Coatings Association told us that small companies, in particular, may struggle with the cost of security improvements or the cost of complying with any potential government security programs because they may lack the resources larger companies have to devote to security. Many industry officials suggested that federal assistance via grants or tax incentives to offset security costs could help companies enhance facility security. According to these officials, financial incentives to companies to support both vulnerability assessments and security improvements would be helpful. Representatives from two industry associations stated that financial assistance from the government to support the cost of compliance with voluntary programs such as the Responsible Care® Management System would be helpful, noting that complying with voluntary programs is very costly. Other industry officials suggested that DHS direct funding to high-risk facilities it views as vulnerable. A number of officials also told us that financial incentives for security improvements will make chemical security legislation, if enacted, more palatable to industry. In this regard, H.R. 713, introduced in the 109th Congress, would create a tax credit for 50 percent of the cost incurred by eligible agricultural businesses for protecting hazardous chemicals or pesticides from unauthorized access. Industry stakeholders also cited the need for guidance on what level of security is adequate. While DHS has issued guidance to state Homeland Security Offices and the Chemical Sector Coordinating Council on vulnerabilities and protective measures that are common to most chemical facilities, several stakeholders expressed a desire for guidance on specific security improvements. For example, representatives of the National Petrochemical and Refiners Association stated that one reason the association holds workshops and best practices sessions is to meet the challenge of determining the types of security measures that constitute a reasonable amount of security. Another association stated that standardized security criteria would be useful in helping companies determine adequate levels of security. In addition, a number of associations told us that companies are operating on tight profit margins and want to feel certain that the benefits of security improvements justify the cost. According to these associations, while companies are addressing security since the events of September 11, 2001, they have to make cost-effective decisions about allocating their resources. Because it is unlikely that sufficient resources will be available for companies to address all risks, adopting a risk management framework can aid facilities in prioritizing risks and the actions taken to reduce those risks, taking cost into consideration. In addition, industry officials told us that the lack of threat information makes it difficult for companies to know how to protect facilities. Two associations told us that ISAC has not been very useful to members because the information shared is not new or is very broad. Some officials have attended classified briefings with DHS but reported that very little specific information was provided. Other industry association officials told us that DHS has withheld some threat information because it was classified. Providing both classified and declassified or sanitized information to associations would allow them to understand specific threats and pass on unclassified information to members. An official with an agricultural chemical company told us that many companies do not have access to threat information applicable to rural areas that may have different threats than companies located in urban areas. While companies would like to receive very specific threat information, some officials acknowledged that such information may not exist. Officials with one association hoped that DHS’s Homeland Security Information Network will improve the quality of the threat information that DHS shares with industry. A few industry officials also mentioned limited guidance on conducting vulnerability assessments and difficulty in conducting employee background checks as challenges. One industry association stated that it would like its members to receive guidance from DHS on how to conduct vulnerability assessments. Another association expressed frustration because none of the current vulnerability assessment tools address issues specific to its members’ facilities, which package and distribute chemicals, and it would like DHS to help develop or approve a methodology for this type of facility. Furthermore, representatives of forest and paper products companies reported that the inaccessibility of government records has made conducting background checks on employees difficult. Officials told us that in addition to regular facility employees, the number of contractors continuously moving through facilities could pose security risks without the appropriate background checks. Access to employment and criminal records would allow facility officials to conduct a more thorough check on employees, thereby reducing the risk of hiring someone who could threaten a facility. Finally, a number of stakeholders we contacted told us that emergency response preparedness is a challenge for chemical companies. An official with an industry-affiliated research center asserted that emergency responders and communities in the United States are prepared to respond to a toxic release. However, other stakeholders we spoke with stated that many facilities have conducted security vulnerability assessments but may not have done enough emergency response planning and outreach to the responders and communities that would be involved in a release. A 2004 survey by a chemical workers union of workers at 189 RMP facilities found that only 38 percent of respondents indicated that their companies’ actions in preparing to respond to a terrorist attack were effective, and 28 percent reported that no employees at their facilities had received training about responding to a terrorist attack since September 11, 2001. While environmental laws require emergency response planning for accidental chemical releases, several stakeholders told us facilities need to consider very different scenarios with consequences on different orders of magnitude when planning the emergency response for a terrorist incident. An expert with Texas A&M University’s National Emergency Response and Rescue Training Center echoed this view, noting that chemical facility employees are well-trained for an accidental release but may not be trained in the emergency response for a terrorist release. According to this expert, both facility employees and local emergency responders need to prepare for terrorist-caused chemical releases that are less predictable and harder to prepare for than accidental releases. Facilities should be aware of the types of aid located within a 50-mile radius of the facility, such as welders, neutralizing chemicals, and back-up protection equipment, according to this expert. While some companies have formed mutual-aid groups in a given geographic area, the expert cautioned that these groups may not prove effective if facilities lock down and focus on protecting themselves when terrorists attack. Existing laws provide DHS with only limited authority to address security concerns at U.S. chemical facilities, and additional legislation is needed to place federal security requirements on these facilities. DHS lacks the authority to require all high-risk chemical facilities to assess their vulnerabilities and implement security measures and, consequently, has relied largely on the industry’s voluntary participation to address facility security. As a result, DHS cannot ensure that facilities are assessing their vulnerability to terrorist attacks and taking corrective actions, where necessary. DHS has acknowledged that its existing authorities do not permit it to effectively regulate the industry, and that the Congress should enact federal security requirements for chemical facilities. Furthermore, we concluded in 2003, and continue to believe, that additional legislation is needed. Although many stakeholders agreed on the need for federal requirements, they had mixed views on the content and structure of such requirements. They also identified a number of challenges the federal government will face in implementing chemical security requirements. A number of existing laws outline DHS’s responsibilities for coordinating with the private sector and obtaining information on and protecting critical infrastructure. While the chemical industry is included in the nation’s critical infrastructure, these laws provide DHS with only limited authority to address security concerns at U.S. chemical facilities. The Homeland Security Act assigns DHS responsibility for coordinating and collaborating with the private sector on certain homeland security issues. Under the Homeland Security Act, the Secretary of DHS is responsible for coordinating homeland security issues with the private sector to ensure adequate planning, equipment, training, and exercise activities. The Homeland Security Act also makes the Special Assistant to the Secretary (Private Sector) responsible for (1) promoting and developing public-private partnerships for collaboration and mutual support to address homeland security challenges, (2) assisting in promoting and developing private sector best practices to secure critical infrastructure, and (3) coordinating industry efforts to identify private sector resources and capabilities that could effectively supplement government efforts to prevent or respond to a terrorist attack. Existing laws also assign DHS responsibilities specifically related to the protection of critical infrastructure, including chemical facilities. The Patriot Act called for the establishment of the National Infrastructure Simulation and Analysis Center (NISAC)—a partnership between Los Alamos and Sandia National Laboratories—under DHS to help protect critical infrastructure by supporting counterterrorism, threat assessment, and risk mitigation activities. NISAC is to provide support—such as modeling, simulation, and analysis of critical infrastructure systems—to facilitate modifying these systems to mitigate threats to them and to critical infrastructure in general. In addition, the Homeland Security Act gives DHS’s Under Secretary for Information Analysis and Infrastructure Protection (IAIP) responsibilities related to protecting critical infrastructure, including accessing, receiving, analyzing, and integrating information from federal, state, and local governments and private sector entities to identify, detect, and assess the nature and scope of terrorist threats to the United States, and to understand these threats in light of actual and potential vulnerabilities; carrying out comprehensive assessments of the vulnerabilities of the nation’s key resources and critical infrastructure, including assessing the risks posed by particular types of terrorist attacks within the United States, the probability of success of such attacks, and the feasibility and potential efficacy of various countermeasures to such attacks; developing a comprehensive national plan for securing the nation’s key resources and critical infrastructure; and recommending the necessary measures to protect these key resources and critical infrastructure. While DHS’s existing legal authorities provide it with access to some information about critical infrastructure threats and vulnerabilities, DHS does not have the authority to require all chemical facilities to conduct vulnerability assessments. The Homeland Security Act provides DHS with access to all information that may be collected, prepared, or possessed by any federal agency concerning infrastructure or other vulnerabilities of the United States to terrorism. Under the Homeland Security Act, DHS may request information from the private sector through cooperative agreements. In addition, the Chemical Safety Information, Site Security and Fuels Regulatory Relief Act (CSISSFRRA) required the Attorney General to review and report on the vulnerability of certain chemical facilities to criminal and terrorist activity and current industry practices regarding site security. In 2003, $3 million was transferred from Justice’s general administration appropriation to DHS as part of the Consolidated Appropriations Resolution, 2003, and the conferees stated that they expected DHS to use the transferred funds to conduct the vulnerability assessments under CSISSFRRA. However, CSISSFRRA does not give DHS the authority to require facilities to conduct vulnerability assessments. Similarly, the October 2004 conference report on DHS’s fiscal year 2005 appropriations act directed IAIP—within DHS—to analyze whether DHS should require private sector entities to provide IAIP with existing information about their security measures and vulnerabilities in order to improve its ability to evaluate critical infrastructure protection nationwide. The conference report stated that the analysis should include all critical infrastructure, including chemical plants, and evaluate the benefits of securing the information and the costs to both the private sector and IAIP for implementing this requirement. However, neither the appropriations act nor any other legislation would require chemical facilities to provide information about their security and vulnerabilities. Furthermore, DHS currently lacks the authority to enter all chemical facilities without their permission to assess security or to require and enforce security improvements. In this regard, except with respect to certain chemical facilities covered under federal security requirements for other critical infrastructures, existing laws do not give DHS the right to enter a chemical facility to assess its vulnerability to a terrorist attack or the authority to require and enforce the implementation of any needed security improvements at these facilities. The Homeland Security Act, with some limited exceptions, does not provide any new regulatory authority to DHS and only transferred the existing regulatory authority of any agency, program, or function transferred to DHS, thereby limiting actions DHS might otherwise be able to take under the Homeland Security Act. Therefore, DHS has relied solely on the voluntary participation of the private sector to address facility security. As a result, DHS cannot ensure that all high-risk facilities are assessing their vulnerability to terrorist attacks and taking corrective action, where necessary. In contrast, some other critical infrastructure sectors are subject to federal security requirements. For example, all commercial nuclear power plants licensed by the Nuclear Regulatory Commission are required to take security steps, including placing physical barriers outside of the operating reactor area, limiting access to vital areas, and maintaining a trained security force. In addition, community water systems that serve more than 3,300 people are required to conduct and submit a vulnerability assessment to EPA and prepare an emergency response plan that incorporates the results of the assessment. Table 3 provides examples of federal security requirements that are in place for these and some other critical infrastructure sectors. DHS has concluded that its existing patchwork of authorities does not permit it to regulate the chemical industry effectively, and that the Congress should enact federal requirements for chemical facilities. While DHS reports that most chemical companies have been eager to voluntarily cooperate with agency efforts to address security issues at their facilities, DHS determined that voluntary efforts alone will not sufficiently address security for the entire sector. Echoing public statements by the Secretary of DHS and the Administrator of EPA in 2002 that voluntary efforts alone are not sufficient to assure the public of the industry’s preparedness, in June 2005, both DHS and EPA called for legislation to give the federal government greater authority over chemical facility security. Similarly, we concluded in 2003, and continue to believe, that additional federal legislation is needed because of the significant risks posed by thousands of chemical facilities across the country to millions of Americans and because the extent of security preparedness at these facilities is unknown. In testimony before the Congress in June 2005, the Acting Undersecretary for IAIP stated that any proposed regulatory structure (1) must recognize that not all facilities within the chemical sector present the same level of risk, and that the most scrutiny should be focused on those facilities that, if attacked, could endanger the greatest number of lives, have the greatest impact on the economy, or present other significant risks; (2) should be based on reasonable, clear, equitable, and measurable performance standards; and (3) should recognize the progress that responsible companies have made to date. He also stated that the performance standards should be enforceable and based on the types and severity of potential risks posed by terrorists, and that facilities should have the flexibility to select among appropriate site-specific security measures that will effectively address those risks. In addition, he said that DHS would need the ability to audit vulnerability assessment activities and a mechanism to ensure compliance with requirements. Beyond these general principles, DHS officials were reluctant to share with us their views on the specific content and structure of chemical security legislation. These officials explained that DHS provides its views on proposed legislation to the Office of Management and Budget (OMB) as part of the executive branch coordination process, and that OMB—after considering the points of view of all departments, agencies, and independent operating entities—establishes the unified executive branch position on proposed legislation. Because the administration’s unified position had not yet been determined at the time of our discussion, DHS officials believed that it was inappropriate to discuss their views on the specific provisions of any legislation. While many stakeholders—including representatives from industry, research centers, and government—agreed on the need for additional legislation that would place federal security requirements on chemical facilities, they had mixed views on the content and structure of such requirements. Representatives of three research organizations and three environmental groups told us that DHS needs more authority to adequately ensure that chemical facilities are taking action, based on the potential harm that an attack on chemical facilities may cause. One expert stated that chemical facility security is a public safety issue that warrants federal oversight, while others said the number of facilities with potential off-site consequences in proximity to population centers justifies federal involvement in security. Furthermore, testifying in support of legislation before the Congress in July 2005, a representative of a chemical workers union underscored that workers and communities should not be placed at risk because some companies choose not to prioritize security and that, in the same vein, responsible companies should not be placed at an economic disadvantage because they allocate resources to security. Half of the industry associations we contacted also favor additional legislative authority. ACC has publicly stated that they support chemical security legislation for a number of reasons, including the belief that all of the nation’s chemical facilities should be required to take the security steps that its members are taking under the Responsible Care® Management System. One association supported federal legislation because its members are encountering various state efforts to oversee facility security. Concerned that member companies will be subject to different security requirements in different states, officials with three associations would rather the federal government take the lead on chemical facility security. Other stakeholders preferred that DHS continue to work with the industry to voluntarily address security or were undecided about the need for federal requirements. Two industry associations stated that the partnership DHS has forged with the chemical industry has proven effective in working to address security concerns. In July 2005 testimony before the Congress, the National Petrochemical and Refiners Association expressed concern that legislation giving DHS authority over chemical facility security will negatively impact the cooperative relationship the industry and DHS have established, noting that the level of information sharing could be diminished if DHS becomes an industry regulator. Similarly, two research centers affiliated with the industry did not advocate chemical security legislation. One expressed concern that the goodwill that the industry has shown to DHS will wane if DHS becomes a regulatory agency, while another noted that the threat of new security regulations provides an adequate incentive for facilities to take security steps. Notwithstanding ACC’s position, most of the individual chemical companies we contacted also believed that legislation is not needed, or they were undecided about whether DHS needed additional authority. Company officials generally told us that industry self-regulation is preferable to federal oversight of facility security. One company official also told us that states are better suited to regulating facility security because they have greater knowledge about facilities in their state. Stakeholders expressed a range of views about which facilities should be covered if legislation is enacted; about whether legislation should address inherently safer technologies; about EPA’s role, if any; and about voluntary industry programs. Stakeholders favoring legislation generally agreed that legislation should target high-risk facilities, rather than applying the same requirements to all facilities regardless of the different risks they pose. These stakeholders told us that chemical facilities should be prioritized on the basis of their potential impacts if attacked, with the highest-risk facilities subject to stricter requirements than lower-risk facilities that do not warrant the same degree of federal oversight. For example, in testimony before the Senate Committee on Homeland Security and Governmental Affairs in July 2005, ACC explained that any regulatory system must reflect the different risks posed by different facilities and require security measures commensurate with those risks. At the same hearing, a representative of SOCMA, which represents specialty chemical manufacturers, recommended that legislation require facilities to perform a risk screen on the basis of the potential consequences of an attack and the attractiveness as a target. Facilities screened as high risk would then perform a detailed vulnerability analysis. Representatives from two research centers and two companies believed that RMP facilities provide a good starting point for the universe of facilities that legislation should cover because these facilities exceed a risk threshold on the basis of the type and amount of chemicals they house. One company suggested that chemical security legislation should require an analysis of RMP facilities that ranks facilities on the basis of risk. Stakeholders expressed strongly divergent views on whether legislation should require the substitution of safer chemicals and processes, referred to as “inherently safer technologies.” Implementing inherently safer technologies could potentially lessen the consequences of an attack by reducing the chemical risks present at facilities. Justice, in introducing a methodology to assess chemical facilities’ vulnerabilities, recognized that reducing the quantity of hazardous material may make facilities less attractive to terrorist attack and reduce the severity of an attack. Furthermore, DHS’s July 2004 draft Chemical Sector-Specific Plan states that inherently safer chemistry and engineering practices can prevent or delay a terrorist incident, noting that it is important to make sure that facility owners/operators consider alternate ways to reduce risk, such as inherently safer design, implementing just-in-time manufacturing, or replacing high-risk chemicals with safer alternatives. However, DHS told us that the use of inherently safer technologies tends to shift risks rather than eliminate risks, often with unintended consequences. Some previous chemical security legislative proposals have included a requirement that facility security plans include safer design and maintenance actions, or that facility security plans include “consideration” of alternative approaches regarding safer design. Representatives from three environmental groups told us that facilities have defined security too narrowly as guns, gates, and guards, without focusing on reducing facility risks through safer technologies. Noting that no existing laws require facilities to analyze inherently safer options, these representatives believe legislation should require such an analysis and give DHS or EPA the authority to require the implementation of technologies if high-risk facilities are not doing so. Process safety experts at one research organization recognized that reducing facility hazards and the potential consequences of chemical releases makes facilities less vulnerable to attack. However, these experts also explained that inherently safer technologies can be prohibitively expensive and can shift risks onto other facilities or the transportation sector. For example, reducing the amount of chemicals stored at a facility may increase reliance on rail or truck shipments of chemicals. These experts support legislative provisions requiring analysis or consideration of technology options but do not support giving the federal government the authority to require specific technology changes because of the complexity of these decisions. Representatives of two research centers affiliated with the industry told us that while facilities should look at inherently safer technologies when assessing their vulnerability to terrorist attack, safer technologies are not a substitute for security. Industry associations and company officials voiced strong opposition to any inherently safer technologies requirements. The majority of the industry officials we contacted opposed an inherently safer technologies requirement, with many stating that inherently safer technologies involve a safety issue that is unrelated to facility security. Industry officials voiced concerns about the federal government’s second-guessing complex safety decisions made by facility process safety engineers. Representatives from four associations and two companies told us that, in many cases, it is not feasible to substitute safer chemicals or change to safer processes. Certain hazardous chemicals may be essential to necessary chemical processes, while changing chemical processes may require new chemicals that carry different risks. In July 2005 testimony before the Congress, a SOCMA representative explained that while inherently safer technologies are intended to reduce the overall risks at a facility, this could be achieved only if a chemical hazard was not displaced to another time or location or did not magnify another hazard. Furthermore, process safety experts and representatives from associations and companies report that some safer alternatives are extremely expensive. For example, reducing facility chemical inventories by moving to on-site manufacturing when chemicals are needed can cost millions of dollars, according to a stakeholder. One company also voiced opposition even to a legislative requirement that facilities “consider” safer options. The official explained that the company opposed such a provision—even if legislation does not explicitly give the government the authority to require implementation of safer technologies—because it might leave companies liable for an accident that might have been prevented by a technology option that was considered but not implemented. Stakeholder views also varied on whether EPA should play a role in developing or enforcing security requirements. Many of the stakeholders we contacted acknowledged that EPA has considerable expertise on chemical facilities, although some noted that DHS lacks expertise specific to the risks related to the chemicals and processes used at facilities. Some of the experts we spoke with stated that EPA should be involved in enforcing any security requirements because of the agency’s expertise and because it has an established field presence. Process safety experts also suggested that DHS should work with EPA in identifying the chemicals of concern that would determine which facilities are subject to chemical security requirements. In contrast, all of the industry stakeholders we spoke with about this issue believed that EPA should not have a prominent role, if any, in chemical security legislation because of EPA’s regulatory function and because it lacks security expertise. One association said it would be extremely difficult for its members to work with EPA on security issues because the agency’s focus on enforcement of environmental regulations would undermine security discussions. Another association was concerned that EPA would approach facility security as an opportunity for further environmental regulation. Finally, a number of stakeholders believed that any legislation should include provisions recognizing compliance with industry initiatives, such as ACC’s Responsible Care® Security Code, equivalent to federal security requirements. Representatives from ACC, SOCMA, the National Association of Chemical Distributors, and other associations underscored that legislation, if enacted, should recognize voluntary industry security programs so facilities that have acted to address security do not have to duplicate efforts they have made to date. In testimony before the Senate Homeland Security and Governmental Affairs Committee in July 2005, an ACC official emphasized the need for legislation to give credit for the substantial voluntary expenditures ACC members have made implementing the Responsible Care® Security Code. Representatives of three environmental groups were not opposed to a provision making compliance with the industry’s currently voluntary security programs equivalent to federal requirements, but they emphasized that these facilities should be required to submit documentation of security steps for review by the federal government. The Coast Guard, in implementing MTSA, approved ACC’s Responsible Care® Security Code and others as accepted alternative security programs for the purposes of fulfilling security requirements under MTSA. A number of the industry officials we interviewed praised MTSA as a model for chemical security legislation because it allows participation in industry security programs to meet security requirements, and because MTSA’s requirements are performance-based rather than prescribing specific actions that all facilities must take. Some industry officials have suggested that legislation should also exempt MTSA-covered chemical facilities from security requirements. Stakeholders identified a number of challenges DHS will face in implementing chemical security requirements. First, some stakeholders told us that identifying the appropriate universe of facilities to be covered by requirements will be difficult, given the diversity of facilities that handle hazardous materials. While the RMP program identifies facilities with amounts of chemicals deemed hazardous to human health, stakeholders told us non-RMP facilities may also need to be considered. For example, process safety experts mentioned that some chemicals not on the RMP list may need to be considered when identifying facilities, such as reactive chemicals that are currently not included under RMP. New Jersey officials noted that the state’s chemical security efforts use criteria to identify facilities that exceed RMP criteria, including facilities with RMP chemicals below RMP threshold quantities and non-RMP chemicals that the state deemed hazardous. Representatives from two agricultural chemical companies stated that DHS will have a hard time identifying agricultural facilities that house chemicals of concern, since these facilities range from large plants to small rural facilities. Other stakeholders stated that some RMP facilities should be excluded from security requirements. Representatives of the ammonia refrigeration and forest products industries stated that many of these facilities are not high risk in terms of the possible terrorist threat they pose, even though they are subject to RMP. Officials with two industry associations said that RMP data are not the best indicator of terrorism risks, and that DHS will need to look beyond RMP data to understand the complexities of the chemical sector and identify those facilities with the greatest off-site consequences under terrorist scenarios. Second, because some states have established their own chemical security requirements, some stakeholders also were concerned about potentially overlapping state and federal requirements. Representatives from two industry associations stressed that the federal government needs to assert its leadership over the chemical sector because states are stepping in where they see a void. At least two states have passed chemical security legislation. Maryland’s Hazardous Material Security Act requires RMP facilities in the state to perform vulnerability assessments, develop and implement security measures, and report to the state Department of the Environment. Under New York’s Anti-Terrorism Preparedness Act of 2004, the state Office of Homeland Security, subject to available appropriations, must require certain chemical facilities to conduct vulnerability assessments. Stakeholders report that other states have created chemical security offices or are developing chemical security initiatives. Officials with one industry association told us that state homeland security agencies are getting involved in chemical facility security, even though they may lack the resources to fully understand the issues these facilities face. Furthermore, officials with three associations told us that many companies have operations in multiple states and that cooperating with numerous potentially conflicting state efforts would be a burden. Industry officials also said that federal legislation would need to clearly preempt state requirements in order for companies to avoid being subjected to both federal and state laws. State officials from New Jersey and Texas also voiced concern about duplicating efforts with the federal government. State officials from New Jersey, which has used existing state environmental authorities and a state homeland security task force to work with chemical facilities on security issues, suggested that federal legislation would provide industry with a reasonable and predictable set of standards, rather than a patchwork of state requirements. New Jersey officials also told us that although states have done their best to address security concerns, many states, including New Jersey, lack specific enforcement authority that could be provided for in federal legislation. Third, some stakeholders told us that enforcing chemical security requirements, if enacted, will be a challenge for DHS. While legislation may include enforcement provisions, stakeholders believe DHS may face challenges in implementing any such provisions. Several stakeholders questioned whether DHS has the expertise and resources to enforce security requirements at chemical facilities. New Jersey state officials believe that because DHS lacks experience in dealing with chemical facilities, it should delegate implementation and enforcement authority to states, allowing states to review facility activities and report back to DHS. Unlike the Coast Guard, which conducts facility inspections under MTSA, DHS currently does not have significant staff resources located throughout the country. Some stakeholders suggested that DHS will need staff in the field or will need contract support to enforce requirements. Representatives from two industry associations suggested that allocating federal resources to support chemical facility security preparedness will be a challenge. Finally, some stakeholders were concerned about the federal government’s ability to protect information on facility vulnerabilities and security. Most of the industry associations and company officials we spoke with raised concerns about this issue, noting that information about facility vulnerabilities and security measures could provide a roadmap for terrorists. While the industry wants to cooperate with DHS on its chemical security efforts, businesses are concerned that sensitive information could be released. This concern arises from the conflict between the public’s “right-to-know” such information and security concerns about releasing facility data. As an example, while federal regulations authorized the posting of some RMP data on the Internet and in government reading rooms, some industry officials opposed making this information available. Following the events of September 11, 2001, various media reports published RMP data on some facilities. Industry officials are willing to share information with DHS about the vulnerability assessment process and procedures, but they would prefer that vulnerability and security information remain at the facility, where government officials can view such information if needed. Reporting concerns about DHS’s Protected Critical Infrastructure Information (PCII) Program, officials with four associations said companies need additional information about DHS’s information protection procedures. Officials with one association added that companies may not be comfortable with the PCII program until it is tested in court. Officials with three industry associations also told us that sharing information at the state level is a concern. In this regard, New Jersey officials noted that they have faced a challenge in allaying industry fears about sharing security information. These officials told us that while some states do not have the ability to protect critical infrastructure information, New Jersey state law exempts private sector information provided for domestic security purposes from open records requirements. In contrast to these views, representatives of three environmental groups believe that some information about high-risk facilities should be publicly available. Specifically, these representatives stated that communities need to understand the risks posed by facilities in the area, and should have access to information on the potential impacts of high-risk facilities’ worst- case terrorist scenarios. These representatives told us that details about specific facility vulnerabilities need not be released, but that the public should have access to information about facilities that present the greatest concern. Across the nation, thousands of facilities produce, use, or store hazardous chemicals in quantities that could potentially put large numbers of Americans at risk. DHS, Justice, and other experts have warned that these facilities present an attractive target for terrorists. A terrorist attack could threaten human health and safety, cause economic disruptions, and impact other critical infrastructures that rely on chemicals. However, the extent of security preparedness at these facilities remains largely unknown. Chemical industry associations have undertaken numerous initiatives to raise awareness about security and to encourage—and in some cases require—member companies to assess their vulnerabilities and act to address them. While these efforts are laudable, participation in these initiatives is voluntary and the extent to which individual companies across the industry are addressing security issues is unclear. Furthermore, voluntary efforts cannot ensure widespread participation and, unless chemical facilities’ vulnerabilities are identified and addressed on a widespread basis across the sector, the security of the chemical industry as a critical national infrastructure remains at risk. As the lead federal agency for the chemical sector, DHS has developed a number of programs to assist companies in protecting their chemical facilities. However, unlike other federal agencies—such as EPA and the Nuclear Regulatory Commission, which require drinking water and nuclear facilities, respectively, to take actions to improve their security—DHS does not currently have the authority to require the chemical industry to take such actions. On this basis, DHS has concluded—as we did in 2003—that its existing patchwork of authorities does not allow it to effectively regulate chemical sector security. Since 2002, both DHS and EPA have called for legislation creating security requirements at chemical facilities, and legislation has been introduced in every Congress since the events of September 11, 2001. Our work demonstrates the need to enhance DHS’s ability to collect information about industry preparedness and to ensure that facilities evaluate and mitigate their vulnerability to terrorist attack. By granting DHS the authority to require high-risk chemical facilities to take security actions, policy makers can better ensure the preparedness of the chemical sector. Among its activities to enhance chemical sector security, DHS has developed methods for identifying high-priority facilities, assessing facility vulnerabilities, and suggesting improvements to address these vulnerabilities. In this process, DHS should take full advantage of EPA’s expertise on toxic chemical data sources, U.S. hazardous materials facilities, and process safety issues, among other things, that the agency has developed through its oversight of a number of chemical safety programs. For example, EPA maintains data on RMP facilities’ inventories of toxic and flammable chemicals and facility worst-case release scenarios and enforces compliance with a variety of environmental programs through inspections of facilities located throughout the country. By tapping EPA’s expertise on chemical facilities and general facility safety issues, DHS can enhance its efforts to identify high-priority facilities and assess facility vulnerabilities as well as better target government resources to those facilities posing the greatest risk. Implementing inherently safer technologies potentially could lessen the consequences of a terrorist attack by reducing the chemical risks present at facilities, thereby making facilities less attractive targets. However, substituting safer technologies can be prohibitively expensive for some companies and can shift risks onto other facilities or the transportation sector. Also, in many cases, it may not be feasible to substitute safer chemicals or change to safer processes. Therefore, given the possible security and safety benefits as well as the potential costs to some companies of substituting safer technologies, a collaborative study employing DHS’s security expertise and EPA’s chemical expertise could help policy makers determine the appropriate role of safer technologies in facility security efforts. To enhance DHS’s ability to collect comprehensive information on industry preparedness and better ensure the security of the chemical sector, we recommend that the Congress consider the following two actions: granting DHS the authority to require high-risk chemical facilities to assess their vulnerability to terrorist attacks and, where necessary, to take corrective action and providing DHS with the enforcement capability to ensure that facilities are following these practices. Because completion of the Chemical Sector-Specific Plan is critical to DHS’s efforts to enhance chemical facility security, we recommend that the Secretary of the Department of Homeland Security direct DHS to take the following two actions: ensure that the Chemical Sector-Specific Plan is completed in a timely recognizing EPA’s expertise in managing chemical risks, jointly study with EPA whether chemical facilities’ efforts to reduce vulnerabilities would benefit from the use of technologies that substitute safer chemicals and processes, referred to as “inherently safer technologies.” We provided a draft of this report to DHS and EPA for their review and comment. EPA provided no comments on the draft report. DHS agreed in substance with two of the report’s recommendations, but disagreed with the third. DHS agreed that the Congress should consider granting DHS the authority to require the chemical industry to address plant security. DHS also agreed that completing and implementing the sector-specific plan is a priority and stated that it is making progress toward developing this plan. However, DHS disagreed with our recommendation that the department work with EPA to study the security benefits to chemical plants of using safer technologies. In this regard, DHS believes that the use of safer technologies would not generally result in more secure chemical facilities and would tend to shift risks rather than eliminate them. DHS stated that it is unclear what role EPA would play in a study of the benefits of using safer technologies or how DHS’s interaction with EPA might be perceived among DHS’s private sector partners. We continue to believe, however, that the use of safer technologies may have the potential to reduce security risks for at least some chemical facilities by making them less attractive to a terrorist attack and reducing the severity of the potential consequences of an attack. While we recognize in our report that inherently safer technologies can shift risks onto other facilities or the transportation sector, there may also be instances where implementing safer technologies could reduce the likelihood and severity of a terrorist attack. In fact, DHS’s July 2004 draft of the Chemical Sector- Specific Plan states that inherently safer chemistry and engineering practices can prevent or delay a terrorist incident. The draft also notes that it is important to make sure that facility owners/operators consider alternate ways to reduce risk, such as inherently safer design, implementing just-in-time manufacturing, or replacing high-risk chemicals with safer alternatives. Therefore, we continue to believe that studying the costs and security benefits of using safer technologies would be a worthwhile effort. While DHS, as the federal agency primarily responsible for chemical facility security, should have the lead role in conducting such a study, EPA—charged with ensuring environmental and human health and safety and having the key expertise needed to analyze the potential environmental and health effects of a variety of alternative technologies— can provide valuable support. We acknowledge DHS’s concern that its working relationship with the chemical industry might be constrained by too close association with EPA, which regulates the industry. However, we do not believe that a DHS-EPA partnership to study the potential security benefits of using safer chemicals and technologies would necessarily bring the department into conflict with the industry, if the appropriate informational safeguards and assurances are built into the process. Through additional study, DHS—in conjunction with EPA—can help to determine the appropriate role of inherently safer technologies in government and industry efforts to bolster chemical facility security. Through such an effort, DHS and EPA could also identify alternative ways to reduce both security and environmental and health risks and share these practices with private industry. DHS also provided a number of technical comments and clarifications, which we have incorporated into the report as appropriate. Appendix III contains the full text of DHS’s comments in a letter dated December 8, 2005. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this report. At that time, we will send copies to other interested congressional committees and to the Secretary of the Department of Homeland Security and the Administrator of the Environmental Protection Agency. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions on this report, please contact me at (202) 512-3841 or at stephensonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other GAO staff who contributed to this report are listed in appendix IV. Our objectives were to describe (1) the Department of Homeland Security’s (DHS) actions to develop an overall strategy for protecting the chemical industry; (2) DHS’s efforts to identify high-risk chemical facilities, assess their vulnerabilities, ensure that facilities are addressing security, and coordinate with the Environmental Protection Agency (EPA) in these efforts; (3) chemical industry security initiatives and challenges; and (4) DHS’s existing authorities, and whether additional legislative authority is needed to ensure that chemical facilities take action to address vulnerabilities. To discuss DHS’s actions to develop an overall strategy for protecting the chemical industry, we reviewed DHS’s February 2005 Interim National Infrastructure Protection Plan, its April 2004 guidance to sector- specific agencies on drafting sector plans, and a July 2004 draft of its Chemical Sector-Specific Plan. To discuss the actions DHS has taken to identify high-risk chemical facilities, assess their vulnerabilities, ensure that facilities are addressing security, and coordinate with EPA, we interviewed officials from DHS’s Information Analysis and Infrastructure Protection Directorate and EPA’s Office of Emergency Management and gathered and reviewed available documents and reports from both agencies. Specifically, in addition to the documents previously mentioned, we reviewed DHS reports on chemical facilities’ and chemical storage facilities’ characteristics and their common vulnerabilities and potential indicators of terrorist activity, one-page summaries of DHS programs provided by department officials, and other available reports and information on DHS efforts. We also attended two industry-sponsored conferences, which included detailed presentations from DHS officials on the department’s chemical security efforts. In addition, we interviewed contractors for DHS’s Risk Analysis Management for Critical Asset Protection (RAMCAP) initiative; representatives from the American Society of Mechanical Engineers; and the subcontractor developing chemical sector RAMCAP tools, the AcuTech Consulting Group. In addition, we reviewed EPA Risk Management Plan (RMP) data and obtained EPA officials’ views on DHS’s analysis of these data to identify high-risk chemical facilities. We also discussed current interagency coordination and opportunities for additional coordination between DHS and EPA with officials from both agencies. To discuss chemical industry voluntary initiatives and challenges, we met with representatives of all 16 associations participating on the Chemical Sector Coordinating Council. Using structured interview questions, we gathered representatives’ views on threats, DHS’s chemical security efforts, and industry security initiatives. We also reviewed documents from industry associations, such as vulnerability assessment tools, descriptions of voluntary security programs, security guidelines, and best practices. We used this information to assess the various initiatives undertaken by associations and their members. To obtain a broad range of industry views, we also talked to representatives of 20 chemical companies belonging to 13 of the 16 associations on the Chemical Sector Coordinating Council. Officials of some of these companies were present at our meetings with associations, while others were contacted by industry associations and agreed to speak with us separately. Three associations—the Adhesive and Sealant Council, the International Institute of Ammonia Refrigeration, and the National Paint and Coatings Association—were not able to identify a member company willing to speak with us. We also gathered information from both industry associations and chemical company officials about challenges companies face in improving security. To avoid unintentionally disclosing any security-related information, we are not disclosing the names or other identifying information relating to the individual chemical companies we contacted. The comments from industry officials discussed in this report are illustrative, are not statistically representative of the chemical sector, and should not be considered to represent the views of the chemical sector as a whole. To discuss DHS’s existing authorities and whether additional legislative authority is needed to ensure that chemical facilities take action to address vulnerabilities, we analyzed DHS’s current authorities and gathered a range of views on the need for additional authority. Specifically, we analyzed DHS’s current authorities under the Homeland Security Act of 2002, the Patriot Act, and other laws. DHS officials would not comment directly to us on the department’s need for additional authority because the executive branch has not yet established a unified position on this issue. However, we were able to obtain DHS’s views on legislation by reviewing DHS statements and comments at hearings on chemical facility security in July 2005. We also gathered views on the need for legislation and the content and structure of legislation during interviews with EPA, industry associations, chemical companies, state homeland security officials in New Jersey and Texas, and other organizations with chemical industry expertise. These organizations included the American Institute of Chemical Engineers’ Center for Chemical Process Safety; Sandia National Laboratories; the U.S. Chemical Safety and Hazard Investigation Board; the American Society of Mechanical Engineers; the University of Pennsylvania Wharton School’s Risk Management and Decision Processes Center; Texas A&M University’s Mary K. O’Connor Process Safety Center and National Emergency Response and Rescue Training Center; OMB Watch; the Working Group on Community Right-to-Know; U.S. Public Interest Research Group; and the Paper, Allied-Industrial, Chemical, and Energy Workers International Union. We also asked representatives of these organizations and industry officials about challenges the federal government faces in securing the nation’s chemical facilities from a terrorist attack. In addition, we reviewed the testimony of industry officials and other experts on legislation at hearings before the Senate Homeland Security and Governmental Affairs Committee and the House Homeland Security Committee, Subcommittee on Economic Security, Infrastructure Protection and Cybersecurity, in April, June, and July 2005. We limited our review of security issues to stationary chemical facilities and did not address security concerns surrounding the transportation of hazardous chemicals. We conducted our work from December 2004 through December 2005 in accordance with generally accepted government auditing standards. Sixteen chemical industry associations participate in the Chemical Sector Coordinating Council and have initiated a variety of security efforts. These efforts range from developing security guidance and best practices to establishing security requirements that member facilities must follow to remain eligible for association membership. The following is a brief description of these 16 associations and a summary of security efforts under way at the facilities owned and/or operated by their member companies. The American Chemistry Council (ACC) has 135 members that represent the leading companies in the U.S. chemical manufacturing sector. According to ACC, its members are responsible for nearly 90 percent of basic industrial chemical production. ACC’s member companies operate about 2,000 facilities, approximately 1,000 of which are RMP facilities. Approximately 270 of ACC’s member facilities are also subject to the Maritime Transportation Security Act of 2002 (MTSA). ACC adopted a Responsible Care® Security Code that outlines 13 management practices that company security management systems must include. These practices require companies to perform security vulnerability assessments of their facilities, develop and implement plans to mitigate the vulnerabilities, and obtain third-party verification that the planned physical security enhancements were completed. ACC members assigned its facilities into “tiers” on the basis of the potential impact a chemical release at a facility would have on surrounding communities, and these facilities must follow milestone dates for completing security requirements that are based on tier level. ACC reported that as of May 2004, all of its 2,000 facilities have completed security vulnerability assessments at their sites using the Sandia National Laboratories vulnerability assessment methodology, the Center for Chemical Process Safety methodology, or an equivalent methodology approved by the center. The Responsible Care® Security Code also requires that companies apply security management practices to facility cyber assets and the chemical industry distribution chain, which covers the complete “value chain” for chemicals, from suppliers to customers, including transportation. Member companies must perform vulnerability assessments of their cyber assets and distribution value chain and implement plans to mitigate these vulnerabilities. ACC asked that a company executive from each member provide a signed statement declaring that the company had management systems in place for the entire security code by June 30, 2005. As of October 3, 2005, 95 percent of member companies have signed this statement. ACC officials told us that a number of companies have left ACC over the last few years because of the cost of complying with Responsible Care® requirements. Recognizing the degree of rigor associated with the Responsible Care® Security Code, the United States Coast Guard recognized the code as an alternative security program for purposes of fulfilling facility security requirements under MTSA. The American Forest & Paper Association has 116 members, including companies that manufacture pulp, paper, paperboard, wood, or related products in the United States. According to the association, its member companies operate over 1,000 facilities, of which 80 to 90 are RMP facilities. The association has established no specific security requirements for its members, but has provided them with guidance on facility site security principles and distributed pamphlets on common steps for protecting forest products industry infrastructure. The Chemical Producers and Distributors Association represents 86 member companies engaged in (1) the manufacture, formulation, distribution, and sale of crop protection chemicals, fertilizers, feed, fiber crops, and ingredients used in food; (2) the care and maintenance of lawns, gardens, and turf; and (3) various forestry and vegetation management markets. The association has established no specific security requirements for its members, but shares information about security issues with members at meetings and conferences. The Chlorine Chemistry Council is a business council of ACC representing the manufacturers and users of chlorine and chlorine-related products. The council has seven voting members, who must be members of ACC and comply with ACC’s Responsible Care® security requirements. Most facilities of voting member companies are also RMP facilities. The council also has nonvoting members who are not ACC members. Some of these members voluntarily follow the general approach of Responsible Care®. The Compressed Gas Association (CGA) has 138 member companies that represent manufacturers, distributors, suppliers, and transporters of gases and cryogenic liquids (i.e., liquefied gases kept in a liquid state at extremely low temperatures). The association’s members have gases, such as oxygen, nitrogen, argon, and helium, that are used in most industries, including food and metal processing, semiconductor manufacturing, healthcare, and chemical production. According to CGA, member companies include approximately 15 to 20 industrial gas manufacturing companies. CGA does not collect information on the number of facilities member companies have that must meet RMP requirements. Some member companies that make gas products used in foods must comply with aspects of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 to protect the nation’s food, according to CGA. CGA has established no specific security requirements for members, but has developed and distributed guidance to the compressed gas industry on assessing security risks and identifying and implementing preventive security measures. Guidelines address site security, transportation security, and steps facilities should take to “qualify” customers, (i.e., ensure that they are purchasing products for the appropriate uses). CGA relied heavily on site security guidelines developed by ACC, the Chlorine Institute, and the Synthetic Organic Chemical Manufacturers Association in 2001 and on information from the Center for Chemical Process Safety in developing these guidelines. CropLife America represents the developers, manufacturers, formulators, and distributors of chemicals for agriculture and pest management in the United States. CropLife America member companies produce, sell, and distribute virtually all of the crop protection and biotechnology products used by American farmers. CropLife America’s membership includes 18 pesticides manufacturing companies with about 30 facilities and 5 integrated distribution companies with 1,100 of the nation’s 5,500 bulk pesticide retail agricultural facilities, which typically store both fertilizer chemicals and pesticides. All of the manufacturing facilities are subject to RMP. Most of the retail facilities also are subject to RMP because they house ammonia. CropLife America also has about 10 member facilities that formulate pesticides. CropLife America also participates in the Food and Agriculture Sector Coordinating Council. Six of CropLife America’s basic research and manufacturing members are ACC members and their facilities adhere to the Responsible Care® Security Code. In addition, working with the Agricultural Retailers Association, CropLife America created a not-for-profit organization called the American Agronomic Stewardship Alliance to develop a stewardship inspection and accreditation program for its agricultural retail and distribution facilities that includes some security steps. The alliance requires facilities to develop security plans and undergo inspection by third-party vendors that includes checking to see that security plans were prepared. However, the inspectors do not look at whether the security plan has been implemented. As of April 2005, third parties had completed about 2,000 inspections and 98 percent of inspected facilities had a security plan on file. CropLife America also published security guidelines shortly after the events of September 11, 2001, and has distributed these guidelines extensively. The 40 member companies of the Institute of Makers of Explosives (IME) include explosives manufacturers and distributors, and companies that are contracted by mining companies to conduct explosions. According to IME, about 30 of IME’s member companies manufacture or distribute explosives at about 300 facilities. Six of these companies operate 23 RMP facilities. IME member companies are subject to a number of safety and security requirements regulated by the Department of Justice’s Bureau of Alcohol, Tobacco, Firearms, and Explosives. IME has no specific security requirements for its members, but has provided recommended security guidelines to its members that include conducting a vulnerability assessment but does not audit members for compliance. IME also has work under way on a risk assessment modeling tool for accident risk planning that will include a terrorist threat scenario. The model is based on Department of Energy work and is intended for manufacturers and drill blast companies. The International Institute of Ammonia Refrigeration is an international association serving companies that use ammonia refrigeration technology, including end users such as food refrigeration companies, contractors, engineers, equipment manufacturers, and others in the industry. While the institute was unable to provide the number of RMP facilities in its membership, about 2,000 RMP facilities use ammonia refrigeration. According to the institute, these ammonia refrigeration facilities include approximately 600 refrigerated warehouses and storage facilities, such as regional food distribution centers, and about 400 facilities that house meat from slaughterhouses. Almost all of the food facilities belonging to the institute are covered by the Bioterrorism Act. The institute also participates in DHS’s Agriculture Sector Coordinating Council. The institute has established no specific security requirements for its members, but shares information about security issues with its members at annual meetings. Member companies of the National Association of Chemical Distributors (NACD) package, distribute, and blend chemicals. Its members typically work with chemicals that do not react in unstable ways and store large quantities of chemicals in warehouses. NACD represents 253 chemical distribution companies that own, lease, or manage approximately 1,380 facilities in the United States and Canada. NACD estimates that at least 350 member facilities are RMP facilities. In 1991, NACD developed an environment, health, safety, and security management protocol called the Responsible Distribution Process. Adherence to this process is a condition of NACD membership. Since January 1999, NACD members have been required to have their successful implementation of all required membership practices verified by third parties once every 3 years. NACD contracted with an internal auditing company to be the third-party reviewer for its members. The first 3-year cycle of Responsible Distribution Process verification ended in December 2001. In April 2002, NACD added security measures to the process, which require its members to develop security programs, scrutinize security measures taken by for-hire motor carriers, ensure that customers are purchasing chemicals for the appropriate use (as prescribed by government regulations), and verify implementation of security measures by an independent firm designated by NACD. The second 3-year cycle for process verification began in January 2003 and ended in December 2005. Beginning in January 2006, NACD’s Responsible Distribution Process includes a requirement that members conduct security vulnerability assessments. NACD developed its own vulnerability assessment methodology, and members will be expected to have completed their assessment by June 2006. NACD has terminated the membership of 20 companies that failed to comply with the Responsible Distribution Process requirements and to complete and pass the verification step. The National Paint and Coatings Association (NPCA) represents manufacturers and suppliers of paints and coatings, including lacquers, stains, varnishes, and concrete. NPCA has over 350 associate and full- member companies, representing an estimated 700 paint manufacturing facilities that range from mom-and-pop stores to chain stores. Approximately 50 of these facilities are RMP facilities. NPCA worked with its members to develop Coatings Care, a safety and environmental management system that includes security steps such as analyzing threats, vulnerabilities, and consequences and the implementation of security measures. Coatings Care also includes a vulnerability assessment methodology developed by a member company specifically for paint and coatings facilities that companies may elect to use, as well as examples of security checklists and best practices. Member companies have 1 year from the time they become NPCA members to agree to follow the Coatings Care principles. However, NPCA does not require that members take steps to verify their compliance with Coatings Care security requirements. The National Petrochemical and Refiners Association (NPRA) has about 450 member companies that include refiners and petrochemical manufacturers, suppliers, and vendors. Almost all U.S. refiners are NPRA members, which represent about 98 percent of the total refining capacity in the United States. Petrochemical manufacturing facilities use processes similar to those used in refineries and are often colocated at refineries. According to NPRA, a majority of the almost 150 refineries and 200 petrochemical manufacturing facilities in the United States are subject to MTSA. Because refineries are currently considered to be part of the energy critical infrastructure sector, NPRA also participates in the Oil and Natural Gas Sector Homeland Security Coordinating Council, which meets regularly with a sector government coordinating council that includes DHS and the Department of Energy. NPRA has established no specific security requirements for its members, but it holds security conferences and workshops for its members that address security issues. In addition, NPRA and the American Petroleum Institute developed a vulnerability assessment methodology for petrochemical manufacturing and refining facilities that was issued in 2003 and updated in 2004. The Center for Chemical Process Safety has approved the methodology. DHS formally acknowledged that the methodology can be used to satisfy MTSA requirements. The Synthetic Organic Chemical Manufacturers Association (SOCMA) includes 160 member companies that operate about 300 small- to medium- sized specialty chemical manufacturing facilities in the United States, or “batch” facilities, that produce a diverse number of chemicals. Specialty chemicals are formulated to meet the detailed specifications of various end users, and usually have unique purposes, such as making nylon fibers stronger or serving as the active ingredient in medicine. In December 2002, SOCMA adopted ACC’s Responsible Care® Security Code. SOCMA also developed a vulnerability assessment methodology reflecting the variable risks at smaller facilities. According to SOCMA officials, as of September 2005, all of its member companies had reported completing vulnerability assessments and 98 percent of these companies reported that they had implemented security enhancements and obtained third-party verification. However, beginning in October 2005, SOCMA no longer required its members to adhere to Responsible Care® because it has developed its own environmental, health, safety, and security performance program. SOCMA’s new program, called ChemStewardsSM, will still require members to conduct vulnerability assessments and implement enhancements for physical security but will not include specific security requirements for cyber assets and facilities’ distribution chain, which covers the complete value chain for chemicals, from suppliers to customers, including transportation. According to SOCMA, they have taken this step because cybersecurity issues are far less significant for small companies, most of whom do not use process control systems that can be disrupted via cyber attack. Members will have to obtain third-party verification of security improvements if a facility is an RMP facility. The Adhesive and Sealant Council (ASC) represents adhesive and sealant manufacturers and supplier companies. The council has about 126 member companies with approximately 250 facilities. According to ASC, most of these facilities are RMP facilities. About 75 or 80 member companies are raw materials suppliers, some of which also belong to ACC and, therefore, comply with Responsible Care®. About 55 member companies are adhesives or sealant manufacturers, some of which also belong to NPCA. ASC has no specific security requirements for members. The Chlorine Institute represents approximately 220 member companies that produce, distribute, and use chlorine, sodium, and potassium hydroxides and sodium hypochlorite, and that distribute and use hydrogen chloride. The institute’s North American producer members account for 98 percent of the total chlorine production capacity of the United States and Canada; its packager member companies represent 100 percent of the total U.S. market. Most of the facilities of the institute’s member companies are RMP facilities. A few of the institute’s members are large water treatment facilities that are covered by the Bioterrorism Act, and many of their members also have facilities covered by MTSA, according to the institute. The Chlorine Institute encourages, but does not require, its members to conduct vulnerability assessments and develop security plans. Member companies that are also ACC members conduct vulnerability assessments and develop security plans in accordance with the Responsible Care® Security Code. The institute has developed a seven-step process that smaller chlorine manufacturing and distribution companies can use to assess their vulnerabilities. In addition, the institute requires executives of all member companies to sign an agreement stating that they will meet nine safety and security requirements, including complying with Responsible Care® or another industry security program. Companies whose executives do not sign the agreement are not eligible for institute membership. The institute does not require that companies take steps to verify that vulnerability assessments and security plans are completed and security measures are implemented. The Fertilizer Institute (TFI) represents companies that make, sell, and transport fertilizer products. Its approximately 190 member companies operate retail spaces, warehouses, terminal, and production facilities. Approximately 20 companies in the United States manufacture fertilizer. TFI has established no specific security requirements for its members. In 2002, however, TFI developed a Security Code of Management Practices that it recommends, but does not require, that members follow. The security code involves screening facilities into priority tiers that are based on potential security hazards and, following a timeline on the basis of tier level, conducting a vulnerability assessment using a methodology developed by the Center for Chemical Process Safety, SOCMA, or other equivalent methods. Also in 2002, a working group comprising members of TFI, CropLife America, and the Agriculture Retailers Association, developed a Web-based vulnerability assessment tool for agribusiness retail facilities. The Center for Chemical Process Safety approved the tool as meeting its criteria for security vulnerability assessments. According to TFI, approximately 2,000 of its member retail facilities have used the tool to date. The Society of the Plastics Industry, Inc., represents the entire plastics industry, including processors, machinery and equipment manufacturers, and raw materials suppliers. The society has about 1,100 member companies—about half of these companies supply machinery (auxiliary components, dryers, and heavy equipment, among others); about 250 to 300 companies process and recycle plastics; less than 100 companies make resins; and the remaining companies make molds. The bulk of the society’s member companies do not handle large quantities of hazardous chemicals. The society has established no specific security requirements for its members. Some of the society’s members are also members of ACC or the Synthetic Organic Chemical Manufacturers Association and, therefore, comply with these associations’ security programs. The following are GAO’s comments on the Department of Homeland Security’s letter dated December 8, 2005. 1. We revised the report to include a description of the National Strategy for Securing the Chemical Sector. 2. We revised the report to include the language suggested by DHS. 3. We revised the report to include DHS’s statement that it is open to working with EPA on interpreting the RMP database. In addition, we encourage DHS to share its analysis of the database with EPA to ensure that all high-risk facilities are identified. 4. We revised the report to state that the 272 facilities that could potentially affect more than 50,000 people included some refineries located with petrochemical companies. We also added DHS’s comment that it did not intend to incorporate wastewater treatment facilities into the list of top facilities. 5. We revised the report to indicate that DHS is uncertain how many facilities it will ask to complete the RAMCAP top screen. 6. Contrary to DHS’s statement, industry officials told us that the companies that pretested the security vulnerability assessments—not the top screen, as DHS indicates—found the exercise valuable, but difficult to complete. As of early November 2005, four chemical companies had tested the security vulnerability assessment at one of its facilities. 7. We revised the report to state that DHS expects to conduct six Comprehensive Reviews, and that they will coordinate these reviews with state and local officials. 8. As DHS suggested, we deleted the list of principles for proposed chemical security legislation that DHS officials provided us in October 2005 and substituted the language suggested by DHS, which was, in part, already included in the draft report. 9. As we state in our response to DHS’s views on our recommendation, we continue to believe that the use of safer technologies may potentially reduce both security and environmental and health risks at some chemical facilities. We retained the draft report’s existing discussion of the issue, including DHS’s and the industry’s views, but added DHS’s specific statement from its comment letter that “the use of inherently safer technologies tends to shift risks rather than eliminate risks, often with unintended consequences.” We also included information from DHS’s draft Chemical Sector-Specific Plan, which states that inherently safer chemistry and engineering practices can prevent or delay a terrorist incident, and that it is important to make sure that facility owners/operators consider alternate ways to reduce risk, such as inherently safer design, implementing just-in-time manufacturing, or replacing high-risk chemicals with safer alternatives. In addition, Vincent P. Price, Assistant Director; Leigh White; Joanna Owusu; and Jill Edelson made key contributions to this report. Important contributions were also made by John W. Delicath and Amy Webbink. | Terrorist attacks on U.S. chemical facilities could damage public health and the economy. While the Environmental Protection Agency (EPA) formerly led federal efforts to ensure chemical facility security, the Department of Homeland Security (DHS) is now the lead federal agency coordinating efforts to protect these facilities from terrorist attacks. GAO reviewed (1) DHS's actions to develop a strategy to protect the chemical industry, (2) DHS's actions to assist in the industry's security efforts and coordinate with EPA, (3) industry security initiatives and challenges, and (4) DHS's authorities and whether additional legislation is needed to ensure chemical plant security. GAO interviewed DHS, EPA, and industry officials, among others. As part of a national framework for protecting the chemical sector, DHS is developing a Chemical Sector-Specific Plan. The plan is intended to, among other things, describe DHS's ongoing efforts and future plans to coordinate with federal, state, and local agencies and the private sector; identify chemical facilities to include in the sector, assess their vulnerabilities, and prioritize them; and develop programs to prevent, deter, mitigate, and recover from attacks on chemical facilities. DHS did not estimate when the plan will be completed. To date, DHS has taken a number of actions aimed at protecting the chemical sector from terrorist attacks. DHS has identified 3,400 facilities that, if attacked, could pose the greatest hazard to human life and health and has initiated programs to assist the industry and local communities in protecting chemical facilities. For example, the Buffer Zone Protection Program assists facility owners and local law enforcement with improving the security of areas surrounding plants. DHS also coordinates with the Chemical Sector Coordinating Council, an industry-led group that acts as a liaison for the chemical sector, and with EPA and other federal agencies. The chemical industry is voluntarily addressing plant security, but faces challenges in preparing against terrorism. Some industry associations require member companies to assess plants' vulnerabilities, develop and implement plans to mitigate vulnerabilities, and have a third party verify that security measures were implemented. Other associations have developed security guidelines and other tools to encourage their members to address security. While voluntary efforts are under way, industry officials said that they face challenges in preparing facilities against terrorism, including high costs and limited guidance on how much security is adequate. Because existing laws provide DHS with only limited authority to address security at chemical facilities, it has relied primarily on the industry's voluntary security efforts. However, the extent to which companies are addressing security is unclear. Unlike EPA, for example, which requires drinking water facilities to improve their security, DHS does not have the authority to require chemical facilities to assess their vulnerabilities and implement security measures. Therefore, DHS cannot ensure that facilities are taking these actions. DHS has stated that its existing authorities do not permit it to effectively regulate the chemical industry, and that the Congress should enact federal requirements for chemical facilities. Many stakeholders agreed--as GAO concluded in 2003--that additional legislation placing federal security requirements on chemical facilities is needed. However, stakeholders had mixed views on the contents of any legislation, such as requirements that plants substitute safer chemicals and processes that potentially could reduce the risks present at these facilities. |
When we refer to consumer advocacy groups, we are referring to groups that advocate on behalf of consumers and patients. its safety and effectiveness. Class I includes devices with the lowest risk (e.g., tongue depressors, reading glasses, forceps), while class III includes devices with the highest risk (e.g., breast implants, coronary stents). Almost all class I devices and some class II devices (e.g., mercury thermometers, certain adjustable hospital beds) are exempt from premarket notification requirements. Most class III device types are required to obtain FDA approval through the PMA process, the most stringent of FDA’s medical device review processes. The remaining device types are required to obtain FDA clearance or approval through either the 510(k) or PMA processes. If eligible, a 510(k) is filed when a manufacturer seeks a determination that a new device is substantially equivalent to a legally marketed device known as a predicate device. In order to be deemed substantially equivalent (i.e., cleared by FDA for marketing), a new device must have the same technological characteristics and intended use as the predicate device, or have the same intended use and different technological characteristics but still be demonstrated to be as safe and effective as the predicate device without raising new questions of safety and effectiveness. Most device submissions filed each year are 510(k)s. For example, of the more than 13,600 device submissions received by FDA in FYs 2008 through 2010, 88 percent were 510(k)s. The medical device performance goals were phased in during the period covered by MDUFMA (the FYs 2003 through 2007 cohorts) and were updated for MDUFA. Under MDUFA, FDA’s goal is to complete the review process for 90 percent of the 510(k)s in a cohort within 90 days of submission (known as the Tier 1 goal) and to complete the review process for 98 percent of the cohort within 150 days (the Tier 2 goal).(See table 1 for the 510(k) performance goals for the FYs 2003 through 2011 cohorts). FDA may take any of the following actions on a 510(k) after completing its review: issue an order declaring the device substantially equivalent; issue an order declaring the device not substantially equivalent; or advise the submitter that the 510(k) is not required (i.e., the product is not regulated as a device or the device is exempt from premarket notification requirements). Each of these actions ends the review process for a submission. A sponsor’s withdrawal of a submission also ends the review process. Alternatively, FDA may “stop the clock” on a 510(k) review by sending a letter asking the sponsor to submit additional information (known as an AI letter). This completes a review cycle but does not end the review process. The clock will resume (and a new review cycle will begin) when FDA receives a response from the sponsor. As a result, FDA may meet its 510(k) performance goals even if the time to final decision (FDA review time plus time spent waiting for the sponsor to respond to FDA’s requests for additional information) is longer than the time frame allotted for the performance goal. For example, a sponsor might have submitted a 510(k) on March 1, 2009, to start the review process. If FDA sent an AI letter on April 1, 2009 (after 31 days on the clock), the sponsor provided a response on June 1, 2009 (after an additional 61 days off the clock), and FDA issued a final decision on June 11, 2009 (10 more days on the clock), then the FDA review time counted toward the MDUFA performance goals would be 41 days (FDA’s on-the-clock time). FDA would have met both the Tier 1 (90 day) and Tier 2 (150 day) time frames for that device even though the total number of calendar days (on- and off-the-clock) from beginning the review to a final decision was 102 days. (See table 2 for a comparison of FDA review time and time to final decision.) FDA tracks the time to final decision and reports on it in the agency’s annual reports to Congress on the medical device user fee program. A PMA is filed when a device is not substantially equivalent to a predicate device or has been classified as a class III PMA device (when the risks associated with the device are considerable). The PMA review process is the most stringent type of medical device review process required by FDA, and user fees are much higher for PMAs than for 510(k)s. PMAs are designated as either original or expedited. FDA considers a device eligible for expedited review if it is intended to (a) treat or diagnose a life- threatening or irreversibly debilitating disease or condition and (b) address an unmet medical need.submissions to determine which are appropriate for expedited review, regardless of whether a company has identified its device as a potential candidate for this program. FDA assesses all medical device To meet the MDUFA goals, FDA must complete its review of 60 percent of the original PMAs in a cohort within 180 days of submission (Tier 1) and 90 percent within 295 days (Tier 2). For expedited PMAs, 50 percent of a cohort must be completed within 180 days (Tier 1) and 90 percent within 280 days (Tier 2). (See table 3 for the PMA performance goals for the FYs 2003 through 2011 cohorts.) The various actions FDA may take during its review of a PMA are the following: major deficiency letter; not approvable letter; and denial order. The major deficiency letter is the only one of these actions that does not end the review process for purposes of determining whether FDA met the MDUFA performance goal time frame for a given submission. As with the AI letter in a 510(k) review, FDA can stop the clock during the PMA review process by sending a major deficiency letter (ending a review cycle) and resume it later upon receiving a response from the manufacturer. In contrast, taking one of the other four actions permanently stops the clock, meaning any further review that occurs is excluded from the calculation of FDA review time. In addition, the approval order and denial order are also considered final decisions and end FDA’s review of a PMA completely. A sponsor’s withdrawal of a submission also ends the review process. FDA’s review of medical device submissions has been discussed in recent congressional hearings, meetings between FDA and stakeholders about the medical device user fee program reauthorization, and published reports. In addition, in August 2010, FDA released reports which described the results of two internal assessments conducted by FDA of its medical device review programs. In January 2011, FDA released a plan of action that included 25 steps FDA intends to take to address the issues identified in these assessments. For FYs 2003 through 2010, FDA met all Tier 1 and Tier 2 performance goals for 510(k)s. In addition, FDA review time for 510(k)s decreased slightly during this period, but time to final decision increased substantially. The average number of review cycles and FDA’s requests for additional information for 510(k) submissions also increased during this period. FDA met all Tier 1 performance goals for the completed 510(k) cohorts that had Tier 1 goals in place. The percentage of 510(k)s reviewed within 90 days (the current Tier 1 goal time frame) exceeded 90 percent for the FYs 2005 through 2010 cohorts (see fig. 1.) Although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA’s data, FDA was exceeding the Tier 1 goal for those submissions on which it had taken action. FDA’s performance varied for 510(k) cohorts prior to the years that the Tier 1 goals were in place but was always below the current 90 percent goal. FDA met the Tier 2 goals for all three of the completed cohorts that had Tier 2 goals in place. Specifically, FDA met the goal of reviewing 98 percent of submissions within 150 days for the FYs 2008, 2009, and 2010 cohorts (see fig. 2.) Additionally, although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA’s data, FDA was exceeding the Tier 2 goal for those submissions on which it had taken action. FDA’s performance for 510(k) cohorts prior to the years that the Tier 2 goals were in place was generally below the current 98 percent goal. While the average FDA review time for 510(k) submissions decreased slightly from the FY 2003 cohort to the FY 2010 cohort, the time to final decision increased substantially. Specifically, the average number of days FDA spent on the clock reviewing a 510(k) varied somewhat but overall showed a small decrease from 75 days for the FY 2003 cohort to 71 days for the FY 2010 cohort (see fig. 3). However, when we added off-the- clock time (where FDA waited for the sponsor to provide additional information) to FDA’s on-the-clock review time, the resulting time to final decision decreased slightly from the FY 2003 cohort to the FY 2005 cohort before increasing 61 percent—from 100 days to 161 days—from the FY 2005 cohort through the FY 2010 cohort. FDA officials told us that the only alternative to requesting additional information is for FDA to reject the submission. The officials stated that as a result of affording sponsors this opportunity to respond, the time to final decision is longer but the application has the opportunity to be approved. Additionally, although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA’s data, the average FDA review time and time to final decision were lower in FY 2011 for those submissions on which it had taken action. The average number of review cycles per 510(k) increased substantially (39 percent) from FYs 2003 through 2010, rising from 1.47 cycles for the FY 2003 cohort to 2.04 cycles for the FY 2010 cohort (see fig. 4). In addition, the percentage of 510(k)s receiving a first-cycle decision of substantially equivalent (i.e., cleared by FDA for marketing) decreased from 54 percent for the FY 2003 cohort to 20 percent for the FY 2010 cohort, while the percentage receiving first-cycle AI requests exhibited a corresponding increase. (See fig. 5.) The average number of 510(k) submissions per year remained generally steady during this period. Although the 510(k) cohort for FY 2011 was still incomplete at the time we received FDA’s data, of the first-cycle reviews that had been completed, the percentage of submissions receiving a first-cycle decision of substantially equivalent was slightly higher than for the FY 2010 cohort (21.2 percent in FY 2011 compared with 20.0 percent in FY 2010). In addition, the percentage receiving a first-cycle AI request was lower (68.2 percent for FY 2011 compared with 77.0 for FY 2010). The percentage of 510(k)s that received a final decision of substantially equivalent also decreased in recent years—from a high of 87.9 percent for the FY 2005 cohort down to 75.1 percent for the FY 2010 cohort. The percentage of 510(k)s receiving a final decision of not substantially equivalent increased for each cohort from FYs 2003 through 2010, rising from just over 2.9 percent to 6.4 percent. (See fig. 6.) For FYs 2003 through 2010, FDA met most of the goals for original PMAs but fell short on most of the goals for expedited PMAs. In addition, FDA review time and time to final decision for both types of PMAs generally increased during this period. Finally, the average number of review cycles increased for certain PMAs while the percentage of PMAs approved after one review cycle generally decreased. Since FY 2003, FDA met the original PMA performance goals for four of the seven completed cohorts that had goals in place, but met the goals for only two of the seven expedited PMA cohorts with goals. Specifically, FDA met its Tier 1 performance goals for original PMAs for all three of the completed original PMA cohorts that had such goals in place, with the percentage increasing from 56.8 percent of the FY 2007 cohort to 80.0 percent of the FY 2009 cohort completed on time. (See fig. 7.) While the FY 2010 and 2011 cohorts are still incomplete, FDA is exceeding the goals for those submissions on which it has taken action. FDA’s performance had declined steadily in the years immediately before implementation of these goals—from 67.1 percent of the FY 2000 cohort to 34.5 percent of the FY 2006 cohort completed within 180 days. FDA’s performance in meeting the Tier 2 performance goals for original PMAs fell short of the goal for three of the four completed cohorts during the years that these goals were in place. FDA met the MDUFMA Tier 2 performance goal (320 days) for the FY 2006 original PMA cohort but not for the FY 2007 cohort, and did not meet the MDUFA Tier 2 performance goal (295 days) for either of the completed cohorts (FYs 2008 and 2009) to which the goal applied (see fig. 8). While the FYs 2010 and 2011 original PMA cohorts are still incomplete, FDA is exceeding the MDUFA FDA’s Tier 2 goals for those submissions on which it has taken action.performance varied for original PMA cohorts prior to the years that the Tier 2 goals were in place but was always below the current goal to have 90 percent reviewed within 295 days. For expedited PMAs, FDA met the Tier 1 and Tier 2 performance goals for only two of the seven completed cohorts for which the goals were in effect. FDA met the Tier 1 (180-day) goal for only one of the two completed cohorts during the years the goal has been in place, meeting the goal for the FY 2009 cohort but missing it for the FY 2008 cohort (see fig. 9). FDA’s performance varied for cohorts prior to the years that the Tier 1 expedited PMA goals were in place but was below the current goal of 50 percent in all but 1 year. FDA’s performance in meeting the Tier 2 performance goals for expedited PMAs fell short of the goal for four of the five completed cohorts during the years that these goals were in place. FDA met the MDUFMA Tier 2 performance goal (300 days) for the FY 2005 cohort but not for the FY 2006 or 2007 cohorts, and did not meet the MDUFA Tier 2 performance goal (280 days) for either of the completed cohorts (FY 2008 and 2009) to which the goal applied (see fig. 10). FDA’s performance varied for expedited PMA cohorts prior to the years that the Tier 2 goals were in place but always fell below the current goal to have 90 percent reviewed within 280 days. FDA review time for both original and expedited PMAs was highly variable but generally increased across our analysis period, while time to final decision also increased for original PMAs. Specifically, average FDA review time for original PMAs increased from 211 days in the FY 2003 cohort (the first year that user fees were in effect) to 264 days in the FY 2008 cohort, then fell in the FY 2009 cohort to 217 days (see fig. 11). When we added off-the-clock time (during which FDA waited for the sponsor to provide additional information or correct deficiencies in the submission), average time to final decision for the FYs 2003 through 2008 cohorts fluctuated from year to year but trended upward from 462 days for the FY 2003 cohort to 627 days for the FY 2008 cohort. The results for expedited PMAs fluctuated even more dramatically than for original PMAs—likely due to the small number of submissions (about 7 per year on average). Average FDA review time for expedited PMAs generally increased over the period that user fees have been in effect, from 241 days for the FY 2003 cohort to 356 days for the FY 2008 cohort, then fell to 245 days for the FY 2009 cohort (see fig. 12). The average time to final decision for expedited PMAs was highly variable but overall declined somewhat during this period, from 704 days for the FY 2003 cohort to 545 days for the FY 2009 cohort. The average number of review cycles per original PMA increased 27.5 percent from 1.82 in the FY 2003 cohort (the first year that user fees were in effect) to 2.32 cycles in the FY 2008 cohort. For expedited PMAs, the average number of review cycles per submission was fairly steady at approximately 2.5 cycles until the FY 2004 cohort, then peaked at 4.0 in the FY 2006 cohort before decreasing back to 2.5 cycles in the FY 2009 cohort. We found nearly identical trends when we examined the subsets of original and expedited PMAs that received a final FDA decision of approval. In addition, the percentage of original PMAs receiving a decision of approval at the end of the first review cycle fluctuated from FYs 2003 through 2009 but generally decreased—from 16 percent in the FY 2003 cohort to 9.8 percent in the FY 2009 cohort. Similarly, the percentage receiving a first-cycle approvable decision decreased from 12 percent in the FY 2003 cohort to 2.4 percent in the FY 2009 cohort. The percentage of expedited PMAs receiving first-cycle approval fluctuated from year to year, from 0 percent in 5 of the years we examined to a maximum of 25 percent in FY 2008. The percentage of original PMAs that ultimately received approval from FDA fluctuated from year to year but exhibited an overall decrease for the completed cohorts from FYs 2003 through 2008. Specifically, 74.0 percent of original PMAs in the FY 2003 cohort were ultimately approved, compared to 68.8 percent of the FY 2008 cohort. The percentage of expedited PMAs that were ultimately approved varied significantly from FYs 2003 through 2009, from a low of 0 percent in the FY 2007 cohort to a high of 100 percent in the FY 2006 cohort. The industry groups and consumer advocacy groups we interviewed noted a number of issues related to FDA’s review of medical device submissions. The most commonly mentioned issue raised by industry and consumer advocacy stakeholder groups was insufficient communication between FDA and stakeholders throughout the review process. Industry stakeholders also noted a lack of predictability and consistency in reviews and an increase in time to final decision. Consumer advocacy group stakeholders noted issues related to inadequate assurance of the safety and effectiveness of approved or cleared devices. FDA is taking steps that may address many of these issues. Most of the three industry and four consumer advocacy group stakeholders that we interviewed told us that there is insufficient communication between FDA and stakeholders throughout the review process. For example, four stakeholders noted that FDA does not clearly communicate to stakeholders the regulatory standards that it uses to evaluate submissions. In particular, industry stakeholders noted problems with the regulatory guidance documents issued by FDA. These stakeholders noted that these guidance documents are often unclear, out of date, and not comprehensive. Stakeholders also noted that after sponsors submit their applications to FDA, insufficient communication from FDA prevents sponsors from learning about deficiencies in their submissions early in FDA’s review. According to one of these stakeholders, if FDA communicated these deficiencies earlier in the process, sponsors would be able to correct them and would be less likely to receive a request for additional information. Two consumer advocacy group stakeholders also noted that FDA does not sufficiently seek patient input during reviews. One stakeholder noted that it is important for FDA to incorporate patient perspectives into its reviews of medical devices because patients might weigh the benefits and risks of a certain device differently than FDA reviewers. FDA has taken or plans to take several steps that may address issues with the frequency and quality of its communications with stakeholders, including issuing new guidance documents, improving the guidance development process, and enhancing interactions between FDA and stakeholders during reviews. For example, in December 2011, FDA released draft guidance about the regulatory framework, policies, and practices underlying FDA’s 510(k) review in order to enhance the transparency of this program. In addition, FDA implemented a tracking system and released a standard operating procedure (SOP) for developing guidance documents for medical device reviews to provide greater clarity, predictability, and efficiency in this process. FDA also created a new staff position to oversee the guidance development process. Additionally, according to an overview of recent FDA actions to improve its device review programs, FDA is currently enhancing its interactive review process for medical device reviews by establishing performance goals for early and substantive interactions between FDA and sponsors during reviews. This overview also notes that FDA is currently working with a coalition of patient advocacy groups on establishing mechanisms for obtaining reliable information on patient perspectives during medical device reviews. The three industry stakeholders that we interviewed also told us that there is a lack of predictability and consistency in FDA’s reviews of device submissions. For example, two stakeholders noted that review criteria sometimes change after a sponsor submits an application. In particular, one of these stakeholders noted that criteria sometimes change when the FDA reviewer assigned to the submission changes during the review. Additionally, stakeholders noted that there is sometimes inconsistent application of criteria across review divisions or across individual reviewers. Stakeholders noted that enhanced training for reviewers and enhanced supervisory oversight could help resolve inconsistencies in reviews and increase predictability for sponsors. In the two internal assessments of its device review programs that FDA released in August 2010, the agency found that insufficient predictability in its review programs was a significant problem. FDA has taken steps that may address issues with the predictability and consistency of its reviews of device submissions, including issuing new SOPs for reviews and enhancing training for FDA staff. For example, in June 2011, FDA issued an SOP to standardize the practice of quickly issuing written notices to sponsors to inform them about changes in FDA’s regulatory expectations for medical device submissions. FDA also recently developed an SOP to assure greater consistency in the review of device submissions when review staff change during the review.April 2010, FDA began a reviewer certification program for new FDA Additionally, in reviewers designed to improve the consistency of reviews. According to the overview of recent FDA actions to improve its device review programs, FDA also plans to implement an experiential learning program for new reviewers to give them a better understanding of how medical devices are designed, manufactured, and used. The three industry stakeholders we interviewed told us that the time to final decision for device submissions has increased in recent years. This is consistent with our analysis, which showed that the average time to final decision has increased for completed 510(k) and original PMA cohorts since FY 2003. Additionally, stakeholders noted that FDA has increased the number of requests for additional information, which our analysis also shows. Stakeholders told us they believe the additional information being requested is not always critical for the review of the submission. Additional information requests increase the time to final decision but not necessarily the FDA review time because FDA stops the review clock when it requests additional information from sponsors. Two of the stakeholders stated that reviewers may be requesting additional information more often due to a culture of increased risk aversion at FDA or because they want to stop the review clock in order to meet performance goals. According to FDA, the most significant contributor to the increased number of requests for additional information—and therefore increased time to final decision—is the poor quality of submissions received from sponsors. In July 2011, FDA released an analysis it conducted of review According to FDA, in over 80 percent times under the 510(k) program.of the reviews studied for this analysis, reviewers asked for additional information from sponsors due to problems with the quality of the submission. FDA officials told us that sending a request for additional information is often the only option for reviewers besides issuing a negative decision to the sponsor. FDA’s analysis also found that 8 percent of its requests for additional information during the first review cycle were inappropriate. Requests for additional information were deemed inappropriate if FDA requested additional information or data for a 510(k) that (1) were not justified, (2) were not permissible as a matter of federal law or FDA policy, or (3) were unnecessary to make a substantial equivalence determination. FDA has taken steps that may address issues with the number of inappropriate requests for additional information. For example, the overview of recent FDA actions indicates the agency is developing an SOP for requests for additional information that clarifies when these requests can be made for 510(k)s, the types of requests that can be made, and the management level at which the decision must be made. Three of the four consumer advocacy group stakeholders with whom we spoke stated that FDA is not adequately ensuring the safety and effectiveness of the devices it approves or clears for marketing. One of these stakeholders told us that FDA prioritizes review speed over safety and effectiveness. Two stakeholders also noted that the standards FDA uses to approve or clear devices are lower than the standards that FDA uses to approve drugs, particularly for the 510(k) program. Two stakeholders also expressed concern that devices reviewed under the 510(k) program are not always sufficiently similar to their predicates and that devices whose predicates are recalled due to safety concerns do not have to be reassessed to ensure that they are safe. Finally, three stakeholders told us that FDA does not gather enough data on long-term device safety and effectiveness through methods such as postmarket analysis and device tracking. These issues are similar to those raised elsewhere, such as a public meeting to discuss the reauthorization of the medical device user fee program, a congressional hearing, and an Institute of Medicine (IOM) report. For example, during a September 14, 2010, public meeting to discuss the reauthorization, consumer advocacy groups—including two of those we interviewed for our report—urged the inclusion of safety and effectiveness improvements in the reauthorization, including raising premarket review standards for devices and increasing postmarket surveillance. Additionally, during an April 13, 2011, congressional hearing, another consumer advocacy group expressed concerns about FDA’s 510(k) review process and recalls of high-risk devices that were cleared through this process. Finally, in July 2011, IOM released a report summarizing the results of an independent evaluation of the 510(k) program. FDA had requested that IOM conduct this evaluation to determine whether the 510(k) program optimally protects patients and promotes innovation. IOM concluded that clearance of a 510(k) based on substantial equivalence to a predicate device is not a determination that the cleared device is safe or effective. FDA has taken or plans to take steps that may address issues with the safety and effectiveness of approved and cleared devices, including evaluating the 510(k) program and developing new data systems. For example, FDA analyzed the safety of 510(k) devices cleared on the basis of multiple predicates by investigating an apparent association between these devices and increased reports of adverse events. FDA concluded that no clear relationship exists. FDA also conducted a public meeting to discuss the recommendations proposed in the IOM report in September 2011. FDA is also developing a device identification system that will allow FDA to better track devices that are distributed to patients, as well as an electronic reporting system that will assist with tracking and analyzing adverse events in marketed devices. While FDA has met most of the goals for the time frames within which the agency was to review and take action on 510(k) and PMA device submissions, the time that elapses before a final decision has been increasing. This is particularly true for 510(k) submissions, which comprise the bulk of FDA device reviews. Stakeholders we spoke with point to a number of issues that the agency could consider in addressing the cause of these time increases. FDA tracks and reports the time to final decision in its annual reports to Congress on the medical device user fee program, and its own reports reveal the same pattern we found. In its July 2011 analysis of 510(k) submissions, FDA concluded that reviewers asked for additional information from sponsors—thus stopping the clock on FDA’s review time while the total time to reach a final decision continued to elapse—mainly due to problems with the quality of the submission. FDA is taking steps that may address the increasing time to final decision. It is important for the agency to monitor the impact of those steps in ensuring that safe and effective medical devices are reaching the market in a timely manner. HHS reviewed a draft of this report and provided written comments, which are reprinted in appendix III. HHS generally agreed with our findings and noted that FDA has identified some of the same performance trends in its annual reports to Congress. HHS noted that because the total time to final decision includes the time industry incurs in responding to FDA’s concerns, FDA and industry bear shared responsibility for the increase in this time and will need to work together to achieve improvement. HHS also noted that in January 2011, FDA announced 25 specific actions that the agency would take to improve the predictability, consistency, and transparency of its premarket medical device review programs. Since then, HHS stated, FDA has taken or is taking actions designed to create a culture change toward greater transparency, interaction, collaboration, and the appropriate balancing of benefits and risk; ensure predictable and consistent recommendations, decision making, and application of the least burdensome principle; and implement efficient processes and use of resources. HHS also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services, the Commissioner of FDA, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or crossem@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. 2002 (MDUFMA) (MDUFA) Cycles that were currently in progress at the time we received FDA’s data were included in this analysis. The average number of review cycles for the FY 2011 cohort may increase as those reviews are completed but will not decrease. — We treated PMA submissions as meeting the time frame for a given performance goal if they were reviewed within the goal time plus any extension to the goal time that may have been made. The only reason the goal time can be extended is if the sponsor submits a major amendment to the submission on its own initiative (i.e., unsolicited by FDA). The FYs 2010 and 2011 original PMA cohorts were considered still incomplete. Specifically, for 18.5 percent of the FY 2010 original PMA cohort and 48.8 percent of the FY 2011 cohort, FDA had not yet made a decision that would permanently stop the review clock for purposes of determining whether FDA met its performance goals (i.e., an approval, approvable, not approvable, withdrawal, or denial) at the time we received FDA’s data; this includes reviews by CBER through September 30, 2011, and reviews by CDRH through December 1, 2011. As a result, it was too soon to tell what the final results for these cohorts would be. It is possible that some of the reviews taking the most time were among those not completed when we received FDA’s data. The percentage of original PMAs reviewed within 180 days for the FY 2010 and FY 2011 cohorts may increase or decrease as those reviews are completed; the number reviewed within 180 days and the number and percentage reviewed within 320 days and within 295 days may decrease as those reviews are completed. Only original PMAs that had received a decision permanently stopping the review clock were used to determine the number and percentage of original PMAs reviewed within 180 days, within 320 days, and within 295 days. Cycles that were currently in progress at the time we received FDA’s data were included in this analysis. The average number of review cycles for the incomplete cohorts may increase as those reviews are completed but will not decrease. This analysis includes only those original PMAs for which FDA or the sponsor had made a final decision; this includes reviews by CBER through September 30, 2011, and reviews by CDRH through December 1, 2011. For this analysis, the FYs 2009 through 2011 original PMA cohorts were considered still incomplete. Specifically, 22 percent of the FY 2009 original PMA cohort, 46.3 percent of the FY 2010 cohort, and 65.1 percent of the FY 2011 cohort had not yet received a final decision. As a result, it was too soon to tell what the final results for these cohorts would be. It is possible that some of the reviews taking the most time were among those not completed when we received FDA’s data. The percentages of final decisions that were approval, denial, or withdrawal and the average time to final decision for original PMAs not meeting the 295-day time frame for the FYs 2009 through 2011 cohorts may increase or decrease as those reviews are completed. The average number of review cycles for the FYs 2009 through 2011 cohorts may increase as those reviews are completed but will not decrease. For the FYs 2010 through 2011 cohorts, there were no original PMAs that had received a final decision that did not meet the 295-day time frame. — We treated PMA submissions as meeting the time frame for a given performance goal if they were reviewed within the goal time plus any extension to the goal time that may have been made. The only reason the goal time can be extended is if the sponsor submits a major amendment to the submission on its own initiative (i.e., unsolicited by FDA). The FYs 2010 and 2011 expedited PMA cohorts were considered still incomplete. Specifically, 33 percent of the FY 2010 expedited PMA cohort and 71.4 percent of the FY 2011 cohort had not yet received a final decision; this includes reviews by CBER through September 30, 2011, and reviews by CDRH through December 1, 2011. Additionally, for 16.7 percent of the FY 2010 expedited PMA cohort and 71.4 percent of the FY 2011 cohort, FDA had not yet made a decision that would permanently stop the review clock for purposes of determining whether FDA met its performance goals (i.e., an approval, approvable, not approvable, withdrawal, or denial) at the time we received FDA’s data. As a result, it was too soon to tell what the final results for these cohorts would be. It is possible that some of the reviews taking the most time were among those not completed when we received FDA’s data. The percentage of expedited PMAs reviewed within 180 days for the FY 2010 and FY 2011 cohorts may increase or decrease as those reviews are completed; the number reviewed within 180 days and the number and percentage reviewed within 300 days and within 280 days may decrease as those reviews are completed. The percentages of final decisions that were approval, denial, or withdrawal and the average time to final decision for the FYs 2010 through 2011 cohorts may increase or decrease as those reviews are completed. The average number of review cycles for the FYs 2010 through 2011 cohorts may increase as those reviews are completed but will not decrease. Fiscal years for which there was no corresponding expedited PMA performance goal are denoted with a dash (—). “n/a” denotes not applicable. In these years, there was no corresponding expedited PMA performance goal and therefore no determination of whether the goal was met. For the FYs 2010 through 2011 cohorts, there were no expedited PMAs that had received a final decision that did not meet the 280-day time frame. FDA centers and offices Center for Devices and Radiological Health (CDRH) Office of Management Operations (OSM/OMO) Office of Information Technology (OIT) Office of Science and Engineering Laboratories (OST/OSEL) Office of Communication Education and Radiation Programs (OHIP/OCER) Office of Surveillance and Biometrics (OSB) Office of In Vitro Diagnostics (OIVD) Committee Conference Management (CCM) Center for Biologics Evaluation and Research (CBER) Center Director’s Office, Office of Management (OM), Office of Information Management (OIM), and Office of Communication, Outreach, and Development (OCOD) Office of Cellular, Tissue & Gene Therapies Office of Vaccines Research & Review Office of Therapeutics Research & Review Office of Biostatistics & Epidemiology Office of Compliance & Biologics Quality Office of Regulatory Affairs (ORA) Office of the Commissioner (OC) Shared Service (SS) OCD includes Medical Device Fellowship Program employees even though the Fellows were assigned to work throughout CDRH. OIT was included in the OMO FTE total prior to FY 2008. OIVD did not exist prior to FY 2004. Also, the Radiology Devices Branch was moved from ODE to OIVD between FY 2009 and FY 2010. CCM was included in the OMO FTE total prior to FY 2008. Shared Service FTE were not separated from the center FTE until FY 2004. In addition to the contact named above, Robert Copeland, Assistant Director; Carolyn Fitzgerald; Cathleen Hamann; Karen Howard; Hannah Marston Minter; Lisa Motley; Aubrey Naffis; Michael Rose; and Rachel Schulman made key contributions to this report. | The Food and Drug Administration (FDA) within the Department of Health and Human Services (HHS) is responsible for overseeing the safety and effectiveness of medical devices sold in the United States. New devices are generally subject to FDA review via the 510(k) process, which determines if a device is substantially equivalent to another legally marketed device, or the more stringent premarket approval (PMA) process, which requires evidence providing reasonable assurance that the device is safe and effective. The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) authorized FDA to collect user fees from the medical device industry to support the process of reviewing device submissions. FDA also committed to performance goals that include time frames within which FDA is to take action on a proportion of medical device submissions. MDUFMA was reauthorized in 2007. Questions have been raised as to whether FDA is sufficiently meeting the performance goals and whether devices are reaching the market in a timely manner. In preparation for reauthorization, GAO was asked to (1) examine trends in FDAs 510(k) review performance from fiscal years (FY) 2003-2010, (2) examine trends in FDAs PMA review performance from FYs 2003-2010, and (3) describe stakeholder issues with FDAs review processes and steps FDA is taking that may address these issues. To do this work, GAO examined FDA medical device review data, reviewed FDA user fee data, interviewed FDA staff regarding the medical device review process and FDA data, and interviewed three industry groups and four consumer advocacy groups. Even though FDA met all medical device performance goals for 510(k)s, the elapsed time from submission to final decision has increased substantially in recent years. This time to final decision includes the days FDA spends reviewing a submission as well as the days FDA spends waiting for a device sponsor to submit additional information in response to a request by the agency. FDA review time excludes this waiting time, and FDA review time alone is used to determine whether the agency met its performance goals. Each fiscal year since FY 2005 (the first year that 510(k) performance goals were in place), FDA has reviewed over 90 percent of 510(k) submissions within 90 days, thus meeting the first of two 510(k) performance goals. FDA also met the second goal for all 3 fiscal years it was in place by reviewing at least 98 percent of 510(k) submissions within 150 days. Although FDA has not yet completed reviewing all of the FY 2011 submissions, the agency was exceeding both of these performance goals for those submissions on which it had taken action. Although FDA review time decreased slightly from FY 2003 through FY 2010, the time that elapsed before FDAs final decision increased substantially. Specifically, from FY 2005 through FY 2010, the average time to final decision for 510(k)s increased 61 percent, from 100 days to 161 days. FDA was inconsistent in meeting performance goals for PMA submissions. FDA designates PMAs as either original or expedited; those that FDA considers eligible for expedited review are devices intended to (a) treat or diagnose life-threatening or irreversibly debilitating conditions and (b) address an unmet medical need. While FDA met the performance goals for original PMA submissions for 4 out of 7 years the goals were in place, it met those goals for expedited PMA submissions only twice out of 7 years. FDA review time and time to final decision for both types of PMAs were highly variable but generally increased in recent years. For example, the average time to final decision for original PMAs increased from 462 days for FY 2003 to 627 days for FY 2008 (the most recent year for which complete data are available). The three industry groups and four consumer advocacy groups GAO interviewed noted a number of issues related to FDAs review of medical device submissions. The four issues most commonly raised by stakeholders included (1) insufficient communication between FDA and stakeholders throughout the review process, (2) a lack of predictability and consistency in reviews, (3) an increase in time to final decision, and (4) inadequate assurance of the safety and effectiveness of approved or cleared devices. FDA is taking stepsincluding issuing new guidance documents, enhancing reviewer training, and developing an electronic system for reporting adverse eventsthat may address many of these issues. It is important for the agency to monitor the impact of those steps in ensuring that safe and effective medical devices are reaching the market in a timely manner. In commenting on a draft of this report, HHS generally agreed with GAOs findings and noted that FDA has identified some of the same performance trends in its annual reports to Congress. HHS also called attention to the activities FDA has undertaken to improve the medical device review process. |
The SSN was created in 1936 as a means of tracking workers’ earnings and eligibility for Social Security benefits. SSNs are issued to most U.S. citizens, and to some noncitizens lawfully admitted to the United States. Through a process known as enumeration, a unique nine-digit number is created. The number is divided into three parts— first three digits represent the geographic area where the SSN was assigned; the middle two are the group number, which is assigned in a specified order for each area number; and the last four are serial numbers ranging from 0001 to 9999. Because of the number’s uniqueness and broad applicability, SSNs have become the identifier of choice for government agencies and private businesses, and are used for a myriad of non–Social Security purposes. Information resellers, sometimes referred to as information brokers, are businesses that specialize in amassing personal information from multiple sources and offering informational services. These entities may provide their services to a variety of prospective buyers, either to specific business clients or to the general public through the Internet. More prominent or large information resellers such as consumer reporting agencies and entities like LexisNexis provide information to their customers for various purposes, such as building consumer credit reports, verifying an individual’s identity, differentiating records, marketing their products, and preventing financial fraud. These large information resellers limit their services to businesses and government entities that establish accounts with them and have a legitimate purpose for obtaining an individual’s personal information. For example, law firms and collection agencies may request information on an individual’s bank accounts and real estate holdings for use in civil proceedings, such as a divorce. Information resellers that offer their services through the Internet (Internet resellers) will generally advertise their services to the general public for a fee. Resellers, whether well-known or Internet-based, collect information from three sources: public records, publicly available information, and nonpublic information. Public records are available to anyone and obtainable from governmental entities. Exactly what constitutes public records depends on state and federal laws, but generally includes birth and death records, property records, tax lien records, voter registrations, and court records (including criminal records, bankruptcy filings, civil case files, and legal judgments). Publicly available information is information not found in public records but nevertheless available to the public through other sources. These sources include telephone directories, business directories, print publications such as classified ads or magazines, and other sources accessible by the general public. Nonpublic information is derived from proprietary or private sources, such as credit header data and application information provided by individuals—for example, information on a credit card application—directly to private businesses. Information resellers provide information to their customers for various purposes, such as building consumer credit reports, verifying an individual’s identity, differentiating records, marketing their products, and preventing financial fraud. The aggregation of the general public’s personal information, such as SSNs, in large corporate databases and the increased availability of information via the Internet may provide unscrupulous individuals a means to acquire SSNs and use them for illegal purposes. Because of the myriad uses of the SSN, Congress has previously asked GAO to review various aspects of SSN-use in both the public and private sectors. In our previous work, our reports have looked at how private businesses and government agencies obtain and use SSNs. In addition, we have reported that the perceived widespread sharing of personal information and instances of identity theft have heightened public concern about the use of Social Security numbers. We have also noted that the SSN is used, in part, as a verification tool for services such as child support collection, law enforcement enhancement, and issuing credit to individuals. Although these uses of SSNs are beneficial to the public, SSNs are also key elements in creating false identities. We testified before the Subcommittee on Social Security, House Committee on Ways and Means, about SSA’s enumeration and verification processes and also reported that the aggregation of personal information, such as SSNs, in large corporate databases, as well as the public display of SSNs in various public records, may provide criminals the opportunity to commit identity crimes. We have also previously reported that certain federal and state laws help information resellers limit the disclosure of personal information including SSNs to their prescreened clients. Specifically, we described how certain federal laws place restrictions on how some Internet resellers’ obtain, use, and disclose consumer information. The limitations these laws afford are shown in table 1. The Web sites of the 154 Internet resellers we reviewed had similar characteristics. Most resellers offered a variety of information that could be purchased, from telephone records to credit reports. In addition, Internet resellers also offered to sell information in various ways, from packaged information, such as various information that would be collected through a background check or a search of a person’s criminal records to single types of information, such as a credit score. These resellers usually listed the types of clients that they market their services to and broadly identified their sources of information. We found that Internet resellers offered to sell a variety of information to anyone willing to pay a fee. On average, resellers offered about 8 types of services and two offered 20 types of informational services. As shown in figure 1, the majority of resellers offered to sell anywhere from 1 to 10 informational services. The Internet resellers offering the fewest services tended to specialize in services provided to the public. For example, most of the resellers offering only one service were resellers that specialized in helping locate an individual. Others offered services related to employment or background checks. Internet resellers also offered different ways for buyers to purchase their information. For example, some offered memberships that allowed online access to the reseller’s information, with the member performing the search. Another reseller offered to sell a software package that would allow a buyer to purchase access to the Internet reseller’s information through the purchased software and allowed many different types of information searches. The majority of resellers would require selected information about the buyer and then would perform the data search and provide an information report to the buyer. We identified over 50 types of information offered for purchase by these resellers, which we categorized into six major categories including personal, legal, financial, employment, driver or vehicle, and telephone. Table 2 gives examples of the types of information found in these categories. All the resellers offered to sell information from at least one of the six categories. However, not all resellers offered to sell driver or vehicle information, or telephone information. For example, only 85 of the 154 resellers we reviewed offered to sell some type of driver’s information, while 56 resellers offered to sell telephone information. We found that Internet resellers either sold their information as a part of a package or sold single pieces of information. For example, resellers sold packaged information such as background checks, criminal checks, or employment checks/tenant screenings. Of the packaged information, we found that background checks provided the most extensive information. A background check may include personal, legal, and financial information, such as name, SSN, address, neighbors, relatives, and associates information. Such checks may include national, state, or county criminal records searches and bankruptcy and lien information. Other packages, such as criminal records packages, may include national, state, and county criminal records searches, sex offender searches, and civil litigation. Employment checks/tenant screenings may include current and past employment, SSN verifications, and national, state, and county criminal records searches. Over 80 percent of Internet resellers identified the clients to whom they marketed their information. Internet resellers identified their clients in several ways. About 60 percent of the time, resellers used the information sections of their Web sites to identify their clients. Web pages such as “Frequently Asked Questions,” “Help,” or “About Us” were frequently used to identify their clients. For example, the “About Us” Web page generally provided a brief description about the Internet reseller’s business and would often describe the clients it marketed to. Other ways in which resellers marketed to their clients were through testimonials or in a separate section on their Web page. Internet resellers marketed their services to a variety of clients. As shown in table 3, individuals, businesses, and attorneys were the most frequently identified clients. Some of the businesses resellers identified were Fortune 500 companies and retailers. For the financial institution clients, resellers mostly identified banks. In addition, most of the Internet resellers’ clients were from the private sector, although some had government and law enforcement agency clients. Finally, we found that most of the resellers had multiple types of clients. About 30 percent of the resellers identified only one type of client. About 75 percent, or 115, Internet resellers identified the source of their information on their Web sites. Most of these resellers obtained their information from public or nonpublic sources or a combination of both sources. For example, a few resellers offered to conduct a background investigation on an individual, which included compiling information on the individual from court records and using a credit bureau to obtain consumer credit data. Some used only public records as their only source of information. The most frequently identified public records were court records, department of motor vehicle records, real property records, legal judgments, and bankruptcy records. We found about one-third of the Internet resellers used only one source of information. More often, they used a combination of the three sources. Figure 2 below shows the various combinations of sources of information. Most of our attempts to purchase SSNs from a select group of resellers failed. Of the 154 Internet resellers’ Web sites we reviewed, 53, almost 35 percent, offered to sell SSNs. We attempted to purchase SSNs from 21 resellers that were chosen because they required minimal information about prospective buyers or about the person whose SSN we wanted to obtain. Of the 21 resellers from which we tried to purchase SSNs, only 5 provided some form of an SSN. As shown in table 5, the reasons for being unable to obtain SSNs from 16 of the 21 resellers varied. Nine resellers, a majority of the resellers that did not sell SSNs to us, did not explain why but simply did not provide the information we sought. Four of the remaining resellers attempted to contact us to request legal documentation to support a permissible purpose for obtaining the information. However, since we attempted to purchase SSNs as a member of the general public, we could not provide the requested information. One of these resellers sent us an e-mail asking us to fax a signed letter stating our reason for obtaining a person’s SSN and a copy of our driver’s license to verify our identity, which we could not provide. We contacted the other three to find out why prospective buyers were required to have a permissible purpose. One reseller told us that the company is audited every year by the government and that a legal document request was part of its security screening of its customers. The other two stated that some form of legal documentation, such as a certified copy of a court order, was required in order for their companies to release the information. In addition to receiving one full and four truncated SSNs, we also received other information related to our purchases. Given that we only received SSNs as a part of packaged information, we were not surprised that we received additional information about the person whose SSN we were trying to obtain. For example, the two Internet resellers that provided some form of SSN in a background check report also provided the following information: the person’s current and previous addresses, date of birth, a list of other names associated with the person, a list of their neighbors, tax liens and judgments against the person, and properties owned by the person. However, in one case we received unexpected and unrequested information. In this case, we did not receive the SSN of the person whose number we requested, but instead received the truncated SSNs of the person’s past and present neighbors, information we did not request. Five of the 21 resellers from whom we attempted to purchase SSNs did provide us with some form of an SSN. We received one full nine-digit SSN and four truncated SSNs. All five resellers that supplied an SSN provided the SSN as a part of a package of information. As shown in table 6, the full SSN was obtained as a part of a background check, and the four truncated SSNs were provided as a part of a “people locator” package, a background package, and an employment trace. We attempted to order SSNs from five resellers that offered to sell the SSN alone, and we were unable to obtain an SSN from those resellers. We also found a wide range of the costs for information services when we tried to purchase SSNs. The packages of information we attempted to purchase ranged from about $4 to $200 compared to the costs to purchase individual SSNs that ranged from about $15 to $150. The range of costs from the five resellers that provided some form of the SSN was about $20 to $200. The Internet reseller that provided the full SSN did so for $95. Of the four resellers that gave us truncated SSNs, three of these disclosed on their Web sites that they would provide full SSNs, but only under certain circumstances. For example, one reseller said that, by law, it cannot provide a person’s SSN to any third party. Another required the customer to have a legitimate reason for requesting the information under laws such as GLBA. This reseller said it may not provide the full SSN if the customer did not meet those requirements. None explained why they only provided the first five digits. All resellers that provided truncated SSNs showed the first five digits and masked the last four digits. We interviewed industry representatives and privacy experts to determine if this way of truncating the SSN was the standard practice among private sector entities. Industry representatives and privacy experts told us that entities in other industries may truncate the SSN differently from the truncated SSNs we bought from Internet resellers. For example, consumer data industry representatives said that members of their association decide for themselves how and when to truncate SSNs. One consumer reporting agency we spoke to told us that it truncates the SSN by masking the first five digits on reports it provides directly to consumers, by displaying only the last four digits. Some privacy experts said that certain entities that use SSNs as identifiers on lists, such as universities, also truncate the number by masking the first five digits. In addition, SSA also masks the first five digits of the SSN on the Social Security Statements mailed to individuals over the age of 25 who have an SSN and have wages or earnings from self–employment. On the basis of our discussions with government officials and industry representatives, we could not identify any industry standards or guidelines for truncating SSNs. None of the officials we spoke to knew for certain why either method—masking the first five digits or the last four digits— was used or how such methods came into use. In addition, when we asked officials which way of truncating the SSN better protects it from misuse, there was no consensus among them, and no one knew of any research regarding this issue. Some officials said that although truncation could provide some protection for SSNs, it is unlikely to be foolproof. There are also few, if any, federal laws that require or regulate truncating the SSN. Currently, FCRA has a specific provision relating to truncating SSNs. Under this law consumers can request that their SSN be truncated to display only the last four digits on any consumer report they request about themselves. The Judicial Conference of the United States issued rules, effective in December 2003, requiring that SSNs be truncated to mask the first five digits in newly filed electronically available bankruptcy court documents. Federal agency officials whom we spoke to said that Congress or SSA should decide how SSNs should be truncated. The Social Security Act of 1935 authorized SSA to establish a record-keeping system to help manage the Social Security program and resulted in the creation of the SSN. Through a process known as enumeration, unique numbers are created for every person as a work and retirement benefit record for the Social Security program. According to SSA officials, the law does not address the use of the number by private and public sector entities. SSA officials said that SSA regulates only the agency’s use of SSNs and does not have legal authority over SSNs used by others. Federal privacy laws that restrict the disclosure of personal information could be applicable to Internet resellers, but there was insufficient evidence on the resellers’ Web sites we reviewed to determine if they met specific statutory definitions. Federal privacy laws such as the FCRA, GLBA, and DPPA apply primarily to entities that meet specific statutory definitions. For example, FCRA applies primarily to a consumer reporting agency, which is defined as any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing “consumer reports.” In addition, these laws allow for disclosure of personal information for certain permissible purposes, and those who request or receive information from an entity meeting those statutory definitions may also have obligations under these laws. For example, FCRA generally prohibits “consumer reporting agencies” from furnishing “consumer reports” to third party users unless it is for a permissible purpose; before providing “consumer report” information to prospective users, however, the prospective user must certify the purposes for which the information is sought and that it will be used for no other purpose. GLBA and DPPA also contain prohibitions against re-disclosure of personal information covered by those laws. FCRA, GLBA, and DPPA could apply to Internet resellers that identify themselves as one of the statutorily defined entities covered under the laws—which are consumer reporting agencies for FCRA, financial institutions for GLBA, and state motor vehicle departments for DPPA—or that received information from such entities. We found four resellers that identified themselves as one of the statutorily defined entities. Three stated on their Web sites that they were consumer reporting agencies and the other stated it was a credit bureau. However, we did not find similar information on the remaining 150 resellers’ Web sites to determine what type of entity they were. In addition, we found that some resellers identified the source of their information generally, but did not link information sources to particular pieces of information. For example, about 7 percent of the resellers identified “Department of Motor Vehicle records” as the source of some of their information and offered to search for personal information based on a driver’s license number, license plate number, or vehicle identification number. However, most did not specify which personal information came from the “Department of Motor Vehicle records” or any state motor vehicle departments. Therefore, we could not determine if FCRA, GLBA, and DPPA were applicable to the majority of resellers we reviewed. Our review of the resellers’ Web sites found 79 of them, about 50 percent, referenced one or more federal privacy laws. As shown in figure 3, the most frequently mentioned laws were FCRA, GLBA, and DPPA. We also found 5 out of the 154 Internet resellers referenced state laws on their Web sites. Two stated adherence to the California Investigative Consumer Reporting Act, which allows a consumer to review any files concerning that consumer maintained by an “investigative reporting agency.” One cited two California consumer laws. One law allows California consumers to remove their names from credit bureau mailing lists used for unsolicited pre-approved credit offers for a minimum of 2 years. It also provides identity theft victims and other consumers with increased rights regarding consumer credit reports, including requiring the deletion of inquiries resulting from identity theft. The other California law prohibits consumer credit reporting agencies that furnish reports for employment purposes from reporting information on the age, marital status, race, color, or creed of any consumer and requires the user of the report to provide written notice to the consumer. The law also requires that the consumer be provided a free copy of the report upon request. Another reseller cited a Florida statute that governs divulging investigative information, and yet another reseller stated adherence to the Michigan Private Detective License Act. Both state laws regulate the activities of private investigators. Although personal information is widely available on the Internet to anyone willing to pay a fee, SSNs appear to be difficult to obtain from the Internet resellers we contacted. Few of the Internet resellers’ Web sites we reviewed offered to sell an individual’s SSN outright, and even those that did make such an offer did not follow through. Thus, the perception that anyone willing to pay a fee can easily obtain someone’s SSN does not appear to be valid. Our experiences indicate that it is more likely that a buyer would not be able to purchase an SSN or would receive a truncated version of an SSN from Internet resellers. However, our work does suggest that someone seeking an SSN may be able to obtain a truncated SSN, and depending on the entity, the SSN may be truncated in various ways. Standardizing the truncation of the SSN could provide some protection from SSNs being misused. Under a standardized approach, the same digits of the SSN would be the only information transmitted, no matter the source from which the SSN is obtained. Given SSA’s role in assigning SSNs, SSA is in the best position to determine whether and if truncation should be standardized, but because the agency does not have specific authority to regulate truncation, SSN truncation will continue to vary. Since there is no consistently practiced method for truncating SSNs, and no federal agency has the authority to regulate how SSNs should be truncated, Congress may wish to consider enacting standards for truncating SSNs or delegating authority to SSA or some other governmental entity to issue standards for truncating SSNs. We provided a draft of this report to the Social Security Administration for comment and received a written response from the administration (included as app. II). SSA agreed that standardizing the truncation of SSNs would be beneficial and supported our recommendation for congressional action. In addition, SSA stated that while it does not have the legal authority to compel organizations to truncate SSNs or to specify how such truncating should be done, it would be willing to publish information on best practices for truncating SSNs on SSA’s Web site. We also provided a draft of this report to the Federal Trade Commission for technical review and received comments that were incorporated as appropriate. We are sending copies of this report to the Chairman of the Federal Trade Commission, the Commissioner of the Social Security Administration, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov/. If you have any questions concerning this report, please contact me at (202) 512-7215. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other contacts and acknowledgments are listed in appendix III. To describe readily identifiable Internet resellers, we created a list of Internet reseller Web sites. To create a list of readily identifiable Internet reseller Web sites, we used Internet search techniques and keyword search terms that we thought the members of general public would use if they were trying to obtain someone else’s Social Security Number (SSN). We conducted our searches using three major Internet search engines— Google, Microsoft Network (MSN), and Yahoo. Within each of these search engines we conducted our searches using keywords such as, “find social security number,” “find ssn,” “purchase social security number,” and “public records search.” We chose these keywords based on the advice of privacy experts and the team’s judgment on terms that would yield Web sites that sell personal information including the SSN. Our searches resulted in 1,036 Web sites that we then reviewed to determine whether they were live sites, redirected sites, or duplicate sites that were operated by the same reseller. Nineteen percent of the 1,036 Web sites took us to another Internet reseller Web site that was included in our list. Most of these redirected sites took us to two Internet resellers that offered online membership—allowing access to their databases and affiliate programs, which allowed others to link their Web sites to the resellers’ Web sites. More than one-half of the 1,036 Web sites were inactive at the time a GAO analyst attempted to access the site. In addition, we found a few Web sites were operated by the same reseller and were similar in appearance. As a result, we ended up with a list of 226 sites that we included in our review. We recognize that had we used different search engines, different keywords, and a different point in time we may have identified a different list of sites. To describe the types of readily identifiable Internet resellers that have SSN-related services and characteristics of their businesses, we developed a Web-based data collection instrument (DCI) for GAO analysts to document selected information contained on the Internet resellers’ Web sites. We used the DCI to record information from the Web pages that contained items that addressed the types of SSN-related services and information that the resellers sold, the sources of the information, and the types of clients to whom the site marketed. To ensure that the entry of the DCI data conformed to GAO’s data quality standards, each DCI was reviewed by one of the other GAO analysts. Tabulations of the DCI items were automatically generated from the Web-based DCI software. Supplemental analyses were conducted using a statistical software package. For these analyses, the computer programs were checked by a second, independent analyst. Our analyses found 154 Internet resellers with SSN-related services. To determine the extent to which Internet resellers sell Social Security numbers, we analyzed data collected from the review of Internet resellers just described, attempted to purchase SSNs from a nonprobability sample of Internet resellers, and collected data about the transactions. We used information collected from the DCI to derive a nonprobability sample of Internet resellers to purchase SSNs. The criteria we used to select the resellers for our attempted purchases included the following (1) the Web site advertised the sale of an SSN without the customer’s having to provide the SSN of the subject of our inquiry, (2) the Web site advertised the sale of an SSN to the general public, and (3) the transaction could be made online through the Internet reseller’s Web site using a credit card. We collected information about the purchases including cost, the information that was required about the search subject and the purchaser (including the permissible purpose), whether the site contacted us to verify our information or our permissible purpose, and whether the SSN was provided and, if it was, whether the full or a truncated SSN was provided. In addition, we interviewed staff from the Federal Trade Commission, officials from the Social Security Administration, one of the three national consumer reporting agencies, the Consumer Data Industry Association (an international trade association that represents consumer information companies), and five privacy experts to obtain their views about the use of SSN truncation as a means for safeguarding the number. We also reviewed prior GAO work and performed literature and Internet searches about SSN truncation. To determine the applicability of federal privacy laws to Internet resellers, we reviewed federal laws and the resellers’ Web sites for information about the resellers’ type of entity and sources of information. However, in most instances these resellers did not have sufficient information on their Web sites to determine if they were in compliance with these laws. Specifically, we were unable to determine whether most of these resellers met the definitions specified by these laws such as “financial institution,” “consumer reporting agency,” or an “officer, employee, or contractor” of a “State Motor Vehicle Department.” We also were unable to determine the resellers’ specific sources for particular pieces of information. Although Internet resellers generally did not provide information about the entity and sources of information, they generally cited, and we recorded, whether they stated adherence to any federal privacy laws. In addition to the contact above, Tamara Cross, Assistant Director, Margaret Armen, Patrick Bernard, Richard Burkard, Ellen Chu, John Cooney, Benjamin Federlein, Evan Gilman, Richard Harada, Joel Marus, Andrew O’Connell, Stanley Stenersen, Jacquelyn Stewart, and Lacy Vong made important contributions to this report. | GAO previously reported on how large information resellers like consumer reporting agencies obtain and use Social Security numbers (SSNs). Less is known about information resellers that offer services to the general public over the Internet. Because these resellers provide access to personal information, SSNs could be obtained over the Internet. GAO was asked to examine (1) the types of readily identifiable Internet resellers that have SSN-related services and characteristics of their businesses, (2) the extent to which these resellers sell SSNs, and (3) the applicability of federal privacy laws to Internet resellers. We found 154 Internet information resellers with SSN-related services. Most of these resellers offered a range of personal information, such as dates of birth, drivers' license information, and telephone records. Many offered this information in packages, such as background checks and criminal checks. Most resellers also frequently identified individuals, businesses, attorneys, and financial institutions as their typical clients, and public or nonpublic sources, or both as their sources of information. In attempting to purchase SSNs from 21 of the 53 resellers advertising the sale of such information, we received 1 full SSN, 4 truncated SSNs displaying only the first five digits, and no SSNs from the remaining 16. In one case, we also received additional unrequested personal information including truncated SSNs of the search subject's neighbors. We also found that some other entities truncate SSNs by displaying the last four digits. According to experts we spoke to, there are few federal laws and no specific industry standards on whether to display the first five or last four digits of the SSN, and SSA officials told us the agency does not have the authority to regulate how other public or private entities use SSNs, including how they are truncated. We could not determine if federal privacy laws were applicable to the Internet resellers because such laws depend on the type of entity and the source of information, and most of the resellers' Web sites did not include this information. However, these laws could apply to resellers; 4 of the resellers we examined had Web sites identifying the type of entity they were. About one-half of the resellers cited adherence to one or more federal privacy laws and a few referenced state laws. |
Title I of the Rehabilitation Act of 1973 authorizes a federal-state VR program to provide services to persons with disabilities so that they may prepare for and engage in gainful employment. Education provided an estimated $2.6 billion in fiscal year 2005 in grants to the states and territories based on a formula that considers the state’s population and per capita income. Grants to individual states ranged from about $9 million to nearly $250 million. Four of the five territories received less than $3 million each. The act generally requires states to match federal funds at a ratio of 78.7 percent federal to 21.3 percent state dollars. Each state and territory designates a single VR agency to administer the VR program, except where state law authorizes a separate agency to administer VR services for individuals who are blind. Education provides a single Title I grant to each state. States authorizing a separate blind VR agency decide how the grant will be apportioned between the general VR agency and the blind VR agency. Education tracks the performance of 80 state VR agencies—24 states have separate blind and general agencies; and 26 states, the District of Columbia, and five territories each have a single combined agency. The 80 state VR agencies are housed in various departments of state government, such as state departments of labor or education, or they may be free-standing agencies or commissions. State VR agencies also vary in their operations and locations. For example, some agencies provide services through several offices located throughout the state, while others provide services through one central location. Education collects information about all individuals who exit each state VR agency’s program during a particular fiscal year, as reported by the 80 state VR agencies. The record for each individual exiting the program includes information such as whether or not each individual became employed, the weekly earnings and hours worked for individuals if they exited the VR program with employment, the types and costs of services they received, and demographic factors, such as impairment type, gender, age, race and ethnicity, public benefits, and income from work at the time of application. Education also collects summary information on agency expenditures in a number of categories from each state VR agency. Education tracks individuals in terms of seven types of case closures, which can be collapsed into four categories, for individuals who exited without employment, during the application phase (including individuals who were found ineligible; individuals who could not be determined to be eligible or ineligible for various reasons such as they could not be located or contacted, they failed to cooperate or they refused services; and individuals who were found eligible, but were placed on a waiting list); exited without employment, with limited services (including individuals who were found eligible, but who left the program before an employment plan could be developed, or agreed to an employment plan, but left before receiving services under that plan); exited without employment, after receiving services under an employment exited with at least 90 days of employment, after receiving services under an employment plan. Education considers several types of work activities to meet its definition of employment. First, Education counts as employment the paid work activity of an individual, who may or may not require ongoing support services, in an integrated work setting, that is, a setting typically found in the community where individuals both with and without disabilities interact. Second, Education counts self-employment as employment, whether the business is managed by the eligible individual or the state VR agency. Finally, Education considers certain types of unpaid work activity to be employment, such as homemakers whose work activity is keeping house for themselves or others in their households and unpaid workers in a family business or family farm. While the total number of individuals exiting the VR program has increased slightly over the past several years, the number of individuals exiting with employment has remained relatively stable. (See fig. 1.) State VR agencies that determine they will not be able to serve all eligible individuals who apply for services are required to state the order in which they will select individuals for services. Agencies using an order of selection process must develop criteria for ensuring that individuals with the most significant disabilities will be selected first for services. Thirty- nine of the 80 state VR agencies were using an order of selection process in fiscal year 2003. Beginning fiscal year 2004, 42 of the agencies are using an order process. The Rehabilitation Act requires state VR agencies to enter into cooperative agreements with other entities that are part of the state’s workforce investment system. This workforce investment system includes a One-Stop system, which is required to provide a number of employment-related services to job seekers and employers at a single location. The act also requires state VR agencies to coordinate with public education officials to facilitate the transition of students with disabilities from school to work. Students with disabilities receive special education and related services from their school under an individualized education program (IEP). Beyond these required interactions, state VR agencies may also enter into third-party cooperative agreements with other state or local agencies to coordinate the services provided to their common program participants. Education must abide by several statutes and executive branch directives to measure and monitor the performance of the VR program. The 1998 amendments to the Rehabilitation Act required that Education establish and publish evaluation standards and performance indicators for the VR program. The standards and indicators were supposed to include outcome and related measures of program performance that facilitate the accomplishment of the purpose and policy of the act. The act also gave Education the authority to reduce or suspend payments to state VR agencies that have performance falling below a certain level and fail to enter into a program improvement plan or substantially comply with the terms and conditions of such a plan. The act also directed Education to conduct annual review and periodic on-site monitoring of state VR agencies to determine, in part, whether they were complying with the standards and indicators. Education performs this monitoring function through the 10 regional offices of its Rehabilitation Services Administration (RSA). In response to the 1998 amendments, Education established new performance measures in June 2000 that consisted of two standards for evaluating the performance of the state VR agencies, one relating to the agencies’ performance in assisting individuals in obtaining, maintaining, or regaining high-quality employment and the other relating to the agencies’ performance in ensuring that individuals from minority backgrounds have equal access to services. In addition, Education published performance indicators that establish what constitutes minimum compliance with these evaluation standards and required performance targets for each indicator. Six performance indicators were published for the employment standard, and one was published for the minority service standard. State VR agencies must meet or exceed performance targets in four of the six categories for the first standard and meet or exceed the performance target for the second standard in order to have passing performance. Table 1 provides details on these standards and indicators. The Government Performance and Results Act of 1993 (GPRA) also requires federal executive branch agencies such as the Department of Education to set goals, measure their performance, and report on their accomplishments. Agencies are required to develop annual performance plans that use performance measurement to reinforce the connection between the long-term strategic goals outlined in their strategic plans and the day-to-day activities of their managers and staff. Among its performance goals for fiscal year 2005, Education is assessing its performance in assisting state VR agencies to achieve required performance targets on one performance target—1.2. In 2002, the Office of Management and Budget (OMB) directed that the performance of a range of federal job training and employment programs be measured consistently to allow for the comparison of results across these programs. These common measures would be consistent with the common goals of these programs, that is, to improve participants’ employment and earnings and focus on measures of outcomes and efficiency. OMB identified the VR program as one of the federal programs that would be targeted for using the common measures. Using its Program Assessment Rating Tool (PART), OMB assessed the effectiveness of the VR program in 2003 as part of its effort to hold federal agencies accountable for accomplishing results. The PART evaluation looks at four areas of assessment—program purpose and design, strategic planning, management, and results and accountability. Programs are rated in one of five categories: effective, moderately effective, adequate, ineffective or results not demonstrated. OMB will use the rating and relating findings to make decisions about budget and policy. OMB rated the effectiveness of the VR program as adequate and made recommendations to Education for improving program management and performance measures. As part of its assessment, OMB reviewed Education’s performance indicators 1.2, 1.3, and 1.5. More than 217,000 individuals with disabilities exited the state VR programs with employment in fiscal year 2003 after receiving customized services. This group represents one-third of the 650,543 individuals who left the program nationwide in fiscal year 2003 after submitting an application for services. The most common reasons that the remaining two-thirds of the individuals left the program without a job were that the individual refused services, failed to cooperate, or could not be located or contacted. State VR agencies collectively purchased more than $1.3 billion in services for all individuals who exited the program in fiscal year 2003, two-thirds of which was used to provide services to individuals exiting with employment. Employment, earnings, and the amount of purchased services received while in the VR program varied significantly by individuals’ type of disability and other characteristics. In addition, the state VR agencies varied substantially in the employment rates they achieved, the characteristics of individuals they served, their frequency of providing certain services, and their service expenditures. Of the more than 650,000 individuals exiting the VR program in fiscal year 2003, one-third (217,557) obtained a new job or maintained their existing job for at least 90 days after receiving customized services. (See fig. 2.) Most of these individuals (94 percent) exited the program with jobs that paid at least their state’s minimum wage, but about half of them worked less than 40 hours per week. Overall, individuals who exited the VR program with employment earned a median income of $271 per week, or the equivalent of $14,092 per year. In addition, 30 percent of these individuals (65,832) were already working when they applied to the program, and they increased their median earnings from $225 to $300 per week between program entry and exit. One state VR agency official noted that this figure may, however, underestimate the actual value of VR services extended to individuals working at both program entry and exit. For example, the VR program will pay for services such as vehicle modifications and repairs necessary to help some individuals maintain transportation to and from existing jobs, but these individuals typically do not experience any earnings increase between program entry and exit. Overall, two-thirds (433,086) of individuals exited the VR program without employment at some point following their initial application to the program. Of those who exited without employment in fiscal year 2003, most did so because they refused services or failed to cooperate with their VR counselor (46 percent of the time) or could not be located or contacted (24 percent). (See fig. 3.) One state VR agency official told us that the VR program has historically closed a large number of cases because individuals cannot be located or contacted. However, she also noted that individuals with disabilities coming to the VR program are often a transient population with high rates of poverty and other multiple barriers—issues that can require more time and priority than notifying VR counselors that they have moved. Of those who exited during the application phase in fiscal year 2003, the majority (105,955) left before an eligibility determination could be made, and relatively few (26,563) left because the VR program found them ineligible. Specifically, Education’s data show that 20 percent of individuals who exited during the application phase were found ineligible: 2 percent had disabilities deemed too significant to benefit from services, and 18 percent had no disabling condition, impediment to employment, or need for VR services. Overall, the VR program invested nearly two-thirds ($872 million) of its $1.3 billion in purchased services on individuals who achieved or retained employment upon exiting the program in fiscal year 2003. State VR agencies also spent nearly $200 million on individuals who subsequently exited the program without employment because they failed to cooperate or refused services, and $112 million was spent on those whom state VR agencies were unable to locate or contact. As shown in table 2, individuals’ average length of time in the program, number of services, and cost of purchased services received varied by each of the four exit categories. However, the amounts of purchased services reported by state VR agencies do not reflect the total cost of services provided to individuals in the VR program. For example, state VR agencies do not report the cost of counselor time spent with each individual or the cost of services arranged for by the state VR agency but paid for by other sources. In addition, the amounts of purchased services do not reflect the amounts that individuals are required to pay for certain services at the majority of state VR agencies if they demonstrate the financial ability to do so. Services received by individuals in the VR program varied both by whether they exited the program with employment after receiving services under an employment plan and whether they were employed at entry to the program. Regardless of whether they were working at application, individuals who received services under an employment plan but exited the VR program without employment received fewer job-related services, such as job search, job placement, or on-the-job supports than individuals who exited with employment. (See table 3.) In general, individuals not working when they applied to the VR program received more services than those who were already working when they applied to the program. However, individuals already working were more likely to receive diagnosis and medical treatment of their impairment as well as rehabilitation technology. Individuals may also benefit from the VR program in important nonmonetary ways, aside from employment and earnings. For example, regardless of whether individuals leave the VR program with employment, they may increase their educational level, psychological or physical functioning, productivity in the work setting, independence for self or family members, or integration into the community as a result of receiving VR services. However, Education does not collect data on any nonmonetary benefits that individuals achieve through the VR program aside from educational gains and identification of homemakers and unpaid family workers. Moreover, it is difficult to measure the actual influence of the VR program in assisting individuals to obtain these benefits, employment in general, or any wage increases. Individuals exiting the VR program in fiscal year 2003 had a variety of primary impairments, and individuals with mental or psychosocial impairments (including depression, schizophrenia, and drug and alcohol abuse, among others) constituted the largest group. (See fig. 4.) About 40 percent of all individuals exiting the VR program in fiscal year 2003 also had secondary impairments. Individuals with mental or psychosocial impairments collectively realized the lowest rate of employment (30 percent). In contrast, deaf and blind individuals, each collectively comprising 5 percent of the total VR population, achieved the highest rates of employment nationwide, at 63 percent and 52 percent respectively. (See fig. 5.) Officials at three state VR agencies we visited told us that the availability of state-funded supports and follow-along services were influential in placing and keeping individuals in jobs, especially for individuals with mental impairments. Individuals with cognitive impairments (including mental retardation and specific learning disabilities) collectively achieved the lowest median rate of earnings, compared with those for all other impairment groups exiting the VR program with employment, as shown in figure 6. Individuals exiting the VR program in fiscal year 2003 after having previously participated in the VR program did not necessarily gain employment after their repeat involvement. More than 96,000 individuals (15 percent) exited the VR program in fiscal year 2003 with a prior VR case closure during the previous 3 years. As figure 7 shows, nearly three- quarters of those who previously exited the program without employment failed to achieve employment after their repeat involvement with the VR program. Individuals also received varying amounts of purchased services from state VR agencies, depending on their type of disability. For example, among those who exited in fiscal year 2003 with employment and did not require ongoing support services, blind or other visually impaired individuals received more in purchased service dollars ($2,889 at the median) than any other impairment group, while individuals with cognitive ($1,385) and mental impairments ($1,566) received the least. Officials at several state VR agencies for the blind told us that blind and visually impaired individuals generally require more expensive services, such as assistive technology, than individuals with other types of disabilities. Individuals receiving Social Security disability benefits at application to the VR program comprised one-quarter (159,739) of the total VR population and collectively achieved a lower rate of employment nationwide than nonbeneficiaries in fiscal year 2003. Specifically, 29 percent of beneficiaries exited the VR program with employment in fiscal year 2003 as opposed to 36 percent of nonbeneficiaries. In addition, more Social Security disability beneficiaries required ongoing support services at their jobs, for earnings that were less than half that of nonbeneficiaries ($140 versus $300 per week at the median). Beneficiaries exiting with employment (47,142) also received a median $2,765 in purchased services during their time in the VR program, or nearly $1,000 more than nonbeneficiaries at the median. Separately, beneficiaries’ receipt of VR services did not necessarily reduce their dependence on Social Security disability benefits. For example, among individuals receiving SSDI benefits at their time of exit from the VR program with employment in fiscal year 2003, more than 82 percent of blind and visually impaired beneficiaries and 65 percent of nonblind beneficiaries did not have jobs that were paying enough to disqualify them from receiving continued SSDI benefits, if the work was sustained at that level. Individuals who transitioned from special education services at their schools into the workplace (transitioning students) achieved about the same rate of employment as other individuals with impairments who were under age 22 when they applied to the VR program. (See table 4.) However, the latter group was in the VR program almost twice as long and received more than double the amount of purchased services than transitioning students, and enrolled in or completed a greater degree of postsecondary education than transitioning students. This might be related to the fact that more than 70 percent of the transitioning students had cognitive impairments (as opposed to 36 percent among their same-age counterparts), of which more than half were specific learning disabilities. The 80 state VR agencies’ employment rates ranged from 20 to 74 percent in fiscal year 2003. (App. II lists all agencies’ employment and other exit rates.) Collectively, the separate state VR agencies for the blind, which exclusively serve blind or other visually impaired individuals, achieved an employment rate of 49 percent. This compared with a collective employment rate of 32 percent among the general agencies and 35 percent among the combined agencies. A study commissioned by Education found that a wide range of agency and external factors may help explain state VR agencies’ varied employment rates. Specifically, variables found to help facilitate higher employment rates included an agency’s emphasis on employment, access to ongoing support service programs, and an agency’s proportion of individuals with mental retardation, visual impairments, or existing employment at the time of application to the VR program. Conversely, poor labor market conditions, particularly high unemployment rates, were reported as being among the most influential hindrances to an agency’s performance. The 39 state VR agencies using an order of selection process collectively achieved a slightly lower rate of employment in fiscal year 2003 than the group of 41 agencies not using an order of selection process. Specifically, the collective employment rate was 32 percent among agencies with orders and 35 percent among agencies without orders. In addition, both groups had a wide range of employment rates among individual agencies. Specifically, state VR agencies’ rates of employment ranged from 20 to 62 percent among agencies with orders and from 21 to 74 percent among agencies without orders. State VR agencies with orders are required to give priority acceptance to the category of applicants with “most significant” disabilities, and accept categories of applicants with “significant” and “nonsignificant” disabilities with decreasing priority. As a result, while we expected the group of agencies with orders to experience more individuals exiting during the application phase, the rate of individuals exiting during the application phase was 21 percent among agencies with orders as opposed to 19 percent among agencies without orders. Moreover, agencies with orders varied in how they administered their order of selection policies. For example, agencies with orders opened and closed their priority service categories at varying points during the year, depending on their available resources and population projections, thus affecting the proportion of individuals being accepted into their programs with most significant or significant disabilities. Further, agencies with orders varied in how they defined a most significant disability and how many service categories they expected to serve during a particular fiscal year. Specifically, according to the state plans submitted to Education by state VR agencies for fiscal year 2003, 2 of the 39 agencies with orders expected to serve only individuals with most significant disabilities. In contrast, 11 agencies had orders of selection in place for fiscal year 2003, which indicated they could not serve all eligible individuals, yet they expected to serve all eligible individuals who applied to their program during fiscal year 2003. State VR agencies’ proportion of individuals in each impairment category varied significantly. (App. III shows the proportion of individuals in each impairment category by agency.) For example, the incidence of individuals with mental or psychosocial impairments at combined or general state VR agencies ranged from 1 percent to more than 50 percent. Education officials told us that one of the reasons for such variation may be state VR agencies maintaining third-party cooperative agreements with certain outside entities, such as state mental health institutions, which result in higher proportions of individuals in their VR population with corresponding impairments. State VR agencies also varied in the proportion of Social Security disability beneficiaries they served, from 7 to 66 percent, and Education and state VR agency officials told us that this proportion can influence an agency’s overall employment rate and average hourly earnings among those exiting with employment. In addition, although beneficiaries’ employment rate nationwide was 29 percent, their collective employment rates at individual state VR agencies ranged from 9 to 68 percent. (See app. IV for a list of each agency’s employment rate.) Moreover, agency officials in two states told us that because their state legislatures passed Medicaid buy-in programs, they expected increasing numbers of Social Security disability beneficiaries to begin working or earning higher wages because they no longer feared the loss of important health care benefits, which many automatically received as disability beneficiaries. State VR agencies also varied in the extent to which they worked closely with the One-Stop system in their states, although Education’s data did not completely capture this variation. Education’s data showed limited interaction overall between state VR agencies and One-Stop centers. For example, it showed One-Stop centers providing services to less than 1 percent of all individuals who exited the VR program nationwide in fiscal year 2003. In addition, Education’s data indicated that 3 percent of all individuals who exited the program in fiscal year 2003 were initially referred to the program by a One-Stop center. However, these data understate the extent of integration by state VR agencies in some states with One-Stop centers or WIA program partners. For example, all of Minnesota’s VR offices are co-located at One-Stop centers, and officials at each of the other state VR agencies that we visited told us they had at least some staff colocated at One-Stop centers on an itinerant basis. State VR agency officials in Minnesota cited a number of benefits to office colocation, such as additional services being more readily available, and credited the leadership both within their state parent agency at the Department of Employment and Economic Development and within local regions for the successful colocation of their VR offices. In contrast, officials at most of the other state VR agencies that we visited told us that their interaction with the One-Stop centers in their state was limited and that individuals in their VR programs did not receive very many, if any, services at the One-Stop centers, for a variety of reasons. They told us that these reasons included delayed or late implementation of One-Stop centers in their state, leasing and other legal problems relating to office colocation, lack of physical accessibility at some One-Stop centers, and the lack of specialized training or services available at One-Stop centers necessary to help individuals with disabilities to obtain or advance in employment. While state VR agencies varied in the proportions they spent on different service categories, there were general trends across all agencies with respect to expenditures on certain services. Overall, agencies largely focused on assessment, guidance, counseling, and job placement, but did not focus as much on certain other services, such as postemployment services, transportation, or personal assistance services. (See app. V for a list of the percentages spent by each state VR agency on each service category.) Specifically, state VR agencies spent half of their collective total caseload “service budgets” in fiscal year 2003 on assessment, guidance, counseling, and placement. In contrast, they spent less than 1 percent on postemployment services for individuals who previously exited the VR program with employment but required additional services to maintain or advance in their existing jobs. State VR agency officials told us that VR counselors are generally not recognized, in terms of achieving an employment exit, for providing postemployment services. However, Education and several state VR agency officials told us that postemployment services are important for some individuals to maintain their employment. For example, services such as updated computer- assistive technology or software help to coordinate with an employer’s new computer system or ongoing mental health services help individuals with mental impairments to cope with new psychosocial issues that arise while on the job. State VR agencies varied in the proportion of their total fiscal year 2003 budgets that they spent on providing services, from 43 to 95 percent. Their remaining expenditures were for administrative costs, which varied from 5 to 57 percent of their total budgets. (See app. VI for a list of each state VR agency’s administrative costs as a percentage of total expenditures.) The 24 blind state VR agencies collectively spent more of their total budgets on administrative costs than did the collective group of general agencies or combined agencies. This may be because of the cost of maintaining separate blind VR agencies that on average serve fewer individuals than the general or combined agencies. In addition, the group of blind agencies had the highest per capita cost overall for assisting individuals to achieve employment. Specifically, blind agencies spent an average of $42,392 for every person that exited one of their VR programs with employment in fiscal year 2003, compared with an average of $13,640 at the general agencies and $21,501 at the combined agencies. (See table 5.) For each state VR agency’s average total expenditure per person exiting its program with employment in fiscal year 2003, see appendix VII. Officials at one separate state VR agency for the blind that we visited said their agency’s specialization allows them to understand and rehabilitate blind and visually impaired individuals better than combined VR agencies that do not have as specialized a focus on individuals with these impairments. However, blind and visually impaired individuals collectively achieved a 50 percent employment rate when served at blind state VR agencies, compared with a 56 percent employment rate when served at combined state VR agencies. Moreover, blind and visually impaired individuals exiting the VR program with employment in fiscal year 2003 received less in purchased services while in the program and slightly lower weekly earnings when they exited from blind state VR agencies as compared with combined agencies. (See table 6.) Education’s VR performance measures are not comprehensive in that they count only individuals exiting VR programs and fail to measure key populations. Moreover, the targets Education sets for performance do not take into consideration regional differences in VR populations or allow for comparisons across workforce programs. Education’s monitoring reports—state VR agencies’ primary source of feedback—are frequently late and based on data that are more than 2 years old. As a result, state VR agencies are not getting the kind of timely feedback they need to improve the efficiency and effectiveness of their programs. Education’s recent decision as part of its restructuring efforts to eliminate its regional VR offices, which had conducted most of the monitoring of state VR agencies, has made the details of the future monitoring process unclear. Education’s performance measures have a number of weaknesses, as they are not comprehensive, do not take into account demographic and economic variations among states, and do not incorporate common measures to allow for comparison of workforce programs across executive branch agencies. For example, Education cannot use the current performance measures to comprehensively evaluate the state VR agencies’ performance because the measures do not include data on the individuals still receiving services in the VR system, who made up nearly 40 percent of the state VR agencies’ service population in fiscal year 2003. Instead, Education’s performance measures reflect only the individuals who exit the program. Education does not track specific information on the services provided, costs, and related data until after individuals exit the program, although this information is generally collected by each state VR agency. As a result, Education cannot determine how well the program is accomplishing its purpose of assisting individuals with disabilities to maximize their employment, economic self-sufficiency, independence, and inclusion and integration into society. Additional measures could also add to the balance of performance measurement to ensure that the organization’s various priorities are covered and to prevent skewed incentives. In fact, a study commissioned by Education reported that because the VR employment rate includes only those who exited the VR program, some agencies avoid closing out certain cases in order to meet the performance target for that year. The performance measures also do not isolate data on certain key populations of VR participants. For example, there are no separate performance targets for transitioning students or individuals receiving postemployment services. As a result, Education does not know the extent of these populations, the services provided to them, or the results they achieve. While Education focused on transitioning students in its fiscal year 2003 monitoring guide and held a national conference on transitioning students in June 2005, it does not use the data captured on this population in performance measures or evaluate the results and resources necessary to assist them. In contrast, according to Education officials, Education wants to move away from counting homemakers as a category of employment but continues to measure performance in this area, including homemakers in its employment outcome. In addition, Education does not capture individual-level data related to postemployment services, which some state VR agencies told us are important in helping former participants maintain their employment, despite the need for these measures to help assess the impact of these services. Education has set uniform performance targets for state VR agencies to meet that do not take into account demographic and economic variations within states. For example, one performance measure intended to measure the quality of job placement compares the average wage of individuals exiting the VR program with employment to the average wage of the general population within a state overall, rather than to the population in similar types of jobs or industries. Recognizing that the VR population is different from the general population, Education set the performance target for general and combined state VR agencies as a 0.52:1 ratio to the average state wage. However Education’s performance target still does not capture variations in wages within states, which are outside the agencies’ control and can affect agencies’ ability to achieve performance levels. For example, some states, such as California, have wide variations in wages across the state because of high wages in certain areas that might skew the wage and make it more difficult to perform well on this indicator. In addition, a study commissioned by Education found that equaling or exceeding achievement on another performance measure intended to compare the number of individuals exiting VR services in the current year with that in the prior is “very difficult to achieve in times of declining resources and a poor labor market,” both of which may vary by region or state. Unlike the Department of Labor (Labor), which negotiates performance levels for its job training and employment programs under WIA, Education does not currently negotiate performance targets for performance measures with each state VR agency. The same study recommended that Education evaluate the degree to which adoption of alternatives to average state wage, such as entry-level wages, median wage or national mean wage, might improve this performance measure. Education has considered negotiating performance targets by state but has not implemented negotiations. In contrast to other federal workforce programs, Education’s VR program has not yet adopted the OMB-required common measures that allow for comparison of these programs across agencies, but agency officials told us that they are working toward meeting this requirement. OMB’s PART review recommended that Education collect the necessary data to support new common measures among workforce programs. Labor created a set of common measures for job training and employment programs, which affect programs in Labor, Education, and several other agencies, and apply to programs serving adults and to those serving youth. Labor required most of its programs to implement the common measures by July 1, 2005, and is working with Education to come to an agreement on the measures and the data it will use. While Labor’s state programs generally have access to the data necessary to compute the common measures as they are collected by state labor departments, some state VR agencies have more difficulty obtaining the data because access sometimes requires establishment of data-sharing agreements. In addition, some states have privacy laws protecting the confidentiality of these data, which may further limit the ability of state VR agencies to collect them. Finally, some state VR agency officials expressed concerns that common measures will invite unfair comparisons between VR and other WIA partner programs. For example, they told us that these comparisons would not be fair or valid for state VR agencies because the populations they serve are unique and require a different mix of services or more resources than the populations served by general workforce programs. Education has not reviewed or revised its performance measures as required under the Rehabilitation Act, although Education plans to evaluate them within the next year. Specifically, the act requires Education to review and, if necessary, revise the evaluation standards and performance measures every 3 years. However, Education has not done so since the measures were first regulated in fiscal year 2000. Although Education’s existing performance measures are generally consistent with the program’s purpose to promote the employment of individuals with disabilities, OMB’s PART review, Education’s own study, and many of the state VR agency officials that we contacted, have recommended that Education modify some VR performance measures, eliminate some measures, or add to its existing measures. In monitoring and managing the performance of state VR agencies, Education does not provide timely feedback, censure poorly performing agencies, or take full advantage of opportunities to promote the sharing of best practices among state VR agencies. Education provides feedback to state VR agencies through on-site monitoring visits and reports of annual reviews of performance, many of which are not issued on a timely basis. According to Education officials, as of July 2005 its regional offices had not issued 10 of the 80 monitoring reports expected for fiscal year 2003 and an additional 4 reports are still in process. Further, at least 32 of the 66 monitoring reports issued as of July 2005 were issued 6 months or more after the monitoring reviews. In an effort to address the timeliness and quality of its monitoring reports, Education discontinued its practice of having regional commissioners approve reports and now requires all reports to be approved and issued by Education headquarters staff. However, as of July 2005 Education had issued 7 out of the 80 state VR agency monitoring reports for its revised fiscal year 2004-2005 time frame. Education’s process for monitoring state VR agencies has been impeded by the use of old data. As part of its performance assessment of state VR agencies, Education requires them to submit performance data by December 1, or 60 days after the end of the fiscal year. Until recently, Education took more than a year to identify and correct errors in the data and produce reliable data for its regional offices to use in monitoring. As a result, regional offices end up using 2-year-old data when conducting monitoring reviews and issuing reports. In addition, Education consistently processes its VR data too late to meet the deadline of November 15 that OMB established in implementing GPRA for executive branch agencies to issue annual reports on program performance for the previous fiscal year. OMB’s 2006 PART review recommended that Education improve program management using existing performance data and make these data available to the public in a timelier manner. Education has shown improvement by issuing fiscal year 2004 performance data 5 months after it collected the data, although it still has not met OMB’s deadline. Education does not consistently censure poorly performing or reward high- performing state VR agencies. The Rehabilitation Act requires state VR agencies that fail to meet the performance targets for 1 year to develop a program improvement plan and allows Education to withhold funds from a poorly performing state VR agency—the most severe sanction prescribed by the Rehabilitation Act—in cases where agencies fail to meet the performance targets for 2 or more consecutive years. However, failing agencies do not always develop program improvement plans nor does Education follow up to ensure their completion. In addition, Education has never withheld funds from a poorly performing state VR agency despite the fact that some agencies failed the performance targets for 2 or more consecutive years, including two agencies in fiscal year 2003. Education could not tell us the extent to which agencies have or have not developed improvement plans because of failing targets. Further, while Education does not have authority to provide financial rewards for high- performing state VR agencies, it has not developed other means for rewarding high performance, even though other federal workforce and education programs have developed performance incentives. For example, Labor awards incentives and imposes sanctions on workforce programs based on negotiated performance goals as allowed under WIA. Beyond the monitoring process, Education relies on the regional offices to promote the sharing of best practices among state VR agencies. Meetings organized by the regional office provide opportunities for state VR agencies in the region to share information on best practices. Education also uses its Web site to disseminate information on best practices. However, as of July 2005 Education’s Web site related to featured practices contained two practices submitted by state VR agencies, and the site is not frequently updated. Further, Education collects a large repository of data and the results of performance measures, but it does not review them to identify best practices among the state VR agencies. Education also hosts several national conferences, which provide a venue for state VR agency staff to share information with one another. In addition, Education hosts e-mail list services relating to issues such as the Social Security Administration’s Ticket to Work program, deafness, mental illness, and informational issuances. In early 2005, Education decided to restructure its VR program. As part of the restructuring, Education decided to eliminate its regional offices, which had conducted most of the monitoring of state VR agencies to date. According to Education officials, the restructuring was necessary to align the program in a manner to help meet the priorities of the administration and the Secretary. As part of its restructuring plan, Education included an interim monitoring plan that did not contain many details. Education has created a steering committee to look at how monitoring might be accomplished under the new structure and held a conference in August 2005 in order to create a blueprint for monitoring, but it has not completed a final monitoring plan and does not expect to have one in place until about one year after the conference. In the absence of a final monitoring plan, VR agency officials in several states expressed concern that the elimination of the regional offices may make the monitoring process more difficult for a number of reasons. Specifically, they expressed concern that Education’s proposed reduction of its RSA staff will leave an insufficient number of staff to provide any significant feedback and to carry out the monitoring functions, the reduction in staff would result in a loss of institutional knowledge on the details of their particular program, and the elimination of the regional offices will make it difficult to have a knowledgeable single point of contact within Education. When announcing its decision to restructure, Education stated that it plans to devote as many staff as necessary to monitor state VR agency performance. In addition, an Education official said that the plans are to continue its annual reviews of the agencies, but it will conduct on-site monitoring review visits less frequently than the annual reviews done in the past. Education also announced that it will assign a single point of contact to each state VR agency under its new structure. Many people with disabilities face a number of barriers to entering or returning to the workforce, and ultimately achieving independence. The VR program was conceived to provide the comprehensive and intensive services needed to overcome these barriers, and indeed more than 200,000 individuals with disabilities were working in fiscal year 2003 after receiving VR services. However, twice as many individuals left the VR program in fiscal year 2003 without getting a job, and individual state VR agencies varied widely in the proportion of individuals who exited their programs with jobs as compared with those who did not. Education designed its system of performance measures to focus on the group of individuals who exit the VR program with employment. In doing so, it has made evaluating state VR agencies’ performance with respect to the rest of the service population difficult. Little is known about the hundreds of thousands of individuals who received services but had not left the program by the end of fiscal year 2003 because Education does not require the state VR agencies to report detailed information about them. As a result, it is difficult for Education to assess performance in areas such as the timeliness, cost, and quality of the services provided to this population. In addition, this system fails to account for performance relating to special populations, such as transitioning students, that Education has encouraged the state VR agencies to serve. Further, its performance measures do not take into account demographic and economic variations among states. As a result, it is difficult for Education to assess whether or not state VR agencies are effectively and efficiently serving these individuals. Whatever system of performance measures Education chooses to use, it will have little impact on changing the performance of state VR agencies unless Education provides timely and effective feedback to the agencies regarding their performance. Without timely information, state VR agencies may delay in undertaking necessary corrective action to improve performance. Further, in the absence of incentives for good performance or consequences for poor performance, state VR agencies may not find sufficient reasons for performing at the level that Education sets out for them. Yet Education’s provision of constructive feedback has been hindered because of untimely or incomplete monitoring reports. Until recently, the time Education needed to analyze performance data also contributed to delays in providing feedback. Although Education significantly reduced the time it needed to analyze fiscal year 2004 data, it has yet the meet OMB’s reporting requirements related to GPRA. Further, Education has missed opportunities for providing feedback by failing to require that some poorly performing agencies develop performance improvement plans. While Education has begun planning for alterations to its monitoring process to provide better and timelier feedback to state VR agencies, there are too few details at this point to be able to assess whether the new process will achieve this intent. As it deliberates on these changes, it will be important for Education to consider the input of all stakeholders in the current monitoring process. In addition, it will be important to consider such issues as how frequently monitoring visits should be made and how much data the monitoring staff will need to conduct such reviews. Finally, with the elimination of the regional offices, officials in each of the 80 separate VR agencies may find it more difficult to learn about best practices used by other agencies. Education will need to explore alternative means to share information about best practices in an efficient manner. To improve Education’s performance measures and its monitoring of state VR agencies, we recommend that the Secretary of Education Reevaluate Education’s performance measures to determine whether they reflect the agency’s goals and values and ensure that sufficient data are collected to measure the performance of this program. As part of this evaluation, Education should consider: developing additional measures to evaluate performance relating to individuals who remain in the VR program as well as to certain special needs populations, such as transitioning students; revising performance measures to account for additional factors such as the economy and demographics of the states’ populations or adjusting performance targets for individual state VR agencies to address these issues, while also considering the costs and benefits associated with collecting additional data; and continuing its work to develop performance measures in line with OMB’s common measures. Take steps to continue improving the timeliness of the performance data Education collects and analyzes to ensure that data are available for timely feedback to state VR agencies as well as to comply with the GPRA reporting requirements established by OMB. Ensure that Education’s new plan for the monitoring of state VR agency performance addresses issues such as the timeliness of monitoring reports and the frequency of on-site visits that will be necessary to adequately gauge performance. Ensure that it consistently applies its existing consequences for failure to meet required performance targets or consider developing new consequences that it will be willing to apply in such situations. Further, Education should consider whether developing incentives such as recognition for successful performance would provide a more useful tool for encouraging good performance. Develop alternative means of disseminating best practices among state VR agencies in light of the elimination of the regional offices, such as a central repository of best practices information. We provided a draft of this report to Education for comment. In commenting on the report, Education indicated that it is in full agreement that better measures and monitoring could improve the performance of the VR program. However, Education did not specifically comment on each recommendation. In addition, Education highlighted initiatives either planned or under way to improve the management of the VR program. Several of these initiatives addressed issues raised in our report for which we recommended changes. In particular, Education agreed with our findings on performance measures and indicated that the department is currently working to address these issues. Education also described the steps it is taking to implement a new system for monitoring state VR agencies. Further, the agency indicated that it will broaden the dissemination of the information it produces and will publicize the availability of its monitoring and analytic work products. Moreover, Education acknowledged that it will do more to highlight performance related to certain key populations such as transitioning students. While acknowledging the importance of monitoring and feedback, Education pointed out that state VR agency performance is influenced by a number of factors that are beyond Education’s control. It also pointed out that the state VR agencies are aware of their own patterns of expenditures and outcomes and that the most fundamental opportunities for improvement are at the state level. We recognize the challenge Education faces in managing a program that is carried out through agencies that are not under its direct control. However, we believe that, by establishing better performance measures and implementing a better monitoring system that includes dissemination of comparative information about the performance of state VR agencies, Education will be in a better position to manage this decentralized program. Education also expressed concern that the manner in which we calculated the employment rate for individuals exiting the VR program might be confusing because it differs from the way in which Education calculates this rate. We believe that it is important to report the outcomes of all the individuals who exited the VR program in fiscal year 2003 because more than 40 percent of those who applied for services left the program before receiving services and because a low percentage of the individuals who left before receiving services were found ineligible. Education also provided technical comments, which we have incorporated as appropriate. Education’s comments are provided in appendix VIII. Copies of this report are being sent to the Department of Education, appropriate congressional committees, and other interested parties. The report will also be made available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions, please contact me at (202) 512-7215. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IX. To determine the extent to which state vocational rehabilitation (VR) agencies assist individuals in achieving employment, we primarily used the Department of Education’s (Education) Rehabilitation Services Administration (RSA) RSA-911 case service dataset from fiscal year 2003, which was the most recently available in time for us to use in production of this report. We used Education’s RSA-2 expenditure dataset from fiscal year 2003 to compute service expenditures and to compute the information in appendix V, appendix VI, and appendix VII. The RSA-911 is an individual-level dataset collected annually by Education from each of the 80 state VR agencies regarding every individual who exits the VR program during a particular fiscal year. The record for each individual includes information such as whether or not the individual exited the VR program with employment, the weekly earnings and hours worked if the individual exited with employment, the types of services received, and numerous demographic factors, such as disability type, gender, age, race and ethnicity, public benefits at program entry and exit, and any income from work at program entry. Counselors or other staff at each state VR agency typically input this information from each individual’s case file into their agency’s data system, which ultimately produces the RSA-911 file sent annually by that agency to Education. Education uses standardized, electronic testing to check each agency’s submitted data for errors and anomalies before publishing them and requires agencies to correct or verify data elements that are missing, “impossible,” or outside “reasonable” ranges. We assessed the fiscal year 2003 RSA-911 dataset and determined that it was sufficiently reliable for our use. Specifically, we performed electronic testing on all 650,643 case records contained in this dataset to identify any missing data, errors, or anomalies. In addition, we interviewed key Education officials responsible for collecting, verifying, and publishing RSA-911 data to better understand their data reliability assessment process, as described above, in part. We also performed structured interviews with key officials who work with RSA-911 data at multiple state VR agencies to better understand the processes by which agencies collect, safeguard, and report these data to Education. In order to more easily report some of our data findings, we recombined the categories for certain RSA-911 data elements, such as type of disability and type of exit or case closure. We then computed descriptive statistics, including frequencies and cross-tabulations, to produce the majority of data findings described in this report. Using these data, we calculated the employment rate in a different manner than Education. Education calculates the employment rate as the percentage of individuals who exited with employment after at least 90 days out of the group of individuals who received services under an employment plan, but does not include those individuals who exited without employment during the application phase or after limited services. We also assessed the fiscal year 2003 RSA-2 dataset and determined that it was sufficiently reliable for our use. The RSA-2 contains aggregated agency expenditures from each of the 80 state VR agencies as reported in various categories, such as administration and different types of services. We interviewed key Education officials and learned that each state VR agency may use a different system for aggregating and reporting its RSA-2 data to Education. Therefore, we performed structured interviews with key officials at 15 state VR agencies in order to assess the processes, safeguards, and overall reliability in agency production and reporting of these data. We selected these 15 state VR agencies to interview because they collectively constituted more than 50 percent of all total expenditures by the VR program in fiscal year 2003 and included blind, general, and combined state VR agencies. Among these 15 agencies, we generally found that their processes and policies were sufficient to ensure data reliability for the purposes of this report. To further determine the extent to which state VR agencies assist individuals in achieving employment as well as the extent to which Education monitors and measures performance to manage this decentralized VR program, we interviewed key program officials at Education’s headquarters and each regional office responsible for monitoring the state VR agencies. In addition, we reviewed relevant laws and regulations, Education policy documents relating to the VR program, and the 80 state VR agency’s fiscal year 2003 state plans. We also conducted site visits to the 9 state VR agencies in California, Maryland, Minnesota, New Mexico, Tennessee, and Virginia. We selected these sites to achieve a mix of state VR agency structures (including general, blind, and combined agencies), operations, performance, and geographic diversity. We conducted our review from August 2004 through September 2005 in accordance with generally accepted government auditing standards. In addition to the contact named above, Michele Grgich, Assistant Director; Beverly Crawford; Shannon K. Groff ; and Megan Matselboba made key contributions to this report. Also, Elizabeth H. Curda, Wilfred B. Holloway, Jonathan McMurray, Luann Moy, Peter Rumble, Daniel A. Schwimer, and Susan B. Wallace provided technical assistance. | The Department of Education (Education) provides more than $2.5 billion annually to the states for a federal-state vocational rehabilitation (VR) program to help individuals with disabilities become employed. This program is among a large number of federal programs intended to assist people with disabilities. In 2003 GAO placed federal disability programs on its list of high-risk programs because many of these programs have not kept up with scientific advances and economic and social changes. GAO prepared this report under the Comptroller General's authority as part of an effort to assist policy makers in determining how federal disability programs could more effectively meet the needs of individuals with disabilities and addressed it to each committee of jurisdiction. In this report, GAO assesses the (1) extent to which state VR agencies assist individuals in achieving employment, and (2) performance measures and monitoring practices Education uses to manage this decentralized program and achieve legislative goals. Of the more than 650,000 individuals exiting the state VR programs in fiscal year 2003, one-third (217,557) obtained a new job or maintained their existing job for at least 90 days after receiving services. Education's data showed that the remaining two-thirds exited the VR program without employment most often because the individual refused services or failed to cooperate with the VR counselor (46 percent of the time) or could not be located or contacted (24 percent). The VR program purchased more than $1.3 billion in services for all individuals who exited the program in fiscal year 2003, two-thirds of which were used to provide services to individuals exiting with employment. Employment, earnings, and the amount of purchased services received while in the VR program varied significantly by individuals' disability type and other characteristics. In addition, state VR agencies varied substantially in the employment rates they achieved, the characteristics of individuals they served, their frequency of providing certain services, and their service expenditures. Education's performance measures are not comprehensive, and its monitoring of state VR agencies has not resulted in timely feedback. Education does not comprehensively measure the performance of certain key populations, such as students transitioning from school to work, and tracks only the individuals who exit the program, not those still receiving services. In addition, Education's performance measures do not take into consideration all the variation among the state VR agencies or allow for comparisons with other workforce programs. Education's monitoring reports, which are its primary means of providing feedback to state VR agencies, are frequently late and based on data that are more than 2 years old. Consequently, state VR agencies do not receive the timely feedback needed to improve the efficiency and effectiveness of their programs. In managing the performance of the VR program, Education also does not censure poorly performing state VR agencies, reward strong performance, or take full advantage of opportunities to disseminate best practices. Education recently decided to eliminate its regional offices, which conducted most of the monitoring of state VR agencies, making the details of the future monitoring process unclear. |
Three main types of pipelines carry hazardous liquid and natural gas from producing wells to end users (residences and businesses) and are managed by about 2,500 operators: Gathering pipelines collect hazardous liquid and natural gas from production areas and transport the products to processing facilities, which in turn refine and send the products to transmission pipelines. These pipelines tend to be located in rural areas but can also be located in urban areas. PHMSA estimates there are 200,000 miles of natural gas gathering pipelines and 30,000 to 40,000 miles of hazardous liquid gathering pipelines. Transmission pipelines carry hazardous liquid or natural gas, sometimes over hundreds of miles, to communities and large-volume users, such as factories. Transmission pipelines tend to have the largest diameters and operate at the highest pressures of any type of pipeline. PHMSA has estimated there are more than 400,000 miles of hazardous liquid and natural gas transmission pipelines across the United States. (See fig. 1.) Distribution pipelines then split off from transmission pipelines to transport natural gas to end users—residential, commercial, and industrial customers. There are no hazardous liquid distribution pipelines. PHMSA has estimated there are roughly 2 million miles of natural gas distribution pipelines, most of which are intrastate pipelines. PHMSA administers the national regulatory program to ensure the safe transportation of hazardous liquid and natural gas by pipeline, including developing safety requirements that all pipeline operators regulated by PHMSA must meet. In 2012, the agency’s budget was $201 million, which was used, in part, to employ over 200 staff in its pipeline safety program. About half of the pipeline safety program staff inspects hazardous liquid and gas pipelines for compliance with safety regulations. Besides PHMSA, over 300 state inspectors help oversee pipelines and ensure safety. State and federal officials may also investigate specific pipeline incidents to determine the reason for the pipeline failure and to take enforcement actions, when necessary. PHMSA enforces two general sets of pipeline safety requirements. The first are minimum safety standards that cover specifications for the design, construction, testing, inspection, operation, and maintenance of pipelines. The second set of safety requirements are part of a supplemental risk-based regulatory program termed “integrity management.” Under transmission pipeline integrity management programs, operators are required to systematically identify and mitigate risks to pipeline segments—discrete sections of the pipeline system separated by valves that can stop the flow of product—that are located in high-consequence areas where an incident would have greater consequences for public safety or the environment. To ensure operators comply with minimum safety standards and integrity management requirements, PHMSA conducts inspections in partnership with state pipeline safety agencies. Inspections may focus on specific pipeline segments or aspects of an operator’s safety program, or both. According to PHMSA, officials conduct an inspection for each operator at least once every 5 to 7 years, but may conduct additional inspections based on safety risk or at the discretion of PHMSA or state officials. PHMSA is authorized to take enforcement actions against operators, including issuing warning letters, notices of probable violation, notices of amendment, notices of proposed safety order, corrective action orders, and imposing civil penalties. Transporting hazardous liquids and natural gas by pipelines is associated with far fewer fatalities and injuries than other modes of transportation. From 2007 to 2011, there was an average of about 14 fatalities per year for all pipeline incidents reported to PHMSA, including an average of about 2 fatalities per year resulting from incidents on hazardous liquid and natural gas transmission pipelines. In comparison, in 2010, 3,675 fatalities resulted from incidents involving large trucks and 730 additional fatalities resulted from railroad incidents. Yet risks to pipelines exist, such as corrosion and third party excavation, which can damage a pipeline’s integrity and result in leaks and ruptures. A leak is a slow release of a product over a relatively small area. A rupture is a breach in the pipeline that may occur suddenly; the product may then ignite resulting in an explosion. According to pipeline operators we met with, of the two types of pipeline incidents, leaks are more common but generally cause less damage. Ruptures are relatively rare but can have much higher consequences because of the damage that can be caused by an associated explosion. According to PHMSA, industry, and state officials, responding to either a hazardous liquid or natural gas pipeline incident typically includes steps such as detecting that an incident has occurred, coordinating with emergency responders, and shutting down the affected pipeline segment. (See fig. 2.) Under PHMSA’s minimum safety standards, operators are required to have a plan that covers these steps for all of their pipeline segments and to follow that plan during an incident. Officials from PHMSA and state pipeline safety offices perform relatively minor roles during an incident, as they rely on operators and emergency responders to take actions to mitigate the consequences of such events. Following an incident, operators must report incidents that meet certain thresholds— including incidents that involve a fatality or injury, excessive property damage or product release, or an emergency shutdown—to the federal National Response Center, as well as conduct an investigation to identify the root cause and lessons learned. Federal and state authorities may also use their discretion to investigate some incidents, which can involve working with operators to determine the cause of the incident. If necessary, authorities will take steps to correct deficiencies in operator safety programs, including taking enforcement actions. While prior research shows that most of the fatalities and damage from an incident occur in the first few minutes following a pipeline rupture, operators can reduce some of the consequences by taking actions that include closing valves that are spaced along the pipeline to isolate segments. The amount of time it takes to close a valve depends upon the equipment installed on the pipeline. For example, valves with manual controls (referred to as “manual valves”) require a person to arrive on site and either turn a wheel crank or activate a push-button actuator. Valves that can be closed without a person located at the valve location (referred to as “automated valves”) include both remote-control valves, which can be closed via a command from a control room, and automatic-shutoff valves, which can close without human intervention based on sensor readings. (See fig. 3.) Automated valves generally take less time to close than manual valves. PHMSA’s minimum safety standards dictate the spacing of all valves, regardless of type of equipment installed to close them, while integrity management regulations require that transmission pipeline operators conduct a risk assessment for high- consequence areas that includes the consideration of automated valves. The ability of transmission pipeline operators to respond to incidents, such as leaks and ruptures, is affected by a number of variables—some of which are under operators’ control—resulting in variances in response time; for a given incident, that time can range from minutes to days. Several states and industry organizations have developed performance- based requirements for operators to meet in responding to incidents. PHMSA has some performance-based requirements, but its current performance goal related to incident response is not well defined. More precise performance measures and targets could lead to improved response times and less damage from incidents in some cases. However, PHMSA would need better data on incidents to determine the feasibility of such an approach. According to PHMSA officials, pipeline safety officials, and industry stakeholders and operators, multiple variables—some controllable by transmission pipeline operators—can influence the ability of operators to respond quickly to an incident. Ensuring a quick response is important because according to pipeline operators and industry stakeholders, reducing the amount of time it takes to respond to an incident can also reduce the amount of property and environmental damage stemming from an incident and, in some cases, the number of fatalities and injuries. For example, several natural gas pipeline operators noted that a faster incident response time could reduce the amount of property damage from secondary fires (after an initial pipeline rupture) by allowing fire departments to extinguish the fires sooner. In addition, hazardous liquid pipeline operators told us that a faster incident response time could result in lower costs for environmental remediation efforts and less product lost. We identified five variables that can influence incident response time and that are within an operator’s control: Leak detection capabilities. How quickly a leak is detected affects how soon an operator can initiate a response. Pipeline operators must perform a variety of leak detection activities to monitor their systems and identify leaks. These activities commonly include periodic external monitoring, such as aerial patrols of the pipeline, as well as continuous internal monitoring, such as measuring the intake and outtake volumes or pressure flows on the pipeline. In addition, pipeline operators must conduct public awareness programs for those living near pipeline facilities about how to recognize, respond to, and report pipeline emergencies; these programs can influence how quickly an operator becomes aware of an incident. Attempting to confirm an incident can also affect response time. Pipeline operators may prefer to have two sources of information to confirm an incident, such as data from a pipeline sensor and a visual confirmation, especially if shutting down the system is a likely response to the incident. Natural gas pipeline operators in particular generally seek to confirm an incident before a shutdown, as shutdowns interrupt the gas flow and can cut off service to their customers. Location of qualified operator response personnel. The proximity of the operator’s response personnel to a facility or shutoff valve can affect the response time. Response personnel who have a greater distance to travel to the facility or valve site can take longer to establish an incident command center or to close manual valves. Along with proximity, incident response time depends on whether qualified operator response personnel—those who are trained and are authorized to take necessary action, such as closing manual valves— are dispatched. Type of valves. The type of valve an operator has installed on a pipeline segment can affect how quickly the segment can be isolated. Automated valves, which can be closed automatically or remotely, can shorten incident response time compared to manual valves, which require that personnel travel to the valve site and turn a wheel crank or activate a push-button actuator to close the valve. However, if affected valves happen to be located at or close to facilities where personnel are permanently stationed, the type of valve could be less critical in influencing incident response time. Control room management. Clear operating policies and shutdown protocols for control room personnel can influence response time to incidents. For example, incident response time might be reduced if control room personnel have the authority to shut down a pipeline or facility if a leak is suspected, and are encouraged to do so. A few of the operators we met with told us that while in the past it was a common practice in the industry to avoid shutdowns unless absolutely necessary, the practice now for these operators is to shut down the line if there is any doubt about safety. An official from one natural gas pipeline operator told us that his company instructs control room personnel that they will not suffer repercussions from shutting down a line for safety reasons. Another official from a hazardous liquid pipeline operator told us that the authority to shut down is at the control room level and that even personnel in the field can make the call to shut down a line. Relationships with local first responders. Operators that have already established effective communications with local first responders— such as fire and police departments—may respond more quickly during emergencies. For example, one natural gas pipeline operator told us that during one incident, the local first responders had turned to the operator personnel for direction on how to respond to a rupture. As a result, the operator said that one of the lessons learned was that the company needed to conduct more emergency response exercises, such as mock drills, with the local first responders so the responders would know their roles and responsibilities. We identified four other variables that influence a pipeline operator’s ability to respond to an incident, but are beyond an operator’s control: Type of release. The type of release—leak or rupture—can influence how quickly an operator responds to an incident. Leaks are generally a slow release of product over a small area, which can go undetected for long periods. Once a leak is detected, it can take additional time to confirm the exact location. Ruptures, which usually produce more significant changes in the external or internal conditions of the pipeline, are typically easier to detect and locate. Time of day. The time of day when an incident occurs can affect incident response time. The operator’s response personnel may be delayed in reaching facilities in urban or suburban areas during peak traffic times. Conversely, if an incident occurs during the evening or on a weekend, the operator’s response personnel could be able to reach the facility more quickly, because of lighter traffic. For example, one natural gas pipeline operator told us about an incident that occurred on a Saturday afternoon, which meant that traffic did not delay response personnel traveling to the scene. Weather conditions. Weather conditions can affect how quickly an operator can respond to an incident. For example, one natural gas pipeline operator described an incident caused by a hurricane’s storm surge that pushed debris into the pipeline at a facility, and flooding prevented the response personnel from reaching the site for several days, during which time the pipe continued to leak gas. Winter conditions can also make it more difficult for the operator’s response personnel to reach a facility or to access valve sites in remote areas. As another example, windy conditions can disperse natural gas and make it hard to detect a leak. Other operators’ pipeline in the same area. If two or more operators own pipeline in a shared right of way, determining whose system is affected can increase incident response time. Operators may delay responding if they have not confirmed that the incident is on their pipeline. For example, one natural gas pipeline operator told us about an incident that took 2 days to repair because when their personnel first detected a leak, the personnel initially contacted another operator, whose line crossed over theirs, to make sure the leak was not the other operator’s. Operators we spoke with stated that the amount of time it takes to respond to an incident can depend on all of the variables listed above and can range from several minutes to days (see table 1). We and others have recommended that the federal government move toward performance-based regulatory approaches to allow those being regulated to determine the most appropriate way to achieve desired, measurable outcomes. For example, Executive Order 13563 calls for improvements to the nation’s regulatory system, including the use of the best, most innovative and least burdensome tools for achieving regulatory ends. We have also previously reported on the benefits of a performance-based framework, which helps agencies focus on achieving outcomes. Such a framework should include: 1) national goals; 2) performance measures that are linked to those national goals; and 3) appropriate performance targets that promote accountability and allow organizations to track their progress towards goals. PHMSA has included these three elements of a performance-based framework in some aspects of its pipeline safety program, but not for incident response times. For example, PHMSA has set national goals intended to reduce the number of pipeline incidents involving fatality or major injury and the number of hazardous liquid pipeline spills with environmental consequences. Each of these national goals has associated performance measures (i.e., the number of such incidents) and specific targets (such as reducing the number of incidents involving a fatality or major injury from 39 to less than 28 per year by 2016) that allow PHMSA to track its progress toward the goals. However, while PHMSA has established a national goal for incident response times, it has not linked performance measures or targets to this goal. Specifically, PHMSA directs operators to respond to certain incidents–emergencies that require an immediate response–in a “prompt and effective” manner, but neither PHMSA’s regulations nor its guidance describe ways to measure progress toward meeting this goal. Without a performance measure and target for a prompt and effective incident response, PHMSA cannot quantitatively determine whether an operator meets this goal. PHMSA officials told us that because each incident presents unique circumstances, its inspectors must determine whether an operator’s incident response was prompt and effective on a case-by-case basis. According to PHMSA, in making this determination, inspectors must use their professional judgment to balance any challenges the operator faced in responding with the operator’s obligation to the public’s safety. Other organizations in the pipeline industry, including some state regulatory agencies, have developed methods for measuring the performance of operators responding to incidents by using specific incident response times. According to the National Association of Pipeline Safety Representatives, several state pipeline safety offices have initiatives that require natural gas pipeline operators to respond within a specified time frame to reports of pipeline leaks. For example, the New Hampshire Public Utilities Commission has established incident response time standards—ranging from 30 to 60 minutes, with performance targets—for natural gas distribution companies to meet when responding to reports of a leak. In addition, members of the Interstate Natural Gas Association of America have committed to achieving a 1-hour incident response time for large diameter (greater than 12 inches) natural gas pipelines in highly populated areas. To meet this goal, operators are planning changes to their systems, such as relocating response personnel and automating over 1,800 valves throughout the United States. According to PHMSA officials, pipeline incidents often have unique characteristics, so developing a performance measure and associated target for incident response time similar to those used by other pipeline organizations would be difficult. In particular, it would be challenging to establish a performance measure using incident response time in a way that would always lead to the desired outcome of a prompt and effective response. Officials stated that the intention behind requiring operators to respond promptly and effectively is to make the area safe as quickly as possible. In some instances, an operator can accomplish this outcome in the time it takes to close valves and isolate pipeline segments, while in other instances, an operator might need to completely vent or drain the product from the pipeline. Likewise, it would be difficult to identify a specific target for incident response time, as pipeline operators likely should respond to some incidents more quickly than others. For example, industry officials noted that while most fatalities and injuries caused by a pipeline explosion occur in the initial blast, a faster incident response time could help reduce fatalities and injuries in cases where there are sites nearby whose occupants have limited mobility (e.g., prisons, hospitals). In these situations, operators told us they want to ensure their incident response time is faster than for more remote locations where an explosion would have less of an impact on people, property, and the environment. Although defining performance measures and targets for incident response can be challenging, one way for PHMSA to move toward a more quantifiable, performance-based approach would be to develop strategies to improve incident response based on nationwide data. For example, performing an analysis of nationwide incident data—similar to PHMSA’s current analyses of fatality and injury data—could help PHMSA determine response times for different types of pipelines (based on characteristics such as location, operating pressure, and diameter); identify trends; and develop strategies to improve incident response. Furthermore, as part of this analysis of response times for various types of pipelines, PHMSA could explore the feasibility of integrating incident response performance measures and targets for individual pipelines into its integrity management program. For example, PHMSA might identify performance measures that are appropriate for various types of pipelines and allow operators to determine which measures and targets best apply to their individual pipeline segments, based on the characteristics of those segments. Such an approach would be consistent with our prior work on performance measurement, as it would allow operators the flexibility to meet response time targets in several ways, including changes to their leak detection methods, moving personnel closer to the valve location, or installing automated valves. PHMSA would then review an operator’s selection of measures and targets as part of ongoing integrity management inspections; this process is similar to how inspectors review other provisions in the integrity management program. PHMSA would need reliable national data to implement a performance- based framework for incident response times to ensure operators are responding in a prompt and effective manner. However, the data currently collected by PHMSA do not enable them to accurately determine incident response times for all recent incidents for two reasons: 1) operators are not required to fill out certain time-related fields in the PHMSA incident-reporting form and 2) when operators do provide these data, they are interpreting the intended content of the data fields in different ways. Specifically, PHMSA requires operators to report the date and time when the incident occurred. Operators are not required to report the dates and times when: the operator identified the incident; the operator’s resources (personnel or equipment) arrived on site; and the operator shut down and restarted a pipeline or facility. As a result, our analysis determined that hazardous liquid pipeline operators did not report the date and time for two of these variables— when the incident was identified and when operator resources arrived on site—for 26 percent (178 out of 674) of incidents that occurred in 2010 and 2011. Also, these operators did not identify whether a shutdown took place in 16 percent (108 out 674) of incidents over the same time period. In comparison, natural gas pipeline operators reported more complete data; these operators did not report data for when the operator identified the incident and resources arrived on site in only 3 percent (6 out of 191) of incidents that occurred in 2010 and 2011. Also, these operators did not identify whether a shutdown took place in only about 2 percent (3 out of 191) of incidents over the same period. PHMSA officials told us that because they have not used the time-related data to identify safety trends, the omissions have not been a problem for them, although in the future they may decide to make some of these data fields mandatory. In addition to omitting certain incident data fields, several officials from pipeline operators told us that they interpret what to include in the time- related, incident data fields differently. For example, according to one official from a natural gas operator, some operators interpret the time when an operator identified the incident as the time when operator personnel first received a call about a potential leak, while others may interpret the time when an operator identified an incident as the time when operator personnel received an on-site confirmation of a leak. These differing interpretations occur even though guidance on PHMSA’s website instructs operators how to complete the reporting forms, including the time-related data fields. The primary advantage of installing automated valves is reducing the time to shut down and isolate a pipeline segment after a leak or rupture occurs, while disadvantages include the potential for accidental closures and monetary cost. Because these advantages and disadvantages vary among valve locations, operators should make decisions about whether to install automated valves—as opposed to other safety measures—on a case-by-case basis. PHMSA has several opportunities to assist operators in making these evaluations, including communicating guidance and sharing information on some methods operators use to make these decisions. Research and industry stakeholders indicate that the primary advantage of installing automated valves is related to the time it takes to respond to an incident. Although automated valves cannot mitigate the fatalities, injuries, and damage that occur in the initial blast, quickly isolating the pipeline segment through automated valves can significantly reduce subsequent damage by reducing the amount of hazardous liquid and natural gas released. For example, NTSB found that automated valves would have reduced the amount of time taken to stop the flow of natural gas in the San Bruno incident and, therefore, reduced the severity of property damage and life-threatening risks to residents and emergency responders. According to research and industry stakeholders, automated valves will only decrease the number of fatalities and injuries in those cases when people cannot easily evacuate the area, such as cases involving hospital patients or prison inmates. Research and industry stakeholders identified several disadvantages operators should consider when determining whether to install automated valves, related to potential accidental closures and the monetary costs of purchasing and installing the equipment. Specifically, automated valves can lead to accidental closures, which can have severe, unintended consequences, including loss of service to residences and businesses. For example, according to a pipeline operator, an accidental closure on a natural gas pipeline in New Jersey resulted in significant disruption and downstream curtailments to customers in New York City during high winter demand. In addition, the monetary costs of installing automated valves can range from tens of thousands to a million dollars per valve, which may be significant expenditures for some pipeline operators. (See table 2.) Research and industry stakeholders also indicate the importance of determining whether to install valves on a case-by-case basis because the advantages and disadvantages can vary considerably based on factors specific to a unique valve location. These sources indicated that the location of the valve, existing shutdown capabilities, proximity of personnel to the valve location, the likelihood of an ignition, type of product being transported, operating pressure, topography and pipeline diameter, among others, all play a role in determining the extent to which an automated valve would be advantageous. Operators we met with are using a variety of methods for determining whether to install automated valves. One of the eight operators we met with had decided to install automatic-shutoff valves across its pipeline system, regardless of risk, to eliminate the need for control room staff to make judgment calls on whether or not to close valves to isolate pipeline segments. However, seven of the eight operators we met with developed their own risk-based approach for considering potential advantages and disadvantages when making these decisions on a case-by-case basis. For example, two natural gas pipeline operators told us that they applied a decision tree analysis to all pipeline segments in highly populated and frequented areas. They used the decision tree to guide a variety of yes- or-no questions on whether installing an automated valve would improve response time to less than an hour and provide advantages for locations where people might have difficulty evacuating quickly in the event of a pipeline incident. Other operators said they used computer-based spill modeling to determine whether the amount of product release would be significantly reduced by installing an automated valve. These seven operators told us that their approaches for making decisions about whether to install automated valves considered the advantages and the disadvantages we identified above. Improved response time. Most operators we spoke with considered whether automated valves would lead to a faster response time. For example, the primary criterion used by two of the natural gas pipeline operators was the amount of time it would take to shut down the pipeline and isolate the segment and population along the segment. In one instance, an operator decided to install a remote-control valve in a location that would take pipeline personnel 2.5 hours to reach and 30 minutes more to close the valve. Installing the automated valve is expected to reduce the total response time to under an hour, including detecting the incident and making the decision to isolate the pipeline segment. In addition, several hazardous liquid pipeline operators used spill modeling to determine whether an automated valve would result in a reduced amount of damage from product release at individual locations. This spill modeling typically considered topography, operating pressure, and placement of existing valves. For example, one hazardous liquid pipeline operator used spill modeling to make the decision to install a remote-control valve on a pipeline segment with a large elevation change after evaluating the spill volume reduction. Accidental closures. Operators indicated that installing automated valves, especially automatic-shutoff valves, could have unintended consequences, which they considered as part of their decisions to install automated valves. For example, two natural gas pipeline operators considered whether there is the potential for accidentally cutting off service when assessing individual locations for the possible installation of an automatic-shutoff valve. As noted, one natural gas pipeline operator has made the decision to install automatic-shutoff valves across its pipeline system. The operator stated that in the past, there were concerns with relying on automatic-shutoff valves because of the possibility for accidental closures, but the operator believes it has developed a process that effectively adapts to pressure and flow change and minimizes or eliminates the risk of the valve accidentally closing. Other natural gas pipeline operators stated that relying on pressure sensing systems can be dangerous because “tuning” the pressure activation in an effort to avoid accidental closures can result in situations where the valve will not automatically close during an actual emergency. For hazardous liquid, all operators we spoke with stated that they either do not consider or do not typically install automatic-shutoff valves because an accidental closure has the potential to lead to an incident. Specifically, operators stated that an unexpected valve closure can result in decompression waves in the pipeline system, which might cause the pipeline to rupture if operators cannot reduce the flow of product promptly. Monetary costs. According to operators and other industry stakeholders, considering monetary costs is important when making decisions to install automated valves because resources spent for this purpose can take away from other pipeline safety efforts. Specifically, operators and industry stakeholders told us they often would rather focus their resources on incident prevention to minimize the risk of an incident instead of focusing resources on incident response. PHMSA stated that it generally supports the idea that pipeline operators should be given flexibility to target compliance dollars where they will have the most safety benefit when it is possible to do so. Operators we spoke with stated that they considered costs associated with purchasing and installing equipment. For example, four operators indicated that they will consider the costs related to communications equipment when determining whether to install automated valves. In addition, three operators stated that decisions to install automated valves are affected by whether the operator has or can gain access to the pipeline right of way. Other cost considerations mentioned by at least one operator included local construction costs and possible changes to leak detection systems. Finally, two natural gas pipeline operators stated that monetary cost plays a role in determining what steps they plan to take to meet a one-hour response time goal for pipelines in highly populated areas. For example, the operator might choose to move personnel closer to valves rather than installing automated valves, if that is the more cost-effective option. PHMSA has developed guidance to help operators understand current regulations on what operators must consider when deciding to install automated valves, but not all operators are aware of the guidance. PHMSA includes on its primary website two types of guidance that can be useful for operators in determining whether to install automated valves on transmission pipelines. First, PHMSA has developed inspection protocols for both the hazardous liquid and natural gas integrity management program. Second, PHMSA has developed guidance on the enforcement actions inspectors will take—such as a notice of proposed violation and warning letter, among others—should PHMSA discover a violation. Both of these pieces of guidance provide additional detail—not included in regulation—on the steps operators might take in considering whether to install automated valves. For example, PHMSA’s inspection protocol for natural gas operators describes several studies on the generic costs and benefits of automated valves and indicates that operators may use this research as long as they document the reasons why the study is applicable to the specific pipeline segment. However, operators we spoke with were unaware of existing guidance to varying degrees. Specifically, of the eight operators we met with, three were unaware of both the inspection and enforcement guidance, and the remaining five operators were unaware of the enforcement guidance. Operators we spoke with, including those that were unaware of the guidance, told us that having this information would be helpful in making decisions to install automated valves. According to PHMSA, the agency provides this guidance to operators to ensure operators follow it as they make decisions on whether to install automated valves, but does not re-distribute the guidance at regular intervals (e.g., annually). According to PHMSA, inspectors see examples of how operators make decisions to install automated valves during integrity management inspections, but the inspectors do not formally collect this information or share it with other operators. Current regulations give operators a large degree of flexibility in making decisions in deciding to install automated valves. As mentioned earlier, we spoke with operators that are using a variety of risk-based methods for making decisions about automated valves. For example, some used basic yes-or-no criteria, while others applied commercially available computer software to model potential incident outcomes. According to PHMSA, officials do not formally share what they view as good methods for determining whether to install automated valves. Officials stated they do not believe it is appropriate for PHMSA to publicly share decision-making approaches from a single operator, as doing so might be seen as an endorsement of that approach. However, according to PHMSA, its inspectors may informally discuss methods used by operators for making decisions to install automated valves and suggest these approaches to other operators during inspections. While the operators we spoke with represent roughly 18 percent of the overall hazardous liquid and natural gas transmission pipelines in high-consequence areas in 2010, there are over 650 additional pipeline operators we did not speak with that may be using other methods for determining whether to install automated valves. As such, we believe that both operators and inspectors could benefit from exposure to some of the methods used by other operators to make decisions on whether to install automated valves. We have previously reported on the value of organizations reporting and sharing information and recommended that PHMSA develop methods to share information on practices that can help ensure pipeline safety. PHMSA already conducts a variety of information-sharing activities that could be used to ensure operators are aware of both existing guidance and of approaches used by other operators for making decisions to install valves. While, according to PHMSA officials, the agency will not endorse a particular operator’s approach or practice, it can and does facilitate the exchange of information among operators and other stakeholders. For example, PHMSA issues advisory alerts in the Federal Register on emerging safety issues, including identified mechanical defects on pipelines, incidents that occurred under special circumstances, and reminders to correctly implement safety programs (e.g., drug and alcohol screening). In addition, PHMSA administers a website different from its primary website that, according to officials, is intended to ensure communication with pipeline safety stakeholders, including the public, emergency officials, pipeline safety advocates, regulators, and pipeline operators. PHMSA also periodically conducts public workshops with pipeline stakeholders on a wide variety of topics, including one in March 2012 on automated valves. While PHMSA currently requires operators to respond to incidents in a “prompt and effective manner,” the agency does not define these terms or collect reliable data on incident response times to evaluate an operator’s ability to respond to incidents. A more specific response time goal may not be appropriate for all pipelines. However, some organizations in the pipeline industry believe that such a performance-based goal can allow operators to identify actions that could improve their ability to respond to incidents in a timelier manner, and are taking steps to implement a performance-based approach. A performance-based goal that is more specific than “prompt and effective” could allow operators to examine the numerous variables under their control within the context of an established time frame to understand their current ability to respond and identify the most effective changes to improve response times, if needed, on individual pipeline segments. Reliable data would improve PHMSA’s ability to measure incident response and assist the agency in exploring the feasibility of developing a performance-based approach for improving operator response to pipeline incidents. One of the methods operators could choose to meet a performance- based approach to incident response is installing automated valves, a measure some operators are already taking to reduce risk. Given the different characteristics among valve locations, it is important for operators to carefully weigh the potential for improved incident response times against any disadvantages, such as the potential for accidental closure and monetary costs, in deciding whether to install automated valves as opposed to other safety measures. However, not all operators we spoke with were aware of existing PHMSA guidance and PHMSA does not formally collect or share evaluation approaches used by other operators to make decisions about whether to install automated valves. Such information could assist operators in evaluating the advantages and disadvantages of these valves and help them determine whether automated valves are the best option for meeting a performance-based incident response goal. We recommend that the Secretary of Transportation direct the PHMSA Administrator to take the following two actions: To improve operators’ incident response times, improve the reliability of incident response data and use these data to evaluate whether to implement a performance-based framework for incident response times. To assist operators in determining whether to install automated valves, use PHMSA’s existing information-sharing mechanisms to alert all pipeline operators of inspection and enforcement guidance that provides additional information on how to interpret regulations on automated valves, and to share approaches used by operators for making decisions on whether to install automated valves. We provided the Department of Transportation with a draft of this report for review and comment. The department had no comments and agreed to consider our recommendations. We are sending copies of this report to relevant congressional committees, the Secretary of Transportation, and other interested parties. In addition, this report will also be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3824 or flemings@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. The objectives of our review were to determine (1) the opportunities that exist to improve the ability of transmission pipeline operators to respond to incidents and (2) the advantages and disadvantages of installing automated valves in high-consequence areas and ways that the Pipeline and Hazardous Materials and Safety Administration (PHMSA) can assist operators in deciding whether to install valves in these areas. To address our objectives, we reviewed regulations, National Transportation Safety Board (NTSB) incident reports, and PHMSA guidance and data on enforcement actions, pipeline operators, and incidents, related to onshore natural gas transmission and hazardous liquid pipelines. We also attended industry conferences and interviewed officials at PHMSA headquarters and regional offices (Eastern, Southwestern, and Western), state pipeline safety agencies, pipeline safety groups, and industry associations. Specifically, we interviewed officials from the American Gas Association, American Petroleum Institute, Arizona Office of Pipeline Safety, Association of Oil Pipelines, Interstate Natural Gas Association of America, National Association of Pipeline Safety Representatives, NTSB, Pipeline Research Council International, Public Utilities Commission of Ohio, and West Virginia Public Service Commission. To address both objectives, we also conducted case studies on eight hazardous liquid and natural gas pipeline operators. We selected these operators based on our review of PHMSA data on the operators’ onshore pipeline mileage, product type and prior incidents, recommendations from industry associations and PHMSA, and to ensure geographic diversity. We selected six hazardous liquid and natural gas pipeline operators with a large amount of pipeline miles in high-consequence areas that also reported recent incidents (i.e., one or more incident(s) reported from 2007 through 2011) with a range of characteristics, such as: affected a high- consequence area; resulted in an ignition/explosion; or involved an automated valve. We also selected one natural gas pipeline operator and one hazardous liquid pipeline operator with a small number of pipeline miles in high-consequence areas, to obtain the perspective of smaller pipeline operators. Specifically, we interviewed officials from: Belle Fourche Pipelines (Casper, Wyoming)—Hazardous Liquids; Buckeye Partners (Breinigsville, Pennsylvania)—Hazardous Liquids; Enterprise Products (Houston, Texas)—Hazardous Liquids and Granite State Gas Transmission (Portsmouth, New Hampshire)— Kinder Morgan-Natural Gas Pipeline Company (Houston, Texas)— Phillips 66 (Houston, Texas)—Hazardous Liquids; Northwest Pipeline GP (Salt Lake City, Utah)—Natural Gas; and Williams-Transco (Houston, Texas)—Natural Gas. To determine what opportunities exist to improve the ability of transmission pipeline operators to respond to incidents, we identified several factors that influence pipeline operators’ incident response capabilities. To do so, we discussed prior incidents, incident response times, and federal oversight of the pipeline industry with officials from PHMSA, state pipeline safety offices, industry associations, and safety groups. We also spoke with operators about their prior incidents and the factors that influenced their ability to respond. We also examined 2007 to 2011 PHMSA incident data, including data on total number of incidents, type of incident (leak or rupture), type of pipeline where the incident occurred, and the date and time when: an incident occurred; an operator identified the incident; operator resources (personnel and equipment) arrived on site; and an operator shut down a pipeline or facility. We assessed the reliability of these data through discussions with PHMSA officials and selected operators. We determined that data elements related to numbers of incidents, types of releases, and types of pipeline where incidents occurred were reliable for the purpose of providing context, but that data elements related to response time were not sufficiently reliable for the purpose of conducting a detailed analysis of relationships between response time and other factors. We also reviewed federal requirements, prior GAO reports, and industry and government performance standards related to emergency response within the pipeline industry. To determine the advantages and disadvantages of installing automated valves in high-consequence areas and the ways that PHMSA can assist operators in deciding whether to install these valves, we identified the key factors that should be used in deciding whether to install automated valves in high-consequence areas. We used two categories of sources to identify the key factors: (1) Literature review. We conducted a literature review of previous research on pipeline incidents. Specifically, we used online research software to search through databases of scholarly and peer-reviewed materials—including articles, journals, reports, studies, and conferences dating back to 1995—which identified over 200 sources. (2) Interviews with industry stakeholders. During our interviews with officials from industry associations and pipeline safety groups, we discussed the advantages and disadvantages of installing these valves. To ensure that the literature review included just those documents that were relevant to our purpose, two analysts independently reviewed abstracts from the 200 sources identified to determine whether they were within the scope of our review. Each source had to meet specific criteria, including mentioning automated valves, pipeline incidents, and operator emergency response. We excluded sources that were overly technical for the purposes of our review. To ensure these analysts were making similar judgments, they separately examined a random sampling of each other’s sources. The analysts then added sources suggested by industry stakeholders during our interviews and reviewed them using the same criteria. After excluding documents that were not publicly available, one analyst reviewed these sources to identify advantages and disadvantages operators should consider when making decisions to install automated valves. A second analyst reviewed the analysis and performed a spot check on identified advantages and disadvantages. Specifically, the second analyst picked four of the sources at random to review and compared the advantages and disadvantages he identified to those of the first analyst. As part of our case studies, we discussed these advantages and disadvantages with operators. We also collected information from operators on their methods for deciding whether to install automated valves, as well as specific pipeline segments and valve locations where operators made such decisions (see app. II). We contacted vendors (manufacturers and installers) of automated valves to identify the range of costs for purchasing and installing these valves. We also discussed the regulations with officials from PHMSA headquarters and regional offices, state pipeline safety offices, and pipeline operators to determine what, if any, additional guidance would help operators apply the current regulations on installing automated valves. We conducted this performance audit from March 2012 to January 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We conducted site visits to eight hazardous liquid and natural gas pipeline operators with different amounts of pipeline miles in or affecting high-consequence areas. Seven of the eight operators we visited told us they use approaches that consider both the advantages and disadvantages of installing automated valves on a case-by-case basis as opposed to other safety measures; the eighth operator stated that it follows a corporate strategy of installing automated valves in all high- consequence areas. A brief description of the approach used by each of the eight operators, based on our discussions with them, follows. Pipeline operator: Belle Fourche Product type: Hazardous liquid Number of pipeline miles: 460 (total); 135 (could affect high- consequence areas) Decision-making approach: The operator assesses each pipeline segment using spill-modeling software to determine the amount of product release and extent of damage that would occur in the event of an incident. The software considers flow rates, pressure, terrain, product type, and whether the segment is located over land or a waterway. Monetary costs are considered as part of the decision-making process, including the cost of installing communications equipment and gaining access to the valve location when the operator does not own the right of way. The operator stated that installing a remote-control valve costs between $100,000 and $500,000. Automatic-shutoff valves are not considered as the operator believes an accidental closure could lead to pipeline ruptures. Results to date: According to Belle Fourche officials, this approach has not resulted in any decisions to install automated valves because the advantages have not outweighed the disadvantages on any of the pipeline segments assessed. Pipeline operator: Buckeye Partners Product type: Hazardous liquid Number of pipeline miles: 6,400 (total); 4,179 (could affect high- consequence areas) Decision-making approach: The operator assesses each pipeline segment using spill-modeling software to determine the amount of product release and extent of damage that would occur in the event of an incident. The operator considers installation of an automated valve when this modeling shows such a valve would 1) reduce the size of the incident by 50 percent or more and 2) significantly reduce the consequences of an incident. The operator conducts additional analysis to determine the location where the automated valve would lead to the largest reduction in spill volume and overall consequences of an incident. Monetary costs are considered as part of the decision-making process, including costs for gaining access to pipeline when the operator does already not own the right of way. The operator stated that installing a remote-control valve costs between $35,000 and $325,000. Automatic-shutoff valves are considered, but not typically installed, as the operator believes an accidental closure could lead to a pipeline rupture. Results to date: According to Buckeye Partners officials, this approach has resulted in additional analysis of the possible installation of 25 remote-control valves along 75 pipeline segments assessed. Pipeline operator: Phillips 66 Product type: Hazardous liquid Number of pipeline miles: 11,290 (total); 3,851 (could affect high- consequence areas) Decision-making approach: The operator assesses every 100 feet of pipeline (which covers all pipeline segments) using spill-modeling software to determine the amount of product release and extent of damage that would occur in the event of a complete rupture. The operator also uses a relative consequence index for individual pipeline segments that considers the impact to high-consequence areas. Automated valve projects are further evaluated if 1) the potential drain volume is greater than 1,000 barrels, 2) the pipeline segment exceeds a certain threshold on the consequence index, or 3) the existing automated valves are greater than 7.5 miles apart. Monetary costs are considered as part of the decision-making process, including the cost of installing communications equipment, access to power, gaining access to the valve’s location when the operator does not own the right of way, and local construction costs. The operator stated that installing an automated valve costs between $250,000 and $500,000. Automatic-shutoff valves are not considered as the operator believes an accidental closure could lead to pipeline ruptures. Results to date: According to the Phillips 66 officials, this approach has resulted in decisions to install 71 automated valves in the 508 high- consequence area locations assessed. Pipeline operator: Enterprise Products Product type: Hazardous liquid and natural gas Number of pipeline miles: 23,012 (total); 8,783 (could affect or in high- consequence areas) Decision-making approach: The operator assesses each pipeline segment using spill-modeling software to determine the amount of product release and extent of damage that would occur in the event of an incident. The software considers factors such as topography and the placement of existing valves. The operator also uses a risk algorithm to identify threats to individual pipeline segments. The operator told us that it does not have specific criteria for guiding decisions to install automated valves; rather, officials make judgment calls based on the results of spill modeling and the application of the risk algorithm. Monetary costs are considered as part of the decision-making process, including the cost of installing communications equipment and the amount of necessary infrastructure work. The operator stated that installing a remote-control valve costs between $250,000 and $500,000. Pipelines carrying gas or highly volatile liquids—which are in gas form when released into the atmosphere—are excluded from consideration, according to the operator, because industry studies have shown that automated valves do not significantly improve incident outcomes for these product types. Results to date: According to Enterprise Products officials, this approach has not resulted in any decisions to install automated valves because the advantages have not outweighed the disadvantages on any of the pipeline segments assessed. Pipeline operator: Granite State Gas Transmission Product type: Natural gas Number of pipeline miles: 86 (total); 11 (high-consequence areas) Decision-making approach: The operator assesses individual pipeline segments in high-consequence areas using risk analysis software that considers the operator’s response time to an incident, population in the area, and pipeline diameter, among other variables. Monetary costs are considered as part of the decision-making process, including the cost of installing communications equipment and costs to change or improve the existing leak detection system. The operator stated that installing an automated valve costs between $40,000 and $50,000. Automatic-shutoff valves are not considered, as officials believe that they could lead to unintended consequences, such as accidental closures. Results to date: According to Granite State Gas Transmission officials, this approach has resulted in decisions to install remote-control valves in 30 of the 30 locations assessed. Pipeline operator: Kinder Morgan-Natural Gas Pipeline Company of America (NGPL) Product type: Natural gas Number of pipeline miles: 9,800 (total); 569 (high-consequence areas) Decision-making approach: The operator follows a long-term corporate risk management strategy for NGPL, developed in the 1960s, that calls for installing automatic-shutoff valves across its pipeline system regardless of advantages and disadvantages for individual pipeline segments. The operators told us that automatic-shutoff valves, as opposed to remote-control valves, were chosen because they reduce the potential for human error when making decisions to close valves. Officials stated that the biggest concern of using automatic-shutoff valves is the potential for accidental closures, but they believe they have developed a procedure for managing the pressure sensing system that effectively adapts to pressure and flow change and minimizes or eliminates these types of closures. Monetary costs are not considered as part of the decision-making process. The operator stated that installing automatic- shutoff valve on an existing manual valve costs between $48,000 and $100,000. Results to date: According to Kinder Morgan officials, this approach has resulted in the installation of automated valves at 683 out of 832 locations across the pipeline system. Officials plan to automate the remaining valves over the next several years. Pipeline operator: Northwest Pipeline GP Product type: Natural gas Number of pipeline miles: 3,900 (total); 170 (high-consequence areas) Decision-making approach: The operator uses a decision tree to assess individual pipeline segments based on several criteria, including the location of the valve (e.g., high-consequence area), diameter of the pipe, and the amount of time it takes for an operator to respond upon notification of an incident. The operator will install an automated valve in any high-consequence, class 3, or class 4 areas on large diameter pipe (i.e., above 12 inches) where personnel cannot reach and close the valve in under an hour. Monetary costs are considered as part of the decision- making process for the purposes of determining the most cost-effective way to ensure the operator can respond within one hour to incidents in high-consequence areas. The operator stated that installing an automated valve costs between $37,000 and $240,000. Automatic-shutoff valves are not installed in areas where an accidental closure could lead to customers losing service (i.e., in places where there is a single line feed servicing the entire area) or where pressure fluctuations may inadvertently activate the valve. Results to date: According to Northwest Pipeline GP officials, this approach has resulted in decisions to install automated valves at 59 of the 730 locations assessed. Pipeline operator: Williams Gas Pipeline-Transco Product type: Natural gas Number of pipeline miles: 11,000 (total); 1,192 (high-consequence areas) Description of decision-making method: The operator uses a decision tree to assess individual pipeline segments based on several criteria, including the location of the valve (e.g., high-consequence area), diameter of the pipe, and the amount of time it takes for an operator to respond upon notification of an incident. The operator will install an automated valve in any high-consequence, class 3, or class 4 areas on large diameter pipe (i.e., above 12 inches) where personnel cannot reach and close the valve in under an hour. Monetary costs are considered as part of the decision-making process for the purposes of determining the most cost-effective way to ensure the operator can respond within one hour to incidents in high-consequence areas. The operator stated that installing an automated valve costs between $75,000 and $500,000. Automatic-shutoff valves are not installed in areas where an accidental closure could lead to customers losing service (i.e., in places where there is a single line feed servicing the entire area) or where pressure fluctuations may inadvertently activate the valve. Results to date: According to Williams Gas Pipeline-Transco officials, this approach has resulted in decisions to install automated valves at 56 of the 2,461 locations assessed. The eight operators we spoke with provided a range of cost estimates for installing automated valves—from as low as $35,000 to as high as $500,000 depending on the location and size of the pipeline, and the type of equipment being installed, among other things. While both hazardous liquid and natural gas transmission pipeline operators estimated a similar cost range from about $35,000 to $500,000, hazardous liquid pipeline operators tended to estimate higher costs. Specifically, two of the three operators that exclusively transport hazardous liquids estimated that the minimum costs of installing an automated valve was $100,000 or higher and the maximum was $500,000. In contrast, pipeline operators that exclusively transport natural gas all estimated that the minimum cost was $75,000 or lower and three of the four operators estimated that maximum costs would be $240,000 or lower. We also spoke with five equipment vendors and six contractors that install valves to gather additional perspective on the cost of purchasing and installing automated valve equipment. According to estimates provided by these businesses, the combined equipment and labor costs range between $40,000 and $380,000. Specifically, equipment costs range from $10,000 to $75,000 while labor costs range from $30,000 to $315,000. (See table 3.) Vendors stated that the cost of installing an automated valve depends primarily on the functionality of the equipment (for example, additional controls would increase the cost), while contractors stated that these costs depend on the diameter and location of the pipeline. Vendors and contractors had varying opinions on whether the costs were greater to install an automated valve on hazardous liquid or natural gas pipeline. Susan Fleming, (202) 512-3824 or flemings@gao.gov. In addition to the contact above, Sara Vermillion (Assistant Director), Sarah Arnett, Melissa Bodeau, Russ Burnett, Matthew Cook, Colin Fallon, Robert Heilman, David Hooper, Mary Koenen, Grant Mallie, Josh Ormond, Daniel Paepke, Anne Stevens, and Adam Yu made key contributions to this report. | The nation's 2.5 million mile network of hazardous liquid and natural gas pipelines includes more than 400,000 miles of "transmission" pipelines, which transport products from processing facilities to communities and large-volume users. To minimize the risk of leaks and ruptures, PHMSA requires pipeline operators to develop incident response plans. Pipeline operators with pipelines in highly populated and environmentally sensitive areas ("high-consequence areas") are also required to consider installing automated valves. The Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 directed GAO to examine the ability of transmission pipeline operators to respond to a product release. Accordingly, GAO examined (1) opportunities to improve the ability of transmission pipeline operators to respond to incidents and (2) the advantages and disadvantages of installing automated valves in high-consequence areas and ways that PHMSA can assist operators in deciding whether to install valves in these areas. GAO examined incident data; conducted a literature review; and interviewed selected operators, industry stakeholders, state pipeline safety offices, and PHMSA officials. The Department of Transportation's (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA) has an opportunity to improve the ability of pipeline operators to respond to incidents by developing a performance-based approach for incident response times. The ability of transmission pipeline operators to respond to incidents--such as leaks and ruptures--is affected by numerous variables, some of which are under operators' control. For example, the use of different valve types (manual valves or "automated" valves that can be closed automatically or remotely) and the location of response personnel can affect the amount of time it takes for operators to respond to incidents. Variables outside of operators' control, such as weather conditions, can also influence incident response time, which can range from minutes to days. GAO has previously reported that a performance-based approach--including goals and associated performance measures and targets--can allow those being regulated to determine the most appropriate way to achieve desired outcomes. In addition, several organizations in the pipeline industry have developed methods for quantitatively evaluating response times to incidents, including setting specific, measurable performance goals. While defining performance measures and targets for incident response can be challenging, PHMSA could move toward a performance-based approach by evaluating nationwide data to determine response times for different types of pipeline (based on location, operating pressure, and pipeline diameter, among other factors). However, PHMSA must first improve the data it collects on incident response times. These data are not reliable both because operators are not required to fill out certain time-related fields in the reporting form and because operators told us they interpret these data fields in different ways. Reliable data would improve PHMSA's ability to measure incident response and assist the agency in exploring the feasibility of developing a performance-based approach for improving operator response to pipeline incidents. The primary advantage of installing automated valves is that operators can respond quickly to isolate the affected pipeline segment and reduce the amount of product released; however, automated valves can have disadvantages, including the potential for accidental closures--which can lead to loss of service to customers or even cause a rupture--and monetary costs. Because the advantages and disadvantages of installing an automated valve are closely related to the specifics of the valve's location, it is appropriate to decide whether to install automated valves on a case-by-case basis. Several operators we spoke with have developed approaches to evaluate the advantages and disadvantages of installing automated valves. For example, some operators of hazardous liquid pipelines use spill-modeling software to estimate the amount of product release and extent of damage that would occur in the event of an incident. While PHMSA conducts a variety of information-sharing activities, the agency does not formally collect or share evaluation approaches used by operators to decide whether to install automated valves. Furthermore, not all operators we spoke with were aware of existing PHMSA guidance designed to assist operators in making these decisions. PHMSA could assist operators in making this decision by formally collecting and sharing evaluation approaches and ensuring operators are aware of existing guidance. DOT should (1) improve incident response data and use these data to evaluate whether to implement a performance-based framework for incident response times and (2) share guidance and information on evaluation approaches to inform operators decisions. DOT agreed to consider these recommendations. |
MA plans are required to cover benefits that are covered under the Medicare FFS program. Medicare FFS consists of Part A; hospital insurance—which covers inpatient stays, care in skilled nursing facilities, hospice care, and some home health care, and Part B, which covers certain physician, outpatient hospital, and laboratory services, among other services. Persons aged 65 and older who meet Medicare’s work requirement, certain individuals with disabilities, and most individuals with end-stage renal disease receive coverage for Part A services and pay no premium. Individuals eligible for Part A can also enroll in Part B, although they are charged a Part B premium. For 2007, the monthly Part B premium was set at $93.50, although high-income beneficiaries paid more. Most Medicare beneficiaries who are eligible for Medicare FFS can choose to enroll in the MA program instead of Medicare FFS. MA plans operate under Medicare Part C. All Medicare beneficiaries, regardless of their source of coverage, can choose to receive prescription drug coverage through Medicare Part D. Medicare FFS beneficiaries can enroll in stand-alone prescription drug plans, which are operated by private plan sponsors, and they generally must pay a premium to receive Part D coverage. MA beneficiaries who opt for prescription drug coverage generally receive that coverage through their MA plans, which may or may not charge an additional premium for Part D coverage. Beneficiaries enrolled in a PFFS plan that does not offer Part D coverage are allowed to enroll in a stand-alone prescription drug plan. Beneficiaries in both Medicare FFS and MA face cost-sharing requirements for medical services. Cost sharing gives beneficiaries a financial incentive to be mindful of the costs associated with using services. Medicare FFS cost sharing takes different forms. It includes both a Part A and a Part B deductible, which is the amount a beneficiary pays for services before Medicare FFS begins to pay. For 2007, Medicare FFS required a deductible payment of $992 before it began paying for an inpatient stay, and $131 before it began paying for any Part B services. Cost sharing also includes coinsurance—a percentage payment for a given service that a beneficiary must pay, such as 20 percent of the total payment for physician visits, and copayments—a standard amount a beneficiary must pay for a medical service, such as $248 per day for days 61 through 90 of an inpatient stay in 2007. Medicare allows MA plans to have cost-sharing requirements that are different from Medicare FFS’s cost-sharing requirements. Plans may require more or less cost sharing than Medicare FFS for a given service, although, on average, a plan cannot require overall cost sharing that exceeds what beneficiaries would be expected to pay under Medicare FFS. MA plans may establish dollar limits on the amount a beneficiary spends on cost sharing in a year of coverage. In contrast, Medicare FFS has no total cost-sharing limit. Plans can use both out-of-pocket maximums, limits that can apply to all services but can exclude certain service categories, and service-specific maximums, limits that apply to one service category. These limits help provide financial protection to beneficiaries who might otherwise have high cost-sharing expenses. CMS officials said that they evaluate the cost-sharing arrangements of MA plans to determine if cost sharing is too high for services likely to be used by a beneficiary with below average health status. According to CMS officials, in 2007, if an MA plan (1) had no out-of-pocket maximum, (2) had an out-of-pocket maximum above $3,100, or (3) had an out-of-pocket maximum of $3,100 or below and excluded certain categories of service from that maximum, CMS compared the plan’s cost sharing for certain service categories to thresholds that CMS based on Medicare FFS cost- sharing levels. If a plan exceeded one or more thresholds, CMS may have sought to negotiate with the plan over its cost sharing. According to CMS officials, the decision to negotiate was based on various factors, including the extent to which the thresholds were exceeded, local market comparisons, and the extent to which high cost sharing in one category was balanced with low cost sharing in another. MA plans that received rebates projected, on average, that their rebates would be $87 PMPM. The plans projected that they would allocate a relatively small amount to additional benefits, compared to cost-sharing and premium reductions. Plans projected that, on average, about 11 percent of their rebates would be allocated to additional benefits, 69 percent to reduced cost sharing, 17 percent to Part D premium reductions, and 3 percent to Part B premium reductions. The average projected rebate allocation to additional benefits and reduced premiums varied by plan type. For example, PPOs projected that they would allocate less to Part D premium reductions and more to additional benefits than other plan types. PFFS plans projected that they would allocate less to additional benefits than other plan types. (See fig. 1.) In dollar terms, the average projected rebates varied by plan type, from $55 PMPM for PPOs to $93 PMPM for HMOs. The dollar portions of the rebates that plans allocated to cost sharing varied, reflecting the variation in the average amount of the rebate. For example, on average, both PFFS plans and PPOs projected that they would allocate 73 percent of their rebate to cost-sharing reductions, but PFFS plans projected this would average $51 PMPM while PPOs projected this would average $41 PMPM. (See table 1.) For more information on the variation in how plans allocated rebates and the rebate amounts, see appendix III. While nearly all MA enrollees were in plans that received rebates, some plans charged additional premiums either in addition to the rebate or as the sole funding source to pay for additional benefits, reduced cost sharing, or a combination of the two. In 2007, approximately 41 percent of beneficiaries (about 2.3 million people) were enrolled in an MA plan that charged an additional premium. There were differences in the extent to which plans charged additional premiums by plan type. For example, 31 percent of beneficiaries enrolled in PFFS plans were charged an additional premium, compared to 83 percent of beneficiaries enrolled in PPOs. Of plans that charged an additional premium, the average additional premium was $58 PMPM. (See table 2.) Plans that received rebates and charged additional premiums had lower rebates ($54 PMPM on average), than plans that received rebates and did not charge an additional premium ($107 PMPM on average), and these plans allocated less of their rebates to premium reductions and more to additional benefits and cost-sharing reductions. MA plans covered several common additional benefits with the rebates, additional premiums, or both. These benefits included dental benefits, which may include oral exams, teeth cleanings, fluoride treatments, dental X-rays, or emergency dental services; health education benefits, which may include nutritional training, smoking cessation, health club memberships, or nursing hotlines; hearing benefits, which may include coverage for hearing tests, hearing aid fittings, and hearing aid evaluations; inpatient facility stays, which may include additional inpatient facility days beyond those covered under Medicare FFS; international coverage for outpatient emergency services; skilled nursing facility stays, which include days in a skilled nursing facility beyond those covered under Medicare FFS; and vision benefits, which may include coverage for routine eye exams, contacts, or eyeglasses (lenses and frames). Almost all plans covered international outpatient emergency services and additional days in a skilled nursing facility and inpatient facility beyond what Medicare FFS covers. The percentage of plans covering dental, vision, or hearing services varied by plan type. For example, PFFS plans were more likely to cover hearing and less likely to cover dental and vision services than HMOs and PPOs. (See fig. 2.) The average projected dollar amount of the common additional benefits across all MA plans ranged from $0.11 PMPM for international outpatient emergency services to $4 PMPM for dental care. These estimates were based on the subset of plans that provided cost projections in the categories associated with the benefits. The number of plans included in the averages varies from the number of plans offering the benefits in part because some plans did not consistently include the same additional services in the same benefit categories. For example, some plans categorized all or part of the costs associated with additional vision benefits in other categories, such as professional services. These estimates are also based on plans’ reported funding for additional benefits from both rebates and additional premiums. Had we limited our analysis to additional benefits funded only from rebates, the estimated amounts of the additional benefits would have been lower. On the basis of plan projections, we estimated that rebates would pay for most of the additional benefits plans provided (77 percent), while additional premiums would pay for the remainder (23 percent). Table 3 provides a summary of the projected costs of additional benefits. For 2007, MA plans projected that MA beneficiary cost sharing would be 42 percent of estimated cost sharing in Medicare FFS. (See fig 3.) Plans projected that their beneficiaries, on average, would pay $49 PMPM in cost sharing, and they estimated that Medicare FFS equivalent cost sharing for their beneficiaries was $116 PMPM. On the basis of plans’ projections, we estimated that about 77 percent of the reduction in beneficiary cost sharing was funded by rebates with the remainder being funded by additional beneficiary premiums. Although plans projected that beneficiaries’ overall cost sharing was lower, on average, than Medicare FFS cost-sharing estimates, some MA plans projected that cost sharing for certain categories of services was higher than Medicare FFS cost-sharing estimates. For example, 19 percent of MA beneficiaries were enrolled in plans that projected higher cost sharing for home health services, on average, than Medicare FFS, which has no cost sharing for this service at all, and 16 percent of beneficiaries were enrolled in plans that projected higher cost sharing for inpatient services compared to Medicare FFS estimates. (See table 4.) Because cost sharing is higher for some categories of services, some beneficiaries who frequently use these services can have overall cost sharing that is higher than what they would pay under Medicare FFS. Cost sharing for particular categories of services varied substantially among MA plans. For example, we found significant variation in cost sharing for inpatient services. Some MA beneficiaries were in plans with no cost sharing for inpatient services. More than half a million MA beneficiaries, representing 9 percent of MA beneficiaries, were in 193 plans with no deductibles, copayments, or coinsurance requirements for inpatient services as of August 2007. Beneficiaries in these plans with long or frequent hospital stays could have saved thousands compared to what their cost sharing would have been if they were enrolled in Medicare FFS, which typically included a $992 deductible, a $248 daily copayment for hospital stays lasting between 61 and 90 days, and additional coinsurance payments for professional services provided in the hospital. Other MA beneficiaries, however, could have paid substantially more than Medicare FFS beneficiaries for inpatient care. We found 80 MA plans that charged a daily copayment of $200 or more for the first 10 days of a hospital admission and placed high or no limits on out-of-pocket costs for inpatient services. These 80 MA plans also had more than half a million beneficiaries. Beneficiary cost sharing in these 80 plans could have been $2,000 or more for a 10-day hospital stay, and $3,000 or more for three average-length hospital stays. Figure 4 provides an illustrative example of an MA plan that could have exposed a beneficiary to higher inpatient costs than under Medicare FFS. While the plan in this illustrative example had lower cost sharing than Medicare FFS for initial hospital stays of 4 days or less as well as initial hospital stays of 30 days or more, for stays of other lengths the MA plan could have cost beneficiaries more than $1,000 above out-of-pocket costs under Medicare FFS. The disparity between out-of- pocket costs under the MA plan and costs under Medicare FFS was largest when comparing additional hospital visits in the same benefit period, since Medicare FFS does not charge a deductible if an admission occurs within 60 days of a previous admission. As of August 2007, about 48 percent of MA beneficiaries were enrolled in plans that had an out-of-pocket maximum, which helps protect beneficiaries against high spending on cost sharing. (See fig. 5.) Of the three most common MA plan types, beneficiaries in PFFS plans were the most likely to be in a plan with an out-of-pocket maximum, but PFFS plans also had the highest average out-of-pocket maximum. For MA plans that had an out-of-pocket maximum, the average amount was $3,463. See appendix IV for further details on out-of-pocket maximums. An out-of-pocket maximum does not always cover all categories of services. Some MA plans excluded some services from the out-of-pocket maximum. Beneficiaries who use these excluded services may pay more in total cost sharing than is indicated by the plan’s out-of-pocket maximum. Part B drugs, which include drugs that are typically physician- administered drugs, were most often excluded from the out-of-pocket maximum—29 percent of MA plans with an out-of-pocket maximum excluded some Part B drugs from that maximum. (See table 5.) Plans that excluded a certain service category from the out-of-pocket maximum did not necessarily exclude all services from that category. For example, many plans excluded Part B drugs from the out-of-pocket maximum if they were obtained from a pharmacy, but according to CMS, did not exclude Part B drugs administered by a physician. For 2007, MA plans projected that of their total revenues ($783 PMPM), they would allocate approximately 87 percent ($683 PMPM) to medical expenses, resulting in an average medical loss ratio of approximately 0.87. MA plans projected that they would allocate approximately 9 percent of total revenue ($71 PMPM) to non-medical expenses, and approximately 4 percent ($30 PMPM) to the plans’ margin, on average. While there was little variation in the average projected medical loss ratio by plan type, there was variation among individual plans. For example, we found that about 30 percent of beneficiaries—about 1.7 million—were enrolled in plans with a medical loss ratio of less than 0.85—the threshold included in the Children’s Health and Medicare Protection Act of 2007 (CHAMP Act). (See fig. 6.) A CMS official we spoke to stated that the medical loss ratio may vary for reasons other than utilization and the cost of providing care. For example, some MA plans may categorize the costs of delivering care management services as a medical expense, while other plans may include this as a non-medical expense. MA plans projected expenses separately for four distinct non-medical expense categories—marketing and sales, direct administration, indirect administration, and the net cost of private reinsurance. On average, MA plans projected allocating total revenue to non-medical expenses approximately as follows: 2.4 percent to marketing and sales; 2.9 percent to direct administration, such as customer service and medical 3.7 percent to indirect administration, such as accounting operations and 0.1 percent to the net cost of private reinsurance. Of these four non-medical expense categories, the largest difference between plan types’ allocation of revenue to non-medical expenses was in the category of marketing and sales. On average, as a percentage of total revenue, projected marketing and sales expenses were 2 percent ($16 PMPM) for HMOs, 3.6 percent ($27 PMPM) for PFFS plans, and 2 percent ($17 PMPM) for PPOs. (See fig. 7.) Medicare spends more per beneficiary in MA than it does for beneficiaries in Medicare FFS, at an estimated additional cost to Medicare of $54 billion from 2009 through 2012. Under the current payment system, the average MA plan receives a Medicare rebate equal to approximately $87 PMPM, on average. In 2007, MA plans projected that they would use the vast majority of their rebates—approximately 89 percent—to reduce enrollees’ premiums and to lower their out-of-pocket costs for Medicare-covered services. Plans projected that they would use a relatively small portion of their rebates—approximately 11 percent—to provide benefits that are not covered under Medicare FFS. Although the rebates generally have helped to make health care more affordable for many beneficiaries enrolled in MA plans, some beneficiaries may face higher expenses than they would in Medicare FFS. Further, because premiums paid by beneficiaries in Medicare FFS are tied to both Medicare FFS and MA costs, the additional payments to MA plans have increased the premiums paid by beneficiaries in Medicare FFS as well as contributed to the substantial long-term financial challenge that Medicare faces. Whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and extra benefits is worth the increased cost borne by beneficiaries in Medicare FFS and other taxpayers is a decision for policymakers. However, if the policy objective is to subsidize health care costs of low- income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all MA beneficiaries, including those who are well off. As Congress considers the design and cost of the MA program, it will be important for policymakers to balance the needs of beneficiaries— including those in MA plans and those in Medicare FFS—with the necessity of addressing Medicare’s long-term financial health. CMS provided us with written comments on a draft of this report which are reprinted in appendix V, and AHIP, a national association that represents companies providing health insurance coverage, provided us with oral comments. In general, CMS commented that the report did not recognize that the majority of MA benefit packages in 2007 were better and provided more protection for out-of-pocket costs than Medicare FFS. It stated that the report failed to acknowledge that MA plans provide beneficiaries with the ability to choose a plan that best meets individual medical and financial needs. CMS also expressed concern that the report was not balanced because it did not sufficiently focus on the advantages of MA plans. We disagree with CMS that we did not consider that most MA plans offered better cost sharing than Medicare FFS. We noted in the first paragraph of our cost sharing finding that, overall, plans projected MA beneficiary cost sharing that was 42 percent of estimated cost sharing in Medicare FFS. Regarding the absence of information about MA plans providing beneficiaries with choices, this was not the focus of our research. However, we agree the issue provides important context and therefore we noted in the report’s introduction the additional choice MA plans provide Medicare beneficiaries. We disagree that the report is not balanced. We provided a fact-based assessment of how rebates were projected to be used in 2007, and identified important issues related to cost sharing. Even though cost sharing would be less, on average, in MA plans than in Medicare FFS, an important finding of our report is that beneficiaries who use certain services with high cost sharing in MA plans could have higher overall out-of-pocket costs than under Medicare FFS. CMS provided several additional comments. CMS commented that it did not disagree with our finding that 16 percent of beneficiaries were in plans with higher inpatient cost sharing than Medicare FFS. However, it noted that our discussion of the issue and accompanying table and figure did not account for several factors that would have mitigated the impact of the finding. Specifically, CMS commented that we should have considered that MA plans generally combine physician cost sharing in the hospital with inpatient hospital cost sharing, which would have decreased the difference in cost sharing between MA plans and Medicare FFS. Although we had noted this in table notes in the draft, we agree that this should be clearer and modified our text and accompanying figure comparing MA and Medicare FFS cost sharing, and clarified existing table notes. We also modified the text and accompanying figure to differentiate between first and subsequent admissions within the same benefit period, in response to CMS comments. These changes did not affect our finding that some beneficiaries could have cost sharing that was considerably higher than in Medicare FFS. CMS also commented that we should have discussed the mitigating impact of particularly long hospitalizations because beneficiaries with long inpatient hospitals stays in MA plans are likely to have lower cost sharing than under Medicare FFS. We acknowledged CMS’s point and addressed this issue in the finding and modified the accompanying figure. However, most beneficiaries have relatively short lengths of stay. For example, in 2005, the average length for an inpatient stay was 5.4 days. This modification did not change our message that some beneficiaries in MA plans could have higher out-of-pocket costs. In addition, CMS commented that we should have noted that many plans have “effective” out-of-pocket maximums for inpatient stays even if they are not specified as such in the plan benefit package. For example, plans may require copayments for specific days of an inpatient stay, such as days 1 through 6, but not for any days beyond the sixth day, thereby capping maximum cost sharing for the stay. We agree that most plans have “effective” or actual out-of-pocket maximums for inpatient hospital services. We also agree that in many cases these maximums can limit beneficiary inpatient cost sharing to levels below inpatient cost sharing under Medicare FFS. However, MA plans projected that about 16 percent of beneficiaries were enrolled in plans that projected higher cost sharing than under Medicare FFS even after accounting for “effective” or actual out-of-pocket maximums. While some of the 16 percent of plans may have bundled physician services with their inpatient estimates, we also showed that 80 plans with high out-of-pocket maximums for inpatient services could have higher cost sharing than Medicare FFS even with “effective” out-of-pocket maximums for inpatient hospital services. CMS raised other concerns about our out-of-pocket maximum analysis, specifically stating that we overestimated the impact of the exclusion of Part B drugs from out-of-pocket maximums. It noted that Part B drugs administered in a physician’s office would be included under an out-of- pocket maximum and that only a subset of plans excluded Part B drugs obtained from a pharmacy from the out-of-pocket maximum. We relied on the Plan Benefit Package for information regarding the analysis of Part B drug exclusions from out-of-pocket maximums. According to these data, there were 1.1 million beneficiaries in plans that reported such exclusions in 2007. We noted that the exclusions applied to Part B drugs obtained from a pharmacy and that the plans did not indicate the coverage for Part B drugs administered by a physician. We sought clarification from CMS for which Part B drugs were excluded from the out-of-pocket maximum and were told by a CMS official that plans excluded spending on Part B drugs from the out-of-pocket maximum if beneficiaries received them on an outpatient basis. We added this point of clarification to a footnote in the draft. Given CMS’s subsequent agency comments on this issue, we clarified in the text that the exclusions applied to Part B drugs obtained from a pharmacy and do not typically apply to Part B drugs administered by a physician. However, we are concerned that the information in the Plan Benefit Package—information that beneficiaries rely on when they are seeking benefit coverage information—does not indicate whether chemotherapy drugs are included or excluded under the out-of-pocket maximums. CMS also provided technical comments and clarifications, which we incorporated as appropriate. AHIP representatives stated that they agreed with our methodology, but raised certain points that they thought the report should have made or emphasized. AHIP representatives said that while they understood why we made a distinction between additional benefits and cost-sharing reductions, they believed that we characterized additional benefits as being the more valuable of the two. We disagreed with AHIP’s assessment. While we did include a discussion of how MA plans projected they would allocate their rebates to additional benefits, premium reductions, and cost-sharing reductions, it was beyond the scope of our work to assess the relative value of the allocation options. With regard to our cost-sharing finding, AHIP stated that while MA beneficiaries may have higher cost sharing for some categories of services, these may be offset by lower cost sharing for other categories of services. Like CMS, AHIP contended that our example of an MA plan with higher cost sharing for inpatient services, relative to FFS, did not account for the additional cost sharing Medicare FFS beneficiaries would pay for physician services during their inpatient stays. As both CMS and AHIP pointed out, most MA plans do not charge extra for physician services during inpatient stays. We have made changes to the text of our report and the accompanying figure to clarify this point. However, as our report noted, beneficiaries who frequently use high cost-sharing services could have overall cost sharing that would be higher than under Medicare FFS. AHIP stated that although some beneficiaries may face higher cost sharing under an MA plan than if they were enrolled in Medicare FFS, their out-of- pocket costs could be lower if their MA plan has a lower premium than Medicare FFS. While this may be true in some cases—we found that, on average, plans used 3 percent of their rebates to reduce Part B premiums—it was beyond the scope of our work to make such a determination. AHIP further stated that MA plans provide beneficiaries with options. Beneficiaries who prefer more predictable expenses can choose MA plans with higher premiums and lower cost sharing, while beneficiaries who are less averse to risk can choose MA plans with lower premiums and higher cost sharing. We agree that the MA program provides beneficiaries with options and have added this point to the text of our report. With regard to our reporting on MA plan medical loss ratios, AHIP representatives indicated that our point was fairly stated, but they asked us to mention this point in the Results in Brief section of the report. We believed that we made this point clear in our discussion of medical loss ratios and that the issue did not warrant mentioning in our high-level summary. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from its date. At that time we will send copies to the Administrator of CMS and interested congressional committees. We will also make copies available to others upon request. The report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions about this report please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. For most Medicare Advantage (MA) plan types, Medicare provides plans with a rebate if the plan’s bid is below the benchmark, but provides no rebate if the plan’s bid exceeds the benchmark. Table 6 is an example of rebate calculations for two hypothetical plans, both in the same county. Both plans have the same benchmark because they are in the same county. Plan A submits a bid of $700 per member per month (PMPM). Because the plan’s bid is $100 PMPM below the benchmark, it receives a rebate equal to 75 percent of that amount, or $75 PMPM. Plan A must use the $75 PMPM rebate to provide additional benefits, reduced premiums, reduced cost sharing, or any combination of the three. Plan B, however, submits a bid that is $40 PMPM above the benchmark. As a result, the plan receives no rebate. Medicare’s payments to plans cannot exceed the benchmark, so Medicare’s payment to Plan B is set at $800 PMPM, the amount of the benchmark. Plan B must make up the remainder of the bid by charging its beneficiaries a mandatory plan premium of $40 PMPM. Since Plan A has extra benefits and no additional premium, while Plan B has no extra benefits and an additional premium, Plan A may attract more beneficiaries. If most beneficiaries choose Plan A over Plan B, Plan B is given an incentive to become more efficient in the following year and lower its bid. This section describes the scope and methodology used to analyze our four objectives: (1) how MA plans projected they would allocate the rebates they receive, (2) what additional benefits MA plans commonly covered with the rebates and additional premiums, and the projected costs of these additional benefits, (3) how MA plans’ projected beneficiary cost sharing, overall and by type of service, compared to Medicare fee-for- service (FFS), and (4) how MA plans projected they would allocate their revenue to medical and other expenses. We used two primary data sources to analyze our four objectives: the 2007 Bid Pricing Tool data and the 2007 Plan Benefit Package data. These data are submitted by MA plans to the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare. The bid pricing data contain MA plans’ projections of their revenue requirements and revenue sources. Specifically, the bid pricing data include MA plans’ projections of revenue requirements—spending on medical expenses, spending on non-medical expenses, and the margin. The bid pricing data also contain information on the benefits and cost-sharing arrangements of plans, including how MA plans’ projected cost sharing compares to cost sharing in Medicare FFS. In addition, the bid pricing data contain information on the amount of rebates and additional premiums plans project they will require to fund additional benefits, reduced premiums, and reduced cost sharing. The benefit package data contain detailed information about the benefits and cost-sharing requirements that MA plans offer to Medicare beneficiaries. For our objectives, we focused our analysis on plan types that account for 98 percent of MA enrollment: Health Maintenance Organizations (HMO) (71 percent), Private Fee-for-Service (PFFS) Plans (21 percent), Preferred Provider Organizations (PPO) (5 percent), and Provider-Sponsored Organizations (PSO) (1 percent). We excluded Medical Savings Account plans and regional PPOs from our analysis because they follow a different bidding process. We excluded plan types that have unique restrictions on enrollment—such as employer plans, Special Needs Plans (SNP), and demonstration plans—and bids for plans that only cover Part B services. We also excluded plans with service areas that are exclusively outside the 50 states and the District of Columbia. Plans sponsors are permitted to submit separate bids for a single package of benefits by dividing the service area into segments; in these cases, benefits would be the same for each segment, but each segment’s cost sharing and premiums may differ. We counted each segment as a separate plan. We used August 2007 enrollment numbers to weight our results. As a result of our methodology, we included 2,055 plans and 5,764,368 beneficiaries (71 percent of total MA enrollment) in our analysis—these numbers apply to all tables and figures in the report, unless otherwise noted. Because there were only 22 PSOs after the exclusions, and enrollment in those plans was 1 percent of MA enrollment, we do not report results separately for PSOs, but we include them in the aggregated results we report for all MA plans. To determine how plans projected they would allocate the rebate to additional benefits, reduced premiums, and reduced cost sharing, we used the bid pricing data. The bid pricing data contain the total amounts plans projected they would spend on additional benefits, reduced premiums, and reduced cost sharing. However, since MA plans use both rebates and additional premiums as a funding source for these additional benefits, reduced premiums, and reduced cost sharing, we calculated the proportion of total funding plans projected they would spend on additional benefits, reduced premiums, and reduced cost sharing and applied these projections to the projected rebate. We restricted our analysis of rebate allocations to the 1,874 plans that received a rebate. To identify the additional benefits that MA plans commonly covered with rebates and additional premiums, we used the benefit package data. The benefit package data provide the most detailed and accurate information about benefits offered, including additional benefits. We used the crosswalk CMS recommended—but did not require—plans to use to match service categories in the benefit package data to categories in the bid pricing data, and identified the percentage of beneficiaries in plans that offered additional benefits using bid pricing categories. To identify the costs associated with these additional benefits, we used the bid pricing data. Plans did not use consistent categories for their additional benefits in the bid pricing data. For example, some plans categorized additional vision benefits under the category of other non- covered services. Therefore, our estimates of the costs of additional benefits do not include all plans that offer those benefits, but are based on a smaller number of plans that specified that additional benefit and the associated cost of providing that benefit. In addition, some categories, such as professional services and other non-covered services, were identified by CMS as unreliable because they likely included a variety of services, and we excluded these categories from our analysis. Other categories of additional services may include some inconsistent services, and the cost estimates for additional benefits should therefore be considered as approximations. To calculate estimated costs for each of the additional service categories, we identified plans that offered the additional benefit and that had projected a cost of at least $0.01 PMPM. The projected amounts of plans’ additional benefits were adjusted for the health status of the plans’ projected population by dividing the amount of the plans’ additional benefits by the plans’ projected risk scores—a number representing how a plan’s beneficiaries’ health expenditures are predicted to differ from the average beneficiary in Medicare FFS. We then calculated the average amount of the additional benefit, weighting the average by the number of enrollees in the plans. If we had estimated the amount of additional benefits funded only by the rebates, the PMPM amounts of additional benefits would be lower. To compare projected beneficiary cost sharing in MA plans and Medicare FFS, we analyzed plans’ cost sharing for Medicare-covered services as reported in the bid pricing data and the equivalent Medicare FFS cost- sharing amounts, also included in the bid pricing data. The equivalent Medicare FFS cost sharing represents an MA beneficiary’s expected cost sharing under Medicare FFS if the beneficiary’s MA plan had the same pricing and utilization as Medicare FFS. The Medicare FFS equivalent cost sharing for each service category was calculated by applying the average cost-sharing percentage under Medicare FFS for a given service category to each plan’s total cost estimates for providing benefits in that service category. For example, if the cost-sharing percentage under Medicare FFS for inpatient services is 10 percent for a given county, and an MA plan in that county projects spending on inpatient services at $200 PMPM, then the equivalent inpatient cost sharing is 10 percent of $200, or $20 PMPM. For Part A services, the cost-sharing percentage under Medicare FFS is calculated for each county—one county may have an equivalent inpatient cost-sharing percentage of 10 percent, while another county may have a percentage of 8 percent. For Part B services, however, the cost-sharing percentages are a national average, so the same percentages were applied to all counties. We divided each plan’s estimated cost sharing and the Medicare equivalent cost sharing by each plan’s projected risk score to get estimated cost sharing for a beneficiary with average Medicare health spending. We reported the percentage of plans that had cost sharing higher than the estimated Medicare cost sharing for a given service category. When we calculated the amount of reduced cost sharing, we used the total amounts reported in the bid pricing data. We included both rebates and additional premiums because this provided the accurate amount of cost- sharing reductions that MA plans projected their beneficiaries will receive. The amounts of the additional benefits and cost-sharing reductions in our analyses would be lower if we had restricted our analysis to rebates as the sole funding source. To determine plans’ out-of-pocket maximums, we examined the in- network out-of-pocket maximum and the combined out-of-pocket maximum (a maximum that applies to both in-network and out-of-network services) fields in the benefit package data. If the two fields were the same value, then we defined the out-of-pocket maximum as equal to that value. If one of the fields was blank, and the other field was a positive number, then we defined the out-of-pocket maximum as equal to the value of the field with the positive number. If both fields had a positive number, but they were not equal, then we defined the out-of-pocket maximum as equal to the value of the field with the lower value. We categorized a plan as having an out-of-pocket maximum even if the plan excluded certain categories of service from that maximum. We did not categorize a plan that had only a service-specific maximum as having an out-of-pocket maximum. To determine the percentage of total revenue allocated to medical expenses and other expenses, we used the bid pricing data and calculated the projected values of medical expenses, non-medical expenses, and margin as a percentage of revenue for all plans and by plan type. We reported the percentages of beneficiaries in plans that projected medical expenses less than 85 percent. We also analyzed the percentage of revenue projected to go to sales and marketing from the bid pricing data. Rebate amounts, as well as the allocation of rebates, varied considerably from plan to plan. To provide a measure of this variation, we calculated rebate amounts and the amounts of additional benefits, reduced premiums, and reduced cost sharing at the 25th and 75th percentiles, weighted for enrollment. A percentile is the value below which a certain percentage of beneficiaries fall. For example, the value of the cost-sharing reduction at the 25th percentile was $39.02 PMPM and at the 75th percentile was $78.90 PMPM, meaning that at least 25 percent of beneficiaries were in plans that projected a cost-sharing reduction of $39.02 PMPM or less, and at least 75 percent of beneficiaries were in plans that projected a cost-sharing reduction of $78.90 PMPM or less. (See table 7.) In 2007, about half of MA beneficiaries were in plans that had an out-of- pocket maximum, a dollar limit on a beneficiary’s cost sharing. The out-of- pocket maximum varied from plan to plan. To provide a measure of this out-of-pocket maximum variation, we calculated the out-of-pocket maximum at the 25th and 75th percentiles, weighted for enrollment. A percentile is the value below which a certain percentage of beneficiaries fall. For example, the out-of-pocket maximum at the 25th percentile was $2,750, and at the 75th percentile it was $4,600, meaning that at least 25 percent of beneficiaries were in plans with an out-of-pocket maximum $2,750 or less, and at least 75 percent of beneficiaries were in plans with an out-of-pocket maximum of $4,600 or less. (See table 8.) Other contributors to this report include Christine Brudevold, Assistant Director; Jennie Apter; William Black; Alexander Dworkowitz; Gregory Giusto; Dan Lee; Hillary Loeffler; and Christina C. Serna. | In 2006, the federal government spent about $59 billion on Medicare Advantage (MA) plans, an alternative to the original Medicare fee-for-service (FFS) program. Although health plans were originally envisioned in the 1980s as a potential source of Medicare savings, such plans have generally increased program spending. Payments to MA plans have been estimated to be 12 percent greater than what Medicare would have spent in 2006 had MA beneficiaries been enrolled in Medicare FFS. Some policymakers are concerned about the cost of the MA program and its contribution to overall spending on the Medicare program, which already faces serious long-term financial challenges. MA plans receive a per member per month (PMPM) payment to provide services covered under Medicare FFS. Almost all MA plans receive an additional Medicare payment, known as a rebate. Plans use rebates and sometimes additional beneficiary premiums to fund benefits not covered under Medicare FFS, reduce premiums, or reduce beneficiary cost sharing. This report examines for 2007 (1) MA plans' projected rebate allocations; (2) additional benefits MA plans commonly covered and their costs; (3) MA plans' projected cost sharing; and (4) MA plans' allocation of projected revenues and expenses. GAO analyzed data on MA plans' projected revenues and covered benefits for the most common types of MA plans, accounting for 71 percent of all beneficiaries in MA plans. In 2007, plans projected that relatively little of their rebates would be spent on additional benefits compared to cost-sharing and premium reductions. Of the average projected rebate amount of $87 PMPM, plans projected they would allocate about $10 PMPM (11 percent) to additional benefits, about $61 PMPM (69 percent) to reduced cost sharing, and about $17 PMPM (20 percent) to reduced premiums. Using funding from both rebates and additional premiums, plans covered a variety of additional benefits not covered by Medicare FFS in 2007, including dental and vision benefits. On the basis of plans' projections, GAO estimated that rebates would pay for approximately 77 percent of additional benefits and additional beneficiary premiums would pay for the remaining 23 percent. MA plans projected that, on average, beneficiaries in their plans would have lower cost sharing than Medicare FFS cost-sharing estimates, although some MA plans projected that their beneficiaries would have higher cost sharing for certain service categories, such as home health care and inpatient services. Because cost sharing was projected to be higher for some categories of services, beneficiaries who frequently used these services could have had overall cost sharing that would be higher than under Medicare FFS. On average, MA plans projected that they would allocate about 87 percent of total revenue ($683 of $783 PMPM) to medical expenses; approximately 9 percent ($71 PMPM) to non-medical expenses, including administration, marketing, and sales; and approximately 4 percent ($30 PMPM) to the plans' margin, sometimes called the plans' profit. About 30 percent of beneficiaries were enrolled in plans that projected they would allocate less than 85 percent of their revenues to medical expenses. Whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and additional benefits is worth the additional cost is a decision for policymakers. However, if the policy objective is to subsidize health care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all MA beneficiaries, including those who are well off. As Congress considers the design and cost of MA, it will be important for policymakers to balance the needs of beneficiaries and the necessity of addressing Medicare's long-term financial health. In commenting on a draft of this report, the Centers for Medicare & Medicaid Services expressed concern that the report was not balanced because it did not sufficiently focus on the advantages of MA plans. GAO disagrees. This report provides information on how plans projected they would use rebates and identified instances in which MA beneficiaries could have out-of-pocket costs higher than they would have experienced under Medicare FFS. |
The long-term fiscal pressures created by the impending retirement of the baby boom generation, rising health care costs and increased homeland security and defense commitments sharpen the need to look at competing claims on existing federal budgetary resources and emerging new priorities. As we look ahead, our nation faces an unprecedented demographic challenge. Between now and 2035, the number of people who are 65 years old or over is expected to double, driving federal spending on the elderly to a larger and ultimately unsustainable share of the federal budget. Absent substantive entitlement reform and/or dramatic changes in tax and spending policies, we will face large, escalating, and persistent deficits. For over ten years, the GAO has periodically prepared various long-term budget simulations that seek to illustrate the likely fiscal consequences of our coming demographic challenges and rising health care costs. Our latest long-term budget simulations reinforce the need for change in the major long-range cost drivers—Social Security and health care programs. As shown in figure 1, by 2040, assuming no changes to currently projected benefits or revenues, projected federal revenues may be adequate to pay little beyond interest on the debt. Reducing the relative future burdens of Social Security and federal health programs is critical to promoting a sustainable budget policy over the longer term. Absent reform, the impact of federal health and retirement programs on budget choices will be increasingly felt as the baby boom generation retires. While much of the public debate concerning the Social Security and Medicare programs focuses on trust fund balances—that is, on the programs’ solvency—the larger challenge facing these programs is how to assure their longer-term security and sustainability. The Social Security and Medicare Health Insurance (HI) programs are currently running surpluses that are invested in U.S. Treasury securities, resulting in an accumulated balance of Treasury assets that can be drawn upon to pay future benefits. According to the 2003 Trustees’ projections, these trust funds would be considered insolvent in 2042 for Social Security and in 2026 for Medicare HI. The information on insolvency provides one signal to policy makers that claims will exceed trust fund balances, but this measure alone can provide a false sense of security regarding these important federal programs. If we rely solely on trust fund insolvency to trigger actions to reform these programs, we will have delayed action far past the point when these two programs have become a significant and unsustainable fiscal burden on the federal government as a whole. Based on the 2003 Trustees Reports, the cash flows for Social Security will shift to a deficit in 2018 and for Medicare HI in 2013—at these points, both programs will then have to draw on their accumulated IOUs from the Treasury to pay a portion of benefits. The only way that Treasury can pay off these IOUs is by increased taxes, spending cuts, or increased borrowing from the public, or some combination of the three. Moreover, the trust funds’ balances do not reflect the full future cost of existing government commitments. In addition, the HI trust fund reflects only a portion of the Medicare program, which is financed primarily through payroll taxes. Other parts of the Medicare program include the Part B Supplementary Medical Insurance component and the new Part D drug benefit, both of which are financed through general revenues and beneficiary premiums. Taken as a whole, the Medicare program is fiscally unsustainable in its present form as program expenditures are expected to exceed program revenues dramatically in the future. From a macro perspective the critical question is not how much a trust fund has in assets, but whether the government as a whole has the economic capacity to finance the benefits promised by these programs both now and in the future and, if so, at what cost, and with what implications. As a result, we need to incorporate new metrics and mechanisms into the budget process that better signal the long-term commitments and implicit promises made by the government—its fiscal exposures—so that decision makers’ attention and efforts can be more concentrated on their long-term sustainability. The difficulty of developing meaningful measures of sustainability is exacerbated by the length of time covered by our long- term commitments. The longer the span of time between the collection and the expenditure of funds, the greater the uncertainty involved in forecasting future needs. Since trust fund balances do not fully inform policymakers and the public about the long-term sustainability of the programs financed by earmarked funds, consideration is warranted of other ways to make the long-term implications of spending and tax proposals and policies more apparent when making budget decisions. The future sustainability of programs is the key issue policymakers should address—that is, the capacity of the economy and budget to afford the proposed actions. While Social Security, Medicare, and Medicaid are the major drivers of the long-term spending outlook in the aggregate, they are not the only promises the federal government has made to the future. The federal government undertakes a wide range of responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. Specific fiscal exposures vary widely as to source, likelihood of occurrence, magnitude, and strength of the government’s legal obligations. They may be explicit or implicit; they may currently exist or be contingent on future events. Their ultimate costs may or may not be reasonably measurable. Given this breadth, it is useful to think of fiscal exposures as a spectrum extending from explicit liabilities to the implicit promises embedded in current policy and/or public expectations. Figure 2 shows some selected fiscal exposures. These liabilities, commitments, and implicit exposures have created a fiscal imbalance that will put unprecedented strains on the nation’s spending and tax policies. In addition, certain tax expenditures may have uncertain or accelerating future growth paths that have significant implications for the long term. Although economic growth can help, our projected fiscal gap is now so large that we will not be able to simply grow our way out of the problem. Tough choices are inevitable. Particularly troubling are the many existing “big-ticket” items that taxpayers will eventually have to deal with. The federal government has pledged its support to a long list of programs and activities, including pension and health care benefits for senior citizens, veterans’ medical care, and, implicitly, various government-sponsored entities, whose potential claims on future spending total tens of trillions of dollars. Despite their serious implications for future budgets, tax burdens, and spending flexibilities, these fiscal exposures often get short shrift in reporting on the government’s current financial condition and in budgetary deliberations. Even though some fiscal exposures stem from liabilities and are reported in the financial statements, their recognition in the current cash- and obligation-based budget process is wholly inadequate. And beyond explicit liabilities and contingencies, there are implicit exposures—implied commitments embedded in the government’s current policies or in the public’s expectations about the role of government—that may encumber future budgets or reduce fiscal flexibility. One example is the life cycle cost of fixed assets, including deferred and future maintenance and operating costs. An exposure recognized in the financial statements is the federal government’s gross debt which, as of September 2003, was about $7 trillion, or about $24,000 for every man, woman, and child in this country today. But that number excludes items such as the gap between promised and funded Social Security and Medicare commitments. If these items are factored in, the burden for every American rises to well over $100,000. In addition, the new Medicare prescription drug benefit will add thousands more to that tab. The new drug benefit is one of the largest unfunded commitments ever undertaken by the federal government. The Trustees of the Social Security and Medicare trust funds will include an official estimate of the discounted present value cost of this new benefit over the next 75 years in their annual report, which is scheduled for issuance today. Preliminary estimates of its long-term cost range up to $7-8 trillion in discounted present value terms over a 75-year period. To put that number in perspective, it is as much or more than the total amount of the federal government’s gross debt outstanding as of September 30, 2003. Even before the drug benefit was enacted, our long-term simulations showed that by 2040, the federal government may have to cut federal spending in half or double taxes to pay for the mounting cost of the government’s unfunded commitments. Either would have devastating consequences on the nation’s future economy and the quality of life for Americans in the future. Truth and transparency in government reporting are essential if the United States is to effectively address its long-term fiscal challenges. The fiscal exposures just mentioned can be managed only if they are properly accounted for and publicly disclosed. A crucial first step will be to face facts and identify the many significant commitments already facing the federal government. If citizens and government officials come to understand various fiscal exposures and their potential claims on future budgets, they are more likely to insist on prudent policy choices today and sensible levels of fiscal risk in the future. So how do we start this hard process? Today you are focusing on budget process improvements, so I will start there. We need a process that does two things better than the processes we have used in the past. The budget process needs (1) better transparency and controls about the fiscal exposures/commitments that the federal government is considering making and (2) better signals and incentives to address the fiscal exposures/commitments the federal government has already made. GAO has encouraged reforms that would help move forward on both fronts. Transparency of existing commitments would be improved by requiring that the Office of Management and Budget (OMB) report annually on fiscal exposures, including a concise list, description, and cost estimates, where possible. OMB should also ensure that agencies focus on improving cost estimates for fiscal exposures. This should complement and support continued and improved reporting of long-range projections and analysis of the budget as a whole to assess fiscal sustainability and flexibility. Others have also embraced this idea for better reporting of fiscal exposures. Last year Senator Voinovich proposed that the President report each January on the fiscal exposures of the federal government and their implications for long-term financial health. The President’s fiscal year 2005 budget proposes that future Presidents’ budgets report on any enacted legislation in the past year that worsens the unfunded obligations of programs with long-term actuarial projections, with CBO being required to make a similar report. Senator Voinovich’s bill would require GAO to review the President’s report on fiscal exposures for completeness, quality and the long-range fiscal outlook. Senator Lieberman has also introduced legislation to require better information on liabilities and commitments over both a 75-year and indefinite time horizon. Such reporting would be a good starting point. Senator Lieberman’s bill provides for a point of order against bills that adversely affect the net present value of overall liabilities and commitments by more that a specified amount. Better information on existing commitments and promises must be coupled with estimates of the long-term discounted net present value cost of any new proposed commitments. Ten-year budget projections have been available to decision makers for many years. We must build on that regime but also incorporate longer-term estimates of net present value costs for spending and tax commitments comprising longer-term exposures for the federal budget beyond the 10-year window. Better reporting is just a starting point, however. While Social Security and Medicare drive the long-term spending outlook, decisions are made about a whole host of other programs with long-term implications too small to drive the long-term outlook. A budget is all about how to allocate available resources. Budget decisions reflect a number of factors including beliefs about the appropriate role of government in various areas, judgment about the likely success of a program in achieving certain goals, and the cost of a program. It is important that Members of the Congress and the President—and citizens—be able to compare the full costs of programs on a consistent basis. In the past, GAO has suggested that the budget numbers should themselves reflect long-term cost commitments for programs such as credit, federal pension and retiree health benefits, and insurance programs. The Federal Credit Reform Act of 1990 put credit programs on a comparable basis with grants and other assistance programs. This reform enabled decision makers to budget for credit based on the net present value of the federal subsidies over the life of the loan or guarantee. We have suggested that a similar treatment be applied to insurance programs in which the cost of the program in the budget would, in effect, be the missing premium—the subsidy provided by the government to the insured. This approach was included in legislation sponsored by Congressmen Nussle and Cardin several years ago. They recognized, as did GAO, that the budget’s current cash treatment of insurance programs could misstate the cost of the commitments that have been made. Some improvements have been made in budgeting for federal pension and retiree health benefits, but they have not been applied to all employees. Along with better reporting, budget process mechanisms could establish opportunities for the explicit consideration of important fiscal exposures—both new and existing. When considering the creation of new exposures, Congress could modify budget rules to provide for a point of order against any proposed legislation that creates new spending or tax exposures over some specified level or trigger. This would encourage the explicit consideration of potential future costs. To make sure the cost estimates are made available, rules could also provide for a point of order against any proposed legislation that does not include estimates of the potential costs of fiscal exposures it would create. A different budget process approach would be to establish triggers that address the growth in existing exposures. Triggers would signal when the future costs of exposures rise above a certain level. Reaching the trigger would require some action to address costs or reaffirm acceptance of the increase in potential fiscal exposure. There are many different ways to construct a trigger. Possible triggers include future costs of a specific exposure exceeding a specified dollar amount, or expected program growth beyond a specified share of the federal budget or the gross domestic product. Congress already adopted an approach similar to this for the Medicare program last year. Under this process, the program as a whole would trigger a requirement for presidential and congressional consideration when the general revenue share of Medicare funding is projected in two consecutive years to exceed 45 percent during a 7-year period. The design of triggers is important and has implications for the mix of financing to be provided for covered programs. My staff would be happy to work with you if you choose this approach. We must look through a wide-angle lens when deciding what to do about the nation’s fiscal imbalance. Based on realistic assumptions, our future fiscal gap is simply too great to grow our way out of the problem. As a result, we need to employ a three-pronged approach to (1) restructure existing entitlement programs, (2) reexamine the base of discretionary and other spending, and (3) review and revise the federal government’s tax policy and enforcement programs. Fundamentally, we need to undertake a top-to-bottom review of government activities to ensure their relevance and fit for the 21st century and their relative priority. The understanding and support of the American people will be critical in providing a foundation for action. The fiscal risks I have discussed, however, are a long-term problem whose full impact will not be felt for some time. At the same time they are very real and time is currently working against us. While I agree with others that realistic spending caps and the restoration of PAYGO are necessary, additional actions are needed to prompt a reexamination of existing programs and activities. In the 1990s, the Congress and the Administration put in place a set of laws designed to improve information about cost and performance. More performance information has become available thanks to 10 years of experience under the Government Performance and Results Act (GPRA) and better financial and cost information has been produced as a result of legislative actions, including the Chief Financial Officers (CFO) Act of 1990. This information can clearly help inform the debate about what the federal government should do and how it should do business. Congress now has the challenge to use new information and data to engage in a process to systematically reexamine the base of federal programs across the entire budget. In previous testimonies and reports, we have suggested that Congress might equip itself to engage in this debate by (1) establishing a vehicle for communicating performance goals and measures for key congressional priorities; (2) developing a more structured oversight agenda to permit a more coordinated congressional perspective on crosscutting programs and policies; and (3) using such an agenda to inform its authorization, oversight and appropriations processes. Some have suggested a commission to jump-start this process while others have suggested periodic sunsetting of major programs. We at GAO stand ready to provide assistance to whatever process Congress chooses for this important work. Such a process can be supported by a national education campaign and outreach effort to help the public understand the nature and magnitude of the long-term financial challenge facing this nation. After all, an informed electorate is essential for a sound democracy. Members of Generation X and Y especially need to become active in this discussion because they and their children will bear the heaviest burden if policy makers fail to act in a timely and responsible manner. The difficult but necessary choices we face will be facilitated if the public has the facts and comes to support serious and sustained action to address the nation’s fiscal challenges. In closing, Madam Chairman, I want to reiterate the value of sustained congressional interest in these issues, as demonstrated by this Subcommittee’s hearing. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The structure of the budget process can help ensure that budget decision makers are presented with the information and choices for timely and informed decisionmaking. GAO's long-term budget simulations show that, absent substantive entitlement reform and/or dramatic changes in tax and spending policies, we will face large, escalating, and persistent deficits. A budget process incorporating new metrics and mechanisms that better signal the long-term commitments and promises made by the government will help concentrate decision makers' efforts on long-term sustainability. The long-term fiscal pressures created by the impending retirement of the baby boom generation sharpen the need to look at competing claims on existing federal budgetary resources and emerging new priorities. Truth and transparency in government reporting are essential if the United States is to effectively address these long-term fiscal challenges. Current metrics and mechanisms do not fully inform policy makers about the sustainability of existing federal programs or commitments they are considering making. While Social Security and health programs are the major drivers of the long-term spending outlook, they are not the only promises the federal government has made to the future. The government undertakes a wide range of responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. It is useful to think of such fiscal exposures as a spectrum extending from explicit liabilities to the implicit promises embedded in current policy and/or public expectations. |
Following the stock market crash of 1929, Congress passed the Securities Exchange Act of 1934, which established the SEC to enforce securities laws, to regulate the securities markets, and to protect investors. In enforcing these laws, the SEC issues rules and regulations to provide protection for investors and to help ensure that the securities markets are fair and honest. This is accomplished primarily by promoting adequate and effective disclosure of information to the investing public. The SEC also oversees and requires the registration of other key participants in the securities industry, including stock exchanges, broker-dealers, clearing agencies, depositories, transfer agents, investment companies, and public utility holding companies. The SEC is an independent, quasi-judicial agency that operates under a bipartisan commission appointed by the President and confirmed by the Senate. SEC had a budget of about $800 million and staff of 4,100 to monitor and regulate the securities industry in fiscal year 2004. In 2003, the volume traded on U.S. exchanges and NASDAQ exceeded $22 trillion and 850 billion shares. Each year the commission accepts, processes, and disseminates to the public more than 600,000 documents from companies and individuals that are filed with the SEC, including annual reports from more than 12,000 reporting companies. SEC relies extensively on computerized systems to support its financial operations and store the sensitive information it collects. Its local and wide area networks interconnect these systems. To support the commission’s financial management functions, it relies on several financial systems to process and track financial transactions that include filing fees paid by corporations and penalties from enforcement activities. In fiscal year 2004, the SEC collected $389 million for filing fees and $948 million in penalties and disgorgements. In addition, the commission uses other systems that maintain sensitive personnel information for its employees, filing data for corporations, and legal information on enforcement activities. The commission’s Chief Information Officer (CIO) is SEC’s key official for information security. The CIO is responsible for establishing, implementing, and overseeing the commission’s information security program. Information system controls are a critical consideration for any organization that depends on computerized systems and networks to carry out its mission or business. Without proper safeguards, there is risk that individuals and groups with malicious intent may intrude into inadequately protected systems and use this access to obtain sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. We have reported information security as a governmentwide high-risk area since February 1997. Our previous reports, and those of agency inspectors general, describe persistent information security weaknesses that place a variety of federal operations at risk of disruption, fraud, and inappropriate disclosure. Congress and the executive branch have taken actions to address the risks associated with persistent information security weaknesses. In December 2002, the Federal Information Security Management Act (FISMA), which is intended to strengthen information security, was enacted as Title III of the E-Government Act of 2002. In addition, the administration undertook important actions to improve security, such as integrating information security into the President’s Management Agenda Scorecard. Moreover, the Office of Management and Budget (OMB) and the National Institute of Standards and Technology (NIST) have issued security guidance to agencies. The objective of our review was to assess the effectiveness of SEC’s information system controls in protecting its financial and sensitive information. Our evaluation was based on (1) our Federal Information System Controls Audit Manual, which contains guidance for reviewing information system controls that affect the integrity, confidentiality, and availability of computerized data and (2) our May 1998 report on security management best practices at leading organizations, which identifies key elements of an effective information security management program. Specifically, we evaluated SEC’s information system controls intended to prevent, limit, and detect electronic access to computer resources (data, programs, and systems), thereby protecting these resources against unauthorized disclosure, modification, and use; provide physical protection of computer facilities and resources from espionage, sabotage, damage, and theft; ensure that work responsibilities for computer functions are segregated so that one individual does not perform or control all key aspects of a computer-related operation and, thereby, have the ability to conduct unauthorized actions or gain unauthorized access to assets or records without detection by another individual performing assigned responsibilities; prevent the implementation of unauthorized changes to application or ensure the recovery of computer processing operations and data in case of disaster or other unexpected interruption; and ensure an adequate information security program. To evaluate these controls, we identified and reviewed pertinent SEC computer security policies, procedures, guidance, plans, and reports. We also discussed with key security representatives, system administrators, and management officials whether information system controls were in place, adequately designed, and operating effectively. In addition, we conducted tests and observations of controls in operation. SEC did not effectively implement information system controls to protect the integrity, confidentiality, and availability of its financial and sensitive information. Specifically, the commission did not consistently implement effective electronic access controls, including user account and passwords, access rights and permissions, network security, and audit and monitoring of security-relevant events to prevent, limit, and detect access to its critical financial and sensitive systems. In addition, weaknesses in other information system controls, including physical security, segregation of computer functions, application change controls, and service continuity, further increase the risk to SEC’s information systems. As a result, sensitive data—including payroll and financial transactions, personnel data, regulatory, and other mission critical information—are at increased risk of unauthorized disclosure, modification, or loss, possibly without being detected. A basic management control objective for any organization is the protection of its information systems and critical data from unauthorized access. Organizations accomplish this objective by designing and implementing controls to prevent, limit, and detect electronic access to computing resources. These controls include user accounts and passwords, access rights and permissions, network security, and audit and monitoring of security-related events. Inadequate electronic access controls diminish the reliability of computerized data and increase the risk of unauthorized disclosure, modification, and use of data. SEC did not consistently implement effective electronic access controls to prevent, limit, and detect access to financial and sensitive data. Numerous vulnerabilities existed in SEC’s computing environment because of the cumulative effects of information system control weaknesses in the area of user accounts and passwords, access rights and permissions, network security, and audit and monitoring of security-relevant events. For example, our testers found a workstation located in an area of an SEC building readily accessible by the general public that was logged into the SEC computer network. With access from this workstation, a potential attacker would have direct access to the SEC’s internal network and could have exploited other vulnerabilities, such as easy-to-guess passwords, vulnerable servers, and insecurely configured system servers to gain access to critical systems that maintain the commission’s financial and regulatory information. Also, because of weaknesses in system audit logs and the lack of a fully implemented intrusion detection system, the likelihood of detection would have been remote. Prior to the completion of our review, SEC completed actions to remediate this access vulnerability. Weaknesses in the specific control areas are summarized here. A computer system must be able to identify and differentiate among users so that activities on the system can be linked to specific individuals. Unique user accounts assigned to specific users allow systems to distinguish one user from another, a process called identification. The system must also establish the validity of a user’s claimed identity through some means of authentication, such as a password, known only to its owner. The combination of identification and authentication, such as user account/password combinations, provides the basis for establishing individual accountability and controlling access to the system. Accordingly, agencies should (1) implement procedures to control the creation, use, and removal of user accounts and (2) establish password parameters, such as length, life, and composition, to strengthen the effectiveness of account/password combinations for authenticating the identity of users. SEC did not sufficiently control user accounts and passwords to ensure that only authorized individuals were granted access to its systems and data. For example, SEC operating personnel did not consistently configure password parameters securely, and users sometimes created easy-to-guess passwords. User accounts and passwords for privileged network and database administrator accounts were inappropriately stored in clear text, increasing the likelihood of their disclosure and unauthorized use to gain access to server resources. Moreover, SEC did not remove system access from certain separated employees, including one terminated employee who still had access to SEC’s information systems 8 months after termination. These practices increase the risk that individuals might gain unauthorized access to SEC resources without attribution. A basic underlying principle for securing computer systems and data is the concept of least privilege. This means that users are granted only those access rights and permissions needed to perform their official duties. Organizations establish access rights and permissions to restrict the access of legitimate users to the specific programs and files that they need to do their work. User rights are allowable actions that can be assigned to users or groups. File and directory permissions are rules associated with a file or directory that regulate which users can access them and in what manner. Assignment of rights and permissions must be carefully considered to avoid giving users unintentional and unnecessary access to sensitive files and directories. SEC routinely permitted excessive access to the computer systems that support its critical financial and regulatory information and to certain key files and directories. For example, on certain network systems, users and administrators had access that would allow them to bypass security settings or change security parameters and audit logs. All 4,100 network users were inadvertently granted access that would allow them to circumvent the audit controls in the commission’s main financial systems. Further, on certain systems, users had access to system files and directories that would allow them to gain unauthorized access to the system, thereby enabling them to compromise key servers or disrupt operations. In addition, contractor staff did not follow SEC policy for obtaining remote access and instead granted themselves access to key financial systems without SEC approval. Inappropriate access to sensitive security files, audit logs, system directories, and key financial data provides opportunities for individuals to circumvent security controls and read, modify, or delete critical or sensitive information and computer programs. Networks are a series of interconnected devices and software that allow individuals to share data and computer programs. Because sensitive programs and data are stored on or transmitted along networks, effectively securing networks is essential to protecting computing resources and data from unauthorized access, manipulation, and use. Organizations secure their network, in part, by installing and configuring network devices that permit authorized network service requests and deny unauthorized requests and by limiting the services that are available on the network. Network devices include (1) firewalls designed to prevent unauthorized access into the network, (2) routers that filter and forward data along the network, (3) switches that forward information among parts of a network, and (4) servers that host applications and data. Network services consist of protocols for transmitting data between network devices. Insecurely configured network services and devices can make a system vulnerable to internal or external threats, such as denial-of-service attacks. Since networks often provide the entry point for access to electronic information assets, failure to secure them increases the risk of unauthorized use of sensitive data and systems. SEC enabled vulnerable, outdated, and/or misconfigured network services and devices. For example, key network devices were not securely configured to prevent unauthorized individuals from gaining access to detailed network system policy settings and listings of users or groups. The SEC also did not consistently secure its network against well-known software vulnerabilities or minimize the operational impact of potential failure in a critical network device. Moreover, the commission did not have procedures to ensure that its external contractor or business partner network connections to the internal SEC network were securely configured. Running vulnerable network services, not restricting access to configuration files of network devices, and not monitoring the security of external network connections increase the risk of system compromise, such as unauthorized access to and manipulation of sensitive system data, disruption of services, and denial of service. Determining what, when, and by whom specific actions were taken on a system is crucial to establishing individual accountability, monitoring compliance with security policies, and investigating security violations. Organizations accomplish this by implementing system or security software that provides an audit trail for determining the source of a transaction or attempted transaction and monitoring users’ activities. How organizations configure the system or security software determines the nature and extent of audit trail information that is provided. To be effective, organizations should (1) configure the software to collect and maintain a sufficient audit trail for security-relevant events; (2) generate reports that selectively identify unauthorized, unusual, and sensitive access activity; and (3) regularly monitor and take action on these reports. Without sufficient auditing and monitoring, organizations increase the risk that they may not detect unauthorized activities or policy violations. The risks created by the serious electronic access control weaknesses discussed earlier were heightened because SEC had not fully established a comprehensive program to monitor user access. While SEC had several initiatives under way to monitor user access activity, it did not yet have a comprehensive program to routinely review, audit, or monitor system user access activities. For example, audit logging was not consistently implemented on all network services, and there was no capability to target unusual or suspicious network events for review as they occurred. In addition, SEC had not yet fully implemented a network intrusion detection system. As a result, there is an increased risk that unauthorized access to the servers and data may not be detected in a timely manner. In response to identified weaknesses to electronic access controls, the CIO said that the commission has taken steps to improve access rights and permissions and has initiated efforts to restrict access to critical financial data and programs and related sensitive information. Further, the CIO stated that action is being taken to secure the network against known vulnerabilities, securely configure network devices, and monitor the security of external network connections. In addition, efforts were planned and, in some cases, completed, to enhance the commission’s overall program for auditing and monitoring its systems for security-relevant events. In addition to the electronic access controls discussed, other important controls should be in place to ensure the integrity, confidentiality, and availability of an organization’s data. These controls include policies, procedures, and control techniques to physically secure computer resources, provide appropriate segregation of computer functions, prevent unauthorized changes to application software, and ensure continuity of computer operations in the event of disaster. However, we found weaknesses in each of these areas. These weaknesses increase the risk of unauthorized access, disclosure, modification, or loss of SEC’s information systems and data. Physical security controls are important for protecting computer facilities and resources from espionage, sabotage, damage, and theft. These controls involve restricting physical access to computer resources, usually by limiting access to the buildings and rooms in which the resources are housed and periodically reviewing access rights granted to ensure that access continues to be appropriate based on criteria established for granting it. At SEC, physical access control measures (such as guards, badges, and locks, used either alone or in combination) are vital to protecting its computing resources and the sensitive data it processes from external and internal threats. Although SEC had taken certain actions to strengthen its physical security environment, certain weaknesses reduced its effectiveness in protecting and controlling physical access to sensitive work areas, as illustrated by the following examples: SEC did not always ensure that access to sensitive computing resources had been granted to only those who needed it to perform their jobs. At the time of our review, approximately 300 employees and contractors had access to SEC’s data center, including an undetermined number of application programmers, budget analysts, administrative and customer support staff. Typically, individuals serving in these job functions do not require access to the data center. Although SEC had a policy with specific criteria for granting and retaining physical access to its data center, it did not routinely review its access list for compliance with its policy. At our request, the commission reviewed the list of staff with access to the computer center and subsequently reduced the number of authorized staff from approximately 300 to 150. Sensitive computing resources were not always secured. For example, wiring closets containing telecommunication and data equipment were not in a physically restricted space. Although the doors could be locked, we identified six wiring closets in three facilities that were unlocked and unattended. In another facility, rooms that housed computers that were connected to the SEC network were left unlocked and unattended. As a result, increased risk exists that unauthorized individuals could gain access to sensitive computing resources and data and inadvertently or deliberately misuse or destroy them. Segregation of computer functions refers to the policies, procedures, and organizational structure that help ensure that one individual cannot independently control all key aspects of a process or computer-related operation and, thereby, gain unauthorized access to assets or records. Often segregation of computer functions is achieved by dividing responsibilities among two or more organizational groups. Dividing duties among two or more individuals or groups diminishes the likelihood that errors and wrongful acts will go undetected because the activities of one individual or group will serve as a check on the activities of the others. Inadequate segregation of computer functions increases the risk that erroneous or fraudulent transactions could be processed, improper program changes implemented, and computer resources damaged or destroyed. Although computer functions were generally properly segregated at SEC, we identified instances in which functions were not adequately segregated. For example, the commission did not sufficiently separate incompatible system administration and security administration functions of computer operating personnel on its key financial applications. To illustrate, the individuals responsible for performing system support were also responsible for setting security and audit parameters, reviewing user access privileges, and adding and deleting system users. Similarly, SEC assigned one individual to perform both security and software change management functions. Yet SEC did not provide supervisory oversight or establish other mitigating controls to ensure that this individual performed only authorized functions. These conditions existed, in part, because SEC lacked implementing guidelines for separating incompatible functions among personnel administering its computer applications environment. As a consequence, increased risk exists that these individuals could perform unauthorized system activities without being detected. It is important to ensure that only authorized and fully tested application programs are placed in operation. To ensure that changes to application programs are needed, work as intended, and do not result in the loss of data or program integrity, such changes should be documented, authorized, tested, and independently reviewed. In addition, as part of the application change control process, library management software should be used to control program versions, and test procedures should be established to ensure that only authorized changes are made to application program code. SEC did not adequately document or control changes to application programs. Examples include the following instances: Although a change control board at SEC was responsible for authorizing all application changes, the authorization for these changes was not formally documented. For example, in a random sample of 32 application changes made during fiscal year 2004, none of the changes had documentation to show that the change control board had authorized these software modifications. For a key application, documentation was not always maintained to provide evidence that required reviews and approvals were performed. For 20 software changes reviewed, 13 lacked reviews of developer testing and 17 did not have the approval needed for implementing software changes. SEC did not use automated library management software to ensure that program versions were not accidentally misidentified and to prevent simultaneous changes to the same program. Procedures were not in place to periodically test application program code to ensure that only authorized changes had been made. Without adequately documented or controlled application change control procedures, changes may be implemented that are not authorized, tested, reviewed, or approved. Further, the lack of adequate controls places SEC at greater risk that software supporting its operations will not produce reliable data or effectively meet operational needs. Service continuity controls should be designed to ensure that, when unexpected events occur, key operations continue without interruption or are promptly resumed, and critical and sensitive data are protected. These controls include environmental controls and procedures designed to protect information resources and minimize the risk of unplanned interruptions, along with a well-tested plan to recover critical operations should interruptions occur. If service continuity controls are inadequate, even relatively minor interruptions can result in lost or incorrectly processed data, which can cause financial losses, expensive recovery efforts, and inaccurate or incomplete financial or management information. SEC did not implement a service continuity plan to cover its major applications (including financial and related systems) and its general support systems. While the commission had developed draft plans, it did not include a list of alternate recovery team members, contractor service level agreements, or key components needed for processing at the backup site. Further, SEC had not developed plans for testing its service continuity plans for all critical systems. As a result, SEC has diminished assurance that it will be able to promptly recover essential processing operations if an unexpected interruption occurs. In response to identified weaknesses in the area of other information system controls, the CIO stated that the commission had revised its computer center access procedures and will conduct additional reviews to determine the continued need for access by employees and contractors. Further, he said that actions had been taken to ensure appropriate segregation of computer functions and efforts were under way to improve the commission’s application change control process. In addition, the CIO noted that the commission is finalizing its disaster recovery plans and has conducted limited tests in preparation for planned live tests of its disaster recovery plans. A key reason for SEC’s weaknesses in information system controls is that it has not fully developed and implemented a comprehensive agency information security program to provide reasonable assurance that effective controls are established and maintained and that information security receives sufficient management attention. Our May 1998 study of security management best practices determined that a comprehensive information security program is essential to ensuring that information system controls work effectively on a continuing basis. Also, FISMA, consistent with our study, requires an agency’s information security program to include key elements. These elements include: a central information security management structure to provide overall information security policy and guidance along with oversight to ensure compliance with established policies and reviews of the effectiveness of the information security environment; periodic assessments of the risk and magnitude of the harm that could result from the unauthorized access, use, disclosure, disruption, modification, or destruction of information and information systems; policies and procedures that (1) are based on risk assessments, (2) cost effectively reduce risks, (3) ensure that information security is addressed throughout the life cycle of each system, and (4) ensure compliance with applicable requirements; security awareness training to inform personnel, including contractors and other users of information systems, of information security risks and their responsibilities in complying with agency policies and procedures; and at least annual testing and evaluation of the effectiveness of information security policies, procedures, and practices relating to management, operational, and technical controls of every major information system identified in agencies’ inventories. SEC’s information system control weaknesses were symptomatic of its weak security program. In its fiscal year 2004 report pursuant to FISMA, the SEC’s Office of Inspector General (OIG) reported that the commission was not in substantial compliance with FISMA requirements that are intended to strengthen information security. Also, the SEC has recognized weaknesses in its information security program and since 2002 has reported information security as a material weakness in its annual accountability report. Although SEC has initiated various actions to improve its information security program, including establishing a central security management function and appointing a senior information security officer to manage the program, the organization has not yet developed a comprehensive security program to ensure that its information security policies and practices were fully defined, consistent, and continuously effective across all systems. Such a program is critical to provide SEC with a solid foundation for resolving existing information security problems and continuously managing information security risks. The first key element of an effective information security program is the establishment of a central security group with clearly defined roles and responsibilities. This group provides the overall security policy and guidance along with the oversight to ensure compliance with established policies and procedures; further, it reviews the effectiveness of the security environment. The central security group often is supplemented by individual security staff designated to assist in the implementation and management of the agency’s information security program. To ensure the effectiveness of an agency’s security program, clearly defined roles and responsibilities for all security staff should be established, and coordination of responsibilities between individual security staff and central security should be developed. SEC has established a central security group and appointed a senior information security officer to manage its information security program. Nonetheless, the commission has not yet developed clearly defined roles and responsibilities for this group. In addition, the commission has not designated individual security staff to provide security oversight at its 11 field offices. Without a formally defined and commission-wide security focus, SEC is at increased risk that its security program will not be adequate to ensure the security of its highly interconnected computer environment. Identifying and assessing information security risks are essential steps in determining what controls are required and what level of resources should be expended on controls. Moreover, by increasing awareness of risks, these assessments generate support for the adopted policies and controls, which helps ensure that the policies and controls operate as intended. Our study of risk assessment best practices found that a framework for performing these assessments should specify (1) when the assessments should be initiated and conducted, (2) who should participate, (3) how disagreements should be resolved, (4) what approvals are needed, and (5) how these assessments should be documented and maintained. Further, OMB Circular A-130, appendix III, prescribes that risk be assessed when significant changes are made to computerized systems or at least every 3 years. SEC has not yet fully implemented a risk assessment process. Although it has taken some action, including initiating risk assessments as part of the certification and accreditation process,SEC had not yet developed a process for conducting these assessments. In addition, SEC had not developed a process for assessing risk when significant changes are made to its facility or its computer systems. During the past year, SEC upgraded its network hardware and software, including all workstations, network servers, routers, and switches. Each of these changes could have introduced new vulnerabilities into SEC’s computer network, thus warranting a need for a risk assessment. However, SEC did not assess the risks associated with the network upgrade. Another key element of an effective information security program is establishing and implementing appropriate policies, procedures, and technical standards to govern security over an agency’s computing environment. Such policies and procedures should integrate all security aspects of an organization’s interconnected environment, including local and wide area networks and interconnection, to contractor and other federal agencies that support critical mission operations. In addition, technical security standards are needed to provide consistent implementing guidance for each computing environment. Establishing and documenting security policies are important because they are the primary mechanism by which management communicates its views and requirements; these policies also serve as the basis for adopting specific procedures and technical controls. In addition, agencies need to take the actions necessary to effectively implement or execute these procedures and controls. Otherwise, agency systems and information will not receive the protection provided by the security policies and controls. Although SEC had made progress in developing policies and procedures for specific security areas including certification and accreditation, password standards, and disaster recovery planning, it had not yet established comprehensive policies and procedures to govern a complete information security program. For example, SEC had not developed adequate policies that address security requirements for key control areas such as physical and electronic access control, segregation of duties, application change control, service continuity, and security management covering its computer network and interconnected environment. In addition, the commission had not developed policies and procedures for such areas as wireless networks and patch management. As a result, SEC is at increased risk that its critical financial and sensitive data could be exposed to unauthorized access possibly without detection. In addition, OMB Circular A-130 requires agencies to develop and implement information security plans for major applications and general support systems. These plans should address policies and procedures for achieving management, operational, and technical controls. However, SEC had not yet developed security plans for its general support systems and had implemented security plans for only one of its seven major applications. Further, FISMA requires each agency to develop and implement specific information security configuration standards for its computer network systems. In its 2004 FISMA report, the OIG reported that SEC does not have an agency-wide policy that requires specific security configuration standards. Such technical standards would not only help ensure that appropriate computer controls are established consistently, but would also facilitate periodic reviews of these controls. Another FISMA requirement for an information security program involves promoting awareness and providing required training so that users understand the risks and their roles in implementing related policies and controls to mitigate those risks. Computer intrusions and security breakdowns often occur because computer users fail to take appropriate security measures. For this reason, it is vital that employees who use computer resources in their day-to-day operations are made aware of the importance and sensitivity of the information they handle, as well as the business and legal reasons for maintaining its confidentiality, integrity, and availability. FISMA mandates that all federal employees and contractors involved in the use of agency information systems be provided periodic training in information security awareness and accepted information security practices. Further, FISMA requires agency CIOs to ensure specialized training of personnel with significant information security requirements. SEC established information security awareness programs for its employees and contractors. These programs included distributing security awareness bulletins and brochures and creating information security poster boards. In addition, SEC developed specialized security training for database, system, and network administrators. Nevertheless, SEC did not ensure that all employees, contractors, agency detailees, or staff working in specialized information technology (IT) positions completed security awareness training. SEC’s goal that only 90 percent of employees and contractors complete security awareness training was not consistent with information security laws that mandate training for all employees and contractors. In addition, more than 100 staff and contractors serving in positions that provide network operation oversight and other services that provide access to system assets had not received specialized security training. Another key element of an information security program is ongoing testing and evaluation to ensure that systems are in compliance with policies and that policies and controls are both appropriate and effective. This type of oversight is a fundamental element because it demonstrates management’s commitment to the security program, reminds employees of their roles and responsibilities, and identifies and mitigates areas of noncompliance and ineffectiveness. Although control tests and evaluations may encourage compliance with security policies, the full benefits are not achieved unless the results improve the security program. Analyzing the results of monitoring efforts, as well as security reviews performed by external audit organizations, provides security specialists and business managers with a means of identifying new problem areas, reassessing the appropriateness of existing controls, and identifying the need for new controls. SEC had not established a comprehensive program to test and evaluate the effectiveness of information system controls. SEC had efforts under way to test and evaluate controls, including limited ongoing tests of its computer network. Also, SEC had initiated a formal IT certification and accreditation program using contractor support to certify and accredit the commission’s major systems. However, at the completion of our review, none of the commission’s seven major applications and general support system had been certified and accredited. Further efforts are still needed to fully implement an ongoing program of tests and evaluation. Missing is an ongoing program that targets the key control areas of physical and electronic access, segregation of computer functions, application and system software, and service continuity. An effective program of ongoing tests and evaluations can be used to identify and correct information security weaknesses such as those discussed in this report. Based on the results of tests and evaluations that have been conducted by agencies, including OIG and external audit groups, FISMA requires that agencies develop corrective action plans (e.g., plans of action and milestones). However, in its latest FISMA report, OIG stated that SEC does not have a comprehensive process that monitors and prioritizes all identified information security weaknesses. In addition, it noted that all information security weaknesses were not included in corrective action plans. Without adequate corrective action plans, the results of tests and evaluations may not be effectively used to improve the security program and correct identified weaknesses. In response to identified weaknesses in SEC’s information security program, the CIO said that the commission would develop policies and procedures to define the roles and responsibilities of its central security group. These procedures would include coordination of responsibilities between security individuals and functions. In addition, the commission would develop a risk assessment framework to address the need to perform periodic risk assessments and to conduct these assessments when significant changes occur. SEC also intends to develop comprehensive security policies, including security plans for all major applications and general support systems. In addition, the commission plans to enhance its requirements for security awareness training and expects to develop and implement an ongoing security oversight program to include provisions for monitoring compliance with established procedures and testing the effectiveness of its controls. Information systems controls were not effective at SEC. We identified numerous weaknesses in electronic access controls and other information system controls. As a result, financial and sensitive information was at increased risk of unauthorized disclosure, modification, or loss, and operations at risk of disruption. A key reason for SEC’s weaknesses in information system controls is that it has not yet fully developed and implemented a comprehensive agency information security program to ensure that effective controls are established and maintained and that information security receives sufficient attention. Effective implementation of such a program provides for an ongoing cycle of periodically assessing risks, establishing appropriate policies and procedures, promoting security awareness, and establishing an ongoing program of tests and evaluations of the effectiveness of policies and controls to ensure that they remain appropriate and accomplish their intended purpose. Such a program is critical to providing SEC with a solid foundation for resolving existing information security problems and continuously managing information security risks. SEC has taken some action to improve security management, including establishing a central security management function, appointing a senior information security officer to manage the program, and initiating actions to correct the specific weaknesses summarized in this report. However, until it fully implements an agency-wide information security program, SEC will have limited assurance that its financial and sensitive information are adequately protected. We recommend that the SEC chairman direct the CIO to take the following six actions to fully develop and implement an effective agency-wide information security program: 1. Clearly define the roles and responsibilities of the central security group. 2. Designate individual security staff to provide security oversight at SEC’s 11 field offices. 3. Develop a process for assessing information security risks, including when significant changes are made to SEC facilities or computer systems. 4. Establish and implement comprehensive information security policies and procedures by addressing security requirements for key control areas and developing and implementing security plans for general support systems and major applications. 5. Provide security awareness training to each employee and contractor, and specialized security training to employees and contractors that require such training. 6. Institute an ongoing program of tests and evaluations to ensure that policies and controls are appropriate and effective and that corrective action plans address identified weaknesses. We are also making recommendations in a separate report designed for “Limited Official Use Only.” These recommendations address actions needed to correct the specific information security weaknesses related to electronic access controls and other information system controls. In providing written comments on a draft of this report, SEC’s CIO, Managing Executive for Operations, and Executive Director agreed with our recommendations. SEC’s comments are reprinted in appendix I of this report. Specifically, SEC plans to correct the information system control weaknesses identified and enhance its information security program by June 2006. Further, they indicated that significant progress is already being made to address our recommendation. This report contains recommendations to you. As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a written statement of the actions taken on our recommendations to the Senate Committee on Governmental Affairs and to the House Committee on Government Reform not later than 60 days from the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of this report. Because agency personnel serve as the primary source of information on the status of recommendations, GAO requests that the agency also provide it with a copy of your agency's statement of action to serve as preliminary information on the status of open recommendations. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Banking, Housing, and Urban Affairs; the Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia, Senate Committee on Homeland Security and Governmental Affairs; House Committee of Financial Services; the Subcommittee on Government Management, Finance, and Accountability, House Committee on Government Reform; and, SEC’s Office of Managing Executive for Operations; Office of the Executive Director; Office of Financial Management; Office of Information Technology; and the SEC’s Inspector General. We also will make copies available to others on request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions regarding this report, please contact me at (202) 512-3317 or David W. Irvin, Assistant Director, at (214) 777-5716. We can also be reached by e-mail at wilshuseng@gao.gov and irvind@gao.gov, respectively. Key contributors to this report are listed in appendix II. In addition to the individual named above, Edward Alexander, Lon Chin, West Coile, Debra Conner, Anh Dang, Nancy Glover, Steve Gosewehr, Rosanna Guerrero, Harold Lewis, Leena Mathew, Duc Ngo, Eugene Stevens, Charles Vrabel, and Chris Warweg made key contributions to this report. | The Securities and Exchange Commission (SEC) relies extensively on computerized systems to support its financial and mission-related operations. As part of the audit of SEC's fiscal year 2004 financial statements, GAO assessed the effectiveness of the commission's information system controls in protecting the integrity, confidentiality, and availability of its financial and sensitive information. SEC has not effectively implemented information system controls to protect the integrity, confidentiality, and availability of its financial and sensitive data. Specifically, the commission had not consistently implemented effective electronic access controls, including user accounts and passwords, access rights and permissions, network security, or audit and monitoring of security-relevant events to prevent, limit, and detect access to its critical financial and sensitive systems. In addition, weaknesses in other information system controls, including physical security, segregation of computer functions, application change controls, and service continuity, further increase risk to SEC's information systems. As a result, sensitive data--including payroll and financial transactions, personnel data, regulatory, and other mission critical information--were at increased risk of unauthorized disclosure, modification, or loss, possibly without detection. A key reason for SEC's information system control weaknesses is that the commission has not fully developed and implemented a comprehensive agency information security program to provide reasonable assurance that effective controls are established and maintained and that information security receives sufficient management attention. Although SEC has taken some actions to improve security management, including establishing a central security management function and appointing a senior information security officer to manage the program, it had not clearly defined roles and responsibilities for security personnel. In addition SEC had not fully (1) assessed its risks, (2) established or implemented security policies, (3) promoted security awareness, and (4) tested and evaluated the effectiveness of its information system controls. As a result, SEC did not have a solid foundation for resolving existing information system control weaknesses and continuously managing information security risks. |
In recent years, significant improvements in data management and presentation technologies have made it possible for governments to report performance information in new ways. Prior to the development of these technologies, performance information was generally reported in static reports, such as printed annual reports. Technology now allows data to be collected from different operational units and then presented through interactive, web-based dashboards and performance-reporting websites to provide an integrated, multidimensional view of a government’s performance. This advantage can give web-based performance reporting the ability to more efficiently convey understandable information to stakeholders and citizens. Performance reporting websites are dynamic and can be updated on a more frequent basis, or in real-time if technology allows and data are available, ensuring that information is timely. They can also be flexible enough to meet the needs of different audiences. For example, they can be used to combine and organize, or layer, different levels of performance information, allowing users to quickly access information from an overall organizational perspective and to drill down to get a more detailed perspective at the sub-unit level. In addition, performance reporting websites can be made more engaging for users through the use of tables and interactive graphics and maps that allow users to visualize performance information in different ways. Governments at the local and state level in the United States and in other countries have developed performance reporting websites. The purposes of these websites include, for example, compliance with statutory reporting requirements and making information on the goals and performance of government more widely accessible and transparent for those inside and outside of government. Officials from other state governments, who have developed performance reporting websites, emphasized that making regularly-updated and understandable information on goals and performance widely accessible for potential users of information on the site, such as interested members of the general public, legislators, executive branch leaders, delivery partners, the media, key stakeholders, advocacy groups, and researchers can increase oversight and lead to a greater focus within government on the activities and efforts necessary to improve performance. In this way, the websites can also enhance accountability within government and support a culture of performance. These websites can also be used to facilitate communication by providing a shared source of information on goals and performance. According to OMB, the Performance.gov website is intended to highlight the administration’s management initiatives and address the performance reporting requirements of GPRAMA. Figure 1 displays the Performance.gov home page. To comply with the requirements of GPRAMA, the current version of Performance.gov also provides information, which is to be updated on a quarterly basis, on agency and cross-agency priority goals. The pages with information on agency and cross-agency priority goals can be accessed either through individual agency pages on Performance.gov or through the website’s “Clear Goals” page. The information available on agency priority goals includes the strategies being used to achieve each goal, next steps and milestones, performance indicators used to track progress, and contributing programs. Figure 2 provides an example of how performance trends are presented graphically through an agency priority goal page. We recently examined the extent to which 24 agencies implemented selected requirements related to 102 agency priority goals and commented on the 21 agency priority goals of 5 selected agencies. We recommended that OMB could improve agency priority goal implementation by revising its guidance to better reflect interim target, milestone, and cross-agency priority goal alignment requirements and by ensuring that agencies provide complete information about external contributors to their agency priority goals and describe congressional input on the goal’s development. OMB concurred with the recommendations. In addition, GPRAMA requires federal government performance plan information; agency-level strategic plans, agency performance plans, and agency performance updates; and detailed information about each program identified by agencies to be posted on the website. According to OMB’s guidance, these additional features will be added to the website over time. implementation of Performance.gov, including OMB’s projected dates for the inclusion of additional information. OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget, pt. 6 (August 2012). HowTo.gov is a key source of leading practices for federal website development and management. The website is managed by GSA and designed as a resource to improve how agencies communicate and interact with customers and use innovative tools and technologies to provide services and information. HowTo.gov offers best practices, guidance, and training on strategic planning; federal web requirements and policies; applications, data, and web infrastructure tools; web content management, usability, and design; and performance metrics. According to GSA staff, to provide access to key industry practices HowTo.gov makes available a list of the “Top 10 Best Practices” for federal websites and provides detailed information on how to implement each practice (see table 2). OMB has also encouraged the more widespread application of many of these practices across the federal government in its Digital Government Strategy. In addition to these leading practices for the development of federal websites, lessons learned from the experiences of those who have developed other government performance reporting websites and views of potential users provide useful insights that could help inform the continued development of Performance.gov. OMB staff stated that, thus far, the specific legal requirements of GPRAMA have been the primary framework used to guide efforts to develop Performance.gov. They have been focused on working to comply with these requirements by providing information on agency and cross- agency priority goals and by establishing a phased development plan for integrating additional information from agency strategic plans, performance plans, and performance reports and the inventory of federal programs. OMB and GSA staff members have said, however, that the leading practices provided by HowTo.gov will help guide the future development of Performance.gov. Leading practices for the development of federal websites from HowTo.gov recommend identifying the purposes of a website and the ways in which specific audiences could use a website to accomplish various tasks, from finding relevant information to commenting on a government regulation to conducting a transaction, and then structuring information and navigation to help visitors quickly complete these tasks. According to HowTo.gov, this is important because people often visit government websites with a specific task in mind, and if it is not easy to find the information they want to quickly complete that task, they will leave the site. Providing guidance about the tasks that can be accomplished on a website, along with explanations and navigation assistance, can help website users successfully achieve their objectives. Similarly, some officials we interviewed from other governments with experience developing performance reporting websites emphasized the importance of understanding and articulating the purposes that a performance reporting website is designed to achieve. They noted that the audiences the website is designed to serve, along with the intended uses of a site, should influence its design and content. For example, the main purpose of the state of Michigan’s dashboards is to provide citizens with a quick reference to see how the state is performing in key areas and whether trends are moving in the right direction. To fulfill this purpose, according to Michigan officials, the dashboards were designed to be simple, easy to access and navigate, and provide the public with an at-a- glance overview of the state’s progress. Users interested in more information on a specific performance measure can click on the link for that measure and will be directed to a separate page with trend data and information on why the measure is significant. A prominent link at the bottom of the page also allows them to provide direct feedback on the dashboard. The dashboards are supplemented by departmental “scorecards” that include relevant performance measures to inform internal departmental management and decision making. An example of the Michigan Education Dashboard is shown in figure 4. GPRAMA provides direction on the purposes and audiences for Performance.gov. In addition to specifying the types of information to be made available on the website, the act states that information on the website “shall be readily accessible and easily found on the Internet by the public and members and committees of Congress.” OMB’s written guidance states that Performance.gov “serves as the public window on the Federal Government’s goals and performance in key areas of focus,” and will be “the single, government-wide performance website required under the GPRA Modernization Act.” OMB’s written guidance and information on the website also say that Performance.gov will make information about cross-agency and agency-specific goals and performance easier to find for the public and Congress, as required by GPRAMA, as well as for delivery partners, agency employees, the media, and other stakeholders. Lastly, the guidance specifies that the website will “support coordination and decision-making to advance shared goals.” An analysis of statements from OMB and GSA staff, agency officials, and feedback we obtained from potential users, however, indicates that there are varying expectations regarding the primary audiences and uses of Performance.gov. For example, OMB and GSA staff emphasized that they have viewed Performance.gov as a tool for agencies to support cross-agency coordination and efforts to achieve agency goals. Consistent with this, OMB staff said that Performance.gov has been used to facilitate conversations between OMB examiners and agency managers about progress on agency priority goals. While officials we interviewed from the five agencies said that OMB has collected feedback from agencies in the development of Performance.gov, officials from four of these agencies also said, however, that Performance.gov is not being used as a resource by agency leadership or other staff. According to agency officials, agencies have information sources tailored to meet their needs, and Performance.gov does not contain critical indicators or the ability to display some visualizations used for internal agency performance reviews. Agency officials stressed instead that they view Performance.gov primarily as an external reporting tool so that the public and other external stakeholders can get a sense for how agencies are performing on key priorities. For example, an agency official noted that a key function of Performance.gov is to make performance data more readily available in one place so that members of the public and external stakeholders do not have to go to individual agency sites to collect information on agency goals and performance. Several potential users and a practitioner we interviewed also indicated that it was unclear to them who the audience of Performance.gov is, and how audiences would use the site, given its content and design. For example, some said that, while the public is listed as an audience of the website, the detailed, technical nature of the website seemed primarily oriented toward a government, rather than a public audience. Some also commented that developers need clarity about how different audiences should be able to use a website, as developers can then ensure it is designed to present information in a way that addresses the needs of those audiences. OMB and GSA staff members have acknowledged that, given the requirements of GPRAMA, Performance.gov will need to shift to become a more publicly-oriented website in the future, which could involve a more thematic presentation to engage the public. While the “Areas of Focus” section of the Performance.gov home page directs visitors to pages that allow them to explore information and metrics in specific areas, OMB has not yet articulated various ways that intended audiences, such as interested members of the public, Congress, experts and researchers, agency staff, and delivery partners could use the website or the information available through it to accomplish other specific tasks. For example, as mentioned previously, OMB has stated that a purpose of Performance.gov is to support coordination and decision making to advance shared goals. While OMB said that this intended use will help provide direction as they take a phased approach to development, the current version of the website gives no indication or examples of the ways that agency staff, or others, such as delivery partners or congressional staff, could use Performance.gov to facilitate coordination or communication about goals, activities, and performance between agencies and with interested stakeholders from other sectors. It is also unclear whether Performance.gov includes all the information and design elements necessary to support coordination across agencies. The President’s budget for fiscal year 2014 indicates that, in the future, efforts will be undertaken to test the potential use of Performance.gov to facilitate coordination among goal allies, enlist ideas and assistance to accelerate progress on goals, and enhance public understanding of the work of the federal government. Other federal open government websites have indicated how visitors can use them to accomplish specific tasks. For instance, Recovery.gov contains an entire page that outlines what users can do on the site, including how to use the raw data available through the website, report waste, fraud, and abuse, or find job and grant opportunities. Data.gov states that it is designed to enable “the public to participate in government by providing downloadable Federal datasets to build applications, conduct analyses, and perform research,” and offers an introductory video that provides information on the purposes of the website and instructions on how to use it. These websites have also integrated Web 2.0 technologies, such as links to social media feeds, to help people share and use of the information available through these sites. For example, Recovery.gov and Data.gov have integrated social-networking tools, such as Facebook and Twitter, blogs, and online discussion forums to facilitate the sharing of information, provide new venues for communication and participation, and enable collaboration and discussions between stakeholders and web- based communities of interest. Recovery.gov and Data.gov also have dedicated pages for different audiences that compile and organize relevant resources according to the needs and interests of those audiences. Data.gov, for instance, contains individual pages that allow users interested in specific areas, such as education, health, or energy, to find data and resources on those specific topics and to communicate with others who share those interests. Figure 5 provides a page for the energy community. To comply with the recommendations of the Digital Government Strategy, the Digital Services Advisory Group and the Federal Web Managers Council have also encouraged the use of social media to distribute content to large and diverse audiences and more effectively engage with customers. OMB and GSA have been working to ensure that Performance.gov complies with the reporting requirements of GPRAMA. However, if the specific intended uses of Performance.gov are not clarified, while taking into consideration what the law requires, it could lead to varying ideas and expectations for how Performance.gov should be developed and designed and the audiences it should serve. The website’s accessibility to visitors and its relevance to them could be increased by additional direction on how various audiences could use the information available through the website, such as explanations or navigation assistance, or by tools, such as Web 2.0 technologies, that could facilitate that use. Leading practices from HowTo.gov on the development of federal websites recommend that developers collaborate with officials from other agencies to avoid duplication of effort, use content that already exists, and let organizations with the greatest expertise on a topic create content. According to HowTo.gov, this is important because allowing the organization with the greatest expertise to create content can help ensure its accuracy and quality, and linking to existing content can help save time and resources. HowTo.gov also recommends that developers engage potential users through focus groups and other outreach; regularly conduct usability tests to gather insight into navigation, the organization of content, and the ease with which different types of users can complete specific tasks; and collect and analyze performance, customer satisfaction, and other metrics. HowTo.gov states that these efforts are important for collecting and analyzing information about audiences, their needs, and how they are using, or want to use, the website. This information is also critical to help inform the development of a useful and usable website that meets the needs of intended audiences. Similarly, some developers of other government performance reporting websites who we interviewed reported that it is important to use a developmental approach focused on continuous improvement, providing users with opportunities to give input and feedback, so that websites can be adjusted and improved to meet their needs. For example, following the initial creation of the state’s performance reporting website, officials in Maryland analyzed the website’s performance metrics to get a sense for how people were accessing the site, as well as the information they were searching for. They also employed usability testing to collect insight into the navigation and content of the website. From these insights, they identified the need to make information on related state programs and resources more easily accessible through the website, which is now reflected in its design. According to OMB and agency officials we interviewed, to leverage the expertise of agencies in the development of content for Performance.gov, OMB established a content management and review process by which each agency shared information and data on their own goals and activities with OMB. OMB also developed the Performance Reporting Entry Portal (PREP), a data input system, which allowed agencies to directly input their information and data on agency priority goals into Performance.gov. For many of the pages on cross-agency management initiatives, they also leveraged information from agencies and other federal websites, linking to existing resources and reports. OMB used other strategies to help maintain a collaborative environment and open lines of communication with federal agencies. According to OMB staff, during the initial development of Performance.gov, OMB used a pilot project involving several agencies to model different iterations of the website and collect feedback on potential designs from agency staff. OMB staff members also continue to hold biweekly conference calls with agency staff to provide status updates on the development of Performance.gov, answer questions, and address concerns. A GSA staff member supporting the PMLOB also recently met individually with staff from 24 agencies to discuss the data requirements for Performance.gov and the best way for agencies to provide information to be made available through the website. According to OMB, GSA, and agency staff, they have been able to use this ongoing communication to collect feedback on Performance.gov and ideas to gradually improve the design and usability of the system agencies use to input data on agency priority goals. For instance, the PREP system has been changed in response to agency requests so that data from prior time periods will be pre-populated in the system, an improvement that was made to help reduce the burden of data collection on agencies. According to OMB and GSA staff, to gather input from other audiences as they developed Performance.gov, they also held briefings on the website for congressional staff and government transparency organizations and performance experts based in Washington, D.C. Since 2010, OMB staff said that they met several times with staff from the Senate Homeland Security and Governmental Affairs Committee, House Oversight and Government Reform, and the Senate Budget Committee to discuss the development of Performance.gov. They noted that they used this outreach to stakeholders to identify several specific website modifications. For example, OMB staff heard from stakeholders, including congressional staff, that it was important for Performance.gov visitors to be able to understand how agency priority goals relate to broader agency strategic goals and objectives, so OMB nested the priority goals within the larger agency goal framework. OMB staff also said that several stakeholders noted that they appreciated the ability to filter goals by different themes, so OMB included the capability to apply this feature to all categories of goals and objectives. Of the three congressional staff we spoke with who said they had received briefings on the development of Performance.gov, however, only one felt she had been consulted on website input. Also, since 2010, OMB staff reported holding no meetings on the development of Performance.gov with staff from other House or Senate committees who might use the website to inform their federal agency oversight. Furthermore, while a focus of GPRAMA is to make federal performance information more accessible to the public, efforts to collect input and feedback from interested members of the public and other potential audiences have thus far been limited to the collection of suggestions through the website’s “Feedback” page. According to OMB staff, the submissions received through this portal are generally on topics unrelated to the website, although they do receive questions about the website or suggestions for minor corrections to content. They also said that the suggestions received through this portal have not yet had a significant impact on the design of the site. GSA staff said that usability testing of Performance.gov is planned for September 2013 and that the tests will be managed by usability experts from GSA and will include a mixture of participants from within government and from the general public. From this testing, they hope to inform new development and interface and navigation improvements. Other federal open government websites have used broader outreach efforts to inform their development and design. For instance, the developers of Recovery.gov used both focus groups and usability testing with interested citizens to collect feedback and recommendations and inform the development of the website from its initial stages. The developers of Data.gov also used a technology service called IdeaScale to collect feedback and ideas from hundreds of users during the initial development of the site. OMB and GSA monitor visitors’ use of Performance.gov using a variety of metrics. For example, one metric that is tracked is the total number of visits to Performance.gov, by month, as seen in figure 6. HowTo.gov recommends that agencies collect, analyze, and report on a minimum baseline set of performance, search, customer satisfaction, and other metrics, which allow officials to get a holistic view of how well online information and services are delivered. Of the 24 metrics recommended by Howto.gov, 15 are currently tracked for Performance.gov. See table 3 for the list of recommended metrics and whether they are collected for Performance.gov. HowTo.gov also recommends setting goals for metrics, and making sure that these align with the objectives of a website, to help prioritize and guide design changes for improved performance and usability. These goals can be identified based on prevailing practices or the desire to improve a particular metric over time. Except for customer satisfaction, which is discussed later in this report, OMB has not yet established goals for any recommended metrics. GSA staff acknowledged the need to collect additional recommended metrics for the website. They said that as they expand the list of metrics that are collected, they are planning usability testing to identify the most appropriate metrics for analyzing the website’s use and identifying improvements that will increase the usability of Performance.gov. OMB staff also said that right now their primary goal is releasing the legally required information on Performance.gov, but they will consider setting targets for certain metrics in the future. In addition to performance and search metrics, HowTo.gov recommends that agencies collect customer satisfaction metrics, which include measures of overall customer experience, the completion rate of intended tasks, and the percentage of visitors likely to return and recommend the website. The Digital Government Strategy requires that agencies use customer satisfaction measurement tools for all .gov websites. While OMB has established a numerical customer satisfaction target for Performance.gov, the agency has not established tools on the website, such as online customer satisfaction surveys, that would allow them to collect the data necessary to track the recommended customer service metrics. GSA staff said that there are no public-focused customer satisfaction tools for Performance.gov, outside of the “Feedback” page, on the website because, at this stage in the website’s lifecycle, the primary focus has been on collecting feedback from Congress and agency management. They said, however, that they have used feedback collected through congressional meetings and feedback from members of the PIC, as well as comments from the “Feedback” page of the website, to get a general sense of how satisfied some users are with the website. The “Feedback” page, however, does not ask users to rate their overall satisfaction or the quality of their experience. As stated earlier, according to OMB and GSA staff, complying with the time frames and requirements for public reporting in GPRAMA has been the focus of development, although they used outreach to collect feedback from some congressional staff, government transparency organizations, and performance experts to inform changes to the website. A lack of outreach to other potential audiences and user testing, however, means that developers have not yet had an opportunity to systematically collect input on the information needs and preferences of potential audiences of the website, including interested members of the public, other congressional committees, delivery partners, or others; whether the content on the website meets the needs of different audiences; or if it is presented or organized in a way that makes it easily accessible. Furthermore, without collecting all recommended search, and customer satisfaction metrics, and establishing goals or targets for metrics, it may be more difficult for the developers of Performance.gov to get a holistic picture of how they are delivering information and to identify and prioritize potential improvements. OMB and GSA staff have said that as the phased development of Performance.gov takes place, they expect to use outreach to a broader set of audiences, including members of the public, and usability testing with these audiences to make Performance.gov more “public-facing” and “citizen-centric.” While they have developed a general time frame for conducting usability tests, they have not yet established a specific plan, a timeline for other forms of outreach, or indicated the specific audiences they plan to target for greater outreach. Leading practices from HowTo.gov recommend organizing website content based on audience needs and using common terminology and placement, consistent navigation, and plain language. HowTo.gov states this is important because providing consistent terminology and placement across a website helps users easily find what they need as they will know what labels to look for. Consistent navigation makes websites easier to use because users are more likely to find what they need from a website if they are familiar with its navigation scheme. Using plain language also makes the content of a website more accessible by using words that the website’s typical user can understand the first time. Lastly, leading practices recommend organizing and categorizing website content to help ensure that it can be found using commercial search engines or a website’s internal search engine. All of these elements factor into the overall usability of a site, which is key to ensuring an effective user experience. Similarly, developers of some government performance reporting websites we interviewed emphasized the importance of designing these websites in a way that makes them easy to access, use, and navigate. Several states have tried to increase the visibility of their performance reporting websites by integrating them with other transparency and open data websites and by including prominent links on other state government websites. A number of state and local officials also emphasized the importance of making the information and data on a performance reporting website engaging and easily understandable. They suggested doing this by organizing information so users can quickly locate what is of interest to them through visual displays of data, minimizing the amount of text, avoiding the use of jargon, and ensuring that data is current and timely. For example, City of Boston staff said that visitors generally stay on these sites for limited amounts of time, so they designed the Boston About Results website to present performance information in a way that can be easily consumed and understood, using brief descriptions of key strategies and graphics to depict performance trends. Figure 7 shows an example of a screen shot from the Boston About Results website. Performance.gov is accessible from some other federal websites, a key source of potential traffic. For example, USASpending.gov includes a link to Performance.gov on its home page and the “Government Performance” link on the “topics” page of USA.gov includes Performance.gov at the top of a list of links. Other federal websites, however, including Data.gov, the White House and OMB home pages, and the websites of the five agencies included in our study do not have links to Performance.gov. As one potential user from a government transparency organization pointed out, if Performance.gov is not connected in any meaningful way with other federal information and data websites, it may not be a site that government data users would naturally go to. Furthermore, a lack of social media integration on Performance.gov could increase the effort required for users to share content from the website. A lack of other communication tools, such as RSS feeds and social media, which can be used to alert users to new or important content and enable website administrators to push out timely and relevant information, could also limit the website’s ability to keep interested users informed about new content. The various sections of Performance.gov were designed with a consistent organization and navigation. This can be seen particularly in the structure of individual agency pages. As shown in the U.S. Department of Agriculture example in figure 8, each page includes a brief overview of the agency’s mission, includes links to the agencies existing performance reports, and has three tabs with information on the agency, the agency’s goals, and the agency’s efforts on government-wide management initiatives. The “agency goals” tabs also use a consistent, layered structure to provide lists of agency strategic goals, objectives, and priority goals. According to GSA staff, this platform will also be used to organize the Performance.gov information on agency strategic goals and objectives that will be added to comply with the GPRAMA requirement that the website include agency strategic plans, annual performance plans, and annual performance reports. The use of layering is a common practice in the design of performance reporting websites, as it allows developers to structure the presentation of information in a way that meets the needs of different audiences by allowing them to access the level of information that is most relevant for them. For example, the approach begins with the presentation of higher- level goals, highlights, or more aggregated information, while allowing those users interested in progressively more detailed goals or information to drill down and find the level of information most appropriate for their needs. Several individuals we interviewed had positive comments on the layered structure used to organize the information on agency strategic goals, objectives, and priority goals within Performance.gov and said that using the same format across goals and agencies facilitated navigation. However, others we spoke with, including some agency officials, raised concerns that the complexity of the website’s navigation contributes to the difficulty of finding critical pieces of information on the site, particularly information on individual agency priority goals. For example, if a user chooses to access information on agency priority goals through the page of an individual agency, the user would need to click through multiple drop downs and tabs, and navigate to a new page, before reaching the tab that has a graphic depicting a specific agency priority goal’s progress. If a user is unaware that this information exists, the user may not be able to easily find it, and Performance.gov does not include instructions on how to locate this information. To facilitate access to information on agency and cross-agency goals, a number of experts and potential users suggested that the Performance.gov home page include a thematic index, similar to the filter on the “Clear Goals” page that currently allows users to search for goals by different themes, like agriculture, energy, or natural resources and environment. Other suggestions for the pages on individual agency priority goals were to make the goals and visualizations of performance trends a more central part of the presentation. OMB staff said that lessons learned through the federal government’s past experience with performance reporting have emphasized presenting performance information in an appropriate context with relevant information on agency missions, goals, activities, and factors that influence performance. According to OMB staff, the use of plain language was a focus in trying to make Performance.gov easy to understand, and OMB held a briefing on plain language for agencies developing content for Performance.gov. However, several potential users we spoke with also noted that some pages on Performance.gov include jargon and technical detail that may not be understandable or relevant to certain audiences, including members of the general public. Concerns were also expressed that some pages on Performance.gov contain too much text, which can limit the accessibility of information. Our analysis of the ease with which commercial search engines, and Performance.gov’s internal site search engine, can be used to find relevant information on the website produced mixed results. When using a commercial search engine to search for several general, government- wide terms, including “federal government goals,” “agency performance,” and “federal agency performance measures,” we found that a link to Performance.gov was listed on the first page of results for all of these searches. We also found that a link to Performance.gov was included on the first page of results when using a variety of agency-specific search terms, including “Department of Agriculture performance,” “EPA goals,” “Department of Labor goals,” “Department of Interior goals,” and “Department of State performance.” The results of using Performance.gov’s internal search engine to find relevant information on the website were mixed, however. To analyze the ease with which a user could find relevant agency priority goal pages using the website’s search engine, we used topic-focused search terms taken from specific agency priority goals of the five agencies included in our study, including “rural communities,” “greenhouse gas,” “climate change,” “training programs,” and “Afghanistan.” For only two of these five searches—on “rural communities” and “Afghanistan”—however, did the results include a link to the relevant agency priority goal page. The results sometimes included links to other potentially relevant pages on Performance.gov, such as those with information on related cross-agency priority goals, cross-government management initiatives, or featured stories. Many of the links included in the results direct users to web pages that include agency overviews or lists of agency strategic goals, but which do not appear to be part of the normal Performance.gov structure. Figure 9 is an example of one of these pages. While the opinions of potential users on the organization and navigation of Performance.gov were mixed, comments and our analysis of Performance.gov’s internal search engine indicated the site’s overall usability could be limited for potential audiences by several factors: the complexity of the website’s navigation, difficulty accessing some information, the lack of an effective internal search engine, and the level of detail and technical information provided. Actions OMB and GSA are taking to develop a more public-oriented and usability-focused perspective for Performance.gov are discussed later in the report. Leading practices for the development of federal websites recommend defining and documenting how a website will be governed, including the structure of the team managing the website, the roles and responsibilities of different stakeholders, and the policies and procedures that will be used to govern the creation and management of content. HowTo.gov states this is important because codifying how a website will be governed, as well as its organizational structure, policies, and procedures provide involved staff with a common understanding of how things are supposed to work. As noted previously, staff from OMB, GSA, and members of the PIC are considering whether to create a Performance Management Line of Business (PMLOB). According to OMB and GSA staff, in an effort to document the potential governance structure of the PMLOB and Performance.gov, as well as the roles and responsibilities of various key stakeholders and the processes that will be used for major decisions, a draft charter was developed. OMB staff said the charter was completed in May 2013. The proposed creation of the PMLOB has also offered an opportunity to define the purposes and scope of the system that will be used to centralize the collection of performance data from agencies, as well as how it will be displayed on Performance.gov. For instance, an executive steering committee made up of staff from OMB, GSA, and several members and staff from the PIC, has been created. OMB staff said that the intent of the committee is to provide a forum for the discussion of potential options and to help determine the requirements that a future iteration of Performance.gov and its underlying data collection system must fulfill and what purposes they should be designed to accomplish. According to OMB and GSA staff, they are also developing working groups to examine various issues. For example, a working group on “business intelligence” has been established through the PIC to help determine how to more effectively use the website’s performance information to support internal management and coordination. They are also starting a working group on the presentation and display of performance information through Performance.gov. GSA staff said that members of the PIC have been asked to collect agency input on the current version of Performance.gov, the reporting burden it presents, what they like and do not like about it, and what they would like to see in future iterations of the website. Potential solutions to address identified issues will then be developed and considered. OMB and GSA staff also said that the knowledge and capacity of the Center for Excellence in Digital Government, a component within GSA that provides government-wide support on the use of the Web, social media, and other technologies to improve customer service, will be used to help bring a more public-oriented and usability-focused perspective to Performance.gov. A GSA representative emphasized that the development of Performance.gov will happen in phases as funding becomes available. Performance.gov has been funded through the E-Government fund, which consists of funding appropriated by Congress every year.staff said that while funding for the development of the website has been consistent over the past 2 years, it has varied over time. The staff added that at times funding was only sufficient to cover operational expenses with no funding available for new development. The GSA representative also noted that while the focus of the PMLOB is on making performance information more visible and transparent for Congress and the public by replacing printed reports with a publicly accessible website, there is hope that the shift to the PMLOB will provide improved, steady governance of performance management across government and greater stability from one administration to another. OMB’s and GSA’s development efforts for Performance.gov have been focused on ensuring that information required by GPRAMA is available on the website. Leading practices for the development of federal websites, however, offer insights into approaches that could be used to guide the development of Performance.gov going forward. For example, clarity about the intended uses of Performance.gov could provide additional direction to ensure that the website is developed as a valuable and relevant tool for its audiences, including interested members of the public and Congress, agency staff, delivery partners, and other potential audiences. The practices could also help determine any design changes, such as navigation assistance or the integration of Web 2.0 technologies, to facilitate those intended uses. While OMB collected input from some congressional staff, government transparency organizations, and performance experts, the limited outreach to a broader set of potential audiences and the lack of usability testing to date means that OMB does not know whether Performance.gov meets users needs or how the website could be further developed. Not tracking all recommended performance metrics, particularly those measuring user satisfaction or establishing appropriate goals for certain metrics, may also make it more difficult to analyze the effectiveness of the website and to identify and prioritize potential improvements. To enhance the value of Performance.gov for intended audiences and improve the ability to identify and prioritize potential improvements, we are recommending that the Director of the Office of Management and Budget—working with the Performance Improvement Council and the General Services Administration—take the following three actions: Clarify the ways that intended audiences could use the information on the Performance.gov website to accomplish specific tasks and specify the design changes that would be required to facilitate that use. Seek to more systematically collect information on the needs of a broader audience, including through the use of customer satisfaction surveys and other approaches recommended by HowTo.gov. Seek to ensure that all performance, search, and customer satisfaction metrics, consistent with leading practices outlined in HowTo.gov, are tracked for the website, and, where appropriate, create goals for those metrics to help identify and prioritize potential improvements to Performance.gov. We provided a draft of this report to the Director of OMB and the Acting Administrator of GSA for review and comment. OMB staff provided oral comments, and we made technical changes as appropriate. OMB staff agreed with our recommendations. GSA did not have comments on the report. We also provided the draft for review and comment to the five agencies with officials we interviewed regarding their perspectives on Performance.gov. None of the five agencies had comments. We are sending copies of this report to the Director of OMB and the Acting Administrator of GSA as well as appropriate congressional committees and other interested parties. The report is also available at no charge on the GAO website at http://www.gao.gov. If you have any questions concerning this report, please contact me at (202) 512-6806 or mihmj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. This report is part of our response to a mandate to assess initial implementation of the GPRA Modernization Act of 2010. Specifically, this report examines the extent to which Performance.gov incorporates leading practices for the development of federal websites. This report is the fifth in a series that looks at how agencies are implementing various GPRAMA requirements. To address our objective, we analyzed information from the Performance.gov website and the requirements from GPRAMA regarding the website. We also examined related guidance, such as the Office of Management and Budget’s (OMB) Circular No. A-11, which lays out expectations on the design, development, and implementation of Performance.gov. We reviewed relevant academic and policy literature on performance management and reporting, including our previous reports on performance management. The literature was selected based on whether it provided relevant information on the reporting requirements in GPRAMA, lessons learned from the development of other federal reporting systems, or insights into performance reporting best practices or lessons learned. We conducted interviews with staff at OMB and the General Services Administration (GSA), who worked on the design and development of the website. We reviewed OMB and GSA staff’s description of the development of Performance.gov from our interviews and compared it against criteria established by HowTo.gov, a source of guidance and leading practices for government websites. We also conducted an analysis of the ease with which commercial search engines and Performance.gov’s internal site search engine can be used to find relevant information on Perfomance.gov. Lastly, we reviewed a subset of federal open government websites, including Recovery.gov, Data.gov, and USASpending.gov. These websites were selected because, like Performance.gov, they are used to make government-wide information more transparent through publicly-accessible websites. We reviewed design features of each, including whether they identified their purposes, audiences, and potential uses, and approaches they used to facilitate access to information. To further address our objective, we obtained the views and suggestions of potential users of Performance.gov. We interviewed executive branch and congressional staff and a variety of nonfederal stakeholders. We reached out to groups most likely to use the information on Performance.gov because of their management, oversight, advocacy, or academic interest and asked them to review the website prior to our interviews. We selected five agencies to gather their perceptions on the utility of Performance.gov—the U.S. Department of Agriculture, Department of the Interior, Department of Labor, Department of State, and the Environmental Protection Agency. We selected these agencies from those that have not previously been the subject of our GPRAMA mandate work. We grouped agencies with the same number of priority goals together, and selected the agency in each group that uses the largest number of tools of government—such as direct service, regulations, grants, and loans—to achieve their performance goals. This process allowed us to consider a mix of agency priority goals, an example of each of the tools of government, and performance improvement officers under both career and political appointments. We also interviewed staff from 13 different majority and minority congressional oversight and authorizing committee offices of the U.S. Senate and House of Representatives to gather their views on Performance.gov and any suggestions they had for improving it. We interviewed congressional staff from the committees shown in table 4. We also interviewed a variety of nonfederal stakeholders including representatives from 10 academic, advocacy, transparency, and public policy organizations to solicit feedback about the use of performance reports, their use of the website, and suggestions they had for improving it. We interviewed academics and practitioners from the California State University San Bernardino; Government Finance Officers Association of the United States and Canada; Government Performance Coalition; Socrata; University of Victoria; and the Wilfrid Laurier University. Our advocacy and transparency group representatives were from the Center for Effective Government; Coalition for Evidence-Based Policy; OpentheGovernment.org; and the Project on Government Oversight. We selected these academics and practitioners on the basis of our literature review and recommendations from other performance management and reporting academics and practitioners. The results of these interviews are not generalizable to all nonfederal stakeholders but provided insights into perceptions of Performance.gov. In addition, based on a review of government performance reporting websites, we selected a group of 12 websites from state and local levels, as well as one from Canada, to gather lessons learned and best practices from representatives of these performance reporting websites that were relevant to the design and development of Performance.gov. To identify examples of web-based performance reporting by state governments, we visited the main government websites of all 50 states, or their governor’s website, and searched each one using the search term “performance” to identify any relevant agency or government-wide websites providing performance information in a web-based format. We selected only sites that presented performance information through web pages; we did not select transparency websites that are generally designed to make available information on state finances and the distribution of state expenditures. To identify relevant examples of web-based performance reporting by local governments, we conducted a search similar to the state sites and talked to representatives from the local websites who agreed to be interviewed. To identify international performance reporting websites, we visited the websites of several national governments of English-speaking countries recognized for performance reporting— Canada, the United Kingdom, Australia, and New Zealand—to examine if these governments had developed government-wide performance reporting websites. Through this approach, we identified the Canadian government’s “Planning and Performance Gateway,” which consists of the Canada’s Performance and Overview of Government Spending and Performance websites. None of the other countries had government-wide performance reporting websites. Table 5 provides a list of the state, local, and Canadian performance reporting systems we selected to review with representatives who agreed to be interviewed. We conducted our work from July 2012 to June 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Elizabeth Curda, Assistant Director; Judith Kordahl; and Adam Miles made key contributions to the report. | Congress took steps to improve federal performance reporting through GPRAMA by requiring that OMB provide performance information via a publicly-available central website, Performance.gov. GAO is mandated to review GPRAMA's implementation at several junctures; this report is part of a series doing so. The report examines the extent to which Performance.gov incorporates leading practices for the development of federal websites. To address this objective, GAO compared the design of Performance.gov to GSA's Top 10 Best Practices for federal websites on HowTo.gov; reviewed performance reporting literature and OMB guidance; collected information from 13 national, state, and local performance reporting website practitioners; and interviewed federal and nonfederal groups most likely to use the information on the website because of their management, oversight, advocacy, or academic interests. These groups included officials from five selected agencies, staff from 13 U.S. Senate and House of Representatives congressional committees, and representatives from 10 transparency organizations and academic institutions. The GPRA Modernization Act of 2010 (GPRAMA) requires Performance.gov to provide program and performance information accessible to the public and members and committees of Congress. GAO used leading practices from HowTo.gov, a key source of guidance for federal website development and management, to assess the website and found that although Performance.gov incorporates some leading practices, opportunities exist to further incorporate them through continued development. For example, consistent with leading practices, the Office of Management and Budget (OMB), working with the General Services Administration (GSA) and the Performance Improvement Council (PIC), provided information about the purposes and audiences for the website, but they have made limited efforts to clarify how audiences can use the information provided. If the specific uses of Performance.gov are not clarified, while taking into consideration what the law requires, it could lead to varying ideas and expectations for how Performance.gov should be developed. Leading practices also recommend that developers engage potential users through focus groups and other outreach and regularly conduct usability tests to gather insight into areas such as navigation and the organization of website content. Efforts to collect input and feedback from potential audiences of Performance.gov, however, have been limited to the collection of suggestions through the website's "Feedback" page and briefings for selected audiences. Similarly, OMB has not yet conducted any usability tests of the website, although staff said that usability testing is being planned for September 2013. Without this information, the needs of the audiences and how they are using or want to use the website cannot guide further improvements. In addition, leading practices recommend that agencies collect, analyze, and report on a baseline set of performance, customer satisfaction, and other metrics. Of the 24 recommended metrics, 15 are currently tracked for Performance.gov. Leading practices also recommend setting goals for metrics and making sure these align with the website's objectives to help prioritize and guide design changes. These goals can be identified based on prevailing practices or the desire to improve a particular metric over time. Except for the area of customer satisfaction, OMB has not established performance metric goals, which may make it more difficult to analyze the effectiveness of the website. OMB staff stated that, thus far, the specific legal requirements of GPRAMA have been the primary framework used to guide efforts to develop Performance.gov. They said they have been focused on compliance with these requirements by providing information on agency and cross-agency priority goals and by establishing a phased development plan for integrating additional information from agency strategic plans, performance plans, and performance reports. OMB and GSA staff members said, however, that the leading practices provided by HowTo.gov will help guide the development of Performance.gov. They also noted that as the phased development of Performance.gov unfolds, they expect to use broader outreach to a wider audience, including members of the public, to make Performance.gov more "public-facing" and "citizen-centric." GAO recommends that OMB should work with GSA and the PIC to (1) clarify specific ways that intended audiences could use Performance.gov and specify changes to support these uses; (2) systematically collect information on the needs of intended audiences; and (3) collect recommended performance metrics and, as appropriate, create goals for those metrics. OMB staff agreed with these recommendations. |
The purpose of screening mammography is to detect breast cancer before there are apparent symptoms. Screening mammography usually consists of two X-ray views of each breast. A physician need not be on site to interpret a screening mammogram immediately, but may read a group of mammograms at a later time. Diagnostic mammograms are used to evaluate patients with abnormalities detected on a screening mammogram or during a physical examination. Diagnostic mammography takes longer than screening mammography, because an interpreting physician generally examines the mammograms while the patient is waiting and the procedure may require additional breast views, such as magnification views of suspicious breast tissue, to provide more information about a lesion. Because detecting breast cancer as early as possible improves the likelihood that treatment will be successful, access to high-quality mammography services is essential for improving a woman’s chance of survival. The federal government plays a role in both ensuring quality and promoting access. FDA has responsibility for ensuring the quality of mammography services. Other federal agencies have initiatives intended to help improve access to mammography services. Under MQSA, FDA has several responsibilities to ensure the quality of mammography. FDA is responsible for establishing quality standards for mammography equipment, personnel, and practices. In 1993, FDA issued interim regulations establishing such standards, and in 1997, FDA issued final regulations establishing quality standards. Most of these quality standards went into effect in 1999. However, certain quality standards for mammography equipment, which were more stringent than the previous standards, went into effect in 2002. The agency is also responsible for ensuring that all mammography facilities are accredited by an FDA- approved accreditation body and have obtained a certificate permitting them to provide mammography services from FDA or an FDA-approved certification body. FDA is also responsible for ensuring that all mammography equipment is evaluated at least annually by a qualified medical physicist and that all mammography facilities receive an annual MQSA compliance inspection from an FDA-approved inspector. In addition to carrying out these activities, FDA maintains the Mammography Program Reporting and Information System database, a nationwide database on mammography facilities that incorporates data from the accreditation and certification processes and inspections of facilities. Finally, FDA is responsible for performing annual evaluations of the accreditation and certification bodies. In addition to setting comprehensive quality standards for the operation of mammography equipment, FDA regulations specify detailed qualifications and continuing training requirements for mammography personnel, such as radiologic technologists who perform the examinations and physicians who interpret the images. Radiologic technologists are required to be either licensed by a state or certified by an appropriate board, such as the American Registry of Radiologic Technologists, in general radiography. They must also meet additional training, continuing education, and experience requirements related to mammography. FDA also specifies that all interpreting physicians be licensed in a state; be certified in the specialty by an appropriate board, such as the American Board of Radiology; and meet certain medical training, continuing education, and experience requirements related to mammography. To legally perform mammography, a facility must be accredited by an FDA-approved body and certified by FDA or an FDA-approved body. FDA categorizes facilities applying for accreditation into three groups: new applicants; reinstating applicants, such as a previously certified facility whose certificate was suspended or revoked; and reaccrediting applicants that have been accredited and certified for 3 years and are seeking to renew their accreditation. To become accredited, a new mammography facility must undergo a two-phase application review process conducted by an FDA-approved accreditation body. (See fig. 1.) First, the facility must pay an application fee and submit to the accreditation body an entry application that provides such information as equipment performance specifications, the qualifications of its personnel, and the results of the facility medical physicist’s equipment tests. A facility seeking accreditation reinstatement follows the same process as the new applicant, but must also submit to the accreditation body a corrective action plan that describes the action the facility has taken to correct problems that prevented it from achieving or maintaining certification. If the accreditation body determines that a new or reinstating facility meets the MQSA standards for the initial accreditation phase, it notifies FDA; for states with an FDA-approved state certification body, FDA in turn notifies the state certification body. FDA or the state certification body then issues a provisional certificate that allows the facility to operate legally for up to 6 months. Second, to achieve full accreditation, the facility must submit to the accreditation body phantom and clinical images, quality control tests, and other information required by MQSA. If the accreditation body determines that the facility meets MQSA standards applicable to the images and all other submitted information, it accredits the facility and each of the facility’s approved mammography machines for 3 years. The accreditation body notifies FDA of each mammography machine’s approval; for states with certification bodies, FDA in turn notifies the state certification body. On the basis of the accreditation body’s notification, FDA or the state certification body issues a 3-year MQSA certificate to the facility, which allows it to legally perform mammography up to the certificate expiration date. Accreditation bodies notify facilities they have accredited about 6 to 8 months prior to expiration of their 3-year certification period that they must apply for reaccreditation. Facilities applying for reaccreditation are not required to obtain a provisional certificate if they submit all the information required for full accreditation before their certificate expires and if the facility meets FDA standards. After approval by its accreditation body, a facility receives a new 3-year MQSA certificate from FDA or the state certification body. Each accreditation body is required to make annual on-site visits to a sample of facilities that it accredited. The on-site visits include reviewing samples of randomly selected clinical images to assess image quality, verifying the information that facilities provided in the accreditation application, and reviewing documentation showing that facilities sent reports on mammography results to patients and physicians. In addition, on-site visits have an educational element; for example, members of the accreditation body team may suggest ways to improve clinical image quality. The annual MQSA compliance inspections conducted by FDA and the state certification bodies differ in focus and scope from the on-site accreditation visits, although both the inspections and the on-site accreditation visits are intended to monitor and assess facility compliance with MQSA standards. In addition to verifying information submitted during the accreditation process, FDA and the state compliance inspectors—including those under contract to FDA and those working for the state certification bodies—conduct several other reviews. These include performing equipment tests and in-depth reviews of personnel qualifications and reviewing quality control and quality assurance records. For example, inspectors review quality control records for each film processor and X-ray machine used for mammography. FDA and state certification bodies are responsible for monitoring and enforcing the correction of facility problems discovered during MQSA compliance inspections. If a facility fails to correct a problem, FDA and state certification bodies may take enforcement actions, including suspending or revoking a facility’s certification. FDA maintains a national database—the Mammography Program Reporting and Information System database—that incorporates data from the accreditation and certification processes and from annual compliance inspections of facilities. The database contains facility identification information, as well as information on the number of machines and personnel at a facility, the medical physicist who evaluated equipment at the facility, the estimated number of mammograms performed, and whether the facility is active or no longer certified. Under MQSA, FDA can approve a state agency or a private nonprofit organization to accredit facilities and a state agency to certify facilities if the agency or organization meets MQSA standards. MQSA regulations require that each accreditation body adopt standards for mammography facilities that are substantially the same as the quality standards established by FDA to ensure the safety and accuracy of mammography; each certification body must establish standards that are at least as stringent as FDA’s standards. MQSA regulations do not allow individuals who review facilities’ phantom or clinical images for the accreditation body or perform accreditation site visits to maintain a financial relationship with or have any other conflict of interest or bias in favor of or against the facility. This requirement applies not only to individuals who review phantom or clinical images, but also to state agency managers, consultants, administrative personnel, and any other individuals working for the accreditation body. MQSA regulations also require that FDA conduct annual performance evaluations of accreditation bodies’ and certification bodies’ compliance with MQSA standards. MQSA requires that FDA annually submit to congressional oversight committees a written report on the performance of the accreditation bodies. The federal government supports two initiatives to help improve access to mammography services. The Breast and Cervical Cancer Mortality Prevention Act of 1990 established CDC’s National Breast and Cervical Cancer Early Detection Program. Under this program, CDC makes grants to states to provide mammography services to medically underserved women, especially those with low incomes and without health insurance coverage. From 2001 through 2003, over 50 percent of the women served by the program were from minority groups. The second initiative relates to coverage for screening mammography under Medicare, the federal government’s health insurance program for people age 65 and older and certain disabled people. CMS, which administers Medicare, has contracted with QIOs in each state to assist it in monitoring and improving the quality of health care, including improving mammography screening rates among Medicare beneficiaries. QIOs seek to improve mammography screening rates by working with physician offices and other health care providers to establish improved systems for referring patients for mammography and collaborating with state and local coalitions and other organizations on promotion efforts, such as the distribution of educational materials on mammography and outreach to encourage Medicare beneficiaries to obtain screening. In addition to these initiatives, the federal Consolidated Health Centers program, administered by HHS’s Health Resources and Services Administration (HRSA), increases access to health care services, including screening mammography, for women in medically underserved areas. In 2004, 71 percent of health center patients had a family income at or below the federal poverty level, and 40 percent were uninsured. In addition, 63 percent of patients were members of racial or ethnic minority populations, and 29 percent spoke a primary language other than English. From October 2001 to October 2004, certified mammography facility closures outpaced openings, and financial considerations were most often cited as the reason for facility closures. According to FDA data, the number of certified mammography facilities nationwide decreased by 6 percent, from 9,306 to 8,768, from October 1, 2001, to October 1, 2004. During this period, 1,290 certified mammography facilities closed, while 752 facilities received 6-month provisional certificates to begin providing services, resulting in a net decrease of 538 facilities, including a net decrease of 87 mobile mammography facilities, which may serve multiple locations. Forty states lost facilities during this period, including 10 states that each lost more than 20 facilities. These 10 states accounted for over half of the 538 net decrease. (See app. III for information by state.) The most commonly cited reasons for facility closures were related to financial considerations. We relied on data from ACR for information on what facility officials reported as the reasons for closure because FDA’s Mammography Program Reporting and Information System database does not include such data. For certified mammography facilities that had been accredited by ACR and that closed from October 1, 2001, to October 1, 2004, facility officials most often reported financial considerations as the reason for closure. Specifically, for 35 percent of the closures, facility officials told ACR that the primary reason was financial. (See table 1.) In addition, even when they did not cite financial considerations specifically, their reasons were often related to finances. For 25 percent of the closures, facility officials reported that they moved their facility to a sister site, and an ACR official said that many of the facilities consolidated their mammography activities in an effort to conserve financial resources. Facility officials also frequently reported equipment and staffing problems as reasons for closure, and an ACR official told us that these problems were sometimes financial in nature. In addition, officials of state accreditation bodies told us that closures in their states from 2001 to 2004 were generally related to financial concerns. For example, a Texas accreditation body official said she believed that the majority of closures accredited by the state body were due to bankruptcy, low business volume, or low reimbursement rates for services. FDA and mammography experts also identified financial considerations as having contributed to facility closures. Experts also told us that difficulties in recruiting and retaining staff have contributed to closures. Officials of the American Society of Radiologic Technologists said that some radiologic technologists think the repetitive nature of mammography procedures—especially screening mammography—makes mammography seem like an unattractive, assembly-line operation and that radiologic technologists who perform mammography are paid less, in general, than those in other imaging specialties. Experts also reported that some radiologists consider the mammography field unappealing because it is stressful, “low tech,” and lower paying and less respected than other imaging specialties; involves repetitious work because of the need to read large volumes of screening mammograms; and has a high rate of malpractice litigation. Although key elements that make up mammography capacity have decreased and the use of mammography services has increased—largely because of the increase in the population of women age 40 and older—we found that current nationwide capacity is adequate. Key capacity elements—the numbers of facilities, machines, radiologic technologists, and interpreting physicians—declined from 2001 to 2004. In contrast, from 2000 to 2003, the estimated number of women age 40 and older who received a screening mammogram within the previous year increased. Nevertheless, we determined that the estimated number of screening mammograms that women age 40 and older received was substantially lower than the number that could have been performed in 2003, and there was also sufficient capacity for the number of diagnostic mammograms women in that age group received. Although experts believe the nation’s current overall capacity to provide mammography services is adequate, they are concerned that the numbers of radiologic technologists and radiologists entering the mammography field might not be sufficient to serve the increasing population that will need mammography services. Key elements that make up mammography capacity decreased from October 1, 2001, to October 1, 2004. In addition to the number of facilities decreasing by 6 percent, the number of mammography machines decreased by 4 percent, the number of radiologic technologists decreased by 3 percent, and the number of physicians who interpret mammograms decreased by 5 percent. (See table 2.) During the period, the average number of machines per facility remained about the same—1.50 in 2001 and 1.53 in 2004—and the average number of radiologic technologists per machine remained about the same—2.24 and 2.28, respectively. Reflecting the steady increase in the population of women age 40 and older, the estimated number of women in this age group who received a screening mammogram within the previous year has increased and is likely to continue to grow over the next several years. Based on NHIS survey data, the estimated number of women age 40 and older who received a screening mammogram within the previous year increased nationwide by 14 percent from 2000 to 2003, from about 29 million to about 33 million. This increase resulted from the population growth in this age group coupled with a slight increase—from 50 percent in 2000 to 51 percent in 2003—in the estimated proportion of women in this age group who received a screening mammogram within the previous year. The number of women age 40 and older who receive a screening mammogram is likely to continue to grow over the next several years because the number of women age 40 and older is projected to increase from about 68 million in 2003 to about 74 million in 2010 and about 78 million in 2015, according to the Census Bureau. Data from NHIS indicate that the proportion of women age 40 and older who received a diagnostic mammogram within the previous year decreased from 5 percent in 2000 to 3 percent in 2003. The estimated number of women age 40 and older who received a diagnostic mammogram within the previous year declined from about 3 million women in 2000 to about 2 million in 2003. National mammography capacity data we reviewed indicate that the nation’s current capacity to provide mammography services is adequate. Our estimates of current capacity found that the number of mammograms performed by U.S. machines was substantially lower than the number that could be performed. Since screening mammograms accounted for 94 percent of the mammograms provided in 2003, we began our capacity calculations by focusing on screening mammograms. The majority of experts we interviewed estimated that it normally takes 15 to 20 minutes of machine and radiologic technologist time to perform a screening mammogram. Using the upper range of this estimate, we estimated that a machine and one radiologic technologist could perform 3 mammograms per hour, or 24 mammograms in an 8-hour day. This rate would yield a potential capacity of 6,000 mammograms per machine per year. Using FDA data on the number of machines in 2003 (13,510), we calculated that in 2003 about 81 million screening mammograms could have been performed by U.S. machines. Data from the 2003 NHIS indicate that nationwide an estimated 33 million women age 40 and older received a screening mammogram and that an estimated 2 million women in that age group received a diagnostic mammogram. Most experts we interviewed estimated that it takes 30 to 60 minutes of machine and radiologic technologist time to perform a diagnostic mammogram. The excess capacity that we found for performing screening mammograms in 2003 would have been more than adequate for performing the estimated 2 million diagnostic mammograms that were performed that year. These capacity estimates are rough estimates, but the difference between estimated machine capacity and estimated use is sufficiently large to indicate that there is unused capacity nationwide. It is difficult to measure capacity precisely because several variables can affect capacity at the individual facility level, such as the efficiency of facilities’ operations. Most of the experts we interviewed told us that current overall capacity is likely adequate, but all of the experts expressed concern that the numbers of radiologic technologists and radiologists entering the mammography field might not be adequate to serve the increasing population of women age 40 and older. For example, one expert questioned whether the mammography workforce would be sufficient to meet the demand for services in 10 years, in light of the increasing number of women in this age group. Another expert commented that for the past few years, facilities have been experiencing problems recruiting mammography personnel. Data from the American Registry of Radiologic Technologists show that the number of individuals who took the mammography technologist examination to become certified for the first time declined slightly from 1,214 in 2000 to 1,112 in 2005. The number of available radiologists might also lead to future access problems, according to an official of the American Board of Radiology. Although the number of first-time candidates who sat for diagnostic radiology examinations increased from 816 in 2001 to 1,057 in 2005, the official expressed concern about whether the current flow of candidates would be sufficient to meet the expected growth in the population who will need imaging procedures. In addition, experts told us that there were many unfilled job openings for radiologic technologists who perform mammography services and for radiologists who interpret mammograms. In a 2004 survey of community-based mammography facilities in three states, 44 percent reported experiencing a shortage of radiologists and 46 percent reported having some level of difficulty in maintaining adequate numbers of qualified technologists. The loss or absence of mammography machines in certain locations may have resulted in access problems consisting of lengthy travel distances or considerable wait times to obtain mammography services, including problems for women who are medically underserved. FDA data show that from October 1, 2001, to October 1, 2004, the number of counties with machines remained relatively constant, but the number of machines decreased in certain counties. During the 3-year period, 117 counties lost more than 25 percent of their machines. As of October 1, 2004, there were 865 counties that had no machines. While the majority of officials we interviewed told us that the loss of machines in counties in their states had not resulted in access problems, some officials told us that the loss or absence of machines in certain counties had resulted in lengthy travel distances to obtain services or had resulted in significant wait times for services. While nationwide the proportion of counties that had at least one mammography machine remained relatively constant from 2001 to 2004 at about 72 percent, in some counties the number of machines decreased during that period. FDA data show that the number of counties that had at least one machine rose slightly from October 1, 2001, to October 1, 2004— from 2,259 to 2,276. As of October 1, 2004, 865 counties had no mammography machines; these counties tended to be concentrated in certain midwestern, southern, and western states and contained 3.4 percent of the U.S. population. (See fig. 2.) Some of these counties, however, may have been served by mobile mammography machines; as of October 1, 2004, there were 266 mammography machines in 222 mobile facilities nationwide. Nationwide, 413 counties that had at least one machine at some point during the 3-year period had experienced a net loss of mammography machines as of October 1, 2004. Of these counties, 117—containing 2.6 percent of the total 2004 U.S. population—lost more than 25 percent of their machines. Our analysis of the available supply of mammography machines in counties that are adjacent to these 117 counties found that 75 are not adjacent to any county that gained machines during this period, and 47 of these 75 counties are adjacent to at least one other county that lost machines. Although national mammography capacity appears to be adequate in general, in certain locations the loss or absence of machines may have resulted in access problems consisting of lengthy travel distances or significant wait times. The majority of officials we interviewed about the effects of the loss or absence of machines told us that machine losses had not resulted in access problems because women were able to obtain mammography services at other facilities. However, several of the officials told us that the loss or absence of machines had affected access for some women. In certain locations, the loss or absence of mammography machines resulted in women—including women who are medically underserved— needing to travel lengthy distances for mammography services. For 6 of the 18 counties we randomly selected for review that lost more than 25 percent of their machines, one local or QIO official told us that facility closures and machine losses in those counties had resulted in women traveling longer distances than previously. For example, a Mississippi QIO official estimated that after one facility closure left Newton County with one facility that provided only screening mammography, some women had to travel about 30 miles for screening and about 50 miles for diagnostic mammography. He said that women depended on working family members for transportation, and that according to mammography facility staff, fewer women were obtaining mammograms. Similarly, in four states, officials working with CDC’s early detection program for medically underserved women told us that seven facility closures, involving the loss of seven machines, had affected program participants’ travel distances. For example, a Virginia official estimated that after Dickenson County lost its mammography facility and associated machine, program participants who previously traveled from 20 to 25 miles for services had to travel about 60 miles to obtain services. A West Virginia official working with the CDC program noted that program participants in Jackson County had to travel a longer distance to obtain mammography services because of a facility closure and faced problems of increased travel cost and time away from families and jobs. State and QIO officials also told us about certain locations in their states other than the 18 counties we randomly sampled where the absence of machines resulted in lengthy travel to obtain mammography services. For example, as of October 1, 2004, 12 of Alabama’s 67 counties had no mammography machines. An Alabama QIO official identified 10 counties that to her knowledge had never had a mammography facility and were not being served by mobile mammography facilities; each of the counties was designated by HRSA as a medically underserved area. She estimated that women living in the 10 counties had to travel distances ranging from 30 to 60 miles to obtain mammography services. In Missouri, 50 of the state’s 115 counties had no machines as of October 1, 2004. A Missouri QIO official told us that two mobile mammography facilities provided services once or twice a year to the northeast and southeast corners of the state, which have neighboring counties without mammography facilities. However, if a mobile facility could not provide for films to be read on site, she estimated that women requiring repeat films and additional studies because their mammograms indicated a possible breast problem would have to travel about 250 miles to the provider’s central location—about a 5-hour trip in each direction. The loss or absence of machines in certain counties may also have caused women—including those who are medically underserved—to experience significant wait times for mammography services. Although there is no specific medical standard for the maximum amount of time a woman should have to wait for mammography services, most experts we interviewed said that it was best if the wait time for screening mammography did not exceed 30 days and if the wait time for diagnostic mammography did not exceed 2 days. State officials working with CDC’s early detection program and a QIO official told us of situations where the loss or absence of machines in certain locations might have resulted in wait times that exceeded wait times the experts said were appropriate. For example, New York officials working with CDC’s early detection program estimated that after the closure of two facilities involving the loss of two machines in Brooklyn, the screening wait time for participants who had used those facilities was about 2 months; at the busiest time of the year, the wait time was 3 to 4 months. The West Virginia program official estimated that after the facility closure in Jackson County, participants’ wait time for diagnostic mammography averaged 8 weeks, and could be as much as 3 months. A North Dakota QIO official told us that women in parts of the state face significant wait times for mammography services. Sixty percent of North Dakota’s counties had no machines as of October 1, 2004, and the official said that a limited number of providers served large geographic locations in the largely rural state. For example, she told us that one provider’s mobile facility served almost the entire northwest quarter of the state and was available to some communities once every 4 months and to others only once a year. State accreditation and certification bodies have varying measures to help ensure that individuals conducting work for these bodies, including state employees and contractual and volunteer image reviewers, avoid conflicts of interest. FDA has approved the measures used by the state bodies to avoid conflicts of interest and has conducted annual performance evaluations of state bodies to assess whether they are complying with MQSA regulations. An FDA official told us that agency officials have asked questions about conflicts of interest during their evaluations and that they have not found any conflicts. FDA’s written protocols for performance evaluations have not always included specific questions on the subject of conflicts of interest, but FDA recently revised its written protocol for evaluating certification bodies to increase attention to this subject. State mammography accreditation and certification bodies have varying measures to help ensure that state employees avoid conflicts of interest, such as those caused by a financial interest, outside employment, or a family tie. These measures also apply to physicians who work for accreditation bodies on a contract or volunteer basis as clinical image reviewers and who also conduct image reviews for their main business practice. The measures are a combination of state ethics laws, state agency personnel policies, and procedures state bodies use to carry out their duties. FDA has approved each state’s combination of measures. (See table 3.) Employees and others, such as contractual reviewers, who provide services for the three state accreditation bodies are subject to state ethics laws and policies that generally prohibit them from having a conflict of interest. These laws and policies vary in scope across the three states, and each state has penalties associated with violating its laws. For example, with regard to financial disclosure, Arkansas requires all state employees to file a statement disclosing any income source other than their regular salary from which they received over $500. In contrast, Iowa requires only certain individuals, such as elected officials and higher level agency officials, to file financial disclosure forms and in general does not require this of employees carrying out accreditation responsibilities. While Texas also requires only certain individuals, such as elected officials and higher level agency officials, to file financial disclosure forms, the Texas accreditation body contracts with ACR for its phantom and clinical image reviews, and ACR’s reviewers are subject to ACR’s requirement to disclose financial and other relationships with businesses or clients involving mammography and to report related compensation over $200. The Texas accreditation body is the only one that requires its employees to attend ethics training when they are hired. In addition, Texas law requires its employees to acknowledge that they have received copies of the state employee standards of conduct. In addition to state laws and policies, the state accreditation bodies have various procedures to help ensure that phantom and clinical image reviewers avoid conflicts of interest. For example, all three state accreditation bodies assign at least two individuals to independently review clinical and phantom images. (See table 3.) In addition, in all three states, reviewers are required to submit a list of facilities where they have a financial interest, perform services, or have other associations, and accreditation officials refer to these lists when assigning clinical images to reviewers. Arkansas’s clinical image reviewers are not permitted to review images from facilities located within 50 miles of their primary practice locations. Moreover, because clinical image reviewers in Arkansas and Iowa may be familiar with mammography facilities in their states, accreditation bodies in these states use blind reviews of clinical images. That is, state employees mask the names of facilities before presenting images to reviewers. In Iowa, furthermore, state employees proctor the clinical image reviews to ensure that the facility’s identity is not revealed during the process. In ACR’s review of Texas facilities’ phantom and clinical images, reviewers from Texas or the surrounding states cannot conduct the reviews. ACR procedures do not include blind reviews; instead, ACR requires that reviewers sign a form disclosing any financial or other relationship that could constitute a conflict of interest. ACR legal staff review all potential conflicts of interest annually, according to an ACR official, and if an actual conflict of interest exists, the reviewer may be removed or allowed to perform only limited types of reviews. In addition, reviewers who are familiar with a facility must immediately report any conflict of interest to the appropriate ACR official and recuse themselves. In assigning images to reviewers, ACR uses computer software that automatically blocks reviewers from reviewing images from facilities in states where they live or practice or in other states they have identified where they may have a conflict of interest. The two state certification bodies apply state ethics laws and personnel policies that prohibit state employees from having a financial interest or other interest, including one based on family ties or outside employment, that conflicts with their duties. The same state ethics laws that govern Iowa’s accreditation body activities apply to its certification body activities. Illinois ethics law requires that state employees who function as the head of a department, supervise 20 or more employees, or have authority to approve certifications or licenses file a financial disclosure statement annually. Illinois officials told us that employees of the Illinois certification body with decision-making responsibilities—including the coordinator of MQSA certification functions—submit a financial disclosure statement. However, in general, Illinois employees who inspect mammography facilities are not required to file such statements. Illinois ethics law also requires that all state employees annually complete ethics training, which in the past has covered topics such as acceptance of gifts and conflicts of interest. As part of the state accreditation and certification body application processes, FDA approved the measures each state body submitted as its approach for avoiding conflicts of interest. These measures consisted of the state ethics laws, state agency personnel policies, and procedures the state body would use to carry out its duties. (See table 3.) FDA officials told us that in determining whether these measures were adequate to ensure independence, they based their decisions on the conflict-of-interest standards in MQSA regulations. MQSA regulatory standards on conflicts of interest are broadly written; they do not provide specific guidance to states on what measures they should take to avoid conflicts. Using written protocols, FDA has conducted annual performance evaluations of state accreditation and certification bodies to assess whether these bodies are complying with MQSA regulations. Evaluations of state accreditation bodies have covered, among other things, state bodies’ procedures for reviewing phantom and clinical images and for resolving consumer complaints about mammography facilities. These procedures are a part of the accreditation bodies’ efforts to avoid conflicts of interest. In addition, FDA staff have independently reviewed samples of phantom and clinical images previously reviewed by the accreditation body to monitor the quality of the accreditation body’s work. FDA officials told us that their staff have also reviewed several randomly selected facility files, including files on any complaints received by the accreditation bodies since the previous FDA evaluation, and accreditation body staffing qualifications. FDA has submitted to the Congress its required annual written evaluation reports on the performance of accreditation bodies. FDA’s annual evaluations of state certification bodies have included reviews of each body’s policies and procedures for certification, inspection, appeals, consumer complaints, and certification revocation and suspension. In addition, FDA officials told us that FDA auditors have annually evaluated the performance of FDA inspectors and state inspectors by accompanying them on facility compliance inspections. Prior to going on these inspections, the auditors review inspection records completed by the inspectors they will be accompanying. FDA prepares an annual written evaluation report on the performance of state certification bodies; it is not required to submit these reports to the Congress. An FDA official told us that these annual evaluations allow FDA to oversee state accreditation and certification bodies’ performance regarding avoiding conflicts of interest. An FDA official told us that during the on-site visits that have been part of FDA annual evaluations and during FDA’s quarterly meetings with state body officials, FDA officials have asked whether any conflict-of-interest problems have arisen. According to this official, state body officials have never reported to FDA during a quarterly meeting that they had experienced a conflict-of-interest problem. During on-site visits, FDA officials have inquired about state bodies’ overall policies and procedures. State bodies’ staff have generally described their policies and procedures for avoiding conflicts of interest and orally assured FDA that they are following these measures. FDA relies on the states to oversee the implementation of state ethics laws and policies. However, FDA requires state bodies to immediately report any situation that might adversely affect the public’s health, including complaints about conflicts of interest involving state bodies’ personnel. The FDA official also said that no state body has ever reported a problem or concern related to a conflict of interest involving a reviewer or inspector and that FDA has never found a conflict-of-interest problem in its evaluations of state bodies’ performance. Officials of HHS’s Office of the Inspector General, similar state agencies responsible for overseeing state bodies that we reviewed, and the Department of Justice told us that they have not undertaken any investigations related to conflicts of interest or complaints of fraud or abuse involving state agencies that accredit or certify mammography facilities. While FDA officials told us that they have asked questions related to conflicts of interest during on-site visits, until recently the agency’s written protocols for conducting annual evaluations of state bodies’ performance have not explicitly addressed state bodies’ implementation of conflict-of- interest policies and procedures or the application of state ethics laws. In addition, FDA’s annual reports to the Congress on the performance of the accreditation bodies have not discussed the subject of conflicts of interest, and its annual evaluation reports on certification bodies have not consistently included this topic. In June 2005, FDA revised its written protocol for evaluating certification bodies to include a review of certain aspects of state bodies’ performance related to conflicts of interest. The revised protocol requires FDA to (1) review any changes that the certification bodies made to their conflict- of-interest policies and procedures since FDA’s last annual evaluation, (2) review any complaints related to conflicts of interest involving state personnel or MQSA inspectors and the resolution of the complaints, and (3) cover the topic of conflict of interest in the annual reports it prepares on the performance of certification bodies. FDA has not revised its protocol for conducting annual evaluations of accreditation bodies to include specific questions about conflicts of interest, and FDA officials told us they currently have no plans to revise it. Current nationwide capacity for mammography services is adequate, despite recent decreases in the facility and human resources that affect capacity and an increase in the number of women eligible for screening mammography. However, women may have difficulty gaining access to mammography services in certain locations, particularly where the loss or absence of machines has resulted in lengthy travel distances or significant wait times. Lengthy travel distances may especially pose a barrier to access for underserved women who lack means of transportation, must incur increased travel costs, or must take extra time away from work or family responsibilities. Access problems for these women are of particular concern because they have lower-than-average mammography screening rates. Furthermore, while current overall capacity is adequate, if the numbers of radiologic technologists and radiologists entering the mammography field are insufficient to serve the growing population of women eligible for regular screening, access problems could occur in the future. We provided a draft of this report to FDA for comment. FDA’s comments are reprinted in Appendix IV. In its comments, FDA provided additional details and clarification regarding its activities in certifying mammography facilities and overseeing state accreditation and certification bodies; FDA also provided technical comments. We incorporated FDA’s comments as appropriate. As arranged with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days after its date. At that time, we will send copies of this report to the Secretary of Health and Human Services, the Commissioner of FDA, and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff members have any questions, please contact me at (202) 512-7119 or crossem@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made contributions to this report are listed in appendix V. As authorized under the Mammography Quality Standards Reauthorization Act of 1998 (MQSRA), the Food and Drug Administration (FDA) conducted an inspection demonstration program (IDP) to evaluate the feasibility and impact of conducting mammography facility compliance inspections less frequently than annually. FDA’s goal for the IDP was to determine whether the inspection frequency of mammography facilities that had been found to be in compliance with the Mammography Quality Standards Act of 1992 (MQSA) standards could be reduced from yearly to once every 2 years without a decrease in compliance rates. FDA carried out the IDP from November 2001 through August 2004. This appendix summarizes the methodology and results of the IDP. MQSRA required that facilities selected for the IDP be “substantially free of incidents of noncompliance” and that the number of facilities selected be sufficient to provide a statistically significant sample of facilities. FDA selected facilities for the IDP from states that indicated a willingness to participate in the program and met certain criteria. For example, FDA excluded states that had laws, regulations, or policies requiring annual inspections, and considered states that could accept changes to their existing inspection contract with FDA to reflect the reduction in the number of facilities that they would inspect during the IDP. To minimize the financial impact that a reduced inspection schedule would have on states that depend on income from their FDA inspection contracts to fund inspectors’ salaries, FDA officials placed a 10 percent limit on the number of facilities from each state that could participate in the IDP. On the basis of these criteria, FDA selected 11 states, the District of Columbia, Puerto Rico, and New York City to participate in the IDP. The states were Arkansas, Florida, Mississippi, New York, Ohio, Oklahoma, Pennsylvania, South Dakota, Washington, Wisconsin, and Wyoming. FDA established that to be eligible to participate in the IDP, a facility had to be free of MQSA violations during the two most recent annual inspections and have undergone at least two annual inspections under the final MQSA regulations that took effect in April 28, 1999. Among other things, a facility also had to maintain full accreditation and certification throughout the program and expect to provide services through the duration of the IDP. Using random selection, FDA divided the eligible facilities in the 14 jurisdictions into a study group and a control group. The study group consisted of 146 facilities. The control group had 132 facilities in the first year of the program and 126 of those facilities in the second year. FDA officials told us that they were not able to achieve a statistically valid sample that would allow the results to be projected nationwide, primarily because a number of states were not willing to participate in the demonstration program or had state laws that required annual inspections. An FDA official said that FDA implemented the demonstration program even though the results could not be projected nationwide because agency officials believed that the results of the program would be useful to the Congress. Overall, the inspections of the study group facilities, which occurred after a 2-year interval, found that facilities did not maintain the violation-free compliance level that they had previously. Of the 146 study group facilities, 58 percent were in full compliance with MQSA, while 42 percent were cited for violations. (See fig. 3.) Moreover, the study group facilities had a lower compliance rate than facilities inspected annually, either as part of the IDP’s control group or outside of the demonstration program. The facilities in the study group had a higher percentage of violations across all three violation levels than facilities that had annual inspections. Most of the study group’s level 1, or most serious, violations were related to missing records of the quality control tests, such as those required for the mammography film processor. Level 2 violations—the most prevalent category of violation for all groups—were almost twice as high in the study group (27 percent) as in the control group (14 percent). Because the study group had a decrease in compliance, FDA officials decided not to expand the demonstration program and returned all mammography facilities to the annual inspection schedule. In commenting on the IDP results, an FDA official responsible for the program noted that the IDP did not provide evidence that facilities could maintain their violation-free status without annual compliance inspections. To identify the number of certified mammography facilities that closed nationwide in recent years, we obtained and analyzed data from FDA’s Center for Devices and Radiological Health Mammography Program Reporting and Information System database on the number of certified mammography facilities that closed and those that received 6-month provisional certificates to begin providing services from October 1, 2001, to October 1, 2004. To examine information on the factors that contributed to mammography facility closures in recent years, we used three sources. We obtained data from the American College of Radiology (ACR) on mammography facilities accredited by ACR that closed from October 1, 2001, to October 1, 2004, and the reasons for closures reported by officials of facilities accredited by ACR. We reviewed data and interviewed officials of state accreditation bodies in Arkansas, Iowa, and Texas about closures of facilities accredited by these states from 2001 through 2004. We also interviewed eight radiologists who are experts in mammography about factors that contribute to mammography facility closures. To examine changes in the nation’s capacity for and use of mammography services in recent years and the adequacy of current capacity, we analyzed data from FDA’s Mammography Program Reporting and Information System database on the total numbers of certified facilities, machines, radiologic technologists who perform mammography, and physicians who interpret mammograms as of October 1, 2001, and October 1, 2004. We excluded facilities in U.S. territories. We also excluded federal facilities operated by the Department of Defense, and facilities at prisons and correctional institutions because they are not generally accessible to the public. We also excluded facilities that had not achieved provisional or accreditation status that were in FDA’s Mammography Program Reporting and Information System database because they had not been certified by FDA or a state certification body as of October 1, 2001, and October 1, 2004. FDA’s database contains many duplicate names of radiologic technologists and interpreting physicians because many of these individuals work at multiple facilities and their names are counted at each facility they serve. To remove the duplicates, we analyzed data files from FDA that contained the names and addresses of radiologic technologists and interpreting physicians who worked at mammography facilities as of October 1, 2001, and October 1, 2004, and used an iterative process to edit the data fields containing the technologists’ and physicians’ first and last names. The first step was to “clean” the fields of extraneous commas, spaces, punctuation, and other values. The next step was to correct obvious and common spelling errors, such as Michael spelled Micheal. The last step was to visually check for additional misspellings, using the address information on the FDA file to confirm that an entry was indeed a duplicate with a misspelled first or last technologist or physician name. The duplicates were removed from the edited file, and the analysis continued using the edited file of unduplicated names of radiologic technologists and interpreting physicians. To examine changes in the nationwide use of mammography services, we analyzed data from the 2000 and 2003 National Health Interview Survey (NHIS), administered by the Centers for Disease Control and Prevention’s (CDC) National Center for Health Statistics, to estimate the number of women age 40 and older who received a screening or diagnostic mammogram within the previous year. NHIS data on the use of mammography services are based on data that are self-reported by respondents. NHIS asked women age 30 and older about the length of time since their last mammogram and about the reason for the mammogram. NHIS surveys conducted in 2000 and 2003 provided the most recent trend data available at the time we conducted our analysis. Using the 2000 and 2003 NHIS data, we compared screening rates and diagnostic rates for women age 40 and older and estimates of the number of women receiving screening and diagnostic mammograms nationwide within the previous year. To determine the adequacy of current capacity, we obtained estimates from mammography experts of the amount of time it takes to perform a screening mammogram, and we used those estimates and FDA data on the number of machines available in 2003 to calculate the number of screening mammograms that potentially could have been performed in 2003. We compared our estimate of 81 million screening mammograms that could have been performed by U.S. machines to the estimated number of women age 40 and older who received a screening mammogram within the previous year, based on data from the 2003 NHIS. We also obtained estimates from mammography experts of the amount of time it takes to perform a diagnostic mammogram and data on the estimated number of women age 40 and older who received a diagnostic mammogram in 2003. To examine changes in the population of women age 40 and over, we used Census Bureau population data for 2003 and projections for 2010 and 2015. In addition, we interviewed a number of individuals about issues related to mammography facility closures, mammography capacity, and access to mammography services. These individuals included officials from FDA, CDC, the National Cancer Institute, and the Centers for Medicare & Medicaid Services; representatives from several professional organizations, such as the American Board of Radiology, the American Cancer Society, ACR, and the American Society of Radiologic Technologists; and eight radiologists who are experts in mammography. We took three steps to assess the effects of the loss or absence of mammography machines on access to services, including access for medically underserved women. First, we used data from FDA’s Mammography Program Reporting and Information System database to randomly select 18 counties in 16 states that lost more than 25 percent of their machines and interviewed officials about the effects of the loss of machines in these counties. Second, using data from FDA’s database, we identified counties with no machines and interviewed officials knowledgeable about access, including access for medically underserved women, in locations beyond the 18 counties we reviewed. Third, we interviewed officials working with CDC’s National Breast and Cervical Cancer Early Detection Program and officials from community health centers that are funded through the Health Resources and Services Administration’s (HRSA) Consolidated Health Centers program regarding the effect of facility closures on access for medically underserved women. Specifically, for our first step of assessing the effects of machine loss on access to services, we used data from FDA’s database to identify counties that lost mammography machines and focused on those that lost more than 25 percent of their machines from October 1, 2001, to October 1, 2004. We selected for our review a stratified random sample of 9 urban counties and 9 rural counties, within 16 states, of the 117 counties nationwide that lost more than 25 percent of their mammography machines. (See table 4.) We randomly selected the counties to avoid bias in their selection. However, the sample of 18 counties is too small to project the results of our work to the entire group of counties that lost more than 25 percent of their mammography machines during this period. The determination of the 18 counties as urban or rural is based on the 2003 Rural-Urban Continuum Codes published by the Department of Agriculture, which classifies all U.S. counties into nine categories. The Department of Agriculture groups nonmetropolitan counties into six rural categories by size of the urban population and nearness to a metropolitan area; it groups metropolitan counties into three urban categories based on the size of the metropolitan area in which the county is located. For the 18 counties selected, we interviewed officials familiar with access to mammography services in these counties and asked them about their views on the effects of the loss of machines and facilities on access in these counties. These officials generally included county health department officials who coordinate health programs; state radiation control personnel under contract to FDA to conduct annual on-site inspections of mammography facilities; and quality improvement organization (QIO) officials under contract to CMS to monitor and improve the quality of care, including increasing statewide mammography screening rates for Medicare beneficiaries. We also interviewed two QIO officials—one from Missouri and one from Washington—about access in areas of their states. The 18 counties we selected did not include any in Missouri or Washington, but these two officials were among three QIO officials we attempted to contact who were recommended by a CMS official as being knowledgeable about mammography access issues in their states. For our second step of assessing the effects of the absence of machines on access to services, we used FDA data on the number and locations of mammography machines nationwide as of October 1, 2004, to identify counties that had no machines. In interviews with state radiation control program personnel and QIO officials in 11 states that had counties with no machines, we obtained their views on the effects of the absence of mammography machines on access in their state, including access for medically underserved women. We also discussed Missouri counties that had no mammography machines with the Missouri QIO official. For our third step, to provide additional information on the effects of facility closures on access for medically underserved women, we interviewed state officials who direct CDC’s National Breast and Cervical Cancer Early Detection Program and officials of community health centers. To identify facilities that closed and where program participants had been receiving services, we worked with CDC officials to request from state directors of CDC’s early detection program the names and addresses of mammography facilities that provided mammography services to program participants from 2001 through 2004. In all, officials of 37 states and the District of Columbia provided complete or partial lists of facilities. We matched the facility lists provided by the state directors with facility closures from October 1, 2001, to October 1, 2004, in FDA’s database. This analysis resulted in a total of 164 closed facilities. We identified the counties and states where these facilities were located and selected for review 9 rural and 9 urban counties where a total of 24 closed facilities were located. (See table 5.) We selected 4 of the 9 urban counties because they are central counties of metropolitan areas with populations of 250,000 to 1 million or more—Fulton County, Georgia; Cook County, Illinois; Wayne County, Michigan; and Kings County, New York—and we selected 3 counties because they were located in American Indian Health Service areas. In total, we interviewed officials in 8 states that work with CDC’s early detection program about the effect of the facility closures in the 18 counties. With the assistance of HRSA, we obtained a list of facility closures that were located in the same counties as community health centers. HRSA identified the closures from data it requested from FDA on our behalf on mammography facilities that were certified as of October 2003 but were closed as of October 2004. HRSA then matched the addresses of the closures with its list of community health centers funded in 2004. This yielded a list of 34 closed mammography facilities that were in the same counties as community health centers. We selected 10 counties and interviewed a community health center official in each county (six officials from urban centers and four from rural centers) regarding the effect of closures on their patients’ access to mammography services. (See table 6.) In each of our interviews with officials on access to mammography services, we asked the official to provide estimates of the numbers of days women had to wait to obtain screening mammography and diagnostic mammography in counties that had a loss or absence of machines. In counties where officials reported access problems, we asked them to provide estimates of the distances women had to travel to mammography facilities both before and after the loss of machines, and when state and QIO officials identified counties with an absence of machines, we asked them to provide estimates of the travel distance to mammography services. While most officials had not conducted formal studies to gather information on wait times and travel distances, they generally provided information based on informal surveys they had conducted of facilities in their counties or nearby counties or on their involvement and frequent contacts with mammography facilities. To examine the measures state bodies have taken to avoid conflicts of interest and FDA’s oversight of state bodies’ performance in this area, we reviewed MQSA and MQSA regulations that govern state bodies’ functions, FDA documents, state ethics laws, and state bodies’ policies and procedures. In addition, we interviewed officials from FDA’s Center for Devices and Radiological Health; accreditation bodies in Arkansas, Iowa, and Texas; certification bodies in Illinois and Iowa; and ACR. We reviewed state and FDA documents containing ethics laws and policies and procedures, including information on conflict-of-interest policies that state bodies are required to submit to FDA as part of the initial application process. We also reviewed FDA’s inspection procedures, which states are required to use to conduct inspections. The California and South Carolina state agencies are not included in our review because the California state agency withdrew its application to continue to operate as an FDA- approved accreditation body before our review began, and South Carolina’s certification program began operating after our review began. In examining FDA’s oversight of state bodies, we reviewed FDA’s annual evaluation reports on the performance of each state accreditation and certification body for calendar years 2003 and 2004 and FDA’s annual reports to the Congress covering the performance of all accreditation bodies for calendar years 2000 through 2004—the most recent available at the time of our review. In addition, we reviewed the protocols that FDA officials use to conduct their evaluations of state bodies’ performance and the timetables for FDA evaluations. During our interviews with FDA officials, we discussed the criteria they use to determine whether states have any conflict-of-interest problems that could affect their impartiality in carrying out accreditation, certification, and inspection functions and actions FDA takes to oversee state bodies. We did not review state and federal documents, such as financial disclosure statements, employment records, or any other documents typically used in making assessments about potential or actual conflicts of interest. In addition, we did not make on-site visits to state accreditation and certification bodies or observe MQSA inspections. To describe the methodology and results of FDA’s IDP, we reviewed FDA documents and interviewed officials from FDA’s Center for Devices and Radiological Health. We also examined whether the sample of facilities that FDA included in the IDP met the criterion of being free of violations for 2 consecutive years prior to IDP implementation by reviewing reports of MQSA inspections conducted during 2000, 2001, and January through April 2002. We reviewed reports on a sample of 49 mammography facilities, with 25 randomly selected from the universe of study control group facilities and 24 from the control group. To assess the reliability of the FDA, ACR, and state body data on mammography facility closures and mammography capacity, we talked with knowledgeable officials of these organizations about data quality control procedures and reviewed relevant documentation. We also electronically tested the FDA data to identify problems with accuracy and completeness. To assess the reliability of the NHIS data on the numbers of women age 40 and older who received a screening or diagnostic mammogram in 2000 and 2003 and the population estimate data from the Census Bureau, we reviewed the existing documentation on methodology and data collection procedures. We determined that the data were sufficiently reliable for the purposes of this report. We conducted our work from November 2004 through July 2006 in accordance with generally accepted government auditing standards. In addition to the contact named above, Helene Toiv, Assistant Director; Darryl Joyce; Roseanne Price; Mary Reich; Carmen Rivera-Lowitt; and Suzanne Worth made key contributions to this report. | Mammography, an X-ray procedure that can detect small breast tumors, is an important tool for detecting breast cancer at an early stage and, when coupled with appropriate treatment, can reduce breast cancer deaths. In 2002, GAO reported in Mammography: Capacity Generally Exists to Deliver Services (GAO-02-532) that the capacity to provide mammography services was generally adequate, but that the number of mammography facilities had decreased by 5 percent from 1998 to 2001 and that about one-fourth of counties had no machines. GAO was asked to update its information on facility closures and mammography service capacity. The Food and Drug Administration (FDA) regulates mammography quality and maintains a database on mammography facilities and other capacity elements. GAO reviewed FDA data on facility closures and examined reasons for closures in recent years. GAO analyzed changes in the nation's capacity for and use of mammography services using FDA capacity data and National Center for Health Statistics data on service use. GAO also interviewed state and local officials about the effects of the loss or absence of mammography machines on access, including access for medically underserved women, such as those who are poor or uninsured. Closures of certified mammography facilities outpaced openings during a recent 3-year period, and financial considerations were most often cited as the reason for facility closures. FDA data show that from October 1, 2001, to October 1, 2004, the number of mammography facilities nationwide decreased from 9,306 to 8,768. During this period, 1,290 facilities closed and 752 began providing services, resulting in a net loss of 538 facilities, or 6 percent. Mammography facility officials most often cited financial considerations as the reason their facility closed. Experts said that another factor that could affect closures is difficulty recruiting and retaining radiologic technologists who perform mammography and physicians who interpret mammograms. Although key elements that make up mammography capacity have decreased and the use of screening mammography has grown, current nationwide capacity is adequate. The numbers of mammography facilities, machines, radiologic technologists, and interpreting physicians decreased from 2001 to 2004. From 2000 to 2003, the estimated number of women who received a screening mammogram increased, mostly because of population growth. Based on GAO's calculation that the estimated number of mammograms performed in the United States in 2003 was substantially lower than the number that could have been performed, GAO found that current capacity is adequate. Most of the experts GAO interviewed believe the nation's current overall capacity is likely adequate, but all of the experts expressed concern that the flow of personnel into the field may be insufficient to serve the growing number of women needing screening. This potential development could result in access problems in the future. The loss or absence of machines in certain locations may have resulted in access problems, including problems for women who are medically underserved, such as those who have a low income or lack health insurance. About one-fourth of counties had no mammography machines in 2004. The majority of officials GAO interviewed about access in their states, including access in 18 of the 117 counties that had lost over 25 percent of their machines from 2001 to 2004, said that machine losses had not resulted in access problems because women were able to obtain services at other facilities. However, some officials told GAO that the loss or absence of machines in certain counties resulted in access problems consisting of lengthy wait times or travel distances to obtain services. Lengthy travel distances may especially pose an access barrier for medically underserved women. Access problems for these women are of concern because uninsured and poor women have lower-than-average screening mammography rates. In commenting on a draft of this report, FDA provided additional details and clarification regarding aspects of its regulation of mammography, which GAO incorporated as appropriate. |
For the last 3 fiscal years, we have been unable to express an opinion on IRS’ financial statements because of the pervasive nature of its financial management problems. We were unable to express an opinion on IRS’ financial statements for fiscal year 1994 for the following five primary reasons. One, the amount of total revenue of $1.3 trillion reported in the financial statements could not be verified or reconciled to accounting records maintained for individual taxpayers in the aggregate. Two, amounts reported for various types of taxes collected, for example, social security, income, and excise taxes, could also not be substantiated. Three, we could not determine from our testing of IRS’ gross and net accounts receivable estimates of over $69 billion and $35 billion, respectively, which include delinquent taxes, whether those estimates were reliable. Four, IRS continued to be unable to reconcile its Fund Balance With Treasury accounts. Five, we could not substantiate a significant portion of IRS’ $2.1 billion in nonpayroll expenses included in its total operating expenses of $7.2 billion, primarily because of lack of documentation. However, we could verify that IRS properly accounted for and reported its $5.1 billion of payroll expenses. To help IRS resolve these issues, we have made dozens of recommendations in our financial audit reports dating back to fiscal year 1992. In total, we have made 59 recommendations on issues covering such areas as tax revenue, administrative costs, and accounts receivable. While IRS has begun to take action on many of our recommendations, as of the date of our last report—August 4, 1995—it had fully implemented only 13 of our 59 recommendations. IRS has made some progress in responding to the problems we identified in our previous audits. However, IRS needs to intensify its efforts in this area. IRS needs to develop a detailed plan with explicit, measurable goals and a set timetable for action, to attain the level of financial reporting and controls needed to effectively manage its massive operations and to reliably measure its performance. The sections below discuss these issues in greater detail. IRS’ financial statement amounts for revenue, in total and by type of tax, were not derived from its revenue general ledger accounting system (RACS) or its master files of detailed individual taxpayer records. This is because RACS did not contain detailed information by type of tax, such as individual income tax or corporate tax, and the master file cannot summarize the taxpayer information needed to support the amounts identified in RACS. As a result, IRS relied on alternative sources, such as Treasury schedules, to obtain the summary total by type of tax needed for its financial statement presentation. IRS asserts that the Treasury amounts were derived from IRS records; however, neither IRS nor Treasury’s records maintained any detailed information that we could test to verify the accuracy of these figures. As a result, to substantiate the Treasury figures, we attempted to reconcile IRS’ master files—the only detailed records available of tax revenue collected—with the Treasury records. We found that IRS’ reported total of $1.3 trillion for revenue collections, which was taken from Treasury schedules, was $10.4 billion more than what was recorded in IRS’ master files. Because IRS was unable to satisfactorily explain, and we could not determine the reasons for this difference, the full magnitude of the discrepancy remains uncertain. In addition to the difference in total revenues collected, we also found large discrepancies between information in IRS’ master files and the Treasury data used for the various types of taxes reported in IRS’ financial statements. Some of the larger reported amounts for which IRS had insufficient support were $615 billion in individual taxes collected—this amount was $10.8 billion more than what was recorded in IRS’ master files; $433 billion in social insurance taxes (FICA) collected—this amount was $5 billion less than what was recorded in IRS’ master files; and $148 billion in corporate income taxes—this amount was $6.6 billion more than what was recorded in IRS’ master files. Thus, IRS did not know and we could not determine if the reported amounts were correct. These discrepancies also further reduce our confidence in the accuracy of the amount of total revenues collected. Despite these problems, we were able to verify that IRS’ reported total revenue collections of $1.3 trillion agreed with tax collection amounts deposited at the Department of the Treasury. However, we did find $239 million of tax collections recorded in IRS’ RACS general ledger that were not included in reported tax collections derived from Treasury data. In addition to these problems, we could not determine from our testing the reliability of IRS’ projected estimate for accounts receivable. As of September 30, 1994, IRS reported an estimate of valid receivables of $69.2 billion, of which $35 billion was deemed collectible. However, in our random statistical sample of accounts receivable items IRS tested, we disagreed with IRS on the validity of 19 percent of the accounts receivable and the collectibility of 17 percent of them. Accordingly, we cannot verify the reasonableness of the accuracy of the reported accounts receivable. Inadequate internal controls, especially the lack of proper documentation of transactions, resulted in IRS continuing to report unsupported revenue information. In some cases, IRS did not maintain documentation to support reported balances. In other cases, it did not perform adequate analysis, such as reconciling taxpayer transactions to the general ledger, to ensure that reported information was reliable. We found several internal control problems that contributed to our inability to express an opinion on IRS’ financial statements. To illustrate, IRS was unable to provide adequate documentation for 111 items, or 68 percent, in our random sample of 163 transactions from IRS’ nonmaster file. The nonmaster file is a database of taxpayer transactions that cannot be processed by the two main master files or are in need of close scrutiny by IRS personnel. These transactions relate to tax years dating as far back as the 1960s. During fiscal year 1994, approximately 438,000 transactions valued at $7.3 billion were processed through the nonmaster file. Because of the age of many of these cases, the documentation is believed to have been destroyed or lost. We sampled 4,374 statistically projectable transactions posted to taxpayer accounts. However, IRS was unable to provide adequate documentation, such as a tax return, for 524 transactions, or 12 percent. Because the documentation was lost, physically destroyed, or, by IRS policy, not maintained, some of the transactions supporting reported financial balances could not be substantiated, impairing IRS’ ability to research any discrepancies that occur. IRS is authorized to offset taxpayer refunds with certain debts due to IRS and other government agencies. Before refunds are generated, IRS policy requires that reviews be performed to determine if the taxpayer has any outstanding debts to be satisfied. For expedited refunds, IRS must manually review various master files to identify outstanding debts. However, out of 358 expedited refunds tested, we identified 10 expedited refunds totaling $173 million where there were outstanding tax debts of $10 million, but IRS did not offset the funds. Thus, funds owed could have been collected but were not. IRS could not provide documentation to support $6.5 billion in contingent liabilities reported as of September 30, 1994. Contingent liabilities represent taxpayer claims for refunds of assessed taxes which IRS management considers probable to be paid. These balances are generated from stand-alone systems, other than the master file, that are located in two separate IRS divisions. Because these divisions could not provide a listing of transactions for appropriate analysis, IRS did not know, and we could not determine, the reliability of these balances. An area that we identified where the lack of controls could increase the likelihood of loss of assets and possible fraud was in the reversal of refunds. Refunds are reversed when a check is undelivered to a taxpayer, an error is identified, or IRS stops the refund for further review. In many cases, these refunds are subsequently reissued. If the refund was not actually stopped by Treasury, the taxpayer may receive two refunds. In fiscal year 1994, IRS stopped 1.2 million refunds totaling $3.2 billion. For 183 of 244, or 75 percent of our sample of refund reversals, IRS was unable to provide support for who canceled the refund, why it was canceled, and whether Treasury stopped the refund check. Service center personnel informed us that they could determine by a code whether the refund was canceled by an internal IRS process or by the taxpayer, but, as a policy, no authorization support was required, nor did procedures exist requiring verification and documentation that the related refund was not paid. With regard to controls over the processing of returns, we also found weaknesses. During fiscal year 1994, IRS processed almost 1 billion information documents and 200 million returns. In most cases, IRS processed these returns correctly. However, we found instances where IRS’ mishandling of taxpayer information caused additional burden on the taxpayer and decreased IRS’ productivity. In many cases, the additional taxpayer burden resulted from IRS’ implementation of certain enforcement programs it uses to ensure taxpayer compliance, one of which is the matching program. This program’s problems in timely processing cause additional burden when taxpayers discover 15 months to almost 3 years after the fact that they have misreported their income and must pay additional taxes plus interest and penalties. IRS has made progress in accounting for its appropriated funds, but there were factors in this area that prevented us from being able to render an opinion. Specifically, IRS was unable to fully reconcile its Fund Balance with Treasury accounts, nor could it substantiate a significant portion of its $2.1 billion in nonpayroll expenses—included in its $7.2 billion of operating expenses—primarily because of lack of documentation. With regard to its Fund Balance With Treasury, we found that, at the end of fiscal year 1994, unreconciled cash differences netted to $76 million. After we brought this difference to the CFO’s attention, an additional $89 million in adjustments were made. These adjustments were attributed to accounting errors dating back as far as 1987 on which no significant action had been taken until our inquiry. IRS was researching the remaining $13 million in net differences to determine the reasons for them. These net differences, which span an 8-year period, although a large portion date from 1994, consisted of $661 million of increases and $674 million of decreases. IRS did not know and we could not determine the financial statement impact or what other problems may become evident if these accounts were properly reconciled. To deal with its long-standing problems in reconciling its Fund Balance with Treasury accounts, during fiscal year 1994, IRS made over $1.5 billion in unsupported adjustments (it wrote off these amounts) that increased cash by $784 million and decreased cash by $754 million, netting to $30 million. In addition, $44 million of unidentified cash transactions were cleared from cash suspense accounts and included in current year expense accounts because IRS could not determine the cause of the cash differences. These differences suggest that IRS did not have proper controls over cash disbursements as well as cash receipts. In addition to its reconciliation problems, we found numerous unsubstantiated amounts. These unsubstantiated amounts occurred because IRS did not have support for when and if certain goods or services were received and, in other instances, IRS had no support at all for the reported expense amount. These unsubstantiated amounts represented about 18 percent of IRS’ $2.1 billion in total nonpayroll expenses and about 5 percent of IRS’ $7.2 billion in total operating expenses. Most of IRS’ $2.1 billion in nonpayroll related expenses are derived from interagency agreements with other federal agencies to provide goods and services in support of IRS’ operations. For example, IRS purchases printing services from the Government Printing Office; phone services, rental space, and motor vehicles from the General Services Administration; and photocopying and records storage from the National Archives and Records Administration. Not having proper support for if and when goods and services are received made IRS vulnerable to receiving inappropriate interagency charges and other misstatements of its reported operating expenses, without detection. Not knowing if and/or when these items were purchased seriously undermines any effort to provide reliable, consistent cost or performance information on IRS’ operations. As a result of these unsubstantiated amounts, IRS has no idea and we could not determine, when and, in some instances, if the goods or services included in its reported operating expenses were correct or received. In our prior year reports, we stated that IRS’ computer security environment was inadequate. Our fiscal year 1994 audit found that IRS had made some progress in addressing and initiating actions to resolve prior years’ computer security issues; however, some of the fundamental security weaknesses we previously identified continued to exist in fiscal year 1994. These weaknesses were primarily IRS’ employees’ capacity to make unauthorized transactions and activities without detection. IRS has taken some actions to restrict account access, review and monitor user profiles, provide an automated tool to analyze computer usage, and install security resources. However, we found that IRS still lacked sufficient safeguards to prevent or detect unauthorized browsing of taxpayer information and to prevent staff from changing certain computer programs to make unauthorized transactions without detection. The deficiencies in financial management and internal controls that I have discussed throughout this testimony demonstrate the long-standing, pervasive nature of the weaknesses in IRS’ systems and operations—weaknesses which contributed to our inability to express a more positive opinion on IRS’ financial statements. The erroneous amounts discussed would not likely have been identified if IRS’ financial statements had not been subject to audit. Further, the errors and unsubstantiated amounts highlighted throughout this testimony suggest that information IRS provides during the year is vulnerable to errors and uncertainties as to its completeness and that reported amounts may not be representative of IRS’ actual operations. IRS has made some progress in responding to the problems we have identified in previous reports. It has acknowledged these problems, and the Commissioner has committed to resolving them. These actions represent a good start in IRS’ efforts to more fully account for its operating expenses. For example, IRS has successfully implemented a financial management system for its appropriated funds to account for its day-to-day operations, which should help IRS to correct some of its past transaction processing problems that diminished the accuracy and reliability of its cost information, and successfully transferred its payroll processing to the Department of Agriculture’s National Finance Center and, as a result, properly accounted for and reported its $5.1 billion of payroll expenses for fiscal year 1994. IRS is working on improving the process of reconciling and monitoring its funds. In this regard, it has created a unit whose sole responsibility is to resolve all cash reconciliation issues and retained a contractor to help with this process. In the area of receipt and acceptance, IRS stated that it is more fully integrating its budgetary and management control systems. Also, IRS has developed a methodology to differentiate between financial receivables and compliance assessments and has modified current systems to provide financial management information. Finally, IRS is in the process of identifying methods to ensure the accuracy of balances reported in its custodial receipt accounts. We are currently reviewing these actions. Over the past decade, GAO has issued several reports and testified before congressional committees on IRS’ costs and difficulties in modernizing its information systems. As a critical information systems project that is vulnerable to schedule delays, cost over-runs, and potential failure to meet mission goals, in February 1995, tax systems modernization (TSM) was added to our list of high-risk areas. In July 1995, we reported that one of IRS’ most pressing problems is efficiently and effectively processing the over 200 million tax returns it receives annually; handling about 1 billion information documents, such as W2s and 1099s; and, when needed, retrieving tax returns from the over 1.2 billion tax returns in storage. IRS’ labor-intensive tax return processing, which uses concepts instituted in the late 1950s, intensifies the need to meet this enormous information processing demand by reengineering processes and using modern technology effectively. Since 1986, IRS has invested over $2.5 billion in TSM. It plans to spend an additional $695 million in fiscal year 1996 for this effort, and through 2001, it is expected to spend up to $8 billion on TSM. By any measure, this is a world-class information systems development effort, much larger than most other organizations will ever undertake. TSM is key to IRS’ vision of a virtually paper-free work environment where taxpayer account updates are rapid, and taxpayer information is readily available to IRS employees to respond to taxpayer inquiries. IRS recognizes the criticality to future efficient and effective operations of attaining its vision of modernized tax processing, and has worked for almost a decade, with substantial investment, to reach this goal. In doing so, IRS has progressed in many actions that were initiated to improve management of information systems; enhance its software development capability; and better define, perform, and manage TSM’s technical activities. However, our July report noted that the government’s investment and IRS’ efforts to modernize tax processing were at serious risk due to pervasive management and technical weaknesses that were impeding modernization efforts. In this regard, IRS did not have a comprehensive business strategy to cost-effectively reduce paper submissions, and it had not yet fully developed and put in place the requisite management, software development, and technical infrastructures necessary to successfully implement an ambitious world-class modernization effort like TSM. Many management and technical issues were unresolved, and promptly addressing them was crucial to mitigate risks and better position IRS to achieve a successful information systems modernization. First, IRS’ business strategy did not maximize electronic filings because it primarily targeted taxpayers who use a third party to prepare and/or transmit simple returns, were willing to pay a fee to file their returns electronically, and were expecting refunds. Focusing on this limited taxpaying population overlooked most taxpayers, including those who prepared their own tax returns using personal computers, had more complicated returns, owed tax balances, and/or were not willing to pay a fee to a third party to file a return electronically. Without having a strategy that also targeted these taxpayers, we reported that IRS would not meet its electronic filing goals or realize its paperless tax processing vision. In addition, if, in the future, taxpayers file more paper returns than IRS expects, added stress will be placed on IRS’ paper-based systems. Next, IRS did not have the full range of management and technical foundations in place to realize TSM objectives. In analyzing IRS’ strategic information management practices, we drew heavily from our research on the best practices of private and public sector organizations that have been successful in improving their performance through strategic information management and technology. These fundamental best practices are discussed in our report, Executive Guide: Improving Mission Performance Through Strategic Information Management and Technology (GAO/AIMD-94-115, May 1994), and our Strategic Information Management (SIM) Self-Assessment Toolkit (GAO/Version 1.0, October 28, 1994, exposure draft). To evaluate IRS’ software development capability, we validated IRS’ August 1993 assessment of its software development maturity based on the Capability Maturity Model (CMM) developed in 1984 by the Software Engineering Institute at Carnegie Mellon University. CMM establishes standards in key software development processing areas and provides a framework to evaluate a software organization’s capability to consistently and predictably produce high-quality products. To its credit, IRS had (1) developed several types of plans to carry out its current and future operations, (2) drafted criteria to review TSM projects, (3) assessed its software development capability and initiated projects to improve its ability to effectively develop software, and (4) started to develop an integrated systems architecture and made progress in defining its security requirements and identifying current systems data weaknesses. However, despite activities such as these, pervasive weaknesses remained to be addressed: IRS’ strategic information management practices were not fully in place to guide systems modernization. For example, (1) strategic planning was neither complete nor consistent, (2) information systems were not managed as investments, (3) cost and benefit analyses were inadequate, and (4) reengineering efforts were not tied to systems development projects. IRS’ software development capability was immature and weak in key process areas. For instance, (1) a disciplined process to manage system requirements was not applied to TSM systems, (2) a software tool for planning and tracking development projects was inconsistently used, (3) software quality assurance functions were not well-defined or consistently implemented, (4) systems and acceptance testing were neither well-defined nor required, and (5) software configuration management was incomplete. IRS’ systems architecture (including its security architecture and data architecture), integration planning, and system testing and test planning were incomplete. For example, (1) effective systems configuration management practices were not established, (2) integration plans were not developed and systems testing was uncoordinated, and (3) standard software interfaces were not defined. Finally, IRS had not established an effective organizational structure to consistently manage and control system modernization organizationwide. The accountability and responsibility for IRS’ systems development was spread among IRS’ Modernization Executive, Chief Information Officer, and research and development division. To help address this concern, in May 1995, the Modernization Executive was named Associate Commissioner. The Associate Commissioner was assigned responsibility to manage and control modernization efforts previously conducted by the Modernization Executive and the Chief Information Officer, but not those of the research and development division. However, the research and development division still did not report to the Associate Commissioner. We made over a dozen specific recommendations to the IRS Commissioner in our report to enable IRS to overcome its management and technical weaknesses by December 1995. Our recommendations were intended to improve IRS’ ability to successfully develop and implement TSM efforts in fiscal year 1996. The House Conference Report on IRS’ fiscal year 1996 appropriation notes that legislative language “fences” $100 million in TSM funding and requires that the Secretary of the Treasury report to the Senate and House Appropriations Committees on the progress IRS has made in responding to our recommendations with a schedule for successfully mitigating deficiencies we reported. As of March 4, 1996, the Secretary of the Treasury had not reported to the Committees on TSM. We are assessing IRS’ actions and will provide a status report to the Committees by March 14, 1996. Mr. Chairman, that concludes my statement. I would be happy to answer any questions you or Members of the Subcommittee might have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | GAO discussed its: (1) fiscal year 1994 financial audit of the Internal Revenue Service (IRS); and (2) evaluation of the IRS Tax System Modernization (TSM) effort. GAO noted that: (1) IRS did not use its revenue general ledger accounting system or its master files for its revenue reports, but relied on alternative sources such as Treasury schedules; (2) there were large discrepancies between information in IRS master files and Treasury data; (3) IRS did not properly document transactions or perform adequate analysis to ensure the reliability of the information it reported; (4) IRS was unable to reconcile its accounts and could not substantiate some of its expenses; (5) IRS has initiated actions to correct some previously identified problems concerning computer security, payroll processing, funds reconciliation and monitoring, its budgetary and management control systems, and receipt balance accuracy; and (6) in spite of those actions, IRS lacks the strategic information management practices, software development capability, systems architecture, and effective organization structure to manage and control system modernization. |
As part of its mission of providing federal agencies with acquisition services and solutions at best value, GSA’s technology programs offer agencies options to acquire needed telecommunications services. An option chosen by more than 135 agencies is the FTS2001 program, which consists of two large governmentwide telecommunications contracts—one awarded to Sprint in December 1998 and the other to MCI in January 1999—and FTS2001 crossover contracts. GSA is planning to replace the FTS2001 contracts, FTS2001 crossover contracts, and separate wireless contracts with a new set of contracts. Collectively known as the Networx program, these new contracts are to provide governmentwide telecommunications services through two indefinite-delivery/indefinite-quantity acquisitions—Networx Universal and Networx Enterprise. The Universal acquisition is expected to satisfy the requirements for a full range of national and international network services and, according to GSA, to ensure the continuity of broad-ranging services with global geographic coverage rendered under expiring contracts. The Enterprise acquisition is expected to offer agencies leading-edge services and solutions with less extensive geographic and service requirements than Universal. The services required in these contracts focus on Internet-based offerings and related security and management services. GSA expects the transition to begin when Networx Universal awards are made in March 2007 and to continue until fiscal year 2010. Because the FTS2001 contracts with Sprint Nextel Corporation and Verizon Business expired in December 2006 and January 2007, respectively, GSA and the incumbent vendors negotiated separate sole-source contracts that essentially extend the terms of the FTS2001 contracts for 42 months. These sole-source contracts were awarded to ensure uninterrupted service and allow agencies adequate time to complete the transition to Networx. GSA is working with representatives of federal agencies to prepare for the upcoming transition to Networx, both directly and through the Interagency Management Council (IMC), a group of senior federal information resource officials who advise GSA on issues related to telecommunications contracts. The IMC has worked with GSA to document lessons learned from the transition to FTS2001 that began in the late 1990s, GSA’s most recent governmentwide telecommunications transition. One important lesson learned was that GSA and agency plans for funding transition expenses should be determined early to allow agencies to gauge the impact of transition expenses on their budgets. Specifically, the lessons-learned document recommended that guidelines be established to allow agencies to complete the financial planning required to ensure that the resources needed for transition were available. This led the IMC and GSA to develop a Taxonomy and Allocation of Transition Costs document that identified which Networx transition costs would be borne by GSA and which would be borne by transitioning agencies. This taxonomy document indicated that GSA will incur or reimburse agencies, including: GSA contractor support costs to, for example, aid in planning for the transition and oversight of Networx contractors. GSA officials also indicated that contractor support will be used to develop a methodology for tracking transition progress and the establishment of a transition coordination center; and certain costs incurred by agencies during transition. In 2004, following the development of the taxonomy document, GSA generated an estimate of its costs for the transition. GSA’s methodology for its estimate was to: develop assumptions for the estimate, define and develop a baseline for the estimate based on experiences and lessons learned from the previous transition, determine the network growth as well as the total business volume projections for fiscal year 2006 based on historical traffic and cost trends, define the transition cost elements, define and develop a formula for calculating an estimate for each cost element, and design and develop the estimated transition cost model for sensitivity analysis. Using this methodology, GSA estimated that it would need a total of $151.5 million for a 30-month transition, most of which would be used to reimburse agencies’ transition costs. Table 1 below details the transition costs GSA expects to pay. GSA planned to pay for its costs and the reimbursement of certain agency costs using its Information Technology (IT) Fund. The IT Fund was a full- cost recovery revolving fund whereby GSA fully recovered all costs of its technology programs and its operations via estimated fee rates. The fees, which are charged to agencies for the use of GSA contracts cover the direct costs of its operations—such as the development and management of contract vehicles—and indirect costs associated with its headquarters, such as support for the Offices of the Chief Information Officer and the Chief Financial Officer. The IT Fund allowed GSA to stabilize rates for its services when expenses varied and was used to provide funding for the previous transition to FTS2001. The IT Fund also contained a working capital reserve that was used to offset losses due to fluctuations in business volumes and other unexpected contingencies. At each fiscal year- end, the uncommitted balance of funds remaining was to be transferred to the general fund of the treasury as miscellaneous receipts. Recently, a new law changed the structure of the IT Fund and GSA’s organization. On October 6, 2006, the General Services Administration Modernization Act combined the IT Fund with another GSA revolving fund—the General Supply Fund—to create the Acquisition Services Fund. This legislation, which also merged GSA’s technology and supply programs, made all capital assets and balances remaining in the IT and General Supply Funds available for the purposes of the Acquisition Services Fund. According to GSA, the Federal Acquisition Service will increase agency savings, enhance GSA’s capability to meet customer requirements for excellence, and improve internal efficiencies. The analysis GSA used to derive its estimate of $151.5 million was not sound because it was not sufficiently accurate, comprehensive, documented, or validated. The analysis was not sufficiently accurate because it is largely based on the assumption that agencies will transition 76 percent of the services acquired under the current FTS2001 contracts to a different provider under Networx—an intentionally conservative scenario that GSA program officials believe is unlikely to occur. Further, the analysis has not been updated after a nearly 2-year delay in the contract award. While GSA appears to have included all pertinent costs, it may have double-counted a cost, calling into question the comprehensiveness of its analysis. In addition, GSA did not document significant assumptions and data. Finally, GSA’s analysis was not validated by an independent cost estimate nor was an uncertainty analysis performed that would allow GSA to quantify the level of confidence it has in its estimate. These weaknesses can be attributed in part to the lack of a cost estimation policy that would help to ensure that such estimates are developed using best practices. While an intentionally conservative approach minimizes the risk that GSA would have inadequate funds to pay for committed transition costs, it increases the risk that GSA will retain excess funds that could be used for other purposes. Estimates are accurate when they are not overly conservative, based on an assessment of the most likely costs, and adjusted properly for inflation. Best practices further dictate that as schedules change, cost estimates should be revised to provide management with insight into the current program status, effective control of the program, and the ability to balance resources and the budget. The analysis GSA used to derive the estimate, however, was not sufficiently accurate. First, the estimate’s main cost driver is based on the assumption that agencies will transition 76 percent of the services acquired under the current FTS2001 contracts to a different provider under Networx—60 percent due to agencies being forced to change providers and 16 percent due to voluntary changes. However, according to program officials, the 76 percent “transition traffic factor” is intentionally conservative and represents a worst-case scenario that is unlikely to occur. The 76 percent transition traffic factor is also overly conservative when compared with the previous transition. Then, approximately 60 percent of services were shifted from an incumbent to a different provider under FTS2001, the bulk being forced to change providers when an incumbent providing more than half of the services (AT&T) was not awarded an FTS2001 contract. This forced shift happened in part because GSA limited the FTS2001 awards to only two vendors. In contrast, GSA has placed no such limit on the number of Networx vendors, and therefore, all incumbent FTS2001 vendors could potentially be awarded a Networx contract. Further, because the most-used FTS2001 incumbent (Verizon Business) provides approximately 50 percent of the services under the current FTS2001 contracts, the assumption of a 60 percent forced shift would only be realized if no awards were made to Verizon Business and at least one other incumbent. Finally, GSA’s assumption of a 16 percent voluntary shift is significantly higher than the 3 percent that voluntarily changed providers during the previous transition. Program officials could not identify any basis for the assumption that voluntary changes will reach 16 percent. However, the officials stated that the percentage of voluntary changes could be higher because agencies will likely have more options when selecting vendors and because of improved guidance on federal requirements regarding the fair opportunity process, which is intended to give each awardee an equal opportunity to compete for agencies’ telecommunications services requirements based on agency-established selection criteria. Second, the analysis has not been updated to reflect schedule changes. When the estimate was developed in 2004, GSA expected to award the first Networx Universal contracts in mid-2005. Since that time, delays have pushed the time frame back almost 2 years. Universal awards are now expected in March 2007. GSA’s analysis has not been adjusted to reflect additional inflation during this period, which could increase the estimates total by as much as $9 million. Finally, GSA has not revised its analysis to reflect an assessment of most likely costs using currently available information. The analysis assumes that reimbursable agency transition costs would be greater than during the previous transition due to growth in the volume of services ordered. While GSA estimated that service levels would grow 60 percent over the previous transition by the time of contract award, as of August 2006, service levels had actually grown by 55.9 percent and are now expected to remain stable. The overestimation of service growth added approximately $1.7 million to the estimate. Estimates are comprehensive when their level of detail ensures that all pertinent costs are included and no costs are double-counted. It is important to ensure the completeness, consistency, and realism of the information contained in the cost estimate. GSA appears to have included all pertinent costs in its analysis; however, according to officials, a specific agency cost valued at $4.3 million may have been double-counted. For several of the transition costs estimated, GSA based its calculations on the actual charges incurred during the previous transition. However, officials indicated that a specific agency cost that is estimated separately in its current estimate may have already been included in a more general category of its previous costs. Despite this uncertainty, GSA calculated the separate total for this specific agency cost based on current service levels and added it to its estimate. As a result, it is likely this specific agency cost is double-counted and therefore overstated. Cost estimates are well-documented when they can be easily repeated or updated and can be traced to original sources through auditing. Rigorous documentation increases the credibility of an estimate and helps support an organization’s decision-making process. The documentation should explicitly identify the primary methods, calculations, results, rationales or assumptions, and sources of the data used to generate each cost element. GSA provided us documentation of its methodology, the calculations it used to derive each cost element, results, and many of the previous transition costs. However, it did not document significant assumptions. Specifically, GSA did not document the rationale behind its 76 percent transition traffic factor or why it used a 30-month time period for the transition—two key assumptions of its analysis. GSA also did not provide documentation of certain data sources. Specifically, program officials could not provide supporting data used to estimate an agency transition cost valued at $4.7 million. In addition, GSA could not document the data sources used to estimate costs for contractor support in planning and implementing the transition. While many costs in its estimate are based on the charges incurred during the previous transition, GSA officials stated that it was not appropriate to use previous costs as a basis for the contractor cost element. These officials explained that unlike the previous transition, GSA would not provide agencies with on-site contractor support. Officials made this decision, in part, because the 2½ years of transition planning that has occurred to date is expected to result in better preparation by agencies and the ability for them to facilitate their transitions without direct assistance from GSA or its contractors. Instead of basing their projection of contractor costs on prior charges, program officials told us that GSA management decided that contractor support costs should not exceed $35 million. Program officials could not provide any data or analysis to support this decision. Estimates are adequately validated when they have been cross-checked with an independent cost estimate, and when a level of uncertainty associated with the estimate is identified. An independent cost estimate provides the estimator with an unbiased test of the reasonableness of the estimate and reduces the cost risk associated with the project by demonstrating that alternate methods generate similar results. In performing an uncertainty analysis, an entity examines the effects of varying multiple elements and, as a result, is able to express a level of confidence in its estimate. GSA did not validate its analysis against an independent cost estimate or perform an uncertainty analysis. GSA program officials could not provide a rationale of why these activities were not performed. The cumulative effect of the quantifiable weaknesses we identified in GSA’s analysis is relatively small, resulting in an underestimation of $3 million, or roughly 2 percent of the total $151.5 million estimate (as shown in table 2). The underestimation of costs, related to inflation during the extended delay in making award, was offset by the overestimation of service growth and the possible double-counting of a specific agency transition cost. In contrast, if the actual level of services transitioning to a different vendor is lower than the 76 percent transition traffic factor assumed by GSA, the effect will be greater. Because this factor is the primary cost driver in the estimate, significant changes in transitioning traffic result in similarly significant changes in total costs. This effect can be illustrated using GSA’s transition cost estimate model (see fig. 1). For example, if a transition traffic factor of 66 percent is used (GSA’s assumption of 16 percent for a voluntary transition plus a forced shift of 50 percent that would occur if Verizon Business is not awarded a Networx contract), the total estimated cost of the transition falls to about $136 million. Similarly, if all incumbents are awarded Networx contracts and only GSA’s assumption of a 16 percent voluntary transition occurs, the total estimated cost of the transition is reduced to approximately $40 million. GSA officials explained that they used a risk-averse transition traffic factor to minimize the possibility of underestimating costs. The weaknesses in GSA’s analysis can be attributed in part to the lack of a policy requiring cost estimates to be developed using best practices. Officials from the Offices of the Chief Acquisition Officer, the Chief Information Officer, and the program office’s Controller confirmed that GSA does not have centralized policy or guidance on cost estimation. Instead, the officials that prepared the estimate stated that they based their work loosely on best practices learned as a result of past experiences and were comfortable with the estimate. Officials believe there is no reason to revise their estimate to address the issues we raised in this report because their purpose in producing it was to minimize the risk of underestimating costs. While GSA’s approach minimized the risk of having inadequate funds to fulfill its commitments, it increased the risk that GSA will retain excess funds that could be used for other purposes. GSA has accumulated adequate funding to support its anticipated commitments related to the Networx transition. As of fiscal year-end 2006, GSA accumulated approximately $142 million in a reserve dedicated to costs associated with the transition from FTS2001 to Networx. The uncertainty analysis we performed on GSA’s cost estimate indicates that the funding GSA has already accumulated will most likely be adequate to pay for expected transition costs. By varying the transition traffic factor, our analysis indicates that the $142 million already retained should be adequate to cover expected expenses 96 percent of the time. Figure 2 illustrates the probability that a particular level of funding will be adequate to account for the total actual costs incurred. For example, the $151.5 million estimate represents a confidence level of 100 percent: there is almost no chance that costs will exceed the estimate. The full detail of our methodology is detailed in appendix II. The merger of the IT and General Supply Funds provides GSA with additional flexibility, further reducing the need to retain the entire amount of the estimate. As discussed, legislation combined the two funds into an Acquisition Services Fund, making their capital assets and balances available for the purposes of the new Federal Acquisition Service. The legislation also allows the Federal Acquisition Service to establish a reserve to retain surplus revenues from GSA’s technology and service programs specifically for the purpose of offsetting losses and other unexpected contingencies. Further, at the end of each year, the statute requires GSA to return to the Treasury any funds not expended or held in a working capital reserve. During fiscal year 2006, GSA’s technology programs experienced losses, but its supply programs reported overall positive earnings of approximately $126 million. If operations continue in this fashion, excess revenue will be available in the combined fund to offset losses or account for contingencies, such as the Networx transition, be retained within the Acquisition Services Fund, or be returned to the Treasury. With Networx contracts scheduled to be awarded starting in March 2007, GSA will soon be in a position to reassess its main assumption, the transition traffic factor, and the resulting level of funding needed to meet anticipated commitments. Unless GSA revises its estimate, it risks unnecessarily retaining funds that could be reallocated to other agency priorities or returned to the Treasury. While GSA achieved its goal of minimizing the risk that it would have inadequate funds to pay its transition commitments, the analysis used to develop the transition cost estimate was not sound because it was not sufficiently accurate, comprehensive, documented, or validated. The weaknesses can be attributed in part to a lack of a policy at GSA to ensure that such estimates are developed using best practices and make the best use of agency resources. While the quantifiable effect of the weaknesses in accuracy and comprehensiveness is small, the effect of potential inaccuracies resulting from the intentional use of an overly conservative assumption about a main cost driver could be more significant. Without the use of a cost estimation policy that reflects best practices, GSA could continue to produce similarly unsound estimates, increasing the risk that it will unnecessarily retain funds that could be reallocated for other purposes. Despite the weaknesses in its analysis, GSA has accumulated adequate funding to support its anticipated commitments related to the Networx transition. Our analysis indicates that it is highly unlikely that GSA will need more than the $142 million it has already accumulated. In addition, the merger of two revolving funds gives it increased flexibility in meeting costs. Once Networx contracts are awarded beginning in March 2007, GSA will be able to forecast the number of forced transitions more accurately, and, if necessary, reduce the amount of funding it plans to accumulate in the future or free already accumulated funds for other purposes. This reassessment will also be an opportunity for GSA to address the other weaknesses in its analysis that resulted from its deviation from best practices. To improve GSA’s program management, we are making two recommendations. First, to ensure that future cost estimates are sound and can be used as a reliable basis for decisions, we recommend that the GSA Administrator establish a policy for cost estimation efforts at GSA. Specifically, this policy should reflect best practices by requiring that estimates are: accurate (not overly conservative, based on an assessment of the most likely costs, and adjusted properly for inflation); comprehensive (their level of detail ensures that all pertinent costs are included and no costs are double-counted); well-documented (can be easily repeated or updated and can be traced to original sources through auditing); and validated (they have been cross-checked with an independent cost estimate and a level of uncertainty associated with the estimate has been identified.) Second, to ensure the most efficient use of federal funds, we recommend that the Administrator revise the transition cost estimate following the award of contracts under the Networx program. Specifically, this revision should reflect best practices, include a more precise transition traffic factor, and address the overestimation of service growth, the possible double-counting of a nonrecurring charge, and the effects of inflation during the extended delay in making awards. If the results of this new estimate indicate that the full $151.5 million is not needed to reasonably support the transition effort, GSA should reallocate any excess funds for other purposes allowable within the Acquisition Services Fund or return them to the Treasury. In written comments on a draft of this report, the GSA Administrator concurred with our recommendations and emphasized the importance of supporting a successful governmentwide telecommunications transition. To address our recommendations, she stated that GSA will issue improved policy guidance on cost estimating and review and adjust the cost estimate as additional information becomes available. The Administrator also commented that GSA’s transition cost estimate was within 2 percent of our analysis using the same assumptions. However, while we identified only $3 million in quantifiable errors (roughly 2 percent of GSA’s total estimate), our report also states that if the extent of transitioning services is significantly lower than GSA’s intentionally conservative assumption, the actual costs of the transition could be considerably less than GSA’s estimate. Specifically, if all incumbents are awarded Networx contracts and only GSA’s assumption of a 16 percent voluntary transition occurs, the total cost of the transition could be reduced to approximately $40 million—over $110 million less than GSA’s estimate. In addition, the Administrator stated that GSA does not concur with the entirety of the draft report. She presented two main objections. First, she questioned whether our reported findings were balanced given the facts and results presented. We clarified our report to ensure that our findings better reflect the information we discussed. Second, she raised a concern that we incorrectly suggested comparability between the pending Networx transition and the prior transition. We maintain that the two transitions are comparable, particularly because GSA’s analysis is based, in part, on the results of the previous transition. Specifically, GSA’s analysis relied on experiences and lessons learned from the previous transition to establish costs for the current estimate. Appendix III provides the full text of GSA’s comments. GSA also provided technical comments that have been incorporated in this report, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the GSA Administrator and interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. Should you or your offices have any questions about matters discussed in this report, please contact me at (202) 512-6240 or by e-mail at koontzl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our objectives were to determine (1) the soundness of the analysis the General Services Administration (GSA) used to derive the estimate of funding that would be required for the transition and (2) whether GSA will have accumulated adequate funding to pay for its transition management costs. To determine the soundness of GSA’s analysis, we conducted an intensive search of over 250 source documents of both government and industry literature for examples of best practices in the field of cost estimation. This included literature on cost estimation from the Society of Cost Estimating and Analysis, the Department of the U.S. Army, the Office of the Secretary of Defense, the National Aeronautics and Space Administration, and the Department of Energy. This indicated that high quality, reliable cost estimates are: accurate (not overly conservative, based on an assessment of the most likely costs, and adjusted properly for inflation); comprehensive (their level of detail ensures that all pertinent costs are included and no costs are double-counted); well-documented (can be easily repeated or updated and can be traced to original sources through auditing); and validated (they have been cross-checked with an independent cost estimate and a level of uncertainty associated with the estimate has been identified). To determine the extent to which GSA followed these practices, we analyzed documentation supporting the transition estimate, documentation provided by GSA on the previous transition estimate, and the Networx Request for Proposals. We also interviewed GSA Networx program managers and attended a GSA sponsored transition conference and meetings of the Interagency Management Council Transition Working Group. To address whether GSA has accumulated adequate funding to pay for its transition management costs, we obtained and analyzed Cost and Capital Requirements Plans for the Information Technology Fund submitted to the Office of Management and Budget and legislation for GSA’s Information Technology, General Supply, and Acquisition Services Funds. In addition, to determine the extent of funding held in GSA’s related accounts, we analyzed financial statements for GSA’s technology and service programs. To verify the reliability of these records, we obtained and analyzed the results of the most recent GSA financial audits and audit reports from GSA’s Inspector General, and we interviewed GSA’s independent financial auditor regarding the quality control procedures in place. The independent auditor did not specifically review the dollar amounts in the Information Technology or General Supply Funds for accuracy but did test the controls in place for compliance with laws and regulations. This auditor stated that there were no reportable findings associated with either fund, and it was reasonable to assume that these accounts were fairly stated. As a result, we determined the data were sufficiently reliable for the purposes of this report. We also interviewed officials from the Office of Management and Budget and officials from GSA’s technology and service programs, Office of the Chief Acquisition Officer, Office of the Chief Financial Officer, and Office of the Chief Information Officer. To assess the adequacy of the level of funding already accumulated by GSA, we performed an uncertainty analysis for GSA’s estimate using a Monte Carlo simulation. A Monte Carlo simulation provides a perspective on the potential variability of the cost estimate should the facts, circumstances, or assumptions change. We chose to vary only the transition traffic factor because it is the main driver of the costs in GSA’s estimate. To carry out this simulation, we identified a minimum, maximum, and median value for the transition traffic factor based on information received from GSA. We conducted our work between May 2006 and January 2007 in accordance with generally accepted government auditing standards. An uncertainty analysis provides decision makers with a perspective on the potential variability of the estimate should the facts, circumstances, and assumptions change. By examining the effects of varying the estimates elements, a degree of uncertainty about the estimate can be expressed, possibly as an estimated range or qualified by some factor of confidence. For example, an estimate that produces a 100 percent confidence level indicates that, based on the methodology used to create that estimate, there is almost no chance that costs will exceed the estimate. We performed our uncertainty analysis on GSA’s estimate using a Monte Carlo simulation. We chose to vary only the transition traffic factor because it is the main driver of the costs in GSA’s estimate. To carry out this analysis, we identified a minimum, maximum, and median value for the transition traffic factor, based on information received from GSA. The transition traffic factor represents the possible percentage of services under FTS2001 that may transition to a different provider under the Networx contracts. For this factor, we chose a minimum of 3 percent, which represents the voluntary shift to a different vendor that occurred during GSA’s previous transition to FTS2001. For the maximum, we used 76 percent, as this value was chosen by GSA officials as a worst-case scenario in an effort to mitigate the risks of underestimating costs. The median of these two numbers is 39.5 percent. Table 3 shows the variations of each factor used in our uncertainty analysis. In addition to the contact named above, James R. Sweetman, Jr., Assistant Director; Jamey A. Collins; Neil J. Doherty; Jennifer K. Echard; Wilfred B. Holloway; Ethan J. Iczkovitz; Frank Maguire; Karen A. Richey; Glenn D. Slocum; and Amos A. Tevelow made key contributions to this report. | The General Services Administration (GSA) and its customer agencies are preparing to transition new governmentwide telecommunications contracts known as the Networx program. GSA estimated the costs for which it is responsible to be $151.5 million. This report addresses (1) the soundness of the analysis GSA used to derive the estimate of funding that would be required for the transition and (2) whether GSA will have accumulated adequate funding to pay for transition costs. In performing this work, GAO reviewed cost estimation best practices, analyzed relevant GSA documents, and performed an uncertainty analysis on GSA's estimate. GSA did not use sound analysis when estimating the amount of funding needed to meet its transition-related commitments. Specifically, its analysis was not sufficiently accurate, comprehensive, documented, or validated. A primary weakness is that the estimate is largely based an assumption--known as the transition traffic factor--that 76 percent of the services provided under the current contracts would be moved to a different provider under the Networx contracts. However, according to program officials, this assumption is intentionally conservative and represents a worst-case scenario that is unlikely to occur. Additionally, GSA may have double-counted a cost and did not update its analysis to reflect a nearly 2-year delay. Finally, GSA did not document significant assumptions and data sources used in its analysis, or validate it. These weaknesses can be attributed in part to the lack of a cost estimation policy that reflects best practices. While GSA's intentionally conservative approach minimizes the risk that it would have inadequate funds to pay for committed transition costs, it increases the risk that GSA will retain excess funds that could be used for other purposes. GSA has accumulated adequate funding to support its anticipated transition costs. As of fiscal year-end 2006, GSA had approximately $142 million in a transition reserve. GAO analysis of the estimate indicates it is unlikely that GSA will need more than it has already accumulated to fund the transition. Specifically, the $142 million already retained will be adequate to cover anticipated costs 96 percent of the time. The recent merger of two GSA funds gives the agency additional flexibility that reduces its need to accumulate the entire $151.5 million it estimated would be needed. With Networx contracts scheduled to be awarded starting in March 2007, GSA will soon have the information necessary to reassess the main assumption underlying its estimate--the transition traffic factor--and address the weaknesses GAO identified. Once this has been accomplished, GSA can reevaluate the funding needed to meet anticipated commitments. |
GSCF allows State and DOD to address emergent challenges and opportunities by pooling funds from existing departmental accounts and sharing expertise to provide equipment, supplies, and training to enhance a partner nation’s security forces. State and DOD can use the GSCF authority to support partner nations’ border and maritime security, internal defense, and counterterrorism operations, or to participate in or support military, stability, or peace support operations in partner nations. The GSCF authority also permits State and DOD to provide assistance to a partner nation’s justice sector. State and DOD fund the program primarily by transferring funds from other accounts, with at least 20 percent of the funding from State and the remainder from DOD. In fiscal year 2012, Congress authorized State to transfer up to $50 million from certain foreign appropriation accounts and DOD to transfer up to $200 million from its defense-wide accounts for operation and maintenance into the GSCF.authorized to transfer funds into GSCF until September 30, 2015; however, these funds remain available for activities under projects that State and DOD are have started before that date. In The Consolidated Appropriations Act, 2014, Congress authorized State to transfer up to $25 million from specific State appropriations accounts and authorized DOD to transfer up to $200 million into GSCF.cable, because State is required to contribute at least 20 percent and DOD not more than 80 percent of the funding for an approved GSCF project, both departments are authorized to transfer up to a combined $125 million in fiscal year 2014. According to State’s March 2014 GSCF State and DOD jointly administer GSCF; the departments work together to formulate GSCF projects that are approved by the Secretary of State, with the concurrence of the Secretary of Defense, before implementation. The departments are also required to notify Congress of their intent to transfer funds and initiate activities for GSCF projects before starting project execution, and DOD is required to seek approval to retransfer funds. Numerous State and DOD stakeholders are involved in the GSCF program from project identification to execution. Table 1 summarizes the roles and responsibilities of key stakeholders involved in the GSCF program. In March 2014, State and DOD developed processes to manage GSCF project proposal development, congressional notification, and the transfer of funds into a joint GSCF account. These processes are described in two documents: Utilizing the Global Security Contingency Fund and Global Security Contingency Fund Program Execution Guidance. State and DOD officials stated that they incorporated lessons learned from other capacity- building programs to develop the process described in Utilizing the Global Security Contingency Fund. To develop the Global Security Contingency Fund Execution Guidance, State created intradepartmental accounting and reporting procedures for GSCF funds. State and DOD officials developed a guidance document that was issued in March 2014 as a State cable titled Utilizing the Global Security Contingency Fund, which describes how State and DOD are to identify, develop, and execute GSCF projects. GSCF staff stated that they incorporated lessons learned from developing the GSCF fiscal year 2012 projects in preparing the March 2014 guidance as well as incorporating successful processes from other security assistance programs, such as The March 2014 cable describes a process that can be Section 1206.divided into three phases, with a total of 14 steps, to identify, develop, and execute projects. The cable was sent to U.S. embassies, consulates, and combatant commands and it contains sections that can be grouped into the following phases: project identification, plan development, and execution. The project identification phase is shown in figure 1. The project identification phase consists of five steps, as described below. 1. Project idea origination: officials in Washington, D.C., geographic combatant commands, or U.S. embassies are to propose an idea for a project to address an emergent or impending threat or emergent opportunity that aligns with the areas of assistance that the GSCF authority can provide. 2. Stakeholders agree to idea: key stakeholders from relevant State and DOD offices are to gather to discuss whether the project proposal addresses a high-priority national security interest without duplicating efforts, the partner nation’s receptivity to the project proposal, and whether existing State or DOD authorities are available to address the need.3. Proposal development: the proposal originator is to work with GSCF staff to initiate working-level meetings with key stakeholders to assess the proposal and discuss potential lines of effort. Additionally, the proposal originator is to complete a proposal worksheet that asks for a range of information, such as detailed assistance objectives, activities, cost estimate, and envisioned timeline. The proposal originator is to obtain endorsement of the proposal worksheet from the chief of mission and the combatant command before submitting it to the GSCF staff. 4. GSCF staff review proposal: GSCF staff is to review the proposal worksheet and confirm that it includes all required elements. 5. Review and Selection Committee review proposal: the proposal is to be reviewed by the Deputy Assistant Secretary of State and Deputy Assistant Secretary of Defense Review and Selection Committee. This senior-level committee is to meet to review the proposal within 10 business days of its receipt, when possible. During the review, the committee can ask the proposal originator to make refinements and resubmit the proposal. If there is no committee consensus to proceed, the committee is to refer the proposal to the Deputy Secretaries of State and DOD for a senior-leader decision on whether to proceed with the project. If there is consensus to proceed with the proposal, the committee is to task the proposal originator and key stakeholders to develop a detailed implementation plan, which begins the plan development phase, as shown in figure 2. The plan development phase consists of six steps as described below. 1. Implementation plan development: State and DOD are to establish a Program Steering Group—jointly led by the Deputy Assistant Secretary of State and Deputy Assistant Secretary of Defense from the relevant State and DOD regional bureaus—to provide policy guidance and oversight to the planning effort and to determine the lead organization responsible for drafting the detailed implementation plan. According to the March 2014 cable, the Program Steering Group should include all stakeholders, and they are expected to contribute to, review, and endorse the detailed implementation plan. The proposal originator is to develop a detailed implementation plan that includes—among other criteria, goals, and specific assistance objectives—a detailed work plan with a breakdown of costs per activity; related security assistance that has been implemented, is in progress, or is planned; and a proposal of outcome-oriented indicators for monitoring and evaluation. The detailed implementation plan is to be completed not more than 60 days after the Review and Selection Committee grants approval to pursue GSCF assistance. 2. Implementation plan endorsement: once the implementation plan is complete, the country team is expected to secure the endorsement of the implementation plan from the chief of mission within 7 business days, if possible. 3. Implementation plan approval: after the chief of mission endorses the implementation plan, the Program Steering Group leadership is to convene to review and approve the plan within 5 business days of its receipt. 4. Implementation plan review for completeness: GSCF staff is to review the implementation plan to ensure its completeness. If the plan is incomplete, the Program Steering Group has 10 business days to provide additional information. 5. Implementation plan approval and concurrence: after the implementation plan is final, the GSCF staff is to prepare appropriate documentation for the Secretary of State’s approval and the Secretary of Defense’s concurrence, to include the funds approval and congressional notification packages within 10 business days. 6. Congressional notification: once the departments secure the required approvals, GSCF staff is to begin the congressional notification process. After congressional notification is complete, the project execution phase begins, as shown in figure 3. The project execution phase consists of three steps as described below. 1. Funds transfer: State and DOD are to transfer funds into the GSCF account. 2. Project oversight and implementation: project implementers are to execute the project, and the Program Steering Group is responsible for overseeing program execution. 3. Project reporting: project implementers are to provide monthly and quarterly reporting on funds execution and provide information about project activities. Project implementers, the embassy, and the partner nation are also expected to support and provide input to facilitate monitoring and evaluation activities. A contractor has developed a framework to conduct monitoring and evaluation on the GSCF program and individual GSCF projects. According to State officials, the program-results framework was developed with a broad set of GSCF goals and objectives. State officials also stated that the contractor is starting to develop the project-specific framework for three GSCF projects and one has been delayed due to partner nation security and project rescoping issues. State issued a separate document in March 2014, titled Global Security Contingency Fund Program Execution Guidance, which describes a process for congressional notification and internal State procedures for transferring and managing funds in the joint GSCF account.guidance states that State and DOD should complete all congressional notification requirements to secure approval to transfer funds. The congressional notification process is shown in figure 4. The congressional notification process consists of four steps, and the guidance states that the departments should complete all congressional notification requirements simultaneously. 1. DOD retransferring request: while DOD is to seek written approval from defense committees and subcommittees to retransfer funds from the defense-wide operation and maintenance accounts into the GSCF account, State is not required to submit a retransferring request to Congress to transfer its funds. 2. Congressional notification: both State and DOD are to notify Congress of their intent to transfer funds and intent to initiate activities. In their congressional notification packages, State and DOD are required to include original source of funds; a detailed project justification, including total anticipated costs and specific activities; budget; execution plan and timeline; anticipated completion date; list of other U.S. security-related assistance provided to the partner nation; and any other information related to the project that the departments consider appropriate. 3. Waiting period: State and DOD are to wait 30 days during the congressional notification period before executing a GSCF project. 4. Congressional approval: GSCF projects may not begin execution until after the 30-day notification period expires and Congress approves DOD’s retransferring of funds. However, there may be instances in which the departments transfer funds into the GSCF account for a specific project but subsequently determine these funds are no longer needed. In such cases, the departments are required to notify Congress of the intent to initiate a new project and may use these already transferred funds. Figure 5 shows the funds transfer process for GSCF. State and DOD follow their respective departmental procedures to The three funding transfer funds from other accounts into GSCF.transfers for GSCF are identified below. 1. First transfer: the first transfer is into a time-limited U.S. Treasury– based account that GSCF staff call a parent account. State and DOD are able to transfer money into this parent account until September 30, 2015. 2. Second transfer: State created a second parent account without a time limitation since the authority also states that amounts already transferred to GSCF before September 30, 2015, shall remain available for GSCF projects that have started before this date. Once funds are transferred into the second parent account, State submits an internal transfer request to move funds a third time. 3. Third transfer: the third transfer is from the GSCF no-year parent account into a State no-year subaccount and a DOD no-year subaccount. According to State officials, funds are considered obligated once they are apportioned by the Office of Management and Budget, transferred into the respective subaccounts, and allotted to the implementing bureaus. From these accounts, State and DOD obligate funds to secure contracts or services for implementing entities. Funds are considered expended upon payment for those contracts or services. State and DOD have submitted congressional notification packages for seven projects since fiscal year 2012. As of September 2014, State and DOD have not met the execution target dates contained in the congressional notifications for the five fiscal year 2012 GSCF projects by an average of about 8 months, assuming the projects meet the currently planned execution dates. State and DOD transferred all of the funds for the two fiscal year 2014 GSCF projects in September 2014 and expect to begin execution in 2015. State and DOD have submitted congressional notification packages for seven projects since fiscal year 2012. The departments planned five of the seven projects in fiscal year 2012. To provide funding, State transferred funds from the Pakistan Counterinsurgency Capability Fund, and DOD transferred funds from the Combatant Commanders Initiative Fund and Section 1206 into GSCF. In total, State and DOD transferred $70.7 million into the GSCF account for the five projects: three special operations capacity-building projects (one in Bangladesh; another in Libya; and one in Hungary, Romania, and Slovakia), a border security capacity-building project in Libya, and a project in the Philippines to enhance maritime security and counterterrorism capabilities. In July 2014, State and DOD sent congressional notifications for two additional projects. Specifically, for one project—a national guard capacity-building project in Ukraine—State and DOD transferred $19 million for the full cost of the project. For the other project—the Counter Boko Haram project—the departments initially transferred $10 million in fiscal year 2012. Originally, this project was a counterterrorism and border security project in Nigeria but was put on hold because of evolving conditions on the ground. State and DOD subsequently rescoped the project to include Cameroon, Chad, and Niger for the purpose of improving cross-border security cooperation with Nigeria to counter Boko Haram. In September 2014, DOD transferred an additional $30 million into the GSCF account to cover the total cost. As of September 2014, GSCF projects are located across three geographic combatant commands’ areas of responsibility: U.S. Africa Command, U.S. European Command, and U.S. Pacific Command, as shown in figure 6. The five State and DOD fiscal year 2012 GSCF projects have not met the execution target dates contained in the congressional notifications due to a variety of factors, including partner nation security concerns and the time it took to obtain congressional approval. As of September 2014, the projects’ planned training activities and equipment delivery are an average of about 8 months late, assuming the projects meet the currently planned execution dates. Figure 7 describes each project, total funds transferred, and the original and currently planned dates of execution for initiation of training activities and equipment delivery, as of September 2014. In addition, the time from identification to execution for four of the five fiscal year 2012 GSCF projects averages about 2.1 years. This calculation includes the currently planned or actual execution dates for initiation of training activities, as of September 2014. Figure 8 illustrates our analysis of the time from identification through the beginning of execution for each GSCF project, to include original and currently planned or actual execution dates for initiation of training activities, as of September 2014. The five fiscal year 2012 GSCF projects were planned before State issued the March 2014 project guidance. State and DOD officials stated that the target dates were not met due to partner nation security concerns as well as additional details and supporting documentation needed by Congress to obtain congressional approval. State and DOD officials said that the departments submitted separate congressional notification documents containing different levels of detail about the projects. As a result, Congress requested that State and DOD coordinate more closely and resubmit the congressional notifications. GSCF staff provided the following explanations for delays in the five fiscal year 2012 GSCF projects: Bangladesh Special Operations Forces (delayed 17 months): State and DOD originally planned to initiate training activities in June 2013 and equipment delivery in September 2013. DOD’s congressional notification of intent to transfer funds for this project was submitted in August 2012, and Congress approved DOD’s funds transfer in November 2012. State and DOD’s congressional notification of intent to initiate activities was submitted in April 2013, and the project was approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval. In addition, the risk of unrest from the elections in Bangladesh also delayed the project. The first training course started in August 2014, and the first delivery of equipment is planned to occur between March and May 2015. Libya Special Operations Forces (delayed 12.5 months): State and DOD originally planned to initiate training activities any time between April and September 2013 and equipment delivery in April 2013. DOD’s congressional notification of intent to transfer funds for this project was submitted in August 2012, and Congress approved DOD’s funds transfer in November 2012. State and DOD submitted the congressional notification of intent to initiate activities in April 2013, and the project was approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval and the deteriorated security situation in Libya. Initiation of training activities is pending the arrival of Libyan recruits to the training location in Morocco and this date is unknown; however, equipment delivery began in May 2014. Hungary, Romania, and Slovakia Special Operations Forces (delayed 7.5 months): State and DOD originally planned to initiate training activities and equipment delivery any time between January and February 2014. DOD’s congressional notification of intent to transfer funds for this project was submitted in August 2012, and Congress approved DOD’s funds transfer in November 2012. State and DOD submitted the congressional notification of intent to initiate activities in April 2013, and the project was approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval and challenges with equipment encryption; also, training could not start until equipment delivery. Initiation of training activities is planned for November 2014, but equipment delivery began in August 2014. Libya Border Security (delayed 1.5 months): State and DOD planned to initiate training activities in January 2014 and equipment delivery in April 2014. DOD’s congressional notification of intent to transfer funds and State and DOD’s congressional notification of intent to initiate activities for this project were submitted in June 2013. DOD’s transfer of funds and the project were approved in August 2013. GSCF staff said the project was delayed due to the timing of congressional approval and safety and security concerns in Libya. As of April 2014, the project is on hold and being rescoped; however, three iterations of a training activity were completed before the project was postponed. Philippines Maritime Security and Counterterrorism (delayed 3.5 months): State and DOD planned to initiate training activities any time between January and March 2014 and equipment delivery any time between January 2014 and June 2015. DOD’s congressional notification of intent to transfer part of the funds for this project was submitted in August 2012 and approved in September 2012. State and DOD’s congressional notifications of intent to transfer the remaining funds and intent to initiate activities were submitted in August 2013, and the project was approved in September 2013. GSCF staff said the project was delayed due to the timing of congressional approval and a typhoon that hit the Philippines in November 2013. At the time of this report, initiation of training activities and equipment delivery was planned for October 2014. State’s March 2014 GSCF cable states that the GSCF program is to address near- to mid-term security concerns driven by emergent challenges or opportunities, but it does not clearly define what time frames constitute near- or mid-term. The cable outlines time frames for individual parts of the GSCF process, such as a goal to review project proposals within 10 business days. However, this does not provide stakeholders with information needed to know what meets the criteria for a near- or mid-term GSCF project. Moreover, State and DOD do not routinely track GSCF projects against established time frames. Our analysis shows that the five projects planned in fiscal year 2012 were an average of about 8 months late, assuming the projects meet the currently planned execution dates as of September 2014, as shown above in figure 8. Key management practices call for developing control activities to ensure management’s directives are being met, such as clearly defining the time frame associated with projects and tracking whether the projects are meeting their goals. Specifically, Standards for Internal Control in the Federal Government state that control activities should be designed and implemented to ensure that management’s directives are achieved and require tracking projects so that managers can determine whether they are meeting their goals. State’s March 2014 GSCF cable states that the program is intended to be high impact, address near- to mid-term security concerns in partner nations, and be driven by emergent challenges or opportunities, but the guidance does not clearly define time frames for near- to mid-term GSCF projects. The guidance also outlines time frames for individual parts of the GSCF process, such as a goal to review project proposals within 10 business days, but this does not provide stakeholders with information needed to know what meets the criteria for a near- or mid-term GSCF project. Further enhancing the definition of the program by including a range of time for how long near- to mid-term GSCF projects should take and tracking the projects against these goals are examples of control activities that could ensure that management’s directives are achieved. State officials said that GSCF is intended to address emergent challenges that fall outside of the normal budgeting and planning process; however, while this approach allows for flexibility, it does not clarify how long near- to mid-term GSCF projects should take. Officials from U.S. Africa Command, U.S. European Command, and U.S. Pacific Command stated that the uncertain time frames and onerous process associated with GSCF have inhibited the usefulness of the program to date. As a result, officials stated that they were reluctant to propose GSCF projects because of the lengthy time frames associated with the program. Once projects begin execution, State and DOD officials said that they hold biweekly meetings with project implementers to discuss the status of projects; however, these meetings do not track the time frame from project proposal to the beginning of project execution. Without clearly defining a range of time for near- to mid-term GSCF projects, stakeholders, including those proposing and approving GSCF projects, will not know the criteria for how long a project should take. Furthermore, without clearly defined time frames, State and DOD do not have a goal to track GSCF projects against. Therefore, it may be difficult to assess whether the GSCF program is meeting its goal to provide timely assistance. The timely provision of U.S. assistance to build partner nation capacity to address emerging threats has become vital to U.S. national security. Congress created GSCF as a pilot program to pool State’s and DOD’s funds and expertise on building partner capacity to address emergent challenges and opportunities. State and DOD have developed guidance for the GSCF program that notes that GSCF is to focus on near- to mid- term projects. While the departments have planned seven GSCF projects, the five GSCF projects planned in fiscal year 2012 have not met their original execution target dates contained in their congressional notification packages. State and DOD have not defined time frames for near- to mid-term GSCF projects and have not routinely tracked the projects against these goals. Clearly defined time frames will give State and DOD goals to track GSCF projects against and will allow stakeholders to assess whether the GSCF program is meeting its goal to provide timely assistance. Clearly defined time frames may also help Congress determine whether the pilot authority should be continued. To enhance the definition of the GSCF program and assist stakeholders in assessing whether GSCF is meeting its goals, we recommend that the Secretary of State and the Secretary of Defense take the following two actions: Provide a range of time to clarify the time frames associated with near- to mid-term GSCF projects, and track GSCF projects against established time frames. We provided a draft of this report to State and DOD for review and comment. State and DOD provided written comments, which are summarized below and reprinted in appendix II and III, respectively. State and DOD also provided technical comments, which we have incorporated, as appropriate. In the written comments, State did not agree and DOD partially agreed with the first recommendation, and both departments agreed with the second recommendation. With respect to the report’s first recommendation, State did not agree and DOD partially agreed that the departments should clearly define what time frames constitute “near- to mid-term” for GSCF projects. In their written comments, both departments reprinted portions of the GSCF guidance and stated that this guidance provides policy makers and planners flexibility in defining requirements and tailoring training and equipment assistance, consistent with the GSCF authority, needed to address emergent challenges or opportunities. For example, State noted that in many partner nations receiving GSCF assistance, the situation on the ground is fluid and frequently unpredictable; therefore, it is important that proposals are driven by requirements, not timelines. In addition, State and DOD said that the guidance allows proposal submissions to occur on a rolling basis. State’s response also noted that this flexibility enables them to maximize their use of the authority, to include the ability to provide assistance across ministries in partner nations. In addition, DOD noted that GSCF guidance addresses general near- to mid-term conditions that would warrant submission of a project proposal, but that defining specific time frames would restrict the program’s ability to develop detailed plans that address emergent needs. We understand and agree with the desire for flexibility in the GSCF program. We initially drafted the recommendation for State and DOD to clearly define the time frames associated with near- to mid-term GSCF projects. However, because we agree with State and DOD about the importance of flexibility, we modified our recommendation to clarify our intent and specify that State and DOD should define a range of time for GSCF projects. Defining a range of time for GSCF projects would not limit the departments’ flexibility for developing detailed plans that address emergent needs, would still address the need for time frames for GSCF projects, and would give key stakeholders a clear expectation of how long GSCF projects should take. As noted in the report, all of the GSCF projects planned in fiscal year 2012 have experienced delays, and it is difficult to independently assess the severity of these delays because the GSCF guidance does not set overall expectations about how long these projects should take. Moreover, the uncertainty around GSCF time frames has impacted key stakeholders trying to use the program. As noted in the report, officials from the three geographic combatant commands with GSCF projects told us that the uncertain time frames have inhibited the usefulness of GSCF to date and the lengthy time frames associated with the program caused them to be reluctant to propose GSCF projects in the future. Finally, the lack of time frames for GSCF projects creates financial risks because GSCF funds do not expire after Congress approves the transfer of funds and initiation of activities. As noted in the report, funds transferred into the GSCF account remain available indefinitely. Without defining a range of time for GSCF projects, State and DOD may lack reasonable assurance that GSCF activities are conducted and funds expended in a timely manner. Therefore, we believe that defining a range of time associated with near- to mid-term GSCF projects is needed so the departments and stakeholders can manage and assess the program and ensure accountability. Thus, we believe that State and DOD should fully implement our modified recommendation. With respect to the report’s second recommendation, State and DOD agreed that the departments should track GSCF projects against established time frames. State and DOD said that the departments plan to track the projects against the congressional notification timelines and plan to continue holding biweekly calls with project implementers to identify and address implementation considerations. However, as noted in the report, these biweekly calls discuss the status of projects and do not track the time frame from project proposal to the beginning of project execution. In its response, State also noted that it does not believe it would be appropriate to track projects according to the near- to mid-term time frame that we recommend. However, we continue to believe that tracking projects against established time frames, as discussed above, will be crucial for ensuring accountability. Until the departments track projects against established time frames, they are limited in assessing whether the program is meeting its goal of providing timely assistance. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Secretary of Defense, and the Chairman of the Joint Chiefs of Staff. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Charles Michael Johnson, Jr., at (202) 512-7331 or johnsoncm@gao.gov, or John H. Pendleton at (202) 512-3489 or pendletonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. The Joint Explanatory Statement accompanying the National Defense Authorization Act for Fiscal Year 2014 required GAO to review the Department of State (State) and the Department of Defense (DOD) procedures to administer and implement activities funded by the Global Security Contingency Fund (GSCF). This report (1) describes the processes State and DOD have developed to manage the program, (2) describes the status of GSCF projects, and (3) assesses the extent to which State and DOD have clearly defined time frames for GSCF projects. To conduct this work and address our objectives, we identified sources of information within State and DOD that would provide information on the processes the departments developed to manage the GSCF program. To describe the processes State and DOD developed to manage the GSCF program, we collected and analyzed guidance documents that the departments developed to manage the GSCF program. Specifically, we collected and analyzed the March 2014 diplomatic cable titled Utilizing the Global Security Contingency Fund, which provides step-by-step information on how State and DOD are to develop projects from proposal idea to project execution. We also collected and analyzed State’s March 2014 information memorandum titled Global Security Contingency Fund Program Execution Guidance, which provides step-by-step information on how State and DOD are to notify Congress of their intent to transfer funds and initiate GSCF projects as well as how the departments transfer funding into the joint GSCF account. To describe the status of GSCF projects, we gathered information from congressional notification packages, funding transfer documents, and status updates provided by State and DOD since the initiation of the program. Specifically, we analyzed the amounts transferred for each GSCF project from the information contained in the congressional notifications. We also compiled the planned execution time frames from congressional notification packages for each GSCF project, to include the initiation of training activities and equipment delivery, as well as the revised dates from State and DOD briefings on GSCF projects’ status. We also discussed the reasons for any project delays and obtained current information on the planned training and equipment delivery dates from State and DOD officials. To assess the extent to which State and DOD have clearly defined time frames for GSCF projects, we obtained and analyzed State and DOD’s congressional notification packages for GSCF projects, GSCF project updates to Congress, and State’s GSCF guidance documents. We compared this information to criteria in the Standards for Internal Control in the Federal Government. We also interviewed State and DOD officials about their management of the GSCF projects, reasons for the delays in GSCF projects, and whether State and DOD clearly defined time frames or track GSCF projects. We interviewed officials, or when appropriate obtained documentation, from the organizations listed below: Bureau of Political-Military Affairs Office of Congressional and Public Affairs Office of Security Assistance Office of U.S. Foreign Assistance Bureau of African Affairs Bureau of East Asian and Pacific Affairs Bureau of European and Eurasian Affairs Bureau of Near Eastern Affairs Office of the Under Secretary of Defense for Policy Office of the Under Secretary of Defense (Comptroller) Defense Security Cooperation Agency Joint Staff U.S. Africa Command U.S. Central Command U.S. European Command U.S. Northern Command U.S. Pacific Command Office of Defense Cooperation Bangladesh Joint U.S. Military Assistance Group Philippines U.S. Southern Command U.S. Special Operations Command We conducted this performance audit from April 2014 to November 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contacts named above, Judith McCloskey, Assistant Director; Tracy Barnes; Laurie Choi; Mary Pitts; Richard Powelson; Erika Prochaska; Michael Silver; Amie Steele; and Esther Toledo made key contributions to this report. | As instability abroad threatens U.S. and foreign partners' interests, the United States has emphasized the importance of building partner capacity to address emerging threats. Congress established GSCF in fiscal year 2012, and this pilot authority allows State and DOD to pool funds and expertise to address near- to mid-term needs for training, equipping, and enhancing foreign security forces. State and DOD jointly administer GSCF and are required to notify Congress of their intent to transfer funds and initiate GSCF activities before starting project execution. GAO was mandated to review State and DOD's procedures for managing GSCF. This report (1) describes processes State and DOD have developed to manage the program, (2) describes the status of GSCF projects, and (3) assesses the extent to which State and DOD have clearly defined time frames for GSCF projects. GAO analyzed State and DOD guidance and GSCF documents, and compared GSCF guidance to internal control standards. GAO also interviewed State and DOD officials about GSCF. The Department of State (State) and the Department of Defense (DOD) have developed processes to manage the Global Security Contingency Fund (GSCF) program. In March 2014, State and DOD officials used lessons learned from developing the initial GSCF projects to document a 14-step process to identify, develop, and execute GSCF projects. Additionally, State issued a separate document describing the process for congressional notification and internal State procedures for how to transfer and manage funds in the joint GSCF account. State and DOD have submitted congressional notification packages for seven GSCF projects since fiscal year 2012. As of September 2014, State and DOD had not met the original dates contained in the congressional notifications for the initial five GSCF projects for beginning training and equipment delivery by an average of about 8 months. State and DOD officials stated that the dates were not met due to security concerns as well as additional details and supporting documentation required by Congress to obtain congressional approval. In July 2014, State and DOD also sent congressional notifications for two additional projects that have not begun execution. The figure below shows GAO's analysis of the identification, and original and currently planned or actual execution dates, of the initiation of training activities for the five initial GSCF projects. State's March 2014 cable states that GSCF projects are to address near- to mid-term security concerns, but the cable does not clearly define what time frame constitutes near- or mid-term, and State and DOD do not track GSCF projects against established time frames. Standards for Internal Control in the Federal Government call for developing control activities to ensure management's directives are being met, such as defining a range of time for projects and tracking whether projects are meeting their goals. State officials said that GSCF is intended to address challenges outside of the normal budgeting and planning process; however, this approach does not define how long near- to mid-term GSCF projects should take. Without a range of time for GSCF projects, it is not clear how long projects should take, and State and DOD do not have time frames to track whether GSCF projects are addressing near- to mid-term needs. GAO recommends that State and DOD (1) provide an overall range of time for near- to mid-term GSCF projects and (2) track projects against this time frame. State disagreed and DOD partially agreed with the first recommendation, citing the need for flexibility. GAO agreed and modified the recommendation to clarify its intent, as discussed in the report. Both departments agreed with the second recommendation to track GSCF projects. |
The TAA program was designed to assist workers who have lost their jobs as a result of international trade. The program provides two primary benefits to these workers—training and extended income support. In addition, as a result of the TAA Reform Act of 2002, workers also have access to wage insurance and health coverage benefits. In order to be eligible for any of these benefits, Labor must certify that a layoff was trade affected. TAA Benefits and Services Under TAA, workers enrolled in the program have access to a variety of benefits and services, including the following: Training. Participants may receive up to 130 weeks of training, including 104 weeks of vocational training and 26 weeks of remedial training, such as English as a second language. Extended income support. Participants may receive a total of 104 weeks of extended income support beyond the 26 weeks of unemployment insurance (UI) benefits available in most states. Job search and relocation benefits. Payments are available to help participants search for a job in a different geographical area and to relocate to a different area to take a job. Wage insurance benefit. The wage insurance benefit, known as the Alternative Trade Adjustment Assistance (ATAA) program, was created by the TAA Reform Act of 2002 as a demonstration project for workers age 50 or older and those who find reemployment within 26 weeks of being laid off that pays less than $50,000 and less than what they previously earned. Workers who meet these criteria are eligible to receive 50 percent of the difference between their new and old wages, up to a maximum of $10,000 over 2 years. For the fiscal year 2008 budget request, Labor estimated wage insurance benefits at $23 million. Health coverage benefit. The health coverage benefit, known as the Health Coverage Tax Credit (HCTC) and also created by the TAA Reform Act, helps workers pay for health care insurance through a tax credit. Workers can choose to receive the benefit in one of two ways—as an advance option that covers 65 percent of their monthly premiums, allowing them to lower the amount they have to pay out of pocket for health coverage, or as an end-of-year tax credit that is claimed on their income taxes. To be eligible for the health coverage benefit, workers must either be (1) receiving extended income support payments or eligible for extended income support but still receiving UI payments, or (2) receiving the wage insurance benefit. IRS administers the health coverage tax credit program. There are three health plan options that are automatically eligible: COBRA continuation plans, coverage through the worker’s spouse, and individual market plans purchased by the worker. In addition, the TAA Reform Act also allows states to designate other coverage alternatives—called state-qualified options. Currently, Labor certifies workers for TAA on a layoff-by-layoff basis. Petitions may be filed by the employer experiencing the layoff, a group of at least three affected workers, a union, or the state or local workforce agency. Labor investigates whether a petition meets the requirements for TAA certification and is required to either certify or deny the petition within 40 days of receiving it. The TAA statute lays out certain basic requirements for petitions to be certified, including that a significant proportion of workers employed by a company be laid off or threatened with layoff and that affected workers must have been employed by a company that produces articles. In addition, a petition must demonstrate that the layoff is related to international trade in one of several ways, including the following: Increased imports—imports of articles that are similar to or directly compete with articles produced by the firm have increased, the sales or production of the firm has decreased, and the increase in imports has contributed importantly to the decline in sales or production and the layoff or threatened layoff of workers. Shift of production—the firm has shifted production of an article to another country, and either the country is party to a free trade agreement with the United States or the country is a beneficiary under the Andean Trade Preference Act, the African Growth and Opportunity Act, or the Caribbean Basin Economic Recovery Act or there has been or is likely to be an increase in imports of articles that are similar to or directly compete with articles produced by the firm. Labor investigates whether each petition meets the requirements for TAA certification by taking steps such as surveying officials at the petitioning firm, surveying its customers, and examining aggregate industry data. When Labor has certified a petition, it notifies the relevant state, which has responsibility for contacting the workers covered by the petition, informing them of the benefits available to them, and telling them when and where to apply for benefits. Approximately $220 million is available annually for training, and states have 3 years to spend these funds. Thus fiscal year 2006 funds must be used by the end of fiscal year 2008. Each year Labor allocates 75 percent of the training funds to states according to a formula that takes into consideration several factors, including the average amount of training funds allocated to states, reported accrued training expenditures, and the average number of training participants over the previous 2½ years. In addition, to minimize year-to-year fluctuations in state funding, Labor uses a hold harmless policy that ensures that each state’s initial allocation is at least 85 percent of the initial allocation received in the previous year. In fiscal year 2006, Labor initially allocated $165 million of training funds to 46 states. To cover administrative costs, Labor allocates to each state an additional 15 percent of its training allocation. Labor holds the remaining 25 percent in reserve to distribute to states throughout the year according to need as they experience unexpected large layoffs. Labor is responsible for monitoring the performance of the TAA program. States are required to submit information on exiting participants through the Trade Act Participant Report (TAPR) each quarter. The TAPR data submitted by states are used to calculate national and state outcomes on the TAA performance measures for each fiscal year, which include reemployment rate, retention rate, and wage replacement rate. Unlike other training programs, like WIA, TAA has no individual state performance goals, and states do not receive incentives or sanctions based on their performance levels, nor are they otherwise held accountable for their performance. In addition to submitting TAPR data, states also submit data to Labor on TAA services and expenditures each quarter. Labor could improve the way it administers the program in two key areas—the process it uses to allocate training funds and its tracking of program outcomes. Labor’s process for allocating training funds presents two significant challenges to states. First, the amount states receive at the beginning of the fiscal year does not adequately reflect states’ spending the year before or the current demand for training services in the state. Second, Labor distributes a significant amount of funds to most states on the last day of the fiscal year, even to states that have spent virtually none of their current year’s allocation. In addition the performance information that Labor makes available on the TAA program does not provide a complete and credible picture of the program’s performance. For example, only half the states are including all participants, as required, in the performance data they submit to Labor. Labor’s process for allocating training funds does not adequately recognize the episodic nature of layoffs or the extent to which states have used their previous year’s allocations. Labor allocates 75 percent of TAA training funds based upon a formula that takes into account expenditures and participation over the previous 2½ years. The year-to-year fluctuation in layoffs within a state may result in states receiving more or less funds than they actually need. For example, the estimated number of trade-affected workers being laid off declined dramatically in Kansas from fiscal years 2004 to 2005 and increased somewhat in 2006. Overall the estimated number of trade-affected workers in Kansas laid off in fiscal year 2006 represented about an 80 percent decrease from 2004. On the other hand, Missouri experienced an 80 percent increase in the number of trade- affected workers being laid off between fiscal years 2004 and 2006 (see fig. 1). Kansas used hardly any of its fiscal year 2006 training fund allocation, while Missouri used virtually all of its. Despite these trends, both states received about 15 percent less in fiscal year 2007 than they received in 2006. While the 46 states responding to our survey reported using (spending or obligating), on average, about 62 percent of their fiscal year 2006 training funds during the fiscal year, the percentage of funds states expended and obligated varied widely. Thirteen of the states reported using less than 1 percent of their fiscal year 2006 funds for training, while 9 states reported using more than 95 percent of their fiscal year 2006 training funds(see fig. 2). The amount individual states reported using ranged from 0 percent in several states to about 230 percent in 1 state. A particular problem with Labor’s allocation process is the hold harmless policy, which guarantees that each state receives no less than 85 percent of what it received in the previous year. While this policy is intended to minimize significant fluctuations in state funding from prior years, it awards states comparable training funds without recognition of the previous year’s expenditures or obligations. For example, the 13 states that used less than 1 percent of the fiscal year 2006 funds received nearly $41 million in fiscal year 2007—an amount slightly less than they received in fiscal year 2006. Moreover, 5 of the 13 states received a larger allocation in fiscal year 2007 than they received in 2006. Labor distributes a significant amount of funds to most states on the last day of the fiscal year, regardless of whether states need these additional funds. Labor distributed end-of-year funds to 48 states, including about $5 million to states that had spent or obligated less than 1 percent of their initial fiscal year 2006 allocation. Labor distributes these funds to each state based upon a calculation that takes into account the amount of training funds each state received from its initial allocation plus any additional amount it received during the year. According to Labor officials, all states will receive an end-of-year allocation unless a state specifically informs Labor it does not want any additional funds or if it had not received any funds at all during the year. Waiting until the last day of the fiscal year to distribute training funds to states does not reflect good planning or management of program funds. Labor officials agreed that the distribution of reserve training funds could be improved so that more funds are disbursed throughout the year rather than on the last day. Officials also acknowledged that states that have not spent or obligated any of their initial allocation probably should not receive additional training funds at the end of the year. In our recent report, we recommended that the Secretary of Labor develop procedures to better allocate training funds and ensure that any reserve funds are given to only those states that have spent or obligated a substantial portion of the current fiscal year allocation. In its comments, Labor agreed with our findings and recommendations and noted that it would examine the process for allocating training funds to states. TAA performance data are incomplete and may be inaccurate. States report that they are not including all TAA participants in their performance data, despite Labor’s requirement that all participants be included after they exit the program. We found that only 23 of the 46 states we surveyed reported that they are including all exiting participants in their submissions to Labor. In general, states have information on those in training, but may not systematically track those who receive other assistance, but not training. Furthermore, Labor does not have a process in place to ensure that states are including all exiting TAA participants in their reporting submissions. Despite the importance of accurately identifying exiters, the exit dates themselves may not be accurate because some states do not consistently obtain proper documentation to verify the dates. Accurate exit dates are critical to TAA performance data for two reasons. First, whether a participant exits determines if the individual should be included in the state's report to Labor. Second, the actual exit date determines when a participant's employment outcome will be assessed. Some states are not using all available data sources to determine TAA participants’ employment outcomes. Labor requires states to use UI wage records to determine the employment outcomes of participants reported to Labor. However, each state’s wage record database includes only wage data on workers within the state and does not have data on participants who found employment in another state. In our 2006 report, we made several recommendations to Labor to help ensure that TAA participant data reported by states are consistent, complete, and accurate, including issuing clarifying guidance. Labor has taken some steps to share information with states and to improve data quality. In fiscal year 2006, Labor distributed $250,000 to each state to help them improve their TAA performance data systems, but it is too soon to know whether their efforts will improve the quality of the data. States report being challenged by the lack of flexibility to use training funds to provide trade-affected workers with case management services, such as counseling to help them decide whether they need training and what type of training would be most appropriate. In addition, efforts to enroll workers in training are sometimes hampered by the confusing TAA training enrollment deadline that requires workers be enrolled in training within 8 weeks of certification or 16 weeks of layoff to qualify for extended income support. States also cited the lack of flexibility to use training funds to provide trade-affected workers with case management services as a challenge. Workers often need help making decisions about training—what type of training to take or whether to enroll in training at all. Difficulty funding case management services for trade-affected workers was a concern among officials in the states we visited. For example, state officials in one state said providing proper assessment, career counseling, and other case management services was a real challenge and noted that additional funds from other sources are limited. States do not receive TAA program funds for case management and, by law, cannot use training funds for this service. As a result, states must either use their limited TAA administrative funds or use funds from other programs to pay for case management, but there are limitations with these funding sources. According to Labor officials, states are encouraged to co-enroll participants in the Workforce Investment Act (WIA) program, and in Labor’s view states have sufficient WIA funds to pay for case management for TAA participants. About three-fourths of the states reported in our survey that they were able to utilize WIA funds to help pay for case management services. Yet nearly half of the states also reported that coordination with WIA was a challenge. For example, WIA funding may not always be available for TAA workers, especially during a large layoff. Furthermore, local officials in a state we visited said that while 85 percent of TAA participants do co-enroll in WIA, a large layoff can strain funding and makes it difficult for WIA to completely fund case management for trade-affected workers. States also reported limitations to using administrative funds to provide case management. More than half of the states responding to our survey reported the shortage of administrative funds as a challenge. One state noted that its administrative funds are usually exhausted by the end of the first quarter because of the amount of case management that is required for the program. A local official in one state we visited said that it uses Wagner-Peyser funds to pay for case management because not enough TAA administrative funds are received and TAA training funds cannot be used. As a result, only one case manager could be funded, and this one person had to cover three counties and serve approximately 1,000 workers. Moreover, officials in some of the states we visited cautioned that administrative funds should not be used for case management because case management is a program activity—any increase in the administrative limit to pay for this service could lead to the misconception that the program has too much overhead. These state officials noted that having the flexibility to use TAA training funds for case management would alleviate this concern. In our recent report, we suggested that Congress may wish to consider allowing a portion of TAA training funds to be used for case management services to allow states greater flexibility in how they may use their TAA funds to provide services to workers. Labor, however, contended that the WIA, rather than TAA, should finance case management. We agree with Labor that co-enrollment with WIA should be encouraged, but as our report points out, WIA funds are not always available to provide this service, especially during large layoffs. We believe that states would benefit from having the option to use a portion of their training funds to defray the costs of providing case management services to trade-affected workers. Efforts to enroll workers in training are sometimes hampered by the “8-16” training enrollment deadline—that is, the requirement that workers be enrolled in training within 8 weeks of certification or 16 weeks of layoff, whichever is later, to qualify for extended income support. Nearly three- quarters of the states responding to our survey reported that enrolling workers in training by the 8-16 deadline was a challenge. For example, one state noted that trying to enroll participants in training by the 8-16 deadline is particularly challenging when dealing with large layoffs because it is difficult to handle all the logistics, such as notifying workers and setting up appointments, for a large number of workers within the deadline. Moreover, officials in the four states we visited also indicated that the deadline is very confusing to workers. They told us that workers become confused about which point in time the 8 weeks or 16 weeks apply to and, as a result, are not sure when the clock starts and stops. We previously reported that about three-fourths of states responded that workers, at least occasionally, inadvertently miss the deadline and consequently lose their eligibility for extended income support. In that report, we recommended that Labor track the ability of workers to meet the 8-16 deadline. As of April 2007, Labor had not yet begun gathering information on the impact of the deadline. In our recent report, we suggested that in order to make it easier for workers to comply with the training enrollment deadline, Congress may wish to consider simplifying the deadline by specifying a single time period that commences when workers are laid off or petitions are certified, whichever is later. Several factors, including a short deadline for getting a job and the cost of buying health coverage, may limit participation in two new benefits resulting from the TAA Reform Act of 2002. In our site visits, states reported that the requirement that workers must find a job within 26 weeks to receive the wage insurance benefit was the major factor preventing more workers from taking advantage of the benefit. An additional factor that may limit participation in wage insurance by some older workers is the requirement that for a group of workers to be certified as eligible, the petitioning workers must have been laid off from a firm where the affected workers lacked easily transferable skills and a significant portion of those workers were aged 50 or over. While cost is one of the most significant factors limiting participation in the health coverage benefit, some states also reported that the health coverage tax credit program can be complicated and difficult to understand for both workers and local case managers. Few TAA participants take advantage of the wage insurance benefit. According to Labor officials, in calendar year 2006, 6,316 workers received the wage insurance benefit. The universe of workers eligible for wage insurance cannot be estimated because data are not available on the number of workers certified for TAA who are 50 years old or older and meet the other eligibility requirements. However, two-thirds of the states we surveyed reported that 5 percent or less of TAA participants received wage insurance in fiscal year 2006. We previously reported in a study of five layoffs that less than 20 percent of the workers potentially eligible for the wage insurance benefit received it. In this study, we found that workers’ awareness of the wage insurance benefit varied greatly—many workers who were 50 years old and older were simply unaware of the benefit. While state or local officials told us they discussed the ATAA benefit at rapid response meetings or TAA information meetings, workers were often overwhelmed by the volume of information received after the layoff, and didn’t necessarily recall some of the specifics. Although officials in the states we visited for our most recent study believe the wage insurance benefit is beneficial to older workers close to retirement, two key factors limit participation. Officials said that one of the greatest obstacles to participation was the requirement for workers to find a new job within 26 weeks after being laid off. For example, according to officials in one state, 80 percent of participants who were seeking wage insurance but were unable to obtain it because they failed to find a job within the 26-week period. The challenges of finding a job within this time frame may be compounded by the fact that workers may actually have less than 26 weeks to secure a job if they are laid off prior to becoming certified for TAA. For example, a local case worker in one state we visited said that the 26 weeks had passed completely before a worker was certified for the benefit. Another factor that may limit participation by some older workers is the requirement that, under the TAA Reform Act, for a group of workers to be certified, they must have been laid off from a firm where the affected workers lacked easily transferable skills and a significant portion were aged 50 or over. Labor interprets a “significant portion” as the lesser of 5 percent of the affected workforce or 50 workers at a firm with 50 or more workers, or at least 3 workers in a firm with fewer than 50 affected workers. Labor investigates each petition to see if the firm meets the requirements, and in fiscal year 2006, nearly 90 percent of TAA-certified petitions were also certified for the wage insurance benefit. Labor officials said that eliminating this step of the TAA certification process—that is, allowing any TAA-certified workers who meet the individual eligibility criteria for the wage insurance benefit to participate—would decrease the agency’s investigation workload somewhat and may increase participation in the wage insurance benefit. Labor officials told us they are taking steps to overcome the lack of awareness of wage insurance and promote the benefit by informally encouraging states to ensure case workers talk about wage insurance during one-on-one case management sessions. Furthermore, in our most recent report, we suggested that in order to enable more workers to take advantage of the wage insurance benefit, Congress may wish to consider increasing the length of time workers have to become reemployed and eliminating the requirement that to be certified as eligible for wage insurance, the petitioning workers must have been laid off from a firm where the affected workers lacked easily transferable skills and a significant portion of those workers were aged 50 or over. The high cost of the health coverage benefit to participants is the greatest barrier to higher participation. State officials said that many laid-off workers cannot afford to pay 35 percent of their health care premiums while their primary income is unemployment insurance benefits. IRS officials reported that the workers’ 35 percent share is among the primary barriers to participation in the benefit. For example, in the four states we visited, the average monthly premium for COBRA policies covering two or more individuals was about $800. The workers’ out-of-pocket cost for COBRA coverage in these states would be nearly one-fourth of their monthly UI payment (see table 1). State-qualified plans are similarly expensive and are often more expensive than COBRA coverage. Currently, 43 states have such plans, which, among other requirements, must provide for preexisting conditions. For example, in one state we visited, the premium for the state-qualified plan for a family was about $940 per month, while the average COBRA premium was about $740 per month. The worker’s share of the state-qualified premium was about $330—-or about 30 percent of the UI benefit—compared to about $260 for COBRA coverage. In addition, there is currently a period of up to about 3 months where workers must cover the full cost of their health premiums before beginning to receive the advance credit, and these costs are not reimbursable. IRS officials reported that inability to pay the out-of-pocket costs between layoff and application for the advance credit is one of the reasons workers lose eligibility and may be denied the benefit. While cost is one of the most significant factors limiting participation in the health coverage benefit, some states also reported that the health coverage tax credit program can be complicated and difficult to understand for both workers and local case managers. In our survey, nearly two-thirds of the states reported that limited IRS guidance on the benefit was still a challenge. Furthermore, during our site visits, some state and local officials said that they are not experts on the health coverage benefit and do not know enough details of the benefit to get information out to workers and to assist them with the enrollment process. In some local areas, case managers we interviewed said that they provide minimal information about the benefit and primarily refer workers to pamphlets or the IRS call center for details. We previously reported on the complexity of the health coverage benefit, noting that the process for workers to become eligible and enroll for the benefit was fragmented and difficult to navigate. In that report, we recommended to several agencies, including Labor and IRS, that a centralized resource be made available at the time individuals must make decisions about purchasing qualifying health coverage and meeting other eligibility requirements. In February 2007, IRS began distributing to all workers covered by a petition a more simplified program kit for the health coverage benefit. Two alternatives are being considered that would expand the current firm by firm petition certification approach. One approach being considered would make an industry eligible to be investigated for possible certification when Labor certifies three petitions from that industry within 180 days. Another approach would require certification of an industry once a trade remedy had been applied. An industry certification approach based on three petitions certified within 180 days would likely increase the number of workers eligible for TAA, but the extent of the increase depends upon the specific criteria that are used. Using trade remedies for industrywide certification could also result in expanded worker eligibility for TAA in a number of industries, but the extent is uncertain. As we identify in our forthcoming report, either approach presents some design and implementation challenges. From 2003 to 2005, 222 industries had three petitions certified within 180 days and therefore would have triggered an investigation to determine whether an entire industry should be certified, if such an approach had been in place at that time. These industries represented over 40 percent of the 515 industries with at least one TAA certification in those 3 years and included 71 percent of the workers estimated to be certified for TAA from 2003 to 2005. The 222 are a diverse set of industries, including textiles, apparel, wooden household furniture, motor vehicle parts and accessories, certain plastic products, and printed circuit boards. The proposals for this approach would require that, once an industry meets the three-petition criterion, Labor investigate to determine whether there is evidence of industrywide trade effects. Not all 222 industries would likely be certified industrywide. In its investigation, Labor would use additional criteria and likely consider such factors as the extent to which an industry has been affected by imports, changes in production levels in the industry, or changes in employment levels. The number of workers that would become eligible for TAA through an industry certification approach depends on what additional criteria are established. We used information from the 69 industries for which we had comprehensive data on petitions, unemployment, trade and production to estimate the potential increases in eligible workers programwide. We found that, if there were no additional criteria beyond three petitions certified in 180 days, the overall number of workers eligible for TAA might have nearly doubled, from about 118,000 to about 233,000 in 2005. If the trade threshold were set at a 10 percent increase in the import share of the domestic market, the number of eligible workers might have increased by approximately 49 percent from 118,000 to about 175,000. If certification were limited to industries with a 15 percent increase in any 1 year, the number of workers eligible for TAA might have increased by approximately 27 percent to about 150,000. Finally, if the criterion was a 20 percent increase in the import share in any 1 year, the number of workers might have increased by about 22 percent, to 144,000. More stringent criteria would result in a smaller increase in the number of workers eligible for TAA. Using trade remedies for industrywide certification could result in expanded worker eligibility for TAA in a number of industries. The number of workers eligible for TAA might increase under this approach in areas in which there have been few or no TAA petitions. For example, even though ITC found that domestic producers of certain kinds of orange juice had been injured by imports, there appear to be no TAA petitions for workers producing orange juice. However, the number of workers eligible for TAA may not increase substantially in some areas, in part because of overlap between trade remedies and TAA petitions. For example, over half of outstanding antidumping and countervailing duty orders are for iron and steel products, for which hundreds of TAA petitions have been certified. In addition, industries with trade remedies may not necessarily have experienced many trade-related job losses because the International Trade Commission (ITC) does not focus on employment when determining whether an industry has been injured, according to an ITC official. Furthermore, trade remedies are intended to mitigate the trade-related factors that caused the injury to the industry, so employment conditions in an industry could improve after the trade remedy is in place. It is difficult to estimate the extent that industry certification based on trade remedies would increase the number of workers eligible for TAA because trade remedies are imposed on specific products coming from specific U.S. trade partners, and data are not available on job losses at such a detailed level. The product classifications for a given trade remedy can be very narrow, such as a dye known as “carbazole violet pigment 23” or “welded ASTM A-312 stainless steel pipe.” Although industry certification based on three petitions certified in 180 days is likely to increase the number of workers eligible for TAA, it also presents several potential challenges. Designing additional criteria for certification. Any industrywide approach raises the possibility of certifying workers who were not adversely affected by trade. Even in industries that are heavily affected by trade, workers could lose their jobs for other reasons, such as the work being relocated domestically. In addition, using the same thresholds for all industries would not take into account industry- specific patterns in trade and other economic factors. Determining appropriate duration of certification. Determining the length of time that an industry would be certified may also present challenges. If the length of time is too short, Labor may bear the administrative burden of frequently re-investigating industries that continue to experience trade-related layoffs after the initial certification expires. However, if the time period is too long, workers may continue to be eligible for TAA even if conditions change and an industry is no longer adversely affected by trade. Defining the industries. How the industries are defined would significantly affect the number of workers who would become eligible for TAA through an industry certification approach. Our analysis defined industries according to industry classification systems used by government statistical agencies. However, some of these industry categories are broad and may encompass products that are not adversely affected by trade. Notifying workers and initiating the delivery of services. Notifying workers of their eligibility for TAA has been a challenge and would continue to be under industry certification. Under the current certification process, workers are linked to services through the petition process. The specific firm is identified on the petition application, and state and local workforce agencies work through the firm to reach workers in layoffs of all sizes. For industry certification, however, there are no such procedures in place to notify all potentially eligible workers in certified industries. For large layoffs in a certified industry, agencies could make use of the existing Worker Adjustment and Retraining Notification (WARN) notices to connect with workers. However, in smaller layoffs in certified industries, or when firms do not provide advance notice, workforce agencies may not know that the layoff has occurred. Verifying worker eligibility. Verifying that a worker was laid off from a job in a certified industry to ensure that only workers eligible for TAA receive TAA benefits may be more of a challenge under industry certification than under the current system. For example, it may be difficult to identify the specific workers who made a product in the certified industry if their employer also makes products that are not covered under industrywide certification. In addition, determining who should conduct this verification may also present challenges. A centralized process conducted by Labor would likely be unwieldy, while verification by state or local workforce agencies could take less time, but ensuring consistency across states might prove challenging. An approach using trade remedies presents some of the same challenges as an industry certification approach based on three petitions certified in 180 days. Through our work on the Trade Adjustment Assistance Program since passage of the Reform Act in 2002 we have identified a number of areas where Labor and the Congress should take action. Taking steps to limit confusion, ease restrictions, and provide support for case management would facilitate workers’ access to services and benefits. States’ ability to assist these workers would be enhanced by an improved process for allocating training funds. Mr. Chairman, this concludes my prepared statement. I will be happy to respond to any questions you or other members of the committee may have at this time. For information regarding this testimony, please contact Sigurd R. Nilsen, Director, Education, Workforce, and Income Security Issues, at (202) 512- 7215. Individuals who made key contributions to this testimony include Dianne Blank, Wayne Sylvia, Yunsian Tai, Michael Hoffman, and Rhiannon Patterson. Trade Adjustment Assistance: Changes to Funding Allocation and Eligibility Requirements Could Enhance States’ Ability to Provide Benefits and Services. GAO-07-701, GAO-07-702. (Washington, D.C.: May 31, 2007). Trade Adjustment Assistance: New Program for Farmers Provides Some Assistance, but Has Had Limited Participation and Low Program Expenditures. GAO-07-201. (Washington, D.C.: December 18, 2006). National Emergency Grants: Labor Has Improved Its Grant Award Timeliness and Data Collection, but Further Steps Can Improve Process. GAO-06-870. (Washington, D.C.: September 5, 2006). Trade Adjustment Assistance: Labor Should Take Action to Ensure Performance Data Are Complete, Accurate, and Accessible. GAO-06-496. (Washington, D.C.: April, 25, 2006). Trade Adjustment Assistance: Most Workers in Five Layoffs Received Services, but Better Outreach Needed on New Benefits. GAO-06-43. Washington, D.C.: January 31, 2006. Workforce Investment Act: Substantial Funds Are Used for Training, but Little Is Known Nationally about Training Outcomes. GAO-05-650. Washington, D.C.: June 29, 2005. Trade Adjustment Assistance: Reforms Have Accelerated Training Enrollment, but Implementation Challenges Remain. GAO-04-1012. Washington, D.C.: September 22, 2004. Workforce Investment Act: Better Guidance and Revised Funding Formula Would Enhance Dislocated Worker Program. GAO-02-274. Washington, D.C.: February 11, 2002. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The Trade Adjustment Assistance (TAA) program, administered by the Department of Labor (Labor), is the nation's primary program providing income support, job training, and other benefits to manufacturing workers who lose their jobs as a result of international trade. In fiscal year 2006, Congress appropriated about $900 million for TAA, including about $220 million for training. GAO has conducted a number of studies on the TAA program since the program was last reauthorized in 2002. This testimony draws upon the results of two of those reports, issued in 2006 and 2007, as well as ongoing work, and addresses issues raised and recommendations made regarding (1) Labor's administration of the TAA program, (2) the challenges states face in providing services to trade affected workers, (3) the factors that affect workers' use of the wage insurance and health coverage benefits, and (4) the impact of using industrywide certification approaches on the number of workers potentially eligible for TAA. Labor could improve the way it administers the program in two key areas--the process it uses to allocate training funds and its tracking of program outcomes. Labor's process for allocating training funds presents two significant challenges to states. First, the amount states receive at the beginning of the fiscal year does not adequately reflect the current demand for training services in the state. Second, Labor distributes a significant amount of funds to most states on the last day of the fiscal year, even to states that have spent less than 1 percent of the current fiscal year training allocation. Regarding program outcomes, TAA nationwide performance data are incomplete and may be inaccurate. We recommended that Labor develop procedures to better allocate the training funds and improve data. Labor recently noted that it would examine its processes. States face challenges in providing services to workers, including the lack of flexibility to use training funds to provide trade-affected workers with case management services, such as counseling to help them decide whether they need training and which training would be most appropriate. States receive no TAA program funds for case management and must either use their limited administrative funds or seek resources from other programs, such as those funded by the Workforce Investment Act. States also reported that their efforts to enroll workers in training are sometimes hampered by the training enrollment deadline and that workers find the deadline confusing. We have suggested that Congress consider providing states the flexibility to use training funds for case management and simplifying the training enrollment deadline. Few TAA participants take advantage of the wage insurance and health coverage benefits, and several factors limit participation. For example, several states reported that the requirement that workers must find a job within 26 weeks to receive the wage insurance benefit was the major factor preventing more workers from taking advantage of the benefit. Regarding the health coverage benefit, several states told us that high out-of-pocket costs may discourage workers from using the benefit. Furthermore, states also reported that the health coverage benefit can be complicated and difficult to understand. We have suggested that the Congress may wish to consider increasing the length of time workers have to become eligible for wage insurance. In addition, we also recommended that a centralized resource be developed to assist workers with their questions about health coverage. In response, the agency has developed new simplified materials. Finally, an industry certification approach based on three petitions certified within any 180-day period would likely increase the number of workers eligible for TAA, potentially doubling those eligible. The approach also presents some design and implementation challenges. |
DI and SSI—the two largest federal programs providing cash to people with disabilities—grew rapidly between 1988 and 1998, with the size of the working-age beneficiary population increasing from about 4.4 million to 7.6 million. Administered by SSA and state disability determination service (DDS) offices, DI and SSI paid cash benefits totaling about $61.3 billion in 1998. According to the law, to be considered disabled by either program, an adult must be unable “to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months.” Moreover, the impairment must be of such severity that the person not only is unable to do his or her previous work but, considering his or her age, education, and work experience, is unable to do any other kind of substantial work nationwide. received cash benefits for 24 months. About 4.7 million working-age people (aged 18 to 64) received about $39.9 billion in DI cash benefits in 1998. In contrast, SSI is a means-tested income assistance program for disabled, blind, or aged individuals, regardless of their prior participation in the labor force. Established in 1972 for individuals with low income and limited resources, SSI is financed from general revenues. In most states, SSI entitlement ensures an individual’s eligibility for Medicaid benefits. In 1998, about 3.6 million working-age people with disabilities received SSI benefits; federal SSI cash benefits paid to these and other disabled beneficiaries amounted to $21.3 billion. The Social Security Act states that people applying for disability benefits should be promptly referred to state vocational rehabilitation (VR) agencies for services in order to maximize the number of such individuals who can return to productive activity. Furthermore, to reduce the risk a beneficiary faces in trading guaranteed monthly income and subsidized health coverage for the uncertainties of employment, the Congress has established various work incentives intended to safeguard cash and health benefits while a beneficiary tries to return to work. In a series of reports, we have discussed how DI and SSI design and operational weaknesses do not encourage beneficiaries to maximize their work potential. The cumulative impact of these weaknesses, summarized in table 1, is to understate beneficiaries’ work capacity and impede efforts to improve return-to-work outcomes. In recent years, SSA has made efforts to better promote return to work. Also, the Congress and others have proposed various alternatives at program reform. The Social Security Act requires that the assessment of an applicant’s work incapacity be based on the presence of medically determinable physical and mental impairments. SSA maintains a listing of impairments for medical conditions that are, according to SSA, ordinarily severe enough in themselves to prevent an individual from engaging in any gainful activity. About 50 percent of new awardees are eligible for disability because their impairment is listed or meets the severity of a listed impairment. But findings of studies we reviewed generally agree that medical conditions are a poor predictor of work incapacity. As a result, the work capacity of DI and SSI beneficiaries may be understated. While disability decisions may be more clear-cut in the case of people whose impairments inherently and permanently prevent them from working, disability determinations may be much more difficult for those who may have a reasonable chance of work if they receive appropriate assistance and support. Nonmedical factors may play a crucial role in determining the extent to which people in this latter group can work. Because a disability determination results in either a full award of benefits or a denial of benefits, applicants have a strong incentive to overstate their disabilities to establish their inability to work and thus qualify for benefits. Conversely, applicants have a disincentive to demonstrate any capacity to work because doing so may disqualify them for benefits. Furthermore, many believe that the documentation involved in establishing one’s disability can create a “disability mind-set,” which weakens motivation to work. Compounding this negative process, the length of time required to determine eligibility can erode skills, abilities, and habits necessary to work. In addition, VR has played a limited role in the DI and SSI programs, in part because of restrictive state VR policies and limits on alternatives to providers in the state VR system. Beneficiaries have generally been uninformed about the availability of VR services and have been given little encouragement to seek them. Moreover, the effectiveness of state VR services in securing long-term financial gains has been mixed, at best. Work incentive provisions that are complex, difficult to understand, and poorly implemented further impede return-to-work efforts. Because SSA has not promoted them extensively, few beneficiaries have been aware that work incentives exist. Despite providing some financial protection for those who want to work, work incentives do not appear to be sufficient to overcome the prospect of a drop in income for those who accept low-wage employment. For example, DI work incentives provide for a trial work period in which a beneficiary may earn any amount for 9 months (which need not be consecutive) within a 60-month period and still receive full cash and health benefits. At the end of the trial work period, if a beneficiary’s countable earnings are more than $500 a month, cash benefits continue for an additional 3-month grace period and then stop, causing a precipitous drop in monthly income from full benefits to no cash benefits. SSA researchers have noted that such a drop in income is a considerable disincentive to finishing the trial work period as well as to begin working. It may be more financially advantageous for beneficiaries—especially those with low earnings—to continue to receive disability payments by not working or by limiting earnings than to earn more than $500 a month in countable income. Our work has called for SSA to develop a comprehensive, integrated return-to-work strategy that includes intervening earlier, providing return-to-work supports and assistance, and structuring benefits to encourage work. SSA has agreed that there are compelling reasons to try new return-to-work approaches. integration for beneficiaries attempting to return work. In addition, SSA has proposed to demonstrate the effectiveness of vouchers (or “tickets”) for beneficiaries to obtain VR services from public or private providers reimbursed on an outcome basis. SSA has also proposed increasing the substantial gainful activities level for beneficiaries, thereby allowing them to have a higher earned income before leaving the disability rolls. In addition to SSA’s proposed reforms, the Congress and advocates for people with disabilities have offered various reforms. Such reforms have proposed allowing working beneficiaries to keep more of their earnings, safeguarding medical coverage, and using tickets to enhance vocational rehabilitation. To understand how DI beneficiaries overcome the challenges and disincentives to work, we conducted survey interviews with 69 people who were receiving DI benefits and working in one of three metropolitan areas. The working DI beneficiaries we interviewed cited a number of factors as helpful to becoming employed (see table 2). The two most frequently reported factors—health interventions and encouragement to work by family members and others—appear to have been the most critical in helping beneficiaries become employed. First, health interventions—such as medical procedures, medications, physical therapy, and psychotherapy—reportedly helped beneficiaries by stabilizing their conditions and, consequently, improving functioning. Not only were health interventions perceived as important precursors to work, they were also seen as important to maintaining ongoing work attempts. Encouragement to work from family, friends, health professionals, and coworkers was also critical, according to respondents. impairments cited these factors as helpful to being employed. However, people with physical impairments found coworkers and the trial work period more helpful than did those with psychiatric impairments. My family members . . . encouraged me to go to work and not rely on disability income. They were helpful to me in assessing the merits and benefits of potential job offers. . . . I am using a combination of Prozac and lithium medications to control my condition and me to work regularly where I don’t use my sick days. Therapy with my counselor for over 4 years has really allowed me to work and function in a work environment. Medications for epilepsy help keep condition under control, which minimizes seizures and the risk of getting fired. . . . checks from time to time to make sure everything is okay even suggests taking days off. infectious disease doctor encouraging and is very supportive. He wrote a letter to employer explaining condition and my capabilities. parents are very supportive medications have made me physically able to work. providing emotional support. Psychotherapy and group therapy been helpful. Also, medication has been helpful. . . . My psychotherapist has gone out of his way to help me. I can call him at any time. The pastor of my church has also counseled me. At the college I attended, a director of the disabled talks to my professors and tells them about my condition so that they can take this into account when assigning work and evaluating my performance. . . . ADA has helped because I believe that would not have hired me because of my problems. responded affirmatively said that poorer health would inhibit employment. Similarly, some said that improved health would facilitate work. We found little difference in future work and program plans between people with physical and psychiatric impairments. DI program incentives for reducing risks associated with attempting work appear to have played a limited role in beneficiaries’ efforts to become employed. Although the trial work period was considered helpful by 31 respondents, others indicated it had shortcomings or were unaware that it existed. For instance, several respondents indicated the amount signifying a “successful” month of earnings ($200) was too low, an all-or-nothing cutoff of benefits after 9 months was too abrupt, and having only one trial period did not recognize the cyclical nature of some disabilities.Respondents’ mixed views of the design of the trial work period suggest that while they value a transitional period between receiving full cash benefits and losing some benefits because of work, they might be more satisfied with a different design. Finally, over one-fifth were unaware of the trial work period and therefore may have unknowingly been at risk of losing cash benefits. Moreover, many respondents were unaware of other work incentives as well. Consequently, fewer respondents reported these incentives as helpful than might have had they been better informed. For example, 41 respondents were unaware of the provision that allows beneficiaries to deduct impairment-related work expenses from the amount SSA considers the threshold for determining continued eligibility. Using the deduction could make it easier for a beneficiary to continue working while on the rolls without losing benefits. Moreover, 42 respondents were unaware of the option to purchase Medicare upon leaving the rolls. As a result, some of these beneficiaries may have decided to limit their employment for fear of losing health care coverage, while others who planned to leave the rolls may have thought they were putting themselves at risk of foregoing health care coverage entirely upon program termination. return-to-work efforts. Fifty-nine respondents answered “no” when asked if people from SSA assisted them in becoming employed. However, 52 of the 69 respondents told us that they did not have experiences with SSA that made it difficult to become employed. For the 17 people reporting difficulties, the most common examples cited were the limited assistance offered and poor information provided by SSA. Because the current work incentives have either impeded or played a limited role in helping beneficiaries return to work, the Congress and others have recognized the need to reform the current work incentives, particularly those in the DI program. However, our work has found that changing the work incentives involves difficult challenges and tradeoffs. Because of the complex interactions between earnings and disability benefits, some types of work incentive changes may help some beneficiaries more than others. Moreover, tradeoffs exist between trying to increase the work effort of beneficiaries without decreasing the work effort of people with disabilities who are not currently receiving disability benefits. Two illustrations using data from Virginia Commonwealth University’s Employment Support Institute underscore the complex interactions between earnings and benefits. For example, figure 1 shows that under current law, a DI beneficiary’s net income may drop at two points, even as gross earnings increase. The first “income cliff” occurs when a person loses all of his or her cash benefits because countable earnings are above $500 a month and the trial work and grace periods have ended (which, in figure 1, occurs when the individual earns $750 a month). A second income cliff may occur if Medicare is purchased when premium-free Medicare benefits are exhausted (which, in figure 1, occurs when the individual earns $1,500 a month). Figure 1 also illustrates what happens to net income when a tax credit is combined with a Medicare buy-in that adjusts premiums to earnings. In this particular example—although the tax credit may cushion the impact of the drop in net income caused by loss of benefits—it does not eliminate the drop entirely. However, as figure 2 shows, the income cliff is eliminated when benefits are reduced $1 for every $2 of earnings above the substantial gainful activity level. In addition, changing work incentives may or may not increase the work effort of current beneficiaries, depending on their behavior in response to the type of change and their capacity for work and earnings. But even if changes in work incentives increase the work effort of the current beneficiaries, a net increase in work effort may not be achieved. This point is emphasized by economists who have noted that improving work incentives may make the program attractive to those not currently in it. Allowing people to keep more of their earnings would make the program more generous and could cause people who are currently not in the program to enter it. Such an effect could reduce overall work effort because those individuals not in the program could reduce their work effort to become eligible for benefits. Moreover, improving work incentives by allowing people to keep more of their earnings could keep some in the program who might otherwise have left. Decreases in the exit rate could reduce overall work effort because people on the disability rolls tend to work less than people off the rolls. The extent to which increased entry occurs and decreased exit occurs will affect how expensive these changes could be in terms of program costs. The costs of proposed reforms are difficult to estimate with certainty because of the lack of information on entry and exit effects. Although our work sheds additional light on this issue, the lack of empirical analysis with which to accurately predict outcomes of possible interventions reinforces the value of testing and evaluating alternatives to determine what strategies can best tap the work potential of beneficiaries without jeopardizing the availability of benefits for those who cannot work. Mr. Chairman, this concludes my prepared statement. At this time, I will be happy to answer any questions you or the other Members of the Subcommittee may have. Social Security Disability Insurance: Factors Affecting Beneficiaries’ Return to Work (GAO/T-HEHS-98-230, July 29, 1998). Social Security Disability Insurance: Multiple Factors Affect Beneficiaries’ Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 1998). Social Security Disability: Improving Return-to-Work Outcomes Important, but Trade-Offs and Challenges Exist (GAO/T-HEHS-97-186, July 23, 1997.) Social Security: Disability Programs Lag in Promoting Return to Work (GAO/HEHS-97-46, Mar. 17, 1997). People With Disabilities: Federal Programs Could Work Together More Efficiently to Promote Employment (GAO/HEHS-96-126, Sept. 3, 1996). SSA Disability: Return-to-Work Strategies From Other Systems May Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996). Social Security: Disability Programs Lag in Promoting Return to Work (GAO/T-HEHS-96-147, June 5, 1996). SSA Disability: Program Redesign Necessary to Encourage Return to Work (GAO/HEHS-96-62, Apr. 24, 1996). PASS Program: SSA Work Incentive for Disabled Beneficiaries Poorly Managed (GAO/HEHS-96-51, Feb. 28, 1996). Social Security Disability: Management Action and Program Redesign Needed to Address Long-Standing Problems (GAO/T-HEHS-95-233, Aug. 3, 1995). Supplemental Security Income: Growth and Changes in Recipient Population Call for Reexamining Program (GAO/HEHS-95-137, July 7, 1995). Disability Insurance: Broader Management Focus Needed to Better Control Caseload (GAO/T-HEHS-95-164, May 23, 1995). Social Security: Federal Disability Programs Face Major Issues (GAO/T-HEHS-95-97, Mar. 2, 1995). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO discussed return-to-work issues facing the Disability Insurance (DI) and Supplemental Security Income (SSI) programs, focusing on: (1) structural and operational weaknesses in the current DI and SSI programs that impede return to work; (2) factors that working beneficiaries believe are helpful in becoming and staying employed; and (3) challenges that exist in improving program incentives to work. GAO noted that: (1) program eligibility requirements and the application process encourage people to focus on their inabilities, not their abilities; (2) moreover, work incentives offered by the programs do not overcome the risk of returning to work for many beneficiaries, and the complexities of work incentives can make them difficult to understand and challenging to implement; (3) also, there is little encouragement to use rehabilitation services, which are relatively inaccessible to beneficiaries seeking them; (4) some DI beneficiaries who work despite these program weaknesses cited improved ability to function in the work place, resulting from successful health care, and encouragement from family, friends, health care providers, and coworkers as the most important factors helping them find and maintain work; (5) GAO's analysis of some of the proposed changes to work incentives--such as gradually reducing the DI cash benefit level as earnings increase--indicates that there will be difficult trade-offs in any attempt to change work incentives; and (6) moreover, determining the effectiveness of any of these proposed policies in increasing work effort and reducing caseloads would require that major gaps in existing research be filled. |
Under authority first provided by Congress in 1940, VA reimburses eligible veterans for travel expenses associated with medical appointments through VHA’s Beneficiary Travel Program.travel expenses eligible for reimbursement include mileage, tolls, meals, and lodging. Through the program, VA may also pay for special mode transportation—such as ambulances and wheelchair vans. Veterans are eligible for travel reimbursement if they have 30 percent or more service-connected disability ratings; are receiving care related to their service-connected disability if their service-connected disability rating is less than 30 percent; receive VA pension benefits; have an annual income below a set annual rate; present clear evidence that they are unable to defray the cost of travel; or are traveling for compensation and pension exams. Certain caregivers also may be eligible for travel reimbursement. Generally, eligible veterans are only reimbursed for round-trip travel costs associated with scheduled appointments, except in the case of emergency care. Since the program’s inception, Congress has made several modifications, including adjusting eligibility requirements, types of travel expenses covered, deductible costs, and mileage reimbursement rates. For example, in fiscal years 2008 and 2009, Congress directed VA to increase its mileage reimbursement rate from 11 cents per mile to 28.5 cents per mile and then to 41.5 cents per mile. Committee reports accompanying VA’s fiscal years 2008 and 2009 Medical Services appropriations indicated that the committees identified specific amounts to fund these rate increases. Spending for the Beneficiary Travel Program increased from about $370 million in fiscal year 2008 to about $860 million in fiscal year 2012, with mileage reimbursement accounting for an increased proportion of the spending in this same period. (See fig. 1.) According to VHA officials, the increase in spending was primarily due to the increased number of veterans claiming mileage reimbursement, a rise in the average number of claims per veteran, and higher mileage reimbursement rates. For example, according to VHA, the number of veterans claiming mileage reimbursement increased from about 450,000 in fiscal year 2008 to about 1,450,000 in fiscal year 2012. VHA’s Chief Business Office is responsible for establishing policies and providing guidance to medical centers for the Beneficiary Travel Program. These policies describe, for example, the eligibility requirements and the types of travel expenses that are reimbursable. VHA’s Office of Finance is responsible for establishing national policies for the processing of payments for reimbursement and financial quality assurance. Veterans Integrated Service Networks (VISN) have no specific oversight responsibilities for the Beneficiary Travel Program beyond the general responsibility of ensuring compliance with VHA’s policies at the medical centers within their region.handled at the local medical center level. Administration of the program is largely VHA’s policies outline requirements for the Beneficiary Travel Program’s reimbursement process, and can be summarized into the following three broad steps: Veteran applies for travel reimbursement: VHA policies stipulate that veterans must apply for reimbursement within 30 calendar days of the travel. Veterans must provide information on the travel costs incurred to the medical center responsible for the care. Medical center reviews eligibility and determines reimbursement amount: After the veteran applies for reimbursement, VHA requires medical centers to assess the veteran’s eligibility for reimbursement,determine distance traveled, and apply appropriate deductibles. For example, VHA policies stipulate that except under certain circumstances, veterans are reimbursed for mileage between their place of residence and the nearest VA facility where the care could be provided. Medical center reimburses veteran: After eligibility has been verified and reimbursement amounts determined, medical centers reimburse veterans those amounts. Medical centers also have local procedures for managing the program. (See app. I for examples of procedures used by some of the medical centers included in our review.) In February 2013, the VA OIG released a report summarizing findings from its audit of VHA’s Beneficiary Travel Program. The audit revealed problems such as inadequate management and oversight, and inaccurate payment amounts. Specifically, the VA OIG reported that it did not have reasonable assurance that Beneficiary Travel Program costs were accurate or were being paid only to eligible veterans. The VA OIG report found that from January 2010 through March 2011 VA paid $89 million more in beneficiary travel reimbursements than facilities approved, including $42.5 million in unexplained payments. On the basis of its findings, the VA OIG recommended that VHA establish and implement procedures to strengthen authorization, payment, and oversight controls for the program. VHA concurred with the OIG’s findings and recommendations and reported that it would, among other things, be implementing several initiatives to address the findings. Additionally, VHA has identified the Beneficiary Travel Program as being susceptible to significant improper payments. The Improper Payments Elimination and Recovery Act of 2010 (IPERA) requires agencies with programs identified as being susceptible to significant improper payments to estimate the annual amount of improper payments for each program and publish these estimates and corresponding corrective actions in an annual report; VA includes this information in its annual Performance and Accountability Report. For VA’s 2012 Performance and Accountability Report, VHA estimated that the Beneficiary Travel Program had $71 million in improper payments. IPERA also requires federal agencies’ inspectors general to annually determine whether their respective agencies are in compliance with IPERA requirements and to report on their determinations. In March 2013, the VA OIG reported limitations in VHA’s methodology for estimating improper payments for the Beneficiary Travel Program and other programs but noted that this was not a matter of noncompliance with IPERA requirements. VHA has developed multiple efforts to improve the management and oversight of its process for reimbursing veterans’ travel expenses for medical appointments. However, lack of internal controls for some efforts may hinder VHA’s ability to improve the process. VHA has developed multiple efforts to improve the management and oversight of the Beneficiary Travel Program, as well as the timeliness and accuracy of payments. (See table 1.) These efforts—many of which medical centers are or will be required to implement—are expected to increase the consistency of how the program is administered. For example, the Dashboard, a Web-based software, provides a standardized process that medical centers are required to use to determine a veteran’s eligibility for travel reimbursement, the amount of any deductibles, and the number of miles from the veteran’s residence to the closest VA medical facility where care could be provided. The efforts are in various stages of development and implementation, with some being fully implemented in all medical centers, while others are in earlier stages. For some of the efforts, VHA has utilized a pilot process in a small number of medical centers to help identify and resolve potential problems before releasing the efforts VHA-wide to all medical centers. For example, in the fall of 2012, VHA piloted the Electronic Funds Transfer (EFT) effort—a process for transferring travel reimbursement funds electronically into veterans’ bank accounts—in medical centers in 2 of the 21 VISNs. The EFT effort—along with VHA’s Debit Card effort, a VHA-wide card that veterans can use to receive travel reimbursement electronically—implements a Department of the Treasury requirement for federal agencies to convert cash payments to electronic funds payments by March 1, 2013. VHA has requested and received an extension from the Department of the Treasury on the implementation of electronic funds payments to allow VHA to simultaneously implement both the EFT and Debit Card efforts. VHA anticipates VHA-wide implementation of both efforts by December 31, 2013. Some of VHA’s efforts to improve the Beneficiary Travel Program have been developed in response to OIG and IPERA report findings as corrective actions to improve monitoring and oversight of the program and to decrease improper payments. One such effort is the Facility Audit Tool—a tool used to audit facilities’ past travel reimbursement transactions and operations through a more standardized process. Currently this tool is being used by VHA’s Office of Finance to annually audit programs identified as susceptible to improper payments under IPERA. VHA officials told us that this tool may ultimately be used by VISNs to audit their facilities’ past travel reimbursement transactions and operations, but did not have a time frame for its VHA-wide implementation. Officials from the six medical centers we interviewed told us the new efforts that have been implemented generally improved or would improve some aspects of the Beneficiary Travel Program. For example, medical center officials reported that the implementation of the Dashboard had increased staff efficiency by decreasing the time needed to determine a veteran’s eligibility, as well as increased the accuracy of payments, in line with VHA’s goals for this program. In addition, officials said EFT would help improve oversight over the payment process. Compared to the process of paying veterans in cash, EFT provides an opportunity for the medical center staff—in this case the fiscal office staff—to review and audit travel payments before a reimbursement is issued to the veteran. Officials said these reviews could help medical centers reduce improper payments, and that EFT also improves security at medical centers because less cash is on hand for reimbursements. Although medical center officials provided positive feedback on some of the efforts, they also identified implementation challenges. For example, medical center officials reported difficulty tracking EFT reimbursements, and that staff members had received many calls from veterans who were confused by only limited information transmitted with the EFT direct deposits. In addition, when veterans claimed reimbursements for multiple appointments, they did not know which appointment was associated with which electronic reimbursement payment, or which reimbursements were still pending. According to medical center officials, investigating pending reimbursements is time consuming and takes time away from staff members’ reimbursement-processing responsibilities. Medical center officials also said the lack of information transmitted with the payments hinders acceptance of the EFT process in general, as veterans do not have complete confidence that their reimbursements are timely and accurate. In our review of VHA’s efforts to improve the Beneficiary Travel Program, we found that internal controls were lacking for some of the efforts. The implementation of internal controls is important for ensuring efforts achieve intended outcomes and minimizing operational problems. Without these internal controls in place, VHA cannot ensure that the efforts will meet its goals, such as improved management and oversight. Plan for Evaluating Performance Indicators. VHA has not developed a plan for evaluating VHA-wide performance indicators for at least one of its efforts, the Beneficiary Travel Analytics Tool (Data Mining Tool), as would be consistent with internal control standards. According to established internal control standards, efforts to improve performance and efficiency should include the evaluation of appropriate performance indicators of the effort to gauge progress and inform decision making in resolving any problems. The Web-based Beneficiary Travel Analytics Tool, implemented March 31, 2013, generates travel reimbursement pattern reports—reports identifying questionable veteran reimbursement patterns that may indicate improper payments, such as frequently changing addresses on reimbursement claims, which may be done to inappropriately increase travel reimbursement amounts. According to VHA officials, medical centers are expected to use the reports generated by the tool to diagnose any problems in their own travel reimbursement processes and to implement appropriate corrective actions. VHA expects medical centers to submit documentation to VHA’s Chief Business Office on any resulting corrective actions they have taken. Officials told us that they expect to review the corrective actions; however, as of May 14, 2013, they did not have a documented plan for evaluating travel reimbursement pattern data collected for all medical centers on an aggregated (VHA-wide) basis. An appropriate evaluation plan consistent with internal controls would include documentation of the frequency of performance indicator evaluations, and an analysis plan for assessing either all, or a portion of, the travel reimbursement pattern data. Officials acknowledged the need to fully develop a plan to ensure that potential weaknesses are identified so that needed program improvements may be made. A plan for evaluating the data on a VHA-wide basis is necessary to ensure that the power of the Beneficiary Travel Analytics Tool is more fully realized. Timely Guidance. VHA has not provided timely guidance to medical centers on its new EFT effort, as would be consistent with internal control standards. According to these standards, reliable and timely program information should be provided to management and others to ensure that responsibilities are being carried out and VHA goals are being met. Specifically, despite being aware of the March 1, 2013, Department of the Treasury deadline for implementation of EFT in December 2010, VHA did not provide guidance to medical centers on how to implement the effort until February 22, 2013. Had the guidance been provided earlier, it would have provided timely, key information to medical centers on the implementation of EFT, including the process that medical centers should be using to enroll veterans; the procedures for veterans to request a waiver from an electronic payment when they have an immediate need for a cash payment; and VHA’s contingency plan for the travel reimbursement process due to its delay in providing policies for implementing EFT VHA-wide. By delaying the issuance of the guidance, VHA failed to ensure that all medical centers were provided with consistent and timely guidance, which, according to medical center officials we spoke with, led to frustration for medical centers, as well as confusion for veterans. For example, most medical centers in our review already had developed their own local procedures for enrolling veterans into EFT and processing payments before VHA’s EFT pilot began; officials from some of the medical centers in our review expressed frustration that they would have to revise some of these processes when the VHA-wide effort was eventually implemented. Effective Communication. VHA also did not provide a communication plan for sharing information on EFT with medical centers and veterans in a timely manner, as would have been consistent with internal control standards. Specifically, VHA did not share information on EFT with medical centers to help them inform veterans of the coming changes until February 22, 2013. VHA officials acknowledged they failed to develop a communications plan in a timely manner, and agreed that this is something they should have done to help ensure the success of the conversion to EFT. By not communicating this information in a timely manner, VHA did not ensure that medical centers had consistent and accurate information for informing veterans of the change in payment options, potentially affecting veterans’ enrollment in EFT and their satisfaction with the new reimbursement process. Although officials from some medical centers we spoke with said they have developed their own materials for communicating with veterans about EFT, having communication materials come from VHA headquarters would have carried more weight with veterans and provided more consistency across all medical centers for this VHA-wide effort. Plan for Monitoring Compliance. VHA has not developed a plan to ensure medical centers’ compliance with the efforts or its existing policies, as would be consistent with internal control standards. For example, medical centers are required to use the Dashboard, and VHA officials told us that VHA-wide procedures for using the Dashboard will be included in the program’s revised Standard Operating Procedures. However, VHA officials told us they do not have a plan in place to ensure that each medical center is using this new software. Without knowing whether all medical centers are using this required software or using it consistently, VHA cannot ensure that the Dashboard’s goals, including standardizing the mileage calculations, will be realized. Furthermore, because medical centers have the flexibility to develop local procedures for administering the Beneficiary Travel Program, it is important that VHA monitor local procedures to ensure they are consistent with VHA policies. For example, one medical center in our review automatically generates travel reimbursement payments to eligible veterans after each completed appointment. Thus, instead of applying for reimbursement after each medical center appointment, eligible veterans who have a signature on record can simply leave the medical center after their appointment and receive their reimbursement payment by mail or direct deposit. Acknowledging that this automatic payment procedure is different from other medical centers, medical center officials said it has greatly increased the efficiency of their management of the Beneficiary Travel Program and has received positive feedback from veterans and staff. Monitoring compliance with program policies, especially due to differences in local procedures, is an important internal control for ensuring that program goals are being met. Use Information to Improve Efficiency. VHA does not routinely collect information on medical centers’ local procedures for administering the Beneficiary Travel Program to identify and share best practices. According to federal internal control standards, identifying and sharing best practices is an essential part of ensuring an effective and efficient use of resources. For example, officials at one of the medical centers we interviewed said that installing drop boxes at multiple locations around their facility was a simple and efficient way to make the process more convenient for veterans, shorten lines at the Beneficiary Travel Office, and improve staff productivity. Some medical center officials described sharing best practices on an ad hoc basis with colleagues in other medical centers, and said that learning from others’ experiences is valuable to their administration of the Beneficiary Travel Program. Although VHA officials described one instance of evaluating a software program for national use that was developed and implemented at one medical center, they have not regularly solicited information on best practices; instead, they have relied on medical center and VISN officials to identify and share information. A more systematic identification and sharing of best practices would enhance medical centers’ access to the same information in order to minimize problems and maximize efficiencies within the Beneficiary Travel Program. For more than 70 years, VHA’s Beneficiary Travel Program has reimbursed eligible veterans for travel expenses associated with medical appointments. In the past 5 years, spending under the program has more than doubled, from about $370 million in fiscal year 2008 to about $860 million in fiscal year 2012. This increase is of particular note, as travel reimbursements come out of the same VA medical center funds used for patient care. At the same time spending is increasing, concerns have been raised about the accuracy of payments and VHA’s management and oversight of the program. In response to these concerns, VHA has taken steps to improve its process for reimbursing veterans for travel expenses by developing multiple efforts aimed at enhancing management and oversight of the program. However, some of the efforts lack key internal controls that would help VHA better manage and oversee its program. Specifically, VHA has not developed a plan for evaluating VHA-wide performance indicators for the Beneficiary Travel Analytics Tool; provided timely guidance and effective communication tools to medical centers for EFT; ensured compliance with Dashboard and other efforts; and routinely collected information on medical centers’ local procedures to identify and share best practices. Without appropriate management and oversight, VHA is unable to ensure that its Beneficiary Travel Program—which is on track to spend nearly $1 billion dollars annually in the next few years—is operating effectively, including assurances that payments made through the program are appropriate. To improve the management and oversight of the Beneficiary Travel Program, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Health to ensure appropriate internal controls have been identified and applied in the development and implementation of all of VHA’s efforts aimed at improving the program, including developing and implementing a plan to evaluate performance indicators for the Beneficiary Travel Analytics Tool, providing timely guidance and effective communication tools to medical centers as VHA completes its implementation of EFT, ensuring medical centers’ compliance with Dashboard and other routinely collecting information to identify and share best practices across medical centers. We provided a draft of this report to VA for comment. VA generally agreed with our conclusions and concurred with our recommendation. VA identified the activities that VHA would undertake to ensure appropriate internal controls have been identified and applied related to the four specific efforts we noted: performance indicators for the Beneficiary Travel Analytics Tool, guidance and communication to medical centers regarding EFT, compliance with Dashboard and other improvement efforts, and identification and sharing of best practices across medical centers. VA did not directly address ensuring that appropriate internal controls are identified and applied in the development and implementation of all efforts aimed at improving the program. We continue to emphasize the importance of internal controls to the success of VHA's efforts. VA’s comments are reprinted in appendix II. VA also provided technical comments, which we have incorporated as appropriate. We are sending copies of this report to the Secretary of Veterans Affairs and appropriate congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or draperd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Example of medical center procedure Veteran submits claim for reimbursement at medical center travel office. Medical center rationale Allows medical center to provide same-day claim review, and in some cases reimbursement. Veteran puts claim for reimbursement in a designated drop box. Helps reduce the lines at the medical center’s travel office, is more convenient for veterans, and allows medical center staff more time to review the claim. Medical center staff check veteran’s name against photo identification for each claim submitted in person. Helps improve accuracy and reduce improper payments by ensuring the appropriate person is reimbursed. Medical center staff check veteran’s address and name against information maintained in VA’s data system for claims not submitted in person, such as for a veteran using a drop box. Helps improve accuracy and reduce improper payments by ensuring correct addresses are used, and VA has consistent information about the veteran in its data system. Reimbursement provided primarily through cash. Reimbursement provided primarily through a check. Allows for same-day reimbursement. Limits cash payments, which may shorten veterans’ time waiting at the medical center’s travel office, and reduces security and other risks associated with having large amounts of cash on- hand at medical centers. Also, helps ensure VHA has valid addresses for veterans for calculating travel reimbursements, because these addresses are where the checks are mailed. Reimbursement provided primarily through direct deposit or a debit card. Limits cash payments, which may shorten veterans’ time waiting at the medical center’s travel office, and reduces security and other risks associated with having large amounts of cash on- hand at medical centers. Also, turn-around time for veterans’ receipt of direct deposit or debit card reimbursements is generally shorter than for check reimbursements. This procedure will change with full implementation of the Electronic Funds Transfer and Debit Card efforts. In addition to the contact named above, Janina Austin, Assistant Director; Jennie Apter; Robin Burke; Kelli Jones; Lisa Motley; and Karin Wallestad made key contributions to this report. | VHA's Beneficiary Travel Program is designed to encourage eligible veterans to seek medical care by reducing travel costs to medical appointments. Veterans are eligible to receive reimbursement for some travel expenses, such as mileage, through the program that is administered by VA medical centers. In February 2013, the VA Office of Inspector General identified issues with inadequate management and oversight. VHA has identified the program as susceptible to significant improper payments and has estimated $71 million in improper payments for fiscal year 2012. GAO was asked to examine VHA's Beneficiary Travel Program. In this report, GAO examined recent efforts VHA has developed or implemented to improve the program. GAO reviewed documents and interviewed VHA officials about these efforts; and determined whether VHA applied the appropriate internal controls. GAO also reviewed documents and interviewed officials from six VA medical centers, which vary on the basis of fiscal year 2012 mileage reimbursement spending, geographic location, and other factors. The Department of Veterans Affairs' (VA) Veterans Health Administration (VHA) has developed efforts to improve the Beneficiary Travel Program, but lack of internal controls may impede their effectiveness. Specifically, VHA has developed multiple efforts to improve the management and oversight of its process for reimbursing veterans' travel expenses for medical appointments, as well as the timeliness and accuracy of payments, including the following: Dashboard . Web-based software that determines a veteran's eligibility for travel reimbursement, the amount of any deductibles, and the number of miles from the veteran's residence to the closest VA medical facility. The software is designed to enable VA medical center staff to quickly and consistently calculate veterans' mileage reimbursement. Beneficiary Travel Analytics Tool . Tool that provides each medical center with reports identifying questionable veteran reimbursement patterns, such as frequently changing addresses on reimbursement claims, which may be done to inappropriately increase travel reimbursement amounts. The reports are intended to help medical centers define and implement facility-level internal controls to reduce improper payments. Electronic Funds Transfer (EFT) . Process to transfer travel reimbursement funds electronically into veterans' bank accounts. This effort implements a Department of the Treasury requirement for federal agencies to convert cash payments to electronic funds payments, and aims to improve efficiency, increase oversight, and reduce the amount of cash on hand. These efforts are expected to increase the consistency of how the program is administered by medical centers. However, GAO found that internal controls were lacking for some of the efforts, including the following: Monitoring Compliance . VHA has not developed a plan to ensure medical centers' compliance with the efforts or existing policies. For example, although medical centers are required to use the Dashboard, VHA officials told us they do not have a plan in place to ensure that each medical center is using this new software. Evaluating Performance Indicators . VHA has not developed a plan for evaluating VHA-wide performance indicators for at least one of its efforts, the Beneficiary Travel Analytics Tool. Providing Effective Communication . VHA did not provide a communication plan for sharing information on EFT with medical centers and veterans in a timely manner. Without necessary internal controls in place, VHA cannot ensure that its new efforts will meet its goals, such as improved management and oversight, or that the Beneficiary Travel Program, which has seen spending more than double in the past 5 years--approaching $1 billion annually--is operating effectively. GAO recommends that VA identify and apply internal controls in its efforts to improve management and oversight of the Beneficiary Travel Program, including ensuring compliance with the Dashboard, evaluating performance indicators for the Beneficiary Travel Analytics Tool, and providing effective communication tools to medical centers for EFT. VA generally agreed with GAO's conclusions and concurred with the recommendation. |
The maturation of the baby boom generation (persons born between 1946 and 1964) has progressed to the point where boomers will soon begin moving from the traditional working ages to the ages when many people start to retire. The first wave of the baby boom generation will start to turn age 65 in 2011 and the last of the boomers will be 65 in 2029. This development will lead to significant changes in the ratio of the working age population (defined as age 20 to 64) to the population age 65 or older. This ratio, called the “aged dependency ratio” because it provides an estimate of how many workers will be available to support each retiree, was 21 percent in 2000, or 5 working-age individuals for every person over age 65. As the baby boom generation ages, the aged dependency ratio will rise. By 2030, it will reach 35 percent, meaning that there will be fewer than three persons of traditional working age for every person age 65 or over. The increase in the aged dependency ratio is not only occurring because of the growing numbers of older persons. It is also due to the slowing growth of the labor force of younger workers over the last decade, a trend that is expected to continue. From 1950 to 1990, the labor force under 55 grew at an average annual rate of 1.9 percent. From 1990 to 2000, the average annual growth rate for this group was 1.0 percent, and BLS projects that from 2000 to 2025 labor force growth will slow to an annual rate of 0.3 percent. Several recent changes in Social Security retirement policy could strengthen incentives to work longer. Social Security provides monthly benefits to qualified retired and disabled workers and their dependents, and to survivors of insured workers. These benefits are the primary source of income (more than 50 percent) for nearly 57 percent of the population age 65 and older. In April 2000, the practice of reducing Social Security benefits when a beneficiary has earnings and has reached the normal retirement age (currently 65 years and 4 months) was eliminated, at least in part to remove the disincentive to work. Also, the delayed retirement credit for persons who first claim benefits after the normal retirement age is steadily being increased until it reaches 8 percent per year in 2008. Prior to these increases, those who chose to work beyond normal retirement age might receive less Social Security over their lifetime because the start of their benefit receipt was delayed. Some members of Congress have also put forward proposals that would raise normal retirement age for benefits beyond the current schedule of increases, as well as proposals that increase the early retirement age of 62. Other federal laws also attempt to make work and the workplace more hospitable for older individuals. The Age Discrimination in Employment Act of 1967 (ADEA) promotes the employment of older persons based upon their ability rather than age and prohibits age discrimination in employment. The Equal Employment Opportunity Commission (EEOC) enforces ADEA as well other federal statutes prohibiting employment discrimination. ADEA applies only to firms with 20 or more employees, thus excluding a not insignificant segment of the labor force. While some states have their own laws protecting older workers in small businesses, these laws still may exclude some small businesses. As pension benefits are a key source of retirement income for many workers, they can also influence the work decisions of older individuals. To encourage employers to establish and maintain pension plans for their employees, the federal government provides preferential tax treatment under the Internal Revenue Code (IRC) for plans that meet certain requirements. In exchange for preferential tax treatment, an employer is required to design the pension plan within legal limits that are intended to improve the equitable distribution and security of pension benefits. The Internal Revenue Service (IRS) administers policies on pension distributions that are set by the Congress in the IRC to ensure that the benefits of all tax-qualified plans are apportioned in a nondiscriminatory manner. Many pension plans have features that encourage employees to retire at or before age 65. Pension laws relating to defined benefit plans allow benefits earned after the normal retirement age (generally, age 65) to accrue at a lower rate. Furthermore, many defined benefit plans subsidize early retirement benefits which tends to discourage employment after becoming eligible for these benefits. ERISA establishes certain minimum standards for private employee pension plans. This law also created the ERISA Advisory Council to advise the Secretary of Labor with respect to carrying out responsibilities under ERISA. The Advisory Council has made recommendations to the Secretary of Labor to consult and work with appropriate government agencies on pension and welfare plan reforms that could help employers establish phased retirement programs. The number of older workers will grow substantially over the next two decades and they will become an increasingly significant proportion of all workers. This expected increase is a result of the aging of the baby boom generation and a general trend in greater labor force participation among older persons. Older workers are employed in a diverse group of occupations but are a growing proportion of the workers in white-collar occupations. In addition, our projections show that older workers may make relatively greater gains in earnings than their younger counterparts between 2000 and 2008. The number of older workers will grow rapidly over the next two decades. According to the BLS, in 2000, 18.4 million persons over age 55, or about one-third of the over-55 population, were in the labor force. (See Fig. 2.) BLS estimates that there will be 31.8 million older labor force participants in 2015, an average annual increase of 4.0 percent from 2000. However, this rapid growth is expected to level off by the mid-2020s. BLS estimates that 33.3 million older persons will be in the labor force in 2025, an average annual increase of only 0.5 percent from 2015. This expected increase is a result of the aging of the baby boom generation and a general trend in greater labor force participation among older persons. The oldest baby boomers are currently 55 years old, and the youngest will turn 55 in 2019. The percentage of older persons who participate in the labor force has been growing, especially among females age 55-64, a trend that is expected to continue. (See Fig. 3.) Currently, 30 percent of all persons 55 and older participate in the labor force, a number that is expected to grow to 37 percent by 2015, according to projections by BLS. This increase in labor force participation among older workers is primarily driven by the growth in the number of older women and their labor force participation rates. Labor force participation rates of women between the ages of 55 and 64 have been steadily increasing from 42 percent in the mid- 1980s to 52 percent in 2000. A further increase in the participation rate to 61 percent is expected to occur by 2015, according to BLS. The labor force participation rate of women age 65 and older is currently 9 percent. This is up from the low point of slightly more than 7 percent in the mid-1980s but is lower than the 10 percent levels of the 1950s. BLS projects the growth in the participation rate in this age group to grow to 10 percent by 2015. The labor force participation rates of males over age 55 have been stable for several years and are projected to increase in the future. Older male labor force participation hit a low point in the mid-1990s that was part of a downward trend that had been occurring for several decades. Since then, the labor force participation rates of males between the ages of 55 and 64 have held steady at approximately 67 percent; BLS projects an increase to 69 percent in 2015. Labor force participation rates of males 65 and older also held steady at about 17 percent during the 1990s and are projected to rise to nearly 20 percent by 2015. As the number of older workers grows, older workers will also become a larger percentage of all workers. In 1950 and 1960, older workers comprised 17 percent and 18 percent of the labor force, respectively. (See Fig. 1.) As the relatively large baby boom generation entered the workforce between 1960 and 1990, the proportion of older workers fell to 12 percent of the total as the number of workers under age 55 swelled. Older workers now represent 13 percent of the total workforce, and BLS estimates that by 2015 they will be about 20 percent of the total workforce. Older workers hold jobs in a wide range of occupations that are somewhat reflective of the occupations occupied by younger workers. (see table 1.) Nearly the same percentage of workers in the age categories of 40 to 54, 55 to 64, and 65 to 74 are employed in white collar occupations (approximately 62 percent). The slight difference in the employment distribution among these age groups is found in blue-collar and service occupations. Nearly 15 percent of workers age 65 to 74 are employed in service occupations compared with 11 percent of workers age 40 to 54. Blue-collar work accounts for 26 percent of employment among workers age 40 to 54 and 23 percent for workers age 65 to 74. The general shift in the economy away from physically demanding jobs is present among workers of all ages, but is far more pronounced among older workers as they age. Workers age 55 to 64 constitute a significant proportion of many occupations as they are nearly 13.9 million members (11 percent) of the total workforce. (See table 2.) The highest absolute numbers of older workers age 55 to 64 are in executive/manager occupations (2.4 million or 12 percent of the total occupation) and professional occupations (2.3 million or 11 percent of the total occupation). Workers age 65 to 74 comprise much smaller percentages of occupations since most persons in this age group have exited the labor force. Workers age 65 to 74 constitute less than 4 percent of the all major occupational categories with the exception of farming, fishing, and forestry. Between 2000 and 2008, the number and percentage of workers over age 55 will increase in all major occupational categories, according to our projections. (See Figs. 4 and 5.) The largest change should occur in white- collar occupations. Among executives/managers, the percentage of workers in this occupation who are over 55 is projected to grow from 15 percent to 23 percent. The percentage of the workforce that is over age 55 in professional occupations should also grow substantially from 14 percent to 19 percent. The smallest change should occur in employment in service occupations as the percentage of the workforce older than age 55 employed in the service sector grows from 13 percent to 14 percent. In line with these major occupational changes, certain specific occupations will increasingly rely on older workers. For example, from 2000 to 2008, the percent of teachers older than age 55 will increase from 13 percent to 19 percent, and the percent of nurses and related occupations older than age 55 will increase from 12 percent to 18 percent. (See app. I.) As workers age, their occupational composition moves towards white- collar and service occupations and away from physically demanding occupations. According to our projections, the composition of the older workforce will shift further from blue-collar to white-collar occupations in the near future. Between 2000 and 2008, the proportion of workers age 55 to 74 in managerial/administrative and professional/technical occupations will increase by 2.9 percent and 1.6 percent, respectively, while the proportion in blue collar and service occupations will decrease. (see app. I.) The change in the occupational composition of older workers into less physically demanding occupations is supported by an analysis of changes in occupations of related age groups, as shown in table 3. Group I consists of individuals age 45 to 54 in 1990 and individuals age 55 to 64 in 2000. Group II consists of individuals of age 55 to 64 in 1990 and 65 to 74 in 2000. In 2000, both groups I and II had fewer individuals in the more physically demanding occupations of production, craft and repair, machine operation, and assembly; they also had a greater number of older workers in the white-collar and service occupations in 2000. Part of this shift likely occurred because as workers age they can experience health problems that make their jobs more difficult to perform and, therefore, they choose to move into less physically demanding jobs. Also, the composition of the labor force changes because of differential retirement rates and those who continue to work to older ages are more likely to be white-collar workers. The shift toward white-collar occupations is also partially explained by differences in educational attainment among the baby boom generation and the cohort proceeding them. (See Fig. 6.) Fifty-seven percent of persons who are age 40 to 54 have at least some college education (29 percent have a college degree) compared with 42 percent of individuals age 55 to 74 (21 percent have a college degree). Moreover, only 11 percent of individuals age 40 to 54 lack a high school diploma compared with 22 percent of persons age 55 to 74. The greater level of educational attainment among the baby boomers may lead to more employment opportunities as they age. They may have a broader diversification of jobs available to them compared to the current generation of older workers. Between 1989 and 1999, older workers experienced larger percentage gains in median earnings than younger workers. (See Fig. 7.) Adjusted for inflation, workers between the ages of 55 and 64 and workers between 65 and 74 had median earnings increases of 9 percent and 19 percent, respectively, for the 10-year period—compared with increases of 2 percent and 4 percent for workers age 40 to 54 and 30 to 39, respectively. These earnings increases were primarily driven by a greater number of older workers working full-time instead of part-time (57 percent in 1989 versus 63 percent in 1999) and a movement in the occupational composition toward higher paying white-collar jobs (See tables 3 and app. I). Improvements in the economy during the last 15 years likely offered older workers the opportunity to move into full-time employment as labor shortages increased the demand for their services. During the economic expansion of the mid- to late-1980s, the unemployment rate declined from 7 percent in 1985 to 5 percent in 1989; by comparison, in the mid- to late- 1990s the unemployment rate declined from 6 percent to 4 percent. According to our projections, workers between the ages of 55 and 74 will continue to make gains in their earnings that exceed those of their counterparts who fall between the ages of 40 and 54. Currently, workers age 55 to 64 and workers age 65 to 74 earn 93 percent and 46 percent, respectively, of what workers age 40 to 54 earn. We project these numbers to rise to 111 percent and 67 percent, respectively, by 2008. These relative gains are tied to the change in the composition of the older workforce to higher paid white-collar occupations, while younger workers’ occupational composition is projected to change to more blue-collar and service occupations. While older workers are less likely than younger workers to lose a job, older workers who do lose a job are somewhat less likely than younger workers to return to work. Older workers and younger workers tend to lose their jobs for similar reasons. However, many older workers who lose their jobs choose to retire following the job loss. Some older workers who have not yet fully retired do seek transitional or “bridge” employment. But once fully retired, relatively few are interested in returning to work. The desire to return to work among fully retired older persons who have lost a job varies according to education and race. Although small in percentage terms (1.3 percent), it is fairly large numerically. In 2000, there were more than three-quarters of a million persons age 55 to 74 who were either unemployed and looking for work or fully retired and wanting a job. According to data from the Displaced Workers Supplement (DWS) to the CPS, older workers were somewhat less likely than younger workers to lose their jobs between 1997 and 1999. (See table 4.) However, older workers who did lose their jobs were significantly less likely than younger workers to be re-employed. Thirty-nine percent of persons age 55 to 74 who lost their jobs were not re-employed as of February 2000, compared with 19 percent of persons between age 40 and 54. Those who did seek re- employment and found jobs reported job search times that were somewhat comparable to their younger counterparts. The median job search times for workers age 40 to 54 and 55 to 74 was four weeks. However, the average 12 weeks time workers age 55 to 74 needed to search for new employment was 3.6 weeks longer than for workers age 19 to 39 and 1.3 weeks longer than for workers age 40 to 54. This indicates that there is a segment of the older workforce that incurs more prolonged job searches relative to younger persons. Older workers and younger workers tend to lose their jobs for similar reasons. According to data from the DWS, older workers are somewhat more likely than younger workers to lose their jobs due to plant closures or plant relocation (31 percent compared with 24 percent, respectively) and somewhat less likely to lose their jobs due to insufficient work (17 percent compared with 22 percent). (See Fig. 8.) The DWS asks respondents whether they lost their jobs due to their position or shift being abolished, completion of a seasonal job, failure of a self-operating business, or another reason. The responses of older and younger workers were not significantly different. Though older workers are not more likely to lose a job, a job loss potentially has more severe consequences for older workers. Older workers tend to have greater tenures in their jobs and may experience a larger loss in earnings upon re-employment, compared with younger workers. Moreover, the potential loss of health care benefits following a job loss could be more problematic for older workers because of the positive correlation between greater health problems and aging. For older workers, the likelihood of being hired by a new employer varies according to several factors—the compensation level, mix of wages and benefits, skill requirements, working conditions, and hours of work— associated with the new employer and job. For example, a firm whose wages are highly correlated with firm-specific experience will hire fewer older workers. Firms with these types of compensation structures usually require that skills be developed internally on the job. Moreover, these types of firms tend to encourage earlier exits of older workers through their payments of pension benefits. Occupations that require extensive computer use also tend to hire fewer older workers possibly due to perceptions that older persons have difficulty adapting to new technologies. Finally, jobs that require night and evening shifts hire fewer older workers. According to the March 2000 CPS, 768,000 persons age 55 to 74 were either unemployed and seeking a job (520,000 persons), or fully retired and said they wanted a job (248,000 persons). Unemployment rates for most groups of older workers are low and vary somewhat by educational level and by race. In 2000, the unemployment rate for all workers over age 55 was 2.8 percent. However, non-high school graduates had an unemployment rate of 5 percent, which was more than three times as high as college graduates. (See table 5.) The unemployment rate for blacks was 4.1 percent and for Hispanics and other ethnic groups 5.3 percent, compared with an unemployment rate of 2.5 percent among whites. Furthermore, once older Americans fully retire, most do not want to return to work. About 45 percent (or 18.4 million persons) of all persons between age 55 to 74 were fully retired. These individuals are not doing any work for pay and have categorized themselves as “retired.” When questioned about whether they wanted a full-time or part-time job, only 1.3 percent responded “yes.” Public and private employers are using an array of arrangements— including rehiring retirees, reduced work schedules, and allowing job- sharing—to retain and extend the careers of older workers. However, survey data and interviews with employers suggest that few of these arrangements are widespread among private employers or involve large numbers of workers at individual firms even though the majority of older workers are interested in them. Employers cite several reasons for not implementing programs, but the most prevalent is that they simply have not considered doing so. While acknowledging the importance of the issue, union officials we spoke with said that they have not addressed these issues broadly in collective bargaining agreements due to a lack of interest on the part of employers generally and difficulties in establishing flexible schedules in many manufacturing settings. Public employers appear to be experimenting more with these programs than private employers. For example, large efforts to retain older workers are being made in some states in response to teacher shortages. These efforts primarily involve pension incentives that make work financially attractive for older employees. Some employers and employees are experimenting with flexible employment arrangements that would allow older workers to continue to work. We found that flexible employment arrangements come in many different forms, including part-time work, seasonal or part-year work, consulting or contracting for limited periods of time, or a reduction of job responsibilities. (See table 6.) For example, a large retail drug store chain accommodates older workers by offering them part-time or part- year schedules and allows them to work in multiple locations throughout the country. Under this approach, an older worker can work in New York during the spring and summer and in Florida during the fall and winter. A large chemical manufacturer has established an in-house Retiree Resource Corps that serves as a clearinghouse for matching retirees’ skills and the company’s employment needs for retirees who wish to work on a temporary basis. Retirees must separate from the company for 6 months prior to entry into the program and are limited to less than 1,000 hours of work per year. Employees who work more than the maximum have their pension benefits ceased and must terminate from the program to have their benefits reinstated. A large fruit canning employer hires older workers on a part-year basis to work in their canning factory that operates from July to mid-September. The employer says that older workers are more likely to be available for the part-year work than younger workers who are more interested in full-time jobs. A needle manufacturer has been successful in recruiting older workers by allowing them to choose the days they want to work. Though they exist, flexible employment arrangements are not yet widespread in the private sector. According to our interviews with experts, consultants, and employers, in many instances these arrangements or programs are provided on only an ad hoc basis and to limited groups of employees. The employees involved in these arrangements tend to be skilled workers with an expertise for which an employer has a special need. While these programs can be expensive, some firms have shown they are willing to pay to retain the more highly skilled employees who are hardest to replace. Survey data on the extent and nature of flexible employment arrangements -- at least in large private sector firms -- also supports our finding that such programs are often limited in scope and not widespread. According to a study by Watson Wyatt, a large human capital consulting services firm, 16 percent of employers participating in their survey offer some type of flexible employment arrangement. However, they defined such an arrangement as any type of accommodation that was being made to an older worker either on a programmatic or individual basis. The American Association of Retired Persons (AARP) and the Society for Human Resource Management (SHRM) also conducted a study of flexible employment programs and estimated that about 2 percent of employers offer such arrangements to older workers. Neither of these studies is nationally representative. While acknowledging the importance of the issue, unions we spoke with have not yet addressed flexible employment programs broadly in collective bargaining agreements due to a lack of interest on the part of employers generally and difficulties in establishing flexible schedules in many manufacturing settings. We spoke with officials from unions representing workers in the telecommunications industry and manufacturing industries like automobiles and aerospace, who said that flexible employment programs for older workers are not yet a major issue for many unions. A union official in the manufacturing industry said flexible employment programs may be difficult to establish because for many production processes, the work environment tends to require team production from employees on full-time schedules. A union official in the telecommunications industry said that unions have proposed some flexible employment arrangements in bargaining, but they say employers have not shown an interest because they do not yet see worker retention as an important issue. Evidence suggests that at least some middle- and large-sized employers currently do not see a need for flexible employment programs, although this could change in the future. According to the Watson Wyatt survey, 70 percent of companies do not offer phased retirement programs to older workers because they simply have not considered it. Other reasons given for not offering programs were the programs’ incompatibility with corporate culture (16 percent), restrictions on in-service distributions (14 percent), employment costs (13 percent), and productivity concerns (9 percent). However, 28 percent of the employers who do not offer phased retirement indicated that they have a moderate to high interest in doing so over the next 2 to 3 years. Moreover, 70 percent of the employers surveyed said that phased retirement programs may be a solution to labor shortages brought on by demographic and economic change. The hesitancy on the part of employers to offer flexible employment programs appears to be at odds with the desire of older employees to have the option of participating in such programs, and thus possibly extending their work lives. According to 1996 data from the Health and Retirement Survey, 56 percent of persons age 55 to 65 would prefer to gradually reduce their hours of work as they age, but only 16 percent of full-time workers in this age group said their employers would be willing to allow them to reduce their hours. Another survey of workers age 54 to 74 who were employed in their career occupations found that 48 percent of workers wanted to work significantly fewer hours—citing workload and job demands (41 percent) and financial factors (28 percent) as their reasons for working more hours than they would prefer. A reduction in work hours seems to be a fairly common desire: 71 percent of retirees who have returned to work said the reason they initially retired was due to a lack of a more flexible work schedule. Furthermore, this option seems to be less available to rank and file workers, with managers and professionals more likely to believe a reduction in hours was possible (64 percent) than were workers in service and production occupations (31 percent). Some public sector employers have been very active in initiating broad programs that provide incentives for older workers to stay on the job. Driven in large part by teacher shortages in many public school districts, state and local government employers have implemented programs that provide incentives for older employees to remain on the job. In many instances, these incentives were created by redesigning their state-defined benefit pension plans to include Deferred Retirement Option Plan (DROP) features that allow a pension participant at an eligible retirement age to have pension benefits start even though he or she continues to work.These programs also include other pension plan revisions as well. At the state level, Arkansas, California, Louisiana, and Ohio have all adopted incentives for older teachers to stay on the job rather than retire. A growing number of state and local public employers have implemented, or are considering implementing, DROP pension features as incentives to encourage older employees to remain on the job. Although employers have used these for other public employees like firefighters or law enforcement personnel, many have focused on the retention of elementary and secondary public school teachers. For example, Arkansas has a DROP program in which all teachers who meet length-of-service requirements can have 70 percent of their monthly pension payments deposited into an account that is payable as a lump sum along with other options for payment. Teachers can stay in the DROP program for up to 10 years. The state also allows teachers who are eligible for retirement to draw their full pension and a full salary if they work in one of four subject areas deemed to have a critical shortage of teachers (math, science, foreign language, and special education) and if they separate from employment for 30 days. Louisiana has a variety of programs to encourage older teachers to stay on the job, and 4,300 teachers participated in them last year. The DROP program has been popular among the teachers because they can earn a lump sum in the range of $70,000 to $80,000 in 3 years. Two-thirds of eligible teachers participate in the DROP program and may participate for up to 3 years, after which they can continue working and will resume earning pension credits in their defined benefit system. The myriad of other Louisiana programs established to retain or attract retired teachers are being phased out and replaced with one program that allows retired teachers to earn their full pension while continuing to teach after a 12- month break in service. Some public employers are using other pension incentives to retain teachers. For example, facing a projected shortfall of 300,000 teachers over the next decade, the California legislature enacted several measures modifying the state teacher pension plan to encourage older teachers to continue to work. Starting in 2001, teachers who retire and then separate from employment for 1 year can return to teaching and earn a full salary while continuing to receive full pension payments. In addition, pension benefits have been enhanced in 3 ways: a longevity bonus of up to $400 per month has been added for 30 to 32 years of service; a 0.2 percent addition to the pension benefit has been granted for each year beyond 30 years of service; and 2 percent of salary is paid into a supplemental retirement account which is then payable as a lump sum. Nearly 10 percent (17,000 teachers) of Ohio’s teaching workforce consists of rehired retirees. Ohio teachers can draw a full salary and full pension benefits after a 2-month break in service. This provision also applies to other Ohio public employees in the event of a future shortage of employees. Internal Revenue Code requirements regarding pensions may discourage private employers from adopting DROP plans and other programs that could encourage workers to extend their employment after retirement eligibility. In 2000, the ERISA Advisory Council identified current ERISA and IRC regulations that could constrain private employers in implementing flexible employment arrangements, including regulations prohibiting in-service distributions of defined benefit pension benefits and rules governing nondiscrimination. Pension regulations prohibiting in-service pension benefit distributions can discourage the employer’s formation of DROP programs. Defined benefit pension plans sponsored by private employers are not allowed to pay pension benefits to older workers who become eligible for retirement income before the plan’s normal retirement age. Therefore, it would be difficult, if not impossible, for a private sector employer to provide a defined benefit DROP plan to workers who are younger than the pension plan’s normal retirement age. To address this issue, the Council recommended relaxing the IRS rules on in-service distributions to facilitate the formation of phased retirement plans, although concern was expressed by some witnesses that workers might outlive their retirement savings by beginning benefits at an earlier but lower rate. The ERISA Advisory Council also found that federal regulations governing nondiscrimination in pension benefits or contributions can restrict employers from offering phased retirement programs. For example, some employers reported to the Council that they did not establish flexible employment programs because of concerns with violating federal pension regulations governing nondiscrimination in benefits or contributions. The concerns are based on the likelihood that a higher percentage of highly compensated employees would be participating in the programs because their skills are more desirable. To the extent that older workers are more likely to be owners or highly compensated employees than younger workers, a DROP plan could disproportionately include the employer’s highest paid employees. In such a case, the employer’s pension plan could be deemed as discriminatory and potentially lose its tax-qualified status. To alleviate these concerns, the Council recommended that the IRS relax its rules on nondiscrimination if the intent of the plan amendment was clearly not to be discriminatory. Recognizing the complexity of this issue, the ERISA Advisory Council also suggested that the Secretary of Labor organize a task force to focus on the obstacles within ERISA and other relevant federal laws that inhibit private employers from instituting DROPs. A variety of factors contribute to discouraging the continued labor force participation of workers after a certain age. These factors include the following: Some employers may have negative perceptions of older workers and discriminate. Past surveys have found that some managers possess negative perceptions about the productivity of older workers. For example, managers have expressed a perception that age reduces workers’ physical stamina and ability to learn new skills. Under the ADEA, it is illegal to discriminate in employment on the basis of age, but evidence suggests that such discrimination does still occur. In 2000, the EEOC received 16,000 complaints of age discrimination, with nearly 3,000 merit resolutions and cumulative monetary damages of $45 million. Because some employers might seek to avoid hiring older workers because of potential litigation, the ERISA Advisory Council proposed that an interagency task force be convened to determine if any of the laws dealing with older workers’ pension benefits, including the ADEA, the IRC, and ERISA, need to be amended in order to encourage the continued development of flexible retirement alternatives for older workers. Employers perceive higher costs associated with hiring older workers. Employers may feel that it is more difficult to recoup the costs of hiring and training older workers. The shorter potential length of time an older worker may remain with an employer, compared with a younger worker, implies that these up-front fixed costs are greater for older workers because of the shorter time period for employers to recoup their investment. Moreover, all other things being equal, older workers can raise an employer’s cost of providing health coverage. To address these issues, the ERISA Advisory Council recommended that legislation be developed that would extend Medicare to workers between the ages of 55 and 64. Older workers have more health problems that inhibit work. According to CPS data on self-reported health status, 17 percent of persons age 55-64 have a work-limiting health problem compared with 9 percent of persons age 40-54 and 5 percent of persons age 30-39. Older workers play a key role in the labor market and their importance will only grow in the years to come. By 2008, 1 out of every 6 workers in the American labor force will be over age 55, and this ratio is estimated to reach over 1 out of 5 by 2025. Older workers will comprise a progressively larger number of our nation’s managers, supervisors, and executives. Employers will have to rely more heavily on this segment of the labor force, as their experience and “institutional knowledge” become an increasingly valuable resource. Thus, older workers will become a critical labor force component in maintaining future productivity and economic growth, particularly if, as projected, labor force growth continues to slow. Yet, employers have taken little action so far to prepare for this demographic transition. We identified few employers with well established, formalized programs to encourage older employees to work longer. Some private employers have indicated an awareness of the need to retain older workers and are experimenting with different options to extend the work lives of their older employees. However, these programs remain small and are often administered on an ad hoc basis. Flexible employment programs also remain to be addressed by employers and workers in the collective bargaining context. Public employer efforts to retain or rehire older workers have been broader and somewhat more common, largely in response to localized labor shortages in skilled occupations like teaching. Part of this inaction may be because these demographic changes, while inevitable, remain largely on the horizon. Most employers are not yet facing labor shortages or other economic pressures requiring them to consider phased retirement or related programs. For this reason, time is available to develop sound policies, programs, and practices to respond to this demographic challenge. Some public discussion on this matter is already taking place. For example, Labor’s ERISA Advisory Council has received testimony from employers and other interested parties as to how federal policy and laws should be changed to address phased retirement, and the older worker issue generally. From this testimony, the Advisory Council has made recommendations to the Secretary of Labor, particularly with regard to current pension law and policy. The ERISA Advisory Council has already urged that the Secretary of Labor convene a task force that would focus on issues concerning the extension of DROP plans to private employers. However, many of the recommendations suggested by the Advisory Council are beyond the purview of the Labor Department and would require action by other agencies or the Congress for implementation, as well as raising cost implications. Additional expert assessment and input from those agencies charged with administering the affected laws and regulations would help ensure that these recommendations are both carefully crafted and represent sound policy, particularly those calling for far reaching legislative changes. Expertise and input from outside agencies could also help to identify any unintended consequences of the actions that could be taken. For example, amending the ADEA to facilitate the expansion of phased retirement programs might result in some older workers losing legal protection against age discrimination in ways not previously recognized or understood. It also raises the risk that workers might outlive their retirement savings by beginning benefits too early. Finally, greater input from other agencies could help to identify other aspects of the issues already explored and additional recommendations not addressed by the Advisory Council. This is particularly important given that the diversity among firms and industries suggests a need for a range of solutions. For example, what may work for public employers—creating incentives to extend employment through alterations in the design of their defined benefit pension plans—may not be helpful for private employers who do not have such plans or could not afford such redesign. The challenge of how to extend the work lives of older employees in a manner that balances the competitive imperative of business with the life realities of older workers presents many opportunities. By focusing on the development of the policies, programs, and employment arrangements necessary to extend the work life of the growing numbers of older employees, the nation can ensure future supplies of skilled workers, bolster economic growth, and help secure retirement income adequacy for many working Americans. To address the potentially serious implications of the aging of the U.S. labor force and avoid possibly acute occupational labor shortages in the future, the relevant government agencies should work together to identify sound policies to extend the worklife of older Americans, including those legal changes that would foster creative solutions to extending workers’ careers. Specifically, we recommend that the Secretary of Labor convene an interagency task force to develop legislative and regulatory proposals addressing the issues raised by the aging of the labor force. This task force would include representatives from Labor, and other agencies that have either regulatory jurisdiction or a clear policy interest, bringing together the expertise necessary to consider fully the implications of each proposal. It would solicit input from employers, unions, and other interested parties and carefully balance the concerns of older workers, employers, and the general public. The task force would also serve as a clearinghouse of information about employer or collectively bargained programs to extend the work life of older workers. We provided the EEOC, Labor, Treasury, and the Social Security Administration the opportunity to comment on the draft report. EEOC provided us with written comments, which appear in their entirety in appendix II. EEOC agreed with our findings, strongly supporting the goal of encouraging older workers to remain in the labor force and endorsing our recommendation for the convention of an interagency task force. The agency also provided us with several technical comments, which we incorporated as appropriate. Labor, Treasury and the Social Security Administration provided us with technical comments, which we incorporated as appropriate. We are providing copies of this report to the Secretary of Labor, the Secretary of the Treasury, the Commissioner of Social Security, and the Commissioners of the Equal Employment Opportunity Commission. Copies will be made available to others upon request. Please contact me at (202) 512-7215, Charlie Jeszeck at (202) 512-7036, or Jeff Petersen at (415) 904- 2175, if you have any questions about this report. Other major contributors to this report are listed in appendix IV. Age 65-74 54 53 41 30 41 54 52 30 43 45 43 44 2008 (Projected percent) Most of the survey data used in this report are from the March Current Population Surveys (CPS). The annual March CPS is a source of income estimates for the United States and also includes employment and demographic data. We used the CPS because of its large sample size, its inclusion of detailed information on the economic and demographic characteristics of labor force participants, the timeliness of its data, and its collection frequency and consistency, which allows the opportunity to show trends over time and construct projections. We used CPS Basic Monthly Survey data from 1983 through 2000, March supplement data from 1989 through 2000, and February supplement data on displaced workers and job tenure and occupational mobility from 1996, 1998, and 2000. The Health and Retirement Survey (HRS) is composed of persons born between 1931 and 1941, and the respondents are questioned every 2 years. The first wave of questions was conducted in 1992. We used HRS data from Wave III that was conducted in 1996. The sampling errors for the estimated percentages used in this report from CPS data are less than plus or minus 1 percentage point at the 95 percent confidence level. This sampling error does not apply to our projections of occupational distributions or wages. Although widely used and a rich source of detailed data, CPS and other surveys that are based on self- reported data are subject to several sources of nonsampling error, including the following: inability to get information about all sample cases; difficulties of definition; differences in the interpretation of questions; respondents’ inability or unwillingness to provide correct information; and errors made in collecting, recording, coding, and processing data. These nonsampling errors can influence the accuracy of information presented in the report, although the magnitude of their effect is not known. Data were grouped into the age categories of 30-39, 40-54, 55-64, and 65-74 when the sample size was large enough to make calculations based upon these age groups. When the sample size was too small to support these age categories, we chose to group the data by over 55 and under 55. We based our occupational projections to the year 2008 on methods developed by the U.S. Department of Labor, Bureau of Labor Statistics. In order to do occupational projections by age group, we used 5-year age cohorts from 1988-93 and 1994-98 CPS Basic Monthly Survey data, calculating net replacement needs for 5-year intervals to 2003 and 2008. We made adjustments for the irregular size of bottom and top age groups. To compensate for missing historical data to project the younger age cohorts to 2008, we used BLS projections of the civilian labor force in 2008 for the 16-24 and 25-34 age groups and then we subtracted the percent unemployed as of 2000 for these age groups. We then distributed the projected employed by the percentage of those age groups in each occupational group in 2000. The accuracy of our model was checked by running projections from earlier data to the year 2000 and comparing the 2000 projections with actual 2000 data. We also adjusted our projected labor force numbers for 2008 by BLS’ labor force projections for 2008. To project earnings to 2008 for age groups over 40, we calculated mean earnings by occupation, age group, and year from 1989 to 1999. We then inserted a variable to control for the business cycle, projected the earnings by occupation and age group to 2008, and merged the projected earnings with our age group specific 2008 occupational projections. A potential shortcoming of our projections is that the cohort effects (e.g., the baby boomers are different from older generations) cannot be separated from age effects (e.g., the baby boomers labor force behavior will change as they pass from middle to old age) using cross-sectional data. We identified companies with flexible employment programs for older workers through interviews with experts and reviewing literature on the subject. We then interviewed officials from 13 companies who were knowledgeable about the programs. Public employers were identified and interviewed on the same basis. Other contributors to this report include Don Porteous, Roger Thomas, and Howard Wial. | The impending retirement of the "baby boom" generation is receiving considerable attention. The number of older workers will grow substantially during the next two decades, and they will become an increasingly significant share of the U.S. workforce. Although older workers are less likely than younger workers to lose a job, when they do lose a job, they are less likely than younger workers to find other employment. To retain older workers and extend their careers, some public and a few private employers are providing options, including flexible hours and financial benefits, reduced workloads through the use of part-time or part-year schedules, and job-sharing. Most employers are not yet facing labor shortages or other economic pressures that would require them to consider flexible employment arrangements because the retirement of the baby boom generation will occur gradually during the next several decades. |
In using baseline budget projections, we need to understand what assumptions they incorporate and how realistic these assumptions may be. Intended as a neutral reference point for comparing alternative policies, baseline projections make no assumptions about future policy change. The overarching assumption is that current laws concerning tax policy and spending continue unchanged. The conventions governing baseline projections are appropriate and understandable in the context of budget enforcement purposes. However, in using these projections as a basis for policymaking, it is important to remember what they are and what are they are not. The baseline is just that—a baseline from which to estimate the impact of policy actions; one would expect the ultimate outcomes to be different—particularly over a decade. Some analysts have suggested that baseline projections may understate likely future discretionary spending while overstating likely future revenues. Where current law does not provide a determinative rule—as is the case for discretionary spending after expiration of the caps—both CBO and OMB must make some assumptions. CBO’s most commonly used projection for discretionary spending—and the one we use for the first 10 years of our long-term simulations—is the baseline under which discretionary spending grows with inflation. A number of observers of the federal budget, including former CBO directors Robert Reischauer and Rudolph Penner, have suggested that this inflated discretionary assumption is unrealistic. One analysis has pointed out that a growth rate no higher than inflation would mean that future per-capita discretionary spending would decline in real terms during an era of budget surpluses. In addition, projections based on current-law assumptions may overstate likely future revenues. For example, the baseline projections assume expiration of a set of about 20 tax credits—including the research and experimentation tax credit—which have been routinely extended in the past. The baseline projections also assume no change to the alternative minimum tax, which is expected to affect an increasing number of middle- class taxpayers. All projections are surrounded by uncertainty. In using budget estimates, we need to keep in mind that budget estimates are not—and are not meant to be—a crystal ball. CBO itself has warned against attributing precision to its projections, stating that actual budgetary outcomes will almost certainly differ from the baseline projections—even absent any policy changes. CBO notes that its estimate of the 2006 surplus could vary by as much as $400 billion in either direction. As CBO has said, the value of the 10-year estimates is that they allow Congress to consider the longer-term implications of legislation rather than focus only on the short-term effects. No policy should assume the exactness of baseline projections; relatively small shifts can lead to large year-to-year differences. While considerable uncertainty surrounds both short- and long-term budget projections, we know two things for certain: the population is aging and the baby boom generation is approaching retirement age. In addition demographic trends are more certain than budget projections! Although the 10-year horizon looks better in CBO’s January 31 projections than it did in July 2000, the long-term fiscal outlook looks worse. In the longer term—beyond the 10-year budget window of CBO’s projections— the share of the population over 65 will begin to climb, and the federal budget will increasingly be driven by demographic trends. As more and more of the baby boom generation enters retirement, spending for Social Security, Medicare, and Medicaid will demand correspondingly larger shares of federal revenues. Federal health and retirement spending will also surge due to improvements in longevity. People are likely to live longer than they did in the past, and spend more time in retirement. Finally, advances in medical technology are likely to keep pushing up the cost of providing health care. In contrast to the improvement in the 10-year projections, our updated simulations—shown in figure 2—show a worsening in the long-term fiscal outlook since July. This worsening is largely due to a change in the assumptions about health care costs over the longer term. In recent months there has been an emerging consensus that the long-term cost growth assumption traditionally used in projecting Medicare and Medicaid costs in the out-years is too low. A technical panel advising the Medicare Trustees stated this conclusion in its final report. Charged with reviewing the methods and assumptions used in the Trustees’ Medicare projections, the panel found that the methods and assumptions were generally reasonable with the exception of the long-term cost growth assumption. Basing its finding on recent research and program experience, the panel recommended that in the last 50 years of the 75-year projection period, per-beneficiary program costs should be assumed to grow at a rate one percentage point above per-capita gross domestic product (GDP) growth. CBO made a similar change to its Medicare and Medicaid long- term cost growth assumptions its October 2000 report on the long term.Given this convergence of views, we have incorporated higher long-term health care cost growth consistent with the Medicare technical panel’s recommendation into our January update. The message from our long-term simulations, which incorporate CBO’s 10- year estimates, remains the same as it was a year ago. Indeed, it is the same as when we first published long-term simulations in 1992. Even if all projected unified surpluses are saved and used for debt reduction, deficits reappear in 2042. If only the Social Security surpluses are saved, unified deficits emerge in 2019. (See figure 3.) In both scenarios deficits would eventually grow to unsustainable levels absent policy changes. To move into the future with no changes in federal health and retirement programs is to envision a very different role for the federal government. Assuming, for example, that Congress and the President adhere to the often-stated goal of saving the Social Security surpluses our long-term model shows a world by 2030 in which Social Security, Medicare, and Medicaid increasingly absorb available revenues within the federal budget. Under this scenario, these programs would require more than three- quarters of total federal revenue. (See figure 4.) Little room would be left for other federal spending priorities such as national defense, education, and law enforcement. Absent changes in the structure of Social Security and Medicare, some time during the 2040s government would do nothing but mail checks to the elderly and their healthcare providers. Accordingly, substantive reform of Social Security and health programs remains critical to recapturing our future fiscal flexibility. Since these simulations assume current-law entitlement benefits, they both overstate and understate the challenge. They overstate it because they assume Congress and the President would take no action to change the cost structure of these programs. However, they understate it because they also assume no benefit enhancements such as the addition of coverage for prescription drugs. In addition, these simulations—like the budget—do not recognize the long-term cost implications of insurance programs, environmental cleanup liabilities and other long-term commitments. In other words, in some ways this could be seen as an optimistic scenario! The government undertakes other activities and programs that directly obligate it to spend in the future. While some steps have been taken to improve financial statement reporting of a number of these commitments, more needs to be done. In addition, many future costs are not reflected in either budget projections or long-term simulations. Explicit liabilities not reflected in the budget can be sizable. For example, estimates indicate that environmental cleanup of government-caused waste is expected to cost the federal government at least $300 billion. Other future financial commitments and contingencies are also important considerations. The future costs of other activities are often difficult to estimate, but nonetheless can add to future fiscal stress. Some, such as credit subsidy costs, are in the budget and thus in the baseline; others, like the risk assumed by federal insurance programs, are not. All of these as well as demands for increased federal support in areas ranging from health insurance to national defense will compete for a share of the fiscal pie in the future—a pie that will already be increasingly encumbered by higher costs for the elderly. This highlights the government’s stewardship responsibility to provide future generations with sufficient budgetary flexibility to make their own choices and an economic base sufficient to finance current commitments as well as future needs. Today Congress and the President face a very different set of budget choices than did your recent predecessors. For over 15 years fiscal policy has been seen in the context of the need to reduce the deficit. The policies and procedures put in place to achieve a balanced budget do not provide guidance for fiscal policy in a time of surplus. At the same time, as Chairman Greenspan warned last month, we “need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.” As you know, we have looked at a number of other countries that have already faced this challenge. Like the United States, these nations achieved budget surpluses largely as the result of improving economies and sustained deficit reduction efforts. After years of restraint, there are pent-up demands—for tax cuts and/or for spending. In several notable cases, these countries met current demands while retaining surpluses for longer-term economic goals. How do countries meet these demands without abandoning restraint? The countries we reviewed articulated a compelling case for sustaining surpluses and developed a fiscal policy framework that addressed current needs within the context of broader economic targets or goals. Some adopted fiscal targets such as debt-to- GDP ratios as a guide for decision-making while others such as Australia attempted to focus on the impact of fiscal policy on national saving and economic growth. Achieving consensus on a long-term fiscal policy goal this year may seem unlikely. Nevertheless, I believe it is important that Congress and the President look at budget choices today in the context not only of today’s needs and demands but also of the long-term pressures we know loom on the horizon. Today’s surpluses create, in effect, a unique window of opportunity to better position the government and the nation to address both current needs as well as the longer-term budget and economy we will hand to succeeding generations. Our long-term model illustrates how important it is for us to use our newfound fiscal good fortune to promote a more sustainable longer-term budget and economic outlook so that future generations can more readily afford the commitments of an aging society. Today’s budget decisions have important consequences for the living standards of future generations. The financial burdens facing the smaller cohort of future workers in an aging society would most certainly be ameliorated if the economic pie were enlarged. This is no easy challenge, but in a very real sense, our fiscal decisions affect the longer-term economy through their effects on national saving. Recent research estimated that increasing saving as a share of GDP by one percentage point each year would boost GDP enough to cover 95 percent of the increase in elderly costs between now and 2050. Simply put, we are not saving enough as a nation. Personal saving is at a 40-year low. As shown in figure 5, the reduction of federal deficits and the emergence of budget surpluses in recent years have slowed the long-term decline in national saving. While investment needed to promote growth has been supported by foreign capital in recent years, the profits due to foreign investment go abroad. What would happen if in the future foreign investors found more attractive opportunities elsewhere? The most viable strategy for expanded growth in the long run is to increase saving from our own economy. Since expanding the nation’s productive capacity through saving and investment is a long-term process, increasing saving now is vital since labor force growth is expected to slow significantly over the next 20 years. Traditionally, the most direct way for the federal government to increase saving has been to reduce the deficit or—more recently—to run a surplus. Although the government may try to increase personal saving, results of these efforts have been mixed. As a general rule the surest way for the federal government to affect national saving has been through its fiscal policy. In general, saving involves trading off consumption today for greater consumption tomorrow. When the government saves by reducing debt by the public, it helps lift future fiscal burdens by freeing up budgetary resources encumbered for interest payments—which currently represent more than 12 cents of every federal dollar spent—and by enhancing the pool of economic resources available for private investment and long-term economic growth. This is especially important since—as I noted a year and a half ago—we enter this period of surplus with a large overhang of debt held by the public. Indeed, we should be a little more subdued in congratulating ourselves on the decline in debt held by the public—we are still significantly above the debt/GDP ratio of the late 1970s. Given the demographic pressures looming, today’s level of publicly held debt is not a good benchmark. However, current projections show that—depending on the budget policies adopted—the United States could reach a point in this decade at which annual budget surpluses could not be fully used to reduce debt. Although estimates of exactly when this might occur vary, most put it between 2004 and 2011. If the entire unified surplus is saved, this point is likely to be reached in sometime in the next 5 years; if only the Social Security surplus is saved, this point will be delayed until the second half of the decade. This would raise a number of issues: whether and if so how the government should hold nonfederal assets; whether and if so how a market for debt held by the public should be maintained; how do we as a nation raise the level of national saving if reducing federal debt held by the public is not an option. The issues Chairman Greenspan raised concerning government ownership of nonfederal assets deserve careful consideration. I note that while Chairman Greenspan opposed such a step, he also said that if the government were to acquire nonfederal assets, he would prefer that they be allocated to the Social Security Trust Funds. At GAO we have looked both at the experiences of other countries during times of declining debt and at the question of trust fund investments in equities. We believe this work can assist you in your deliberations. For example, in our ongoing work looking at other nations’ experiences with declining debt, we found that some have decided to hold some nonfederal assets as part of their efforts to deal with long-term pressures. With the advent of surpluses, Norway established a goal of sustained surpluses in order to build up savings to address long-term fiscal and economic concerns resulting primarily from an aging population and declining petroleum reserves. As a vehicle for accumulating assets, the government created the Government Petroleum Fund in 1991 to help manage Norway’s petroleum wealth over the long term. The Fund serves several important fiscal and economic functions. By investing surpluses, the Fund is an instrument for saving part of Norway’s petroleum revenues for the next generation. During the 1990s, Canada modified its pension system to invest in nonfederal assets as one way to improve the system’s sustainability. Sweden also invests a portion of its pension funds in nonfederal assets. Management of Norway’s Petroleum Fund is the responsibility of the Ministry of Finance, which has delegated the task of operational management of the Fund to Norway’s central bank. Both Canada and Sweden have established separate boards to oversee the investment of their fund assets. In the near future, we plan to conduct a study of other nations that invest in nonfederal assets in order to learn more about how they deal with governance issues. In 1998, we reported on the implications of allowing the Social Security Trust Funds to invest in nonfederal assets, specifically equities. One of the implementation issues we looked at was that of governance—at the concern that there would be tremendous political pressures to steer the trust funds’ investments to achieve economic, social, or political purposes. We concluded that passively investing in a broad-based index would reduce, but not eliminate, the possibility of political influence over the government’s stock selections. The question of how to handle stock voting rights, however, seemed likely to be more difficult to resolve. To blunt concerns about potential federal meddling, the government’s stock voting rights could be restricted by statute or delegated to investment managers. The issue of how to select stock investments also emerged when the federal employees’ Thrift Savings Plan (TSP) was created. To eliminate political influence in TSP’s stock investment decisions, the Congress restricted TSP investments to widely recognized broad-based market indexes; thus the portfolio composition is automatically determined by the market index chosen and consideration of nonfinancial objectives is precluded. TSP board members and employees are subject to strict fiduciary rules, and breaching their fiduciary duty would expose them to civil and criminal liabilities. The fiduciary rules require board members and employees to invest the money and manage the funds solely for the benefit of the owners of the individual accounts—the participating federal employees and their beneficiaries. TSP board members and employees are prohibited from exercising stock voting rights, and voting instead is delegated to investment managers according to their own guidelines. Obviously, the design and management of any federally owned assets will be critical to mitigate the risks of political interference. Since TSP assets are owned by federal employees, it cannot be seen as directly analogous to government investment. Nevertheless, it can be helpful in considering these issues. Government ownership of nonfederal assets is obviously complicated and would carry certain risks. Although the governance issues may not be insurmountable, another possible concern is the magnitude of federal involvement in the financial markets. Although the federal government would become the largest single investor, the amounts invested might not seem disproportionately large in terms of the size of the U.S. financial markets. Under our Save the Social Security Surpluses simulation, the federal government would buy nonfederal assets for about a decade and cumulative federal holdings would peak at about 2 percent of GDP assuming that a federal debt market is not maintained. This would represent about 1 percent of the stock market or 4 percent of the corporate bond market today. Any price effects associated with the federal government acquiring and then selling these assets are uncertain. However, the government would not necessarily be selling its nonfederal assets in this window. If nonfederal assets are to be held by the government, the question arises whether they could be used to prefund a portion of federal commitments and liabilities. Since a successful stock investment strategy should be grounded in a long-term outlook, the idea of investing in nonfederal assets could be considered appropriate for federal programs with a long time horizon. For example, federal civilian and military retirement programs could buy and hold assets that match the expected timing of their liabilities. As I have already noted, there is a growing body of experience in other nations that might help us understand this new landscape better. It is worth noting that investing in the financial markets is a standard practice for state and local governments, and the experiences of public pension funds may yield some insights into the implications of the federal government investing on behalf of Social Security or other federal retirement programs. Other nations have decided that the potential risks of political interference with markets can be managed and are outweighed by what they perceive as a risk of failing to save for the future or providing a cushion for contingencies. These trade-offs are inherently political decisions—and although we can look to others for insights, we will have to resolve these issues in our own way. If the governance, control and size issues loom so large that there is a consensus the federal government should not hold nonfederal assets, we face a new set of issues: should we avoid eliminating debt held by the public, and if so, how? How then would we accumulate sufficient national saving to promote the level of economic growth needed to finance the baby boom retirement? The surest way for the federal government to raise national saving has been by raising government saving. How to raise national saving in an environment of zero federal debt is a complex question. The government could aim for a balanced budget once the federal debt held by the public is eliminated. In such a case, all national saving would have to be achieved through increased private saving. Whether existing federal incentives for people to save have been effective in increasing private saving and ultimately national saving is open to question. Even with preferential tax treatment granted since the 1970s to encourage retirement saving, the personal saving rate has steadily declined, as shown in figure 6. Some have suggested that one option would be using the surpluses to finance individual saving accounts. Various proposals have been advanced that would create a new system of individual accounts as part of comprehensive Social Security reform, while other proposals would create new accounts outside of Social Security. Individual account proposals also differ as to whether individuals’ participation would be mandatory or voluntary. If the goal of individual account proposals is to increase national saving, careful consideration must be given to the specifics of design. Matching provisions may affect how much such accounts increase national saving. On another dimension, allowing early access to these accounts increases people’s willingness to put money in them-but reduces their usefulness as retirement accounts. One possible approach might be to use part of any realized surplus as a kind of surplus dividend that could be returned in the form of an individual saving account. Again, design features including targeting and limitations on access would be important. As I discussed earlier, reducing the relative future burdens of Social Security and health programs is critical to promoting a sustainable budget policy for the longer term. Moreover, absent reform, the impact of federal health and retirement programs on budget choices will be felt as the baby boom generation begins to retire. While much of the public debate concerning the Social Security and Medicare programs focuses on trust fund balances—that is, on the programs’ solvency—the larger issue concerns sustainability. Absent reform, the impact of federal health and retirement programs on budget choices will be felt long before projected trust fund insolvency dates when the cash needs of these programs begin to seriously constrain overall budgetary flexibility. The 2000 Trustees Reports estimate that the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds will remain solvent through 2037 and the Hospital Insurance (HI) Trust Fund through 2025. This date does not incorporate either the technical panel’s suggested higher cost growth assumption or any benefit expansions such as prescription drug coverage. Furthermore, because of the nature of federal trust funds, HI and OASDI Trust Fund balances do not provide meaningful information about program sustainability—that is, the government’s fiscal capacity to pay benefits when the program’s cash inflows fall below benefit expenses. From this perspective, the net cash impact of the trust funds on the government as a whole—not trust fund solvency—is the important measure. Under the Trustees’ intermediate assumptions, the OASDI Trust Funds are projected to have a cash deficit beginning in 2015 and the HI Trust Fund a deficit beginning in 2009 (see figure 7). At that point, the programs become net claimants on the Treasury. In addition, as we have noted in other testimony, a focus on HI solvency presents an incomplete picture of the Medicare program’s expected future fiscal claims; the Supplementary Medical Insurance (SMI) portion of Medicare, which is not reflected in the HI solvency measure, is projected to grow even faster than HI in the future. To finance these cash deficits, Social Security and the Hospital Insurance portion of Medicare will need to draw on their special issue Treasury securities acquired during the years when these programs generated cash surpluses. In essence, for OASDI or HI to “redeem” their securities, the government must raise taxes, cut spending for other programs, or reduce projected surpluses. Our long-term simulations illustrate the magnitude of the fiscal challenges associated with our aging society and the significance of the related challenges that government will be called upon to address. As we have stated elsewhere, early action to change these programs would yield the highest fiscal dividends for the federal budget and would provide a longer period for prospective beneficiaries to make adjustments in their own planning. This message is not changed by the new surplus numbers. It remains true that the longer we wait to take action on the programs driving long-term deficits, the more painful and difficult the choices will become. While these new surplus projections offer an opportunity to address today’s needs and the many pent-up demands held in abeyance during years of fighting deficits, they do not eliminate our obligation to prepare for the future. Today’s choices must be seen not only in terms of how they respond to today’s needs, but also how they affect the future capacity of the nation and our ability to meet our looming demographic challenge. When we looked at how other nations responded to budget surpluses, we discovered that most found a way to respond to pressing national needs while also promoting future fiscal flexibility and saving. Their actions could be seen as constituting a range of actions across a continuum by the degree of long-term fiscal risk they present. Figure 8 illustrates this array along one dimension. At one end debt reduction and entitlement reform actually increase future fiscal flexibility by freeing up resources. One-time actions—either on the tax or spending side of the budget—may neither increase nor decrease future flexibility—although here many would distinguish between types of actions; devoting funds to previously underfunded liabilities or to one-time capital investments may be seen as different than actions that increase consumption. Permanent or open- ended tax cuts and/or spending increases may reduce future fiscal flexibility—although that is likely to depend on their structure and implementation. For example, many would argue that certain permanent changes in the tax structure and/or funding for well-chosen investments can enhance economic growth and build for the future. The decision on how to allocate surpluses is by its very nature inherently a political one—and I am not here to advocate any particular tax or spending proposal. Rather, my point is that since surplus projections are more uncertain than demographic trends, prudence would argue for seeking to balance risk. You might think about the budget choices you face today as a portfolio of fiscal actions balancing today’s unmet needs with tomorrow’s fiscal challenges. If the experience of other nations and the states is any guide, we will most likely choose actions across an array of choices. In thinking about balanced risk, it is not the merits of any individual proposal that are key but the impact of these decisions in the aggregate or from a portfolio perspective. This suggests that whatever the fiscal choices made in allocating the surplus among debt reduction, tax cuts, and spending increases, approaches should be explored to mitigate risk to the long term. For example, provisions with plausible expiration dates—on the spending and the tax side—may prompt re-examination taking into account any changes in fiscal circumstances. A mix of temporary and permanent actions may also reduce risk. In our recent Performance and Accountability series, we also suggested that, given the inherent uncertainty of surplus projections, consideration be given to linking a portion of new fiscal commitments to the actual levels of surpluses achieved. As I mentioned earlier, one possible approach could be a kind of “surplus dividend” that had to be saved. Whatever the form, linking new commitments to actual results can be seen as a kind of contingency planning. Others have suggested considering a portion of the surplus as a kind of contingency fund. Some states have developed approaches to limiting fiscal risk by linking temporary tax cuts or spending to actual fiscal results. In Ohio, an Income Tax Reduction Fund was established as a mechanism to return surplus revenues to taxpayers based on the size of the actual surplus in excess of the amount required to maintain the budget stabilization fund. Minnesota has refunded surplus revenues beginning in 1997 and has since instituted a requirement that a revenue surplus exceeding 0.5 percent be designated for a tax rebate. Arizona developed triggers which designate the use of surplus revenues for specific tax reductions, or new appropriations based on the amount of actual surpluses achieved. Arizona also has increased the balances in the Budget Stabilization Fund. The excess surplus funds triggered reductions in vehicle license and corporate taxes as well as increased education funding. Surpluses challenge our nation to move beyond a focus on reducing annual deficits to a broader agenda. They offer us an opportunity to look more closely at what government does and how it does business. With the advent of surpluses in the near-term, the nation needs to develop a new fiscal paradigm–one that will prompt greater attention to the long-term implications of current programs and policy choices and help to better balance today’s wants against tomorrow’s needs. For more than a decade, budget processes have been designed with the goal of reaching a zero deficit. Now that goal has been reached—indeed passed. Clearly, the limits imposed to achieve a balanced budget are not working in the world of surplus. At the same time eliminating all controls would be a mistake. You face the need not only to make choices about tax and spending policy, but also to design a process for the future. Now that the goal of “Zero Deficit” is gone, what should replace it? Whatever measure you select, we believe that the budget and the budget process must pay more attention to the long-term cost implications of today’s budget and program decisions. We have recommended, for example, budgeting for the fully accrued costs for insurance and pensions in current budgets to reflect the future commitments made in current programs. Ultimately, the federal government needs a decision-making framework that permits it to evaluate fiscal good fortune and choices against both today’s needs and the longer-term fiscal future we wish to hand to future generations. I have suggested here today that budget choices can be seen as a fiscal portfolio—and as such the ideal set would balance different types of fiscal risks. Not only should policy choices be examined individually, but also their aggregate impact on the nation’s long-term economic health should be considered. The budget surpluses before us offer policymakers the opportunity to strike a balance between addressing today’s needs and the obligation to hand a strong economy and sustainable fiscal policies on to our children, our grandchildren, and future generations. (450041) | In this statement, the Comptroller General discusses the fiscal policy challenges facing Congress and the nation. The focus of tax administration and budgeting are shifting because of current and projected budget surpluses. The Comptroller General speaks of the need for fiscal responsibility when using surplus projections to design tax and spending policies. These projections are based on a set of assumptions that may or may not hold. They are not a precise prediction of a future and should be used as a reference point when making policy decisions. Although the projected surpluses can provide an opportunity to respond to pent-up demands for additional spending or tax cuts, Congress must balance those demands with the nation's long-term economic health. |
The Chesapeake Bay is the nation’s largest estuary, measuring nearly 200 miles long and 35 miles wide at its widest point. The bay’s watershed covers 64,000 square miles and, as shown in figure 1, spans parts of six states—Delaware, Maryland, New York, Pennsylvania, Virginia, and West Virginia—and the District of Columbia. The Chesapeake Bay tributaries and watershed make up one of the most biologically productive systems in the world, with more than 3,600 species of plants, fish, and wildlife. The ecosystem also provides a variety of benefits to the almost 17 million people who live in the watershed, such as protecting drinking water, minimizing erosion and flood events related to stormwater runoff, and numerous recreational opportunities. Over time, however, the bay’s ecosystem has deteriorated. As mentioned previously, water quality has deteriorated primarily because of excess amounts of nutrients entering the bay, which lead to the damage of animal and plant populations. According to a 2010 EPA bay document, the single largest source of these pollutants is agricultural runoff. In addition, population growth and development have further stressed the ecosystem. The population of the bay watershed has doubled since 1950, adding approximately 1.5 million people every decade, and is expected to approach 20 million by 2030. With this population increase, open spaces are being paved and developed, creating hardened surfaces that send an increasing amount of polluted stormwater into the bay and its rivers. Furthermore, sediment in the bay, stemming in part from agriculture and urban lands, has had harmful effects on the bay and its watershed, such as preventing light from penetrating to the leaves and stems of underwater grasses that provide habitat and stability to the bay. The deterioration of the bay’s ecosystem has been the cause for a great deal of public and political attention. Efforts to manage the bay’s ecosystem and protect its living resources began as early as the 1930s and continue today. These efforts include the following: In 1980, Maryland and Virginia, later joined by Pennsylvania, established the Chesapeake Bay Commission to serve as an advisory body on the Chesapeake Bay to their state legislatures and as a liaison to Congress. In 1983, Maryland, Virginia, Pennsylvania, the District of Columbia, EPA, and the Chair of the Chesapeake Bay Commission signed the first Chesapeake Bay agreement, formalizing the Chesapeake Bay Program. The Bay Program is a partnership of federal agencies, states, academic institutions, and others that directs and conducts the restoration of the bay. EPA represents the federal government within the Bay Program and supports the partnership through its Chesapeake Bay Program Office. The signatories to the agreement reaffirmed their commitment to restore the bay in 1987 and again in 1992. In 2000, the Bay Program signatories signed the most current agreement, known as the Chesapeake 2000 Agreement. It outlined five broad goals and 102 commitments for the restoration effort. Delaware, New York, and West Virginia later signed a memorandum of understanding agreeing to work cooperatively to achieve the pollution reduction targets identified to meet the water quality goals in the agreement. The end dates in the Chesapeake 2000 Agreement commitments largely expired in 2010 or earlier. Some of these commitments have been renewed, but many have not. Also in 2000, Congress passed the Estuaries and Clean Waters Act, which directed EPA to take various actions to coordinate the Chesapeake Bay Program and to support the implementation of the Chesapeake 2000 Agreement. The act also required other federal agencies with facilities in the bay watershed to participate in restoration efforts. In 2005, we examined the Bay Program’s implementation of the Chesapeake 2000 Agreement to determine, among other things, the extent to which appropriate measures for assessing restoration progress had been established and how effectively the effort was being coordinated and managed. Among other things, we found that the Bay Program lacked a comprehensive, coordinated implementation strategy to better enable it to achieve the goals outlined in the agreement and assessment reports did not effectively communicate the status of the bay’s health. We made several recommendations to the Administrator of EPA, including to instruct the Chesapeake Bay Program Office to (1) work with the Bay Program to develop a comprehensive, coordinated implementation strategy and (2) to develop and implement an integrated approach to assess overall restoration progress. EPA took several actions to incorporate our recommendations, such as reducing more than 100 bay health and restoration indicators into three indices of ecosystem health and five indices of restoration effort. Subsequently, in the explanatory statement of the Consolidated Appropriations Act, 2008, Congress directed EPA to implement immediately all the recommendations in our report, and to develop a Chesapeake Bay action plan for the remaining years of the Chesapeake 2000 Agreement. The Bay Program responded to the Consolidated Appropriations Act with a July 2008 report to Congress that described the program efforts to implement our recommendations, and the development of an action plan for the Chesapeake Bay. We testified in July 2008 that the Bay Program had taken several actions in response to our recommendations, such as developing a strategic framework to unify planning documents and identify how it will pursue its goals. However, we also testified that additional actions were needed before the program had the comprehensive, coordinated implementation strategy we recommended. On May 12, 2009, the President issued Executive Order 13508, Chesapeake Bay Protection and Restoration. The executive order noted that despite significant efforts, water pollution in the Chesapeake Bay prevents the attainment of state water quality standards, and that restoration of the bay was not expected for many years. It also stated that bay restoration will require restoring habitat and living resources, conserving lands, and improving management of natural resources. The executive order established the Federal Leadership Committee and required the committee to develop a strategy to guide efforts to restore and protect the bay. According to the order, the strategy was to define environmental goals for the Chesapeake Bay and describe the specific programs and strategies to be implemented, among other things. The Federal Leadership Committee published the Strategy in May 2010. On December 29, 2010, EPA established a total maximum daily load (TMDL)—a “pollution diet”—for the Chesapeake Bay and the region’s streams, creeks, and rivers in response to consent decrees stemming from litigation against the agency. A TMDL is the calculation of the maximum amount of pollution a body of water can receive and still meet state water quality standards, and the Clean Water Act requires the creation of TMDLs for water bodies not attaining their water quality standards. The bay TMDL was also influenced by a settlement resolving a lawsuit filed against EPA in which the Chesapeake Bay Foundation and other entities alleged that EPA had failed to comply with the Clean Water Act by not taking steps to achieve some of the Chesapeake 2000 Agreement goals. The bay TMDL is the largest ever developed by EPA, encompassing the entire 64,000-square-mile watershed. It identifies the necessary pollution reductions from major sources of nitrogen, phosphorus, and sediment across the District of Columbia and large sections of Delaware, Maryland, New York, Pennsylvania, Virginia, and West Virginia, and sets pollution limits necessary to meet water quality standards in the bay and its tidal rivers. To implement the TMDL, EPA is taking steps to ensure that each watershed state develops a Watershed Implementation Plan that details how and when it will meet pollution allocations laid out in the TMDL. Each watershed state submitted its phase one implementation plan to EPA for review in November 2010, and must submit a phase two plan by March 2012 and a phase three plan in 2017. If EPA concludes that a watershed state has taken insufficient steps to implement its Watershed Implementation Plans or to reduce pollution, the agency is prepared to take one or more actions, including expanding coverage of wastewater permits to sources that are currently unregulated. The TMDL marks a change from the historic nature of the effort, which was based primarily on stakeholder agreements. The Strategy articulates broad restoration goals, specific measurable goals, and actions to achieve those goals. Specifically, it includes 4 broad goals, 12 measurable goals with deadlines, and 116 actions to restore the bay by 2025. The 4 broad goals—restore clean water, recover habitat, sustain fish and wildlife, and conserve land and increase public access— are identified in the Strategy as the most essential priorities for a healthy Chesapeake system. To meet these 4 broad goals, the Strategy identifies 12 measurable goals that contain numeric descriptions of results—or outcomes—to be achieved by 2025 (see table 1). For example, to help meet the recover habitat broad goal, the Strategy identifies a fish passage measurable goal to restore historical fish migratory routes by opening 1,000 additional stream miles by 2025, with restoration success indicated by the presence of river herring, American shad, or American eel. The Strategy also identifies four supporting strategies—expand citizen stewardship, develop environmental markets, respond to climate change, and strengthen science—that were designed, in part, to provide cross- cutting support for attaining the Strategy’s broad goals. In turn, the 12 measurable goals were designed to be achieved through the accomplishment of 116 actions. These actions describe activities to be taken by federal agencies, often in collaboration with the watershed states and other entities. For example, one action in the fish passage measurable goal—remove stream barriers and provide fish passage— calls for two federal agencies to work with state and local partners to, among other things, prioritize stream barriers that inhibit fish passage. Figure 2 illustrates the relationship of the recover habitat broad goal and its measurable goals and selected actions. Federal officials we surveyed reported that about 95 percent of the actions in the Strategy could definitely or probably be accomplished, assuming current and expected budget and staff levels, and generally agreed that accomplishing the actions will lead to the achievement of the measurable and broad goals by 2025. Even though the federal agencies have developed a plan with measurable goals and actions, we found that not all stakeholders are working toward achieving these measurable goals. The watershed states are critical partners in the effort to restore the bay, but officials from each of the states told us that even though their states are conducting bay restoration work, their states are not working toward the Strategy goals, in some cases because they view the Strategy as a federal document. As of July 2011, the watershed states have not committed to the Strategy. Instead, most watershed state officials told us that their bay restoration work is conducted according to their commitments to the Chesapeake 2000 Agreement. Federal and state officials told us that Strategy and Chesapeake 2000 Agreement goals are similar to some degree. For example, both identify phosphorus and nitrogen reduction as necessary steps for improving water quality. However, the goals also differ in some ways. For example, both the Strategy and the Chesapeake 2000 Agreement call for managing fish species, but the Strategy identifies brook trout as a key species for targeted restoration efforts and the Chesapeake 2000 Agreement does not. Both agreements also have oyster restoration goals, but the Strategy identifies a number of tributaries to be restored and the Chesapeake 2000 Agreement focuses on an increase in the number of oysters in the bay. In addition, officials from most of the watershed states told us that they are focused on accomplishing tasks associated with the bay TMDL, such as developing their Watershed Implementation Plans. Officials from several federal agencies also observed that the watershed states are fully occupied with efforts to comply with the TMDL. The bay TMDL was incorporated into the Strategy’s water quality broad goal, which means that the pollution reduction steps that the states plan to implement in order to achieve the TMDL should contribute to the accomplishment of that Strategy goal. Similarly, each watershed state has identified pollution reduction activities in its phase one Watershed Implementation Plan that could contribute incidentally to other Strategy goals, even though the activities were created to achieve water quality standards and development on them began before the publication of the Strategy. For example, each watershed state has identified wetland restoration as part of its phase one Watershed Implementation Plan, and the Strategy’s recover habitat goal contains a measurable goal to restore wetlands. However, it is unclear whether the watershed states’ wetland restoration activities will be sufficient to help meet the Strategy’s measurable goal for wetlands. For example, not all of the Watershed Implementation Plans identify the total wetland acreage to be restored. It is important for all partners in the restoration effort to be working toward the same goals. We have previously reported that identifying common goals is a key characteristic of successful collaborative efforts. Specifically, we found that having common goals, among other factors, can help lead to increased participation and cooperation among groups involved in a collaborative effort and to improve natural resource conditions. Several of the federal and state officials we interviewed also said that they believe it is critical that all stakeholders in the bay restoration effort are working toward the same goals and following the same plan. For example, a federal official told us that alignment between the Strategy and state actions would allow for the most integrated, efficient way of restoring the bay. In addition, a state official told us that the lack of alignment leads to a lack of support for the Strategy from the states. In June 2010, the Federal Leadership Committee and the Bay Program created an alignment action team to work toward aligning Strategy restoration efforts with those of the Bay Program, including Chesapeake 2000 Agreement efforts. In addition to the lack of common goals, the team also identified several other reasons for alignment, including restoration tracking and communication difficulties caused by stakeholders focusing on different goals, and that limited resources are being diverted to addressing organizational confusion rather than implementation of bay restoration efforts. In January 2011, the alignment action team proposed developing a new restoration plan to provide a blueprint for the future of the restoration effort that will align Strategy and Bay Program goals. The Federal Leadership Committee and Bay Program have not yet agreed to develop this new plan. Under a process that was agreed to by both groups, they will work within preexisting Bay Program groups, called Goal Implementation Teams, to, among other things, refine priorities and areas of programmatic focus, guided by the Chesapeake 2000 Agreement and the Strategy. As part of this process, if the groups decide to negotiate a new agreement, it would not be negotiated until 2013, according to a July 2011 Bay Program document. Officials we surveyed from the 11 federal agencies responsible for the Strategy identified three key factors that may reduce the likelihood of achieving Strategy goals and actions, and state officials and subject matter experts we interviewed raised similar concerns. We identified as key those factors most frequently identified by federal officials: collaboration, funding constraints, and external phenomena. Collaboration. First, most of the federal officials we surveyed indicated that a potential lack of collaboration among stakeholders could reduce the likelihood of achieving Strategy goals and actions. They reported that some form of collaboration is necessary to accomplish all of the Strategy’s measurable goals and the vast majority of its actions. This collaboration could be between federal agencies, federal and state agencies, or federal agencies and other entities. In particular, federal- state collaboration is crucial to accomplishing the Strategy’s goals and actions. In their survey responses, federal officials indicated that collaboration with at least one state is necessary to accomplish 96 of the 116 actions in all 12 of the measurable goals. For example, the Strategy’s measurable goal for blue crab calls in part for the development of a new blue crab population target for 2012 through 2025, but a federal official reported that setting such a target is a matter of state, not federal, jurisdiction. The official indicated that the federal agency responsible for the action will facilitate state agreement on a new target, but that securing agreement is in the hands of the states, not the agencies. Table 2 shows the number of actions that, according to federal officials’ survey responses, need state participation in order to be accomplished. Appendix III provides additional information on the extent to which collaboration between federal agencies and watershed states is needed to accomplish strategy actions. Even though the watershed states are critical partners in the restoration effort, most watershed state officials told us that they are generally unaware of what federal agencies may require of them to implement the Strategy. Specifically, officials from six of the seven watershed states noted that they were not aware of the extent to which federal agencies needed their participation when we told them the number of actions federal officials had identified that would need state participation to be accomplished. Some federal and state officials noted that their agencies are working on bay issues through the Goal Implementation Teams. Some of these groups are discussing the Strategy, but, according to a January 2011 Bay Program memorandum, specific state contributions toward the measurable goals have not been determined. In addition to the need for federal-state collaboration, collaboration between two or more federal agencies is necessary to accomplish 40 of the actions in 8 of the measurable goals, according to our survey results. Some federal officials told us that collaboration among federal agencies increased during the development and implementation of the Strategy. According to some federal officials, this has resulted in closer relationships between some agencies and more tools and perspectives being used to restore the watershed. Other officials expressed concern that recent bay restoration meetings have focused largely on bay water quality issues with less time spent on other restoration activities and needs, such as restoring brook trout populations or increasing public access to the bay. Funding constraints. The second key factor stakeholders identified that may reduce the likelihood of achieving Strategy goals and actions is funding constraints. Specifically, in their survey responses, federal officials indicated that funding constraints at the federal and state levels, and among other partners, such as academic institutions, could reduce the likelihood of accomplishing 69 of the actions in 11 of the measurable goals. Some federal officials told us that increased federal funding will be critical to accomplishing the actions and measurable goals. For example, a federal official reported that achieving the measurable goal for land conservation is contingent upon increased federal funding, in part because the recent economic crisis has reduced state land conservation funding. State land conservation funding is necessary to accomplish several land conservation actions in the Strategy, according to federal survey responses. In addition, another federal official told us that the measurable goal of restoring oyster habitat and populations has been delayed because of late allocations of fiscal year 2011 funding. Officials from each of the watershed states also told us that funding constraints may reduce their ability to restore the bay. For example, officials from one state told us that their state needs about $38 billion in wastewater treatment infrastructure to reduce water pollution, and noted that overall challenging fiscal circumstances mean the state has a limited capacity to conduct additional bay restoration activities. Similarly, officials from another state told us that their state has experienced budget cuts in recent years and that funding constraints could reduce the likelihood of conducting restoration activities. In addition, fish passage experts we interviewed told us that states will have to contribute significant funding for stream restoration projects if the measurable goal of increasing fish passages is to be achieved. However, states’ current fiscal conditions may reduce their ability to do so. External phenomena. The third key factor that may reduce the likelihood of achieving Strategy goals and actions, according to federal agency survey responses and subject matter experts, is external phenomena that are outside the control of the agency, such as climate change or population growth. Even though the Strategy addresses some external phenomena, for example, by including a supporting strategy for responding to climate change, federal officials told us that effects beyond what was planned for in developing the Strategy could affect the likelihood of achieving the measurable goals. Specifically, federal officials reported that external phenomena could reduce the likelihood that 8 of the measurable goals will be achieved even if all of the actions in those measurable goals were accomplished. For example, according to one federal agency’s survey response and a subject matter expert we interviewed, both climate change and increased development in the watershed could reduce the likelihood of achieving the measurable goal to restore naturally reproducing brook trout populations in headwater streams by 2025. The brook trout expert explained that climate change may affect stream temperature, which can result in a loss of brook trout. In addition, the expert told us that an increase in the amount of impervious surfaces in the watershed as a result of development can increase polluted runoff and degrade habitat, resulting in a loss of brook trout. As another example, insufficient or degraded breeding habitat outside of the bay watershed could reduce the likelihood of achieving the measurable goal of restoring a 3-year average wintering black duck population of 100,000 birds by 2025, according to this agency’s survey response and two subject matter experts. The Strategy calls for the federal agencies to, among other things, develop 2-year milestones, an adaptive management process, and annual progress reports to assess progress made in implementing the Strategy and restoring the health of the bay. However, the milestone development plan is limited, plans for adaptive management and the annual progress report are not fully developed, and it is unclear what indicators will be used to assess progress on bay health. The federal agencies do not plan to develop milestones for the entire Strategy period. Per the Strategy, the agencies plan to create milestones every 2 years for measuring progress made toward the measurable goals, with the first set of 2-year milestones to cover calendar years 2012 and 2013. However, setting the milestones every 2 years allows for the possibility of moving the target date to the next 2-year milestone period if the milestone could not be met in those 2 years, thereby prolonging the time it will take to meet the Strategy’s goals. In addition, without a blueprint of milestones for the entire restoration effort, it is unclear how the agencies will determine whether they are on track to achieve the 12 measurable goals and 4 broad goals by 2025. Some restoration activities may not result in immediate improvements to the health of the bay, and it may be reasonable to expect slower progress toward a measurable goal initially, with faster progress made after a number of years into the restoration effort. On the other hand, some restoration activities may be easier to accomplish than others, and it may be reasonable to expect faster progress made toward a measurable goal initially and slower progress made after a number of years into the effort. By identifying a blueprint of milestones for the entire restoration effort, the agencies can show when the actions are expected to result in progress toward the measurable goals, determine whether these actions are having their intended result, and make changes to these actions if needed. We have reported that establishing milestones for an entire effort can improve the chances the effort can be accomplished efficiently and on time and provide decision makers with an indication of the incremental progress the agency expects to make in achieving results. The Federal Leadership Committee has neither developed an adaptive management process nor identified what performance data it will use to gauge progress in the annual progress report. The Strategy states that the Federal Leadership Committee will develop a process for implementing adaptive management, but officials from EPA and other committee agencies told us that they are still developing this process. According to EPA officials, the Federal Leadership Committee agreed to the seven-step adaptive management decision framework that the Bay Program adopted in May 2011. This framework, however, was developed for the Bay Program and does not include clear linkages to the Strategy actions and measurable goals. It is unclear how it will be used by the Federal Leadership Committee agencies to adaptively manage Strategy actions and meet Strategy goals (see app. IV). In August 2011, EPA officials noted that a fully developed adaptive management process is needed. A fully developed adaptive management process should allow the agencies to evaluate whether Strategy actions are leading to the measurable goals and, if needed, adjust their efforts. This approach includes assessing the problem, designing a plan that includes measurable management objectives, monitoring the impacts of the selected management actions, and evaluating and using the results to adjust management actions. In 2004, the National Research Council defined adaptive management as a process that promotes flexible decision making in the face of uncertainties, as outcomes from management actions and other events become better understood. In 2011, the National Research Council looked at the Chesapeake Bay Program’s nutrient reduction program and found that neither EPA nor the watershed states exhibit a clear understanding of how adaptive management might be applied in pursuit of the Bay Program’s water quality goals. We believe a fully developed adaptive management process is essential to Strategy success because the agencies can improve bay restoration efforts by learning from management outcomes. We have previously reported that the lack of a well-developed adaptive management process impaired the success of collaborative restoration efforts, such as restoring the South Florida ecosystem and restricting bison movement in Montana to prevent the spread of disease. The Strategy also calls for the Federal Leadership Committee to develop an annual progress report that would, in part, assess the progress made in implementing the Strategy in the previous year. According to EPA officials, the agencies will report progress on the actions quarterly to the committee, and the agencies will use these quarterly reports to develop an annual progress report that will be issued to the public. In a fiscal year 2011 action plan, the Federal Leadership Committee identified which federal agency is responsible for implementing each Strategy action and what the agencies are expected to accomplish in that year. The committee has also separately designated a lead federal agency for assessing progress toward each measurable goal, and that progress will also be included in the annual progress report. According to the Strategy, the Federal Leadership Committee plans to issue the first annual progress report in early 2012. The committee has not developed a template for the annual progress report, however, and federal officials were unable to tell us what performance data will be collected and reported in it to gauge progress. Performance information provided by the agencies in the first quarterly report on progress made during the first quarter of fiscal year 2011 varies. In some cases the report has no description of progress made on some actions, general information about steps taken toward some actions, and detailed information about progress made in others. There are now two groups—the Federal Leadership Committee and the Bay Program—that plan to assess bay health. According to the Strategy, the committee’s annual progress report will review indicators of environmental conditions in the bay, in addition to progress made in implementing the Strategy. In addition, since 2004, the Bay Program has assessed bay restoration progress through annual assessments of the health and restoration of the bay and its watershed, called the Bay Barometer. Both the Federal Leadership Committee and the Bay Program plan to assess bay health in 2011 and publish these assessments in 2012. However, federal officials told us that they have not yet determined the content of next year’s Bay Barometer report. It is therefore unclear if the Federal Leadership Committee and Bay Program will assess the same or different indicators of progress toward bay health. Even though two different assessments of bay health in 2012 could present a consistent message of bay health, they could also result in confusion. For example, assessments based on different indicators could draw different, and possibly contradictory, conclusions about progress made in improving the overall health of the bay. The team created in June 2010 to align Strategy and Bay Program goals reported in January 2011 that the restoration effort is facing difficulty tracking progress and communicating that progress. The Strategy calls for the Federal Leadership Committee to coordinate with the watershed states to align the annual progress report with the Bay Barometer, but, according to EPA officials, the status of this alignment is unclear. Efforts to restore the Chesapeake Bay have been ongoing for several decades. The restoration effort has seen some successes in certain areas, but the overall health of the bay remains degraded. Restoring the bay is a massive, complex, and difficult undertaking that requires the concerted effort of many parties. Numerous federal and state agencies and others all play a role in the effort. To restore the bay in the most efficient and effective manner, these parties must work together toward the same goals. The Strategy that federal agencies developed for protecting and restoring the bay in response to Executive Order 13508 identifies measurable bay restoration goals and actions to achieve these goals. State participation in the Strategy is necessary to achieve these goals, yet the watershed states are not committed to the Strategy. Currently, federal agencies are generally working toward the Strategy goals, while states are largely focused on accomplishing tasks associated with the bay TMDL, which supports one of the Strategy goals. Having common goals, among other factors, can help lead to increased participation and cooperation among groups involved in a collaborative effort and improve natural resource conditions. The Federal Leadership Committee and the Chesapeake Bay Program have recognized the need to align federal and state efforts to restore the bay. But regardless of how efforts are aligned, if the agencies do not identify milestones for accomplishing the entire restoration effort, they may not be able to show when particular actions are expected to result in progress toward measurable goals. Furthermore, the agencies have not yet developed an adaptive management process, which is essential to evaluating whether actions are leading to goals and make adjustments as necessary. In addition, the Strategy calls for the Federal Leadership Committee to coordinate with the watershed states to align Strategy and Bay Program assessments. However, the status of this alignment is unclear, and both the committee and Bay Program plan to assess bay health. If they use different indicators to assess and report, confusion could result about the overall message of progress made in improving the health of the bay, because assessments based on different indicators could draw different, and possibly contradictory, conclusions about the overall health of the bay. To improve the likelihood that bay restoration is attained, we recommend that the Administrator of EPA work collaboratively with federal and state bay restoration stakeholders to take the following four actions: develop common bay restoration goals to help ensure that federal and state restoration stakeholders are working toward the same goals, establish milestones for gauging progress toward measurable goals for the entire restoration effort, develop an adaptive management process that will allow restoration stakeholders to evaluate progress made in restoring the bay and adjust actions as needed, and identify the indicators that will be used for assessing progress made in improving bay health and clarify how the entities responsible for assessing this progress will coordinate their efforts. We provided EPA and the Departments of Agriculture, Commerce, Defense, Homeland Security, the Interior, and Transportation with a draft of this report for their review and comment. We also provided the District of Columbia, Delaware, Maryland, New York, Pennsylvania, Virginia, West Virginia, and the Chesapeake Bay Commission with a draft of this report for their review and comment. EPA provided written comments and generally agreed with our recommendations. EPA also provided technical comments, which we incorporated as appropriate. Its written comments are reproduced in appendix V. The Department of Homeland Security provided written comments but did not comment on our recommendations. Its written comments are reproduced in appendix VI. The Department of the Interior disagreed with some of our findings and recommendations. Its written comments are reproduced in appendix VII. New York provided written comments but did not comment on our recommendations. New York also provided technical comments, which we incorporated as appropriate. Its written comments are reproduced in appendix VIII. The Departments of Agriculture and Transportation, the District of Columbia, and Virginia provided technical comments, which we incorporated as appropriate. The Departments of Commerce and Defense, Delaware, Maryland, Pennsylvania, West Virginia, and the Chesapeake Bay Commission had no comments. EPA generally agreed with our four recommendations. In commenting on our recommendation that the Administrator of EPA work collaboratively with federal and state bay restoration stakeholders to develop common bay restoration goals, EPA noted that there is a new complexity regarding restoration goals given the development of the Strategy and that the completion dates for most Chesapeake 2000 Agreement commitments are set for 2010 or before. We agree. As we noted in the draft report, restoring the bay is a massive, complex, and difficult undertaking that requires the concerted effort of many parties. To restore the bay in the most efficient and effective manner, these parties must work together toward the same goals. Having common goals, among other factors, can help lead to increased participation and cooperation among the groups involved in the effort. In its comments, EPA stated that the draft report did not highlight where common goals and common directions are already present in the Chesapeake Bay Program. We noted in the draft report that the bay TMDL was incorporated into the Strategy’s water quality broad goal, which means that the pollution reduction steps that the states plan to implement to achieve the TMDL should contribute to the accomplishment of the Strategy goal. In commenting on our recommendation that the Administrator of EPA work collaboratively with federal and state bay restoration stakeholders to establish milestones for gauging progress toward measurable goals for the entire restoration effort, EPA recognized that a blueprint of milestones through 2025 would be useful. EPA expressed concern about locking in a too detailed plan for the entire time period, because it does not wish to limit its ability for adaptive management. We believe that a blueprint of milestones can assist in the adaptive management process. As we noted in the draft report, a blueprint of milestones would allow agencies to show when the actions are expected to result in progress toward the measurable goals, determine whether these actions are having their intended result, and make changes to these actions as needed. We also reported that establishing milestones for an entire effort can improve the chances the effort can be accomplished efficiently and on time and provide decision makers with an indication of the incremental progress the agency expects to make in achieving results. In commenting on our recommendation that the Administrator of EPA work collaboratively to develop an adaptive management process that will allow restoration stakeholders to evaluate progress made in restoring the bay and adjust actions as needed, EPA acknowledged that this concern has been raised in previous GAO reports and in a recent National Academy of Sciences report. EPA also noted that a seven-step adaptive management decision framework was adopted by the Bay Program in May 2011 and endorsed by the Bay Program’s leadership in July 2011. However, as we note in the report, this framework was developed for the Bay Program and does not include clear linkages to the Strategy actions and measurable goals. It is unclear how this framework will be used by the Federal Leadership Committee agencies to adaptively manage Strategy actions and meet Strategy goals. It is presented in appendix IV. In commenting on our recommendation that the Administrator of EPA should work collaboratively to identify the indicators that will be used for assessing progress made in improving bay health and clarify how the entities responsible for assessing this progress will coordinate their efforts, EPA noted that it is now working with its federal and state partners to identify measures that will be used to assess bay health, and that this group will make recommendations on which reports will be used to report measures of progress. The Department of the Interior stated that it does not agree with some of our draft report’s findings and recommendations. First, Interior stated that our draft report did not recognize that the Strategy provides a framework to advance the Bay Program beyond the Chesapeake 2000 Agreement. As we noted in our draft report, the Chesapeake Bay Program is a partnership at the federal, state, and local levels. The Strategy provides specific outcomes to be achieved by the federal agencies, but the watershed states have not committed to the Strategy, and most watershed state officials told us that their bay restoration work is conducted according to their commitments to the Chesapeake 2000 Agreement. The report also noted that an alignment action team was formed in June 2010 to work toward aligning Strategy restoration efforts with those of the Bay Program. Second, Interior commented that our report understated the level of collaboration and coordination with the States. We noted in the draft report that federal agencies and watershed states are working on bay issues through the Goal Implementation Teams and that, according to EPA officials, these teams will be used to refine priorities and areas of programmatic focus for the restoration effort. Finally, Interior stated that it believes some of the draft report’s findings are based on insufficient information. We have provided detailed responses to this and other Interior comments in appendix VII. We are sending copies of this report to the appropriate congressional committees, the Administrator of EPA, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IX. This appendix provides information on the scope of work and the methodology used to determine (1) the extent to which the Strategy for Protecting and Restoring the Chesapeake Bay Watershed (the Strategy) includes measurable goals for restoring the Chesapeake Bay that are shared by stakeholders and actions to attain these goals; (2) the key factors, if any, federal and state officials identified that may reduce the likelihood of achieving Strategy goals and actions; and (3) agency plans for assessing progress made in implementing the Strategy and restoring bay health. To determine the extent to which the Strategy includes measurable goals for restoring the Chesapeake Bay that are shared by stakeholders and actions to attain these goals, we reviewed the Strategy to understand its structure and identify goals and actions. For the actions, we focused on the 116 actions that are designed to lead directly to the Strategy’s goals. We did not evaluate an additional 51 actions in the Strategy that were designed to provide cross-cutting support for attaining the goals. We also reviewed previous bay restoration agreements, such as Chesapeake 2000, to identify previous bay restoration goals. In addition, we interviewed officials from each of the federal entities involved in developing and overseeing the implementation of the Strategy, which make up the Federal Leadership Committee: the Departments of Agriculture, Commerce, Defense, Homeland Security, the Interior, and Transportation, and the Environmental Protection Agency (EPA). We also interviewed officials from each of the states in the watershed—Delaware, Maryland, New York, Pennsylvania, Virginia, and West Virginia—and the District of Columbia, collectively referred to as watershed states in this report, and representatives of other Chesapeake Bay organizations, such as the Chesapeake Bay Foundation, to gain an understanding of the Strategy and bay restoration efforts in general. To determine the key factors federal and state officials identified that may reduce the likelihood of achieving Strategy goals and actions, we first surveyed officials from each of the 11 agencies responsible for creating and implementing the Strategy and received responses from January 2011 through May 2011. These agencies are EPA; the Department of Agriculture’s Forest Service and Natural Resources Conservation Service; the Department of Commerce’s National Oceanic and Atmospheric Administration; the Department of Defense’s Navy and U.S. Army Corps of Engineers; the Department of Homeland Security; the Department of the Interior’s National Park Service, Fish and Wildlife Service, and U.S. Geological Survey; and the Department of Transportation. For each agency, we identified as respondents federal officials who participated in Strategy development and implementation on behalf of their agencies, through agency interviews. We used the survey to obtain and analyze information from each of the agencies about each action and measurable goal for which the agency had responsibility, and about each of the Strategy’s four broad goals. The questionnaire used for this study is available in appendix II. We sent the questionnaire by e-mail, and respondents returned it by e-mail after marking checkboxes or entering responses into open answer boxes. All of the agencies responded to our survey. To identify key factors that could reduce the likelihood of achieving Strategy goals and actions, we conducted a content analysis of responses to question 2 from both the actions and measurable goals portions of the survey. Two analysts independently reviewed the agencies’ responses to each question and together identified the categories most often cited in these responses. They then coded each survey response into those categories. In cases where differences between the two reviewers regarding the coding of responses into content categories were found, all differences were resolved through reviewer discussion. Ultimately, there was 100 percent agreement between the reviewers. See appendix III for further analysis we conducted with survey data. Because this was not a sample survey, it has no sampling errors. To ensure the reliability of the data collected through our survey of the 11 Strategy agencies, we took a number of steps to reduce measurement error, nonresponse error, and respondent bias. These steps included conducting three pretests in person prior to distributing the survey to ensure that our questions were clear, precise, and consistently interpreted; reviewing responses to identify obvious errors or inconsistencies; and conducting follow-up interviews with officials to review and clarify responses. We determined the survey data to be sufficiently reliable for the purposes of this report. In addition to conducting the survey mentioned above, we interviewed officials from each of the watershed states to determine their knowledge of and involvement with the Strategy; to identify the factors, if any, that state officials believe could reduce the likelihood of both Strategy and bay restoration success; and to ask about state-related federal official survey responses. We also interviewed a nonprobability sample of individuals who have expertise in the subject matter of the Strategy’s measurable goals and solicited their views on the likelihood that the measurable goals could be achieved. We identified these individuals primarily through GAO’s prior work on the Chesapeake Bay, and the final list included mostly faculty and staff from the University of Maryland’s Center for Environmental Science and the Virginia Institute of Marine Studies. We asked them questions to determine the nature and extent of their expertise, and to ensure that they were not currently or recently employed by EPA and that they had not contributed to the Strategy. We developed a semistructured interview guide containing open-ended questions to solicit responses about their familiarity with the Strategy and the measurable goals that correlated with their area of expertise. We interviewed nearly all of the experts by telephone. Because we used a nonprobability sample, the information obtained from these interviews is not generalizable to other members of academia with bay-related expertise. To determine the plans in place for assessing the progress of implementing the Strategy and restoring the bay, we reviewed the Strategy and related assessment documents, such as an action plan and a quarterly progress report. We also reviewed several Bay Barometers, annual bay restoration assessment documents issued by the Chesapeake Bay Program. In addition, we interviewed EPA officials who represent the Federal Leadership Committee and the Chesapeake Bay Program Office—the office that represents the federal government with the Chesapeake Bay Program—to discuss how they plan to assess progress on implementing the Strategy and restoring bay health, and also to identify any additional methods EPA plans to use to assess progress in these areas. We also spoke with officials from each of the other Strategy agencies about their roles in assessing Strategy progress. We conducted this performance audit from August 2010 to September 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We surveyed officials from each of the federal agencies involved with creating and overseeing the implementation of the Strategy using all of the questions below as stated here. We provided these questions to the officials in a format that identified the Strategy actions, measurable goals, and broad goals for which their agency had responsibility as identified in the Federal Leadership Committee’s Fiscal Year 2011 Action Plan. In our survey, we asked officials from each Strategy agency the following questions regarding each action for which the agency has responsibility: 1. Do you believe this action can be accomplished by the action deadline, assuming current and expected budget and staff levels? (If no deadline is specified, please use the overall Strategy deadline of 2025 as the default deadline.) Definitely yes Probably yes Probably no Definitely no Don’t know My agency is not responsible for this action. 1a. Please explain your answer. (For example, please describe whether certain portions of this action are more or less likely to be accomplished by the deadline than others.) 2. What factors do you foresee, if any, that could reduce the likelihood this action will be accomplished? (Please list and briefly describe the factors. This could include factors within or beyond your agency’s control.) 3. Is participation from agencies of any of the following state governments necessary for your agency to accomplish this action? (Please check all that apply. Please consider the entire duration of time during which your agency will be working on this action.) Delaware District of Columbia Maryland New York Pennsylvania Virginia West Virginia Other (please list in 3a) None Don’t know. 3a. If you checked “Other” in 3, please list the state government(s) necessary for your agency to accomplish this action. 4. If this action were not completed, how would this affect the likelihood of achieving the outcome or goal listed below the drop down box? Achieving the outcome or goal would be far less likely Achieving the outcome or goal would be somewhat less likely Achieving the outcome or goal would be no less likely Don’t know. 4a. Please explain your answer to 4. We asked officials from each agency the following questions regarding each measurable goal (which are referred to as outcomes in the Strategy and in our survey questions) that contain an action for which the agency has responsibility. For actions in the water quality broad goal that are listed under more than one measurable goal, we asked the relevant agencies question 4 twice, once for each measurable goal. 1. If all the actions for this outcome (including those for which your agency or other agencies are responsible) are completed, do you believe the outcome will be achieved? Definitely yes Probably yes Probably no Definitely no Don’t know. 1a. Please explain your answer. (For example, please describe whether certain portions of this outcome are more or less likely to be achieved by the deadline than others.) 2. If all the actions for this outcome (including those of your agency and other agencies) are completed, what factors do you foresee, if any, that could reduce the likelihood that this outcome will be achieved? (Please list and briefly describe the factors. This could include factors within or beyond your agency’s control.) 3. How important is this outcome to attaining the goal listed below the drop down box? Very important Somewhat important Not at all important Don’t know. We asked officials from each agency the following questions regarding each broad goal (which are referred to as goals in the Strategy and in the survey) that contain an action for which the agency has responsibility. 1. If all of the outcomes for this goal are achieved, do you believe the goal will be attained? Definitely yes Probably yes Probably no Definitely no Don’t know. 1a. Please explain your answer. 2. How important is achieving this goal to restoring the overall health of the bay? Very important Somewhat important Not at all important Don’t know. We asked officials from each agency the following general questions. 1. Please provide any additional comments you may have about the Strategy or your responses in this data collection instrument. 2. Please list any actions for which your agency is responsible that we did not ask about. Collaboration between federal agencies and the watershed states will be required to complete many of the Strategy actions. In response to question 3 of the actions portion of our survey, federal officials identified Strategy actions that require state participation in order to accomplish the actions. In those cases where federal officials reported that state participation was necessary to accomplish the action, the officials identified the necessary state or states. Figure 3 shows the extent of collaboration that will be needed between federal agencies and watershed states to accomplish Strategy actions. Each node represents a federal agency or a state. Each link between a pair of nodes indicates that the corresponding entities will need to collaborate to accomplish an action. Thicker links indicate more extensive collaboration because of the number of times federal officials identified participation from a particular state as necessary. Table 3 shows the number of actions for which each federal agency reported that participation from a watershed state was necessary to accomplish the action. The Chesapeake Bay program approved the following adaptive management decision framework on May 10, 2011, as an incremental step in moving toward adaptive management: 1. Articulate program goals. Identify the goals the goal implementation team is working toward. 2. Describe factors influencing goal attainment. Identify and prioritize all factors that influence performance toward a goal. This step can help identify areas for cross-goal implementation team collaboration. 3. Assess current management efforts (and gaps). Identification of gaps/overlaps in existing management programs addressing the important factors affecting goal attainment. 4. Develop management strategy. Coordination and implementation planning by stakeholders. 5. Develop monitoring program. 6. Assess performance. Criteria for success/failure of management efforts should be known when the strategy is developed and the monitoring program is designed. This is the analysis that informs program adaptation. This helps inform next steps. 7. Manage adaptively. Based on the monitoring assessment, system models are amended, and monitoring strategies are revised to improve program performance. 1. Interior commented that the Strategy offers the next generation of specific outcomes to be achieved by the Chesapeake Bay Program, which is a partnership at the federal, state, and local levels. As we noted in our draft report, the Strategy provides specific outcomes to be achieved by the federal agencies. In addition, we noted that the watershed states are critical partners in the restoration effort, and federal officials reported that watershed state action will be necessary to accomplish 96 of the 116 Strategy actions. However, the watershed states have not committed to the Strategy, and officials from most of the states told us that they are generally unaware of what federal agencies may require from them to implement the Strategy. In addition, we noted in the draft report that most watershed state officials told us that their bay restoration work is conducted according to their commitments to the Chesapeake 2000 Agreement. The Strategy recognizes the need to integrate the goals of the Chesapeake Bay Program with those of the Strategy. We noted in our draft report that the Federal Leadership Committee and the Bay Program created an alignment action team in June 2010 to work toward aligning Strategy restoration efforts with those of the Bay Program, including Chesapeake 2000 Agreement efforts. 2. Interior commented that we understated the level of collaboration and coordination with the states, and it provided information on the Bay Program structure and meetings through which collaboration takes place. As we reported, most of the federal officials we surveyed indicated that a potential lack of collaboration among stakeholders could reduce the likelihood of achieving Strategy goals and actions. We did not comment in our draft report on the extent to which the federal agencies and watershed states collaborated in the development of the Strategy. We noted in the draft report that the federal agencies and watershed states are working on bay issues through the Goal Implementation Teams and that, according to EPA officials, bay restoration stakeholders plan to use these teams to refine priorities and areas of programmatic focus, guided by the Chesapeake 2000 Agreement and the Strategy. 3. Interior commented that we did not review or take into account the Strategy chapter describing how the federal agencies propose to adapt to climate change. In our draft report, we noted that the Strategy identifies four supporting strategies, including respond to climate change, and 51 actions associated with these strategies. In addition, we reported that federal officials told us that effects of external phenomena, such as climate change, beyond what was planned for in developing the Strategy could affect the likelihood of achieving the measurable goals. 4. Interior disagreed with our recommendation to EPA to work with federal and state bay restoration stakeholders to establish milestones for gauging progress toward measurable goals for the entire restoration effort. Interior further commented that the 12 measurable goals provide a blueprint for the long-term success of the program. As we noted in the draft report, the 12 measurable goals contain numeric descriptions of results to be achieved by 2025. However, these measurable goals do not provide a blueprint of milestones to be met prior to 2025 that would allow the agencies to determine whether they are on track to meet these measurable goals. We agree that 2-year milestones can contribute to an adaptive management approach, and as we noted in the draft report, a blueprint of milestones for the entire restoration effort can allow the agencies to show when the actions are expected to result in progress toward the measurable goals, determine whether the actions are having their intended results, and make changes to these actions as needed. 5. Interior commented that we did not include information on the Bay Program’s seven-step adaptive management decision framework. In response to this comment, we modified the report to include information about this framework. However, as we note in the report, this framework was developed for the Bay Program and does not include clear linkages to the Strategy actions and measurable goals. It is unclear how it will be used by the Federal Leadership Committee agencies to adaptively manage Strategy actions and meet Strategy goals. In August 2011, EPA officials told us that a fully developed adaptive management process is needed. 6. Interior commented that the annual progress report is on schedule to be completed by January 2012 and that the Council on Environmental Quality and Office of Management and Budget approved an outline for the report on August 12, 2011. According to an EPA official, the outline that Interior refers to in its comments did not address what performance information will be collected. We continue to believe that plans for the annual progress report are not fully developed. 7. Interior commented that a Bay Program team is working to improve the Bay Barometer publication, which reports on the overall health of the bay. We noted in our draft report that there are two groups that plan to assess bay health. The Federal Leadership Committee will review indicators of environmental conditions in the bay through its annual progress report, and the Bay Program will report on bay health and restoration efforts through its Bay Barometer. As we reported, the content of the next Bay Barometer report has not yet been determined, and it is unclear if the groups will assess the same or different indicators of progress. In addition to the individual named above, Barbara Patterson, Assistant Director; Lucas Alvarez; Elizabeth Beardsley; Mark Braza; Russ Burnett; David Dornisch; Lina Khan; Marietta Mayfield Revesz; Ben Shouse; Kiki Theodoropoulos; and Michelle K. Treistman made significant contributions to this report. Elizabeth H. Curda and Kim S. Frankena also made important contributions to this report. | The Chesapeake Bay, with its watershed in parts of six states and the District of Columbia (watershed states), is an important economic and natural resource that has been in decline. Over decades, federal agencies and watershed states have entered into several agreements to restore the bay, but its health remains impaired. In May 2009, Executive Order 13508 established a Federal Leadership Committee, led by the Environmental Protection Agency (EPA), and directed the committee to issue a strategy by May 2010 to protect and restore the Chesapeake Bay (the Strategy). GAO was directed by the explanatory statement of the Consolidated Appropriations Act, 2008, to conduct performance assessments of progress made on bay restoration, and this first assessment examines (1) the extent to which the Strategy includes measurable goals for restoring the bay that are shared by stakeholders and actions to attain these goals; (2) the key factors, if any, federal and state officials identified that may reduce the likelihood of achieving Strategy goals and actions; and (3) agency plans for assessing progress made in implementing the Strategy and restoring bay health. GAO reviewed the Strategy, surveyed federal officials, and interviewed watershed state officials and subject matter experts. The Strategy for Protecting and Restoring the Chesapeake Bay Watershed includes 4 broad goals, 12 specific measurable goals with deadlines, and 116 actions to restore the bay by 2025. To achieve the broad and measurable goals, federal agencies, often in collaboration with the watershed states and other entities, are responsible for accomplishing the actions. However, not all stakeholders are working toward achieving the Strategy goals. The watershed states are critical partners in the effort to restore the bay, but state officials told GAO that they are not working toward the Strategy goals, in part because they view the Strategy as a federal document. Instead, most state bay restoration work is conducted according to state commitments made in a previous bay restoration agreement, the Chesapeake 2000 Agreement. Even though Strategy and Chesapeake 2000 Agreement goals are similar to some degree, they also differ in some ways. For example, both call for managing fish species, but the Strategy identifies brook trout as a key species for restoration and the Chesapeake 2000 Agreement does not. Federal and state officials said it is critical that all stakeholders work toward the same goals. The Federal Leadership Committee and the Chesapeake Bay Program--a restoration group established in 1983 that includes federal agencies and watershed states--created an action team in June 2010 to work toward aligning bay restoration goals. Officials from the 11 agencies responsible for the Strategy that GAO surveyed identified three key factors that may reduce the likelihood of achieving Strategy goals and actions: a potential lack of collaboration among stakeholders; funding constraints; and external phenomena, such as climate change. State officials and subject matter experts that GAO interviewed raised similar concerns. Federal officials reported that some form of collaboration is needed to accomplish the Strategy's measurable goals and the vast majority of its actions. In particular, federal-state collaboration is crucial, with federal officials indicating that collaboration with at least one state is necessary to accomplish 96 of the 116 actions in the 12 measurable goals. Federal officials also reported that funding constraints could reduce the likelihood of accomplishing 69 of the actions in 11 of the measurable goals. Furthermore, federal officials reported that external phenomena could reduce the likelihood that 8 of the measurable goals will be achieved. The federal agencies have plans for assessing progress made in implementing the Strategy and restoring bay health, but these plans are limited or not fully developed, and it is unclear what indicators will be used to assess bay health. Per the Strategy, the agencies plan to create 2-year milestones for measuring progress made toward the measurable goals, with the first milestones covering 2012 and 2013. However, establishing milestones for an entire effort can improve the chances the effort can be accomplished efficiently and on time. Also, the Strategy states that the Federal Leadership Committee will develop a process for implementing adaptive management--in which agencies evaluate the impacts of restoration efforts and use the results to adjust future actions--but agency officials told GAO they are still developing this process. Moreover, there are now two groups that plan to assess bay health. The Strategy calls for the Federal Leadership Committee to coordinate with the watershed states to align these assessments. However, the status of this alignment is unclear, and if these groups use different indicators to assess bay health, confusion could result about the overall message of progress made. GAO recommends that EPA work with federal and state stakeholders to develop common goals and clarify plans for assessing progress. |
Dual-eligible beneficiaries are a particularly vulnerable group. In general, these individuals are among the poorest and sickest beneficiaries enrolled in Medicare and Medicaid. For example, compared to other Medicare beneficiaries, they are more likely to be disabled; report poor health status and limitations in their activities of daily living, such as bathing and toileting; and have cognitive impairments, mental disorders, and certain chronic conditions, such as diabetes and pulmonary disease. Therefore, dual-eligible beneficiaries tend to have higher rates of service use and consequently, higher spending, compared to other Medicare and Medicaid beneficiaries. (See fig. 1.) Although dual-eligible beneficiaries have a higher rate of service use compared to other Medicare and Medicaid beneficiaries, as a group, they vary in terms of their need for health care services, reflecting differences in the prevalence of disabilities and other health conditions. Under Medicare, dual-eligible beneficiaries have coverage for most acute care services, such as care provided by physicians or inpatient hospitals, post- acute skilled nursing facility care, and prescription drugs. Under state Medicaid programs, dual-eligible beneficiaries also have coverage for long-term nursing facility care and home and community-based services. These beneficiaries may also qualify for payment of Medicare premiums and cost sharing. Medicaid is the health care payer of last resort, meaning that Medicare pays to the extent of its liability before Medicaid makes any payments. Because dual-eligible beneficiaries receive care through separate programs with different benefits and payment processes, they are likely to be treated by many different health care providers that may not coordinate their care, which can lead to increased costs and poorer patient outcomes. Prior to the implementation of the Financial Alignment Demonstration in 2013, the Medicare and Medicaid programs were separately responsible for covering certain services for most dual-eligible beneficiaries, and there may not have been an incentive for one program to help control costs in the other program. As we previously reported, any savings that were achieved often resulted from services that were largely paid for by Medicare, such as reductions in the number and length of hospital stays, and therefore accrued to the Medicare program. Therefore, state Medicaid programs did not have an incentive to better coordinate care or reduce spending since they did not benefit from any savings that were achieved. However, increasingly there have been efforts to try to improve integration of care between these two programs. For example, one specific effort to integrate care for dual-eligible beneficiaries was the establishment of dual-eligible special needs plans (D-SNP) in 2003. D- SNPs are a type of Medicare Advantage plan exclusively for dual-eligible beneficiaries that provide specialized services targeted to the needs of their beneficiaries, including a health risk assessment and an ICT for each enrolled beneficiary. About 1.9 million of the dual-eligible population was enrolled in D-SNPs in 2014. CMS’s goal for the Financial Alignment Demonstration is to integrate Medicare and Medicaid services and financing and improve care coordination for beneficiaries, therefore resulting in improved care and savings to Medicare and Medicaid. CMS gave the states flexibility in designing their demonstrations because of the different needs of their target populations, the geographic coverage areas, and the number of eligible beneficiaries. For example, while Massachusetts chose to limit its target population to dual-eligible beneficiaries from age 21 through 64, California, Illinois, and Virginia chose to include all dual-eligible beneficiaries aged 21 and older as their target populations. CMS required states to involve dual-eligible beneficiaries and other stakeholders, such as beneficiary advocacy groups, in the development of their demonstrations to help design a person-centered system of care. Before any state’s demonstration becomes operational, CMS oversees a multistep approval process of the state’s demonstration design. First, states interested in participating in the demonstration submit proposals to CMS that provide a description of the demonstration’s design. CMS then reviews the proposals and works with the states to develop a memorandum of understanding that further outlines the parameters of the demonstration, which both the state and CMS sign. As part of their proposals, states generally opted to test one of two models—the capitated or managed fee-for-service (MFFS) models. Under the demonstration’s capitated model, following CMS approval of the memorandum of understanding, the states work with CMS to select qualified integrated care organizations to participate in the demonstration. Then, the state, CMS, and an integrated care organization enter into a three-way contract, and the integrated care organization receives a prospective blended capitated payment, which includes both Medicare and Medicaid payments, to provide coordinated care across both programs. CMS reduces payment rates to organizations up front each year based on a predetermined Medicare and Medicaid savings estimate, with the amount of savings increasing each year, typically from 1 percent in the first year to 4 percent in the third year of the demonstration. For example, in Massachusetts, contracted managed care health plans provide care coordination services and integrate care between the two programs and receive one combined payment from both Medicare and Medicaid for each enrollee. For states opting for the MFFS model, following CMS approval of the memorandum of understanding, the state and CMS enter into an agreement by which providers continue to receive fee-for-service reimbursement for both Medicare and Medicaid services. The state is then eligible for a portion of any retroactive savings resulting from state initiatives designed to improve quality and reduce spending for dual-eligible beneficiaries. One state, Washington, is using Medicaid health home agencies to coordinate Medicare and Medicaid services among existing fee-for-service providers for dual-eligible beneficiaries. The organizations in the capitated model, and the states in the MFFS model, then undergo a CMS review to ensure they are prepared to begin enrolling dual-eligible beneficiaries. Once they have passed CMS’s review, they can begin enrolling beneficiaries. In general, under the capitated model, eligible beneficiaries—those dual-eligible beneficiaries who meet the state’s age, geographic residency, and other requirements for the demonstration—can enroll voluntarily into the demonstration and choose a participating integrated care organization. Dual-eligible beneficiaries who choose not to enroll voluntarily can be assigned by the state Medicaid agency to a participating organization, in a process known as “passive enrollment.” Once a beneficiary is enrolled into the demonstration, the state will send the beneficiary’s contact information to the relevant integrated care organization. The state or CMS may also provide Medicaid or Medicare claims data, medical history, hospitalizations, and pharmacy use for the beneficiaries. The organization then typically assigns a care coordinator and begins coordinating the beneficiary’s care. In the MFFS model, beneficiaries are automatically enrolled in the demonstration, and following enrollment, the care coordinator will perform outreach to the beneficiary and give the beneficiary the option to elect to receive care coordination services. Under both models, beneficiaries can opt out of the demonstration at any time. Implementation of the Financial Alignment Demonstration began in July 2013 when the first state, Washington, began enrolling beneficiaries. Since then, CMS has approved 12 other state demonstrations and all but one of these states has begun enrolling beneficiaries. Two states— Connecticut and New York—had proposals pending approval from CMS as of September 2015. (See fig. 2 for a demonstration map.) The agency is no longer accepting new proposals from states. One of the key goals of the demonstration is to improve care coordination for beneficiaries using a person-centered care delivery model based on the preferences and needs of the beneficiary, which CMS anticipates will improve the quality of care and reduce costs. CMS requires states and organizations participating in the demonstration to incorporate a care coordinator role, a health risk assessment, an ICP, and an ICT into their care delivery model for the demonstration. (See table 1.) Under the demonstration, any savings will be shared equally by Medicare and Medicaid, regardless of whether the savings were achieved primarily by Medicare or Medicaid. Although CMS projects that approximately 60 to 70 percent of savings from the demonstration will come from reductions in costly Medicare-covered services, such as fewer hospital admissions (including readmissions), and approximately 1 to 5 percent of savings will come from fewer emergency room visits, the agency requires that as part of a more integrated approach, both the Medicare and Medicaid programs adjust their payment rates to plans based on aggregate savings percentages. Organizations in the five states in our review used state- and CMS- required care coordinators, health risk assessments, ICPs, and ICTs to coordinate care. Due to the flexibility states have in designing these elements in their demonstrations, implementation varied among the organizations in these five states. Staff from organizations in our review reported different ways that they assigned care coordinators to beneficiaries. Some organizations assigned care coordinators on the basis of geographic proximity to the beneficiary or the beneficiary’s primary care provider. Others assigned care coordinators a mix of low-, moderate-, and high-risk beneficiaries, or assigned care coordinators based on the coordinator’s qualifications and areas of expertise. Care coordinators varied in their qualifications and backgrounds, and in the types of care they coordinated. Organization staff said care coordinators had degrees or licensures in fields such as nursing, social work, or behavioral health. Staff from the organizations said they hired care coordinators with backgrounds in care management and assessment, and who were comfortable reaching out to and engaging with beneficiaries. In addition, some organizations had separate care coordinators assigned to handle medical needs versus behavioral health needs, but others had care coordinators who were responsible for coordinating care across medical, behavioral, and social realms. Care coordinators for the organizations in our review reported interacting with beneficiaries, using a range of methods and in a variety of settings, to conduct health risk assessments, develop ICPs, and lead ICTs. Care coordinators we spoke with reported interacting with beneficiaries by mail, e-mail, telephone, and in person, but most care coordinators said they interacted with beneficiaries by telephone or in person. Some care coordinators told us they interacted by telephone regardless of a beneficiary’s risk level, while others used a mix of telephone and in person methods depending on the beneficiary’s risk level and needs. Some care coordinators in the latter group used in person interactions for higher-risk beneficiaries and telephone interactions for low-risk beneficiaries. Locations of the in-person visits also differed; while in- person visits were often conducted in a beneficiary’s home, care coordinators described meeting beneficiaries in other settings as well, such as parks, libraries, homeless shelters, clothing drives, and provider’s offices. The organizations in the five states we reviewed differed in how they conducted the health risk assessment. For example, they differed in how they identified high- and low-risk beneficiaries, a process that typically occurs when the beneficiary is enrolled in the demonstration, but before the health risk assessment is conducted. Staff at some of these organizations said they confirm or adjust the initial risk category assigned by the state through the health risk assessment process. Conversely, staff at organizations in states that do not assign an initial risk category said they begin their health risk assessment process by identifying high- and low-risk beneficiaries through an initial health screening and then administering the health risk assessment. Additionally, based on our interviews, we found that organizations in the five states varied in their methods for conducting the assessment. Not all of these organizations used their own staff and instead contracted with a vendor to conduct the assessments. For the organizations conducting their own assessments, the staff responsible also differed depending on the organization. For example, some organizations had the beneficiary’s care coordinator conduct the assessment, while others used other types of staff, such as assessment coordinators. The organizations we reviewed also used different health risk assessment tools. For example, the Illinois demonstration required organizations to use a tool that must assess the beneficiary’s medical, psycho-social, functional and cognitive needs, and medical and behavioral health, while the Massachusetts demonstration required organizations to use a tool that not only assesses these needs but also assesses needs related to housing, employment status, and food security. Staff at some of these organizations also said they used a supplemental assessment in addition to the health risk assessment to further identify the needs of their beneficiaries. Based on our interviews, we found that the ICP templates varied by organization in the five states and therefore differed in length, complexity, and focus. Some organizations used ICP templates from the state and others developed their own templates. The ICPs varied in length, from shorter plans containing three to five goals to longer plans containing many goals. Staff who used the shorter ICPs explained they did so to avoid losing the beneficiary’s interest. The complexity of the ICP also depended on the organization. For example, staff at some organizations described ICPs that contained goals for the beneficiaries as well as strategies, timelines, and barriers to meeting those goals. Additionally, some organizations created ICPs with a mix of short- and long-term goals, while other organizations said their ICPs contained a small number of meaningful and achievable goals. Some organizations tailored their ICPs to focus on the risk level of the beneficiary, with ICPs for low-risk beneficiaries containing basic educational information on common health issues such as asthma or diabetes, while ICPs for high-risk beneficiaries were tailored to identify gaps in their care. Staff at one organization said the ICPs were not clinical plans but focused on home and community- based services, such as referrals to transportation services. Care coordinators said they developed the ICP with the beneficiary either in conjunction with the health risk assessment or after the completion of the health risk assessment. Some care coordinators used a standard ICP outline auto-populated with results from the beneficiary’s health risk assessment as the basis for developing the ICP with the beneficiary. We also found that implementation of the ICT process varied by organization in the five states. Specifically, these organizations said that the frequency and format of ICT meetings depended on the needs of the beneficiary. Some meetings took place only once, when a beneficiary first enrolled in the organization, while others took place on a regular basis for on-going health needs or only in the case of acute events such as hospitalizations. Additionally, staff from some organizations in our review said that ICT meetings do not occur for every beneficiary, particularly low- risk beneficiaries, because their health needs may not be complex and thus they may not need to meet with their ICT. Staff also commented that communication and meetings among ICT members took place in different ways. For example, staff at one organization told us they consider conversations between the organization’s medical director and the beneficiary’s primary care provider to be a form of ICT communication, and staff at another organization said ICT meetings can take place between the care coordinator, the beneficiary, and the beneficiary’s primary care provider during the beneficiary’s medical appointments. While we observed some ICT meetings that included the care coordinator, the beneficiary, and another member of the care team, we also observed group meetings that covered multiple beneficiaries, which the organizations also considered to be ICT meetings. Staff from organizations in our review said that these regularly scheduled in-person group meetings discussed recently hospitalized beneficiaries or beneficiaries with health issues, and they typically involved the organizations’ medical directors, care coordinators, social workers, pharmacists, and network operations staff. During these types of ICT meetings, care coordinators summarized a beneficiary’s health status and meeting participants provided input on how to address the beneficiary’s needs. Organization staff in the five states in our review described challenges that affected their ability to coordinate care for beneficiaries. Specifically, these organizations reported challenges related to locating beneficiaries, engaging beneficiaries and primary care providers, and communicating with beneficiaries about the demonstration. CMS has established an oversight framework for the demonstration that includes monitoring activities. However, while the agency collects information that assesses the extent to which care coordination is occurring in the demonstration, not all of this information is comparable. Organization staff said it was a challenge locating beneficiaries to initiate care coordination services because the characteristics of some dual- eligible beneficiaries make it difficult to develop and maintain accurate contact information. Some dual-eligible beneficiaries are transient because they are homeless or live in temporary accommodations, such as a hotel or with relatives. Many may be unreachable by telephone because they have no or limited access to a telephone. Additionally, staff told us that behavioral health issues, such as substance abuse, are prevalent and may affect an individual’s ability to remain in touch with providers or organizations. Further, organizations have difficulty locating beneficiaries if the states do not have accurate beneficiary contact information. Staff from some organizations in our review also told us that dual-eligible beneficiaries enrolled via the passive enrollment process were harder to locate, and some beneficiaries were unaware they were enrolled. Organization staff told us they devoted time and staff resources trying to locate beneficiaries, some increasing staff or hiring a vendor to help locate beneficiaries. Furthermore, some organization staff told us they conducted outreach efforts to community-based organizations that have prior relationships with dual-eligible beneficiaries and know how to locate them. Some organizations reported that they had developed strategies for finding beneficiaries. CMS and some states have discussed and developed best practices for finding beneficiaries. When organizations are unable to locate beneficiaries, it can be challenging for the organizations to coordinate their care, which is one of the key goals of the demonstration and one that CMS views as essential to the successful integration of care between Medicare and Medicaid. For example, staff at some organizations in California told us that, in order to address the challenge of coordinating services for the beneficiaries they could not reach, they used a standard ICP outline auto-populated with any information they had about the beneficiary. We also found that advocacy groups in four of the five states we reviewed had concerns about the extent to which care coordination is being provided in the demonstration. These advocacy groups noted that some of the beneficiaries with whom they interacted said that they had not been assigned a care coordinator, participated in an ICT meeting, or worked with their care coordinator to develop an ICP. One advocacy group told us that it had worked with a high-risk beneficiary who had been enrolled in the demonstration for a year but had not yet been contacted by a care coordinator. Our findings are consistent with the results of a 2015 study by the Medicaid and Children’s Health Insurance Program Payment and Access Commission (MACPAC), which found that many of the beneficiaries who participated in focus groups across three capitated model states said they did not have a care coordinator and had not experienced these required components of care coordination. Organization staff in the five states in our review said that it is a challenge to engage beneficiaries to coordinate their care in the demonstration. Care coordinators pointed out that the demonstration requires effort on the part of the beneficiary—a willingness to engage with the care coordinator to use the services available. However, beneficiaries may not understand how the demonstration can benefit them, and may not be aware of services available. A beneficiary advocacy group in Massachusetts said that one goal of the demonstration is to have a beneficiary-driven care system, but if beneficiaries cannot advocate for themselves, or are not aware of their options, then they cannot benefit from the demonstration. Additionally, organization staff said that some beneficiaries are not interested, while others may be distrustful of the health care system in general and not comfortable answering questions about their health from individuals they do not know. Lack of engagement and understanding of available care options can affect the provision of care coordination services, including participation in ICTs. For example, staff we spoke with at a few organizations said that not all beneficiaries want to participate in their ICT because, for example, they are not comfortable having their health care discussed in a team setting. CMS officials said that ICTs are built on the health needs and specific preferences of the beneficiary and that, while all beneficiaries are to have access to an ICT, there are no requirements for beneficiaries to participate in ICT meetings. During our observations of ICT meetings, we found that not all beneficiaries participated. Specifically, over 17 beneficiaries were discussed during the 9 ICT meetings we observed and only 8 beneficiaries joined the meetings by phone. CMS officials said that the beneficiary does not need to be involved every time ICT members communicate, but should at least be aware of the meetings if he or she is not participating in them. Organization staff we spoke with said that engaging primary care providers in the demonstration has also been a challenge. While primary care providers are considered a core member of the ICT in the demonstrations, six of the seven providers we interviewed had never participated in an ICT meeting and two had never reviewed an ICP. Organization staff we spoke with said that the busy schedules of primary care providers, and their varying levels of interest in the demonstration, made it difficult to engage them in the ICTs. In fact, in many of the ICT meetings we observed, the beneficiary’s primary care provider was not present; however, the organization’s medical director was present and was an active participant in the discussion. Organization staff also said that a provider’s knowledge of the demonstration can affect his or her willingness to engage with care coordination activities. Organization staff and primary care providers said that providers caring for a beneficiary with multiple health issues are more likely to engage with care coordinators. Staff of some organizations said they were trying to increase provider engagement through provider education and provider incentives, as well as by sending them completed ICPs and results of ICT meetings, and by scheduling ICT meetings to accommodate providers’ schedules. Some organizations and beneficiary advocacy groups we spoke with said that beneficiaries have had difficulty with communication about the demonstration. Some organizations and beneficiary advocates said enrollment materials that beneficiaries received from the state were overwhelming for the beneficiary because of the volume of information in the materials and because the information was not easy to understand. Additionally, some organizations and advocates said that enrollment materials sent by mail often do not get opened. CMS officials said that in response to this challenge states have attempted to streamline their enrollment materials by focusing on which materials are most applicable to beneficiaries in that state. CMS officials added that they are encouraging the states to test their enrollment materials with a sample of beneficiaries before distributing them to all beneficiaries, and several states have opted to do so. Additionally, staff we spoke with at some organizations said that the information beneficiaries receive from outside of the organization creates confusion and anxiety, and may lead to some beneficiaries opting out of the demonstration. An organization in California said that private entities sponsored newspaper advertisements that encouraged beneficiaries to opt out of the demonstration, which created confusion among beneficiaries. Staff at some organizations said they would like to reach out to beneficiaries before their effective enrollment date to communicate with them about the demonstration. To oversee the coordination of care provided in the demonstration, CMS has established a framework of monitoring activities. The agency has established contract management teams (CMT) in the capitated states that are responsible for monitoring the demonstration on a day-to-day basis by providing technical assistance and overseeing contract compliance. These teams allow for collaboration between CMS and the states and comprise, at a minimum, officials from the CMS central office, the CMS regional office, and the state Medicaid office, but may include other entities, depending on the state. CMTs have a number of required responsibilities outlined in CMS guidance to ensure that organizations comply with their contracts, such as monitoring the organizations’ performance in meeting measures and tracking complaints. In addition, the CMTs are required to meet regularly with participating organizations to discuss various topics including compliance, enrollment, and beneficiary issues. If an organization is found to be out of compliance with its contract, the CMTs can impose a range of enforcement actions increasing in severity from an initial notice of noncompliance to a warning letter, and finally to a formal corrective action request. According to CMS officials, the key difference in oversight provided is that CMS primarily oversees the organizations under the capitated model while it oversees the states under the MFFS model. Specifically, in states using an MFFS model, the state itself is primarily responsible for the day- to-day monitoring of the demonstration, and the CMS regional office is responsible for overseeing the state’s compliance with the terms of its demonstration as well as tracking its required data reporting for the demonstration. One key component of CMS’s oversight is monitoring of core and state- specific measures that the organizations, for the capitated model, and states, for the MFFS model, are contractually required to report. The measures include established quality measures from organizations like the National Quality Forum, as well as demonstration-specific measures developed by CMS, in collaboration with the states, to assess the demonstration. The organizations in the capitated states use a common set of core measures. Similarly, the MFFS states adhere to a common set of core measures. However, the sets of core measures differ between the two models. (See table 2.) CMS officials said that they did not deliberately design the two models to have different sets of core measures, but that the differences were the result of data that organizations and states collected prior to the demonstration. Specifically, they said that many of the demonstration-specific measures in the capitated states were adapted from existing Medicare Part C and Part D measures; in contrast, the MFFS states were not collecting these types of measures prior to the demonstration. In both capitated and MFFS model states, CMS supplements these core measures with required, state- specific measures. (See app. I for the state-specific measures for the five states that we reviewed.) CMS designated a subset of the core and state-specific measures for the capitated states as quality withhold measures, meaning that, on an annual basis, CMS and a state’s Medicaid program each withhold a percentage of an organization’s capitated rate, which is later adjusted and repaid based on the organization’s performance. Two of the 10 core measures were quality withhold measures during this first year of the demonstration, with additional state-specific measures also designated as quality withhold measures in each state. The CMTs in the capitated states are required to review an organization’s performance on the remaining core and state-specific measures, provide feedback to the organizations, investigate any areas of poor performance, and issue enforcement actions if organizations are out of compliance. Of the 11 organizations in the four capitated states that we reviewed, 1 had received a formal enforcement action—a notice of noncompliance—from CMS related to its performance on core measures, as of April 2015. In contrast, MFFS states can earn a retrospective performance payment annually that is based, in part, on their performance compared to benchmarks for all of their core and state-specific quality measures, which is intended to incentivize high performance. States receive a portion of their total performance payment if they meet the minimum performance threshold and can qualify to receive additional payments based on how well they performed on individual measures. Therefore, poorly performing MFFS states that do not meet the minimum threshold would not earn a performance payment. The timing of our review was too early in the implementation process for CMS to have paid a retrospective performance payment to either of the two MFFS states, but one of the states—Washington—had recently submitted its first set of annual data. These core and state-specific measures are outlined in CMS technical guidance, which includes specific instructions for how organizations and the states should report the data to CMS. The organizations in the capitated states are to generally submit their data to CMS on a quarterly, semiannual, or annual basis, depending on the measure, through a contractor-administered website. CMS officials told us the contractor then synthesizes the data and shares them with CMS headquarters and the CMTs for further analysis. The CMTs may then discuss the results during regular meetings with the organizations. In contrast, in the MFFS model, states are responsible for collecting data from the integrated care organizations annually and submitting it to CMS through a contractor- administered website. In addition, CMS requires organizations, for the capitated model, and the states, for the MFFS model, to report data annually from the Consumer Assessment of Healthcare Providers and Systems (CAHPS), which is a patient survey developed by another HHS agency, the Agency for Healthcare Research and Quality. Agency officials told us in early November 2015 that they expect to receive CAHPS results by the end of the month for the first capitated states that implemented the demonstration, and they expect to complete their analysis of the results and make them available by spring 2016. The MFFS states—Washington and Colorado—completed the survey by November 2015, and CMS anticipates the results will be available in spring 2016. CMS officials told us that they worked with a contractor to adapt a version of the CAHPS survey for the MFFS states, which is different from the CAHPS survey used by the organizations in the capitated states. Specifically, the organizations in the capitated states use the survey that must be completed by all Medicare managed care plans. In commenting on our draft report, HHS provided us with new information indicating that CMS had added 10 demonstration-specific supplemental questions to the capitated CAHPS survey. In addition, because the organizations in the capitated model are also Medicare managed care plans, they must report data annually from the Healthcare Effectiveness Data and Information Set (HEDIS). HEDIS, which is developed by the National Committee for Quality Assurance and helps consumers compare the performance of health plans in providing selected services, and the Medicare Health Outcomes Survey (HOS), which is a patient-reported outcomes survey, are measures that must also be reported by Medicare managed care plans to CMS. Agency officials told us they received the first HEDIS results in November 2015 and they expect HOS results in spring 2016. Organizations in the capitated states are also required to regularly report encounter data to CMS, which contain information on the services and items furnished to beneficiaries. CMS has also hired a contractor—RTI International—to assess the implementation of the demonstration and evaluate its impact on beneficiary experience, quality, utilization, and cost. RTI International will conduct annual and final aggregate evaluations of each state’s demonstration program, as well as an overall evaluation across the states that will use both qualitative and quantitative data analysis. Specifically, the contractor will analyze enrollment, encounter, and claims data and conduct site visits, focus groups, and interviews. CMS officials said that the first annual state evaluation is anticipated to be completed in winter 2016 and the final aggregate evaluation is expected in 2018, at the earliest. CMS collects different sets of core measures for the capitated and MFFS model states. Two out of 10 core measures in the capitated model provide information on the extent to which care coordination is occurring, while no core measures in the MFFS model examine this area. The core measures for the capitated states examine the percentage of health risk assessments completed within 90 days of enrollment and the percentage of reassessments that are completed annually. CMS does not collect any other core measures in either the capitated states or the MFFS states that assess key aspects of care coordination, such as whether care coordinators were meeting with beneficiaries, whether ICPs were being developed, or whether ICT meetings are occurring—components of the demonstration that, like the health risk assessments, are required by CMS under the demonstration. CMS also collects some state-specific measures that examine the extent to which care coordination is occurring; however, these measures are not collected consistently across the states, or for the two types of models in the demonstration. For example, Washington (an MFFS state), Massachusetts (a capitated state), and Illinois (a capitated state) have state-specific measures that examine whether beneficiaries have completed an ICP within 90 days of enrollment. While the other two capitated states in our review have a similar measure, they differed from the ICP measures in Washington, Massachusetts, and Illinois. For example, while California has a state-specific measure assessing whether an ICP was completed, there is no time period specified for doing so, and it has additional measures that separately examine whether high- and low-risk beneficiaries had an ICP completed within 30 working days of their health risk assessment. We also noted that all the capitated states in our review had a state-specific measure that examined whether beneficiaries had a documented discussion of care goals, but the MFFS state in our review, Washington, did not have this measure. In addition, CMS officials told us they plan to assess care coordination through the forthcoming results of the CAHPS survey (for both the capitated and MFFS models). CMS adapted the CAHPS survey for the demonstration in the MFFS states and, in commenting on our draft report, HHS provided us with new information indicating that CMS had added demonstration-specific supplemental questions to the CAHPS survey in the capitated states. These surveys contain two questions specific to care coordination that are consistent across all states in the demonstration. Specifically, the MFFS and capitated CAHPS surveys both contain questions about whether anyone from the organization helped to coordinate the beneficiaries’ care and how satisfied beneficiaries were with the help they received to coordinate their care. While the results of the capitated and MFFS surveys are still forthcoming, these questions may be able to provide CMS with important information about whether beneficiaries are meeting with their care coordinators. However, while the MFFS CAHPS survey also contains questions related to developing an ICP and meeting with an ICT, these questions are not included in the capitated CAHPS survey. There were no questions on either survey related to the completion of the health risk assessment. We and others have noted the importance of a common set of comparable measures across the states. In a 2012 report, we recommended that CMS systematically evaluate performance in its D- SNP program for dual-eligible beneficiaries and noted that without standard measures it would not be possible for CMS to fully evaluate the relative performance of the D-SNPs. In addition, the Commonwealth Fund noted that, while varying the Financial Alignment Demonstration’s quality measures from state to state may be necessary because the demonstrations differ across all the states, researchers and policymakers will need a common set of comparable measures in order to make useful cross-state comparisons. While CMS has developed two core measures related to care coordination that are consistent across the capitated states in the demonstration, these measures are not core measures in the MFFS model and are therefore not comparable across both demonstration models. Moreover, while CMS collects some state-specific measures that examine this area, they are not comparable across the states. However, CMS has included two questions in its CAHPS survey that are consistent across the demonstration states in both the capitated and MFFS models, and the agency anticipates using these forthcoming results to assess care coordination. Internal control standards for the federal government specify that monitoring should be designed to help an agency accomplish its goals. Because not all of the information that CMS collects to examine the extent to which care coordination is occurring is comparable across the demonstration, the agency does not fully know whether it has achieved its goal of improving care coordination for dual-eligible beneficiaries. Further, CMS does not have all of the data necessary to identify and correct potential problems in the demonstration. CMS officials told us that any issues related to care coordination would be identified in the forthcoming results of the CAHPS survey and discussed during the regular CMT meetings with the organizations. CMS officials also noted that some of their existing core measures would indicate whether care coordinators are effectively coordinating care for patients, such as a core measure in the capitated model examining nursing facility diversion, that is, the percentage of beneficiaries living in the community who require an institutional level of care but who did not reside in a nursing home for more than 100 days. CMS officials told us that they believe these types of outcome-oriented measures provide more valuable information than process-oriented measures because they assess whether care coordination is effectively improving the health of beneficiaries. While we believe outcome measures are important for assessing care coordination in the demonstration, process measures are also needed to determine whether the demonstration is being implemented as intended. If process measures are not in place across the states participating in the demonstration to identify and correct potential problems, we believe that outcome measures cannot be reliably assessed. CMS’s Financial Alignment Demonstration has the potential to improve the quality of care for dual-eligible beneficiaries and to reduce spending in the Medicare and Medicaid programs. A growing consensus suggests that coordination of care is an important strategy for achieving these goals. Dual-eligible beneficiaries, who often have extensive health care needs, typically receive their benefits separately through the Medicare and Medicaid programs. Improving care coordination is a key goal for CMS’s demonstration and will ultimately influence whether the program is successful. Our work identified multiple challenges in locating and communicating with beneficiaries as well as difficulties in engaging providers in fundamental care coordination activities. Similarly, our interviews with beneficiary advocacy groups and providers called into question the extent to which care coordination is occurring in the demonstration. CMS collects information about the extent to which care coordination is occurring in the demonstration, but not all of this information is comparable across the states. Therefore, it cannot reasonably determine whether health risk assessments are being completed, ICPs are being developed, and ICT meetings are occurring—all aspects of care coordination that CMS requires organizations to provide to beneficiaries. By not having data that are consistently available from all states across the demonstration that examine these aspects of care coordination, CMS does not fully know whether it has achieved its goal of providing coordinated care to dual-eligible beneficiaries. CMS has included measures in its CAHPS survey for both the capitated and MFFS states that examine whether beneficiaries have had their care coordinated among different health care providers. However, we believe that establishing additional measures that would allow CMS to obtain these data from all states and organizations participating in the demonstration could help it better understand the reasons why care coordination is or is not occurring and thus help the agency to strengthen the demonstration. Given the potential for the demonstrations to be expanded across the United States, it is important that CMS expediently collect this information to inform whether it is achieving its goal. To strengthen oversight of the provision of care coordination services in the Financial Alignment Demonstration, we recommend that the Secretary of Health and Human Services direct the Administrator of CMS to take the following two actions: Expediently develop and require organizations in the capitated model, and the states in the MFFS model, to report comparable core data measures across the demonstration that measure the following: the extent to which ICT meetings are occurring, and for MFFS states, the extent to which health risk assessments are completed. Align CMS’s existing state-specific measures regarding the extent to which ICPs are being developed across the capitated and MFFS states to make them comparable and designate them as a core reporting requirement. HHS reviewed a draft of this report and provided written comments, which are reprinted in appendix II. In its comments, HHS did not specifically state whether it agreed or disagreed with our first recommendation, but it concurred with our second recommendation. HHS also provided us with technical comments, which we incorporated in the report as appropriate. Regarding our first recommendation that HHS require organizations to report comparable core data measures across the demonstration, HHS provided us with new information that it had not previously provided, which caused us to reconsider one of our findings and a related recommendation. Specifically, HHS noted that that the CAHPS surveys for both the capitated and MFFS models contain supplemental questions for the demonstration that are specific to care coordination, whereas they had previously provided us with information indicating that only the MFFS model CAHPS survey contained these questions. Given the new information HHS provided, we updated our report to reflect CMS’s plan to use the forthcoming results of the CAHPS survey to assess care coordination across the demonstration. In addition, we modified the recommendation contained in our draft report that CMS require organizations in the capitated model, and the states in the MFFS model, to report comparable core data measures across the demonstration regarding the extent to which care coordinators are meeting with beneficiaries. In addition, HHS noted in its comments that it has comparable risk assessment completion rate measures in both the MFFS and capitated models and said the variances between the health risk assessment measures in the two demonstrations reflect different design elements. However, we found that there were no core measures in the MFFS model examining the health risk assessment completion rate. HHS also described steps that it has been taking that may, in the future, help to address the findings in this report. For example, HHS noted that it is developing a set of care coordination measures to supplement data obtained from the CAHPS surveys. HHS also stated that the timeline for measurement development may not align with the current three-year demonstration period, such that the inclusion of any additional new measures would have to be considered for potential future extension or expansion of the initiative. Given the potential for the demonstrations to be expanded across the United States, we believe it is important that CMS expediently collect this information to inform whether care coordination in the demonstration is being implemented as intended. HHS stated that it recently entered into a contract to support measure development, which should better equip HHS to evaluate the extent to which care coordination is occurring in the demonstration, among other things. HHS concurred with our second recommendation to make CMS’s existing state-specific measures comparable and designate them as a core reporting requirement. HHS stated it would examine the feasibility of designating ICPs as a core reporting requirement as the demonstration progresses. However, it noted that it currently monitors the timely completion of ICPs in both models using different state-specific measures rather than uniform core reporting measures in order to reflect differences in the demonstration parameters across the states. We believe that aligning existing state-specific measures regarding ICP development to make them comparable and designating them as a core reporting requirement would help CMS better understand the extent to which care coordination is occurring across the demonstration and thus help the agency strengthen the demonstration as it progresses. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. X effective as of January 1, 2014, Virginia’s measures were effective as of April 1, 2014, and Washington’s measures were effective as of July 1, 2013. In addition to the contact name above, Catina Bradley, Assistant Director; Giselle Hicks; Maggie Holihan; Sarah-Lynn McGrath; Beth Morrison; Ann Tynan; and Emily Wilson made key contributions to this report. | The Medicare and Medicaid programs spent an estimated $300 billion on dual-eligible beneficiaries—those individuals who qualify for both programs—in 2010. These beneficiaries often have complex health needs, increasing the need for care coordination across the two programs. In 2013, CMS began the Financial Alignment Demonstration, with the goal of integrating Medicare and Medicaid services and financing and improving care coordination. Thirteen states are participating. GAO was asked to examine care coordination under the demonstration. GAO examined (1) how integrated care organizations—which are health plans or other entities—are implementing care coordination and (2) what, if any, challenges organizations have encountered in implementing care coordination and the extent to which CMS oversees these care coordination activities. GAO interviewed officials from CMS and, during site visits to a nongeneralizable sample of the first five states to implement the demonstration, interviewed state officials, organizations, advocacy groups, and providers. GAO also reviewed CMS guidance outlining CMS's oversight role and the measures it uses to monitor the demonstration. Due to the flexibility that states have in designing their Financial Alignment Demonstrations, the integrated care organizations that GAO interviewed in California, Illinois, Massachusetts, Virginia, and Washington implemented care coordination for dual-eligible Medicare and Medicaid beneficiaries in a variety of ways. For example, these organizations assigned care coordinators to beneficiaries using different approaches, such as assigning them by geographic proximity to the beneficiary or to the beneficiary's primary care provider. Care coordinators also used a range of interactions with beneficiaries in order to coordinate care, including by mail, e-mail, telephone, or in person. The organizations GAO interviewed described facing challenges that affected their ability to coordinate care, such as difficulties in locating beneficiaries. Specifically, organizations noted that certain characteristics of dual-eligible beneficiaries, such as high levels of transience, can make it challenging to coordinate their care—one of the key goals of the demonstration. GAO's interviews with beneficiary advocacy groups and providers raised questions about the extent to which care coordination is actually occurring. The Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), collects information that assesses the extent to which care coordination is occurring, but not all of this information is comparable across the states. To inform its oversight, CMS has established a framework of monitoring activities, and one key component of this oversight is the monitoring of core and state-specific measures for each of the two demonstration models that states can implement: (1) the capitated model, where organizations receive a capitated payment to provide integrated care, and (2) the managed fee-for-service (MFFS) model, where states are eligible for retroactive savings resulting from initiatives to integrate care with existing fee-for-service providers. CMS collects different sets of core measures from the capitated and MFFS model states. Two out of 10 core measures in the capitated model provide information on the extent to which care coordination is occurring, while no core measures in the MFFS model examine this area. The states in our review had state-specific measures that explored aspects of care coordination, but they were not comparable across the states or both demonstration models. In addition, CMS added comparable, demonstration-specific questions to the Consumer Assessment of Healthcare Providers and Systems, a survey that CMS requires all organizations for the capitated model, and states for the MFFS model, to complete annually. While the results of the surveys are still forthcoming, information from these questions may be able to provide CMS with important information about whether beneficiaries are meeting with their care coordinators across both models. Federal internal control standards state that monitoring should be designed to help an agency accomplish its goals. Because not all of the information that CMS collects to examine the extent to which care coordination is occurring is comparable, CMS does not fully know whether it has achieved its goal of providing coordinated care to dual-eligible beneficiaries. Establishing additional measures that would allow CMS to obtain these data could help it better understand the reasons why care coordination is or is not occurring and thus help the agency to strengthen the demonstration. GAO recommends that CMS develop new comparable measures and align existing measures to strengthen oversight of care coordination. HHS proposed actions that it plans to take in response to GAO's recommendations, as discussed in the report. |
The Section 521 Rental Assistance Program, started in 1978, is administered by RHS’s Multifamily Housing Division of Portfolio Management. The program provides rental assistance for tenants living in units created through RHS’s Multifamily Direct Rural Rental Housing Loans and Multifamily Housing Farm Labor Loans programs. Under the program, eligible tenants pay no more than 30 percent of their income toward the rent, and RHS pays the balance to the project owner. As of January 2003, approximately 53 percent of tenants in the program’s 464,604 housing units were receiving rental assistance. According to program officials, the program has a waiting list of approximately 80,000 eligible tenants. RHS provides the subsidies through 5-year contracts with project owners; 20-year contracts were also issued to units in newly constructed properties from 1978 through 1982. The contracts specify that owners will receive payments on behalf of tenants in a designated number of units at the project. Contracts may be renewed as many times as funds are made available, and additional units may be covered if funds are available. According to program officials, about 96 percent of the Rental Assistance Program’s budget is used to renew expiring rental assistance contracts. The remaining funds are used to provide rental assistance for units in newly constructed properties and additional rental assistance at existing properties. Budget needs are estimated assuming a 5-year rental assistance contract life, although a contract’s actual life is determined by how long its funds last and could run far beyond its estimated life if the funds are expended slowly enough. Each month, project owners or their management companies must certify the number of rental assistance units that are occupied. If a unit is empty and rental assistance is not being used, the project owner assigns a new tenant from the waiting list. If there are no tenants eligible for the rental assistance, the rental assistance may be transferred to another property. RHS’s national, state, and local offices manage the rental assistance program. The national Office of Multifamily Housing Portfolio Management develops and implements the program regulations, estimates program budgets, allocates funds, and tracks nationwide program statistics. State and local offices work directly with property owners, property management companies, and tenants to monitor the program. State and local responsibilities include conducting financial, management, and physical reviews of the properties; executing rental assistance contracts with property owners; approving rent increases; and processing rental assistance payments. State and local staff also collect and maintain property and tenant data for their areas. Support for the program is also provided through two offices in St. Louis. The Information Resources Management Office’s Rural Housing Service Branch maintains the automated databases used to manage program data. The Office of the Deputy Chief Financial Officer uses the program data to generate and maintain the general ledger and financial statements for the program. In 1982—the fourth year of the program—RHS reported in an internal position paper that rental assistance funds were being substantially underused. The agency found that approximately $100 million of the rental assistance funds obligated for 5-year contracts would be lost between 1983 and 1985, because the contracts would expire before all the obligated funds were used. The study found that rental assistance contracts set to expire at the end of 5 years still had funds available for an average of 5 additional years. The agency noted that if contract terms were extended until the funds ran out, the tenants could receive benefits twice as long without any further appropriation of funds. Alternately, the agency noted that terminating contracts at the end of their terms and returning the unexpended funds would save federal funds, assuming the contracts would not be replaced. The paper recommended the indefinite extension of rental assistance contracts, and the recommendation was adopted as agency policy in 1983. Contract language was changed at that time, and previously written contracts were amended. Using its current methodology, RHS has overestimated its budget needs for 5-year rental assistance contracts in three ways. First, the agency has used inflation factors that are higher than those projected by OMB for use in the budget process. Second, RHS compounds the inflation rate to reflect the price level in the fifth year and applies that rate to each contract year, rather than using an appropriate rate for each year. Third, the expenditure rates RHS uses to estimate budget needs may also overstate the need for rental assistance. Furthermore, RHS budget processes do not adhere to certain internal control standards. While a new budget forecasting model shows promise, it is, at present, flawed. RHS’s processes for estimating its budget and allocation needs have evolved over time. An agency official who worked on the program’s initial budgets from 1978 through 1982 told us that RHS intentionally overfunded the contracts in an effort to subsidize the poorest possible tenant by basing tenant contributions on minimum Social Security payments. Agency documents suggest that the agency was using inflation rates of 10 to 20 percent to estimate future spending rates for the life of the contracts. After this time period, the agency made a series of changes to its processes, including increasing tenant contributions from 25 percent to 30 percent, and differentiating per-unit costs for rural rental housing and farm labor housing properties. The current method for estimating budget needs was developed by two agency officials, between 1995 and 1997, and is based on a formula that consists of multiplying estimates for the number of expiring rental assistance units by a national average per-unit cost and by an inflation factor. The need for rental assistance for units in newly constructed properties and additional rental assistance at existing properties is also calculated. Since 1996, one official has largely managed the process with oversight from the Rural Development Budget Office, OMB staff, and RHS supervisors. OMB Circular A-11, Preparation, Submission, and Execution of the Budget, provides guidance to agency officials, stating that preparation of agency budgets must be consistent with the economic assumptions provided by OMB. These assumptions are listed each year in the President’s Budget, though they are made available to agencies prior to that time for their budget preparations. However, neither OMB staff nor the Rural Development Budget Office official we spoke with required RHS to use these rates or objected to the agency determining its own inflation rates. Although OMB policy does permit agencies to consider other factors in developing their budget estimates, it does not allow agencies to automatically apply these factors to their budget requests. Also, although OMB staff and a Rural Development budget official review and approve RHS’s budget requests each year, neither has ever required nor sought a justification for the rates chosen. RHS considers its annual rental assistance needs through two different processes prior to funding the contracts. First, the agency prepares the submission for the President’s Budget about 2 years prior to the budget year, based on previous renewal needs, average per-unit costs, and a compounded inflation rate. Agency officials explained that in recent years they used 2.7 percent when preparing estimates to submit with the President’s Budget. By the time Congress appropriates a budget based on this information, the data used by the agency are about 2 years old. Therefore, after receiving the fiscal year budget, and before allocating the rental assistance funds, RHS rechecks the estimated number of expiring units and average per-unit costs, based on more current data. For this second process, the agency prepares a report using the Automated Multi-Housing Accounting System database (AMAS) on the contracts expected to expire in the coming year. This report is sent to the local offices for verification and then returned to the national office. The agency establishes average per-unit values, based on the contracts expiring in the coming year, by inflating the maximum per-unit cost from the prior 3 months by a compounded inflation rate. According to agency officials, RHS adjusts the inflation rate to more closely approximate the level of funding received. If the original budget estimate and the allocation estimate differ, RHS distributes any rental assistance funds remaining after the expiring contracts are renewed among states to create new rental assistance units. These allocation figures then become the basis for future submissions for the President’s Budget. Because it has not followed OMB procedures, RHS has overestimated its future budget needs. For example, although OMB’s fiscal year 2003 published rates varied between 2.2 and 2.4 percent for 2003 through 2007, RHS used a rate of inflation of 2.7 percent when preparing its budget for 5- year contracts that would be renewed in 2003. Applied to the average per- unit, per-year base rate of $3,264, the 2.7 percent rate created a difference of $203 per unit over the 5-year contract period. Since RHS planned to issue 5-year contracts for 44,652 units that year, it overestimated its budget needs by more than $9 million. RHS did not keep documentation of the inflation rates it used prior to 2000 but, as table 1 shows, the agency’s inflation rates have been higher than OMB’s rates for every year for which it has documentation. However, it is not so much the inflation rates RHS uses as how it uses them that has caused the agency to significantly overestimate its budget needs. As we have seen, OMB’s economic assumptions provide inflation rates for each year, and agencies are expected to use these individual rates for each year they are projecting, compounding the rates separately for each subsequent year based on the previous year’s rate. But RHS uses one inflation rate for all 5 years of the contract, compounds that rate to the fifth year, and then applies the compounded rate to each year of the contract. This practice results in the agency using a rate that is more than five times the rate it started with for the first year. For example, rather than applying its 2003 inflation rate of 2.7 percent to each year, RHS compounded this rate to the fifth year and applied the resulting value (14.2 percent) back to each year of the contract (fig. 2). Spending was thus assumed to be 14.2 percent higher for each of the subsequent 5 years, although its stated inflation projection was that prices would be only 2.7 percent higher in the next year, about 5.4 percent higher in the following year, and so on. Thus RHS multiplied the annual per-unit base rate of $3,264 by over 14 percent, rather than the 2.7 percent it started with, or the 2.2 to 2.4 percent projected by OMB. Compared with OMB’s rates and procedures for calculating future spending, RHS’s method created a difference of $1,147 per unit. Again, as RHS estimated it would fund contracts for 44,652 units in 2003, it actually overestimated its budget needs by over $51 million (6.5 percent). The expenditure rates RHS uses to estimate budget needs may also overstate the need for rental assistance. RHS officials claim that the expenditure rates they use—equal to the maximum amount of monthly rental assistance used over the previous 3 months—account for vacant units at the properties. However, using this method treats vacant units as if they were occupied and ignores the impact that a property’s vacancy rate has on rental assistance usage. For example, a property with 10 units (receiving $200 of rental assistance for each unit) may have no vacant units during the first month, one vacant unit during the second month, and 2 vacant units during the third month. During an average month, one of the property’s units will be vacant, and the property will require $1,800 in rental assistance ($200 from each of the nine occupied units). However, using the maximum of 3 months, it would appear the property has no vacant units and that rental assistance needs are $2,000 a month. The estimation rate would be 10 percent higher than it should be, because the impact of the vacant units on rental assistance usage was ignored. We believe using a 3- or 12-month average could produce a more accurate picture of usage. We discussed this practice with RHS officials, and they replied that they used the maximum monthly rate because they did not believe averages were accurate for their purposes. Finally, RHS is not adhering to internal control standards regarding segregation of duties. A single employee within the agency is largely responsible for both the budget estimation and allocation processes for the rental assistance program. Furthermore, this employee’s work is not afforded a deliberative review by the Rural Development Budget Office, OMB staff, or RHS supervisors. While the office has assigned staff to support this employee, the employee told us that due to staff turnover, there was no one available to help with the budget estimation and allocation processes. Internal control is a major part of managing an organization. Our Standards for Internal Control in the Federal Government provide the overall framework for establishing and maintaining internal control and for identifying and addressing major performance and management challenges and areas at greatest risk of fraud, waste, abuse, and mismanagement. Internal control activities are the policies, procedures, techniques, and mechanisms that enforce management’s directives and help ensure that actions are taken to address risks. Control activities are an integral part of an entity’s planning, implementing, reviewing, and accountability for stewardship of government resources. One very basic but essential example of a control activity is the segregation of duties. According to the standards, key duties and responsibilities need to be divided or segregated among different people to reduce the risk of error or fraud. This should include separating the responsibilities for authorizing transactions, processing and recording them, reviewing the transactions, and handling any related assets. No one individual should control all key aspects of a transaction or event. Based on our analysis of RHS’s budget estimation and allocation processes, and our Standards for Internal Control, it is our view that the autonomy of this employee is not consistent with internal control standards. In March 2003, RHS began the process of automating its budget estimation and allocation processes by developing a forecasting model that it will use to estimate future budget needs, starting in 2006. A team consisting of staff from the national office, state offices, and the Information Resources Management Office’s Rural Housing Service Branch created the model. RHS also used contractors and consulted with numerous internal experts. The model was designed to automatically calculate rental assistance by projecting renewal needs on a property-by-property basis and calculating future rental assistance usage estimates using a combination of factors, including prior actual usage, inflation, the potential for rate increases, and rental assistance volatility. These last two factors were dropped from the model when the agency determined that their impact on future spending was negligible. The forecasting model is currently in the testing phase. RHS demonstrated its new forecasting model to us in late 2003. Certain aspects of the model promise improvements over the current estimating methods. For example, the model (1) allows RHS to use property-level data rather than the national averages that are currently used to establish per-unit rates and (2) determines each property’s per-unit rate based on the average usage over the prior 12 months, rather than the maximum usage of the previous 3 months that is currently used. These improvements should allow for more accurate replacement estimates based on actual rental assistance usage at each property. Furthermore, the model properly applies the inflation rate to each of the 5 years for which the agency is forecasting. Program officials also told us that three to four staff members will be trained to use the model and develop the budget and allocation estimates for the agency, which should mitigate the segregation of duties concern. However, the inflation calculation in the model is flawed. RHS continues using its own inflation rates rather than those provided by OMB, and the agency is incorrectly calculating the rates it plans to use. RHS officials explained that they are using historical rates of change to determine future spending rates rather than OMB’s rates, which are based on future projections of inflation. This means that RHS is looking to past activity to determine what will happen in the future, whereas OMB asks agencies to use projections of future change. Furthermore, RHS is incorrectly calculating its historical rates of change in a way that could cause the agency to underestimate its budget needs. RHS calculates the average per-unit expenditures for each year over 3 years, then calculates the change from the first year to the third and divides that number by 3. The agency should divide by 2, since it is estimating an annual rate of change from 2 years of changes. By dividing by a larger number than appropriate, RHS’s method will cause it to underestimate the rate of change and thus to underestimate its budget needs. For example, if prices increased 3 percent from 2000 to 2001, and 2 percent—of the year 2000 level—from 2001 to 2002, then the average annual increase is 3 plus 2, divided by 2, which equals 2.5. If RHS divides by 3, it will come up with an inflation rate of 1.67— lower than the average inflation rate of the recent past. Contracts issued from 1978 through 1982 account for the majority of unexpended balances and are expending their funds at a relatively slow rate. Based on current average expenditures, these contracts likely will not expend their funds completely until 2011. USDA has concluded that these funds cannot be deobligated. Contracts issued from 1983 through 1997 also have unexpended balances; based on our analysis, these funds likely will be expended in 2004. Based on their age, contracts issued from 1978 through 1997 (both 5 and 20 year), should have expired by the end of 2002. As of June 2003, approximately 18 percent of these contracts were still active, accounting for $605 million in unexpended balances. Most of this amount ($510 million or 84 percent) involved the 32 percent of the contracts from 1978 through 1982 that were still active (see fig. 3). Contracts issued from 1983 through 1997 accounted for the remaining $95 million. Based on average current spending rates calculated from AMAS data and projected forward using OMB inflation rates, RHS will not exhaust all the unexpended balances from these contracts until at least 2011. In 2002, approximately $179 million in rental assistance funds was paid to project owners from contracts issued from 1978 through 1997, $53 million of it from contracts issued from 1978 through 1982, and $126 million from contracts issued from 1983 through 1997. At this rate, contracts from the 1983 to 1997 period will likely expend their remaining $95 million during 2004. The 1978 to 1982 contracts, which were funded based on inflation projections of 10 to 20 percent, will not expend their $510 million in unexpended balances until 2011 on average—8 years after the last of the 20-year contracts should have expired. The USDA regulations state that rental assistance contracts are effective for, depending on the contract, 5 or 20 years from the effective date of the agreement. These same regulations, however, make it clear that the expiration date of a contract is at complete disbursement of the funds obligated to the contract. This date, as the USDA regulations state, may be "before or after" the 5- or 20-year term. The rental assistance contracts that implement this policy explicitly tie their expiration to the disbursement of rental assistance amounts listed in the contracts. In practice, this has resulted in many of the contracts extending beyond (in some instances, far beyond) the contemplated 5- or 20-year term. According to USDA, any effort to recapture the remaining unexpended funds associated with rental assistance agreements entered into from 1978 through 1982 would result in a breach of those contracts and would subject USDA to liability. Ninety percent of the contracts issued from 1998 through 2002 are still active and appear to be expending their funds at a slower rate than RHS anticipated. Based on current expenditure rates, these contracts likely will run an average of over 6 years each. These findings are consistent with our analysis of RHS data, which shows that RHS has overestimated its spending needs most years since 1990. According to RHS data, and illustrated in figure 5, a relatively small percentage of contracts have expired. As of June 2003, 74 percent of the contracts issued in 1998 were still active, although the average contract should have expired by this date. The fact that so many were still active suggests that the majority of the 1998 contracts may have been overfunded. Furthermore, about 25 percent of the funds remained from the contracts issued in 1998, and about 35 percent of the funds remained from the contracts issued in 1999; only 11 percent of the funds allocated in 2002 were spent during the contracts’ first 1½ years. This suggests that the contracts are also expending their funds more slowly than the 5 years on which RHS bases its budget needs. A document provided by the agency indicates that, since 1992, contracts have been spending on average 3 percent in their first year, 14 to 18 percent in the second through sixth years, 8 percent in the seventh year, and tapering off around the twelfth year. According to the agency, this tapering indicates that overfunding of contracts is moderate. However, it should be noted that the document projects, for example, that about 1.7 percent of the funds allocated in 2000 will remain by the tenth year—a balance of $10.8 million from the $640 million originally allocated. Using RHS rental assistance payment data, we calculated that RHS overestimated its funding needs for these contracts by an average of about 8 percent each year. Between 1998 and 2002, almost $1.2 billion in rental assistance payments were made from contracts originating in those years, at an average rate of $2,808 per-unit per-year. However, RHS budgeted these units at an average annual rate of $3,019—a difference of $211 per- unit per-year (7.5 percent), or $1,055 per-unit per 5-year contract. Our analysis of rental assistance payment data showed that the agency has been overestimating its budget needs since at least 1990, the earliest year for which we gathered data. Importantly, where we had sufficient data from the agency, our analysis also shows that if RHS had used and correctly applied OMB inflation rates to its base per-unit rates, its estimates would have been closer to actual expenditures. Figure 6 below provides an example of the difference between RHS’s actual and estimated expenditures. The actual expenditures are averaged from the entire portfolio of 5-year contracts issued from 1989 through 2002, while the estimated expenditures are averaged from only those units for which renewal, new construction, or servicing contracts originated in the corresponding year. Furthermore, the RHS estimated expenditure for a given year shows the effect of the 5-year estimate in the first year only. Due to RHS’s method for calculating its estimated expenditures over a 5-year period, the difference is largest in the first year and declines over time as inflation raises the actual expenditure (or more accurate estimation) closer to the estimated expenditure (see fig. 2). The declining differentials of the second to fifth years are not reflected in figure 6 below. Nonetheless, while the estimated expenditures for any given year represent about 20 percent of the portfolio, they represent almost the entire portfolio over any 5-year period in the figure. RHS estimates are above actual expenditures in each of the years. In addition, the corresponding estimated expenditures using OMB inflation rates also helps to illustrate the degree to which the RHS method has lead to overestimation. Sufficient information was not available from the agency to extend our OMB-based estimate of RHS expenditure prior to 2000. Our scope and methodology section contains a discussion of the data limitations we faced in our assessment of activity levels. Between 1998 and 2002, RHS planned to fund 5-year contracts for an average of 42,000 units each year; the difference between the actual rate of expenditure and what RHS budgeted may mean that the agency had a surplus of approximately $43 million per year during this period, or more than $220 million total over the last 5 years. Based on current spending rates, and allowing for inflation, the average contract issued during these years will likely run out of funds during its sixth year. That is, the average contract issued in 2000 or 2001 will completely expend its funds during 2006 or 2007, respectively, and the average contract issued in 2002 will completely expend its funds during 2008. RHS provides subsidized rental housing to almost half a million people each year. The rental assistance program, with an annual budget of over $700 million, provides further subsidies to about half this number. RHS budget estimating processes have caused the agency to overstate its spending needs over the life of the rental assistance program, resulting in hundreds of millions of dollars in unexpended balances. Consistently overstating funding needs for one program also undermines the congressional budget process by not allowing those funds to be available for other programs. RHS is updating and automating its budget estimation process, and its new forecasting model shows some improvements over past and current processes. However, there are some flaws with the model. The agency plans to use its own inflation rates, which are based on historic rates of change, rather than the inflation rates provided by OMB, which predict future rates of change. Furthermore, RHS is incorrectly calculating the rates it plans to use, which may cause the agency to underestimate its future contract needs. A simple modification to the agency’s planned budget estimation process would help the agency more accurately estimate its rental assistance needs and curtail future unexpended balances—or budget shortfalls as the case may be. To more accurately estimate rental assistance budget needs, we recommend that the Secretary of Agriculture require program officials to use and correctly apply the inflation rates provided by OMB in its annual budget and allocation estimation processes. We provided USDA and OMB with a draft of this report for their review and comment. The Acting Undersecretary for Rural Development for USDA raised several concerns about our analysis of RHS’s budgeting practices and rental assistance expenditure data. In particular, the Acting Undersecretary argued that OMB’s Circular A-11 encourages the use of a per-property microscale rate of change, rather than a blanket national rate. OMB’s Circular A-11 states that all budget materials must be consistent with the economic assumptions provided by OMB. While OMB policy permits consideration of certain factors in developing out-year estimates, this does not mean that an agency should automatically use its own economic assumptions without providing documentation and justification. As we note in our report, neither OMB staff nor the Rural Development Budget Office required a justification for the agency’s inflation rates. Furthermore, according to the Acting Undersecretary, we did not demonstrate that using inflation rate projections from the President’s Budget would provide a more accurate budget estimate. We believe that figure 6 in this report illustrates that using the inflation projections from the President’s Budget would have brought the agency’s budget estimates closer to its actual expenditures, without running the risk of underfunding the rental assistance contracts. USDA also disagreed with our finding that RHS’s budget estimates were too high. As stated in this report, we believe RHS overestimates its budget needs by using inflation factors that are higher than those projected by OMB for use in the budget process, improperly compounding the inflation rates, and using expenditure rates that may overstate the need for rental assistance. Our estimates reflect the extent to which RHS may have overestimated its budgets when compared with estimates based on OMB budget guidance documents and appropriate application of a compounding formula. USDA’s complete written comments and our responses appear in appendix I. We received oral comments from OMB. OMB representatives did not have comments on the specific findings or conclusions of this report. They did, however, note that they are always open to suggestions that would help the Administration provide more accurate budget projections along with the related oversight. To assess the accuracy of RHS’s budget estimates for the rental assistance program, we collected written and testimonial information from agency officials on current budget estimation methods and the budget automation plan that is being developed. We reviewed OMB guidance on preparing agency budgets and the inflation rates provided by OMB for agency use, and interviewed OMB staff that oversee the rental assistance program. Finally, we consulted our Standards for Internal Control in the Federal Government to review control activities that apply to RHS’s budget estimation processes. In describing RHS’s current process for estimating its budget needs, we faced the problem that the agency has no official written documentation for that process. Most information was provided verbally, and the information the agency did provide outlined only its elementary budget processes. To assess the activity level of rental assistance contracts issued from 1978 through 1997 with unexpended balances, we reviewed rental assistance data from the agency’s Automated Multi-Housing Accounting System (AMAS) from January 1990 through October 2003 to determine the extent of the unexpended balances. We also used these data to determine the rate at which those balances were currently being expended; by applying OMB inflation rates for future years to the current rates of expenditure, we estimated when the funds will expire. We acquired OMB inflation rates for future years from the fiscal year 2004 and 2005 President’s Budgets. To assess the activity level of rental assistance contracts issued from 1998 through 2002 and the accuracy of RHS’s estimates of the rates at which these funds would be used, we reviewed rental assistance data from AMAS from January 1998 through October 2003 to determine the activity level of the unexpended balances. We also used these data to determine the rate at which those balances were currently being expended; by applying OMB inflation rates for future years to current rates of expenditure we estimated when the funds will expire. We assessed the accuracy of RHS’s estimates of the rate at which the funds would be used by comparing RHS’s estimated rental assistance expenditures to actual program expenditures. We determined RHS’s estimated expenditures based on data provided by the agency. We determined actual program expenditures using payment data from AMAS. We faced limitations in our assessment of actual program expenditures using AMAS data. We had compared actual expenditures averaged from the entire portfolio of contracts issued from 1978 through 2002 with estimated expenditures averaged from only those units for which renewal, new construction, or servicing contracts originated in the corresponding year. In response to agency concerns, we eliminated contracts issued prior to 1989 because they represented a mix of contracts that were expending funds normally and contracts that exhibited unusual behavior resulting in abnormally low expenditures. The agency opined that the annual expenditures from these abnormal contracts could not be compared with their estimates. Due to the structure of AMAS data, we were unable to isolate the abnormal behaving contracts. However, the resulting figure (fig. 6), based on their comments, looks very similar to the original figure. For the AMAS data we used, we requested and received the most current data available from the system. We assessed the reliability of the data by (1) reviewing existing information about the systems and the data, (2) interviewing agency officials knowledgeable about the data, and (3) examining the data elements (fields) used in our work by comparing known and/or anticipated values. When inconsistencies were found, we discussed our findings with agency officials to understand why inconsistencies could exist. We determined that the data were sufficiently reliable for the purposes of this report. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to interested Members of Congress and congressional committees. We also will send copies to the Secretary of the Department of Agriculture and the Director of the Office of Management and Budget and make copies available to others upon request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-4325, or Andy Finkel at (202) 512-6765, if you or your staff have any questions concerning this report. Key contributors to this report are listed in appendix III. The following are GAO’s comments on the U.S. Department of Agriculture's letter dated March 8, 2004. 1. Our $51 million figure is based on data provided by the U.S. Department of Agriculture (USDA), analyzed in a manner consistent with the Office of Management and Budget (OMB) budgetary guidance, correcting for the areas where we believe USDA overestimates its budgetary requirements. As we state in the report, this number is an estimate of the extent to which the Rural Housing Service (RHS) may have overestimated its budget when compared with an estimate based on OMB budget guidance documents and appropriate application of a compounding formula. 2. Although we concur that a budget estimation process, by itself, will not necessarily put government funds at risk, consistently overstating funding needs undermines the congressional budget process. In addition, without performing a detailed internal controls review, we cannot state that the current process for allocating budget funds has not put government funds at risk or led to a loss of funds. We do note that RHS is not adhering to internal control standards regarding segregation of duties for both its estimation and allocation processes, and such an internal control lapse could introduce a risk of error or fraud. 3. We agree that RHS's contracts are not lasting as long as they did in the past, however, a 6-year average life contract is still 20 percent greater than the intended contract life. 4. Circular A-11 states that “all budget materials, including those for out- year policy and baseline estimates, must be consistent with the economic assumptions provided by OMB. OMB policy permits consideration of price changes for goods and services as a factor in developing estimates. However, this does not mean that you should automatically include an allowance for the full rate of anticipated inflation in your request.” If the agency has evidence that a property will perform above or below the Consumer Price Index, which is the basis for OMB’s economic assumptions, we would agree that this evidence should be used. OMB guidance indicates that the agency should document this evidence and justify that its proposed budget- estimation methodology would create a more accurate budget estimate. 5. We note in our report that the difference declines over time. Figure 2 shows this decline and shows that RHS is still overestimating its budget needs in the fifth year, albeit by less than in years 1 through 4. 6. As stated in the note in figure 6, RHS's estimated expenditures are based on data provided by the agency. Actual RHS expenditures are based on data from RHS's Automated Multi-Housing Accounting System (AMAS). As noted in the report, RHS did not document the inflation rate it used in its budget and allocation estimates prior to 2000. This is the lack of data to which we refer. It only affected our OMB- based estimate of RHS expenditures by preventing us from backing out agency rates and replacing them with the inflation projections from the President's Budget for years prior to fiscal year 2000. We clarified the text on this point. 7. Our concern centers on the fact that the agency is using the highest of the most recent 3 months instead of an average of all 3 months, not on the use of 3 months of data versus 12 months of data. 8. We concur that these rates are, in fact, an estimate, but as figure 6 illustrates, using these rates would have brought the agency's estimates closer to its actual expenditures. Furthermore, as shown in figure 6, budget estimates based on the inflation projections from the President's Budget would still have been higher than actual program expenditures, which should alleviate USDA's concern that using this method would underfund contracts. 9. Our report does not make this assertion. We state that the activity of contracts issued from 1998 through 2002 is consistent with earlier years, and in particular, that RHS has overestimated its spending needs in most years since 1990. 10. The $51 million overestimate does not stem from the inflation rate only. It also stems from RHS compounding the rate to the fifth power and then applying that rate back to each year of the contract. We concur that we will not know the outcome of the contracts issued in 2003 until 2008 or later. This is our best estimate based on data provided by the agency and following OMB budgetary guidance. In addition to those named above, William Bates, Emily Chalmers, Jamila Jones, Austin Kelly, Marc Molino, and Julie Trinder made key contributions to this report. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. To have GAO e- mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail alerts” under the “Order GAO Products” heading. | The Rural Housing Service's (RHS) Section 521 Rental Assistance Program provides rental subsidies to about 250,000 rural tenants. With an annual budget of over $700 million, the program is RHS's largest line-item appropriation, accounting for approximately 70 percent of the agency's budget. In early 2003, RHS reported hundreds of millions of dollars in unexpended balances, primarily tied to 5- and 20-year contracts issued from 1978 through 1982. Concern has arisen that these unexpended balances may be the result of the agency's budget practices, especially its procedures for estimating funding needs. GAO was asked to assess the accuracy of RHS's budget estimates for the rental assistance program, the activity level of rental assistance contracts issued from 1978 through 1997, and the activity level of rental assistance contracts issued from 1998 through 2002 and the accuracy of RHS's estimates of the rate at which these funds would be used. RHS is overestimating its budget needs for 5-year rental assistance contracts in three ways. First, the agency uses inflation factors that are higher than those OMB recommends for use in the budget process. Second, RHS does not apply its inflation rate separately to each year of a 5-year contract, but instead compounds the rate to reflect the price level in the fifth year and applies that rate to each contract year. Using these first two methods, RHS overestimated its 2003 budget needs by $51 million (6.5 percent). Third, RHS bases its estimates of future expenditure rates on recent maximum expenditures, rather than on the average rates at which rental assistance funds are expended. RHS has begun the process of automating its budget processes and certain aspects of its new model promise improvements over the current estimating methods. However, the agency continues to use its own inflation rates and incorrectly calculates those rates in such a way that would cause the agency to actually underestimate its budget needs. At current spending rates, it will take another 7 years for all the active contracts that were issued from 1978 through 1982 to expend their funds, 8 years after the last of the 20-year contracts were expected to expire. Contracts issued from 1983 through 1997 should expend their remaining funds in 2004. GAO calculated that RHS overestimated its funding needs for contracts issued from 1998 through 2002 by an average of about 8 percent each year. GAO analysis of rental assistance payment data showed that the agency has overestimated its budget needs almost every year since 1990, the earliest year for which GAO gathered data. Where GAO had sufficient data from the agency, the analysis also shows that if RHS had used and correctly applied OMB inflation rates to its base perunit rates, its estimates would have been closer to actual expenditures. Standardizing the agency's budget estimation processes would help the agency more accurately estimate its rental assistance needs and curtail future unexpended balances or budget shortfalls. |
Several agencies in the executive branch have key roles and responsibilities in the federal government’s personnel security clearance process. In a 2008 memorandum, the President called for a reform of the security clearance and suitability determination processes and subsequently issued Executive Order 13467, which designates the Director of National Intelligence (DNI) as the Security Executive Agent. As such, the DNI is responsible for developing policies and procedures to help ensure the effective, efficient, and timely completion of background investigations and adjudications relating to determinations of eligibility for access to classified information and eligibility to hold a sensitive position. Positions designated as sensitive are any positions within a department or agency where the occupant could bring about, by virtue of the nature of the position, a material adverse effect on national security. Further, Executive Order 13467 established a Suitability and Security Clearance Performance Accountability Council, commonly called the Performance Accountability Council, that is accountable to the President for achieving the goals of the reform effort, which include an efficient, practical, reciprocal, and aligned system for investigating and determining eligibility for access to classified information. Under the executive order, this council is responsible for driving implementation of the reform effort, including ensuring the alignment of security and suitability processes, holding agencies accountable for implementation, and establishing goals and metrics for progress. The order also appointed the Deputy Director for Management at the Office of Management and Budget (OMB) as the chair of the council.heads shall assist the Performance Accountability Council and executive agents in carrying out any function under the order, as well as implementing any policies or procedures developed pursuant to the order. In addition, the executive order states that agency Executive branch agencies that request background investigations use the information from investigative reports to determine whether an applicant is eligible for a personnel security clearance. Two of the agencies that grant the most security clearances are DOD and the Department of Homeland Security (DHS). DOD accounts for the majority of all personnel security clearances, and spent $787 million on suitability and security clearance background investigations in fiscal year 2011. Investigators—often contractors—from Federal Investigative Services within the Office of Personnel Management (OPM) conduct the investigations for most of the federal government. DOD is OPM’s largest customer, and its Under Secretary of Defense for Intelligence (USD(I)) is responsible for developing, coordinating, and overseeing the implementation of DOD policy, programs, and guidance for personnel, physical, industrial, information, operations, chemical/biological, and DOD Special Access Program security. Additionally, the Defense Security Service, under the authority, direction, and control of USD(I), manages and administers the DOD portion of the National Industrial Security Program for the DOD components and other federal agencies by agreement, as well as providing security education and training, among other things. DHS spent more than $57 million on suitability and security clearance background investigations in fiscal year 2011. Within DHS, the Chief Security Officer develops, implements, and oversees the department’s security policies, programs, and standards; delivers security training and education to DHS personnel; and provides security support to the DHS components. The Chief of DHS’s Personnel Security Division, under the direction of the Chief Security Officer, has responsibility for personnel security and suitability policies, programs, and standards, including procedures for granting, denying, and revoking access to classified information as well as initiating and adjudicating personnel security and suitability background investigations and periodic reinvestigations of applicants. Within the DHS components, the component Chief Security Officers implement established personnel security directives and policies within their respective components. The personnel security clearance process has also been the subject of congressional oversight and statutory reporting requirements. Section 3001 of the Intelligence Reform and Terrorism Prevention Act of 2004 prompted government-wide suitability and security clearance reform. The act required, among other matters, an annual report to Congress—in February of each year from 2006 through 2011—about progress and key measurements on the timeliness of granting security clearances. It specifically required those reports to include the periods of time required for conducting investigations and adjudicating or granting clearances. However, the Intelligence Reform and Terrorism Prevention Act requirement for the executive branch to report annually on its timeliness expired in 2011. More recently, the Intelligence Authorization Act of 2010 established a new requirement that the President annually report to Congress the total amount of time required to process certain security clearance determinations for the previous fiscal year for each element of The Intelligence Authorization Act of 2010 the Intelligence Community.additionally requires that those annual reports include the total number of active security clearances throughout the United States government, to include both government employees and contractors. Unlike the Intelligence Reform and Terrorism Prevention Act of 2004 reporting requirement, the requirement to submit these annual reports does not expire. To help ensure the trustworthiness and reliability of personnel in positions with access to classified information, executive branch agencies rely on a personnel security clearance process that includes multiple phases: requirements determination, application, investigation, adjudication, appeals (if applicable, where a clearance has been denied), and reinvestigation (where applicable, for renewal or upgrade of an existing clearance). Figure 1 illustrates the steps in the personnel security clearance process, which is representative of the general process followed by most executive branch agencies and includes procedures for appeals and renewals. While different departments and agencies may have slightly different personnel security clearance processes, the phases that follow are illustrative of a typical process. Since 1997, federal agencies have followed a common set of personnel security investigative standards and adjudicative guidelines for determining whether federal civilian workers, military personnel, and others, such as private industry personnel contracted by the government, are eligible to hold a security clearance. Executive branch agencies first determine which of their positions— military, civilian, or private-industry contractors—require access to classified information and, therefore, which people must apply for and undergo a personnel security clearance investigation. This involves assessing the risk and sensitivity level associated with that position, to determine whether it requires access to classified information and, if required, the level of access. Security clearances are generally categorized into three levels: top secret, secret, and confidential. The level of classification denotes the degree of protection required for information and the amount of damage that unauthorized disclosure could reasonably be expected to cause to national defense. A sound requirements process is important because requests for clearances for positions that do not need a clearance or need a lower level of clearance increase investigative workloads and costs. A high volume of clearances continue to be processed and a sound requirements determination process is needed to effectively manage costs, since agencies spend significant amounts annually on national security and other background investigations. In addition to cost implications, limiting the access to classified information and reducing the associated risks to national security underscore the need for executive branch agencies to have a sound process to determine which positions require a security clearance. Agency heads are responsible for designating positions within their respective agencies as sensitive if the occupant of that position could, by virtue of the nature of the position, bring about a material adverse effect on national security. In addition, Executive Order 12968, issued in 1995, makes the heads of agencies—including executive branch agencies and the military departments—responsible for establishing and maintaining an effective program to ensure that access to classified information by each employee is clearly consistent with the interests of national security. This order also states that, subject to certain exceptions, eligibility for access to classified information shall only be requested and granted on the basis of a demonstrated, foreseeable need for access. Further, part 732 of Title 5 of the Code of Federal Regulations provides requirements and procedures for the designation of national security positions, which include positions that (1) involve activities of the government that are concerned with the protection of the nation from foreign aggression or espionage, and (2) require regular use of or access to classified national security information. Part 732 of Title 5 of the Code of Federal Regulations also states that most federal government positions that could bring about, by virtue of the nature of the position, a material adverse effect on national security must be designated as a sensitive position and require a sensitivity level designation. The sensitivity level designation determines the type of background investigation required, with positions designated at a greater sensitivity level requiring a more extensive background investigation. Part 732 establishes three sensitivity levels—special-sensitive, critical- sensitive, and noncritical-sensitive—which are described in figure 2. According to OPM, positions that an agency designates as special- sensitive and critical-sensitive require a background investigation that typically results in a top secret clearance. Noncritical-sensitive positions typically require an investigation that supports a secret or confidential clearance. OPM also defines non-sensitive positions that do not have a national security element, and thus do not require a security clearance, but still require a designation of risk for suitability purposes. That risk level informs the type of investigation required for those positions. Those investigations include aspects of an individual’s character or conduct that may have an effect on the integrity or efficiency of the service. Figure 2 illustrates the process used by both DOD and DHS to determine the need for a personnel security clearance for a federal civilian position generally used government-wide. Once an applicant is selected for a position that requires a personnel security clearance, the applicant must obtain a security clearance in order to gain access to classified information. To determine whether an investigation would be required, the agency requesting a security clearance investigation conducts a check of existing personnel security databases to determine whether there is an existing security clearance investigation underway or whether the individual has already been favorably adjudicated for a clearance in accordance with current standards. If such a security clearance does not exist for that individual, a security officer from an executive branch agency (1) requests an investigation of an individual requiring a clearance; (2) forwards a personnel security questionnaire (Standard Form 86) to the individual to complete using OPM’s electronic Questionnaires for Investigations Processing (e-QIP) system or a paper copy; (3) reviews the completed questionnaire; and (4) sends the questionnaire and supporting documentation, such as fingerprints and signed waivers, to OPM or its investigation service provider. During the investigation phase, investigators—often contractors—from OPM’s Federal Investigative Services use federal investigative standards and OPM’s internal guidance to conduct and document the investigation of the applicant. The scope of information gathered in an investigation depends on the needs of the client agency and the personnel security clearance requirements of an applicant’s position, as well as whether the investigation is for an initial clearance or a reinvestigation to renew a clearance. For example, in an investigation for a top secret clearance, investigators gather additional information through more time-consuming efforts, such as traveling to conduct in-person interviews to corroborate information about an applicant’s employment and education. However, many background investigation types have similar components. For instance, for all investigations, information that applicants provide on electronic applications are checked against numerous databases. Both secret and top secret investigations contain credit and criminal history checks, while top secret investigations also contain citizenship, public record, and spouse checks as well as reference interviews and an Enhanced Subject Interview to gain insight into an applicant’s character. Table 1 highlights the investigative components generally associated with the secret and top secret clearance levels. After OPM, or the designated provider, completes the background investigation, the resulting investigative report is provided to the requesting agencies for their internal adjudicators. In December 2012, the Office of the Director of National Intelligence (ODNI) and OPM jointly issued a revised version of the federal investigative standards for the conduct of background investigations for individuals that work for or on behalf of the federal government. According to October 31, 2013 testimony by an ODNI official, the revised standards will be implemented through a phased approach beginning in 2014 and continuing through 2017. During the adjudication phase, adjudicators from the hiring agency use the information from the investigative report along with federal adjudicative guidelines to determine whether an applicant is eligible for a security clearance.adjudicative guidelines specify that adjudicators consider 13 specific areas that elicit information about (1) conduct that could raise security concerns and (2) factors that could allay those security concerns and To make clearance eligibility decisions, the permit granting a clearance.weighing of a number of variables, to include disqualifying and mitigating factors, known as the “whole-person” concept. For example, when a person’s life history shows evidence of unreliability or untrustworthiness, questions can arise as to whether the person can be relied on and trusted to exercise the responsibility necessary for working in a secure environment where protecting national security is paramount. As part of the adjudication process, the adjudicative guidelines require agencies to determine whether a prospective individual meets the adjudicative criteria for determining eligibility, including personal conduct and financial considerations. If an individual has conditions that raise a security concern or may be disqualifying, the adjudicator evaluates whether there are other factors that mitigate such risks (such as a good-faith effort to repay a federal tax debt). On the basis of this assessment, the agency may make a risk-management decision to grant the security-clearance eligibility determination, possibly with a warning that future incidents of a similar nature may result in revocation of access. The adjudication process is a careful If a clearance is denied or revoked, appeals of the adjudication decision are generally possible. We have work underway to review the process for security clearance revocations. We expect to issue a report on this process in the spring of 2014. Once an individual has obtained a personnel security clearance and as long as they remain in a position that requires access to classified national security information, that individual is reinvestigated periodically at intervals that are dependent on the level of security clearance. For example, top secret clearance holders are reinvestigated every 5 years, and secret clearance holders are reinvestigated every 10 years. Some of the information gathered during a reinvestigation would focus specifically on the period of time since the last approved clearance, such as a check of local law enforcement agencies where an individual lived and worked since the last investigation. Executive branch agencies do not consistently assess quality throughout the personnel security clearance process, in part because they have not fully developed and implemented metrics to measure quality in key aspects of the personnel security clearance process. To promote oversight and positive outcomes, such as maximizing the likelihood that individuals who are security risks will be scrutinized more closely, we have emphasized, since the late 1990s, the need to build and monitor quality throughout the personnel security clearance process. While our work historically was focused on DOD, particularly since we placed DOD’s personnel security clearance program on our high-risk list in 2005 because of delays in completing clearances, we have included DHS in our most recent reviews of personnel security clearance issues. Having assessment tools and performance metrics in place is a critical initial step toward instituting a program to monitor and independently validate the effectiveness and sustainability of corrective measures. In July 2012, we reported that the DNI, as the Security Executive Agent, had not provided agencies clearly defined policy and procedures to consistently determine if a position requires a personnel security clearance, or established guidance to require agencies to review and revise or validate existing federal civilian position designations. As a result, we concluded that DHS and DOD, along with other executive branch agencies, do not have reasonable assurance that security clearance position designations are correct, which could compromise national security if positions are underdesignated, or create unnecessary and costly investigative coverage if positions are overdesignated. In the absence of clear guidance, agencies are using a position designation tool that OPM designed to determine the sensitivity and risk levels of civilian positions that, in turn, inform the type of investigation needed. This tool—namely, the Position Designation of National Security and Public Trust Positions—is intended to enable a user to evaluate a position’s national security and suitability requirements so as to determine a position’s sensitivity and risk levels, which in turn dictate the type of background investigation that will be required for the individual who will occupy that position. Both DOD and DHS components use the tool. In addition, DOD issued guidance in September 2011 and August 2012 requiring its personnel to use OPM’s tool to determine the proper position sensitivity designation. A DHS instruction requires personnel to designate all DHS positions—including positions in the DHS components—by using OPM’s position sensitivity designation guidance, which is the basis of the tool. OPM audits, however, have found inconsistency in these position designations, and some agencies described problems implementing OPM’s tool. For example, during the course of our 2012 review, DOD and DHS officials raised concerns regarding the guidance provided through the tool and expressed that they had difficulty implementing it. Specifically, officials from DHS’s U.S. Immigration and Customs Enforcement stated that the use of the tool occasionally resulted in inconsistency, such as over- or underdesignating a position, and expressed a need for additional clear, easily interpreted guidance on designating national security positions. DOD officials stated that they have had difficulty implementing the tool because it focuses more on suitability than security, and the national security aspects of DOD’s positions are of more concern to them than the suitability aspects. Further, although the DNI was designated as the Security Executive Agent in 2008, ODNI officials noted that the DNI did not have input into recent revisions of OPM’s position designation tool. As a result, we recommended that the DNI, in coordination with the Director of OPM and other executive branch agencies as appropriate, issue clearly defined policy and procedures for federal agencies to follow when determining if federal civilian positions require a personnel security clearance. In written comments on our July 2012 report, the ODNI concurred with this recommendation. In May 2013, ODNI and OPM jointly drafted a proposed revision to the federal regulations on position designation which, if finalized in its current form, would provide additional requirements and examples of position duties at each sensitivity level. We also recommended that once those policies and procedures are in place, the DNI and the Director of OPM, in their roles as executive agents, collaborate to revise the position designation tool to reflect the new guidance. ODNI and OPM concurred with this recommendation and recently told us that they are in the process of revising the tool. In July 2012, we also reported that the executive branch did not have a consistent process for reviewing and validating existing security clearance requirements for federal civilian positions. According to Executive Order 12968, the number of employees that each agency determines is eligible for access to classified information shall be kept to the minimum required, and, subject to certain exceptions, eligibility shall be requested or granted only on the basis of a demonstrated, foreseeable need for access. During our 2012 review of several DOD and DHS components, we found that officials were aware of the need to keep the number of security clearances to a minimum but were not always subject to a standard requirement to review and validate the security clearance needs of existing positions on a periodic basis. We found, instead, that agencies’ policies provided for a variety of practices for reviewing the clearance needs of federal civilian positions. In addition, agency officials told us that their policies were implemented inconsistently. DOD 5200.2-R, Department of Defense Personnel Security Program (January 1987, reissued incorporating changes Feb. 23, 1996), as modified by Under Secretary of Defense Memorandum, Implementation of the Position Designation Automated Tool (May 10, 2011). annually during the performance review process to ensure that the duties and responsibilities on the position description are up-to-date and accurate. However, officials stated that U.S. Immigration and Customs Enforcement does not have policies or requirements in place to ensure any particular level of detail in that review. During our 2012 review, DOD and DHS officials acknowledged that overdesignating a position can result in expenses for unnecessary investigations. When a position is overdesignated, additional resources are unnecessarily spent conducting the investigation and adjudication of a background investigation that exceeds agency requirements. Without a requirement to consistently review, revise, or validate existing security clearance position designations, we concluded that executive branch agencies—such as DOD and DHS—may be hiring and budgeting for both initial and periodic security clearance investigations using position descriptions and security clearance requirements that do not reflect national security needs. Moreover, since reviews were not being done consistently, DOD, DHS, and other executive branch agencies did not have reasonable assurance that they were keeping to a minimum the number of positions that require security clearances on the basis of a demonstrated and foreseeable need for access. Therefore, we recommended in July 2012 that the DNI, in coordination with the Director of OPM and other executive branch agencies as appropriate, issue guidance to require executive branch agencies to periodically review and revise or validate the designation of all federal civilian positions. In written comments on that report, the ODNI concurred with this recommendation and stated that as duties and responsibilities of federal positions may be subject to change, it planned to work with OPM and other executive branch agencies to ensure that position designation policies and procedures include a provision for periodic reviews. OPM stated in its written comments to our report that it would work with the DNI on guidance concerning periodic reviews of existing designations. ODNI and OPM are currently in the process of finalizing revisions to the position designation federal regulation. As part of our ongoing processes to routinely monitor the status of agency actions to address our prior recommendations, we note that the proposed regulation would newly require agencies to conduct a one-time reassessment of position designations within 24 months of the final regulation’s effective date, which is an important step towards ensuring that the current designations of national security positions are accurate. However, the national security environment and the duties and descriptions of positions may change over time, thus the importance of periodic review or validation. The proposed regulation, if finalized in its current form, would not require a periodic reassessment of positions’ need for access to classified information as we recommended. We believe this needs to be done and, as part of monitoring the status of our recommendation, we will continue to review the finalized federal regulation and any related guidance that directs position designation to determine whether periodic review or validation is required. As of August 2013, OPM had not yet implemented metrics to measure the completeness of its investigative reports—results from background investigations—although we have previously identified deficiencies in these reports. OPM supplies about 90 percent of all federal clearance investigations, including those for DOD. For example, in May 2009 we reported that, with respect to DOD initial top secret clearances adjudicated in July 2008, documentation was incomplete for most OPM investigative reports. We independently estimated that 87 percent of about 3,500 investigative reports that DOD adjudicators used to make clearance decisions were missing at least one type of documentation The type of documentation required by federal investigative standards.most often missing from investigative reports was verification of all of the applicant’s employment, followed by information from the required number of social references for the applicant and complete security forms. We also estimated that 12 percent of the 3,500 investigative reports did not contain a required personal subject interview. Officials within various executive branch agencies have noted to us that the information gathered during the interview and investigative portion of the process is essential for making adjudicative decisions. At the time of our 2009 review, OPM did not measure the completeness of its investigative reports, which limited the agency’s ability to explain the extent or the reasons why some reports were incomplete. As a result of the incompleteness of OPM’s investigative reports on DOD personnel, we recommended in May 2009 that OPM measure the frequency with which its investigative reports meet federal investigative standards, so that the executive branch can identify the factors leading to incomplete reports and take corrective actions.recommendation. OPM did not agree or disagree with our In a subsequent February 2011 report, we noted that OMB, ODNI, DOD, and OPM leaders had provided congressional members with metrics to assess the quality of the security clearance process, including investigative reports and other aspects of the process. Rapid Assessment of Incomplete Security Evaluations was one tool the executive branch agencies planned to use for measuring quality, or completeness, of OPM’s background investigations.according to an OPM official in June 2012, OPM chose not to use this tool. Instead, OPM stated that it opted to develop another tool. In following up on our 2009 recommendations, as of August 2013, OPM had not provided enough details on its tool for us to determine if the tool had met the intent of our 2009 recommendation, and included the attributes of successful performance measures identified in best practices, nor could we determine the extent to which the tool was being used. GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: Feb. 2011). not reflect the quality of OPM’s total investigation workload. We are beginning work to further review OPM’s actions to improve the quality of investigations. We have also reported that deficiencies in investigative reports affect the quality and timeliness of the adjudicative process. Specifically, in November 2010, we reported that agency officials who utilize OPM as their investigative service provider cited challenges related to deficient investigative reports as a factor that slows agencies’ abilities to make adjudicative decisions. The quality and completeness of investigative reports directly affects adjudicator workloads, including whether additional steps are required before adjudications can be made, as well as agency costs. For example, some agency officials noted that OPM investigative reports do not include complete copies of associated police reports and criminal record checks. Several agency officials stated that in order to avoid further costs or delays that would result from working with OPM, they often choose to perform additional steps internally to obtain missing information. According to ODNI and OPM officials, OPM investigators provide a summary of police and criminal reports and assert that there is no policy requiring inclusion of copies of the original records. However, ODNI officials also stated that adjudicators may want or need entire records as critical elements may be left out of the investigator’s summary. For example, according to Defense Office of Hearings and Appeals officials, in one case, an investigator’s summary of a police report incorrectly identified the subject as a thief when the subject was actually the victim. To address issues identified in our 2009 report regarding the quality of DOD adjudications, DOD has taken some intermittent steps to implement measures to determine the completeness of its adjudicative files. In 2009, we reported that some clearances were granted by DOD adjudicators even though some required data were missing from the OPM investigative reports used to make such determinations. For example, we estimated that 22 percent of the adjudicative files for about 3,500 initial top secret clearances that were adjudicated favorably did not contain all the required documentation, even though DOD regulations require that adjudicators maintain a record of each favorable and unfavorable adjudication decision and document the rationale for granting clearance eligibility to applicants with security concerns revealed during the investigation. Documentation most frequently missing from adjudicative files was the rationale for granting security clearances to applicants with security concerns related to foreign influence, financial considerations, and criminal conduct. At the time of our 2009 review, DOD did not measure the completeness of its adjudicative files, which limited the agency’s ability to explain the extent or the reasons why some files are incomplete. In 2009, we made two recommendations to improve the quality of adjudicative files. First, we recommended that DOD measure the frequency with which adjudicative files meet requirements, so that the executive branch can identify the factors leading to incomplete files and include the results of such measurement in annual reports to Congress on clearances. In November 2009, DOD subsequently issued a memorandum that established a tool to measure the frequency with which adjudicative files meet the requirements of DOD regulation. Specifically, the DOD memorandum stated that it would use a tool called the Review of Adjudication Documentation Accuracy and Rationales, or RADAR, to gather specific information about adjudication processes at the adjudication facilities and assess the quality of adjudicative documentation. In following up on our 2009 recommendations, as of 2012, a DOD official stated that RADAR had been used in fiscal year 2010 to evaluate some adjudications, but was not used in fiscal year 2011 due to funding shortfalls. DOD stated that it restarted the use of RADAR in fiscal year 2012. Second, we recommended that DOD issue guidance to clarify when adjudicators may use incomplete investigative reports as the basis for granting clearances. In response to our recommendation, DOD’s November 2009 guidance that established RADAR also outlines the minimum documentation requirements adjudicators must adhere to when documenting personnel security clearance determinations for cases with potentially damaging information. In addition, DOD issued guidance in March 2010 that clarifies when adjudicators may use incomplete investigative reports as the basis for granting clearances. This guidance provides standards that can be used for the sufficient explanation of incomplete investigative reports. Executive branch agencies have not yet developed and implemented metrics to track the reciprocity of personnel security clearances, which is an agency’s acceptance of a background investigation or clearance determination completed by any authorized investigative or adjudicative agency, although some efforts have been made to develop quality metrics. Executive branch agency officials have stated that reciprocity is regularly granted, as it is an opportunity to save time as well as reduce costs and investigative workloads; however, we reported in 2010 that agencies do not consistently and comprehensively track the extent to which reciprocity is granted government-wide. ODNI guidance requires, except in limited circumstances, that all Intelligence Community elements “accept all in-scope security clearance or access determinations.” Additionally, OMB guidance requires agencies to honor a clearance when (1) the prior clearance was not granted on an interim or temporary basis; (2) the prior clearance investigation is current and in-scope; (3) there is no new adverse information already in the possession of the gaining agency; and (4) there are no conditions, deviations, waivers, or unsatisfied additional requirements (such as polygraphs) if the individual is being considered for access to highly sensitive programs. While the Performance Accountability Council has identified reciprocity as a government-wide strategic goal, we have found that agencies do not consistently and comprehensively track when reciprocity is granted, and lack a standard metric for tracking reciprocity. Further, while OPM and the Performance Accountability Council have developed quality metrics for reciprocity, the metrics do not measure the extent to which reciprocity is being granted. For example, OPM created a metric in early 2009 to track reciprocity, but this metric only measures the number of investigations requested from OPM that are rejected based on the existence of a previous investigation and does not track the number of cases in which an existing security clearance was or was not successfully honored by the agency. Without comprehensive, standardized metrics to track reciprocity and consistent documentation of the findings, decision makers will not have a complete picture of the extent to which reciprocity is granted or the challenges that agencies face when attempting to honor previously granted security clearances. In 2010, we reported that executive branch officials routinely honor other agencies’ security clearances, and personnel security clearance information is shared between OPM, DOD, and, to some extent, Intelligence Community databases. agencies find it necessary to take additional steps to address limitations with available information on prior investigations, such as insufficient information in the databases or variances in the scope of investigations, before granting reciprocity. For instance, OPM has taken steps to ensure certain clearance data necessary for reciprocity are available to adjudicators, such as holding interagency meetings to determine new data fields to include in shared data. However, we also found that the shared information available to adjudicators contains summary-level detail that may not be complete. As a result, agencies may take steps to obtain additional information, which creates challenges to immediately granting reciprocity. GAO-11-65. adjudicators, according to agency officials, a subject’s prior clearance investigation and adjudication may not meet the standards of the inquiring agency. Although OPM has developed some training, security clearance investigators and adjudicators are not required to complete a certain type or number of classes. As a result, the extent to which investigators and adjudicators receive training varies by agency. Consequently, as we have previously reported, agencies are reluctant to be accountable for investigations and/or adjudications conducted by other agencies or organizations. To achieve fuller reciprocity, clearance-granting agencies seek to have confidence in the quality of prior investigations and adjudications. Consequently, we recommended in 2010 that the Deputy Director of Management, OMB, in the capacity as Chair of the Performance Accountability Council, should develop comprehensive metrics to track reciprocity and then report the findings from the expanded tracking to Congress. Although OMB agreed with our recommendation, a 2011 ODNI report found that Intelligence Community agencies experienced difficulty reporting on reciprocity. The agencies are required to report on a quarterly basis the number of security clearance determinations granted based on a prior existing clearance as well as the number not granted when a clearance existed. The numbers of reciprocal determinations made and denied are categorized by the individual’s originating and receiving organizational type: (1) government to government, (2) government to contractor, (3) contractor to government, and (4) contractor to contractor. The report stated that data fields necessary to collect the information described above do not currently reside in any of the datasets available and the process was completed in an agency specific, semi-manual method. Further, the Deputy Assistant Director for Special Security of the Office of the Director of National Intelligence noted in testimony in June 2012 that measuring reciprocity is difficult, and despite an abundance of anecdotes, real data is hard to come by. To address this problem, ODNI is developing a web-based form for individuals to submit their experience with reciprocity issues to the ODNI. According to ODNI, this will allow them to collect empirical data, perform systemic trend analysis, and assist agencies with achieving workable solutions. Several efforts are underway to review the security clearance process, and those efforts, combined with sustained leadership attention, could help facilitate progress in assessing and improving the quality of the security clearance process. After the September 16, 2013 shooting at the Washington Navy Yard, the President directed the Office of Management and Budget, in coordination with ODNI and OPM, to conduct a government-wide review into the oversight, nature, and implementation of security and suitability standards for federal employees and contractors. In addition, in September 2013, the Secretary of Defense directed an independent review to identify and recommend actions that address gaps or deficiencies in DOD programs, policies, and procedures regarding security at DOD installations and the granting and renewal of security clearances for DOD employees and contractor personnel. The primary objective of this review is to determine whether there are weaknesses in DOD programs, policies, or procedures regarding physical security at DOD installations and the security clearance and reinvestigation process that can be strengthened to prevent a similar tragedy. As previously discussed, DOD and DHS account for the majority of security clearances within the federal government. We initially placed DOD’s personnel security clearance program on our high-risk list in 2005 because of delays in completing clearances. It remained on our list until 2011 because of ongoing concerns about delays in processing clearances and problems with the quality of investigations and adjudications. In February 2011, we removed DOD’s personnel security clearance program from our high-risk list largely because of the department’s demonstrated progress in expediting the amount of time We also noted DOD’s efforts to develop and processing clearances.implement tools to evaluate the quality of investigations and adjudications. Even with the significant progress leading to removal of DOD’s program from our high-risk list, the Comptroller General noted in June 2012 that sustained leadership would be necessary to continue to implement, monitor, and update outcome-focused performance measures.initial development of some tools and metrics to monitor and track quality not only for DOD but government-wide were positive steps; however, full implementation of these tools and measures government-wide have not yet been realized. While progress in DOD’s personnel security clearance program resulted in the removal of this area from our high-risk list, significant government-wide challenges remain in ensuring that personnel security clearance investigations and adjudications are high-quality. However, if the oversight and leadership that helped address the timeliness issues focuses now on the current problems associated with quality, we believe that progress in helping executive branch agencies to assess the quality of the security clearance process could be made. In conclusion, to avoid the risk of damaging, unauthorized disclosures of classified information, oversight of the reform efforts to measure and improve the quality of the security clearance process are imperative next steps. The progress that was made with respect to expediting the amount of time processing clearances would not have been possible without committed and sustained congressional oversight and the leadership of the Performance Accountability Council. Further actions are needed now to fully develop and implement metrics to oversee quality at every step in the process. We will continue to monitor the outcome of the agency actions discussed above to address our outstanding recommendations. Chairman King, Ranking Member Higgins, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. For further information on this testimony, please contact Brenda S. Farrell, Director, Defense Capabilities and Management, who may be reached at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include David E. Moser (Assistant Director), Jim Ashley, Renee S. Brown, Ryan D’Amore, and Michael Willems. Personnel Security Clearances: Full Development and Implementation of Metrics Needed to Measure Quality of Process. GAO-14-157T. Washington, D.C.: October 31, 2013. Personnel Security Clearances: Further Actions Needed to Improve the Process and Realize Efficiencies. GAO-13-728T. Washington, D.C.: June 20, 2013. Managing for Results: Agencies Should More Fully Develop Priority Goals under the GPRA Modernization Act. GAO-13-174. Washington, D.C.: April 19, 2013. Security Clearances: Agencies Need Clearly Defined Policy for Determining Civilian Position Requirements. GAO-12-800. Washington, D.C.: July 12, 2012. Personnel Security Clearances: Continuing Leadership and Attention Can Enhance Momentum Gained from Reform Effort. GAO-12-815T. Washington, D.C.: June 21, 2012. 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP. Washington, D.C.: February 28, 2012. Background Investigations: Office of Personnel Management Needs to Improve Transparency of Its Pricing and Seek Cost Savings. GAO-12-197. Washington, D.C.: February 28, 2012. GAO’s 2011 High-Risk Series: An Update. GAO-11-394T. Washington, D.C.: February 17, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. Personnel Security Clearances: Overall Progress Has Been Made to Reform the Governmentwide Security Clearance Process. GAO-11-232T. Washington, D.C.: December 1, 2010. Personnel Security Clearances: Progress Has Been Made to Improve Timeliness but Continued Oversight Is Needed to Sustain Momentum. GAO-11-65. Washington, D.C.: November 19, 2010. DOD Personnel Clearances: Preliminary Observations on DOD’s Progress on Addressing Timeliness and Quality Issues. GAO-11-185T. Washington, D.C.: November 16, 2010. Personnel Security Clearances: An Outcome-Focused Strategy and Comprehensive Reporting of Timeliness and Quality Would Provide Greater Visibility over the Clearance Process. GAO-10-117T. Washington, D.C.: October 1, 2009. Personnel Security Clearances: Progress Has Been Made to Reduce Delays but Further Actions Are Needed to Enhance Quality and Sustain Reform Efforts. GAO-09-684T. Washington, D.C.: September 15, 2009. Personnel Security Clearances: An Outcome-Focused Strategy Is Needed to Guide Implementation of the Reformed Clearance Process. GAO-09-488. Washington, D.C.: May 19, 2009. DOD Personnel Clearances: Comprehensive Timeliness Reporting, Complete Clearance Documentation, and Quality Measures Are Needed to Further Improve the Clearance Process. GAO-09-400. Washington, D.C.: May 19, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Personnel Security Clearances: Preliminary Observations on Joint Reform Efforts to Improve the Governmentwide Clearance Eligibility Process. GAO-08-1050T. Washington, D.C.: July 30, 2008. Personnel Clearances: Key Factors for Reforming the Security Clearance Process. GAO-08-776T. Washington, D.C.: May 22, 2008. Employee Security: Implementation of Identification Cards and DOD’s Personnel Security Clearance Program Need Improvement. GAO-08-551T. Washington, D.C.: April 9, 2008. Personnel Clearances: Key Factors to Consider in Efforts to Reform Security Clearance Processes. GAO-08-352T. Washington, D.C.: February 27, 2008. DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts to Improve Clearance Processes for Industry Personnel. GAO-08-470T. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Delays and Inadequate Documentation Found for Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. 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: 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. 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. 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. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. DOD Personnel Clearances: Preliminary Observations Related to Backlogs and Delays in Determining Security Clearance Eligibility for Industry Personnel. GAO-04-202T. Washington, D.C.: May 6, 2004. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | In 2012, the DNI reported that more than 4.9 million federal government and contractor employees held or were eligible to hold a personnel security clearance. Furthermore, GAO has reported that the federal government spent over $1 billion to conduct more than 2 million background investigations in fiscal year 2011. A high quality process is essential to minimize the risks of unauthorized disclosures of classified information and to help ensure that information about individuals with criminal activity or other questionable behavior is identified and assessed as part of the process for granting or retaining clearances. Security clearances may allow personnel to gain access to classified information that, through unauthorized disclosure, can in some cases cause exceptionally grave damage to U.S. national security. Recent events, such as unauthorized disclosures of classified information, have illustrated the need for additional work to help ensure the process functions effectively and efficiently. This testimony addresses the (1) roles and responsibilities of different executive branch agencies involved in the personnel security process; (2) different phases of the process; and (3) extent that agencies assess the quality of the process. This testimony is based on GAO work issued between 2008 and 2013 on DOD's personnel security clearance program and government-wide suitability and security clearance reform efforts. As part of that work, GAO (1) reviewed statutes, executive orders, guidance, and processes; (2) examined agency data on timeliness and quality; (3) assessed reform efforts; and (4) reviewed samples of case files for DOD personnel. Several agencies in the executive branch have key roles and responsibilities in the personnel security clearance process. Executive Order 13467 designates the Director of National Intelligence (DNI) as the Security Executive Agent, who is responsible for developing policies and procedures for background investigations and adjudications. The Office of Personnel Management (OPM) conducts investigations for most of the federal government. Adjudicators from agencies, such as the Departments of Defense (DOD) and Homeland Security, that request background investigations use the investigative report and consider federal adjudicative guidelines when making clearance determinations. Reform efforts to enhance the personnel security process throughout the executive branch are principally driven and overseen by the Performance Accountability Council, which is chaired by the Deputy Director for Management at the Office of Management and Budget (OMB). Executive branch agencies rely on a multi-phased personnel security clearance process that includes requirements determination, application, investigation, adjudication, appeals (if applicable, where a clearance has been denied), and reinvestigation (for renewal or upgrade of an existing clearance). In the requirements determination phase, agency officials must determine whether positions require access to classified information. After an individual has been selected for a position that requires a personnel security clearance and the individual submits an application for a clearance, investigators--often contractors--from OPM conduct background investigations for most executive branch agencies. Adjudicators from requesting agencies use the information from these investigations and consider federal adjudicative guidelines to determine whether an applicant is eligible for a clearance. If a clearance is denied or revoked by an agency, appeals of the adjudication decision are possible. Individuals granted clearances are subject to reinvestigations at intervals that are dependent on the level of security clearance. Executive branch agencies do not consistently assess quality throughout the security clearance process, in part because they have not fully developed and implemented metrics to measure quality in key aspects of the process. For example, GAO reported in May 2009 that, with respect to initial top secret clearances adjudicated in July 2008 for DOD, documentation was incomplete for most of OPM's investigative reports. GAO also estimated that 12 percent of the 3,500 reports did not contain the required personal subject interview. To improve the quality of investigative documentation, GAO recommended that OPM measure the frequency with which its reports met federal investigative standards. OPM did not agree or disagree with this recommendation, and as of August 2013 had not implemented it. Further, GAO reported in 2010 that agencies do not consistently and comprehensively track the reciprocity of personnel security clearances, which is an agency's acceptance of a background investigation or clearance determination completed by any authorized investigative or adjudicative agency. OPM created a metric in early 2009 to track reciprocity, but this metric does not track how often an existing security clearance was successfully honored. GAO recommended that OMB develop comprehensive metrics to track reciprocity. OMB agreed with the recommendation, but has not yet fully implemented actions to implement this recommendation. |
In accordance with the United States International Broadcasting Act of 1994, as amended, BBG manages and oversees all U.S. civilian international broadcasting, including the federal entities VOA and OCB and the grantees MBN, RFA, and RFE/RL. Collectively, these entities include 69 language services that produce content in 59 languages for radio, television, the Internet, mobile devices, and social media in more The International Broadcasting Bureau provides all than 100 countries.support services to BBG, oversight over grantee operations, and transmission and distribution services to BBG entities. BBG is managed by a nine-member part-time bipartisan Board of Governors. As an element of U.S. public diplomacy, BBG is to be responsive to U.S. foreign policy and national security priorities while maintaining editorial independence. All BBG entities are required to provide news and information that is consistently reliable, authoritative, accurate, objective, and comprehensive. VOA provides global, U.S., and local news, as well as information on U.S. policies, to people living in closed societies. OCB provides news and information to the people of Cuba. The role of the grantee broadcasters—MBN, RFA, and RFE/RL—is to operate as surrogates for the local media in countries where a free and open press does not exist. Following specific foreign policy challenges over the last decade, Congress created the five broadcasting entities that compose BBG. In some instances, BBG entities were created or directed to broadcast in languages and countries where VOA was already present. BBG officials noted, for example: The International Broadcasting Act authorized RFA in 1994 to broadcast in seven Asian countries where VOA already broadcast. In 2009, a House of Representatives Committee on Appropriations report and a Senate Committee on Appropriations report directed BBG to provide an increase in daily broadcast hours for VOA’s language service in the Afghanistan-Pakistan region (Deewa Radio) while also calling for the establishment of an RFE/RL radio program (Radio Mashaal) in the region. Figure 1 shows the creation of BBG entities since 1942. Figure 2 describes each BBG entity’s mission and shows the amount of appropriated funds each entity received in fiscal year 2012. BBG annually conducts a language service review, as required by law, intended to help the agency make decisions regarding allocating resources to language services. In conducting the language service review, BBG considers foreign policy priorities, the domestic media environment in countries that receive BBG broadcasts, audience research, and the impact of BBG programming. BBG uses the review to determine which language services should be enhanced or added and which services to recommend for closure or reduced funding. From 2001 through 2012, BBG eliminated 20 language services, including VOA’s Czech, Polish, and Slovak services and RFE/RL’s Czech and Slovak services. In its fiscal year 2009 through 2013 annual budget requests, BBG has proposed to eliminate additional language services, including two services that overlap with another service. In response to BBG’s proposals, Congressional appropriations committees, which have jurisdiction over BBG funding, in some years have directed the continuation of the language services. Nearly two-thirds of the BBG language services—that is, offices that produce content for particular languages and regions—overlap with another BBG service by providing programs to the same countries in the same languages. BBG’s 2012-2016 strategic plan identifies the need to reduce overlap among its language services. However, BBG’s annual language service reviews have not systematically considered the cost and impact of overlap. We identified 23 instances of overlap, involving 43 of BBG’s 69 language services (62 percent), where two services provide programming to the same countries in the same languages. For example, in 8 instances involving 16 services, a VOA service and an RFA service overlapped. Figure 3 shows the extent of overlap among BBG language services as of June 2012. (See app. II for a detailed list of BBG language services.) Of the 43 language services that overlap in terms of language and country, 91 percent (39 services) also overlap in terms of platform (i.e., radio or television).broadcast on the same platforms, while in others, such as Ukraine, RFE/RL broadcasts only by radio and VOA broadcasts only on television. In almost all countries, the overlapping entities BBG officials noted some benefits of its overlapping language services, such as the availability of news from various sources in countries of strategic interest to the United States. In addition, BBG officials noted that in authorizing more than one entity to undertake international broadcasting, the statutory structure appears to envision that some overlap in activities may be necessary to achieve U.S. government objectives. However, these officials acknowledged that overlap among its language services reduces the funding available for other BBG broadcasts, including those that may have greater impact. BBG officials emphasized that overlapping language services are sometimes distinguished by their broadcast hours or purpose and content. Broadcast hours. BBG officials told us that overlapping language services generally coordinate with one another to broadcast at different hours of the day to ensure that audiences are able to access programs from both services. For example, VOA officials from the Farsi language service told us that VOA and RFE/RL collaborate to avoid overlap and do not broadcast on the radio simultaneously. BBG officials also said that overlapping services coordinate regarding their broadcast hours even if using different platforms. Purpose and content. BBG officials said that VOA and the grantee broadcasters have different purposes and that flexibility in their governing laws allows some overlapping content. The officials noted that according to those laws, VOA must represent the United States, presenting and explaining the country’s policies in addition to providing accurate news. In contrast, the grantee broadcasters, in their surrogate role, generally act as regional or local news providers, with less emphasis on international news and limited discussion of U.S. policies or interests. However, BBG officials noted that the entities’ mandates and missions allows for some flexibility related to programming content. For example, the International Broadcasting Act states that in order to be effective, VOA must win the attention and respect of listeners. According to BBG officials, to attract a larger audience and to provide fuller news coverage, some VOA language services produce not only news about the United States and the views of the U.S. government but also local news, which a BBG grantee might also broadcast in the same language and country. BBG officials stated that the roles of VOA and grantee broadcasters when both VOA and a grantee broadcast in a particular country and language are not clearly established. For example, it is not clear whether, in such cases, VOA should provide strictly U.S. and international news and the grantee should provide strictly local and regional news or whether the types of content they provide can, or should, overlap. BBG officials told us that this can lead to overlapping content. For example, officials from Deewa Radio (VOA) stated that they sometimes cover the same news stories, with similar content, as Radio Mashaal (RFE/RL) in the same region. Although BBG has identified the need to reduce overlap among its broadcast entities’ language services, BBG has not systematically considered the cost or impact of such overlap as part of its annual language service review process. The International Broadcasting Act, as amended, directs BBG to consider issues related to overlap, such as duplication, among some language services. For example, the law requires that grant agreements to RFE/RL shall include a provision stating that duplication of language services and technical operations between RFE/RL and VOA should be reduced to the extent appropriate, as determined by BBG’s Board of Governors. In addition, the law gives the board authority to identify areas in which broadcasting activities could be made more efficient and economical. In its strategic plan for 2012-2016, BBG addresses language service overlap and recognizes the need to streamline and improve coordination and efficiency. The plan states that BBG found that its language services overlapped significantly and that the agency could not easily manage its resources for highest impact and efficiency. In the plan, BBG states in general terms that it will end language services in countries that have more developed, independent media and that are no longer strategic priorities; however, the plan does not describe specific steps for achieving this goal. The plan also states that where there are two broadcast entities operating in a given country, they will cooperate—with shared bureaus, freelance reporters, and distribution networks—and will provide complementary, not duplicative, content. According to BBG officials, some entities already cooperate with each other to share resources and maximize efficiency. For example, VOA and RFE/RL staff share office space in Afghanistan and collaborate on their Persian service to share news agendas and reduce duplication of effort. BBG officials also said that the agency’s proposed management reforms included in the strategic plan may enhance their ability to increase coordination, reduce overlap, and create a more integrated and efficient organization. Although BBG’s strategic plan includes a general proposal to reduce language service overlap, BBG’s annual language service review—the agency’s primary method of prioritizing broadcast languages and planning resource allocations—does not systematically consider the cost and impact of language service overlap. BBG’s language service review is intended to help the agency make decisions regarding allocating resources to language services by considering factors such as foreign policy priorities and the domestic media environment in countries that receive BBG broadcasts. The resulting Annual Language Service Review Briefing Book provides detailed data for all language services, including information regarding the media and political environments in which the services operate. example, when more than one BBG entity broadcasts in a language—it does not discuss the cost or impact associated with this overlap. BBG officials stated that the methodology for the language service review does not include an assessment of the cost and impact of overlapping language services because officials are already well aware of overlap among their language services and because the law has not required BBG to include assessments of overlap as part of its annual language service review. For example, BBG considers the Media Sustainability Index, which measures a number of contributing factors of a well-functioning media system and considers both traditional media types and new media platforms. Among its other measures, the index includes a measure of plurality of news sources. associated with maintaining the 43 overlapping language services is about $149 million, or nearly 20 percent of BBG’s total appropriations for fiscal year 2011. This amount represents the sum of the total cost for all overlapping language services, including employee salaries, benefits, and general operating expenses, as reported in BBG’s Annual Language Service Review Briefing Book from fiscal year 2011. This amount exceeds the potential savings from eliminating or reducing overlap. The amount of money that could be saved by reducing or eliminating overlapping language services would depend on a variety of factors, including which services were reduced or eliminated, which transmission assets or broadcast hours were reduced or transferred, and whether staff and other resources from an eliminated service were transferred to the remaining services. More than half of BBG’s broadcast languages are used by other international broadcasters, although these broadcasters’ objectives differ from those of BBG. Specifically, we found that U.S. commercial broadcasters transmit in 7 of the 59 BBG languages and target different audiences, and other democratic nations’ government-supported broadcasters transmit in over half of BBG languages, but each represents the unique perspectives and interests of its respective country. BBG’s annual language service review has not systematically considered the activities of these broadcasters, and as a result BBG risks missing opportunities to strengthen its allocation of resources. BBG and the other international broadcasters we reviewed broadcast in many of the same languages, although their objectives differ. The U.S. commercial international broadcasters that we identified, including CNN International and Fox News, broadcast in 7 of the 59 languages that BBG uses. Officials from both BBG and commercial broadcasters said that they target different audiences and consider their approaches to providing content to be distinct. Commercial broadcasters are often not present in smaller markets where vernacular languages are spoken, because these markets offer little potential for generating profit.broadcasters may target audiences such as business people and other professionals. For example, officials from one network told us they target U.S. citizens outside the United States, including travelers and expatriates. In contrast, BBG targets foreign audiences. Moreover, commercial broadcasters generally provide broad international or regional programming as opposed to the more localized content that BBG entities often provide. Collectively, major government-supported international broadcasters from other democratic nations—Audiovisuel Extérieur de la France (AEF), the British Broadcasting Corporation World Service (BBC), Deutsche Welle (DW), and Radio Netherlands Worldwide (RNW)—transmit programs in 35 of the 59 languages that BBG uses (see fig. 4). These broadcasters transmit programs in 10 languages that BBG does not use. (For the full list of languages used by the democratic nations’ broadcasters, see app. III.) Representatives of other democratic nations’ government-supported international broadcasters generally told us that they coordinate with each other and BBG on issues such as broadcast transmission and audience research. However, most of these broadcasters do not consider the presence of, or coordinate with, other international broadcasters when determining whether to transmit in a given language or country, because their objectives differ in several ways. Democratic nations’ international broadcasters focus on respective national interests. According to the broadcasters’ representatives, no nation’s international broadcaster can accurately represent the interests, perspectives, values, and culture of another nation. AEF, DW, BBC, and RNW’s missions are to represent, respectively, the French, German, British, and Dutch perspectives on international news and events in an independent and unbiased manner. Although democratic nations’ broadcasters represent many of the same perspectives on values such as democracy and freedom of speech, the representatives stated that their countries’ particular perspectives cannot be accurately represented by another country’s international broadcaster. Democratic nations’ international broadcasters have different substantive and geographic targets. The focus and target audiences of democratic nations’ broadcasters’ programming differ significantly, according to the broadcasters’ representatives. For example, while DW aims to provide thorough information to opinion makers and to emphasize human rights issues, BBC aims to serve as the premiere independent and unbiased global news provider. RNW recently adopted a narrower focus, targeting individuals between the ages of 15 and 30 and focusing on free speech. Representatives of democratic nations’ broadcasters also indicated that foreign policy priorities may weigh in favor of a broadcaster’s presence in a given language even when other broadcasters are present. For example, partly because of the current strategic importance of the Middle East, BBG, BBC, DW, AEF, and RNW all broadcast in Arabic. Additionally, broadcasters told us they believed that the presence of multiple democratic nations’ broadcasters in the same broadcast language can be positive and provide multiple perspectives in countries in which the press is not free. Representatives of these major democratic nations’ broadcasters further suggest that the surrogate role served by BBG grantees—MBN, RFA, and RFE/RL—is a distinct U.S. contribution to the context of government- supported international broadcasting. According to the representatives, other democratic nations’ broadcasters present their countries’ perspectives, but their primary functions generally do not include acting as indigenous media or providing local news and information in countries in which press freedom is limited or nonexistent. Other democratic nations’ broadcasters have faced declining budgets in recent years and have consequently reduced their broadcasting and implemented other organizational changes. For example, RNW’s budget decreased by 70 percent from 2012 to 2013 (from approximately $60 million to $18 million), and BBC World Service’s budget decreased by 11 percent from 2009 to 2012 (from approximately $402 million to $356 million). To cope with declining resources, broadcasters have taken steps such as restructuring their organizations and changing their program formats and distribution. For example, the broadcasters have significantly reduced their broadcasts in shortwave radio, which are more expensive to maintain than are other broadcast platforms. In addition, BBC eliminated five language services and moved other services from radio transmission to Internet only. In early 2013, RNW will reduce its number of broadcast languages from ten to five and will end direct distribution on platforms other than the Internet. The International Broadcasting Act contains 18 standards and principles for U.S. international broadcasting, including that U.S. international broadcasting shall not duplicate the activities of private U.S. broadcasters or of other democratic nations’ government-supported broadcasting entities. BBG officials stated that the agency is in compliance with this principle. The law does not specify, however, that BBG should assess duplication in its annual language service reviews. Moreover, BBG officials noted that the law provides BBG broad latitude on how to interpret duplication and that the term should be considered in the context of BBG’s overall authorities and responsibilities. BBG officials stated that to maximize the impact of its resources, BBG should be aware of, and complement, the efforts of commercial U.S. broadcasters and of other democratic nations’ broadcasters. BBG’s annual language service review generally considers the broadcast alternatives available to targeted audiences by identifying the most significant broadcasters in each market BBG serves. The resulting briefing book lists the top 10 sources of news in each market. However, the language service review process does not systematically identify the languages used, and the countries served, by other major democratic nations’ international broadcasters and U.S. commercial broadcasters. Further, it does not assess the extent to which these broadcasters provide similar or complementary alternatives to BBG broadcasts. BBG officials noted that the law has not required that the annual language service review consider other international broadcasters. BBG officials also stated that individual BBG entities are well informed about the broadcast activities of relevant commercial international broadcasters and other democratic nations’ broadcasters. However, without regularly reviewing and documenting the activities of other international broadcasters, BBG risks missing opportunities to better allocate its resources. U.S. public diplomacy efforts rely on U.S. international broadcasting to communicate directly with audiences in countries with limited journalism alternatives. Over the past 70 years, Congress authorized five separate entities to broadcast news and information throughout the world to address new foreign policy priorities, and these entities overlap substantially with one another in the countries and languages they serve. BBG’s strategic plan for 2012-2016 broadly recognizes the need to reduce overlap and reallocate limited resources to broadcasts that will have the greatest impact. However, by not systematically considering the cost and impact of overlap in its annual language service reviews—BBG’s primary method of prioritizing broadcast languages and planning resource allocations—the agency risks missing opportunities to reduce overlap as appropriate, strengthen impact, and improve coordination among its entities. Further, without systematically considering the activities of other international broadcasters in its annual language service review, BBG also may be missing opportunities to better allocate its resources in order to maximize the impact of U.S. international broadcasting. To strengthen BBG’s efforts to streamline and maximize the impact of U.S. international broadcasting, we recommend that BBG’s Board of Governors take the following two actions: Ensure that BBG’s annual language service review includes systematic consideration of the cost and impact of internal overlap among BBG entities’ language services. Ensure that BBG’s annual language service review includes systematic consideration of the activities of U.S. commercial broadcasters and other democratic nations’ broadcasters, such as the languages used and the countries served. We sent a draft of this report to BBG, State, and USAID for comment. BBG provided written comments, which are reprinted in appendix IV, as well as technical comments, which we incorporated as appropriate. State and USAID had no comments. We also sent excerpts of the draft to the U.S. commercial broadcasters and other major democratic nations’ government-supported international broadcasters that we reviewed, and we incorporated their comments as appropriate. In its written comments, BBG agreed with our recommendations and said that it had begun the planning necessary to include a more in-depth and systematic review of overlapping language services in its annual language service review and that it would assess the countries served and languages broadcast by other commercial and government- sponsored broadcasters. BBG noted that it broadly agreed with our presentation of the challenges involved in addressing overlap and offered several comments on the issues we discussed in the draft report. First, BBG noted that its spending in fiscal year 2011 to maintain language services broadcasting in the same countries and languages—$149 million—represented the baseline budget for the 43 overlapping language services we identified but not the amount that could be saved if overlapping services were eliminated. For example, BBG stated that some overlap may be necessary and beneficial, and that, in some cases, the overlap resulted from statutory mandates. In addition, BBG noted that its strategic plan for 2012-2016 recognized the existence of overlapping language services and that it had introduced proposals to reduce unnecessary overlap. BBG further noted that enhancing the programming and operations of two language services in distinct organizations is a complex and sensitive undertaking. In each case, and as BBG acknowledged, our draft report generally reflected this information. Including a more in-depth and systematic assessment of overlapping language services in its annual language service review will provide BBG with an opportunity to balance these considerations, improve its operational efficiency, and maximize the impact of U.S. international broadcasting. We are sending copies of this report to interested congressional committees and to BBG, State, and USAID. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. Should you or your staff have questions concerning this report, please contact me at (202) 512-3665 or dinapolit@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other key contributors to this report are listed in appendix V. This report examines the extent to which (1) Broadcasting Board of Governors (BBG) language services overlap with one another, and (2) BBG broadcasts in the same languages as other international broadcasters. To examine BBG language service overlap, we reviewed laws, reports, and other documents related to U.S. international broadcasting, including BBG’s strategic plan for 2012-2016 and its 2011 Annual Language Service Review Briefing Book. In particular, we reviewed the United States International Broadcasting Act of 1994, as amended, and other laws relevant to the five BBG entities—federal entities the Voice of America (VOA) and Office of Cuba Broadcasting (OCB), and nonprofit grantees Middle East Broadcasting Networks, Inc. (MBN), Radio Free Asia (RFA), and Radio Free Europe/Radio Liberty (RFE/RL). We obtained and reviewed BBG’s interpretation of the International Broadcasting Act provisions related to overlap and duplication. We also reviewed information from BBG on the broadcast coverage of each entity, by country, language, and platform. To assess language service overlap among BBG entities, we identified instances in which the language services of two BBG entities broadcast in the same language and country, and we calculated the percentage of language services that overlap with another BBG language service. In our calculations, each instance of overlap involved two overlapping services. Some language services produce content in multiple languages; for those, we considered the language service to overlap if any of its languages overlapped with other BBG services. In addition, we counted BBG’s services in English, English to Africa, and Special English/Learning English as one language service. To obtain views about the causes and impact of overlap, we interviewed officials from BBG, the Department of State, and the U.S. Agency for International Development, as well as experts from U.S. and international organizations. We visited and conducted interviews at the headquarters of VOA (Washington, D.C.), MBN (Springfield, Va.), RFA (Washington, D.C.), and RFE/RL (Prague, Czech Republic), and we interviewed OCB officials by telephone. We also reviewed BBG’s methodology for its annual language service review and described the extent to which it included consideration of the cost and impact of overlap. We did not analyze the content of broadcast programs, overlap in BBG administrative or technical operations, or management and administrative streamlining proposals. To examine the extent to which BBG broadcasts in the same languages as other international broadcasters, we interviewed representatives of U.S. commercial broadcasters and democratic nations’ government- supported international broadcasters. Through interviews with the National Association of Broadcasters, the Association for International Broadcasting, and other experts, we identified several U.S. commercial broadcasters that provide general news programming to audiences outside the United States. We conducted interviews with representatives of two of these broadcasters: Fox News and CNN International. We interviewed major democratic nations’ international broadcasters— Audiovisuel Extérieur de la France (AEF), the British Broadcasting Corporation World Service (BBC), Deutsche Welle (DW), and Radio Netherlands Worldwide (RNW)—as well as several other public international broadcasters, including Voice of Russia. We interviewed some international public broadcasters at a global media forum in Bonn, Germany, and others by telephone. For both U.S. commercial broadcasters and democratic nations’ international broadcasters, we reviewed information on their objectives and the languages in which they broadcast, and we compared these to BBG objectives and broadcast languages. We assessed BBG’s processes for compiling information on the broadcast languages used and countries served by BBG entities’ language services, and we determined that these data were adequate and sufficiently reliable for the purposes of our review. We conducted this performance audit from February 2012 to January 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Voice of America (VOA) Africa Division Central Africa (Kinyarwanda, Kirundi) Horn Of Africa (Amharic, Tigrigna, Afaan Oromoo) Office of Cuba Broadcasting (OCB) Radio Free Europe/Radio Liberty (RFE/RL) Balkans (Bosnian, Macedonian, Serbian, Albanian, Montenegrin, Croatian)* Radio Farda (Persian)* Radio Free Afghanistan (Dari and Pashto)* Radio Mashaal (Pashto)* Radio Free Iraq (Arabic)* North Caucasus Unit (Avar, Chechen and Circassian) Tatar-Bashkir (Tatar, Crimean Tatar, Bashkir) Radio Free Asia (RFA) Middle East Broadcasting Networks (MBN) Swahili (Kiswahili) In addition to the contacts named above, Jason Bair (Assistant Director), Marissa Jones, Mary Moutsos, Ashley Alley, Qahira El’Amin, Julia Jebo Grant, and Reid Lowe made key contributions to this report. Additional assistance was provided by Mike Courts, Etana Finkler, Dave Hancock, Julia Ann Roberts, Mike Rohrback, Mike Silver, and Mike ten Kate. | U.S. international broadcasting is intended to communicate directly with audiences in countries with limited journalism alternatives and to inform, engage, and connect people around the world. BBG oversees two U.S. government entities--Voice of America and the Office of Cuba Broadcasting-- and three nonprofit grantees that act as surrogates for local media--Middle East Broadcasting Networks, Inc.; Radio Free Asia; and Radio Free Europe/Radio Liberty. In 2003, GAO found overlap among BBG's language services. In its strategic plan for 2012- 2016, BBG recognizes the need to reduce language service overlap. GAO was asked to review issues related to international broadcasting. This report examines the extent to which (1) BBG language services overlap with one another and (2) BBG broadcasts in the same languages as other international broadcasters. GAO reviewed laws, reports, and other documents related to U.S. international broadcasting; analyzed information on the BBG entities; and interviewed representatives of the five BBG entities and international broadcasters. Nearly two-thirds of the Broadcasting Board of Governors (BBG) language services--offices that produce content for particular languages and regions-- overlap with another BBG service by providing programs to the same countries in the same languages. GAO identified 23 instances of overlap involving 43 of BBG's 69 services. For example, in 8 instances involving 16 services, a Voice of America service and a Radio Free Asia service overlapped. Almost all overlapping services also broadcast on the same platform (i.e., radio or television). BBG officials noted that some overlap may be helpful in providing news from various sources in countries of strategic interest to the United States; however, they acknowledged that overlap reduces the funding available for broadcasts that may have greater impact. BBG budget information indicates that BBG spent approximately $149 million in fiscal year 2011 to maintain language services broadcasting in the same countries and languages--nearly 20 percent of its total appropriations. However, BBG has not estimated the potential savings and efficiencies from reducing unnecessary overlap. Further, BBG's annual language service review--its primary means of prioritizing broadcast languages and planning resource allocations--does not systematically consider the cost and impact of overlap. As a result, BBG may be missing opportunities to reduce overlap as appropriate, strengthen impact, and improve BBG entity coordination. More than half of BBG's broadcast languages are used by other international broadcasters--U.S. commercial international broadcasters and other major democratic nations' government-supported international broadcasters--although these broadcasters' objectives differ from BBG's. The U.S. commercial broadcasters that GAO identified transmit in seven of the BBG languages and target different audiences, with for-profit aims. Other democratic nations' broadcasters, including Germany's Deutsche Welle and the United Kingdom's BBC, transmit in 35 of the 59 BBG languages, although each broadcaster represents the unique perspectives and interests of its respective country. BBG's annual language service review generally considers the broadcast alternatives available to targeted audiences by identifying the most significant broadcasters in each market BBG serves. However, the review process does not systematically identify the languages used and the countries served by other international broadcasters, and it does not assess the extent to which these broadcasters provide similar or complementary alternatives to BBG broadcasts. As a result, BBG risks missing additional opportunities to better allocate its resources. GAO recommends that BBG systematically consider in its annual language service reviews (1) the cost and impact of overlap among BBG entities' language services and (2) the activities of other international broadcasters. BBG agreed with GAO's recommendations and reported taking initial steps to implement them. |
One of the functions of the Reserve Banks is to fulfill the coin demand of the nation’s depository institutions—which include commercial banks, savings and loan associations, and credit unions—by distributing coin inventories stored in the Reserve Banks’ vaults and at coin terminals, including circulated coins and new coins ordered from the U.S. Mint. The Reserve Banks have 30 offices that provide coins to depository institutions and are responsible for an area within 1 of the Federal Reserve’s 12 districts. Figure 1 shows a map of the Reserve Bank districts (districts) and the locations of the offices that provide coin services. As figure 2 shows, the Reserve Banks hold and distribute coins from their vaults and contract with armored carrier companies to hold the rest of the Reserve Banks’ inventory. As of December 31, 2007, 179 coin terminals held about 61 percent of the Reserve Banks’ total coin inventory, in terms of volume. According to Reserve Bank officials, the arrangement between the Reserve Banks and the armored carrier companies that operate these coin terminals began because both parties agreed that having more distribution points would be more cost-efficient from a societal perspective. Federal Reserve officials and coin terminal operators said that, historically, this has been a “win- win” arrangement because it has eliminated the need for armored carriers to haul coins to and from the Reserve Banks before distributing them to the depository institutions. The armored carrier companies store Reserve Banks’ coin inventory in their coin terminals at no charge. The agreement between the two entities (1) defines a limit on the value of inventory that a particular coin operator can hold for a Reserve Bank at a particular terminal and (2) requires the coin terminal operator to maintain liability insurance for loss of or damage to the Reserve Bank’s coin inventory. The coin terminal agreements can be canceled with prior notice and without cause at any time by either party. The armored carrier companies also maintain depository institutions’ coin inventories in the coin terminals at no charge; however, the companies earn revenue from the coin processing, wrapping, and transportation services that they provide to the depository institutions. In addition to the coins held in their inventory, the Reserve Banks purchase new coins at face value from the U.S. Mint to fulfill depository institutions’ demand. To develop an annual production schedule and fulfill the Reserve Banks’ coin orders, the U.S. Mint uses national coin demand forecasting models to determine how many new coins to produce. U.S. Mint facilities in Philadelphia and Denver then produce the new coins, and the Mint ships the new coins to the Reserve Bank offices or coin terminals. Appendix II shows trends in the U.S. Mint’s coin production data for fiscal years 2002 through 2007. The U.S. Mint also may transfer circulated coins between Reserve Bank offices. We discuss this matter in more detail later in the report. Depository institutions order coins from the Reserve Banks to meet retailers’ and the public’s demand. These orders include requests for new commemorative circulating coins from congressionally enacted programs, such as the 50 State Quarters and the Presidential $1 Coins Programs, as well as for other coins for day-to-day transactional use. Reserve Bank offices fill these orders with new and circulated coins held in the offices’ vaults and at the coin terminals. Depository institutions contract with armored carriers to process and deliver the coins to them; then depository institutions provide coins to retailers and the general public. Depository institutions also return coins to the Reserve Banks when they have more coins in their inventory than they want to hold to meet demand. For example, when the public’s demand for coins falls after the holiday season and the depository institutions have accumulated more coins than they want to hold for day-to-day transactions, the depository institutions deposit the extra coins with the Reserve Banks. According to two nationwide banking associations, the depository institutions have an incentive to limit the number of coins they hold in inventory because the institutions do not earn interest on coins held in their own vaults. The Reserve Banks’ process for ordering and distributing coins uses orders of new coins from the U.S. Mint, the Reserve Bank offices’ coin inventories, and transfers of circulated coins between Reserve Bank offices to meet estimates of depository institutions’ demand. These estimates are based on coin demand forecasts generated by a forecasting tool. The offices prepare requests for coins on the basis of these estimates and on their own assessments of demand and send the requests to CPO for review. CPO then looks for opportunities to transfer circulated coins between Reserve Bank offices to help fulfill the offices’ requests. CPO reduces the offices’ requests for coins by the amounts of the transfers, consolidates the adjusted requests, and monthly sends a final consolidated order for new coins to the U.S. Mint. According to Federal Reserve officials, forecasting coin demand is not an exact science and requires judgment. Therefore, the Reserve Bank offices use both a data-driven process and professional judgment to develop coin orders. Specifically, the offices use an econometric inventory management and forecasting (IMF) tool that the Federal Reserve developed in consultation with the U.S. Mint to forecast coin demand at the Reserve Bank office level and to recommend coin orders for each office. The IMF tool analyzes historical data on coin payments to and receipts from depository institutions and is maintained by the Economic Research Group at the Federal Reserve Bank of San Francisco. According to documentation for the IMF tool, the tool is able to predict the seasonal fluctuations in coin demand fairly accurately because these fluctuations tend to be fairly regular. For example, the demand for coin rises in November in response to the public’s demand for coins over the holidays and then decreases in January. While the timing of these fluctuations is fairly regular, their magnitude is more difficult to project, according to Federal Reserve officials. In addition, the IMF tool was developed about the same time that the commemorative circulating coin programs were beginning. Therefore, according to Reserve Bank officials, the tool projects coin demand for economic transactions, but the tool does not estimate demand for collecting commemorative circulating coins. Hence, judgment is involved in estimating both the magnitude of seasonal fluctuations in coin demand and the demand for collecting commemorative circulating coins. As shown in figure 3, currently, the 30 Reserve Bank offices receive data from the IMF tool each month as a starting point for preparing their coin orders. Most Reserve Bank officials told us that they start the monthly coin ordering process by examining the orders recommended by the IMF tool or their current inventory levels for each denomination. Reserve Bank officials emphasized that although the IMF tool’s analysis is a helpful starting point for the coin ordering process, assessments of local market factors are important because the tool’s analysis is based on historical payments and receipts data and may not consider unique factors affecting future coin demand. Coin demand is affected by factors specific to particular districts. For example, five districts noted that local casinos were moving to coinless slot machines, which would reduce coin demand in and coin orders for these districts. Conversely, several districts increase their coin orders to account for collectors’ demand when new coins are released for commemorative circulating coin programs, such as the 50 State Quarters Program. Reserve Bank officials noted that changes in the U.S. Postal Service’s and local transit authorities’ use of coins also affect coin demand. For example, in one district, the local transit authority retrofitted its ticket machines to dispense dollar coins, which resulted in greater demand for dollar coins in that district. Most of the districts cited coin recycling companies, such as Coinstar, as a factor affecting the number of coins returned by the depository institutions and the number of new coins to be ordered from the U.S. Mint. Coin recycling machines found in grocery stores, retail stores, and some depository institutions have made it easier now than it was in the past for the public to trade in coins for currency or some form of credit, such as a gift card. In some districts, coin recycling has returned large volumes of coins to circulation and to the Reserve Banks. Reserve Bank officials said that when more coins are returned than are ordered by the depository institutions, they reduce their orders of new coins from the U.S. Mint. According to data from one major coin recycling company, the value of coins returned to circulation through recycling grew from approximately $1 billion in 2000 to $2.6 billion in 2006. To obtain information on local market factors, officials at the Reserve Bank offices talk with coin terminal operators and sometimes with officials at depository institutions in their districts. The coin terminal operators provide the Reserve Bank offices with daily inventory data on the Reserve Bank coins held by the terminals. The coin terminal operators hold inventory for both the depository institutions and the Reserve Banks and may provide the Reserve Banks with insight into changes in the depository institutions’ coin demand. Some Reserve Bank officials also obtain information on coin demand through conversations with depository institution officials, usually in the course of discussing currency issues. During these conversations, the depository institutions can provide advance notice of any circumstances that may change coin demand, such as upcoming festivals or state fairs, which typically would increase their demand for coins. The conversations with coin terminal operators and depository institutions are important because officials at the Reserve Bank offices can obtain information on potential coin requests or deposits back with the Reserve Banks, which could affect the Reserve Banks’ inventory levels or orders for new coins. According to the Reserve Bank officials with whom we spoke, before the offices finalize and send their orders to CPO, they look for opportunities to transfer coins within their district to meet projected demand. For example, one Reserve Bank office may want additional coins, while another office may have more coins than it wants to hold to meet short-term demand. The Reserve Bank office works with the coin terminal operators to move the coins as needed. According to Reserve Bank and coin terminal officials, as part of their normal business, the coin terminal operators transport coins to and from the Reserve Banks and are able to absorb the costs of the transfers by combining them with previously scheduled pickups and deliveries for their depository institution customers. In 2001, CPO began coordinating coin distribution from a national perspective on behalf of the Reserve Banks to enhance coordination with the U.S. Mint and look for opportunities to redistribute coin inventories. Historically, the Reserve Banks individually developed and submitted their own coin orders to the U.S. Mint without any insight into coin inventories in other districts or consideration of whether coins could be transferred from other districts to meet demand, rather than ordering new coins. In 1999, shortages of pennies occurred in some regions of the country because some depository institutions were hoarding pennies and the U.S. Mint could not fulfill the Reserve Banks’ increased orders for pennies. During this time, the Reserve Banks moved coins from one district to another to satisfy demand but did not have a centralized coordination process in place to facilitate these transfers, according to Federal Reserve officials. Following this experience, the Reserve Bank of San Francisco assumed responsibility for coordinating coin operations at Reserve Banks through its CPO. CPO is now the Reserve Banks’ primary liaison with the U.S. Mint and is responsible for finalizing and submitting a monthly consolidated coin order for the Reserve Banks. According to Federal Reserve officials, CPO has focused on achieving system efficiencies by implementing more centralized coin management strategies, including enhancing coordination with the U.S. Mint; improving distribution channels by increasing the number of Reserve Bank coin terminals; and redistributing national inventories of coins, as appropriate, to meet demand, thereby reducing the need for new coins from the Mint. With the exception of new releases of commemorative circulating coins, CPO determines whether the Reserve Banks’ requests for coins can be filled with circulated coins in Reserve Banks’ inventories or whether new coins need to be ordered from the U.S. Mint. CPO compares the Reserve Bank offices’ requests for coins with the IMF tool’s recommended orders and the offices’ current inventory levels. According to CPO officials, if an office’s request differs significantly from the order recommended by the IMF tool, CPO contacts the Reserve Bank office to discuss the reasons for the difference. CPO also compares current inventory levels with historic inventory data to determine whether the Reserve Banks have enough coins to meet seasonal changes in demand. While the Reserve Bank offices make the final decision on how many coins they request, a recent agreement will allow CPO, with input from the Reserve Bank offices, to make the final decision. We discuss this agreement in more detail later in the report. CPO looks for opportunities to reduce the new coin order to the U.S. Mint by transferring coins from one district to another. CPO officials noted that using circulated inventory rather than purchasing new coins reduces the number of new coins that the U.S. Mint produces and the Mint’s costs of production. Yet according to a U.S. Mint official, continuing demand for new coins means that using circulating inventory does not avoid the production of coins, but merely delays it. To determine whether coins can be transferred, CPO considers such things as constraints on storage space, the distance between the office or terminal that requests additional coins and the one that has available inventory, and insurance limits at the coin terminals. CPO then works with the U.S. Mint to transfer circulated coins between Federal Reserve offices that are more than 100 miles apart. The U.S. Mint paid about $1.3 million for 638 coin transfers in fiscal year 2006 and about $915,000 for 404 coin transfers in fiscal year 2007. According to U.S. Mint officials, the Mint contracts and pays for these coin transfers because balancing inventories among the Reserve Banks helps to lower the volatility of production for the Mint and the Mint has ongoing contracts for shipping large quantities of coins. However, according to a U.S. Mint official, the U.S. Mint is looking to phase out the practice of paying for transfers. The official recognizes that coin inventories may occasionally expand in some areas or regions, but believes that such conditions are temporary. Therefore, transferring coins from existing inventories may only temporarily delay the production of additional coins to meet the demands of commerce. See appendix V for data on the number of transfers and the corresponding budget for fiscal years 2002 through 2007. Our analysis of Reserve Banks’ order data shows that CPO reduced orders by about 10 percent in fiscal years 2006 and 2007 by fulfilling Reserve Bank offices’ coin requests with circulated inventory. Specifically, the Reserve Banks submitted requests to CPO for approximately 18 billion coins in fiscal year 2006 and for approximately 16 billion coins in fiscal year 2007, and CPO was able to reduce these requests through transfers by over 2.2 billion coins in fiscal year 2006 and by over 1.5 billion coins in fiscal year 2007. Once CPO makes adjustments and consolidates the Reserve Bank offices’ orders, CPO submits a final new coin order to the U.S. Mint 1 month before the coins are scheduled to be delivered. The order includes a shipping schedule outlining when and where the coins should be shipped as well as a 5-month coin order forecast. Upon receiving the order from CPO, the U.S. Mint ensures that it will have the coins to fulfill the order and then distributes coins to the Reserve Banks and coin terminals from its production facilities in Philadelphia and Denver. Both U.S. Mint and Federal Reserve officials said that they continually communicate throughout the month on the coin order, and that the Reserve Banks have the flexibility to adjust the coin order and delivery destination. CPO has several working groups of coin stakeholders, including depository institutions, vending machine operators, and armored carriers, to help address any potential or current coin distribution issues. For example, CPO interacts with depository institutions through its Customer Advisory Council, which currently consists of the 16 largest depository institutions in the country in terms of cash volume. Coins are typically not the primary focus of the council’s meetings, but the meetings give the depository institutions an opportunity to discuss any concerns about coins, such as the distribution of newly released commemorative circulating coins. As mandated by law, the Secretary of the Treasury and the Federal Reserve’s Board of Governors are taking steps to ensure that an adequate supply of dollar coins is available for commerce and collectors. The U.S. Mint and the Federal Reserve are consulting with coin users and holding forums to identify stakeholders’ ideas for the efficient distribution and circulation of dollar coins as well as other circulating coins. The Reserve Banks’ process for ordering and distributing coins has fulfilled depository institutions’ demand for the coins, but does not define optimal ranges for the Reserve Banks to hold in inventory to meet demand. Our analysis of Reserve Bank data showed that the Reserve Banks maintained enough inventory to meet demand, even when demand was greater than anticipated. Coin stakeholders confirmed that the Reserve Banks’ process has fulfilled depository institutions’ demand for coins in recent years. However, the Reserve Banks have taken a decentralized approach to inventory management that allows the Reserve Bank offices to use their own judgment to set inventory levels that they think are appropriate to meet future demand and avoid the risk of shortages. Reserve Bank officials expressed no concern about holding too many coins and told us that excess inventory is an issue only when coin inventories approach storage capacity limits. However, with rare exceptions, the Reserve Banks have more storage capacity than they need to maintain their current inventories, and, therefore, storage capacity does not serve as an incentive for the banks to evaluate and manage to optimal coin inventory ranges. To increase the efficiency of the distribution process, CPO has received approval from the Reserve Banks to centralize the development and placement of coin orders, and CPO will be responsible for ensuring that the offices maintain appropriate inventory levels. The Reserve Banks’ process has ensured that enough coins are available through orders of new coins and the Reserve Banks’ inventories of circulated coins to meet the depository institutions’ demand for coins. In each year since 1993, the number of coins demanded by the depository institutions has generally exceeded the number of coins deposited back to the Reserve Banks for all denominations, except the half-dollar. For example, as figure 4 shows, in fiscal year 2007, the Reserve Banks paid out 76 billion coins to the depository institutions (payments) and received 62 billion coins back from the depository institutions (receipts). This difference between payments and receipts is called “net pay.” For example, net pay for fiscal year 2007 was about 14 billion coins. See appendix III for payments and receipts data, by denomination, for fiscal years 1993 through 2007. Since the number of coins received by the Reserve Banks is less than the number of coins sent to the depository institutions to meet their demand, the Reserve Banks have to order new coins or use circulated inventory to meet demand. When depository institutions demand more coins than they return over a month or a year, net pay is positive for that period and additional coins have to be ordered or coin inventory has to be used to meet the demand. When depository institutions return more coins to the Reserve Banks than they order over a month or a year, net pay is negative for that period and the Reserve Banks’ inventory of coins can grow. Net pay fluctuates throughout the year, depending on the public’s spending patterns. Specifically, Reserve Bank data show that net pay was generally positive for all denominations, except the half-dollar, throughout the year, except in January when the demand for coins declines. Net pay for the half-dollar has been negative since fiscal year 2004 because the Reserve Banks received more half-dollars back than they paid out. Understanding and predicting net pay is critical to the Reserve Banks’ ability to meet coin demand. According to Federal Reserve officials, net pay is positive for many reasons. For example, the public stores coins that it receives in jars and dresser drawers and sometimes discards coins. Collectors’ demand for coins can also increase the Reserve Banks’ payments for commemorative circulating coins, while limiting the Reserve Banks’ receipts because the coins are kept out of circulation. When coins leave “active” circulation— that is, the coins are stored and not deposited or used for commerce—they are not available to meet depository institutions’ demand. During fiscal years 1993 through 2007, the Reserve Banks’ aggregate orders for new coins tracked together with net pay fairly closely. For example, in fiscal year 2002, total orders for new coins—14.72 billion coins—were a little lower than the total net pay for all coins—15.11 billion coins—and resulted in a decrease in inventory for some denominations. In fiscal year 2007, total orders for new coins—14.63 billion coins—were a little higher than the total net pay for all coins—14.02 billion coins, suggesting the Reserve Banks ordered enough coins to fulfill net pay for the year and increased total inventory. Federal Reserve officials suggest that this aggregate annual increase of nearly 600 million coins can, in part, be explained by the introduction of the Presidential $1 Coin Program. After the first year of the program, the Reserve Banks report inventories of at least 300 million Presidential dollar coins. Orders for the penny constituted over half of the total orders for new coins. In fiscal year 2007, orders for the penny were 7.76 billion coins, while net pay was 7.79 billion coins. According to Reserve Bank officials, the difference between orders for new pennies and net pay resulted in an aggregate decline of about 30 million pennies in Reserve Banks’ inventories. The Reserve Banks strive to maintain sufficient inventories of coins to fulfill demand, despite seasonal and unanticipated changes and potential interruptions in the supply of new coins. First, inventory is important in handling the seasonal fluctuations in demand for coins. According to documentation on the IMF tool and Reserve Bank officials, this fluctuating demand can be met by either (1) adjusting the number of coins ordered to keep pace with known seasonal changes in demand or (2) keeping orders constant and allowing inventory to fluctuate in response to these changes in demand. The Reserve Banks place orders to keep the U.S. Mint’s production schedule fairly consistent and allow inventories to fluctuate with the seasonality of coin demand. For example, Reserve Bank officials said they ensure that they have enough coins on hand to meet the high coin demand leading into the summer and holiday months. According to Federal Reserve officials, a Reserve Bank office may not transfer coins out of its area if the office knows that those coins will be needed in the next week or month. Federal Reserve officials also noted that although the Reserve Banks can predict the timing of seasonal changes in demand for coins, it is more difficult for them to predict the magnitude of the changes from one year to the next. Predicting demand is important because the U.S. Mint may not be able to produce enough coins within a short time frame to keep up with heavy demand. Second, since there is some uncertainty in the actual demand for coins in any given month, the Reserve Banks’ coin inventory provides a buffer against any changes in demand that may occur between the times the coins are ordered and received. Third, the Reserve Banks want to hold enough inventory to handle disruptions in supply from the U.S. Mint. For example, when the U.S. Mint’s production facilities in Philadelphia shut down, starting in March 2002, for 7 weeks to correct safety concerns, the Mint worked with the Reserve Banks to ensure that coins were available to fulfill demand. Figure 5 shows that when compared with expected demand, expressed as days of payable inventory, the Reserve Banks’ overall inventory for the penny, nickel, dime, and quarter has generally decreased since fiscal year 2001. For example, the penny inventory declined from an average of 32 days of payable inventory, or 3.0 billion coins, in fiscal year 2001 to an average of 16 days of payable inventory, or 2.2 billion coins, in fiscal year 2007. The nickel inventory declined from 37 days of payable inventory in fiscal year 2001 to 25 days of payable inventory in fiscal year 2007. Inventory levels throughout the year vary around these averages because of fluctuations in the public’s spending patterns. Figure 6 shows that the days of payable inventory for the half-dollar and dollar coins greatly exceed the levels for the other denominations and have generally increased in recent years. According to Federal Reserve officials, there is little demand for these denominations. Federal Reserve officials said that dollar coin inventories have also grown as a result of the Presidential $1 Coin Program, which requires the Federal Reserve to ensure that, during an introductory period, an adequate supply of each newly minted design (there are four new coins each year) is made available for commerce and collectors. Several factors affected trends in the Reserve Banks’ inventory levels during fiscal years 1993 through 2007. For example, inventory levels for all denominations dropped from fiscal years 1997 to 1999. Reserve Bank officials said that the demand for all coin denominations grew in 1999 in anticipation of the new millennium (Y2K). In fiscal year 2001, inventory levels for all denominations increased. According to the U.S. Mint’s 2001 annual report, the economy, which is directly related to the demand for coins, took a downturn in the middle of fiscal year 2000, resulting in a decrease in coin demand and a buildup of coin inventories. According to Reserve Bank officials, the inventory trends for the quarter and dollar coin reflect the challenges posed by the commemorative circulating programs associated with these coins. The officials noted that commemorative circulating coin programs, such as the Presidential $1 Coin Program, create uncertainty about the demand for those denominations. These programs involve the distribution of multiple coin designs and require the Reserve Banks to order enough commemorative circulating coins to meet the normal demand for coins for commercial transactions as well as the potential demand from collectors when the coins are first introduced. According to Reserve Bank officials, the Reserve Banks did not initially have experience in working with commemorative circulating coins and placed large orders for state quarters to ensure that they would have enough on hand to meet both normal transactional demand and potential collector demand. As a result, more quarters flowed back to the Reserve Banks than Reserve Bank officials expected for the first several releases. Reserve Bank officials noted that their forecasts of demand for state quarters have improved, and that their inventory of quarters has declined. The officials also noted that even with more experience, however, programs, such as the Presidential $1 Coin Program, require the Reserve Banks to order more coins than they would otherwise use for transactional purposes, thereby increasing Reserve Banks’ coin inventory levels beyond the levels they would ordinarily hold. The coin terminal operators, banking associations, and Reserve Bank officials with whom we spoke confirmed that the Reserve Banks’ process has fulfilled the depository institutions’ demand for coins in recent years. Reserve Bank and CPO officials told us that they have been able to fill all depository institutions’ requests for coin. The four coin terminal operators that we spoke with also noted that the Reserve Banks have been able to meet the demand of the depository institutions in their terminals. Finally, representatives from two banking associations said that constituent banks across the country have voiced no concern about the Reserve Banks’ ability to distribute coins to the depository institutions. The Reserve Banks have taken a decentralized approach to managing coin inventory, under which the Reserve Bank offices have decided what inventory levels are appropriate to keep on hand to meet forecasted demand and avoid the risk of coin shortages. Each Reserve Bank office has defined its own inventory levels on the basis of professional judgment and historical data, to meet demand and avoid running out of coins, and has used the capacity of its storage facilities as the key determinant of its maximum inventory levels. According to Reserve Bank officials, insurance limits at the coin terminals also help to define maximum inventory levels, but they can be adjusted, if necessary. Reserve Banks we spoke with had no specific levels for maximum inventory other than storage capacity and coin terminal insurance limits. Because each Reserve Bank sets its own inventory levels, the districts manage to different inventory levels and hold varying levels of inventory relative to demand. For example, according to Reserve Bank officials, 3 of the 12 Reserve Banks generally try to hold at least 10 days of payable inventory for all denominations, while 6 of the 12 districts generally try to hold at least 20 or more days of payable inventory. Table 1 shows that for fiscal year 2007, the districts held varying levels of inventory relative to demand for the different denominations. For example, the penny inventories ranged from an average of 8 days in the Boston district to 26 days in the San Francisco district, while the quarter inventories ranged from 17 days in the St. Louis district to 40 days in the Philadelphia district. Table 2 shows how the inventories for the penny, nickel, dime, and quarter have varied across Reserve Banks from fiscal years 1996 through 2007. According to Federal Reserve officials and documentation of the Reserve Banks’ IMF tool, the districts hold varying levels of inventory relative to demand because of the differences in the variability in coin demand and because some offices have more storage capacity. To be able to respond to the variability in demand, some Reserve Bank offices need to hold more coins than other offices relative to demand to ensure that they have enough coins to meet demand at all times. See appendix IV for the inventory levels relative to demand, by district and denomination, for fiscal years 2005 through 2007. Most Reserve Bank officials said that they were generally comfortable with their current inventory levels and expressed no concerns about having too many coins. Several Reserve Bank officials told us that they ordered conservatively—that is, they erred, if at all, on the side of ordering too many coins—because they were more concerned about not having enough coins to meet depository institutions’ demand during high demand periods than about having too many coins at other times. CPO officials said it would be easier to deplete coin inventories than to build them up. Furthermore, most Reserve Bank officials were not concerned about having too many coins because they said they have ample on-site and off- site storage capacity and insurance levels at the coin terminals to store their coin inventory. For example, two districts have new, on-site coin vaults that were built within the last 10 years and were designed to accommodate the entire coin inventory for the district, even without coin terminals. Reserve Bank officials said that if the coin inventory level at a particular location approaches the storage limits, they work to move coins to another Reserve Bank or terminal. CPO and Reserve Bank officials noted that the risk of not meeting depository institutions’ demand for coins far exceeds the risk of having too many coins in inventory, as long as storage capacity exists. For example, Federal Reserve officials told us that in 1999, they had problems fulfilling the depository institutions’ demand for pennies. During this time, the U.S. Mint could not produce enough pennies to fill Reserve Banks’ orders. In addition, the Reserve Banks were not yet coordinating coin distribution nationally and, therefore, could not easily identify sources of inventory available for redistribution. According to Federal Reserve officials and coin terminal operators, some depository institutions became concerned that coins would not be available to meet their demand and began hoarding coins, which further exacerbated the problem. Federal Reserve officials noted that since 2001, CPO has coordinated Reserve Bank coin distribution from a national perspective to help ensure confidence in the availability of coins, and, since that time, the Reserve Banks have experienced no shortages. Although we only heard about storage capacity concerns from Reserve Bank officials in one district, some coin terminal operators expressed concerns about coin inventory levels in their terminals. Officials from one Reserve Bank told us that, on rare occasions, they have had to negotiate with depository institutions on when the Reserve Bank could accept coin deposits because storage space was not immediately available. Reserve Bank officials also said that every effort is made to redistribute coins before insurance levels are reached at the coin terminals, and that the Reserve Bank offices work with the coin terminal operators to stay under the insurance limits. However, two of the four coin terminal operators with whom we spoke said that the Reserve Banks maintain higher inventory levels than the operators consider sufficient to respond to changes in demand. CPO and Reserve Bank officials said that they were sensitive to the numbers of coins being held at the coin terminals, but the officials noted that the Reserve Banks work to stay within the limits established in their agreements with the operators. One coin terminal operator noted that it did not have concerns about the Reserve Banks’ coin inventory levels or the distribution process. However, this operator noted that high volumes of coin recycling activity posed a challenge in some of its terminals. This operator also said that CPO was helping to move some of the coins out of the terminals, but that the high volumes would continue to be a problem until coin stakeholders—coin terminal operators, depository institutions, and CPO—find a solution to equitably redistribute the recycled coins. Although we recognize the importance of minimizing the risk of not having sufficient coins to meet demand at all times, the Reserve Banks’ current approach to inventory management does not define an optimal range of inventory for the offices to meet demand. Inventory levels that greatly exceed likely future demand could result in the overproduction of new coins and in potential storage concerns for the coin terminal operators. Data show that the Reserve Banks’ overall inventory levels relative to demand for all denominations, except the half-dollar and the dollar coins, have generally decreased since 2001. However, the Reserve Banks and coin terminals have sufficient capacity for the Reserve Banks to hold higher levels of inventory for some denominations than are likely to be used to meet demand. Moreover, the storage capacity at the coin terminals is provided to the Reserve Banks at no charge. As a result, the Reserve Banks lack an incentive to evaluate and manage to optimal coin inventory ranges. In addition, the current approach to inventory management could lead to the overproduction of new coins in the short term or to the retention in some districts of coin inventory that could be redistributed to meet demand in another district. Thus, a Reserve Bank may incur few or no charges for storing high inventory levels, but the U.S. Mint may incur costs for producing new coins when circulated coins may be available to fulfill demand. Producing new pennies and nickels when circulated coins could be used instead is particularly inefficient, since these denominations cost more to produce than they are worth. According to Federal Reserve officials, to mitigate this risk, CPO has been working with the Reserve Banks to manage inventories from a national perspective by transferring, where appropriate, inventories from one Reserve Bank to another one. According to a U.S. Mint official, a continuing demand for new coins means that producing coins when there is production capacity is not a concern because these coins will eventually be needed. In fact, he indicated that delaying production when there is production capacity may actually increase costs in the long run because production costs, like other costs, tend to increase over time. CPO has recognized the importance of further centralizing and increasing the efficiency of the Reserve Banks’ approach to coin inventory management and has identified opportunities for doing so. In 2006, the Reserve Banks and the U.S. Mint co-chartered a 6-month pilot of a new inventory management approach in one district. During the pilot, CPO (1) managed the inventory using vendor software that forecasts coin demand at the Reserve Bank office or terminal level to provide consistent upper and lower bounds for inventory levels at each terminal site in the district and (2) used this information to maintain inventory levels to meet demand in the district. The Reserve Bank office was then responsible for moving coins among the coin terminals to meet demand. The Reserve Banks and the U.S. Mint assessed the results of the pilot and found that the new approach reduced the risk of shortages, transportation expenses, and inefficiencies associated with the U.S. Mint’ s production volatility as well as increased stakeholders’ confidence in the coin distribution system. According to CPO officials, the pilot also demonstrated that the district’s inventory levels could be reduced. As a result of the pilot, CPO received approval from the Reserve Banks in October 2007 to implement a more centralized approach to managing coin orders and inventories. According to CPO officials, they are expecting to phase in this new approach, beginning with three districts in the second quarter of 2008. When the new approach is implemented, CPO will have the final authority to determine orders on behalf of the Reserve Bank offices and will be responsible for managing inventory levels that are maintained at the office level. According to CPO officials, CPO will continue to provide the Reserve Bank offices with a recommended monthly order. The Reserve Bank offices will be able to review this order and suggest revisions, but ultimately CPO will decide on the final order for each office. Although Reserve Bank officials told us that under the current approach, their adjustments to the IMF tool’s recommended coin orders were minimal, over the past 3 years the combined impact of these adjustments was sometimes substantial. For example, the IMF tool recommended a total order of $52 million in pennies for all of the Reserve Bank offices in fiscal year 2007. Following the offices’ assessment of local market factors and the availability of transfers of circulated coins to fulfill the offices’ requests, CPO submitted a total order of $77.6 million for new pennies to the U.S. Mint. CPO’s ability to now decide on the number of coins each district will receive monthly could potentially result in decreased orders for new coins from the U.S. Mint. CPO is considering establishing inventory ranges for the Reserve Bank offices on the basis of factors such as historical trends in coin payments and receipts, the amount of time taken to transport coins to a Reserve Bank office, and storage capacity limits to better define the level of inventory to be held to meet demand. We believe that the establishment of inventory ranges could help CPO and the Reserve Banks evaluate and report on the effectiveness of CPO’s inventory management approach. CPO officials believe that these changes will improve the Reserve Banks’ inventory management because CPO can provide a national perspective on where inventory can be used to meet demand, including where coins can be moved when necessary to meet demand in one district, while freeing space for coin deposits in storage facilities that are approaching capacity in another district. U.S. Mint officials said that the new approach could allow the U.S. Mint to further smooth its production schedule, thereby lowering costs associated with unpredictable changes in production. We provided a draft of this report to the Board of Governors of the Federal Reserve System and to the Department of the Treasury for their review and comment. The Director of the Division of Reserve Bank Operations and Payment Systems provided written comments, which are reproduced in appendix VI. Overall, the Federal Reserve agrees with the findings in our report and believes that the data in the report reflect the Reserve Banks’ efficient and effective management of coin inventories. The Federal Reserve also provided technical comments, which we have addressed in this report as appropriate. The Acting Deputy Director of the U.S. Mint provided oral comments stating that the agency agrees with the information in this report as it pertains to the U.S. Mint and provided technical comments, which we have also incorporated as appropriate. We are sending copies of this report to interested congressional committees, the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, and the Director of the U.S. Mint. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII. The objectives of this report were to examine (1) the Reserve Banks’ process for ordering and distributing coins and (2) the extent to which this process meets the depository institutions’ demand for coins. To describe the Reserve Banks’ process for supplying coins throughout the country, we obtained and reviewed relevant articles, reports, economic studies, and technical documentation on how the Reserve Banks and the U.S. Mint determine the number of coins to be produced and distributed. We also interviewed Federal Reserve and U.S. Mint economists who were involved in the development of economic models used to predict coin demand. During these interviews, we reviewed how the national coin forecast models are used by both the Reserve Banks and the U.S. Mint and discussed the accuracy of these models in predicting net pay at the national level. We interviewed officials from the Federal Reserve’s Board of Governors (Board), each of the 12 Reserve Bank districts, and the national Cash Product Office (CPO) to determine how coin orders are developed and submitted to the U.S. Mint. In addition, we reviewed statutes related to the Federal Reserve and U.S. Mint. We also interviewed key stakeholders, including officials from the U.S. Mint, operators of coin terminals with agreements to store Reserve Bank coin inventory, and representatives of banking associations, to determine how the Reserve Banks work in collaboration with others to identify and fulfill the depository institutions’ requests for coins. We obtained and analyzed information on the costs paid by the U.S. Mint to transport existing coins and analyzed the number of transfers between Reserve Bank districts since fiscal year 2002. To determine how CPO was able to reduce orders for new coins through transfers of existing coin inventory, we reviewed Reserve Bank data documenting actual coin demand and compared these data with the Reserve Banks’ actual order to the U.S. Mint for new coins and the number of circulated coin transfers processed by CPO. To determine the extent to which the Reserve Banks’ coin distribution process meets the depository institutions’ demand for coins throughout the country, we obtained data on the Reserve Banks coin payments to depository institutions, receipts for coins deposited by the depository institutions, orders for new coins, and inventory levels for fiscal years 1993 through 2007 for each coin denomination and for each Reserve Bank. We analyzed these data using Excel and SAS statistical analysis software. To calculate Reserve Banks’ number of coins paid to the depository institutions and Reserve Banks’ number of coins received from the depository institutions at the national and district level for all coin denominations, we converted the data from value of coins to volume of coins and then calculated fiscal year totals for each denomination at the national and district level. We created line charts to compare the total number of coins that Reserve Bank paid to depository institutions with the total number of coins that the Reserve Bank received from the depository institutions. To calculate net pay and the Reserve Banks’ coin order to the U.S. Mint, we converted the data from value of coins to volume of coins and calculated fiscal year totals at the national and district level. We created line charts to compare the net pay data with the Reserve Banks’ coin order data. To calculate the Reserve Banks’ days of payable inventory, we consulted with officials at the Board and CPO to determine an appropriate methodology. CPO and Reserve Banks calculate payable inventory information several different ways, depending upon what they are assessing. For the purposes of our review, we determined that a comparison of inventory relative to a 3-month daily average of payments for 3 years was the most appropriate calculation to determine the Reserve Banks’ inventory position, because it compares inventory relative to what the Reserve Banks could reasonably have expected coin payments to be in the future. This methodology captures coin inventory levels relative to what Reserve Banks expected to need to meet future payments to depository institutions. For the numerator, we used end-of-month inventory levels for a given month. For the denominator, for the 3 previous years, we used the quarter following the inventory month used in the numerator to assess inventory levels relative to demand in the following quarter. For example, when we calculated days of payable inventory for December 2006, we used data for January, February, and March, 2004; January, February, and March, 2005; and January, February, and March, 2006, in the denominator. To calculate the average daily payment rate, we took the monthly payments data from each month of the quarter from the previous 3 years and divided by 21 business days to obtain an average daily payment rate for each month. We then totaled the daily payment rates for the 9 months and divided by 9 to obtain an average payment rate of the 3 quarters for the 3 years. To calculate the annual average days of payable inventory, by denomination, for each Reserve Bank, we averaged the monthly figures on days of payable inventory that we computed as we have previously described. Because of the methodology we used to calculate days of payable inventory, 1996 is the earliest year for which we can present the data. We used statistical analysis software to complete this analysis for each coin denomination at the national and Reserve Bank level. We also interviewed officials at the Board and Reserve Banks to discuss factors affecting trends in the data, the level of inventory that each district tries to hold, and the Reserve Banks’ approach to coin inventory management. To describe the Reserve Banks’ new centralized approach to coin inventory management and how it might address concerns about inventory management, we interviewed officials at CPO and the Board about a 2006 pilot to test a new inventory management approach at the Reserve Bank of Cleveland. To assess the reliability of the coin data we received from the Reserve Banks and U.S. Mint, we talked with agency officials about data quality control procedures and reviewed relevant documentation. For example, we reviewed audit reports for fiscal years 2006 and 2007 prepared by the Department of the Treasury’s Office of Inspector General, which reported that the U.S. Mint’s data were accurately presented and in conformity with generally accepted accounting principles. The U.S. Mint has received approximately 15 consecutive unqualified opinions. These internal control audits found no material weaknesses and found that the U.S. Mint is in compliance with the Federal Manager’s Financial Integrity Act. For the Federal Reserve data, we reviewed an independent auditor’s reports on the Federal Reserve’s financial statements for fiscal years 1995 through 2006, and found that the Federal Reserve’s data were accurately presented and in conformity with generally accepted accounting principles. We also performed advanced electronic testing to assess the reliability of the computer-processed data, and determined that these data were accurate, complete, and consistent and, therefore, sufficiently reliable for the purposes of this report. We conducted this performance audit from April 2007 through March 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Figures 7 through 13 show trends in the U.S. Mint’s coin production data for fiscal years 2002 through 2007. These data represent all of the “circulating” coins produced by the U.S. Mint; they do not include the “proof” or “uncirculated” quality coins produced by the Mint. The Reserve Banks make coin payments to depository institutions and accept coin deposits from depository institutions on a daily basis. Figures 14 through 19 show total payments and receipts for each coin denomination for all 12 Reserve Banks for fiscal years 1993 through 2007. The Reserve Banks strive to maintain sufficient inventories of coins to fulfill demand, despite seasonal and unanticipated changes in demand for coins and potential interruptions in the supply of new coins. Tables 3 through 14 show the days of payable inventory maintained at each of the 12 Reserve Banks from fiscal years 2005 through 2007. Payable inventory represents the amount of inventory needed to meet expected demand for coins and is calculated by comparing inventories with average payment data over a 3-month period for the preceding 3 years. CPO looks for opportunities to reduce orders for new coins to the U.S. Mint by transferring circulating coins from one Reserve Bank district to another. The U.S. Mint pays for the cost for transfers over 100 miles. Table 15 shows the number and cost of transfers paid by the U.S. Mint from fiscal years 2002 through 2007. In addition to the contact named above, Jonathan Carver, Jay Cherlow, Maria Edelstein (Assistant Director), Elizabeth Eisenstadt, Brandon Haller, Heather Krause, Josh Ormond, Jena Sinkfield, Susan Michal-Smith, and Jerry Sandau made key contributions to this report. | Federal Reserve Banks fulfill the coin demand of the nation's depository institutions--which include commercial banks, savings and loan associations, and credit unions--by ordering new coins from the U.S. Mint and managing coins held in inventory at the Reserve Banks and in coin terminals. Reliably estimating the demand for coins and efficiently managing the inventory of circulated coins is important to ensure that depository institutions have enough coins to meet the public's demand and to avoid unnecessary coin production costs. Since late 2006, rising metal prices have driven the costs of producing pennies and nickels above the face values of the coins. This report addresses (1) the Reserve Banks' process for ordering and distributing coins to the nation's depository institutions and (2) the extent to which this process meets depository institutions' demand for coins. GAO interviewed officials responsible for coin distribution at each of the 12 Reserve Banks and met with representatives of 4 large operators of Federal Reserve coin terminals, 2 banking associations, the U.S. Mint, and the nation's largest coin recycling company. GAO also analyzed Reserve Bank data for fiscal years 1993 through 2007. Federal Reserve and U.S. Mint officials generally agreed with GAO's findings in the report and provided technical comments, which were incorporated as appropriate. The Reserve Banks' process for ordering and distributing coins uses new coins ordered from the U.S. Mint, circulated coins in inventory, and transfers of circulated coins to meet depository institutions' demand for coins. New coin orders begin each month with a recommendation generated by a forecasting tool. Each Reserve Bank office then refines this recommendation in light of its current inventory holdings and its knowledge of local factors that may affect demand, such as changes in a transit authority's use of coins. Each office next submits a request for coins to the Reserve Banks' national Cash Product Office (CPO). CPO seeks to fill the request with transfers of circulated coins from other offices before it consolidates the requests and submits a monthly order for new coins to the U.S. Mint. In fiscal years 2006 and 2007, CPO used transfers to reduce its new coin orders by approximately 10 percent. The Reserve Banks' process for ordering and distributing coins has met depository institutions' demand since fiscal year 2000, but the process does not define optimal coin inventory ranges. Currently, each Reserve Bank office sets and manages its own inventory levels, resulting in varying levels of inventory held relative to demand. Overall, inventory levels for most denominations have generally been decreasing since fiscal year 2001, yet inventory levels are more likely to be high than low relative to demand, because, for the Reserve Banks, the risk of not meeting depository institutions' demand for coins far exceeds the risk of holding too many coins in inventory. However, holding coins in inventory that could be used to fulfill demand elsewhere can be inefficient, resulting in new coin production costs that could have been avoided if coins held in inventory had been used instead. To increase the efficiency of the Reserve Banks' process, CPO plans this year to begin implementing a new approach to inventory management that it piloted in 2006 and found effective. Under this approach, CPO will determine the number of circulated and new coins each district will receive monthly and will be responsible for ensuring that the Reserve Bank offices maintain appropriate inventory levels. |
Immigration enforcement includes, among other things, patrolling 8,000 miles of international boundaries to prevent illegal entry into the United States; inspecting over 500 million travelers each year to determine their admissibility; apprehending, detaining, and removing criminal and illegal aliens; disrupting and dismantling organized smuggling of humans and contraband as well as human trafficking; investigating and prosecuting those who engage in benefit and document fraud; blocking and removing employers’ access to undocumented workers; and enforcing compliance with programs to monitor visitors. Immigration functions also include providing services or benefits to facilitate entry, residence, employment, and naturalization of legal immigrants; processing millions of applications each year; making the right adjudicative decision in approving or denying the applications; and rendering decisions in a timely manner. When INS was abolished in 2003 by the Homeland Security Act of 2002, its enforcement functions were transferred to two bureaus within the DHS. First, INS’s interior enforcement programs—investigations, intelligence, and detention and removal—were placed in ICE. Within ICE, investigators and intelligence analysts from former INS and the U.S. Customs Service were merged into the investigations and intelligence offices, while staff from former INS’s detention and removal program were placed in the detention and removal office. Second, inspectors from former INS, Customs, and Agriculture and Plant Health Inspection Service, as well as former INS’s Border Patrol agents were incorporated into CBP. Both CBP and ICE report to the Undersecretary for Border and Transportation Security, who in turn reports to the Deputy Secretary of the DHS. For service functions, INS’s Immigration Services Division, responsible for processing applications for immigration benefits, was placed in Citizenship and Immigration Services (CIS), which reports directly to the Deputy Secretary of DHS. Figure 1 shows the transition of INS functions into DHS. Immigration and Naturalization Service (INS) (Secretary) Transition efforts for CBP posed fewer challenges than for ICE. Specifically, CBP brought together INS and Customs inspections programs that, prior to the transition, largely worked side by side in many land ports of entry around the country and that shared similar missions. In contrast, ICE is a patchwork of agencies and programs that includes INS’s investigations and intelligence programs, Customs’ investigations and intelligence programs, the Federal Protective Service, and the Federal Air Marshals. In combining the investigations programs, ICE has been tasked with merging former INS investigators who specialized in immigration enforcement (e.g., criminal aliens) with former Customs investigators who specialized in customs enforcement (e.g., drug smuggling). The integration of INS and Customs investigators into a single investigative program has involved the blending of two vastly different workforces, each with its own culture, policies, procedures, and mission priorities. Both programs were in agencies with dual missions that prior to the merger had differences in investigative priorities. For example, INS primarily looked for illegal aliens and Customs primarily looked for illegal drugs. In addition, INS investigators typically pursued administrative violations, while Customs investigators typically pursued criminal violations. Whether further structural changes are warranted is one of the topics that this hearing is to address. Some observers have proposed merging ICE and CBP. For example, the Heritage Foundation and the Center for Strategic and International Studies (CSIS), in a report on DHS management, suggested a possible merger of ICE and CBP to address some of these management problems. A Senior Research Fellow at The Heritage Foundation stated in a March 2005 congressional testimony, “DHS needs to be organized not to accommodate the present, but to build toward the ideal organization of the future. Therefore, the department needs to articulate how it envisions conducting its missions five to ten years from now and let this vision drive the organizational design, particularly the structure of border security operations.” Another witness stated, “Whether the decision is ultimately made to merge ICE and CBP or not, the real issues will remain unless the underlying mission, vision, and planning occur in a unified manner.” Over the years, we have issued numerous reports that identified management challenges INS experienced in its efforts to achieve both effective immigration law enforcement and service delivery. For example, in 1997 we reported that INS lacked clearly defined priorities and goals and that its organizational structure was fragmented both programmatically and geographically. Additionally, after reorganization in 1994, field managers still had difficulty determining whom to coordinate with, when to coordinate, and how to communicate with one another because they were unclear about headquarters offices’ responsibilities and authority. We also reported that INS had not adequately defined the roles of its two key enforcement programs—Border Patrol and investigations— which resulted in overlapping responsibilities, inconsistent program implementation, and ineffective use of resources. INS’s poor communication led to weaknesses in policies and procedures. In later reports, we showed that broader management challenges affected INS’s efforts to implement programs to control the border, deter alien smuggling, reduce immigration benefit fraud, reduce unauthorized alien employment, remove criminal aliens, and manage the immigration benefit application workload and reduce the backlog. In 1999 and 2001, we testified on these management challenges before this subcommittee. Our 2001 testimony was delivered at the time when Congress, the Administration, and others had offered various options for restructuring the INS to deal with its management challenges. We testified that while restructuring may help address certain management challenges, we saw an organization (INS) that faced significant challenges in assembling the basic building blocks that any organization needs: clearly delineated roles and responsibilities, policies and procedures that effectively balance competing priorities, effective internal and external communications and coordination, and automation systems that provide accurate and timely information. We noted that unless these elements were established, enforcing our immigration laws, providing services to eligible aliens, and effectively participating in the government-wide efforts to combat terrorism would be problematic regardless of how INS was organized. In 2004, we reported DHS experienced management challenges similar to those we had found at INS. For example, some officials noted that in some areas related to investigative techniques and other operations, unresolved issues regarding the roles and responsibilities of CBP and ICE give rise to disagreements and confusion, with the potential for serious consequences. As in 1999 and 2001, we reported in 2004 that selected operations had reportedly been hampered by the absence of communication and coordination between CBP and ICE. Further, we reported in 2004 that CBP and ICE lacked formal guidance for addressing some overlapping responsibilities. As this Subcommittee, DHS officials, and other stakeholders consider potential structural changes to ICE and CBP, we have identified three factors to consider for resolving management challenges including (1) a management framework for ICE and CBP, (2) systems and processes to support this framework, and (3) the context of the larger DHS transformation. These factors are important to help identify the most suitable and appropriate course of action to address management challenges. Based on our work on the creation and development of DHS, and additional work on transformation and mergers, we have identified a number of key success factors. Those factors that I would like to focus on today include clarity of mission, strategic planning, organizational alignment, performance measures, and leadership focus and accountability. Clarity of Mission: We have previously reported on the importance of establishing a coherent mission that defines an organization’s culture and serves as a vehicle for employees to unite and rally around. As such, a comprehensive agency mission statement is the first GPRA- required element of a successful strategic plan. In successful transformation efforts, developing, communicating, and constantly reinforcing the mission gives employees a sense of what the organization intends to accomplish, as well as helps employees figure out how their positions fit in with the new organization and what they need to do differently to help the new organization achieve success. However, as noted above, while CBP was created from programs that generally shared similar missions, ICE blended agencies with distinct mission priorities and cultures, and thus faces a greater challenge in creating a unified bureau. Strategic Planning: Closely related to establishing a clear mission is strategic planning—a continuous, dynamic, and inclusive process that provides the foundation for the fundamental results that an organization seeks to achieve. The starting point for this process is the strategic plan that describes an organization’s mission, outcome- oriented strategic goals, strategies to achieve these goals, and key factors beyond the agency’s control that could impact the goals’ achievement, among other things. As with the mission, strategic goals for a transforming organization must be clear to employees, customers, and stakeholders to ensure they see a direct personal connection to the transformation. Organizational Alignment: To ensure that form follows function, an organizational alignment that supports the mission and strategic goals is another component of the management framework. Leading organizations recognize that sound planning is not enough to ensure their success. An organization’s activities, core processes, and resources must be aligned to support its mission and help it achieve its goals. Such organizations start by assessing the extent to which their programs and activities are structured to accomplish their mission and desired outcomes. Performance Measures: Effective implementation of this framework requires agencies to clearly establish results-oriented performance goals in strategic and annual performance plans for which they will be held accountable, measure progress towards those goals, determine the strategies and resources to effectively accomplish the goals, use performance information to make the programmatic decisions necessary to improve performance, and formally communicate results in performance reports. Leadership Focus and Accountability: To be successful, transformation efforts must have leaders, managers, and employees who have the individual competencies to integrate and create synergy among the multiple organizations involved in the transformation effort. Leaders need to be held accountable for ensuring results, recognizing when management attention is required and taking corrective action. High-performing organizations create this clear linkage between individual performance and organizational success and thus transform their cultures to be more results-oriented, customer-focused, and collaborative in nature. As we have reported, a Chief Operating Officer (COO)/Chief Management Officer (CMO) may effectively provide the continuing, focused attention essential to successfully completing these multi-year transformations in agencies like DHS. At DHS, we have reported that the COO/CMO concept would provide the department with a single organizational focus for the key management functions involved in the business transformation of the department, as well as for other organizational transformation initiatives. The lack of program guidance has adversely impacted ICE’s ability to efficiently and effectively perform its mission. In May 2004, we reported that ICE had not provided its deportation officers with guidance on how to prioritize their caseload of aliens who required supervision after release from detention. Consequently, ICE was unable to determine whether and to what extent such aliens had met the conditions of their release. We recommended that ICE develop and disseminate guidance to enable deportation officers to prioritize ICE’s caseload of aliens on orders of supervision so that ICE could focus its limited resources on supervising aliens who may be a threat to the community or who are not likely to comply with the conditions of their release. Also, in October 2004, we reported that ICE headquarters and field offices had a lack of uniform policies and procedures for some ICE operations that had caused confusion and hindered the creation of a new integrated culture. ICE headquarters officials told us that they were prioritizing the establishment of uniform policies and that until a new ICE policy is established, field offices are required to use the policies of the former agencies. Shortfalls in communications about administrative support services were also a source of frustration in DHS. In October 2004, we reported that DHS was in the process of developing and implementing systems and processes called “shared services.” In December 2003, DHS instituted a shared service system in which certain mission support services—such as human resources—are provided by one bureau to the other bureaus. However, there were weaknesses in how the shared services program was communicated to employees. Officials in CBP, CIS, and ICE expressed confusion about shared services when we interviewed them 3 to 4 months after the system was instituted. Many field officials said they did not know what constituted shared services, what processes they should have been using for receiving assistance from a shared service provider, or how many of their staff administrative positions would be reassigned to positions in other offices as shared service providers. Further, CBP, CIS, and ICE officials also expressed frustration with problems they have encountered coordinating their administrative systems managed within the agency and not a part of shared services, including travel, budget, and payroll. Some ICE field officials also expressed concern about their ability to manage their budgets and payroll problems, because of the systems used for these functions. Information technology systems and information sharing in general are also an area of concern. For example, ICE did not have information that provides assurance that its custody reviews are timely and its custody determinations are consistent with the Supreme Court decision and implementing regulations regarding long term alien detention. One reason ICE had difficulty providing assurance is that it lacked complete, accurate, and readily available information to provide to deportation officers when post order custody reviews are due for eligible aliens. In addition, ICE did not have the capability to record information on how many post order custody reviews had been made pursuant to regulations and what decisions resulted from those reviews. Therefore, ICE managers could not gauge overall compliance with the regulations for aliens who have been ordered to be removed from the United States. Although ICE was in the process of updating its case management system, ICE officials said that they did not know when the system will have the capability to capture information about the timeliness and results of post order custody reviews. In 2005, we designated information sharing mechanisms for homeland security as a high-risk issue, based on root causes behind vulnerabilities, as well as actions needed on the part of the agency involved. In addition to considering developing a management framework and corresponding systems and processes, it is important to consider these changes in the larger context of the transformation of DHS. We designated DHS’s transformation as a high-risk area in 2003, based on three factors. First, DHS faced enormous challenges in implementing an effective transformation process, developing partnerships, and building management capacity because it had to transform 22 agencies into one department. Second, DHS faced a broad array of operational and management challenges that it inherited from its component legacy agencies. Finally, DHS’s failure to effectively address its management challenges and program risks could have serious consequences for our national security. Overall, DHS has made some progress, but significant management challenges remain to transform DHS into a more efficient organization while maintaining and improving its effectiveness in securing the homeland. The experience of successful transformations and change management initiatives in large public and private organizations suggests that it can take 5-7 years until such initiatives are fully implemented and cultures are transformed in a substantial manner. Further, some management challenges at ICE and CBP might be affected by department-wide management initiatives. The management challenges of the DHS transformation create additional challenges for its components, including ICE and CBP, such as: Providing focus for management efforts: Although DHS has been operating about 2 years, it has had two Secretaries, three Deputy Secretaries, and additional turnover at the Undersecretary and Assistant Secretary levels. The recent turnover in DHS’s top leadership raises questions about the department’s ability to provide the consistent and sustained senior leadership necessary to achieve integration over the long term. Monitoring transformation and integration: DHS’s integration of varied management processes, systems, and people—in areas such as information technology, financial management, procurement, and human capital------as well as administrative services is important to provide support for the total integration of the department. Total integration of the department, including its operations and programs, is critical to ultimately meeting its mission of protecting the homeland. Overall, we found that while DHS has made some progress in its management integration efforts, it has the opportunity to better leverage this progress by implementing a comprehensive and sustained approach to its overall integration efforts. Improving strategic planning: DHS released its first strategic plan in 2004 that details its mission and strategic goals. DHS’s strategic plan addresses five of the six GPRA-required elements—a mission statement, long-term goals, strategies to achieve the goals, external key factors, and program evaluations—but does not describe the relationship between annual and long-term goals. Managing human capital: DHS has been given significant authority to design a new human capital system free from many of the government’s existing civil service requirements, and has issued final regulations for this new system. Although we reported the department’s efforts generally reflected important elements of effective transformations and included many principles that are consistent with proven approaches to strategic human capital management, DHS has considerable work ahead to define the details of the implementation of the system. Strengthening financial management infrastructure: DHS faces significant financial management challenges. Specifically, it must address numerous internal control weaknesses, meet the mandates of the DHS Financial Accountability Act, and integrate and modernize its financial management systems, which individually have problems and collectively are not compatible with one another. In July 2004, we reported that DHS continues to work to reduce the number of financial management service providers and to acquire and deploy an integrated financial enterprise solution. Establishing an information technology framework: DHS has recognized the need for a strategic management framework that addresses key information technology disciplines, and has made a significant effort to make improvements in each of these disciplines. However, much remains to be accomplished before it will have fully established a department-wide information technology management framework. To fully develop and institutionalize the management framework, DHS will need to strengthen strategic planning, develop the enterprise architecture, improve management of systems development and acquisition, and strengthen security. Managing acquisitions: DHS faces the challenge of structuring its acquisition organization so that its various procurement organizations are held accountable for complying with procurement policies and regulations and ensuring that taxpayer dollars are well-spent. Coordinating research and development: DHS has not yet completed a strategic plan to identify priorities, goals, objectives, and policies for the research and development of homeland security technologies, and additional challenges remain in its coordination with other federal agencies. Despite real and hard-earned progress, DHS still has significant challenges to overcome in all of its management areas. Resolving these challenges at the top levels could help address similar management challenges in DHS’s component organizations including ICE and CBP. In closing, it is important to understand the expectations and limitations of various proposals to address management challenges at ICE and CBP that we and others have identified. With respect to potential restructuring, reorganizing an agency or function to better align it with the mission and strategic planning process is desirable, whereas reorganizing mainly to address underlying weaknesses in supporting systems and processes, such as a lack of coordination and cooperation among units or a lack of guidance relating to operational activities, might not be productive. As we have seen to date, reorganizing immigration and customs functions, without fixing existing problems with underlying systems and processes, has not resolved long-standing management issues. In addition, ICE and CBP may not be able to resolve some of these challenges alone if they are affected by DHS department-wide management initiatives and developments. To assist the Congress in its oversight and in ensuring accountability in homeland security programs, we will continue to monitor and evaluate ICE and CBP programs as they meet, and hopefully overcome, their management challenges. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions that you or other members of the Subcommittee may have at this time. For further information about this testimony, please contact Richard Stana at 202-512-8777. Other key contributors to this statement were Stephen L. Caldwell, Lisa Brown, Mary Catherine Hult, Lori Kmetz, Sarah E. Veale, and Katherine Davis. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The Department of Homeland Security (DHS) assumed responsibility for the immigration programs of the former Immigration and Naturalization Service (INS) in 2003. The three DHS bureaus with primary responsibility for immigration functions are U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), and U.S. Citizenship and Immigration Services (CIS). This testimony focuses on CBP and ICE, which took over the immigration enforcement function. CBP is responsible for functions related to inspections and border patrol, and ICE is responsible for functions related to investigations, intelligence, detention, and removal. The Subcommittee on Immigration, Border Security, and Claims, House Committee on the Judiciary, held a hearing to discuss management challenges and potential structural changes. Some research organizations have suggested structural changes to address management challenges, including a merger of CBP and ICE. This testimony addresses the following questions: (1) Have ICE and CBP encountered similar management challenges to those encountered at INS? (2) What factors might be considered in addressing some of the management challenges that exist at ICE and CBP? A number of similar management challenges that had been experienced by INS have continued in the new organizations now responsible for immigration enforcement functions. In 2001, GAO testified that, while restructuring may help address certain management challenges, INS faced significant challenges in assembling the basic systems and processes that any organization needs to accomplish its mission. These include clearly delineated roles and responsibilities, policies and procedures that effectively balance competing priorities, effective internal and external communications and coordination, and automation systems that provide accurate and timely information. In March 2003, the functions of the INS were transferred to the new DHS and placed in the newly-created ICE and CBP. In 2004, we reported that many similar management challenges we found at INS were still in existence in the new bureaus. In evaluating solutions to ICE and CBP management challenges, including potential structural changes, several factors might be considered. The first factor is whether ICE and CBP currently have good management frameworks in place. Such a management framework, among other items, would include a clear mission, a strategic planning process, good organizational alignment, performance measures, and leadership and accountability mechanisms. The second factor is whether ICE and CBP have developed systems and processes to support the management frameworks they may have in place. The third factor is that the management challenges in these two bureaus exist in the larger context of the creation and evolution of DHS. The transformation and integration activities at DHS can take 5-7 years to accomplish, and some management challenges might be resolved in this process. |
U.S. critical infrastructure is made of systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on national security, economic security, national public health or safety, or any combination of these matters. Critical infrastructure includes, among other things, banking and financing institutions, telecommunications networks, and energy production and transmission facilities, most of which are owned and operated by the private sector. Sector-specific agencies (SSA) are federal departments or agencies with responsibility for providing institutional knowledge and specialized expertise as well as leading, facilitating, or supporting the security and resilience programs and associated activities of their designated critical infrastructure sector in the all-hazards environment. Threats to systems supporting critical infrastructure and federal information systems are evolving and growing. Risks to cyber-based assets can originate from unintentional and intentional threats. Unintentional or non-adversarial threat sources include failures in equipment, software coding errors, or resource depletion, such as accidental actions of employees. They also include natural disasters and failures of critical infrastructure on which the organization depends but are outside of its control. Intentional threats include both targeted and untargeted attacks from a variety of sources, including criminal groups, hackers, disgruntled employees, foreign nations engaged in espionage and information warfare, and terrorists. These threat adversaries vary in terms of the capabilities of the actors, their willingness to act, and their motives, which can include seeking monetary gain or pursuing an economic, political, or military advantage. Table 1 describes the sources of cyber-based threats in more detail. Cyber threat adversaries make use of various techniques, tactics, and practices—or exploits—to adversely affect an organization’s computers, software, or networks, or to intercept or steal valuable or sensitive information. These exploits are carried out through various conduits, including websites, e-mail, wireless and cellular communications, Internet protocols, portable media, and social media. Further, adversaries can leverage common computer software programs, such as Adobe Acrobat and Microsoft Office, to deliver a threat by embedding exploits within software files that can be activated when a user opens a file within its corresponding program. Table 2 provides descriptions of common exploits or techniques, tactics, and practices used by cyber adversaries. Because the private sector owns the majority of the nation’s critical infrastructure—such as banking and financial institutions, commercial facilities, and energy production and transmission facilities—it is vital that the public and private sectors work together to protect these assets and systems. Toward this end, federal law and policy assign roles and responsibilities for agencies to assist the private sector in protecting critical infrastructure, including enhancing cybersecurity. Presidential Policy Directive 21 (PPD-21) assigns roles and responsibilities for the critical infrastructure sectors to the SSAs. The directive identified 16 critical infrastructure sectors and designated associated federal SSAs. Table 3 shows the 16 critical infrastructure sectors and the SSA for each sector. PPD-21 identified SSA roles and responsibilities to include collaborating with critical infrastructure owners and operators; independent regulatory agencies; and state, local, tribal, and territorial entities as appropriate, as well as providing, supporting, or facilitating technical assistance and consultations for their respective sectors to identify vulnerabilities and help mitigate incidents, as appropriate. Federal law and policy have also established roles and responsibilities for federal agencies to work with industry to enhance the cybersecurity of the nation’s critical infrastructures. These include Executive Order 13636, the Cybersecurity Enhancement Act of 2014, and the National Infrastructure Protection Plan (NIPP). Executive Order 13636, Improving Critical Infrastructure Cybersecurity, issued in February 2013, outlines an action plan for improving security for critical cyber infrastructure. This includes, among other things, requirements for NIST to develop a voluntary critical infrastructure cybersecurity framework and performance measures. In developing the cybersecurity framework, NIST is to engage in an open public review and comment process. The order also directs SSAs, in consultation with DHS and other interested agencies, to review the cybersecurity framework and if necessary, develop implementation guidance or supplemental materials to address sector-specific risks and operating environments. The Cybersecurity Enhancement Act of 2014, enacted in December 2014, established requirements that are consistent with the order regarding NIST’s development of a cybersecurity framework. NIST’s responsibilities in developing the cybersecurity framework under this law include, among other things, identifying an approach that is performance-based, and cost-effective. In response to Executive Order 13636, NIST issued the Framework for Critical Infrastructure Cybersecurity in February 2014, which is intended to help organizations apply the principles and best practices of risk management to improving the security and resilience of critical infrastructure. The framework proposes a risk-based approach to managing cybersecurity risk and is composed of three parts: the framework core, the framework profile, and the framework implementation tiers. The framework core is a set of cybersecurity activities, outcomes, and informative references that are common across critical infrastructure sectors, which is to provide guidance for developing individual organization profiles. Through the use of profiles, the framework is intended to help organizations align their cybersecurity activities with business requirements, risk tolerances, and resources. The tiers provide a mechanism for organizations to view and understand the characteristics of their approach to managing cybersecurity risk. (Further information on the framework core is provided in app. II.) The NIPP defines the overarching approach for integrating the nation’s critical infrastructure protection and resilience activities into a single national effort. DHS developed the NIPP in collaboration with public- and private-sector owners and operators and federal and nonfederal government representatives, including SSAs, from the critical infrastructure community. It details DHS’s roles and responsibilities in protecting the nation’s critical infrastructures and how sector stakeholders should use risk management principles to prioritize protection activities within and across sectors. It emphasizes the importance of collaboration, partnering, and voluntary information sharing among DHS and industry owners and operators, and state, local, and tribal governments. According to the NIPP, SSAs are to work with their private-sector counterparts to understand cyber risk and develop sector-specific plans that address the security of the sector’s cyber and other assets and functions. The SSAs and their private-sector partners are to update their sector-specific plans based on DHS sector-specific plan guidance issued in 2014. NIST used several methods to obtain and incorporate stakeholder views when developing its cybersecurity framework. Respondents to our survey were generally satisfied with NIST’s efforts and methods to develop the framework. Also, NIST met the requirements under Executive Order 13636 and the Cybersecurity Enhancement Act to develop an approach that can help critical infrastructure organizations manage cyber risk. Executive Order 13636, released in February 2013 required NIST to create a flexible performance-based cybersecurity framework that includes a set of standards, procedures, and processes that align policy, business, and technological approaches to address cyber risks. In addition, under the Cybersecurity Enhancement Act, enacted into law in December 2014, NIST is required to facilitate and support the development of a voluntary set of standards, guidelines, methodologies, and procedures to cost-effectively reduce cyber risks to critical infrastructure. In February 2014, NIST issued the Framework for Critical Infrastructure Cybersecurity. In developing the framework, NIST used several methods to obtain and incorporate the views of experts from government, industry, and academia. Specifically, it solicited public comments through formal “requests for information,” held workshops with stakeholders to identify and develop elements of the framework, and published a draft version of the framework for further review and comment. Figure 1 summarizes the development of the framework. NIST began the collaboration process for developing the framework on February 26, 2013, when it issued a formal request for information in the Federal Register to seek comments regarding risk management practices, frameworks, standards, guidelines, and best practices. NIST received 246 unique comments in response to the request from organizations and individuals representing, among others, large companies, associations, sector coordinating councils, federal agencies, universities, and international companies. NIST analyzed the comments received to, among other things, identify common cybersecurity practices and methods to facilitate discussions on the development of the framework. After the initial request for information, NIST hosted six workshops at various locations across the country to drive the development of the framework. Workshop participants and attendees included critical infrastructure owners and operators, industry associations, individual companies, and government agencies. Table 4 summarizes the NIST workshops. At each workshop, NIST facilitated discussions with attendees and accepted industry input to collaboratively identify and develop standards and guidelines for the framework. Based on the input from the first four workshops, NIST prepared and published a preliminary draft of the framework for public review and comment following its fourth workshop. NIST analyzed responses to its request for information, conclusions from workshops, and stakeholder analysis to select components for the framework, such as identifying security common practices, principles, and approaches that supported the objectives of Executive Order 13636. To identify the framework components that reflected the comments received, NIST used input from volunteer industry stakeholders. These stakeholders helped to, among other things, evaluate common themes identified by NIST as well as cybersecurity areas that needed additional exploration to encourage industry engagement in the framework development process. After the initial draft was issued for comment, NIST held the fifth workshop to obtain further stakeholder input. Subsequently, NIST published its final draft of the framework in February 2014. Following issuance of the framework, on August 26, 2014, NIST issued a second request for information to seek comments on users’ experience with the framework, as part of its efforts to promote use of the framework, and held an additional workshop to obtain information on how organizations learned about and used the framework. NIST received 57 unique comments in response to the second request for information from organizations and individuals that represented, among others, large companies, associations, and sector coordinating councils. In addition to the framework, NIST developed a roadmap to discuss future plans for the framework, which included identifying areas of improvement of the preliminary framework. To promote the use and adoption of the framework, NIST officials stated they plan to update the framework based on industry feedback and develop guidance on how organizations can use the framework to reduce cybersecurity risks. One of NIST’s responsibilities under the Cybersecurity Enhancement Act was to incorporate industry input in the development of the standards and methodologies to manage cybersecurity risks for critical infrastructure. A majority of the 252 respondents to our survey indicated satisfaction with the mechanisms employed by NIST to develop the framework. For example, 186 of 251 respondents indicated that they were “very satisfied” or “satisfied” that NIST provided opportunities for them to provide feedback on the framework during its development process. Similarly, a majority (170 of 187) indicated the workshops hosted by NIST were “very” or “somewhat effective” in engaging industry involvement in development of the framework. Appendix III provides additional details on survey respondents’ evaluations of NIST’s collaborative approach to developing the framework. NIST implemented the requirements for development of a cybersecurity approach as required by Executive Order 13636 and the Cybersecurity Enhancement Act of 2014. Executive Order 13636 required NIST to develop among other things a flexible, repeatable, performance-based, and cost-effective approach to help owners and operators of critical infrastructure identify, assess, and manage cyber risk. In addition, NIST was to develop a set of standards that align policy, business, and technological approaches to address cyber risks. Similar to Executive Order 13636, the Cybersecurity Enhancement Act of 2014 authorizes NIST to, among other things, facilitate and support the development of a voluntary set of standards, guidelines, methodologies, and procedures to cost-effectively reduce cyber risks to critical infrastructure. In carrying out these activities, NIST is required to identify, among other things, a flexible, repeatable, performance-based, and cost- effective approach that can be voluntarily adopted to help identify, assess, and manage cyber risks. To ensure the framework could assist owners and operators with their cyber risk as called for by the executive order and the act, NIST created implementation tiers to allow organizations to determine their cybersecurity risks and identify processes that align to their business approaches to manage those risks. According to the framework, implementation tiers describe how cybersecurity risk is managed by an organization and the degree to which its risk management practices exhibit key characteristics defined in the framework. There are four tiers discussed in the framework, with each one building upon the previous tier: Partial (Tier 1), Risk Informed (Tier 2), Repeatable (Tier 3), and Adaptive (Tier 4). Further, based on our analysis, the framework supported and developed by NIST is intended to be: Flexible: The NIST framework can be modified to an organization’s cybersecurity condition and needs. Its processes also provide for a flexible and risk-based implementation of the framework and can be used with a broad array of cybersecurity risk management processes. Repeatable: Under the framework, organizations are able to create a framework profile to compare their current cybersecurity state to their targeted state. This allows for identification and prioritization of improvement opportunities within the context of a continuous and repeatable process that can be assessed as the organization moves toward its targeted state. Performance-based: Organizations can use the framework implementation tiers to measure progress for managing cybersecurity risk. Specifically, the implementation tiers allow organizations to track their performance in managing cyber risks from an informal, reactive response to an approach that is agile and risk-informed. For example, in order to track performance, organizations are encouraged to identify their desired tier according to organizational goals and to progress to higher tiers to continue reducing cybersecurity risks. Cost-effective: The framework’s implementation tiers can be used to allow organizations to evaluate their current cyber activities to determine if adoption of cybersecurity risk management practices was sufficient given their mission and regulatory requirements. Additionally, these tiers allow organizations to determine activities that are most important to their critical services, allowing them to prioritize expenditures to maximize the impact of their investment in cybersecurity. Further, in accordance with the executive order and the act, the framework is voluntary. The framework emphasizes that the information it contains is guidance for individual organizations to use to improve their cybersecurity posture. According to NIST, the implementation tier approach allows for organizations to determine activities that are most important to critical service delivery as well as prioritize expenditures to maximize the impact of their cybersecurity investment. DHS, SSAs, and NIST have promoted adoption and use of the cybersecurity framework by critical infrastructure owners and operators through a variety of methods. Specifically, DHS established a program, in accordance with Executive Order 13636, to encourage adoption of the framework and has taken a number of actions, including disseminating guidance and working with stakeholders to promote it. However, DHS is not measuring the effectiveness of these actions in order to evaluate the results of its activities and programs. For their part, SSAs for most sectors are developing tailored guidance for implementing the framework in their sectors, and NIST has promoted the framework through public events and its website. DHS, as required by Executive Order 13636, established the Critical Infrastructure Cyber Community (C) Voluntary Program in February 2014 to support the voluntary adoption of the framework. The program is intended to enhance critical infrastructure cybersecurity and encourage the adoption of the NIST framework. According to DHS C Voluntary Program has framework promotion actions broken out into three phases. Phase 1 is focused on outreach and building awareness of the framework. Phase 2, which was initiated in 2015, involves entity capability building, where DHS promotes the framework to specific types of entities, such as academia, business, and state governments, and highlighting resources to assist in implementing the framework from DHS, other federal agencies, and the private sector. Phase 3 is to facilitate the creation of communities of interest around critical infrastructure cybersecurity. To promote awareness of the framework during phase 1, DHS launched a website with guidance and links to resources to assist critical infrastructure organizations interested in implementing the framework. DHS also developed a webinar series in January 2015 to provide organizations additional resources for addressing and improving cybersecurity risk management practices. Several past webinars are available on demand on the website. DHS Cstated that they specifically targeted promotional efforts to entities identified as having nationally critical assets. According to officials, as of October 1, 2015, the C Voluntary Program had held 256 briefings since November 2013. For phase 2, which began in 2015, DHS C these included resources for academia; business (large, midsize, and small); federal government; and state, local, tribal and territorial governments. For example, to assist in identifying cyber resilience and practices, DHS points to its cyber resiliency review. According to officials, as of October 1, 2015, the resiliency review had been downloaded from the site over 6,500 times. Further, to assist with cybersecurity incident detection, DHS identified the Cyber Information Sharing and Collaboration Program, which is intended to share incident information. The C Voluntary Program also developed a Small and Midsize Business Toolkit, which contains a number of resources to help entities recognize and address cybersecurity risks, including information for startups and a guide to free tools intended to provide cybersecurity assistance. The toolkit, which was posted on the program’s website in May 2015, had received over 2,000 downloads as of October 1, 2015, according to officials. Among the respondents to our survey who indicated that the Cresponses out of 112 responding to the question indicated that the C Voluntary Program promotional activities were “very” or “somewhat” effective in encouraging the use of the framework. DHS C Voluntary Program was assisting SSAs and 10 sectors in developing framework implementation guidance. According to DHS, sector-specific implementation guidance will provide each sector with a tailored approach on how to best use the framework within their industry and make it easier for organizations to (1) use the framework to secure themselves against cyber risk, (2) learn about available tools and resources and approaches that can support cybersecurity risk management and the framework, and (3) gain an understanding of how different sectors and industries are approaching cybersecurity risk management broadly. DHS C According to DHS officials, Phase 3, which is to facilitate the creation of communities of interest around DHS cybersecurity initiatives, began in 2015 and will continue into 2016. DHS officials stated that the intended outcome of this phase is to facilitate the development of self-sustaining communities by continuing to provide forums for information sharing among critical infrastructure owners and operators across the nation. DHS officials stated that phase 3 will be accomplished through a series of regional events, webinars, and development of new resources that promote information sharing and community building. Performance measurement involves identifying performance goals and measures, establishing performance baselines by tracking performance over time, identifying targets for improving performance, and measuring progress against those targets. As we have previously reported, according to leading practices in the federal government and in industry, organizations should measure performance in order to evaluate the success or failure of their activities and programs. In addition, the Standards for Internal Control in the Federal Government, known as the “Green Book,” sets internal control standards for federal entities. Those standards state that internal control monitoring should occur and that the quality of performance over time should be assessed. DHS C Voluntary Program documentation identifies three metrics that align with program goals: (1) making resources accessible, (2) increasing participation by entities with the CHowever, none of these metrics indicate the effectiveness of the program’s efforts to promote adoption of the framework, and program officials are not otherwise measuring or tracking how effective those efforts or materials are in encouraging individuals and organizations to voluntarily adopt the framework. For example, they are not tracking what percentage of an individual sector they have promoted to or how effective their efforts and guidance are at encouraging the use of the framework by entities within a critical infrastructure sector. According to DHS C Voluntary Program officials, they have not established these metrics or monitoring mechanisms because DHS has focused on getting as much information and resources out as possible. However, without understanding whether its promotional efforts are effective, the C Voluntary Program and NIST personnel or resources, speaking at industry conferences, and providing information during sector coordinating council meetings. For example, within the water sector, the Environmental Protection Agency (EPA) and the sector coordinating council are working to understand how entities within the sector are managing risk, including using the framework. Specifically, EPA is supporting the council by providing contractor and subject matter expert support as the council develops metrics and administers a survey to the sector through 2016. EPA officials stated that once the sector coordinating council receives and analyzes the information received from the survey, it will provide the information to EPA. Another example is the transportation systems sector, where DHS, as the co-SSA, held several promotional activities for Cybersecurity Month in October 2015. Respondents to our survey who indicated that their SSA promoted use of the framework stated that they were usually encouraged to use the framework as a result. Specifically, 60 of the 82 respondents who responded to that question indicated that SSA promotional activities were “very” or “somewhat” effective in encouraging the use of the framework. In addition, most SSAs have determined whether to develop framework implementation guidance to address sector-specific risks and operating environments for their sector. Executive Order 13636 requires SSAs to determine whether or not it is necessary for their sector to develop sector- specific framework implementation guidance, and SSAs for 15 of the 16 sectors had made this determination as of October 2015. Of the 15 sectors, 5 have completed and released framework implementation guidance. These framework implementation guides were created by SSAs, sector stakeholders, or a combination of both. For example, the energy sector was the first sector to produce implementation guidance, and the SSA worked with sector stakeholders to produce it. The health care and public health sector had a sector stakeholder provide a crosswalk between their risk framework and the NIST cybersecurity framework. HHS officials representing the health care and public health SSA stated that they are beginning an effort to create further implementation guidance for the sector’s seven subsectors. Seven other sectors have begun drafting implementation guidance. According to officials, these sectors were finalizing their guidance and had involved their sector stakeholders to review it. For the food and agriculture sector, Department of Agriculture and Food and Drug Administration officials representing the SSAs for the sector stated that they had yet to begin drafting framework implementation guidance and were exploring the creation of sector guidance with their stakeholders. The Departments of Defense (DOD) and the Treasury, as SSAs for the defense industrial base and financial services sectors, respectively, decided not to create sector-specific framework implementation guidance. According to DOD officials representing the defense industrial base SSA, the department determined, after discussions with the defense industrial base sector coordinating council, that implementation guidance is not needed. The DOD officials stated that there was a consensus within the sector coordinating council that sector companies would voluntarily adopt the framework as they determined to be necessary. Treasury officials representing the SSA for the financial services sector stated that they determined, with input from the sector, that implementation guidance should not be created by Treasury as the financial services SSA. According to the Treasury officials this decision was made in cooperation with the financial services sector coordinating council, and they concluded that implementation guidance was not necessary due to the regulatory structure of the sector. DHS and the General Services Administration (GSA), which are the co- SSAs for the government facilities sector, have yet to determine if sector implementation guidance should be developed. A GSA official representing the SSA for the government facilities sector stated that there are metrics in the sector-specific plan that will allow GSA to gather information from the sector on its promotional and implementation needs and use that information to best meet the needs of the sector. According to DHS and GSA officials they are waiting until this information is gathered and assessed before discussing whether sector-specific implementation guidance will be needed. DHS and GSA officials do not have a specific time frame for when the information will be gathered or for when they will make a decision. Without a decision by DHS and GSA under Executive Order 13636 whether guidance is needed to address sector-specific risks and operating environments, implementation of the framework in the government facilities sector may be hindered. Although not specifically required to by Executive Order 13636 or the Cybersecurity Enhancement Act of 2014, NIST has continued its efforts to promote the framework. NIST encouraged the use of the framework at workshops and public events it hosted and updated its website to provide information on upcoming events and resources related to the framework. Specifically, NIST’s website for the framework (www.nist.gov/cyberframework) provides a list of publically available resources to assist entities interested in using the framework. The website includes guidance and tools created by federal and private sector entities for implementing the framework. NIST encourages entities to submit publically available framework implementation guidance that they create so that NIST can provide information about it with the other guidance and tools already highlighted. The website also lists upcoming events where NIST officials will provide framework information and perspectives. Past speaking events from across the country are also listed with links to the event webpage and in some cases the NIST presentation slides. Respondents to our survey who indicated they had been promoted to by NIST noted that they were encouraged to use the framework as a result. Specifically, 102 responses out of 132 indicated that NIST promotional activities were “very” or “somewhat” effective in encouraging the use of the framework. Additionally, NIST officials stated they are following implementation of the framework, and a section on the NIST website is dedicated to accounts from entities of how they have implemented the framework. As of October 2015, the section listed an Intel use case for framework implementation and a link to a podcast on how the University of Pittsburgh is using the framework. NIST officials added that they are seeking feedback on the framework. Specifically, officials stated that they are researching how organizations are applying the framework methodologies, what value they are obtaining from the framework, and what challenges they are facing in implementing the framework. NIST officials stated they are currently focused on the overall effectiveness of the framework for the benefit of those using it to improve future versions. They further stated that they continue to ask stakeholders when an appropriate time to update the framework would be. To solicit this feedback, officials stated that they are asking individuals attending NIST presentations and may issue a request for information through the Federal Register regarding whether or not the critical infrastructure community believes that it is necessary to begin updating the framework. NIST has generally fulfilled its requirements, established in Executive Order 13636 and the Cybersecurity Enhancement Act, to develop a cybersecurity framework for adoption by critical infrastructure sectors. By using a collaborative process for developing the framework, NIST has helped ensure that the resulting guidance, standards, and methodologies, if effectively implemented, can help cost-effectively reduce cyber risks to critical infrastructure. To facilitate the voluntary adoption of the framework by critical infrastructure owners and operators, DHS, sector-specific agencies, and NIST are taking a variety of actions. However, while DHS has established a program dedicated to encouraging the framework’s adoption, without establishing metrics to assess the effectiveness of these efforts, it has less assurance that it is meeting its objectives. In addition, while most SSAs have determined the need for sector-specific guidance to implement the framework, DHS and GSA have yet to meet this requirement for the government facilities sector, which may hinder adoption of the framework in this sector. To better facilitate adoption of the NIST Framework for Improving Critical Infrastructure Cybersecurity, we are making the following recommendations: We recommend that the Secretary of Homeland Security direct officials responsible for the Critical Infrastructure Cyber Community Voluntary Program to develop metrics for measuring the effectiveness of efforts to promote and support the framework. We also recommend that the Secretary of Homeland Security and the Administrator of GSA set a time frame for determining the need for sector-specific guidance to implement the framework in the government facilities sector. We provided a draft of this report to the Departments of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Transportation, and the Treasury and to GSA and EPA. In written comments signed by the Director, Departmental GAO-OIG Liaison Office (reprinted in app. IV), DHS concurred with our two recommendations. DHS agreed with the need to further refine and mature metrics for measuring the effectiveness of efforts to promote and support the framework. DHS also provided details about efforts to track output metrics addressing the CIn addition, officials from the Departments of Commerce, Health and Human Services, and Homeland Security provided technical comments via e-mail that have been addressed in this report as appropriate. The Departments of Agriculture, Defense, Energy, Transportation, and the Treasury and EPA responded via e-email that they had no comment on the report. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Transportation, and the Treasury; the Administrators of the Environmental Protection Agency and General Services Administration; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6244 or wilshuseng@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. The objectives of our review were to determine the extent to which (1) the National Institute of Standards and Technology (NIST) facilitated the development of voluntary standards and procedures to reduce cyber risks to critical infrastructure, and (2) federal agencies promote the standards and procedures to reduce cyber risks to critical infrastructure. To determine how NIST facilitated the development of voluntary standards and procedures for critical infrastructure, we reviewed and analyzed the actions taken by NIST to develop its Framework for Improving Critical Infrastructure Cybersecurity. In addition, we analyzed Executive Order 13636, issued in February 2013, and the Cybersecurity Enhancement Act of 2014, enacted in December 2014, to identify key NIST responsibilities for developing a cybersecurity framework. We analyzed documents and performed interviews with NIST officials to assess its collaborative efforts with industry stakeholders in soliciting input in the development of the framework, including workshops it hosted and the website it set up to disseminate updates on the framework. Specifically, we reviewed documentation and videos of the six workshops hosted by NIST intended to obtain industry, academia, and government representative feedback in the development of the framework, in addition to NIST’s two requests for information to the public for input on cybersecurity standards and methodologies. We also analyzed the resulting framework to assess whether NIST had fulfilled its responsibilities under law. Additionally, to address this objective, we conducted a web-based survey of individuals who (1) provided written comments with contact information in response to a NIST request for information notice or (2) registered for at least one of the workshops hosted by NIST to develop the framework. There were 2,082 individuals in the population that we targeted, and to make the survey as inclusive as possible we sent the survey request to all of them. The questionnaire included questions about the effectiveness of NIST’s collaborative efforts in fulfilling requirements to develop the framework using an open and public comment process. To minimize errors arising from differences in how questions might be interpreted and to reduce variability in responses that should be qualitatively the same, we conducted pretests with critical infrastructure representatives over the telephone. Based on feedback from these pretests, we revised the questionnaire to improve the clarity of the questions. An independent survey specialist within GAO also reviewed a draft of the questionnaire prior to its administration. After completing the pretests, we administered the survey to the NIST workshop attendees and request for information respondents on August 10, 2015, notifying them that our online questionnaire would be activated within a couple of days. On August 18, 2015, we sent a second e-mail message to these individuals, informing them that the questionnaire was available online and providing them with unique passwords and usernames. We collected responses through August 24, 2015. We were able to obtain 252 completed questionnaires, a 12 percent response rate, in the time available for survey fieldwork. Because we do not know if the answers that nonrespondents would have given would materially differ from those that did respond, our results can only represent the views of those who did respond. Their views are not generalizable to the registrant and respondent population as a whole. To address our second objective, we reviewed and analyzed actions and documentation related to promoting the framework by the nine sector- specific agencies (SSAs) responsible for the 16 critical infrastructure sectors established in Presidential Policy Directive-21, including the Department of Homeland Security (DHS), and NIST. For DHS, we analyzed agency documentation and the website of its Critical Infrastructure Cyber Community (C) Voluntary Program to identify the framework promotional guidance and tools provided to the critical infrastructure sectors. Also, we analyzed the metrics and information being used by the DHS CTo analyze NIST’s promotional efforts, we analyzed documentation and interviewed relevant NIST officials. We reviewed the NIST framework website to understand how NIST was informing the public about its public events to promote the framework and presenting entities with guidance to implement the framework for other agencies, sectors, and third parties. In addition, we surveyed individuals who responded to NISTs requests for information and registered for one of the workshops hosted by NIST for the development of the framework to identify and evaluate the effectiveness of DHS, SSA, and NIST efforts to promote the framework. We also interviewed federal officials from DHS’s C Voluntary Program, the nine SSAs representing the 16 critical infrastructure sectors, and NIST regarding their efforts to promote the framework and create sector- specific framework implementation guidance. We conducted this performance audit from February 2015 to December 2015 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The National Institute of Standards and Technology (NIST) Framework for Improving Critical Infrastructure Cybersecurity is intended to help organizations apply the principles and best practices of risk management to improving the security and resilience of critical infrastructure. The framework proposes a risk-based approach to managing cybersecurity risk and is composed of three parts: the framework core, the framework profile, and the framework implementation tiers. The framework core includes a listing of functions, categories, subcategories, and informative references that describe specific cybersecurity activities the framework identified as common across all critical infrastructure sectors. According to NIST, the framework core represents a common set of activities for managing cybersecurity risk. The framework also states that while it is not exhaustive, it is extensible, allowing organizations, sectors, and other entities to use subcategories and informative references that are cost-effective and efficient and that enable them to manage their cybersecurity risk. Table 6 includes the five functions and 22 categories of the framework core, and Table 7 includes information for one of the categories, asset management, as described in the NIST framework and appendix A of the framework. The information presented here represents how each function has categories, subcategories, and informative references. For more information on the framework, framework core, and categories, see the NIST framework website at www.nist.gov/cyberframework. Table 7 provides an example of the subcategories and related informative references for a single category of the identify function: asset management. The following table presents selected questions and responses from our survey of registrants at the National Institute of Standards and Technology’s (NIST) workshops for developing the NIST Framework for Improving Critical Infrastructure Cybersecurity and commenters who responded to NIST’s request for information. There were 2,082 individuals in the population that we targeted, and to make the survey as inclusive as possible we sent the survey request to all of them. We obtained 252 completed questionnaires, a 12 percent response rate, in the time available for survey fieldwork. Because we do not know if the answers that nonrespondents would have given would materially differ from those that did respond, our results represent the views of those who did respond. They are not generalizable to the registrant and respondent population as a whole. Not all questions were applicable to or otherwise answered by the respondents to our survey. Our results represent those answering each specific question. In addition to the contact named above, Michael W. Gilmore, Assistant Director; Sher’rie Bacon; Wilfred Holloway; Lee McCracken; David Plocher; Carl Ramirez; and Jeffrey Woodward made key contributions to this report. | U.S. critical infrastructures, such as financial institutions and communications networks, are systems and assets vital to national security, economic stability, and public health and safety. Systems supporting critical infrastructures face an evolving array of cyber-based threats. To better address cyber-related risks to critical infrastructure, federal law and policy called for NIST to develop a set of voluntary cybersecurity standards and procedures that can be adopted by industry to better protect critical cyber infrastructure. The Cybersecurity Enhancement Act of 2014 included provisions for GAO to review aspects of the cybersecurity standards and procedures developed by NIST. This report determines the extent to which (1) NIST facilitated the development of voluntary cybersecurity standards and procedures and (2) federal agencies promoted these standards and procedures. GAO examined NIST's efforts to develop standards, surveyed a non-generalizable sample of critical infrastructure stakeholders, reviewed agency documentation, and interviewed relevant officials. In accordance with requirements in a 2013 executive order which were enacted into law in 2014, the National Institute of Standards and Technology (NIST) facilitated the development of a set of voluntary standards and procedures for enhancing cybersecurity of critical infrastructure. This process, which involved stakeholders from the public and private sectors, resulted in NIST's Framework for Improving Critical Infrastructure Cybersecurity . The framework is to provide a flexible and risk-based approach for entities within the nation's 16 critical infrastructure sectors to protect their vital assets from cyber-based threats. To develop the framework in a collaborative manner, NIST solicited input from sector stakeholders through a formal request for information and conducted multiple workshops with critical infrastructure owners and operators, industry associations, government agencies, and other stakeholders. Participants GAO surveyed were generally satisfied with the approach NIST took to develop the framework. Further, the framework meets the requirements established in federal law that it be flexible, repeatable, performance-based, and cost-effective. For example, the framework contains multiple implementation “tiers,” which allows it to be adapted to an organization's specific conditions and needs. Agencies with responsibilities for supporting protection efforts in critical infrastructure sectors (known as sector-specific agencies), and NIST have promoted and supported adoption of the cybersecurity framework in the critical infrastructure sectors. For example, the Department of Homeland Security (DHS) established the Critical Infrastructure Cyber Community Voluntary Program to encourage adoption of the framework and has undertaken multiple efforts as part of this program. These include developing guidance and tools that are intended to help sector entities use the framework. However, DHS has not developed metrics to measure the success of its activities and programs. Accordingly, DHS does not know if its efforts are effectively encouraging adoption of the framework. Sector-specific agencies have also promoted the framework in their sectors by, for example, presenting to meetings of sector stakeholders and holding other promotional events. In addition, all of the sector-specific agencies except for DHS and the General Services Administration (GSA), as co-SSAs for the government facilities sector, had decided whether or not to develop tailored framework implementation guidance for their sectors, as required by Executive Order 13636. Specifically, DHS and GSA had not yet set a time frame to determine whether sector-specific implementation guidance is needed for the government facilities sector. By not doing so, DHS and GSA may be hindering the adoption of the cybersecurity framework in this sector. GAO recommends that DHS develop metrics to assess the effectiveness of its framework promotion efforts. In addition, DHS and GSA should set a time frame to determine whether implementation guidance is needed for the government facilities sector. DHS and GSA concurred with the recommendations. |
Federal agencies are generally required to use full and open competition to award contracts, with certain exceptions. This requirement was established through CICA, which required agencies to obtain full and open competition through the use of competitive procedures in their procurement activities unless otherwise authorized by law. Using full and open competition to award contracts means that all responsible sources—or prospective contractors that meet certain criteria—are permitted to submit proposals. Agencies are generally required to perform acquisition planning and conduct market research to promote and provide for, among other things, full and open competition. However, Congress, by enacting CICA, also recognized that there are situations that require or allow for contracts to be awarded noncompetitively—that is, without full and open competition. Generally, noncompetitive contracts must be supported by written J&As that contain sufficient facts and rationale to justify the use of the specific exception to full and open competition that is being applied to the procurement. Examples of allowable exceptions include circumstances where the contractor is the only source capable of performing the requirement or where an urgent need precludes adequate time for competition. Justifications generally are required to be published on the FedBizOpps.gov website and must be approved at levels that vary according to the dollar value of the procurement. J&As may be made for an individual procurement or on a class basis for a group of related acquisitions. Noncompetitive contracts are not permitted in situations in which the requiring agency has failed to adequately plan for the procurement or in which there are concerns related to availability of funding for the agency, such as funds expiring at the end of the year. Although full and open competition is generally required, agencies can also competitively award contracts after limiting the pool of available contractors—a process called “full and open competition after exclusion of sources.” For example, agencies set aside procurements for small businesses. In these cases, agencies are required to set aside procurements for competition among qualified small businesses if there is a reasonable expectation that two or more responsible small businesses will compete for the work and offer fair market prices. When agencies issue task orders under IDIQ contracts, they are required to follow different procedures than those for full and open competition. As established under the Federal Acquisition Streamlining Act (FASA) of 1994, IDIQ contracts can be single award (to one contractor) or multiple award (to more than one contractor through one solicitation), but FASA establishes a preference for multiple award contracts. Agencies are generally required to compete orders on multiple award contracts among all contract holders. However, agencies can award noncompetitive orders—through a process called an exception to a fair opportunity to be considered—for reasons similar to those used for awarding contracts without full and open competition, such as only one contractor being capable of providing the supplies or services needed, or for an urgent requirement. As with noncompetitive contracts, the reasons for issuing task orders under multiple award IDIQ contracts under an exception to the fair opportunity process must generally be documented in writing and approved at levels that vary according to the dollar value of the procurement. GSA, under its schedules program, awards IDIQ contracts to multiple vendors for commercially available goods and services, and federal agencies place orders under the contracts. Ordering procedures under the schedules program vary according to the dollar value of the procurement. For example, to meet competition requirements for orders exceeding the micro-purchase threshold ($3,000) but not exceeding the simplified acquisition threshold ($150,000), agencies must survey or request quotes from at least three schedule contractors. However, to meet competition requirements for proposed orders exceeding the simplified acquisition threshold, agencies must post a request for quotation on GSA’s posting website or provide it to as many schedule contractors as practicable to reasonably ensure that agencies receive at least three quotes from contractors that can fulfill the requirement. Agencies must document in the file if fewer than three quotes are received from contractors capable of fulfilling the requirement. For orders issued noncompetitively under the schedules program, the ordering agency must justify in writing—with specific content required by the FAR—the need to restrict competition and also obtain approval at the same dollar values and by the same officials as for contracts awarded without full and open competition. Contracts that are awarded using competitive procedures but for which only one offer is received have recently gained attention as an area of concern. OMB’s Office of Federal Procurement Policy recently noted that competitions that yield only one offer in response to a solicitation deprive agencies of the ability to consider alternative solutions in a reasoned and structured manner. Under DOD’s Better Buying Power policy, competitive procurements where only one offer to a solicitation was received even when publicized under full and open competition are termed as “ineffective competition.” The Navy has identified the potential for cost savings when effective competition is achieved. Specifically, in 2010, the Navy conducted a commodity study on the acquisition of information technology services that identified cost savings when more than one offer was received. Currently, FPDS-NG distinguishes these contracts by recording how many offers were received on any procurement. In fiscal year 2011, the competition rate for dollars obligated across DOD on contracts and task orders for non-R&D services was substantially higher than the competition rate for products—78 percent compared to 41 percent. R&D services had a competition rate of 59 percent. (See figure 1.) DOD’s overall competition rate for all services and products was 58 percent. According to a DOD procurement policy official, non-R&D services may be more commercial in nature than products, so there are more providers available to compete for these contracts. In contrast, the official said that opportunities for competition for R&D services are limited because they are generally provided by a limited number of vendors, such as university research laboratories, which each have their own area of specialized expertise. From fiscal years 2007 through 2011, the rate at which non-R&D services were competed did not change significantly across DOD, the Army, or the Navy. Across DOD, competition rates went from 79 percent in 2007 to 78 percent in 2011. Among the major components, the Air Force had a significant decline, dropping from 75 percent to 59 percent. According to a DOD procurement policy official, the Air Force competition advocate is assessing the reasons for lower competition rates. Other defense agencies had a small increase in competition rates, from 85 percent to 89 percent. (See figure 2.) Competition rates for obligations on only new contracts and orders for non-R&D services across DOD over the same 5-year period exhibited the same general trend as for obligations on all non-R&D services contracts and orders, with two main exceptions. The competition rate for new actions at the Navy declined, from 76 percent to 71 percent, and the competition rate at other defense agencies increased significantly, from 78 percent to 91 percent. In fiscal year 2011, almost half of obligations for non-R&D services were made on new contracts and task orders awarded in that year. The remaining obligations were under contracts and task orders that had been awarded in prior years. We also examined competition rates for non-DOD agencies providing assisted acquisition services to DOD. These agencies are commonly referred to as assisting agencies. For example, in fiscal year 2011, Department of the Interior (Interior) and GSA contracting offices, among other agencies, obligated a total of $3.8 billion in DOD funds for non-R&D services. While the assisting agencies had varying competition rates, their average competition rate was slightly higher than that of DOD’s contracting offices—81 percent compared to 78 percent. However, one non-DOD contracting office within Interior, which was among the assisting agencies with the highest DOD obligations, had a substantially lower competition rate for non-R&D services—51 percent. (See figure 3.) A DOD procurement policy official stated that the competition advocates do not currently track competition rates by assisting agencies as part of their overall competition assessments. Based on our analysis of FPDS-NG data, in fiscal year 2011 the majority of DOD’s noncompetitive non-R&D services contracts and task orders were coded under the “only one responsible source” category. In addition, based on our prior work, a variety of factors can affect competition, including reliance on contractor expertise and data rights, the influence of program offices on the acquisition process, and unanticipated events such as bid protests. In fiscal year 2011, the majority of DOD’s non-R&D services obligations under noncompetitive contracts and task orders not coded as subject to fair opportunity were coded under the competition exception “only one responsible source” in FPDS-NG. The second most cited exception was “authorized by statute.” Together, these two exceptions comprised more than 80 percent of all obligations on noncompetitive contract actions.See figure 4 for obligations across competition exceptions for noncompetitive non-R&D services contracts and task orders not subject to fair opportunity. Major weapon systems programs have cited the “only one responsible source” exception to justify not competing large contract actions in class J&As. Under a class J&A, one justification supports not competing consolidated product and service requirements across DOD activities and multiple programs. In our review of J&As, we identified several examples where DOD cited the “only one responsible source” exception, including: The Air Force justified a $200.7 million noncompetitive contract under a class J&A to a subcontractor of one of its long-standing incumbent contractors for communication equipment and support services for an aircraft system. Market research indicated that the subcontractor was the only source of the equipment and services, and by eliminating pass-through costs associated with subcontracting the Air Force could save up to $66 million or 33 percent of the estimated contract value. The Army justified extending an $8.3 million task order noncompetitively for training and support services for soldiers going into and returning from overseas deployment following a decision to change the location where the services would be required under a planned follow-on competitive procurement. The J&A noted that planning for the follow-on contract had started in December 2009, but in late October 2010 the contracting office learned that all required support services would be fully transferred to other Army locations by December 2011. According to the J&A, officials noted that it would not be advantageous to pursue full and open competition for a 1-year service contract. Noncompetitive obligations categorized as “authorized by statute” include contracts that are authorized or required to be made through another agency or from a specified source, including awards under the HUBZone Act of 1997, the Veterans Benefit Act of 2003, and the Small Business Administration’s 8(a) business development program. For example, the Defense Commissary Agency cited this exception for a noncompetitive contract for emergency repairs valued at $308,759 to a service disabled veteran-owned small business. The agency urgently needed to upgrade its computer room air conditioning and noted that the contractor had performed similar work in the past with excellent results. In addition, 5 percent of noncompetitive obligations on contracts and task orders not subject to fair opportunity were categorized under the “national security” exception, which is used when the disclosure of the agency’s needs would compromise national security. This exception, however, is not to be used merely because the acquisition is classified or because access to classified matter is necessary. Task orders issued under multiple award contracts and coded as subject to the fair opportunity process represented only 12 percent of noncompetitive non-R&D services obligations in fiscal year 2011. Of the over $4 billion obligated under noncompetitive non-R&D task orders that were subject to the fair opportunity process, over 80 percent were coded under two exceptions to the fair opportunity process in FPDS-NG. Specifically, “follow-on action following competitive initial action” was cited for 46 percent of the obligations and “only one source” was cited for 36 percent. Agencies can noncompetitively award a logical follow-on to an order already issued under an IDIQ contract if all awardees were given a fair opportunity to be considered for the original order. In July 2010, we identified key factors affecting competition, including reliance on contractor expertise and proprietary data. Also, program officials can influence competition by expressing vendor preferences, planning acquisitions poorly, or specifying overly restrictive requirements. Unanticipated events such as bid protests or unforeseen requirements with time frames that preclude competition can also impact competition. We have previously reported that DOD needs access to technical data related to its weapon systems in order to help control costs and maintain flexibility in the acquisition and sustainment of those weapon systems. Technical data can enable the government to complete maintenance work in-house, as well as to competitively award acquisition and sustainment contracts. For contracts pertaining to DOD weapons programs, which can involve products as well as support services, the lack of access to proprietary technical data and a heavy reliance on specific contractors for expertise limit, or even preclude the possibility of, competition. Even when technical data are not an issue, the government may have little choice other than to rely on the contractors that were the original equipment manufacturers, and that, in some cases, designed and developed the weapon system. In our review of selected fiscal year 2011 J&As, we identified many instances where DOD lacked either the expertise or the technical data necessary to conduct a full and open competition. Two examples, which were justified under the “only one responsible source” competition exception, are: The Navy approved a class J&A for noncompetitive contract actions valued at $2.3 billion to acquire the next generation of aircraft along with supporting supplies and services. Officials noted that the contractor had been the sole designer, developer, and manufacturer of the system since 1964 and would not sell the government the technical data required to compete the acquisition. The Army justified a noncompetitive $455.3 million contract to remanufacture helicopters because the Army lacked the technical data and expertise necessary to compete the requirement. According to the J&A, although a related contract from the late 1980s allowed the government to have technical data packages suitable for competition, the data was never obtained. According to the J&A, the contractor’s estimated cost for this data was nearly $4 billion. In approving the J&A, the senior procurement official noted, “I hope that all contracting activities can persistently monitor how to be more competitive, despite the noncompetitive positions we have gotten ourselves into over the years.” In 2010, we reported that program officials play a significant role in the contracting process, particularly in developing requirements and interfacing with contractors. Program officials may put pressure on the contracting process to award contracts to a specific vendor without competition. Contracting officials have said that a program office may be comfortable with the incumbent contractor because a relationship had developed between the program office and the contractor, who understands the program requirements. Program officials pressure the contracting office to remain with that contractor, thus inhibiting competition. In one J&A we reviewed, the Office of Military Commissions expressed a strong preference for the incumbent contractor. Specifically, the office justified noncompetitively awarding a contract extension valued at up to $15 million for courtroom services at Guantanamo Bay, under the competition exception for expert services. According to the J&A, since 2007, the contractor representatives had become fully integrated members of the litigation teams. These services included handling and securing sensitive documents and protecting sensitive information in the courtroom. Given that the government did not expect to need these services for longer than a year, the government did not want to risk delays and inefficiencies in the trial process by bringing on a new contractor. In 2010, we also reported that, according to contracting officials, program officials are often insufficiently aware of the amount of time needed to complete acquisition planning, including performing market research, properly defining requirements, and allowing contractors time to respond to requests for proposals, which may hinder opportunities to increase competition. In 2011, we reported that program officials at civilian agencies may not know how long these key steps can take, and we have recommended that agencies establish time frames for when program officials should begin acquisition planning. Similarly, in one DOD J&A we reviewed, the Army justified awarding an $11.2 million noncompetitive bridge contract for mission support services at Ft. Bliss, Texas under the “only one responsible source” competition exception. Bridge contracts are typically short-term to avoid a lapse in service while the award of a follow- on contract is being planned or an awarded contract is being implemented. According to the J&A, this bridge contract was necessary after unexpected delays in the acquisition planning process for a planned competitive follow-on task order. The delays were due to, among other things, the program office changing managers multiple times and difficulties writing requirements that met the contracting officer’s standards, conflicting end-of-year responsibilities for contracting office staff, and the senior procurement officials taking 6 months to approve the acquisition strategy. We have also previously reported that the government’s requirements can influence the number of offers received under competitive solicitations if these requirements are written too restrictively. Contracting officials explained that it is challenging to identify program office requirements that are written so restrictively that they are geared toward the incumbent. These officials said that their technical backgrounds and having the assistance of technical staff in evaluating the requirements can help them determine whether the requirements can be broadened. They noted that if they lack technical expertise in the specific area, it is more difficult to question whether a statement of work is written too restrictively. Finally, we identified instances when unanticipated events stalled planned competition, leading to bridge contracts. Unforeseen events that can lead to bridge contracts include unexpected expansion of requirements and competitors filing bid protests of competitive follow-on contract awards. Of 111 J&As we reviewed, 18 were bridge contracts valued at a total of over $9 billion. Five of these bridge contracts were due to bid protests. Examples of bridge contracts due to unanticipated events include: DOD’s TRICARE program justified negotiating noncompetitive options that extended the performance on each of the two existing TRICARE contracts for 1 year valued at $6.6 billion under the “only one responsible source” competition exception to provide managed care support services. According to the J&A, these options were necessary after unexpected delays in the acquisition process were triggered by protests at the agency level and to GAO of the prior competitive awards for these services. The extensions allowed TRICARE to compete a large follow-on contract while implementing recommendations stemming from the sustained GAO protest without disrupting the delivery of health care services to TRICARE beneficiaries. The U.S. Army Corps of Engineers justified a $22 million noncompetitive modification of an existing contract under the “only one responsible source” competition exception after learning of a major construction requirement in Afghanistan with little notice. As a result, current plans for prison construction already under way were unexpectedly expanded and had to be completed within a short time frame. According to the J&A, the only way to meet this time frame was to not compete a new contract. Officials noted that using the existing contract could save 30 days or more “off an almost unachievable schedule, making every single day saved absolutely critical.” Since 2009, OMB and DOD have implemented efficiency initiatives related to competition—including actions to address some opportunities we previously identified. In July 2010, we reported that recent congressional actions to strengthen competition opportunities in major defense programs may take some time to demonstrate results. Additionally, we reported that OMB’s efforts to reduce agencies’ use of high-risk contract types may help agencies refocus and reenergize efforts to improve competition. Despite these actions, we identified additional opportunities to increase competition and we recommended that OMB take several actions—including emphasizing the role of program officials in influencing competition, taking steps to better understand the circumstances leading to only one offer on competitive contracts, and examining how competition advocates are appointed. OMB has taken steps to increase efficiency and enhance competition in government contracting, including responding to previous GAO recommendations and issuing guidance to DOD among other agencies. Recent initiatives include: In July 2009, OMB implemented an initiative to reduce obligations through new contracts in fiscal year 2010 by 10 percent in certain high-risk categories—including noncompetitive contracts and competitive procurements that only receive one offer. We recently reported on challenges with this initiative. In October 2009, OMB established initial guidelines to help chief acquisition officers and senior procurement executives evaluate the effectiveness of their agencies’ competition practices and processes for selecting contract types. The Office of Federal Procurement Policy released new guidance with respect to competition in establishing GSA schedule blanket purchase agreements in December 2009 in response to our recommendation that OMB take greater advantage of the opportunities that competition provides under schedule blanket purchase agreements. GAO, Contract Management: Agencies Are Not Maximizing Opportunities for Competition or Savings under Blanket Purchase Agreements despite Significant Increase in Usage, GAO-09-792 (Washington, D.C.: Sept. 9, 2009). In March 2011, the FAR Council issued an interim rule (effective May 16, 2011), amending the FAR to implement section 863 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417. The interim rule establishes enhanced competition requirements for placing orders under multiple-award contracts, including schedule contracts, and competition requirements for the establishment and placement of orders under schedule blanket purchase agreements. It also restricts the circumstances when blanket purchase agreements may be established based on a limited-source justification. Pursuing open systems architecture and establishing rules for the acquisition of technical data rights; Seeking opportunities to increase the role of small businesses in defense marketplace competition and opportunities to compete multiple award IDIQ service contracts among small businesses; and Presenting a competitive strategy at each program milestone for defense acquisition programs. DOD has put particular emphasis on increasing “effective competition”—when more than one offer is received under a competitive solicitation—and has issued enhanced guidance for situations when competitive procedures are used but only one offer is received. Specifically, in November 2010 DOD issued a memorandum that requires contracting officers to provide additional time for contractors to respond to solicitations when only one offer is received, if less than 30 days was provided for the receipt of proposals under the original solicitation. In addition, if a solicitation allowed at least 30 days for receipt of offers and only one offer was received, the contracting officer must determine prices to be fair and reasonable through price or cost analysis or enter negotiations with the offeror. In addition, in July 2010, in response to our recommendations and as part of the Better Buying Power initiative, the Chairman of DOD’s Panel on Contracting Integrity established a new subcommittee tasked with examining improvements for competitive opportunities and ways to be more effective at reducing single source buys. According to a DOD procurement policy official, the subcommittee is in the process of reviewing and responding to comments on the proposed rule on competitive procurements with only one offer, which is expected to be finalized in late spring 2012. DOD has also taken actions to enhance the competition advocate role, such as requiring each component or agency competition advocate to develop a plan to improve the overall rate of competition by at least two percent per year, and the rate of “effective competition” by at least 10 percent per year. DOD also holds quarterly meetings where competition advocates from the military services and other DOD agencies review the progress toward meeting competition procurement goals and discuss challenges and best practices. In December 2011, DOD issued a department-wide memorandum stating that DOD did not meet its fiscal year 2011 competition goals under the Better Buying Power initiative. DOD’s competition advocate stated that the department is paying too much for products and services and that competition is the key to driving down prices. He urged the component competition advocates to continue to identify shortcomings in competitive procedures and to communicate new ideas with each other on how to implement and improve competition. The memorandum also outlines fiscal year 2012 competition goals for DOD overall as well as for individual departments and components. DOD does not establish separate goals for products and services. The fiscal year 2012 goal for DOD overall (60 percent) is lower than the fiscal year 2011 goal (62.8 percent). According to a DOD procurement policy official, competition goals for fiscal year 2012 were established based on actual competition rates over the past few years. During our previous work, DOD officials reported they have taken additional steps at the component level to enhance competition—such as efforts to educate and hold program officials accountable and additional review of individual contract actions under class J&As. In July 2010, we reported that the Navy has made competition training mandatory for personnel engaged in the acquisition process, including program managers, program executive officers and logistics personnel. In addition, in 2009 a senior Navy official told us that the Navy is following up with program managers who previously submitted J&As but stated that the requirement would be competed the next year to see if program managers are actually competing these requirements in the future. In January 2012, we reported that the Air Force revised its process for a recently approved national security class justification for an intelligence, surveillance, and reconnaissance program office, requiring individual contract actions over $85.5 million to be submitted to the Air Force senior procurement executive for expedited review. According to an Air Force General Counsel official, the Air Force has not yet determined what type of documentation will be required as part of that review, but it believes the increased review may identify additional opportunities for competition. We recommended that DOD evaluate the Air Force’s new review process for national security exception actions under class justifications and implement a similar process across the department if it is found beneficial; DOD agreed with this recommendation. In addition to the recent actions DOD has taken, in July 2010, we identified other opportunities to increase competition across the federal government. These include emphasizing the role of program officials in influencing competition, better understanding the circumstances leading to only one offer on competitive contracts, and examining how competition advocates are appointed. We continue to track the agencies’ progress in implementing these recommendations. We provided a draft of this report to DOD and the department responded that it had no comments. We are sending copies of this report to interested congressional committees and the Secretary of Defense. This report will also be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report or need additional information, please contact me at (202) 512-4841 or huttonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff acknowledgments are provided in appendix III. The objectives for this review were to examine (1) how competition for non-research and development (R&D) services compares to competition for products, and trends in competition for non-R&D services at the Department of Defense (DOD); (2) the reasons for noncompetitive contracts and task orders for services; and (3) steps DOD has taken to increase competition for services. To address these objectives, we identified through the Federal Procurement Data System-Next Generation (FPDS-NG) DOD obligations under competitive and noncompetitive contracts in fiscal years 2007 through 2011, the most recent data available when we conducted our review. For competitive contract actions, we included contracts and orders coded as “full and open competition,” “full and open after exclusion of sources,” “competitive delivery order,” and “competed under simplified acquisition procedures” as well as orders coded as subject to fair opportunity and as “fair opportunity given.” For noncompetitive contract actions, we included contracts and orders coded as “not competed,” “not available for competition,” “not competed under simplified acquisition procedures,” “follow-on to competed action,” and “non-competitive delivery order” as well as orders coded as subject to fair opportunity and under an exception to fair opportunity, including “urgency,” “only one source,” “minimum guarantee,” “follow-on action following competitive initial action,” and “other statutory authority.” In addition, we identified fiscal year 2011 obligations under contracts where more than one offer had been received. We calculated competition rates as the percentage of obligations on competitive contracts and orders over all obligations on contracts and orders. We focused our review on non-research and development (R&D) services to concentrate our analysis on contracts not related to development of weapons systems, but conducted limited analysis to understand competition rates for R&D services as compared to non-R&D services and to products, in fiscal year 2011. We also identified trends in competition rates for non-R&D services at DOD components from fiscal years 2007 through 2011. We assessed competition rates across the 23 non-R&D service categories in FPDS-NG as well as across DOD and non-DOD contracting organizations (those organizations that obligated funds for services on DOD’s behalf in fiscal year 2011). We also examined the reasons cited in FPDS-NG for not competing DOD contracts and orders for services in fiscal year 2011. To do so, we selected and reviewed a non-generalizable sample of 111 justification and approval (J&A) and exception to fair opportunity documents to identify what circumstances led to the award of noncompetitive contracts and orders. While agencies are generally required to post J&As to the FedBizOpps.gov website, we did not assess whether the available data represented the full universe. We used a non-generalizable sample to provide illustrative examples of J&As, which was an appropriate approach to meet our reporting objective. The J&A documents we reviewed included: A selection of 77 documents provided by DOD components in response to our request for all justification and approval documents approved by the senior procurement executives in fiscal year 2011.Some of these documents were for a mix of products and services providing weapons system support. A selection of 34 DOD J&As posted on the FedBizOpps.gov website. We selected these to obtain a mix of J&As from: the non-R&D service categories with the highest obligations (Maintenance, Repair, and Rebuilding of Equipment, Professional, Administrative and Management Support, and Construction of Structures and Facilities); each major DOD component (Air Force, Army, Navy, and other Defense agencies); and approvals at various points throughout fiscal year 2011. In addition, we reviewed previous GAO reports, Office of Management and Budget and DOD policies and guidance, and DOD competition reports for fiscal years 2009 and 2010 to identify reasons for not competing contracts as well as actions that have been taken to improve competition at DOD. We also reviewed recent GAO interviews with DOD officials to identify barriers to competition as well as actions underway or planned for the future to improve competition. Interviews were conducted as part of previous work related to government-wide competition, national security competition exception, and acquisition planning. We conducted this performance audit from September 2011 to March 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In fiscal year 2011, competition rates varied significantly among the 23 non-R&D service categories in FPDS-NG—from 43 to 97 percent. Competition rates also varied among the three service categories with the highest obligations, which together made up over half of all non-R&D services obligations. See table 1. In fiscal year 2011, the major DOD components had varying competition rates for non-R&D services. The Air Force had the lowest overall competition rate (59 percent) while other defense agencies had the highest (89 percent). Effective competition—a subset of overall competition which DOD defines as competed actions that received more than one offer in response to a solicitation—rates also varied across the major components (52 percent at the Air Force to 82 percent at other defense agencies). The Navy had the highest percentage of competed actions with only one offer (16 percent). See figure 5 for competition percentages at each major DOD component. In addition to the contact names above, Michele Mackin, Acting Director; Alexandra Dew Silva; Peter Anderson; Georgeann Higgins; Julia Kennon; Jean McSween; Cary Russell; Kenneth Patton; Sylvia Schatz; Roxanna Sun; and Andrea Yohe made key contributions to this report. | Competition is a critical tool for achieving the best return on investment for taxpayers. In fiscal year 2011, the Department of Defense (DOD) obligated about $375 billion through contracts; more than half that amount was for services. Agencies are required to award contracts on the basis of full and open competition, but are permitted to award noncompetitive contracts in certain situations. The Senate Armed Services Committee report on the National Defense Authorization Act for Fiscal Year 2012 directed GAO to report on competition for DOD contracts and task orders for services. GAO examined (1) how competition rates for services compare to competition rates for products and trends in competition for services, (2) the reasons for noncompetitive contracts and task orders for services, and (3) steps DOD has taken to increase competition. GAO reviewed federal procurement data for 2007 through 2011 and a non-generalizable sample of 111 justifications for noncompetitive awards, which were from different DOD components and for different types of services. GAO defines competition rates as the dollars obligated under competitive contracts and task orders as a percentage of all obligations. GAO focused on non-research and development (R&D) services to concentrate analysis on contracts not related to development of weapons systems. GAO reviewed DOD policies and competition reports, and prior GAO reports. GAO is not making any new recommendations. DOD responded to a draft of this report with no comments. In fiscal year 2011, the competition rate for DODs non-R&D services was almost twice the competition rate as that of products, and almost 20 percent higher than that of R&D services. From fiscal year 2007 through 2011, competition rates for non-R&D services have been nearly 80 percent and have not changed significantly across DOD, but have declined at the Air Force, dropping from 75 percent to 59 percent. According to a DOD procurement policy official, the Air Force competition advocate is assessing the reasons for lower competition rates. When non-DOD agencies procured non-R&D services on behalf of DOD in fiscal year 2011, their average competition rate was 81 percent, slightly higher than the average rate of 78 percent for DODs own contracting offices. The majority of DOD noncompetitive obligations for non-R&D services in fiscal year 2011 were due to the contractor being the only responsible source for the procurement. The second most cited exception was authorized by statute, for example, awards under the Small Business Administrations 8(a) business development program. Based on prior GAO work, a variety of factors can affect competition, including reliance on contractor expertise and data rights, the influence of program offices, and unanticipated events such as bid protests. GAO analysis of the justifications for noncompetitive contracts identified examples of these factors affecting competition for DOD procurements in fiscal year 2011. Since 2009, the Office of Management and Budget (OMB) and DOD have undertaken initiatives related to competition, including actions to address some opportunities GAO previously identified. DOD has taken steps aimed at increasing competition, in particular effective competition which DOD defines as situations where more than one offer is received in response to a competitive solicitation. For instance, DOD has implemented requirements to provide additional response time to solicitations when only one offer is received for a solicitation that initially provided less than 30 days for receipt of proposals. Outside of recent efforts to increase competition, OMB and DOD have additional opportunities to address prior GAO recommendationssuch as promoting the role of program officials in influencing competition and better understanding the circumstances leading to only one offer on competitive contracts. |
As you know, technology plays an important role in helping the federal government provide security for its many physical and information assets. Today, federal employees are issued a wide variety of identification (ID) cards, which are used to access federal buildings and facilities, sometimes solely on the basis of visual inspection by security personnel. These cards often cannot be used for other important identification purposes—such as gaining access to an agency’s computer systems—and many can be easily forged or stolen and altered to permit access by unauthorized individuals. In general, the ease with which traditional ID cards—including credit cards—can be forged has contributed to increases in identity theft and related security and financial problems for both individuals and organizations. Smart cards can readily be tailored to meet the varying needs of federal agencies or to accommodate previously installed systems. For example, other media—such as magnetic stripes, bar codes, and optical memory (laser-readable) stripes—can be added to smart cards to support interactions with existing systems and services or to provide additional storage capacity. An agency that has been using magnetic stripe cards for access to certain facilities could migrate to smart cards that would work with both its existing magnetic stripe readers as well as new smart card readers. Of course, the functions provided by the card’s magnetic stripe, which cannot process transactions, would be much more limited than those supported by the card’s integrated circuit chip. Optical memory stripes (which are similar to the technology used in commercial compact discs) can be used to equip a card with a large memory capacity for storing more extensive data—such as color photos, multiple fingerprint images, or other digitized images—and for making that card and its stored data very difficult to counterfeit. Figure 1 shows a typical example of a smart card. Smart cards are grouped into two major classes: contact cards and “contactless” cards. Contact cards have gold-plated contacts that connect directly with the read/write heads of a smart card reader when the card is inserted into the device. Contactless cards contain an embedded antenna and work when the card is waved within the magnetic field of a card reader or terminal. Contactless cards are better suited for environments where quick interaction between the card and reader is required, such as high-volume physical access. For example, the Washington Metropolitan Area Transit Authority has deployed an automated fare collection system using contactless smart cards as a way of speeding patrons’ access to the Washington, D.C., subway system. Smart cards can be configured to include both contact and contactless capabilities, but two separate interfaces are needed, because standards for the technologies are very different. Since the 1990s, the federal government has considered the use of smart card technology as one option for electronically improving security over buildings and computer systems. In 1996, OMB tasked GSA with taking the lead in facilitating a coordinated interagency management approach for the adoption of multiapplication smart cards across government. At the time, OMB envisioned broad adoption of smart card technology throughout the government, as evidenced by the President’s budget for fiscal year 1998, which set a goal of enabling every federal employee ultimately to be able to use one smart card for a wide range of purposes, including travel, small purchases, and building access. In January 1998, the President’s Management Council and the Electronic Processing Initiatives Committee (EPIC) established an implementation plan for smart cards that called for a governmentwide, multiapplication card that would support a range of functions—including controlling access to government buildings—and operate as part of a standardized system. More recently, the Enhanced Border Security and Visa Entry Reform Act of 2002 called for enhancing national security and counterterrorism efforts by using technologies such as smart cards that could provide biometric comparison and authentication to better identify individuals entering the country. In developing this testimony, our objectives were to explain the potential benefits of smart cards, to discuss the challenges to successful adoption of smart cards, and to discuss the steps that federal agencies have taken to address those challenges. To address these objectives, we obtained relevant documentation and interviewed officials from GSA and the Department of the Interior. We also analyzed agencies’ accomplishments and planned activities to promote smart cards in light of the challenges to smart card adoption across the federal government that we identified in our January report. We performed our work between August 2003 and September 2003, in accordance with generally accepted auditing standards. The unique properties and capabilities of smart cards offer the potential to significantly improve the security of federal buildings, systems, data, and transactions. For example, the process of verifying the identity of people accessing federal buildings and computer systems, especially when used in combination with other technologies, such as biometrics, is significantly enhanced with the use of smart cards. Since 1998, multiple smart card projects have been launched in the federal government, addressing an array of capabilities and providing many tangible and intangible benefits, including enhancing security over buildings and other facilities, safeguarding computer systems and data, and conducting financial and nonfinancial transactions more accurately and efficiently. Other potential benefits and uses include creating electronic passenger lists for deploying military personnel and tracking immunization and other medical records. The advantage of smart cards—as opposed to cards with simpler technology, such as magnetic stripes or bar codes—is that smart cards can exchange data with other systems and process information rather than simply serving as static data repositories. By securely exchanging information, a smart card can help authenticate the identity of the individual possessing the card in a far more rigorous way than is possible with simpler, traditional ID cards. Even stronger authentication can be achieved if smart cards are used in conjunction with biometrics. Smart cards can be configured to store biometric information (such as fingerprints or iris scans) in electronic records that can be retrieved and compared with an individual’s live biometric scan as a means of verifying that person’s identity in a way that is difficult to circumvent. A system requiring users to present a smart card, enter a password, and verify a biometric scan provides what security experts call “three-factor” authentication, the three factors being “something you possess” (the smart card), “something you know” (the password), and “something you are” (the biometric). Systems employing three-factor authentication are considered to provide a relatively high level of security. As of November 2002, 18 agencies had reported initiating a total of 62 smart card projects in the federal government. In what could be the largest federally sponsored smart card rollout to date, the Department of Homeland Security’s Transportation Security Administration (TSA) plans to issue smart ID cards to up to 15 million transportation workers who require unescorted access to secure parts of transportation venues, such as airports, seaports, and railroad terminals. TSA’s goal is to create a standardized, universally recognized and accepted credential for the transportation industry. According to agency officials, the card is being designed to address a minimum set of requirements, but it will remain flexible enough to support additional requirements as needed. According to TSA’s plans, local authorities will use the card to verify the identity and security level of the cardholder and will grant access to facilities in accordance with local security policies. In addition to Homeland Security, a number of other agencies have undertaken pilot projects to test the capabilities of smart cards. The Department of the Interior’s Bureau of Land Management, for example, launched a pilot to provide smart cards to about 1,100 employees to be used for personal identification at the bureau’s facilities and to serve as an example to communicate the benefits of smart cards to employees throughout the bureau. According to bureau officials, the project has been a success, and the bureau plans to continue the rollout of smart cards to its remaining employees. Other major smart card projects are also under way at the Departments of the Treasury and State. In addition to better securing physical access to facilities, smart cards can be used to enhance the security of an organization’s computer systems by tightening what is known as “logical” access to systems and networks. A user wishing to log on to a computer system or network with controlled access must “prove” his or her identity to the system—a process called authentication. Many systems authenticate users by merely requiring them to enter secret passwords, which provide only modest security because they can be easily compromised. Substantially better user authentication can be achieved by supplementing passwords with smart cards. To gain access under this scenario, a user is prompted to insert a smart card into a reader attached to the computer as well as type in a password. This authentication process is significantly harder to circumvent, because an intruder would need not only to guess a user’s password but also to possess the same user’s smart card. Smart cards can also be used in conjunction with public key infrastructure (PKI) technology to better secure electronic messages and transactions. A properly implemented and maintained PKI can offer several important security services, including assurance that (1) the parties to an electronic transaction are really whom they claim to be, (2) the information has not been altered or shared with any unauthorized entity, and (3) neither party will be able to wrongfully deny taking part in the transaction. An essential component is the use of special pairs of encryption codes, called “public keys” and “private keys,” that are unique to each user. The private keys must be kept secret and secure; however, storing and using private keys on a computer leaves them susceptible to attack, because a hacker who gains control of that computer may then be able to use the private key stored in it to fraudulently sign messages and conduct electronic transactions. In contrast, if the private key is stored on a user’s smart card, it may be significantly less vulnerable to attack and compromise. Security experts generally agree that PKI technology is most effective when deployed in conjunction with smart cards. The largest smart card program currently in the implementation phase is the Department of Defense’s Common Access Card, which is being used initially for logical access to automated systems and networks. Rollout began in October 2000 with a goal of distributing cards to approximately 4 million individuals across the department by October 2003. In addition to enabling access to specific Defense systems, the card is also used to better ensure that electronic messages are accessible only by designated recipients. The card includes a set of PKI credentials, including an encryption key, signing key, and digital certificate, which contains the user’s public key. Defense plans to add biometrics to the Common Access Card in the future—which may include fingerprints, palm prints, iris scans, or facial features—and to enable users to digitally sign travel vouchers using the digital certificates on their cards. Defense also plans to add a contactless chip to the card in the future to speed physical access for military personnel to Defense facilities. The benefits of smart card adoption can be achieved only if key management and technical challenges are understood and met. While these challenges have slowed the adoption of smart card technology in past years, they may be less difficult in the future because of increased management concerns about securing federal facilities and information systems, and because technical advances have improved the capabilities and reduced the cost of smart card systems. Maintaining executive-level commitment is essential to implementing a smart card system effectively. For example, according to Defense officials, the formal mandate of the Deputy Secretary of Defense to implement a uniform, common access identification card across Defense was essential to getting a project as large as the Common Access Card initiative launched and funded. The Deputy Secretary also assigned roles and responsibilities to the military services and agencies and established a deadline for defining smart card requirements. Defense officials noted that without such executive-level support and clear direction, the smart card initiative likely would have encountered organizational resistance and concerns about cost that could have led to significant delays or cancellation. Treasury and TSA officials also indicated that sustained high-level support had been crucial in launching smart card initiatives within their organizations and that without this support, funding for such initiatives probably would not have been available. In contrast, other federal smart card pilot projects have been cancelled due to lack of executive-level support. Officials at the Department of Veterans Affairs (VA) indicated that their pilot VA Express smart card project, which issued cards to veterans for use in registering at VA hospitals, would probably not be expanded to full-scale implementation, largely because executive-level priorities had changed, and support for a wide-scale smart card project had not been sustained. Smart card implementation costs can be high, particularly if significant infrastructure modifications are required, or other technologies, such as biometrics and PKI, are being implemented in tandem with the cards. Key implementation activities that can be costly include managing contractors and card suppliers, developing systems and interfaces with existing personnel or credentialing systems, installing equipment and systems to distribute the cards, and training personnel to issue and use smart cards. As a result, agency officials have found that obtaining adequate resources is critical to implementing a major government smart card system. For example, at least $4.2 million was required to design, develop, and implement the Western Governors Association’s Health Passport Project to service up to 30,000 customers of health care services in several western states. A report on that project acknowledged that it was complicated and costly to manage card issuance activities. The report further indicated that help-desk services were difficult to manage because of the number of organizations and outside retailers, as well as different systems and hardware involved in the project. Project officials said they expect costs to decrease as more clients are provided with smart cards and the technology becomes more familiar to users; they also believe that smart card benefits will exceed costs over the long term. The full cost of a smart card system can also be greater than originally anticipated because of the costs of related technologies, such as PKI. For example, Defense initially budgeted about $78 million for the Common Access Card program in 2000 and 2001 and expected to provide the device to about 4 million military, civilian, and contract employees by October 2003. It now expects to expend over $250 million by 2003—more than double the original estimate—and likely will not have all cards distributed until 2004. Many of the increases in Common Access Card program costs were attributed by Defense officials to underestimating the costs of upgrading and managing legacy systems and processes for card issuance. According to Defense program officials, the department will likely expend over $1 billion for its smart cards and PKI capabilities by 2005. In addition to the costs mentioned above, the military services and defense agencies were required to fund the purchase of over 2.5 million card readers and the middleware to make them work with existing computer applications, at a cost likely to exceed $93 million. The military services and defense agencies are also expected to provide funding to enable applications to interoperate with the PKI certificates loaded on the cards. Defense provided about $712 million to issue certificates to cardholders as part of the PKI program but provided no additional funding to enable applications. The ability of smart card systems to address both physical and logical (information systems) security means that unprecedented levels of cooperation may be required among internal organizations that often had not previously collaborated, especially physical security organizations and information technology organizations. Nearly all federal officials we interviewed noted that existing security practices and procedures varied significantly across organizational entities within their agencies and that changing each of these well-established processes and attempting to integrate them across the agency was a formidable challenge. Defense officials stated that it has been difficult to take advantage of the multiapplication capabilities of its Common Access Card for these very reasons. As it is being rolled out, the card is primarily being used for logical access—for helping to authenticate cardholders accessing systems and networks and for digitally signing electronic transactions using PKI. Officials have only recently begun to consider ways to use the Common Access Card across the department to better control physical access over military facilities. Few Defense facilities are currently using the card for this purpose. Defense officials said it had been difficult to persuade personnel responsible for the physical security of military facilities to establish new processes for smart cards and biometrics and to make significant changes to existing badge systems. In addition to the gap between physical and logical security organizations, the sheer number of separate and incompatible existing systems also adds to the challenge to establishing an integrated agencywide smart card system. One Treasury official, for example, noted that departmentwide initiatives, such as its planned smart card project, require the support of 14 different bureaus and services. Each of these entities has different systems and processes in place to control access to buildings, automated systems, and electronic transactions. Agreement could not always be reached on a single business process to address security requirements among these diverse entities. Interoperability is a key consideration in smart card deployment. The value of a smart card is greatly enhanced if it can be used with multiple systems at different agencies, and GSA has reported that virtually all agencies agree that interoperability at some level is critical to widespread adoption of smart cards across the government. However, achieving interoperability has been difficult, because smart card products and systems developed in the past have generally been incompatible in all but very rudimentary ways. With varying products available from many vendors, there has been no obvious choice for an interoperability standard. GSA considered the achievement of interoperability across card systems to be one of its main priorities in developing its Smart Access Common ID Card contract, which is intended to serve as a governmentwide vehicle for obtaining commercial smart card products and services. Accordingly, GSA designed the contract to require awardees to work with GSA and the National Institute of Standards and Technology (NIST) to develop a government interoperability specification. The resulting specification defines a uniform set of command and response messages for smart cards to use in communicating with card readers. Vendors can meet the specification by writing software for their cards that translates their unique command and response formats to the government standard. Such a specification previously had not been available. According to NIST officials, the first version of the interoperability specification, completed in August 2000, did not include sufficient detail to establish interoperability among vendors’ disparate smart card products. The officials stated that this occurred because representatives from NIST, the contractors, and other federal agencies had only a very limited time to develop the first version. The current version, version 2.1, released in July 2003, is a significant improvement, providing better definitions of many details, such as how smart cards should exchange information with software applications and card readers, as well as a specification for contactless cards and accommodations for the future use of biometrics. However, potential interoperability issues may arise for those agencies that purchased and deployed smart card products based on the original specification. Although concerns about security are a key driver for the adoption of smart card technology in the federal government, the security of smart card systems is not foolproof and must be addressed when agencies plan the implementation of a smart card system. Smart cards can offer significantly enhanced control over access to buildings and systems, particularly when used in combination with other advanced technologies, such as PKI and biometrics. Although smart card systems are generally much harder to attack than traditional ID cards and password-protected systems, they are not invulnerable. In order to obtain the improved security services that smart cards offer, care must be taken to ensure that the cards and their supporting systems do not pose unacceptable security risks. Smart card systems generally are designed with a variety of features designed to thwart attack. For example, cards are assigned unique serial numbers to counter unauthorized duplication and contain integrated circuit chips that are resistant to tampering so that their information cannot be easily extracted and used. However, security experts point out that because a smart-card–based system involves many different discrete elements that cannot be physically controlled at all times by an organization’s security personnel, there is at least a theoretically greater opportunity for malfeasance than would exist for a more self-contained system. In fact, a smart-card–based system involves many parties (the cardholders, data owner, computing devices, card issuer, card manufacturer, and software manufacturer) that potentially could pose threats to the system. For example, researchers have found ways to circumvent security measures and extract information from smart cards, and an individual cardholder could be motivated to attack his or her card in order to access and modify the stored data on the card—perhaps to change personal information or increase the cash value that may be stored on the card. Further, smart cards are connected to computing devices (such as agency networks, desktop and laptop computers, and automatic teller machines) through card readers that control the flow of data to and from the smart card. Attacks mounted on either the card readers or any of the attached computing systems could compromise the safeguards that are the goals of implementing a smart card system. Smart cards used to support multiple applications may introduce additional risks to the system. For example, if adequate care is not taken in designing and testing each software application, loading new applications onto existing cards could compromise the security of the other applications already stored on the cards. In general, guaranteeing the security of a multiapplication card can be more difficult because of the difficulty of determining which application is running inside a multiapplication smart card at any given time. If an application runs at an unauthorized time, it could gain unauthorized access to data intended only for other applications. In addition to security, protecting the privacy of personal information is a growing concern and must be addressed with regard to the personal information contained on smart cards. Once in place, smart-card–based systems designed simply to control access to facilities and systems could also be used to track the day-to-day activities of individuals, potentially compromising their privacy. Further, smart-card–based systems could be used to aggregate sensitive information about individuals for purposes other than those prompting the initial collection of the information, which could compromise privacy. The Privacy Act of 1974 requires the federal government to restrict the disclosure of personally identifiable records maintained by federal agencies, while permitting individuals access to their own records and the right to seek amendment of agency records that are inaccurate, irrelevant, untimely, or incomplete. Further, the E- Government Act of 2002 requires that agencies conduct privacy impact assessments before developing or procuring information technology that collects, maintains, or disseminates personally identifiable information. Accordingly, agency officials need to assess and plan for appropriate privacy measures when implementing smart-card–based systems and ensure that privacy impact assessments are conducted when required. GSA, NIST, and other agency officials indicated that security and privacy issues are challenging, because governmentwide policies have not yet been established, and widespread use of the technology has not yet occurred. As smart card projects evolve and are used more frequently, especially by citizens, agencies are increasingly likely to need policy guidance to ensure consistent and appropriate implementation that ensures an adequate degree of security as well as privacy. Given the significant management and technical challenges associated with successful adoption of smart cards, an ongoing series of initiatives have been undertaken in the federal government to facilitate the adoption of the technology. As I mentioned earlier, GSA was originally tasked in 1996 with coordinating an effort to adopt multiapplication smart cards across the federal government, and it has taken important steps to promote federal smart card use. For example, since 1998, GSA has worked with several other federal agencies to promote broad adoption of smart cards for authentication throughout the federal government. Specifically, GSA worked with the Department of the Navy to establish a technology demonstration center to showcase smart card technology and applications, and it established a smart card project managers’ group and Government Smart Card Interagency Advisory Board. The agency also established an interagency team to plan for uniform federal access procedures, digital signatures, and other transactions, and to develop federal smart card interoperability and security guidelines. For many federal agencies, GSA’s chief contribution to promoting federal adoption of smart cards was its effort in 2000 to develop a standard contracting vehicle for use by federal agencies in procuring commercial smart card products from vendors. Under the terms of the Smart Access Common ID Card contract, GSA, NIST, and the contract’s awardees worked together to develop smart card interoperability guidelines— including an architectural model, interface definitions, and standard data elements—that were intended to guarantee that all the products made available through the contract would be capable of working together. Several federal smart card projects—including projects at NASA and the Departments of Homeland Security, State, and the Treasury—have used or are planning to use the GSA contract vehicle. This effort is intended to directly address the challenge of achieving interoperability among smart card systems that I mentioned earlier. In our report issued earlier this year, we pointed out additional areas that are important for GSA to address in order to more effectively promote adoption of smart cards, including, among other things, implementing smart cards consistently throughout GSA and developing an agencywide position on the adoption of smart cards. We made recommendations to GSA to address these issues, and agency officials told us they have begun to address them. Specifically, GSA has adopted a new agencywide credential policy and consolidated its internal smart card projects within the Public Buildings Service. It is planning to roll out a uniform smart ID card for all GSA employees by December 2003. In our January report, we also recommended that OMB develop governmentwide policy guidance for adoption of smart cards, seeking input from all federal agencies, with particular emphasis on agencies with smart card expertise. We noted that without such guidance, agencies may be unnecessarily reluctant to take advantage of the potential of smart cards to enhance the security of agency facilities and automated systems. OMB has begun to take action to develop a framework of policy guidance for governmentwide smart card adoption. Specifically, on July 3, 2003, OMB’s Administrator for E-Government and Information Technology issued a memorandum detailing specific actions the administration was taking to streamline authentication and identity management in the federal government. The memo sketched out a three-part initiative: First, OMB plans to develop common policy for authentication and identity management, including technical guidance to be developed by GSA and NIST, that will result in a comprehensive policy for credentialing federal employees. A newly established Federal Identity and Credentialing Committee is intended to collect agency input on policy and requirements and coordinate this effort. Second, OMB intends to execute a governmentwide acquisition of authentication technology, including smart cards, to achieve cost savings in the near term. The memo states that agencies are encouraged to refrain from making separate acquisitions without coordinating with the Federal Identity and Credentialing Committee. Finally OMB plans to consolidate agency investments in credentials and PKI services by selecting shared service providers by the end of 2003 and planning for agencies to migrate to those providers during fiscal years 2004 and 2005. Much work remains to be done to turn OMB’s vision of streamlined federal credentialing into reality. According to GSA’s smart cards program director, it will be difficult to reconcile the widely varying security requirements of federal agencies to arrive at a stable system design that all agencies can adhere to. Even with a new version of NIST’s governmentwide smart card interoperability specification in place, agencies are still not in agreement about definitions for certain basic elements, because advances in technology create endless opportunities to change the specification. For example, the Department of Defense is currently seeking a change in the standard size of a smart card’s embedded identifying code, to strengthen the card’s internal security. However, implementing such a change may be very expensive for agencies already committed to the existing specification. While it is important to keep technical specifications up to date—and addressing security is a challenge that I’ve already noted—frequent changes in specifications could nevertheless slow progress in achieving a governmentwide solution. Given the trade-offs that must be considered, achieving governmentwide interoperability of smart cards could take longer than OMB’s memorandum anticipates. In our January report, we recommended that NIST continue to improve and update the government smart card interoperability specification by addressing additional technologies—such as contactless cards, biometrics, and optical stripe media—as well as integration with PKI. As I discussed earlier, NIST recently issued version 2.1 of the specification, which includes as an appendix a specification for contactless cards, as well as accommodations for the future use of biometrics. NIST officials said they intend to continue working to improve the specification and plan to actively participate in the newly established Federal Identity and Credentialing Committee. Another potential difficulty in achieving OMB’s vision of streamlined federal credentialing could be the need to reach consensus on policies for using smart-card–based systems. In our January report, we recommended that OMB issue governmentwide policy guidance regarding adoption of smart cards for secure access to physical and logical assets, and to do so in conjunction with federal agencies that have experience with smart card technology. According to the chair of the Federal Identity and Credentialing Committee, basic policy guidance on developing smart- card–based systems is being readied, based on work done at the Department of Homeland Security. However, additional guidance will also be needed to define minimum standards for the process of verifying individuals’ identities when credentials are issued to them. According to the committee chair, it is likely that agencies currently have in place a wide variety of ways of performing identity verification, and it will be challenging to achieve consistency in how this is done across government. Without such consistency, agencies might not be able to rely on credentials issued by other agencies, because they would not know what level of assurance was met in issuing those credentials. In summary, the federal government has made progress in promoting the adoption of smart cards, which have clear benefits in enhancing security over access to buildings and other facilities as well as computer systems and networks. However, agencies continue to face a number of challenges in implementing smart-card–based systems, including sustaining executive level commitment, recognizing resource requirements, integrating physical and logical security practices, achieving interoperability, and maintaining system security and privacy of personal information. In July 2003, OMB took an important step in addressing these challenges by issuing new policy for streamlining authentication and identity management in the federal government. However, much work still needs to be done before credentialing systems that are interoperable and achieve consistent levels of assurance are commonplace across government agencies. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other members of the subcommittee may have at this time. If you should have any questions about this testimony, please contact me at (202) 512-6222 or via E-mail at willemssenj@gao.gov. Other major contributors to this testimony included Barbara Collier, John de Ferrari, Steven Law, Elizabeth Roach, and Yvonne Vigil. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The federal government is increasingly interested in the use of smart cards--credit-card-like devices that use integrated circuit chips to store and process data--for improving the security of its many physical and information assets. Besides better authentication of the identities of people accessing buildings and computer systems, smart cards offer a number of potential benefits and uses, such as creating electronic passenger lists for deploying military personnel, and tracking immunization and other medical records. Earlier this year, GAO reported on the use of smart cards across the federal government (GAO-03-144). GAO was asked to testify on the results of this work, including the challenges to successful adoption of smart cards throughout the federal government, as well as the government's progress in promoting this smart card adoption. To successfully implement smart card systems, agency managers have faced a number of substantial challenges: sustaining executive-level commitment in the face of organizational resistance and cost concerns; obtaining adequate resources for projects that can require extensive modifications to technical infrastructures and software; integrating security practices across agencies, a task requiring collaboration among separate and dissimilar internal organizations; achieving smart card interoperability across the government; and maintaining the security of smart card systems and the privacy of personal information. These difficulties may be less formidable as management concerns about facility and information system security increase and as technical advances improve smart card capabilities and reduce costs. However, such challenges, which have slowed the adoption of this technology in the past, continue to be factors in smart card projects. Given the significant management and technical challenges associated with successful adoption of smart cards, a series of initiatives has been undertaken to facilitate the adoption of the technology. As the federal government's designated promoter of smart card technology, GSA assists agencies in assessing the potential of smart cards and in implementation. GSA has set up a governmentwide, standards-based contracting vehicle and has established interagency groups to work on procedures, standards, and guidelines. As the government's policymaker, OMB is beginning to develop a framework of policy guidance for governmentwide smart card adoption. In a July 2003 memorandum, OMB described a three-part initiative on authentication and identity management in the government, consisting of (1) developing common policy and technical guidance; (2) executing a governmentwide acquisition of authentication technology, including smart cards; and (3) selecting shared service providers for smart card technology. These efforts address the need for consistent, up-to-date standards and policy on smart cards, but both GSA and OMB still have much work to do before common credentialing systems can be successfully implemented across government agencies. |
Congress built into the Recovery Act numerous provisions to increase transparency and accountability, including requiring recipients of funds to report quarterly on a number of measures. To implement these requirements, OMB worked with the Recovery Board to deploy a nationwide system at FederalReporting.gov for collecting data submitted by the recipients of funds. OMB set the specific timeline for recipients to submit reports and for agencies to review the data. Recipients are required to submit the reports in the month after the close of a quarter, and, by the end of the month, the reports are to be reviewed by federal agencies for significant errors and missing information before being posted to Recovery.gov. For the programs discussed in this report, information was submitted by recipients for the quarter ending December 31, 2009 (second round reporting) and posted on Recovery.gov on January 30, 2010. While OMB’s role was to provide governmentwide guidance, one of the functions of the Recovery Board was to establish the Web site and to publish a variety of data, including recipient data once it was reviewed by the federal agencies. These data, collected through www.FederalReporting.gov, are made available to the public for viewing and downloading on www.Recovery.gov. The Recovery Act set a demanding schedule for implementing Recovery.gov, requiring the Recovery Board to establish the Web site within 30 days. The Recovery Board’s goals for this Web site were to promote accountability by providing a platform to analyze Recovery Act data and serving as a means of tracking fraud, waste, and abuse allegations by providing the public with accurate, user-friendly information. This was an extensive undertaking across the federal government. OMB, the Recovery Board, and federal agencies, among others, worked to design a Web site, develop the capability to handle tens of thousands of submissions, develop guidance on reporting, and assist recipients in meeting reporting requirements. More specifically, within a short period of time, OMB and the Recovery Board implemented a recipient reporting system that covered a wide-range of programs and provided detailed and up-to-date information on the use of Recovery Act funds. Our fieldwork and initial review and analysis of recipient data from www.Recovery.gov indicated that there was a range of significant reporting and quality issues that needed to be addressed, including issues with interpretations of reporting guidance. OMB told us that achieving the promised degree of transparency will be an iterative process, during which the reporting process and submitted information will improve. The Recovery Act required recipients to report specific information, including descriptive information on each award, which we discuss further in the following section. In the accountability and transparency section of the act, transparency is not specifically defined. However, the act requires that the award information on Recovery.gov be made available to enhance public awareness of the use of funds. Furthermore, both Members of Congress and the President have asserted the need for accountability, efficiency, and transparency in Recovery Act spending, with the administration pledging that the Recovery Act would “break from conventional Washington approaches to spending by ensuring that public dollars are invested effectively and that the economic recovery package is fully transparent and accountable to the American people.” Thus, the transparency of award information on Recovery.gov, particularly in narrative fields (the focus of this review) is particularly important. For this report, we reviewed the 11 energy and infrastructure programs introduced previously. (See table 1.) No awards were made for two of the programs—the Broadband Initiatives Program and the Supplemental Discretionary Grant Program—by December 31, 2009. Awards were made for the other 9 programs by this date, requiring recipients to submit reports for the second round of reporting. Both the Recovery Act and OMB require recipients to report on a wide range of items to track the uses of funds. These items include—but are not limited to—overall descriptions of the awards, projects and activities funded, funding amounts, numbers of jobs created or retained, compensation for certain executives, and awards to subrecipients. As discussed earlier, our focus is on the extent to which descriptions of awards reported by recipients and published on Recovery.gov provide a basic understanding of what funds are being spent on and what outcomes are expected. As a result, we focused on certain reporting requirements and guidance that provide that basic understanding, such as the location of the project and the nature of the award activities. The act created broad requirements for recipient reporting. Specifically, the act requires, among other types of information, that recipients report the total amount of Recovery Act funds received, associated obligations and expenditures, and a detailed list of those projects or activities. For each project or activity, the detailed list must include its name and a description, an evaluation of its completion status, and an estimate of the number of jobs created and the number of jobs retained through that project or activity. The act did not include any more specific interpretation or explanation of these requirements. To operationalize the act’s requirements, OMB provided recipients with a range of guidance through memorandums, supplemental materials, and reporting instructions. Specifically, starting for the period ending September 30, 2009 (and repeated for the quarter ending December 31), OMB’s reporting instructions for the Recipient Reporting Data Model specified that recipients would provide, among other things, the project name, which should be brief and descriptive; a project description that captures the overall purpose of the award and expected outputs and outcomes or results; an award description that describes the overall purpose, expected outputs, and outcomes or results of the award, including significant deliverables and, if appropriate, units of measure; the project status, which was specified as not started, less than 50 percent complete, completed 50 percent or more, or complete; an activity description, which categorizes projects and activities; the amount of the award; and the primary place of performance, which is the physical location of award activities. Three of these fields—project name, project description, and award description—are narrative fields. OMB’s Recipient Reporting Data Model does not specifically address the clarity of such descriptions, although OMB, in its December 2009 guidance to heads of executive departments and agencies, has stated that the narrative information must be sufficiently clear to facilitate understanding by the general public. Several of these fields are defined in ways that are inconsistent with reporting award project and activity information as required by the Recovery Act. Where, for example, funds are awarded using a single award to cover multiple projects, requiring a project description that captures the overall purpose of the award is not consistent with the requirement in the act to report a detailed list of all projects and activities each having its own name, description, completion status, and potential outcomes. Requiring that status, outcomes, or other information covered be reported in single fields on an award-by-award rather than a project-by-project or activity-by- activity basis may convey an incomplete impression if multiple projects or activities are being included. Officials from OMB agreed with this assessment but said that the agency, in creating its guidance and reporting data model, weighed the level of reporting detail required against the potential reporting burden. OMB created the guidance to require general information that could be applied broadly across a wide range of recipients. OMB defined the three narrative fields to solicit high-level information that is not overly specific to a single program. In this regard, the guidance had to be applicable to awards that are for discrete activities at a single location and for a single purpose. For example, under the Federal Highway Administration’s (FHWA) Highway Infrastructure Investment program, an award might be for a single project to widen a section of a road or to replace a substandard bridge. bundle several discrete activities at different locations. For example, under the Federal Transit Administration’s (FTA) Transit Capital Assistance Program, a transit agency could receive an award that has different purposes at different locations. are like block grants in which recipients (i.e., states, territories, and tribes) receive funds for a broad purpose and make subawards to local entities, which then decide the specific uses for which funds are to be spent. For example, under the Department of Energy’s Weatherization Assistance Program, recipients receive funding to enable low-income families to reduce their energy bills by making energy-efficiency improvements to their homes. In turn, the recipients provide grant funds to a number of local agencies to actually carry out the purposes of the program, which might involve modernizing heating equipment in one home and installing insulation in another. are components of a larger project, but are not linked to the larger project for reporting purposes. For example, under the Civil Works Program, the U.S. Army Corps of Engineers (Corps) may enter into a contract (the award) with one company to dredge a river channel and with another company to build a seawall, all for the purpose of improving navigable waters at a specific location. Each recipient reports on the activities conducted under the individual award but not the overall project being funded as each recipient works on only a piece of the larger project. OMB officials also told us the agency created generic reporting guidance because they expected the guidance to be a baseline, with agencies providing supplemental guidance that was more specific to unique program characteristics and situations that OMB’s one-size-fits-all guidance could not effectively address. According to OMB, the agencies would be better sources of program-specific individualized guidance, tailored to the awards made under their programs. As discussed in the next section of this report, most agencies included in our review did provide some type of technical assistance or supplemental materials to aid recipients in reporting. However, most did not develop formal, program-specific supplemental guidance that was approved by OMB, and OMB did not require agencies to do so. For agencies that do develop program-specific supplemental guidance, OMB officials told us that they primarily review this guidance for consistency with their agency’s general guidance, and review the supplemental guidance to ensure its overall sufficiency. OMB officials did not indicate if their review includes whether agencies developed guidance on their narrative fields. Also, while OMB reviews formal guidance, it does not monitor other forms of agency supplemental material or technical assistance provided to recipients. (See apps. I-XI for additional information on the agencies’ reporting assistance and its possible effects on the transparency of descriptions). OMB continues to update its guidance based on lessons learned from early reporting experiences, recognizing that the reporting process is a work in progress. For example, OMB clarified its guidance on calculating jobs created or retained to address issues with the jobs data reported by recipients during the first reporting round. During the course of our review, OMB officials signaled that they are willing to revise their guidance should our assessment or other input suggest that changes are needed, but would need to balance any changes in guidance against additional reporting burdens. We found two instances in which OMB’s guidance on narrative fields was unclear. First, for the award description field, the guidance provided that recipients of grants should describe the overall purpose of the award; recipients of contracts should provide a description of the overall purpose and expected outcomes including significant deliverables. OMB provided three examples of how to fill in the field, at least two of which do not conform to OMB’s expectations: “community development” and “special education – part B/preschool.” These examples provide only high-level titles but do not identify the purpose or outcomes. Furthermore, OMB allowed recipients to enter descriptions of up to 4,000 characters, providing space for more robust descriptions. As a result, based on our assessment of award descriptions, recipients are reporting widely varying types of information in this field—some of it very detailed, while other reporting is quite limited and uninformative. This issue is discussed more fully in the following section and can be seen in award information from Recovery.gov that we reproduced in appendixes I through XI. Second, for the quarterly activities/project description field, OMB instructed grantees to provide a description of the overall purpose and expected outputs and outcomes or results of the award. As mentioned, project description, as that term is used in the act, refers to listed projects or activities, not awards. Instead, OMB's guidance anticipated that, for contracts, recipients were supposed to provide a description of all significant services or supplies delivered in the current calendar quarter. The example OMB provided in its Recipient Reporting Data Model, “Powers and Gold Beach Ranger Districts Curry County OR Has Fuels Item 1 Chetco Area and Item 3 – Powers Area” is, in our opinion, unclear, and it does not meet the general requirements that OMB laid out. As discussed in the next section, the inconsistency and lack of clarity in OMB’s guidance may have contributed to the level of transparency in some of the award description information that we reviewed. We estimate that about a quarter of the awards on Recovery.gov for the nine programs we reviewed were transparent—that is, had sufficiently clear and understandable information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. Many others (an estimated 68 percent) had at least some or most of this information, and a small percentage (an estimated 7 percent) had little of this information. A few factors may have contributed to the lack of transparency in the descriptions we assessed, including the type of guidance and technical assistance provided by OMB and federal agencies. In addition to the information published on Recovery.gov, federal, state, and other public sources provide some additional information on the uses of Recovery Act funds. Because the Recovery Act did not define transparency, we developed our own set of criteria by which to measure the transparency of the awards’ descriptive fields. In order to assess the descriptions, we selected key fields required for recipient reporting from Recovery.gov that describe the uses of Recovery Act funds, including the three narrative fields. Using the Recovery Act, OMB’s guidance, and our professional judgment, we determined that these fields should collectively contain information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work—information necessary to make the use of funds transparent to the public. We also considered the extent to which information in the fields was clear and understandable. We drew a probability (simple random) sample of prime recipient awards to review for each of the nine energy and infrastructure programs that had awards in Recovery.gov for the second round of recipient reporting and compared the descriptions of these awards to our transparency criteria. (See app. XIII for more information about our transparency criteria and overall methodology.) We estimate that 25 percent of the awards for the nine programs we reviewed (out of a total of over 14,000 awards) were transparent—had sufficiently clear and understandable information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. (See table 2.) We estimate that another 68 percent had some or most of this information, but not all. Importantly, the descriptions of awards that partially met our transparency criteria varied widely. Some of these award descriptions had much of the information needed to make them transparent, but might be missing one important aspect, such as the expected outcomes. Other descriptions contained much less information and provided sufficient detail to meet only a few attributes of our criteria, such as purpose and location. Finally, an estimated 7 percent of the descriptions provided little or no information on nature, scope, purpose, location, or outcomes of the award. Recipient-reported information varied widely in its transparency. For example, a Napa, California, transit recipient provided clear information in sufficient detail for the general public to understand the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. Specifically, the description of the award states that it will be used to purchase four hybrid buses and construct a multimodal park-and-ride facility and, as a result, the transit fleet will be modernized, and the park- and-ride facility will allow hundreds of commuters to make more efficient, safe, and timely transit connections. (See table 3.) Thus, we determined that this description met our transparency criteria. Other recipient-reported information was less transparent and partially met our transparency criteria. For example, a weatherization program description for the Commonwealth of Virginia partially met our transparency criteria because it contained some, but not all of the attributes needed to make the use of funds transparent to the public. (See table 4.) For example, the description did not provide information on the scope of the award because it did not indicate how many homes would be weatherized in the state. From publicly available information on other federal and state Web sites, we found information that would have made this description more complete. Specifically, we found that approximately 9,193 homes throughout the state of Virginia will undergo weatherization activities such as tests for carbon monoxide, heating/cooling equipment inspection and repair, domestic water heater insulation, and refrigerator and stove replacement. (The extent to which federal agency and state agency Recovery Act Web sites have material that supplement Recovery.gov recipient-reported information is discussed later in this section.) Finally, some recipient-reported information contained little or no information on what funds are being spent on and what outcomes are expected. These did not meet our transparency criteria. For example information reported by the State of Michigan for a highway project did not describe the location of the roadway or the extent of the project, and used technical terminology to describe the nature of the project—chip sealing—that is not likely to be familiar to the general public. (See table 5.) As a result, this description did not meet our transparency criteria. From publicly available information on other federal and state Web sites, we found information that would have made this description more understandable and clearer. Specifically, we found that the award supports pavement improvement activities to resurface 7.8 miles of Featherstone Road from M-66 to Engle Road north of Sturgis. The award will result in improved driving quality by making the road smoother. For more information on the transparency results for each program, as well as our assessment of each of the 467 awards that we reviewed, see appendixes I-XI. Two key factors may have contributed—positively or negatively—to the transparency of the award descriptions we assessed from Recovery.gov, although we cannot directly correlate our specific transparency results to these factors. Most notably, the guidance provided may have played a role in the degree to which recipients transparently described their awards. As noted in the previous section, OMB’s guidance for reporting information on the uses of an award is unclear, which could have prevented some recipients from meeting some or all of our criteria in the transparency assessment. In addition, the type of assistance—program-specific guidance or technical assistance—as well as the level of detail, which varied across agencies, may have played a role in the extent to which awards met our transparency criteria. Some agencies supplemented OMB’s high-level guidance with program- specific technical assistance on how to meet OMB’s reporting requirements, including specific instructions on what to write in the narrative fields. For example, FTA annotated OMB’s guidance with program-specific instructions and examples for all the reporting fields in FederalReporting.gov. In the project description field, FTA suggested that recipients “describe the specific outputs and outcomes that will result from the grant. This entry should include quantitative information about the activities conducted and items purchased under the grant.” For the most part, the programs in our review for which agencies provided program-specific guidance or technical assistance—Highway Infrastructure Investment, Transit Capital Assistance, and Geothermal Technologies Program—tended to have more transparent descriptions. However, other program-specific factors, such as grant applications that involved creating project descriptions for public dissemination in advance of award selection, may have also played a role in the degree to which such descriptions met our transparency criteria. For example, when some applications required recipients to create project descriptions for public dissemination in advance of award selection, such as in the Broadband Technology Opportunities Program, the recipients may have been more prepared to describe their awards in the narrative fields. For additional information by program, see appendixes I-XI. Other agencies we reviewed only provided general reporting assistance to recipients, primarily by disseminating OMB’s guidance to help recipients navigate OMB’s reporting requirements. However, this assistance did not necessarily include specific clarification or instructions for completing narrative fields. For example, the Department of Energy provides technical assistance to Weatherization Assistance Program recipients that, for the most part, summarizes OMB’s guidance. The Federal Aviation Administration (FAA) distributes OMB’s guidance and provides recipient reporting assistance through each of its field offices, which in turn, determines how to disseminate guidance to recipients. In one FAA field office, a contractor hired to oversee Recovery Act efforts distributed information and guidance to every airport in the region by e-mail. For the most part, the programs in our review that only provided general reporting assistance to recipients, mostly through disseminating OMB’s guidance—Weatherization Assistance Program, Grants-in-Aid for Airports, and the Federal Buildings Fund—tended to have less transparent descriptions. However, other factors, such as the level of experience of the recipients in reporting on government awards, may have also played a role in the degree to which such descriptions met our transparency criteria. For additional information by program, see appendixes I-XI. Federal agencies’ data quality reviews may also have played a role in the extent to which some recipients met our transparency criteria. OMB’s guidance requires that federal agencies conduct data quality reviews to address two key data problems—material omissions and significant reporting errors—but does not specify methodologies for such reviews. However, OMB does require federal agencies to develop data quality plans to articulate how they intend to detect and correct material omissions and significant reporting errors. OMB officials told us that given the limited amount of time federal agencies have to conduct these reviews, identifying misleading or erroneous information must take priority. Officials from almost all of the programs included in this review that had awarded funds for the second reporting round told us that they conduct automated checks of data, specifically of the numerical fields. For example, Department of Energy officials told us that they ensure the quality of recipient reported data for the Weatherization Assistance Program primarily through an automated analysis of key data fields, including the award number, recipient name, award amount, and jobs calculated. In a few cases, they also manually review the data for other anomalies. However, officials from some of the programs included in our review told us they did not typically review the information provided in narrative fields, and, of the three programs that do, none had a systematic process in place to evaluate the accuracy or transparency of the information. For example, FHWA officials told us that they “spot check” the information for significant errors because of the volume of awards—over 10,000—in their program. In light of the importance of the quality of the Recovery Act data, the Recovery Board has worked with federal Inspectors General to establish a multiphased review process to look at the quality of the data submitted by Recovery Act recipients. To date, this process has focused on (1) whether agencies developed data quality reviews in anticipation of the data to be submitted and (2) identified data errors and omissions in recipients’ first cycle reports and factors that may have contributed to them and the actions taken by agencies, OMB, and the Recovery Board to improve the quality of the data that recipients will submit in future reporting cycles. The resulting report did not comment on the quality of the data in the narrative fields. According to the Recovery Board, future reports will focus on the effectiveness of the agency data quality review processes. For information on each agency’s data quality reviews, see appendix XII. Recovery.gov includes award information on Recovery Act spending from both recipients and agencies, as well as various other required agency reports, including agency-specific Recovery Act plans and weekly financial and activity reports. Aside from the information on Recovery.gov, descriptive information on the uses of awards is available through other resources. At the federal level, agency Web sites provide information on Recovery Act activities as required by OMB’s guidance. The level and type of award information provided on agency Web sites varies across the programs we reviewed. For example, FHWA has a link to a spreadsheet on its Web site that provides information such as the location and obligation amount for each award, as well as a short description. The Geothermal Technologies Program Web site has detailed information on each project, including the technology type, recipient name, location, objectives, description, and targets/milestones. The Recovery Act did not require states to establish Web sites to provide Recovery Act information. However, all 50 states and the District of Columbia do post some information on their state-specific Recovery Act Web sites. As with the federal agency Web sites, however, the state Web sites provide varying levels of detail. For example, the New York State Recovery Act Web site, NYWorks (www.recovery.ny.gov), details how the state of New York is spending its Recovery Act funds through a map that provides specific information on each project that has been announced. In addition, the Web site provides links to over 40 other federal, state, and local entities that have additional information on Recovery Act spending. Mississippi’s Recovery Act Web site (www.stimulus.ms.gov) provides links to federal guidance and the recipient reports for projects in the state, but it does not provide additional information on a project-by-project basis beyond what is published on Recovery.gov. In some cases, state auditors have also developed Web pages or sites to provide information to the public on the oversight and monitoring of Recovery Act spending. In addition to federal and state Web sites, information on the uses of Recovery Act funds can be found on some recipients’ Web sites and in other publicly available documents. For example, the Ohio Department of Transportation has a one-page description and photo for most recovery projects that provides detail on the activities and outcomes of that project, as well the expected completion date. Likewise, 36 of the 58 states, territories, and tribes receiving Recovery Act funds through the Weatherization Assistance Program have their weatherization plans on their Web sites. The Department of Energy requires all states, territories, and tribes to create these plans to outline how they will use weatherization funds, including Recovery Act funds. For the most part, the officials we spoke with said they are not systematically tracking the citizen feedback that they have received on publicly available award information. The Recovery Board tracks the total number of comments received on Recovery.gov—it receives about 125 to 200 e-mails per week—but does not categorize the e-mails by type of comment. However, Recovery Board officials told us that they plan to begin linking e-mails to specific projects in the future. OMB officials told us that the information published from the first round of reporting received public scrutiny and commentary, which they viewed as evidence that the transparency and reporting processes for the Recovery Act are working effectively. In fact, based on the comments OMB received, the agency added an automated check to FederalReporting.gov to ensure that certain numerical fields, such as zip codes or congressional districts, were correctly entered. In general, federal agency officials told us that they have received some feedback on Recovery Act awards and the award information made available to the public. Officials from the Weatherization Assistance Program and Grants-in-Aid for Airports Program told us that the public has provided little feedback on awards and the award information made available to the public, while Geothermal Technologies Program officials told us that the public and media have provided positive feedback on the program’s Web site, which provides detailed information on each project. According to officials at a few agencies, many public inquiries on the Recovery Act addressed the availability of funding and jobs, not individual awards. According to FHWA officials, the agency has no baseline information for comparing the feedback on Recovery Act awards with comments on awards made before the Recovery Act, because they did not previously track feedback on project information they provided to the public. The administration faced a daunting task in simultaneously putting in place ways to spend large sums of Recovery Act funds that required, in some instances, developing new programs and, in others, significantly expanding the size of existing ones, while also seeking to make these efforts more transparent to the public than previous efforts had been. Although OMB initially focused on quickly designing a reporting system that covered a vast array of Recovery Act programs delivered in different ways, now that such requirements are largely in place, OMB can begin focusing on other important aspects of its transparency efforts. Specifically, ensuring that the narrative portions of Recovery.gov award descriptions prepared by recipients are understandable is an important aspect of OMB’s transparency effort. These descriptions provide a key mechanism through which the public can understand clearly how their tax dollars are being spent and what is likely to be achieved from these expenditures. Looking forward, OMB has an opportunity to improve the transparency of the recipient-reported narrative information on Recovery.gov by revising its guidance to remedy the problems we found. Assuredly, the more difficult task is having tens of thousands of recipients follow this guidance and report on their awards in a way intended by the act and the administration. In our view, one promising approach is for OMB to work with the executive departments and agencies that seek to provide supplemental guidance on narrative description information. In doing so, OMB can use its central position to further mission agencies' efforts to tailor resulting guidance to their individual situations in a way that furthers the transparency goals discussed in this report. A second approach is for OMB, in partnership with federal agencies, to periodically review the descriptions of awards submitted by recipients and to work with the Recovery Board on the board’s assessments of agencies’ data quality reviews to gain a sense of whether the information reported is meeting the administration’s expectations. We are not making recommendations to individual agencies at this time because we believe that there are actions that OMB can take which may lead to substantial improvements in recipient reporting of narrative information. However, as we continue to monitor OMB’s efforts to achieve transparent Recovery Act spending, we will reassess, as needed, whether actions in these areas are needed. To further the goals of public understanding of what Recovery Act funds are being spent on and what results are expected, we recommend that the Director, Office of Management and Budget, take the following three actions: Revise OMB’s recipient reporting guidance, including the Recipient Reporting Data Model, to provide recipients with clearer general instructions and examples for narrative fields aimed at fostering more complete information on the uses of funds and expected outcomes. Work with executive departments and agencies to determine (1) whether supplemental guidance is needed to meet, in a reasonable and cost-effective way, the intent of the Recovery Act for reporting on projects and activities and (2) whether that supplemental guidance or other agency-proposed technical assistance dealing with narrative descriptions of awards provides for transparent descriptions of funded activities. Periodically (1) review, in partnership with executive departments and agencies, the descriptions of awards—in particular, the narrative fields—submitted by recipients to determine whether the information provides a basic understanding of the uses of the funds and the expected outcomes, and, if not, determine what actions to take, including encouraging agencies to develop or improve program-specific guidance and (2) work with the Recovery Board on the board’s assessments of departments’ and agencies’ data quality reviews to ensure the adequacy of these reviews and further reinforce actions to meet transparency goals. We provided a draft of this report to the Office of Management and Budget; the Departments of Agriculture, Commerce, Energy, and Transportation; the Corps of Engineers; and the General Services Administration for their review and comment. OMB officials agreed with our recommendations. The officials stated that our report would be enhanced if it better communicated information in three areas. First, regarding our findings on transparency, the large “partially met” category contains awards that have a substantial amount of the information needed to understand what funds are being spent on and what outcomes are expected as well awards that contained sufficient information on only a few attributes. Second, OMB asked that we recognize the need to balance more extensive reporting with the effort needed to comply with that reporting. Third, OMB officials suggested that we state more clearly that we assessed the transparency of award information collectively—that is, from reviewing the 12 data fields as a whole rather than from looking at the information contained in each field individually—since some information that might not appear in one data field could show up in another field. We revised our report to better communicate these aspects. The officials also provided technical and clarifying comments, many of which we incorporated. For the most part, the other agencies’ comments were limited to technical and clarifying comments, which we incorporated where appropriate. In its technical comments, the Department of Transportation provided a general comment from FTA that the transit administration believed that many of the award descriptions for transit projects that we assessed as partially meeting our transparency criteria could have been assessed as meeting the criteria. Given the procedures that we used to make our assessment, we remain confident that these assessments were fair and accurate. We do note that providing narrative information is a learning experience, with recipients having opportunities in subsequent reporting rounds to improve their narrative material to be more transparent. Finally, the Department of Commerce provided a letter in which it detailed a number of ways that it undertook to achieve transparency for its Broadband Technology Opportunities Program. (See app. XV.) As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to congressional committees and subcommittees with responsibilities for the programs discussed in this report; the Director, Office of Management and Budget; and the Secretaries of the agencies discussed in this report. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact Katherine Siggerud at (202) 512-2834 or siggerudk@gao.gov for buildings, telecommunications and transportation issues, Patricia Dalton at (202) 512- 3841 or daltonp@gao.gov for energy and Army Corps of Engineers issues. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Contributors to this report are listed in appendix XVI. Within the Department of Agriculture, the Rural Utilities Service’s Broadband Initiatives Program makes funding available for broadband infrastructure projects in rural areas that lack sufficient access to high- speed broadband service. The Recovery Act provides $2.5 billion of budget authority for the Rural Utilities Service to extend grants, loans, and loan/grant combinations to projects for the purpose of facilitating broadband deployment in rural communities. Through the use of loans, the Rural Utilities Service can support a principal amount exceeding the appropriation. On July 9, 2009, the Rural Utilities Service and the Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a joint Notice of Funds Availability detailing the requirements, rules, and procedures for applying for broadband funding. Under this funding notice, the Rural Utilities Service received 401 applications requesting nearly $5 billion, and another 833 applications were joint applications to the Broadband Initiative Program and NTIA’s Broadband Technology Opportunities Program totaling nearly $13 billion. Broadband grants and loans fall into several first round project categories: Last Mile projects. Up to $1.2 billion was available for last mile infrastructure projects in remote and non-remote areas. A “last-mile” project is defined as any broadband infrastructure project that provides service to end users or end user devices. A remote area is an unserved, rural area 50 miles from the limits of a nonrural area, and an unserved area is defined as a proposed service area composed of one or more contiguous census blocks, where at least 90 percent of households in the proposed funded service area lack access to facilities-based, terrestrial broadband service. Middle Mile projects. Up to $800 million was available for Middle Mile projects. A Middle Mile project is defined as a broadband infrastructure project that does not predominantly provide broadband service to end users or to end user devices, and may include interoffice transport, backhaul, Internet connectivity, or special access. The Rural Utilities Service released a separate second funding round notice on January 22, 2010. Under this second funding notice, the Rural Utilities Service received a total of 776 applications requesting nearly $11.2 billion. The second funding notice retained funding for Last Mile and Middle Mile projects, but eliminated the funding category for Last Mile Remote projects. Several new categories have been established for satellite, rural library broadband, and technical assistance, as described below: Last Mile projects. Up to $1.7 billion is available for loans or loan/grant combinations. Middle Mile. Up to $300 million is available for loans or loan/grant combinations. Satellite, rural library broadband, and technical assistance projects. Up to $100 million is available in grants for satellite projects, as well as any and all funds not obligated for Last Mile and Middle Mile projects, and up to $5 million is available in grants for connecting rural libraries and developing regional broadband development strategies in rural areas. Second round awards are expected to be announced starting in June 2010. In the first round, the Rural Utilities Service announced over $1 billion in grants and loans for 68 broadband projects in 31 states, one territory, and 17 tribal lands and Alaska Native regions. According to the Department of Agriculture, these projects will make high-speed Internet available to an estimated 529,000 households and 96,000 rural businesses and public facilities. Of the 68 awarded projects, 49 are for Last Mile non-Remote areas, 13 are for Last Mile Remote areas, and 6 are for Middle Mile projects. As of May 3, 2010, the agency had obligated nearly $250 million for 26 of the 68 awards. There have been no program expenditures to date. The projects selected include a range of efforts to bring high-speed Internet to remote and rural communities that currently have little or no access to broadband technology. Funding has been awarded to a range of providers—small telecommunications companies, wireless providers, and rural electric and telephone providers—to build networks in rural areas. These projects feature a variety of Internet technologies, including wireline and wireless, and are expected to provide Internet connectivity to homes, business, and anchor institutions in rural communities. Since no grant or loan money had been obligated to recipients as of December 31, 2009, there were no awards reported on Recovery.gov for the second reporting round. The Rural Utilities Service did not issue supplemental technical assistance to recipients to augment the Office of Management and Budget’s (OMB) guidance on recipient reporting. Because Broadband Initiatives Program funds have not yet been expended, recipient reporting for the program will not occur until July 2010. Therefore, the agency does not have experience with how well OMB’s guidance ensures that the public has accurate information. Based on information that the Rural Utilities Service received in the first funding round, the agency developed enhanced application guide procedures and developed more comprehensive forms for the applicant’s use that should enable an applicant to submit better data. The agency held a series of workshops together with NTIA in July 2009 and January 2010 coinciding with the first and second funding round notices and agency officials said that they will be hosting upcoming workshops to discuss compliance and reporting requirements. The Rural Utilities Service makes broadband stimulus project information available to the public in several forms, including the following: Department of Agriculture Web site (www.usda.gov/recovery). This Web site includes an overview of all Recovery Act funds provided to the Department of Agriculture and a Recovery Act project map that provides the award recipient, type, and amount, among other things, for all departmental awards. The agency also publishes a blog for each state (linked to the project map), with an entry that briefly describes each award and provides a venue for public feedback. Broadband USA (www.broadbandusa.gov). This joint Rural Utilities Service/NTIA broadband portal includes an information library on Recovery Act broadband programs and an application database. The database, which includes funded applications, provides information such as the project type, proposed project area, description, and in many cases, a project executive summary. Press releases (www.usda.gov/rus). On its site, the Rural Utilities Service posts press releases announcing awards for the Broadband Initiatives Program. According to agency officials, there has been considerable interest from various groups about projects funded by the Broadband Initiatives Program. These comments range from full support for a project to questions about why the agency made an award to a community. Officials stated that, in most cases, the public is satisfied with the information that has been made to the general public, but some groups want more information than the Rural Utilities Service can make available, such as proprietary information about the award recipient. The agency plans to make all information available to the public in conformance with the requirements of the Freedom of Information Act. Within the Department of Commerce, the National Telecommunications and Information Administration’s (NTIA) Broadband Technology Opportunities Program makes grant funding available to a variety of entities for broadband infrastructure, public computer centers, and innovative projects to stimulate demand for, and adoption of, broadband. Of the $4.7 billion appropriated for the program, up to $350 million was also available for the State Broadband Data and Development Program pursuant to the Broadband Data Improvement Act for the purpose of developing and maintaining a nationwide map featuring the availability of broadband data. On July 9, 2009, NTIA and the Department of Agriculture’s Rural Utilities Service released a joint Notice of Funds Availability detailing the requirements, rules, and procedures for applying for broadband funding. Under this funding notice, NTIA received 260 applications requesting over $5.4 billion to fund broadband infrastructure projects in unserved and underserved areas. In addition, parties filed more than 320 applications with NTIA requesting nearly $2.5 billion in grants for projects that promote sustainable demand for broadband services and more than 360 applications with NTIA requesting more than $1.9 billion in grants for public computer centers. Parties submitted another 833 joint applications to the Broadband Technology Opportunities Program and the Rural Utilities Service’s Broadband Initiatives Program requesting nearly $13 billion for broadband infrastructure projects. Broadband Technology Opportunities Program funds were available through the following three categories of eligible projects during the first round: Broadband Infrastructure. Up to $1.2 billion was available for Broadband Infrastructure projects. This category consists of two components—Last Mile and Middle Mile—and funds projects to deliver access to unserved and underserved areas. An “unserved” area is defined as one or more contiguous census blocks, where at least 90 percent of households in the proposed funded service area lack access to facilities-based, terrestrial broadband service. An “underserved” area is defined as one or more contiguous census blocks where (1) no more than 50 percent of the households have access to facilities-based, terrestrial broadband service; (2) the rate of broadband adoption is 40 percent of households or less; and (3) no service provider advertises broadband speeds of at least 3 megabits per second (“mbps”). Public Computer Centers. Up to $50 million was available for projects that expand public access to broadband service and enhance broadband capacity at entities such as community colleges and public libraries that permit the public to use these computing centers. Sustainable Broadband Adoption. Up to $150 million was available for innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable population groups that traditionally have underutilized broadband technology. NTIA released a subsequent funding round notice on January 22, 2010. Under this second funding notice, the agency received a total of 886 applications requesting a total of $11 billion in funding. For the second funding notice, NTIA is adopting a “comprehensive communities” approach as its top priority in awarding infrastructure grants, focusing on Middle Mile projects that connect community anchor institutions, such as libraries, hospitals, community colleges, universities, and public safety institutions. The following project categories are funded in the second funding round: Comprehensive Community Infrastructure projects. Up to $2.35 billion is available for broadband infrastructure projects that emphasize Middle Mile broadband capabilities and new or substantially upgraded connections to community anchor institutions, especially community colleges. Under the second funding notice, a Middle Mile project is defined as any component of a comprehensive community infrastructure project that provides broadband service from one or more centralized facilities (i.e., the central office, the cable headend, the wireless switching station, or other equivalent centralized facility) to an Internet point of presence. Public Computer Centers. At least $150 million is available to provide broadband access to the general public or a specific vulnerable population and must either create or expand a public computer center or improve broadband service or connections at a public computer center, including those at community colleges, that meets a specific public need for broadband service. Sustainable Broadband Adoption. At least $100 million is available to fund innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable groups that traditionally have underutilized broadband technology. Second round awards are expected to be announced starting in July 2010. In the first funding round, NTIA awarded and obligated 82 Broadband Technology Opportunities Program grants worth more than $1.2 billion. As of May 10, 2010, more than $8.6 million had been expended; however, NTIA officials said that more funds have been spent, but not yet drawn down. NTIA has funded 49 infrastructure projects, 20 public computing centers, and 13 sustainable broadband adoption projects in 45 states and territories. In addition, NTIA has initially funded 54 broadband mapping and planning grants in 50 states, three territories, and the District of Columbia, totaling more than $100 million. We assessed the transparency of descriptive information for broadband awards available on Recovery.gov. We found that an estimated 57 percent met our transparency criteria, 43 percent partially met our criteria, and zero percent did not meet our criteria. For broadband descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet the transparency criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. Since the Broadband Technology Opportunities Program is an entirely new program, NTIA focused on developing application processes to ensure the timely distribution of project funding. NTIA did not issue supplemental technical assistance to recipients to augment OMB’s guidance on recipient reporting. The agency held a series of workshops in July 2009 and January 2010 that coincided with the first and second funding round notices, and agency officials said that they will be hosting upcoming workshops to discuss compliance and oversight requirements. According to several grant recipients that we spoke with, agency officials have been very helpful in providing assistance throughout the application and reporting process. NTIA makes broadband stimulus project information available to the public in several forms. For example: NTIA Web site (www.ntia.doc.gov/broadbandgrants/). On April 7, 2010, NTIA launched a new Web site for current information on the Broadband Technology Opportunities Program. The Web site includes sections on Recovery Act grants awarded and grants management, as well as an application database, and will make publicly available copies of reports on award recipients’ progress that contain detailed descriptions of recipient activities. For each award, the agency posts an award summary that includes the name, location, and amount of the award, as well as a detailed description of the award activities and outcomes. Broadband USA (www.broadbandusa.gov). This joint Rural Utilities Service/NTIA broadband portal includes an information library on Recovery Act broadband programs and an application database. The database, which includes funded applications, provides information such as the project type, proposed project area, description, and, in many cases, a project executive summary. Press releases (www.ntia.doc.gov/press). NTIA also posts press releases announcing awards for the Broadband Technology Opportunities Program, including the mapping grants. These press releases typically include short, narrative information on the awards. In addition, award recipients are using a variety of methods to inform the public about their projects, including company/institution Web sites, press releases, and local news media reports. Award recipients told us that they have received hundreds of phone calls or Web inquiries from individuals who were looking for employment or vendors who were attempting to sell goods or services to the award recipients. According to agency officials, there has been considerable interest from various groups about projects funded by the Broadband Technology Opportunities Program. These comments range from full support for a project to questions about why a project was funded in an area where there may already be an incumbent broadband service provider. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. . STATE LIBRARY, ARCHIVES & PUBLIC RECORDS, ARIZONA American Recovery and Reinvestment Act - PCC - Arizona Public Computer Centers The Arizona Public Computer Centers project plans to enhance existing facilities in more than 80 public libraries throughout Arizona. The project expects to deploy more than 1,000 computers across the state to meet the growing demand for public computers and broadband access. The project intends for users to access valuable e-resources and enable libraries to provide training in 21st century skills. The Arizona State Library plans to partner with a variety of government, not-for-profit, and tribal organizations. The Arizona State Library expects 84 public computer centers to serve more than 75,000 users per week or more than 450,000 residents throughout the term of the grant. The Arizona Public Computer Centers project plans to enhance existing facilities in more than 80 public libraries throughout Arizona. The project expects to deploy more than 1,000 computers across the state to meet the growing demand for public computers and broadband access. The project intends for users to access valuable e-resources and enable libraries to provide training in 21st century skills. The Arizona State Library plans to partner with a variety of government, not-for-profit, and tribal organizations. The Arizona State Library expects 84 public computer centers to serve more than 75,000 users per week or more than 450,000 residents throughout the term of the grant. Public, Society Benefit, General/Other (Information not reported) CONNECT ARKANSAS INC. Little Rock, AR 72201-1766 Less Than 50% Completed PUBLIC UTILITIES COMMISSION, CALIFORNIA For Broadband Mapping, CPUC is gathering and verifying broadband data and creating a publicly available, interactive web-based map that will display information about the broadband services and providers available at each address throughout California. For Broadband Planning, CPUC is partnering with the California State University, Chico Research Foundation (CSU), to carry out activities intended to increase broadband subscribership. Broadband Mapping: collection of certain broadband data from all broadband providers in California, specified data verification tasks, GEO-coding, and creation and on-going maintenance of a state-level broadband availability map. Data must be collected, verified, geo-coded, and submitted to the NTIA twice yearly for the entire duration of the broadband mapping portion of this Grant Program. Broadband Planning: identify subscribership levels in order to develop a plan to identify barriers to broadband adoption, develop marketing and promotional material aimed at promoting broadband adoption and usage, and work with broadband providers to encourage high speed Internet services. San Francisco, CA 94102-3214 Less Than 50% Completed 06-50-M09001 GOVERNOR'S OFFICE OF INFORMATION TECHNOLOGY, THE State Broadband Data and Development Grant Program The State of Colorado Governor's Office of Information Technology (OIT) is overseeing Colorado's State Broadband Data and Development Program which will map broadband availability across the state and provide the information regarding broadband service required by the NTIA. OIT will verify this broadband service data through a number of methods. The Broadband Data and Development Program grant also includes a planning effort, funded through five years. This planning program will start by working closely with local stakeholders in several regions of the state to develop local technology planning teams during the first two years of the grant period. The teams will assess broadband demand and barriers to adoption and will disseminate the broadband service information being mapped. Successful methods in developing these teams' work will then be generalized across the state over the last three years of the funded planning period. 12/30/09: Finalizing award documents, selection and contract development of data contractor and defining positions to be hired. 601 East 18th Avenue, Suite 250 08-50-M09032 TECHNOLOGY & INFORMATION, DELAWARE DEPT OF State Broadband Data and Development Grant The Delaware Department of Technology and Information (DTI) was designated by Govenor Markell as the Delaware entity eligible to receive a federal grant under the National Telecommunications and Information Administration's (NITA) State Broadband Data and Development Grant Program. DTI applied for $1,069,922 to cover broadband mapping activities for the first 2 years, as well as $472,811 for broadband planning purposes. DTI will oversee the broadband mapping data collection and verification, including public anchor institution information, and the development of an interactive state broadband inventory mapping system. The resulting data will be presented to NITA per their specifications and also made available to the public from a user friendly website. DTI will leverage exsisting IT infrastructure, and will partner with the University of Delaware's Information for Public Administration (UD-IPA) to achieve the overall NTIA goals. The longer term broadband planning activities will be carried out by DTI in partnership with UD-IPA. Relationships will be built with Technology Planning Teams comprised of representativies from local governments, small businesses, and agricultural communities. These teams will be formed in parallel with mapping activities and will continue for the full 5 years of the program. They will idnentify (1) broadband best practicies for their community; (2) issues affecting the deployment and full use of broadband; and (3) potential projects to expand the use and deployment of broadband in these communities. DTI signed the approved grant on December 16,2009. Internal resources for the the project have been assigned. Initial meetings have been conducted within DTI and the Delaware Office of Management and Budget to review reporting requirements. DTI is currently working on finalizing the Statement of Work with vendor to begin data collection. 10-50-M09029 PARTNERSHIP FOR A CONNECTED ILLINOIS, THE Connect Illinois Mapping and Planning American Recovery and Reinvestment Act - SBDD - The Partnership for a Connected Illinois, Inc. This project, conducted on behalf of the State of Illinois, seeks to employ GIS toolsets and experienced personnel to deliver comprehensive broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning, in a manner compliant with the National Telecommunications and Information Administration?s (NTIA) Notice of Funding Availability (NOFA) for the State Broadband Data and Development Grant Program. The ensuing deliverables will include datasets as required by the NTIA as well as web-based, interactive broadband maps to inform state and local government officials, consumers, broadband providers, community development organizations, researchers, and other stakeholders. This interactive web site (www.ConnectIllinois.org) will be critical to ensure accessibility of the broadband data, but it will also be key to increasing awareness of the mapping program and the benefit of broadband. It will also play an important role in ensuring local verification of the mapping data. Data will be compiled directly from network providers with protection to the proprietary aspects of that data provided by non-disclosure agreements. Connect Illinois partner Connected Nation will utilize the value of long-standing relationships with providers to negotiate the non-disclosure agreements, receive datasets from individual providers, develop comprehensive datasets of Illinois providers of all platforms excluding satellite, then incorporating those datasets into informative GIS mapping that will be the first of its kind in Illinois. The end product of the mapping activities will be that of a highly interactive and accessible mapping suite called BroadbandSTAT. This product will allow easily functional search activity at street levels and will be combined with U.S. Census and research data to provide users with the ability to drill down to neighborhoods, see which companies provide service in their areas, determine the density of households and populations, and county-level adoption rates. Also of great value will be the collection of datasets reflecting the presence of community anchor institutions throughout the state. Teams are already at work identifying the locations of various health care providers, K-12 schools, public and private colleges and universities, public safety answering points (PSAP?s), fire departments, police departments, and ambulance services, and, to the extent permissible, other local emergency services agencies. Community anchor institution data, including connectivity information, will be submitted as datasets to NTIA, but it will also be overlaid within a mapping context to create a remarkable graphic depiction of the locations of these critical connection points from a statewide to a local level. Community anchor institutions tend to be key junctures in the development of telecommunications systems nodes that provide greater access to households and businesses in unserved and underserved areas. Lastly, SBDD funding under this award will provide for five years of planning activities that relate to the consistent and steady communication of the ?messages? of the mapping products throughout the state, including instruction on the use of the mapping tools. Through strategic relationships with various organizations including the Illinois Resource Network, the Governor?s Broadband Deployment Council, the Illinois Library Association, the Illinois Department of Commerce and Economic Opportunity, and the Connect Illinois Broadband Resource Development Council, this project envisions a steady flow of communication and information that will ensure full statewide penetration of awareness of the mapping artifacts and how to employ them at their best and highest uses. Teams are already at work identifying the locations of various health care providers, K-12 schools, public and private colleges and universities, public safety answering points (PSAP?s), fire departments, police departments, and ambulance services, and, to the extent permissible, other local emergency services agencies. Community anchor institution data, including connectivity information, will be submitted as datasets to NTIA, but it will also be overlaid within a mapping context to create a remarkable graphic depiction of the locations of these critical connection points from a statewide to a local level. Community anchor institutions tend to be key junctures in the development of telecommunications systems nodes that provide greater access to households and businesses in unserved and underserved areas. Lastly, SBDD funding under this award will provide for five years of planning activities that relate to the consistent and steady communication of the ?messages? of the mapping products throughout the state, including instruction on the use of the mapping tools. Through strategic relationships with various organizations including the Illinois Resource Network, the Governor?s Broadband Deployment Council, the Illinois Library Association, the Illinois Department of Commerce and Economic Opportunity, and the Connect Illinois Broadband Resource Development Council, this project envisions a steady flow of communication and information that will ensure full statewide penetration of awareness of the mapping artifacts and how to employ them at their best and highest uses. The performing partners of The Partnership for a Connected Illinois, Inc. have been working diligently and proactively during the fourth quarter of 2009 to produce the requisite datasets of broadband availability in the state of Illinois. The federal award notification sent to The Partnership was dated December 29, 2009. As such, ASAP registration at this writing is incomplete. No funds have been received or invoiced as yet. Not withstanding, work continues. A total of 344 potential broadband providers in Illinois were identified. Through further research and direct contact, that number was pared to approximately 250. Non- disclosure agreements were developed, submitted, negotiated, and signed. Data from providers of various size and platform are now submitting data. Negotiations, contacts, and research continues to increase the flow of data. Foundational work has been accomplished in terms of identification and location of community anchor institutions. Recruitment has begun by one subcontractor to hire a researcher specifically assigned to community anchor institution data development. A hire in this regard is anticipated in the first two weeks of 2010. Demonstrations of the BroadbandSTAT product described in the proposal have been made to several state agencies. The combination of highly granular mapping and research will be crucial to the information and development of a statewide comprehensive broadband strategic plan. As described in the Planning Outcomes section, the Illinois Resource Network has agreed to prepare an online tutorial about the Illinois BroadbandSTAT product, increasing access and user-friendliness. Hard work lies ahead, and the performing partners of The Partnership for a Connected Illinois, Inc. remain focused on meeting federal deadlines and providing the citizens of Illinois with quality data, maps, research, education, and broadband advocacy. Partnership for a Connected Illinois, Inc., 150 E. Pleasant Hill Rd, MC 6879 Less Than 50% Completed 17-50-M09033 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Kansas. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Kansas Progress to Date * Commenced with broadband planning efforts in late February 2009 and included working groups among the public sector and provider communities * Provided a number of staff hours in-kind to the planning effort * State of Kansas contracted with professional facilitators to help with the initial organizing of the planning effort * Developed budget/finance cost model for Connect Kansas * Developed, distributed, reviewed and finalized project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Developed and launched a Connect Kansas website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Created and implemented a outreach strategy * Scheduled periodic bi-weekly Connect Kansas project team meetings * Produced bi-weekly status reports, data collection activity log and website statistics; and, distributed to the Connect Kansas project team * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Executed NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed 20-50-M09021 American Recovery and Reinvestment Act ? SBDD ? Massachusetts Technology Park Corporation dba MTC (?Mass Broadband Institute?)?. The goal of the Massachusetts Broadband Mapping Project is to develop detailed and accurate statewide broadband availability and infrastructure datasets to support the development and updating of a national broadband map that will be made available to the public. This goal will be accomplished by: developing collaborative relationships and data sharing agreements with broadband providers to develop a broadband availability database; validating and enhancing the provider database through the analysis of cable strand maps, DSL-equipped central office and remote terminal locations and wireless tower locations and various modeling methods based on the transport technology; verifying broadband availability in the field through a grassroots, civic engagement component using industry experts, partner organizations, and public participation and; making the data easily accessible and useable through an innovative web-based map library, data repository, and searchable broadband map. The MBI will collect, integrate, verify and submit five substantially complete datasets to NTIA in the first quarter of 2010 with subsequent semi-annual updates. A wireline broadband availability dataset will include availability, technology and speed of wireline broadband services by census block or street segment. A wireless broadband availability dataset will include availability, technology, speed and spectrum of wireless broadband services by census block or street segment. A residential broadband speed dataset will include average nominal speed for residential broadband users for each broadband service by metropolitan and rural statistical areas. A middle-mile infrastructure dataset will include location, ownership, technology, capacity and typical speeds of interconnect points between broadband provider services and the Internet. A community anchor institution dataset will include address, current broadband subscribership, technology and typical speed for each community anchor institution in the state (e.g., public safety entities, medical and healthcare facilities, libraries, state and local government entities, schools, community colleges and other higher education buildings). The Massachusetts Broadband Planning Project will identify barriers and assets to the deployment of broadband infrastructure and broadband adoption and then develop and implement innovative solutions to overcome barriers and best utilize assets. These solutions include: developing and supporting Local Technology Planning Teams and organizing outreach efforts to engage, inform, and energize residents, businesses, and public officials; supporting municipalities in making educated decisions on broadband issues impacting their communities, including technology, siting locations, zoning, and permitting; improving access to broadband and increasing adoption rates by providing technical assistance, support and coordination to the public, community anchor institutions, municipalities, and providers and; facilitating the development of public computing centers, training programs, and other efforts to improve broadband access and adoption Quarterly activities for the Massachusetts Broadband Mapping Project included: hiring staff and selecting consultants; purchasing hardware and software; establishing information security policies and procedures; requesting data from and negotiating non-disclosure agreements with broadband service providers; acquiring publicly available cable and DSL data; performing cable and DSL availability modeling by census block; submitting initial statewide availability datasets to the NTIA; and establishing data verification and web site development plans. Quarterly activities for the Massachusetts Broadband Planning Project included: approving a sub-award to WesternMA Connect; developing a community contact database; planning sub-regional public forums; and coordinating with other broadband initiatives in western Massachusetts. Less Than 50% Completed CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Michigan. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Michigan Progress to Date * Developed budget/finance cost model for Connect Michigan * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Developed and launched a Connect Michigan website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Conducted project kick-off meeting with public stakeholders * Scheduled periodic bi-weekly Connect Michigan project team meetings * Compiled and refined broadband provider list * Conducted introductory meeting with broadband provider community * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Started execution of NDAs with the provider community ? Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed 26-50-M09035 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Minnesota. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Bowling Green, KY 42102-3448 Less Than 50% Completed CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Nevada. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Nevada Progress to Date * Developed budget/finance cost model for Connect Nevada * Developed draft of project work plan and Work Breakdown Structure (WBS) * Assigned project team * Developed and launched a Connect Nevada website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, & Outreach Plan * Scheduled and participated in monthly Connect Nevada project team meetings with the Nevada Broadband Task Force * Presented to the broadband providers association meetings * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Started distribution of NDAs to provider community * Executed NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community (National Providers in Nevada) * Distributed broadband coverage data sets to GIS Mapping team for processing. 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed CULTURAL AFFAIRS, NEW MEXICO DEPARTMENT OF American Recovery and Reinvestment Act - SBA - Fast Forward New Mexico NM State Library, University of NM-Los Alamos, Global Center for Cultural Entrepreneurship, and 1st Mile Institute partner to sponsor 'Fast-Forward New Mexico, a broadband stimulus initiative that integrates a statewide broadband awareness campaign, a NM Broadband Conference, and a series of broadband training initiatives in public and tribal libraries across the state. Trainings are in computer literacy and e-commerce. A centralized website and on- line catalog will support current and future trainings. No activities during this quarter. Public, Society Benefit, General/Other SANTA FE, NM 87507-5166 CYBER SECURITY & CRITICAL INFRASTRUCTURE COORDINATION, NYS OFFICE OF American Recovery and Reinvestment Act - State Broadband Data and Development Grant Program - NY State Office of Cyber Security and Critical Infrastucture Coordination In keeping with the Recovery Act's direction that NTIA develop and maintain a comprehensive and interactive national broadband map, NTIA established a grant program where awardees will collect broadband-related data and conduct planning programs at the state level. In addition to supporting state level planning activities, these data will be used to construct the following deliverables: (1) Datasets detailing broadband availability, technology, speed, infrastructure and in the case of wireless broadband, the spectrum used, across New York State. (2) A dataset identifying community anchor institutions and associated broadband information. (3) Development of a statewide interactive broadband map identifying available broadband service levels, providers, unserved and underserved areas. Much of this data will be collected from broadband service providers. Other data sources, existing and to be created, will be used to validate the accuracy and completeness of these deliverables. The overall purpose and expected results of the award are stated above in the Award Description Section. The following is a summary of quarterly activities: (1) Reviewed grant documentation and identified reporting requirements and deadlines; (2) Worked with other NYS agencies to assemble a comprehensive list of companies that potentially provide end user broadband services or provide backbone/infrastructure related services. Contacted approximately 120 of these companies thus far in order to execute non-disclosure agreements and begin the data collection process; (3) Began assembling community anchor institutions dataset from existing and available information; (4) Began procurement process to purchase required hardware and software to complete the project; (5) Began development of workflows to be used to standardize, cleanse, improve, geo-process and validate data received from providers; (6) Began hiring process to staff seven open project team positions. Three were hired in late December but will not be calculated as jobs created until next quarter; (7) Began mapping related planning activities in support of the NYS Broadband Development and Deployment Council. Less Than 50% Completed 36-50-M09010 RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION State Broadband Data and Development Grant Program The purpose of the project is to develop geographic information system maps displaying levels of broadband service by connection speed and type of technology used to integrate the maps with demographic information to produce a comprehensive statewide inventory and mapping of existing broadband service and capability. Project will be compliant and consistent with requirements specified by the U.S. Department of Commerce, National Telecommunications and Information Administration (NTIA) Notice of July 1, 2009 related to the ARRA and Broadband Mapping, specifically the State Broadband Data and Development Grant Program. No activities to report for Qtr 4 - 2009 as grant was awarded on 12/28/09 315 Iron Horse Way, Suite 101 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: South Carolina. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect South Carolina Progress to Date * Developed budget/finance cost model for Connect South Carolina * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team * Developed and launched a Connect South Carolina website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Created a outreach strategy * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community (National) * Executed NDAs with the provider community (National) * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing. 1020 College Street, P.O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed STATE BROADBAND DATA AND DEVELOPMENT GRANT PROGRAM Recipient DBA Name: Tennessee. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connected Tennessee Progress to Date * Developed budget/finance cost model for Connected Tennessee * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Refined Connected Tennessee website to include Broadband Provider page to explain the program and gather information from the provider community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Communications Plan * Conducted project kick-off meeting with stakeholders * Scheduled periodic bi-weekly Connected Tennessee project team meetings * Compiled and refined broadband provider list * Conducted introductory meeting with broadband provider community * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Started execution of NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 618 Church Street Suite 305 Less Than 50% Completed VERMONT CENTER FOR GEOGRAPHIC INFORMATION, INCORPORATED The VT Broadband Mapping Initiative will initiate the development of a comprehensive and verified geographic inventory of broadband service availability in the State of VT. Landline and wireless services (fixed and mobile) will be mapped, including wireless voice and data with information from providers and other sources. The broadband mapping information collected and verified through this proposed effort will then support the broadband development objectives identified in the RUS Broadband Initiatives Program (BIP) and NTIA's Broadband Technology Opportunities Program (BTOP) in VT. Most importantly, the geographic inventory will further refine our understanding of the location of 'unserved' and 'underserved' areas, supporting targeted investments in these areas. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. ARRA SBDD Georgia Technology Authority (GTA) ARRA SBDD Georgia Technology Authority(GTA) The purpose of this project is to provide NTIA (Dept Commerce)and Georgia Public/Private sector stakeholders with broadband mapping and data collection, analysis, and broadband mapping display services for the State of Georgia residents, businesses, and community anchor institutions. The GTA Broadband office operations will utilize planning funds to promote sustainable adoption throughout the state as a part of this project's deliverable. The Georgia Technology Authority is in the process of selecting a vendor through a statement of need process with qualified vendors. We expected to select a mapping vendor by the end of January, 2010. Information GAO gathered to improve the description This award supports broadband data collection, mapping, and planning activities across Georgia over a 2-year period. Data on the availability, speed, and location of broadband across the state will be collected and verified on a semi-annual basis between 2009 and 2011. These data will be used to develop publicly available state-wide broadband maps and to inform the comprehensive, interactive, and searchable national broadband map that the National Telecommunications and Information Administration (NTIA) is required by the Recovery Act to create and make publicly available by February 17, 2011. Mapping Indiana Broadband is a project that will collect, map, verify, and distribute data that will contribute to a publicly available national broadband map to inform policymaker’s efforts and provide better information to consumers about the availability of broadband Internet services. State Broadbamd Data and Development Grant. Award letter received. Grants 100 N Senate Avenue IGCN551 Information GAO gathered to improve the description The award supports collection of information from broadband providers across the state. ADMINISTRATION, LOUISIANA DIVISION OF American Recovery & Reinvestment Act - SBDD - State of Louisiana Division of Administration Louisiana State Broadband Data & Development Program - Data Collection & Mapping; Louisiana State Broadband Data & Development Program - Planning The intent of the award is to allow the State of Louisiana to collect/verify statewide broadband availability and submit the findings to the NTIA, according to the requirements contained in the SBDD NOFA and its subsequent clarification. In this reporting period, we completed our project kickoff meeting and finalized our strategy for Service Provider Outreach. 1201 North 3rd Street, Suite 2-130 Baton Rouge, LA 70802-5243 Information GAO gathered to improve the description The award funds mapping activities including broadband availability data collection, verification, mapping and analysis. These efforts are expected to raise awareness of the availability of broadband, identify barriers to adoption, and develop a plan for sustainable broadband adoption for currently “underserved” and “unserved” businesses and households. Further, these activities will increase coordination and collaboration between the state and regional economic development efforts. Overall Approach/How grant will increase Broadband Adoption: The city's 3 partners who operate the 66 centers are established communiy anchor organizations which provide multipe services to constituents incuding public computing. PCCs are embedded in multi- muliple services organizations providing ideal institutional setting for reaching a large audience of potential broadband adopters. These partners are: The Boston Pubic Library (BPL) and its 25 neighborhood branches; Boston Centers for Youth and Families (BCYF), Boston's largest youth and human services agency serving over 90,000 resident annually in 46 facilities including 29 PCCs; and the Boston Housing Authority (BHA) operating 62 pubic housing sites, serving 11,500 household with 11 computers labs. No fund spent on infrastructure City of Boston/Auditing Dept., One City Hall Sq. R-M-4 Information GAO gathered to improve the description The city is using the award funds to wire 66 community centers and some public housing within the City of Boston for Internet use and purchase a few hundred computers for those centers. These activities will provide internet access to low-income individuals who may not otherwise have access to the Internet. NORTH DAKOTA, STATE OF ARRA-SBDD-North Dakota Information Technology Department $1,305,354 is for efforts related to mapping broadband availability across the state and year two maintenance of that data. $308,400 is for efforts related to broadband planning activities to identify how the state could leverage current organizational structure and relationships, either directly or indirectly, to provide the broadband requirements for additional anchor institutions No project activities occurred during this period (Information not reported) Information GAO gathered to improve the description The award supports broadband planning activities, including drafting non-disclosure agreements, a project plan, and a project schedule. The award covers personnel salaries, travel expenses, and equipment associated with this planning. EXECUTIVE OFFICE STATE OF OHIO State Broadband Data and Development Grant Program State Broadband Data and Development program grant - supports state broadband mapping and related planning activities. Award annouced 12/28/09 - no activities to report for quarter ending 12/31/09. 30 E. Broad Street, 39th Floor Information GAO gathered to improve the description The award supports the development of a statewide map that will pinpoint areas in Ohio that do not currently have access to broadband technology. The activities under this award include collecting broadband data, to be displayed in a national broadband map, and planning delivery of broadband services. PUBLIC UTILITY COMMISSION, STATE OF OREGON State Broadband Data and Development Grant Program Governor Theodore Kulongoski designated the Public Utility Commission of Oregon (PUC) as the single eligible entity to receive a grant under the National Telecommunications and Information Administration (NTIA) State Broadband Data and Development Grant Program. The PUC was granted a $1,609,692 million Broadband Data Collection and Mapping Grant and a $498,610 Broadband Planning Grant. The OPUC selected One Economy through the state's 'Request for Proposal' process to assist Oregon with fulfilling the requirements of these Grant Programs. None to date. 550 Capitol St NE, Suite 215 Less Than 50% Completed Information GAO gathered to improve the description The award supports the collection and mapping of specific data on broadband infrastructure and the availability of broadband services throughout Oregon, including on tribal lands. These data will identify unserved and underserved areas at the most granular level possible; identify community anchor points; be displayed on a publicly accessible and interactive state Web site in the form of a broadband map; be updated semi-annually through 2011; and be provided to the National Telecommunications and Information Administration (NTIA). These data will inform Oregon about the affordability, availability, and adoption of broadband technology in all areas of the state. These data will also provide information for analyzing and reporting on Oregon's use of broadband technology in the telehealth industry and for energy management, education and government. In year 2, additional data collection efforts will provide fresh data that may show the effects of any actions taken by the State of Oregon to address broadband adoption or availability and allow for further development of state broadband strategies. Spokane Broadband Technology Alliane: Public Computer Centers This Public Computer Centers project will provide establish 17 public computer centers throughout the Spokane Washington Area. This is a newly awarded grant. During the 8 days of the quarter the grant was active, we held a press conference, notified stakeholders and partners, had front page coverage in the local newspaper, and established a preliminary calendar. Public, Society Benefit, General/Other Grants 827 West First Avenue, Suite 121 Information GAO gathered to improve the description The award provides 3 new and expands 14 existing public computer centers in Spokane's poorest neighborhoods, and equips a vehicle to bring computers and training to other organizations and hard-to-reach populations. The training will cover basic Internet search training and links to needed services, video production, and using the Internet for small businesses. The award is anticipated to serve 298,906 unduplicated users. Spokane Broadband Technology Alliane: Sustainable Adoption This Sustainable Broadband Adoption project will provide training to individuals and organizations throughout the Spokane Washington Area. We estimate that we will train 12150 people over the three years of the project, and that about 1550 will become new broadband subscribers. This is a newly awarded grant. During the 8 days of the quarter the grant was active, we held a press conference, notified stakeholders and partners, had front page coverage in the local newspaper, and established a preliminary calendar. Place of performance - city, state, and postal code Information GAO gathered to improve the description The award supports sustainable adoption of broadband services, which includes acquiring broadband-related equipment, developing and providing education and training programs, and conducting broadband-related public outreach. The Sustainable Broadband Adoption project in Spokane will provide training at 11 not-for-profit organizations and community centers on the benefits of broadband access to enhance work/life skills. Small businesses are being trained to create an online presence, sell on the Internet, and use social media and low-cost, targeted Web advertising. Additional training will be available at 6 public libraries. GEOLOGICAL & ECONOMIC SURVEY, WEST VIRGINIA ARRA-SBDD-WV Geological and Economic Survey The purpose of this program is to develop a statewide broadband coverage map to provide a comprehensive picture of current infrastructure deployment and availability of broadband service in the State of West Virginia. Working with providers to encourage the provision of service in unserved and underserved areas, and engaging local entities to analyze current use of the technology and educate on service expansion opportunities. this quarter's activity was gathering data from broadband service providers By the way, this is the message I get when changing the number of jobs to 4, since we have not used federal funds yet. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal Amount ARRA Funds Received/Invoiced. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal Amount of ARRA Expenditure. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal ARRA Infrastructure Expenditure. 1124 Smith St, LM-10 Less Than 50% Completed Information GAO gathered to improve the description The award supports the collection and verification of the availability, speed, and location of broadband access across West Virginia. This information will be mapped on a semi-annual basis from 2009-2011, and the map will be used to increase broadband access and adoption through better data collection and broadband planning. PUGET SOUND CENTER FOUNDATION FOR TEACHING, LEARNING ANDTECHNOLOGY, THE Wyoming State Broadband Data and Development Grant Provide targeted, timely and useful information that will enable local solutions to address local broadband priorities for the State of Wyoming: Data Project Feasibility; Expedient Data Delivery; Process for Repeated Data; Updating, Planning and Collaboration In November and December 2009 the project was initiated and the team assembled. Mapping project activities included the execution of NDAs with all relevant providers and the development and release of a broadband provider survey. This online survey was designed to collect coverage and speed information in the format requested by NTIA. Outbound e-mail and telephone calling efforts helped encourage provider responses to the survey. Initial data submissions were reviewed, normalized and stored in a master database. In addition, consumer website templates were developed for the ultimate delivery of statewide maps for Wyoming. Planning activities included the establishment of planning objectives and state oversight procedures. Initial interviews with stakeholders across the State of Wyoming will begin in Q1 2010. 19020 33rd Avenue West Suite 210 Less Than 50% Completed Information GAO gathered to improve the description The award supports the development of a statewide interactive map showing (1) areas that do and do not have broadband access (or have limited access), (2) transmission speeds, and (3) the type of access (e.g., wireless, cable, etc.) available. This information will be used to help broadband providers apply for future infrastructure funding to build capacity across the state of Wyoming. SOUTH DAKOTA NETWORK, LLC South Dakota Network,LLC, $20.6 million grant with an additional $5.1 million matching funds to add 140 miles of backbone network and 219 miles of middle mile spurs to existing network, enabling the delivery of at least 10Mbps service to more than 220 existing anchor institution customers in rural and underserved areas of the state. Delivering 10 Megabit Connectivity for Community Anchor Institutions in areas currently not served. Power and Communication Line and Related Structures Construction (Information not reported) Sioux Falls, SD 57104-2543 $20,572,242.00 Information GAO gathered to improve the description The award is being used throughout the state to add 140 miles of fiber optic cable to an existing 1,850-mile network and an additional 219 miles of fiber optic cable to connect anchor institutions (such as schools, hospitals, and libraries) to the expanded network. Funds will be used for fiber construction, equipment, and end-point electronics, plus permitting and engineering fees. ION Upstate New York Rural Broadband Initiative ION will build 10 new segments for a total of 1308 plant miles of 'Middle Mile' infrastructure, which will incorporate more than 70 additional rural communities into its current statewide fiber backbone. ION will enhance its reach throughout rural New York with its Open Network design; this will enable a host of last mile service providers to bring their products and services to numerous underserved and unserved areas of rural NY. No activities this quarter we are in the planning phase of the project. Power and Communication Line and Related Structures Construction 80 State Stret, 7th floor Information GAO gathered to improve the description The award encompasses 10 projects to build Middle Mile infrastructure that will bring broadband service to 125 anchor institutions. The project will occur throughout the State of New York in a majority of the rural areas of New York and parts of Pennsylvania and Vermont. The Weatherization Assistance Program assists low-income families while improving their health and safety, by making such long-term energy- efficiency improvements to their homes as installing insulation, sealing leaks, and modernizing heating equipment, air circulation fans, and air- conditioning equipment. These improvements enable families to reduce energy bills, allowing these households to spend their money on more pressing needs, according to the Department of Energy. In 2009, the Recovery Act provided $5 billion for the program—increasing the department’s portion for local weatherization efforts by more than 20 times over a 2-year period based on fiscal year 2008 funding levels—about $227.2 million per year. The department distributes 58 awards to each of the 50 states, the District of Columbia, and seven territories and American Indian tribes (recipients) and relies on the recipients to administer the programs. The department had obligated approximately $4.73 billion of the Recovery Act’s weatherization funding to recipients for weatherization activities as of March 31, 2010, retaining about 5 percent of the funds to cover its expenses, such as those for training and technical assistance, management, and oversight for the expanded Weatherization Assistance Program. Funds are available for obligation until September 30, 2010, and the department has indicated that the recipients are to spend the funds by March 31, 2012. As of March 31, 2010, recipients had spent about $659 million, or about 14 percent of the $4.73 billion obligated, to weatherize about 82,200 homes nationwide. Many recipients are just beginning to use Recovery Act funding, in part because certain federal requirements, such as Davis-Bacon wage requirements, affected the ability of some agencies to start work in programs, including the Weatherization Assistance Program, and because they have needed time to develop the infrastructures required for managing the significant increase in weatherization assistance funding. We assessed the transparency of descriptive information for Weatherization Assistance Program awards on Recovery.gov, as described in the report. We found that an estimated: about 12 percent met our transparency criteria, 71 percent partially met our criteria, and 18 percent did not meet our criteria. For weatherization descriptions that partially met or did not meet our transparency criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our Weatherization Assistance Program sample, whether they met our criteria, and information that would complete the descriptions of award activities are provided at the end of this appendix. The department provided additional documentation to assist recipients in fulfilling Recovery Act reporting requirements but did not assess the quality of the information reported by recipients in narrative reporting fields. The department issued supporting documentation on the grant application process for the Weatherization Assistance Program in March and December 2009. This documentation includes information about requirements for a public hearing, budget, and program oversight. The department also issued supporting documentation twice in March 2010, providing additional information about requirements for quarterly reporting and calculation of jobs created. The supporting documentation is available on the department’s Web sites, as is a capability to search responses to frequently asked questions. The department also provided technical assistance restating the Office of Management and Budget (OMB) requirements in the form of reporting instructions and training for completing specific fields, including narrative description fields, to fulfill Recovery Act reporting requirements in December 2009. The department has made its technical assistance available on the Weatherization Assistance Program’s technical assistance Web site, http://www.waptac.org, and has established a call center—the Recovery Act Clearinghouse—to answer specific reporting questions from recipients. This technical assistance includes some information specific to the weatherization program, such as the definition of a completed unit, but for the most part, restates OMB’s guidance, as shown in table 6 for the project description field. However, the department did not evaluate the quality of the information in narrative fields. OMB’s guidance, issued December 2009, states that where a narrative description is required, as in the award description field, the “description must be sufficiently clear to facilitate understanding by the general public.” Department of Energy officials told us that the agency ensures the quality of data primarily through an automated analysis of key data fields, including award number, recipient name, award amount, and jobs calculated, but not including narrative fields, such as award description or project description. Instead, department officials said every weatherization award has an assigned agency reviewer who may, at his or her discretion, review the accuracy of any and all data submitted by recipients. Department of Energy officials said that they do not have a robust process for evaluating the quality of information in descriptive fields because they do not consider the narrative description fields key to reporting and could not automate a review of narrative fields. Also, they noted that the limited scope of the Weatherization Assistance Program ensures that narrative descriptions—such as the award description—are sufficiently clear to be understood by the general public. Weatherization Assistance Program award information is made available to the public by the department, recipients, and some local agencies: The Department of Energy maintains weatherization information and data on its Web site at http://apps1.eere.energy.gov/weatherization/recovery_act.cfm and http://www.energy.gov/recovery/. It also maintains a Web site housing technical assistance for recipients at http://www.waptac.org. Many of the 58 recipients have some weatherization information available on their Web sites that, for example, describes the assistance program, summarizing activities performed, eligibility requirements, the application process, and contact information. In some cases, the Web sites also provide greater detail on the program, including the amount obligated to the recipient, the number of homes weatherized, and the number of jobs created. In addition, approximately 36 of 58 recipients post their weatherization plans on their Web sites. These plans are required for each recipient receiving weatherization assistance funds and outline how funds will be used. Information available in the weatherization plans includes a description of the types of weatherization activities that could be performed, the counties or regions in which weatherization activities will occur, the number of units to be weatherized, the budget for weatherization activities, the community action agencies performing weatherization activities, the energy savings expected, and monitoring activities to ensure the quality of the weatherization activities performed. In accordance with privacy guidance, the specific location for individual homes weatherized is not reported. Several state Offices of Inspector General have issued reports on the Weatherization Assistance Program in their states. Furthermore, recipients also provide weatherization award information through press releases, hearings, public forums, and community meetings. Finally, many of the local agencies that provide weatherization services directly to residents also make information available to the public, through press releases, public service announcements, community events, or Web sites. Most of the feedback that the Department of Energy, recipients, or local community action agencies have received about the Weatherization Assistance Program has been about proposed regulations or weatherization activities performed, and few comments have been about the weatherization information available to the public. At the department, many of the comments received relate to proposed regulations on reporting frequency (and not to project description information). Recipients have received comments and inquiries from individuals wanting to apply for weatherization services or learn how to get a job and from vendors wishing to market products. Inquiries have also addressed how much money the recipient received, how many homes will be weatherized and the total amount of funding to be spent on each household—-but not the accessibility of project description information. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. HUMAN SERVICES, MICHIGAN DEPARTMENT OF Recovery Act Weatherization Award for the state of Michigan Michigan Department of Human Services has been awarded stimulus funding from the U.S. Department of Energy Weatherization Assistance Program for Low-Income Persons in the amount of $243 million dollars over the next three years. The State plan includes changes in the Weatherization Program for year 2009: average cost per unit maximum of $6,500, increase in income eligibility limits to 200% of poverty or 60% of state median income, whichever is higher, and program training plan. Changes in the plan also include the new positions; 10 weatherization inspectors, report analyst, Davis Bacon specialist, grant manager/monitor, fiscal monitor, division manager and the secretary. Funding has been allocated to the 32 Community Action Agencies and Limited Purpose Agencies that serve as Local Weatherization Operators (LWOs) in Michigan under the existing weatherization program. The funding is exclusively for weatherization, which involves the installation of energy efficiency measures on low-income homes. Applications are taken at Local Weatherization Operator offices. Approximately 33,000 homes will be weatherized in Michigan through March 2012 with the ARRA funding. Households generally realize a 25% reduction in their energy usage as a result of weatherization. We have hired 10 technical monitors and they have attended and passed the Level I & II Michigan Inspector training. They were all required to do field activities including 8 inspector shadowing events and 8 inspections where they took the lead. They had to prepare all required paperwork/audit materials for each of these 16 inspections and have submitted to supervision for review and comment. They must next go through the final step in the inspector certification process- the over-the-shoulder Inspector Observation test. This will be scheduled in January. We have acquired two training houses- one in the Upper Peninsula and one in Lansing. These houses are being used to schedule over the shoulder inspection tests, as well as hands on contractor trainings and lead safe weatherization training. As of December 2009, we have trained 180 new program inspectors to ensure an adequate number of inspectors statewide. We have also conducted lead safe weatherization training for over 200 contractor/crew members. We continue to work with local community colleges to adopt the DOE recommended curriculum for contractors/crews that will enable ongoing classroom and hands on weatherization worker training. In support of the program (and of the Jobs Created/Saved/Retained) a total of 703 persons/jobs were supported, in whole or in part, utilizing DOE ARRA funds generating 101,503 hours of work. During this reporting period we have seen an increase in the amount of ARRA funded work grow as new workers ramp up to start projects. There will continue to be a lag between actual Funds Received and actual Funds Disbursed due to the use of 'General Funds' dollars to support the sub-recipient activities until Federal Funds are drawn down to cover the actual expenditures reported. 235 S. Grand Ave., Suite 1314 Less Than 50% Completed Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for the Weatherization Assistance Program (WAP): To reduce energy costs for low-income families, particularly for the elderly, people with disabilities and children, by improving the energy efficiency of their homes while ensuring their health and safety. In October VI WAP was still in the program implementation stage. A 3 day electric base load audit training for staff was conducted on Oct. 7th, 8th, and 9th by Pure Energy Inc. Four members of VI WAP staff were trained and 3 Energy Office engineers who will serve as back up to the VI WAP auditors. VI WAP identified a home that would qualify to be weatherized and used it for a demonstration energy audit. The information obtained in this energy audit was very useful and provided very good information for DOE's technical assistance visit. Oct 19th thru Oct 23rd DOE officials conducted a Technical Assistance Visit and reviewed various VI WAP procedures on Client Intake. VI WAP has started purchasing tools, equipment, and supplies and has obligated funds for two vehicles for the program and funds to pay for the disposal of old refrigerator replaced in the program. November 2009 VI WAP Client Intake was finalized forms for the in-take application, and procedures for determining eligibility, proof of ownership, and ranking system. A web meeting was hosted with DOE on Nov. 17, 2009, regarding the Virgin Islands Priority List, for VI specific energy measures for the program. The major issue being the cost limitation on the refrigerators at $1000.00, which may cause a problem for the Virgin Islands because of the high price of refrigerators due to shipping cost. In December, Susan White a DOE consultant on Procurement and Financial Management trained staff and provided three days of technical assistance. Ms. White assisted VI WAP on finalizing VI WAP's procurement manual and developing RFP’s for the certifying agency, final inspections, and two Requests for Bids. The approved Priority list for the program has still not been approved by DOE. VI WAP also completed the Production schedule average is 15 homes a month being weatherized in the Territory. The goal is 430 home by March 2012. Less Than 50% Completed HOUSING AND COMMUNITY RENEWAL, NEW YORK STATE DIVISION OF Weatherization formula grants allocated to the New York State Division of Housing and Community Renewal (DHCR) under the American Recovery and Reinvestment Act (ARRA). Funds are provided to reduce the energy expenditures of low-income households by conducted instrumented energy audits and installing energy conservation materials such as insulation, weatherstripping and caulk, high-efficiency heating and hot water systems, high- efficiency electrical fixtures and efficient building materials such as windows and doors. Award amount includes administrative funding (up to 5%) that will be retained by DHCR for administration. Funds are allocated to eligible subrecipients throughout the state who are responsible for proper installation, compliance with program rules and quality assurance. ARRA funds are expected to provide energy conservation assistance for more than 45,000 dwelling units. Preliminary activities such as training, conducting energy audits and health and safety tests, and installation weatherization materials in eligible units. Less Than 50% Completed EXECUTIVE OFFICE OF THE STATE OF NEW HAMPSHIRE To audit and weatherize low-income residential single and multi-family units for the purpose of lowering residents' energy costs and increasing their health, safety, and comfort. The program is also designed to decrease greenhouse gas emissions, decrease our country's dependence on fossil fuels, and create jobs, especially in the hard-hit construction related trades. At least 2600 units are slated to be weatherized, coordinated by six Community Action Agencies within New Hampshire. ARRA funding is expected to greatly increase the number of residential units to be weatherized, from a few hundred over two years to 2600 over three years. As of December 31st, all six Community Action Agencies in the state are weatherizing with ARRA funds. Completed units now stand at approximately 275, with at least 100 in the process of being weatherized. Two energy auditing classroom trainings have been held, with over 27 new auditors receiving state energy auditing certification, seven new since the last quarterly report. Two combustion appliance training sessions are being planned for January '10. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. STATE, LOUISIANA DEPARTMENT OF Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. Most activities have continued to support the ramp up of workforce and infrastructure. Baton Rouge, LA 70808-0120 Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 5,646 homes throughout the state will undergo weatherization activities such as performing client education, weatherizing site-built and mobile homes, and making weatherization repairs, such as installing attic insulation and performing basic air sealing. NATURAL RESOURCES, MISSOURI DEPARTMENT OF WEATHERIZATION ASSISTANCE FOR LOW-INCOME PERSONS FUNDING TO BE USED TO INCREASE THE ENERGY EFFICIENCY OF DWELLINGS OWNED OR OCCUPIED BY LOW-INCOME PERSONS, REDUCE THEIR TOTAL RESIDENTIAL EXPENDITURES AND IMPROVE THEIR HEALTH AND SAFETY. A grand total of 1,093 homes have been weatherized by the subgrant agencies through December 31, 2009. A total of 839 homes have been weatherized by the subgrant agencies from October 1, 2009 through December 31, 2009. On October 13, 2009 the Missouri Department of Natural Resources Energy Center (MDNR/EC) staff conducted a one-day administrative and technical training for the subgrant agencies in Branson, Missouri. The training consisted of an update of the revised Weatherization Program Operational Manual and sessions concerning Davis-Bacon requirements, procurement, ARRA reporting, and technical monitoring. During December 2009 seven regional ARRA Energize Missouri Housing Initiative meetings were held throughout the state to provide information and networking opportunities to those interested in participating in the program. Also in December the Department of Labor issued a revised Weatherization wage rate determination for Missouri. The MDNR/EC has hired four weatherization employees to help with ARRA implementation. MDNR/EC has five technical staff that are BPI certified. Jefferson City, MO 65101-4272 Less Than 50% Completed Information GAO gathered to improve the description Over a period of 3 years, 21,506 homes throughout the state will undergo weatherization activities and 221 of these will be reweatherized. Weatherization activities may include air leakage reduction, attic insulation, wall insulation, foundation and floor insulation, duct insulation, heating system clean and tunes, repairs, and replacements, lighting retrofits, and replacement of hot water heaters, refrigerators, and air conditioning units. HEALTH & HUMAN SERVICES, NORTH CAROLINA DEPARTMENT OF Weatherization Assistance for Low Income Persons. American Recovery and Reinvestment Act (ARRA) The Weatherization Assistance Program’s mission is to enhance the well-being of low- income residents, particularly those persons who are most vulnerable such as the elderly, the handicapped, and children, through the installation of energy efficient and energy-related health and safety measures, thus benefiting clients through reduced energy bills, enhanced comfort, and the mitigation of energy related health risks. Sub Recipients will be responsible for weatherizing over 20,000 homes. The Weatherization Assistance Program’s mission is to enhance the well-being of low- income residents, particularly those persons who are most vulnerable such as the elderly, the handicapped, and children, through the installation of energy efficient and energy-related health and safety measures, thus benefiting clients through reduced energy bills, enhanced comfort, and the mitigation of energy related health risks. Sub Recipients will be responsible for weatherizing over 20,000 homes. Office of Economic Opportunity, 222 North Person Street Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 22,000 homes throughout the state of North Carolina will undergo weatherization measures, including air sealing, attic insulation, dense-pack sidewalls, floor insulation, sealing and insulation of ducts, and general heat waste (weatherstripping, caulking, glass patching, water heater tank wrap, pipe insulation, faucet aerators, low-flow showerheads, furnace filters). HOUSING & COMMUNITY DEVELOPMENT, MD DEPT OF Weatherization Assistance Program for low-income persons. The American Recovery and Reinvestment Act of 2009, Public Law 111-5, appropriates funding for the Department of Energy to issue/award formula-based grants under the Weatherization Assistance Program. The purpose of the program is to increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety. The priority population for the Weatherization Assistance Program is persons who are particularly vulnerable such as the elderly, persons with disabilities, families with children, high residential energy users, and households with high-energy burden. Maryland began in earnest ARRA production during the Quarter after working with the LWA's to implement the Davis-Bacon Act requirements for the prevailing wages and required reporting. Production has steadily increased during each month of the Quarter. Maryland completed training for the Hancock Energy Solutions software system for managing all program information and the system is now live. All 18 LWA's are entering client case information into the system and invoices are now being paid out. Maryland DHCD has purchased 4 vehicles (Ford Escape Hybrids) to be used by our quality control inspectors for their field work. Note that costs were two @ $29,300 and two @ $30,860., expenditures that do not show up elsewhere in this report. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 6,850 homes throughout the state of Maryland will undergo weatherization activities such as energy audits, incidental repairs, lighting retrofits, water system treatment, attic and floor insulation, furnace testing and service, blower door air sealing, and health and safety abatement. Weatherization Assistance for Low-Income Persons/ARRA ARRA Supplemental Funding for Weatherization Assitance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. The State of South Carolina plans to weatherize 5000 homes over the three year life of the grant. We anticipate completing 40% of our goal within the first year, and the remainder within the next two and half years. This will be accomplished through a collaborative partnership with both public and private entities. $58,892,771.00 Less Than 50% Completed Information GAO gathered to improve the description Weatherization activities include air sealing, attic insulation, dense-pack sidewall insulation, sealing and insulating ducts, floor insulation, and installation of a smart thermostat, compact fluorescent lamps, and refrigerator. Activities will be performed statewide. HOUSING AND COMMUNITY DEVELOPMENT, VIRGINIA DEPT OF Weatherization Assistance Program for Low-Income Persons To improve home energy efficiency for low-income families through the most cost-effective measures possible. Sub-awardees were expected to complete ramp-up activities. This includes the purchase of additional or upgraded vehicles and equipment, hiring of additional personnel, identifying additional new beneficiaries and limited production increases. 600 East Main Street, The Main Street Centre Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 9,193 homes throughout the state of Virginia will undergo weatherization activities such as tests for carbon monoxide, pre- and post-blower door tests, pressure diagnostic tests, pre- and post-health and safety tests, heating/cooling equipment inspection and repair, floor insulation, domestic water heater insulation, and refrigerator and stove replacement. DISTRICT OF COLUMBIA, GOVERNMENT OF The Weatherization Assistance Program (WAP) grant will provide assistance to reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. The stimulus Weatherization Assistance Program (WAP) will expand efforts to audit income-qualified homes and install energy efficiency measures to reduce energy use. DDOE has completed selection of community-based organizations and is preparing final grant agreements and awards to initiate partnerships with 7 organizations. DDOE has posted 6 position descriptions to hire additional program staff; candidates have been identified and are being screened and interviewed by DDOE human resources. 51 N St. NE 6th FL Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 785 units throughout the District will undergo weatherization activities, including conducting energy audits of single-family and multifamily homes/residences and performing weatherization improvements to these residences, such as installing energy-efficient lighting, insulation, and weather stripping, and replacing windows/doors; heat pump repair; hot water heater repair/replacement; faucet, showerhead replacement, and programmable thermometer installation. Under this award, inefficient air- conditioners and refrigerators will be replaced in order to reduce electric bills in low-income households. LABOR AND INDUSTRIAL RELATIONS, HAWAII DEPARTMENT OF Weatherization Assistance Program for Low -Income Persons Weatherization Formula Grants - American Recovery and Reinvestment Act of 2009 The quarter ending 12/31/09 we processed a total of 14 units have been installed. Of these 9 units are hot water solar systems and 5 are compact fluorescent lights (CFL’S). Projected units installed for the coming quarter is 137. As of this date 107 families have been assessed, 17 are currently being considered for solar installations, and 22 are approved for solar and cfl installations. Applicants to HCAP's WAP-ARRA program are currently in receipt of energy conservation education. Applicants watch a video about general energy conservation practices and receive free copies of the publications 'Power to Save: An Energy Conservation Guide to Your Home' and '101 Ways to Save.' In addition to collateral materials, income eligible applicants received dwelling-specific tips and advice from the WAP-ARRA Technical Specialist during an initial home survey and assessment. During the post-installation phase, vendors will provide information on how to use and care for energy saving devices. HCAP continues to develop and refine its process for related weatherization programming with help from the State of Hawaii, Office of Community Services. In the later part of this quarter the WAP-ARRA Program Specialist and WAP-ARRA Technical Specialist traveled to the island of Kauai to discuss procedures with neighbor island CAPs and to receive technical training from Hawaii Energy. Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 672 households in all four Hawaii counties. These activities include an energy audit service, installation of energy saving devices, and follow-up and energy monitoring of low-income homes, as well as technical assistance and training to subawardees. HOUSING & COMMUNITY SERVICES, OREGON DEPARTMENT OF DOE ARRA Weatherization Assistance Program Statewide The purpose of the Weatherization Assistance Program is to increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety. The program promotes job creation, provides energy savings, and reduces carbon emissions. The priority population for the program is persons who are particularly vulnerable such as the elderly, persons with disabilities, families with children, high residential energy users, and households with high-energy burden. Income requirements for ARRA Weatherization funds are 200 percent of the national poverty level. A DOE-approved energy audit is performed on each home to determine the greatest cost saving measures for the client's dwelling. Weatherization contractors then install the most cost-effective, energy efficient measures, address health and safety concerns, and improve comfort. The use of ARRA funds on dwelling units may include, but are not limited to auditing, testing, and installation of energy saving materials. Energy-efficiency education is also provided for each household receiving weatherization. ARRA Weatherization funds may also be used for training and technical assistance. During the quarter OHCS continued formalizing program and legal agreements with subrecipients and conducted training necessary for proceeding with Weatherization operations throughout the state. Work activities during the period covered a wide range of activities. Through various webinars, tele-conferences, and prepared group training meetings, OHCS has worked with subrecipients developing monitoring and reporting procedures. OHCS continues to analyze subrecipient needs for equipment, vehicles, training and hiring, monitoring and reporting, and feasibility analysis for special projects. OHCS has evaluated at-risk and vulnerable agencies and continues to work with those subrecipients to develop action plans. OHCS continues its coordination with the Oregon Employment Department, Workforce Development, Oregon Energy Coordinators Association and Community Action Partnership of Oregon to develop training plans and the possibilities of leveraged ARRA funding sources. Davis Bacon certified wages were determined and provided to the agencies. Follow-up training for the subrecipients regarding certified payroll issues has been provided. A payroll specialist joined the staff of OHCS during the quarter to facilitate the collection and retention of payroll the certified payroll and to provide guidance to the subrecipients. The monitoring staff has begun scheduled site visits to the subrecipient agencies across the state, evaluating completed jobs and providing weatherization technique training and guidance. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 4,635 homes throughout the state will undergo weatherization activities; the estimated energy savings is 141,368 MBtu. COMMERCE, NORTH DAKOTA DEPT OF Weatherization of Low income homes Weatherization of low income clients in the state of North Dakota. It is planned to weatherized approximately 3267 homes. Weatherization will receive general heat waste measures, insulation measures, diagnostics, windows and doors, Health and Safety measures including furnace replacement and repair. Residiential, multi-family and mobile homes will be weatherized with all measures with a SIR of Greater than 1.5. 310 homes completed as weatherized. 330 homes in-progress. Place of performance - street address (optional field) Less Than 50% Completed Information GAO gathered to improve the description Each weatherization measure to be installed must have savings-to-investment ratio (SIR) equal to or greater than 1 in order to be included as a priority. The award will result in an estimated energy savings of 85,917 MBtu. DEVELOPMENT, OHIO DEPARTMENT OF COMMUNICATIONS Recovery ACT Weatherization Award for State of Ohio Weatherization program provides services to low-income households in Ohio to reduce energy costs. The Home Weatherization Assistance Program (HWAP) weatherized over 5,500 homes with ARRA funds in the state of Ohio since July 1st, 2009. Additional training courses have been added to the Corporation for Ohio Appalachian Development (COAD) training center to meet demand due to the considerable increase of crew and contractor based personnel hiring. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 32,180 homes throughout the state will undergo weatherization activities, including water heater insulation, air leakage repair, furnace tune-up, duct insulation in nonconditioned areas, duct sealing, and the installation of low-flow showerheads. SOCIAL SERVICES, CONNECTICUT DEPARTMENT OF ARRA Supplemental Funding for the Weatherization Assistance Program (WAP): To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. DSS has provided 2 Combustion Safety, 2 Lead Safe, and one OSHA 10 training for weatherization crews and subcontractors. DSS also sponsored 2 Davis Bacon trainings and hosted one statewide ARRA WAP meeting in early December. Through the CCTCs, 1 Building Analyst course was provided to 14 students. Through two workforce investment boards, 2 Weatherization Installer courses were provided to 36 students. To date, more than 125 people have received training for the ARRA WAP program. All DSS ARRA WAP durational project positions have been filled. DSS holds monthly weatherization directors meetings. Through an agreement with the OWC and CT's workforce investment boards, regional workplans have been developed for weatherization training and job creation/retention programs. In addition, the CCTC system is in the process of developing a statewide weatherization training curriculum and building training labs at the vocational and technical high schools. DECD began its pilot project in which 500 state financed elderly housing units will be weatherized in Northwest CT. The sub recipients have finalized their procurement processes and 98 contracts for services and materials have been executed. Total FTEs for the reporting period are 34.33; however, approximately 79 persons have worked for ARRA WAP during this quarter. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 7,500 homes throughout Connecticut will undergo weatherization activities, such as attic insulation, sidewall insulation, air-sealing/infiltration measures, basement/crawlspace ceiling insulation, pipe and duct insulation, and install storm windows/doors and primary windows/doors. HEALTH AND WELFARE, IDAHO DEPARTMENT OF Department of Energy - Weatherization The Department of Energy ARRA Weatherization Award will be used to weatherize an additional 3,198 low and moderate income (at or under 200% federal poverty income guidelines) homes by March 31, 2011. This will result in job creation, projected to at least double current staffing as well as increase the use of contractors, promoting retiention. Projections indicate that the material purchased to weatherize homes will at least triple during the project period. Less Than 50% Completed Information GAO gathered to improve the description The award includes weatherization activities such as attic, floor, and wall insulation, door/window replacement, furnace repair/replacement, refrigerator replacement, duct sealing and insulation, water pipe insulation, and water heater replacement. Weatherization Assistance Program for Low Income Persons Under the Recovery Act ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. Legislative Building 416 Sid Snyder Avenue S.W. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 7,170 homes throughout the state will undergo weatherization services such as an energy audit, a complete visual assessment, assessment of electric base load measures, diagnostic tests, energy-related health and safety assessments, client education, appropriate low-cost measures, applicable weatherization-related repairs, and a thorough consideration of the client and residence. There is an estimated energy savings of 701,927 MBtu. BUSINESS AND INDUSTRY, NEVADA DEPARTMENT OF Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons; To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. With $11,572,667.00 of grants awarded in the first cycle, NHD anticipates providing weatherization assistance to approximately 2,000 homes. Production began the first week of November due to state stipulations that had to be met, and work is now moving forward. Department of Employment, Training and Rehabilitation (DETR) is contracting with nonprofit collaboratives to provide weatherization worker training to approximately 300 individuals who we anticipate will be absorbed into the workforce by our current contractors. NHD has hired a compliance auditor/inspector, project specialist, and a Davis Bacon compliance specialist with additional staff to be added as needed. 1535 Old Hot Springs Road, Suite 50 Carson City, NV 89706-0679 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities by five service providers throughout Nevada. The activities include minor home repairs, floor and duct insulation, refrigerator replacement, and shell infiltration sealing. LEGISLATIVE OFFICE OF THE STATE OF WEST VIRGINIA To increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety, especially low- income persons who are particularly vulnerable such as the elderly, persons with disabilities, familes with children, high residential energy users, and households with a high energy burden. To weatherize low-income persons homes throughout the State of West Virginia according to the Department of Energy and West Virginia Weatherization Field Standards. 950 Kanawha Blvd. E., 3rd Floor Less Than 50% Completed Information GAO gathered to improve the description The award will support weatherization activities for 3,574 homes throughout West Virginia. These activities include cleaning and tuning heating systems; air sealing; duct, attic and floor insulation; and replacement of heating systems, doors, and windows. The award is expected to result in an energy savings of 57,269 MBtu. Recovery Act - Weatherization Formula Grants - Low-Income Households Second qtr activities included ramping up by increasing the number of state monitors, issuing grants to subrecipients, and providing training on American Recovery and Reinvestment Act of 2009 (ARRA) rules, the Davis Bacon Act, and other related regulations. Weatherization-related training opportunities have been provided to new State and Service Provider Weatherization Assistance Program staff. The MN Department of Commerce (DOC) hired additional weatherization field and fiscal monitoring staff. 1,392 homes have been weatherized using ARRA funds. 101 of these homes were monitored by ARRA DOC weatherization staff. These monitoring visits were also used to train new DOC weatherization staff. 85 Seventh Place East, Suite 500 Saint Paul, MN 55101-2198 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for about 16,850 homes in all Minnesota counties and 6 of the state's 11 Native American reservations. Weatherization activities include air leakage and infiltration reduction, attic insulation, wall insulation, health and safety repairs/replacement, duct sealing and room-by-room pressure balancing, cleaning and tuning heating systems, efficiency-based heating system replacements, and belly and duct repairs/sealing. ARRA Weatherization Assistance for Low Income Persons ARRA Weatherization Assistance Program for Low Income Persons provides funding for improving the energy efficiency of low-income dwellings to decrease energy consumption and thereby decrease the cost of energy for low-income families. ARRA Weatherization Assistance Program for Low Income Persons provides funding for the improvement of energy efficiency of dwellings to decrease energy consumption and thereby decrease the cost of energy for low-income families. This is accomplished through the state's network of Community Action Agencies and is headed by Community Action of Kentucky, the subrecipient of grant funds. Grants Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 9,907 homes throughout Kentucky. These activities include attic, wall, and floor insulation; incidental repairs; infiltration reduction; and health and safety measures. The award is expected to result in an energy savings of 268,644 MBtu. COMMUNITY AFFAIRS, FLORIDA DEPARTMENT OF The U.S. Department of Energy (DOE) awarded $175,984,474 to Florida for the Weatherization Assistance Program (WAP) through the American Recovery and Reinvestment Act (ARRA). These funds are to help reduce the monthly energy burden of Florida's low-income population households by making those dwellings more energy efficient. To date, DOE has released 50% of the total award amount to the state. The funding, administered by the Florida Department of Community Affairs, will be passed through to the existing 27 provider agencies (community action agencies, non-profit entities and county governments) covering the 67 counties statewide. Each of these providers, along with the contractors and vendors participating in the program, have an integral role in job creation and retention by providing energy efficiency improvements on low-income dwellings. Weatherization activities may include: addressing air infiltration with weather stripping, caulking, thresholds, minor repairs to walls, ceiling and floors and window or door replacement; applying solar reflective coating to manufactured homes; adding ceiling and floor insulation; evaluating efficiency of heating and cooling systems, refrigerators, water heaters; and installing solar screens, low flow shower heads, compact fluorescent light bulbs, water heater and water line insulation. One hundred percent of the beneficiaries of the WAP are below the 200% federal income guidelines. During the first quarter, primary activities were focused on capacity-building and training at the local provider level. Local providers were required to complete specific benchmarks, prior to receipt of ARRA working weatherization grants. Benchmarks included: completion of one- week weatherization inspector training for existing and new employees with follow-up field testing, purchasing of additional equipment, and validation and eligibility verification of client waiting lists. During the second quarter, all but one of the 27 local providers completed the required benchmarks. Weatherization grant awards were executed with 26 agencies and those agencies began weatherizing dwellings. A new oversight measure of field monitoring was also implemented within the second quarter. Field monitors were trained by state Weatherization staff and in November the monitors began their ongoing responsibility of reviewing 100% of client files and inspecting 50% of the weatherized homes. Training on Davis Bacon requirements was also provided statewide by a representative of the U.S. Department of Labor. Statewide contractor training curriculum was developed and implementation begins in the third quarter. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 19,090 homes. HOUSING & COMMUNITY AFFAIRS, TEXAS DEPARTMENT OF Recovery Act-Weatherization Assistance Program for the State of Texas The Weatherization Assistance Program assists low-income households control energy costs to ensure an healthy and safe living environment. Qualified households may receive weatherization materials installed in their residences and/or energy conservation education. Continued administrative activities at the prime recipient level and weatherization work at the subrecipient level. $326,975,732.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for 33,908 homes across the state. Weatherization activities include measures to reduce air infiltration, such as replacement of doors and windows, repairing of holes and caulking; installation of ceiling, wall and floor insulation; replacement of energy inefficient appliances and heating and cooling units; and energy education to help families reduce their energy consumption. Subawardees will receive training that will include basic and advanced weatherization, weatherization program management, NEAT software, and Davis-Bacon administration. THE EXECUTIVE OFFIC OF THE COMMONWEALTH OF PUERTO RICO The Weatherization Assistance Program helps low-income families to attain a reduction of household energy expenditures, while securing and enhancing the health and safety of the home. Of particular concern to the program is to provide assistance to the elderly, families with children, persons with disabilities, and those with a high energy burden in their household. Due to the warm climate of the island, weatherization efforts will be directed at improving the efficiency of cooling systems, reduction in electrical energy demand of light fixtures and selected household appliances, and mitigate energy-related health and safety concerns. To maximize the benefits of the program, work will be performed by trained personnel, and the process will be monitored from initial client application to certification of completed weatherization work. The period of performance is estimated from 4-1-2009 to 3- 31-2012. The Evaluation Committee for the Call Center studied the proposals received and made their recommendations to subgrantee's, PRIFA, Board of Awards. The pre-bid meeting for the Refrigerator Replacement Services Bid was held. Refrigerator Replacement Services Bid Documents were prepared, and the newspaper bid announcement was published. The Evaluation Committee for the compact fluorescent lamps (CFLs) bid began evaluating the proposals received. Water Heater Replacement Services Bid Documents were prepared, and the newspaper bid announcement was published. Trainers (ECA) contract was signed and their first visit ocurred on December 29 and 30. The Evaluation Committee for the qualification of auditors and inspectors met and selected the inspectors to be invited for the training. Evaluation of auditors started this period. Probable intake locations were visited to evaluate the physical conditions and necessities to adjust the locations to the intake process. Evaluation of probable training facilities was finished and sent to PRIFA for their comments and final decision on which facility to use. Draft report on the Energy Audit Tool to be used by auditors in Puerto Rico WAP was prepared. After grantee's, EAA, revision, the agency will submit the document to the DOE. The document includes a brief description of the Puerto Rico housing stock, photos, climate description, explanation of audit tool for all the weatherization measures for which the Savings to Investment Ratio (SIR) needs to be calculated, samples of SIR calculations for each of the measures, and a priority list which describes SIR tendencies for the different weatherization measures. Weatherization Environmental Agencies Building Floor 8 Street 8868, PO BOX 41314 San Juan, PR 00940-0285 Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 5,500 homes throughout Puerto Rico will undergo weatherization activities such as installing reflective films; addressing air leakage in air-conditioned areas; installing solar water heaters; replacing refrigerators, water heaters, and air conditioners with Energy Star rated units; replacing incandescent lamps with compact fluorescent lamps (CFL); replacing shower heads; installing smart power strips to avoid phantom loads; and other work to mitigate energy-related health and safety concerns. GOVERNOR'S OFFICE OF ECONOMICS DEVELOPMENT Provide home weatherization services to eligible low-income households, includin furnace replacement, insulation, etc., with the goal of reducing energy usage, energy production and greenhouse gas output, as well as reducing utility bills. Weatherization staff has been hired at 9 local area agencies responsible for implementing the Weatherization Assistance Program. 558 homes have been completed and another 842 are in progress. 324 South State Street, Ste. 500, N/A Salt Lake City, UT 84111-2388 Less Than 50% Completed Information GAO gathered to improve the description Through the award, approximately 4,466 homes will undergo weatherization throughout the state. Weatherization of homes ultimately completes the plan to upgrade State Energy Infrastructure. As the primary focus being on lowering energy liabilities electricity providers are charging onto the costumers. Through education, trainning and audits/assessments the consumers can learn the benefits of using Energy Efficiency and Conservation measures in their homes. However, the State Plan wishes to initiate this program for the first time by focusing on replacing electricity appliances and other electricity devices with certified Energy Star units. Several deliverables applicable in the State plan include Solar Water Heater, Electric Stove, Refrigerator, Air Con, Microwave, Cloth Washers, and etc.. Home assessments are continued and an environmental regulatory issue needs be resolved prior to initiating any production to measures guided under the State Plan. This issue perhaps should be finalized before this quarter expires. American Samoa Government, Territorial Energy Office Pago Pago, AS 96799-0000 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 225 homes throughout American Samoa. PUBLIC HEALTH AND HUMAN SERVICES, MONTANA DEPARTMENT OF Recovery Act - Weatherization Assistance Program for Low Icome Persons ARRA - Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderlly, people with disabilities and children, by improving the energy efficiency of their homes while ensuring their health and safety. These funds will provide grants for local Human Resource Development Councils that apply to pay to weatherize homes with the oriiginal created and retained remaining active. . As with all weatherization projects, the applicants will be asked to provide planning and accountability documentation. The Weatherization Program’s mission is to increase the energy efficiency of homes occupied by low-income individuals, thereby reducing their energy costs. The program has reduced the annual heating costs of recipient households by an average of approximately 32 percent. It serves approximately 2,000 high energy burden households each year. ARRA funding will allow the Weatherization Program to serve at least 2,500 more families and to double the average labor and materials expenditure per dwelling for cost-effective energy conservation measures. As of November, 2009, 253 homes have been weatherized and audited in Montana with an additional 411 that are in the process of being weatherized. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 2,477 homes throughout Montana. These activities include stoppage of air infiltration; heating systems tune-ups; water heater, attic, floor, perimeter, and wall insulation; installation of storm windows, replacement doors, moisture controls, ventilation materials, pipes, and duct wrap. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. COMMUNITY SERVICES & DEVELOPMENT, CALIFORNIA DEPARTMENT OF Recovery Act - Weatherization Assistance Program Recovery Act - Weatherization Assistance Program Formual Block Grant - DOE WAP. The initial allocation is dedicated for CSD & Agency ramp up, this included training, new hires & vehicle purchases. The training also included creating a web based WX training ciriculum web site. 700 N 10th St Rm 258 Less Than 50% Completed Information GAO gathered to improve the description The award allows 42 subawardees to weatherize 43,400 eligible low-income dwellings in all California counties. In addition to start-up activities such as training, hiring, and vehicle purchases, this award supports weatherization activities, including the installation of ceiling insulation and carbon monoxide alarms. The award will result in an estimated energy savings of 1,742,370 MBtu. Weatherization Assistance for Low-Income Persons ARRA supplemental funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the envergy efficiency of their homes while ensuring their health and safety. As this is the first report for WAP ARRA funds, most activity has supported ramp up of workforce and infrastructure. Oklahoma City, OK 73104-3234 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for about 7,000 homes in all Oklahoma counties. These activities include cost-effective energy efficiency measures, including attic insulation, caulking, weather stripping, and air sealing. The award is expected to result in an estimated energy savings of 310,640 MBtu. HUMAN SERVICES, VERMONT DEPARTMNT OF The ARRA Weatherization Assistance Program mission in to reduce the energy burden of low income persons while ensuring their health & safety. Grants have been written to the 5 sub-awardees and training has begun. Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for approximately 1,612 homes in 15 counties in Vermont. Weatherization activities include heating system modifications; installation of cost-effective levels of attic, wall, floor, duct, and foundation insulation; and water heater and water pipe insulation and modifications. The award is expected to result in an energy savings of 60,588 MBtu. FAMILY SERVICES, WYOMING DEPARTMENT OF Recovery Act Weatherization Award for State of Wyoming (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 900 units throughout the state will undergo weatherization activities such as installing insulation, sealing and balancing ducts, and mitigating heating loss through windows and door. HUMAN SERVICES, TENNESSEE DEPARTMENT OF Weatherization Assistance for Low-Income Persons Weatherization Assistance Program, Recovery Act Reduce energy costs for low-income families through increased energy efficiency. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 10,524 homes throughout Tennessee. These activities include attic, wall, floor, and duct insulation; air sealing; heat waste reduction measures; refrigerator replacement; and window and door repairs. The award is expected to result in an energy savings of 320,952 MBtu. GOVERNMENT OF GUAM - DEPARTMENT OF ADMINISTRATION MOU being established with Guam Energy Office and Guam Housing and Urban Renewal Authority, an agency which works closely with HUD and has the qualifications and the knowledge to assist in determing which dwelling qualifies and falls under the WAP guidlines as stipulated in the grant activity. 548 N Marine Corps Dr $1,119,297.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for 204 homes throughout the territory of Guam. Weatherization activities include the replacement or repair of refrigerators, air conditioners, low-flow shower heads, and faucets, compact fluorescent lamp (CFL) fixtures, and water heaters. The award will result in an estimated energy savings of 3,060 MBtu. Within the Department of Energy, the Geothermal Technologies Program (geothermal program) provides grants, cooperative agreements, and contracts to support scientific research to find, access, and use geothermal energy in the United States. In fiscal year 2009, the geothermal program received $43.3 million in annual appropriations; the Department of Energy provided an additional $400 million in Recovery Act funds for geothermal activities and projects that should be completed within 3 years. According to program officials, the geothermal program received a tremendous and unprecedented response to its solicitations announcing Recovery Act funding opportunities. Specifically, the program office received 529 applications in response to the grant solicitations and over 50 applications in response to a solicitation for the department’s national laboratories. Out of these applications, the program office selected 151 projects—124 projects were submitted by private industry, academic institutions, tribal entities, and local governments, and 26 projects were submitted by 10 national labs. The program office also established an interagency agreement with the U.S. Geological Survey to work on 1 project. In terms of awarding grants and contracts for projects, program officials told us that a grant is equivalent to a project because the grant is awarded to one recipient and funds are provided directly to the recipient. However, this concept does not hold true for all contracts awarded to the national labs for a project. This is because a national lab can be involved in a collaborative project that includes one or more partner labs. In this case, individual “activities” from each national lab would be completed and contribute to the completion of the overall project. Unlike grants, funding from the program office is provided directly to the lab performing the work. Consequently, a national lab project can be equivalent to one contract or multiple contracts. The department selected the projects to receive grants under the Recovery Act in October 2009, but according to program officials, it had not finished awarding the grants until February 2010. The program officials told us that some lag time (e.g., 5 to 6 months) between project selection and award is typical. As of April 23, 2010, the program office had obligated almost $343 million of the $393 million in appropriations (about 87 percent); however, only 28 recipients had spent any funds, and they had only spent 2.6 percent (almost $9 million). Program officials told us that the expenditure rate was low because many projects were recently awarded and had not started. Almost 60 percent of the geothermal program obligations under the Recovery Act were split evenly between enhanced geothermal systems research and development projects and innovative exploration technologies projects. Specifically, over $101 million (30 percent) was obligated to 50 enhanced geothermal systems research and development projects, while about $98 million (29 percent) was obligated to 22 validation of innovative exploration technologies projects. (See fig. 1.) The rest of the obligations funded the following three project areas: almost $62 million (about 18 percent) was obligated to 37 ground source about $50 million (about 15 percent) was obligated to 14 geothermal about $31 million (about 9 percent) was obligated to 5 national geothermal data system projects. We assessed the transparency of the descriptive information for geothermal awards available on Recovery.gov. We found that an estimated 33 percent met our transparency criteria, 62 percent partially met our criteria, and 5 percent did not meet our criteria. For geothermal descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our criteria. The geothermal descriptions of awards in our sample, whether they met our criteria, and information that we found to provide a fuller understanding of the award are provided at the end of this appendix. Although supplemental materials were available to assist with recipient reporting, recipients did not always follow the directions in these materials. Additionally, geothermal program officials did not review narrative description fields in Recovery.gov, which may have led to some reporting errors. Both the Department of Energy and the Office of Science provided supplemental materials that directed recipients to a source document (e.g., the award letter) where information can be found to complete a required field. In addition, the department provided training on the reporting requirements through webinars, while the geothermal program office held a video conference with recipients (i.e., the national labs). Furthermore, the department has a Recovery Act Clearinghouse available to answer questions from recipients, and it posts responses to frequently asked questions on its Recovery Act Web site. Moreover, geothermal program officials told us that they do not review these narrative description fields because information in these fields is available on the geothermal Web site. Likewise, department officials told us that they do not review these fields because the information is fully described in the award documents. However, we identified two issues with the fields that may have affected the transparency of some information reported by the national labs. First, information on the overall status of four national lab projects that involve multiple labs may not come across clearly in the narrative description fields. This is because Recovery.gov was set up to track Recovery Act spending at the recipient level and not at the project level. According to geothermal program officials, Recovery Act funds are provided directly to a lab to complete its activities on a project. Consequently, multiple labs working on the same project would report their individual activities in multiple records in Recovery.gov. For example, Lawrence Berkeley National Laboratory was the prime recipient for a project on enhanced geothermal systems using carbon dioxide as a heat transmission fluid, and the Idaho National Laboratory was identified as a partner lab. As required, both national labs reported their activities on this project in two separate records in Recovery.gov. Unless narrative information disclosed that this project involved more than one lab, the expectation might be that these were two different projects. Second, six national labs did not submit a separate report for each activity as specified in the supplemental materials provided by the department. The six labs combined two to four different activities into a single report. As a result, 18 separate activities were reported in just six records. When we spoke with program officials, they were unaware of the requirement that recipients report on projects separately. They told us that their preference for national labs reporting on multiple activities is explained in the annual program guidance letter. However, based on our review of a few program guidance letters, we believe that the preference of the program office is for the labs to report each activity separately because this is how the activities are presented in the letters. According to geothermal program officials, information on the geothermal projects funded by the Recovery Act is made available to the public using other means besides Recovery.gov. For example: The Geothermal Technologies Program Web site (http://apps1.eere.energy.gov/geothermal/projects/). This Web site provides detailed information on each project, including the technology type, recipient name, location, objectives, description, and targets/milestones. It provides a database that allows the public to search for a project by, among other things, funding source, location, and technology type. The Department of Energy Recovery Act Web site (http://www.energy.gov/recovery/). It provides weekly updates on departmental projects and programs funded by the Recovery Act, including data on appropriations, obligations, and outlays. Press releases. These provide information on major announcements, such as announcements on the availability of Recovery Act funding. (http://www.eereblogs.energy.gov/geothermaltechnologies/). This provides the public with the opportunity to learn about and discuss geothermal activities. Weekly Recovery Act success stories. These highlight the results of Recovery Act funding on recipients. If the department selects a geothermal story, then it appears on the department’s Recovery Act Web site. Program officials told us that the geothermal program has become more visible to the public during the past two years. Although the program office has not conducted any surveys to determine how consumers are becoming aware of the program, they believe that new articles and the Recovery.gov Web site could be contributing to the increased awareness. Program officials also told us that the public, the community, and reporters have provided positive feedback on the geothermal Web site, noting that the Web site is easy to navigate. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Geothermal Technologies Program Enhanced Geo Science R&D Task 1) Design, develop, and field test highly integrated, high temperature data loggers using silicon on insulator and silicon carbide technologies. Task 2) Develop a drilling system based upon pneumatic down the hole hammer bits and polycrystalline diamond compact bits. Task 3) Test supercritical fluids in a pilot-scale Brayton Cycle and evaluate the performance of the working fluids. Requirements: Task 1 Milestones: Field Dewarless 240C PTC Tool-9/30/10; Evaluate existing Dewar Technology-9/30/10; Design analog MCM-01/31//11; Status report-03/31/11. Deliverables: 1) Dewarless 240C PTC Tool; 2) Report evaluating existing Dewar technology; 3) Design of analog MCM; 4) Status report. Task 2 Milestones: Year 1: Complete Initial Field Trials-9/30/10; Year 2: Implement Design Changes from Initial Field Trials-9/30/11. Deliverables: Report evaluating existing Dewar technology. Task 3 Milestones: 1) Prediction of thermodynamic properties for a single component fluid through the critical point-10/1/10. 2) Obtain full vapor-liquid equilibrium envelopes & critical points for one set of mixtures-4/1/11. 2) Milestones 1: Verification complete mixing & thermodynamic equilibrium between components can be obtained so appearance of new phase can be reliably detected (Go/no- Go).; Deliverables 1) thermodynamic properties for several candidate working fluids; 2) computational toolbox for analysis of mixtures of fluids, turbine design & cooling needs; 3) experimental results from Brayton cycle rests; & 4) recommendations for new working fluids. (For Performance outcomes & measures see Work Authorization Plan) Thie original project has been separated into three separate projects; 1) ARRA Drilling Technology (145316) with $588,600, 2) ARRA Geo Thermal Turbines (146694) with $150,000; and 3) Base Technologies ARRA (144299) with $885,600. The budget total has remained the same. The scope, deliverables and milestones are being developed. AL85000 Develop a new type of biphasic working fluid for subcritical geothermal systems that utilizes microporous nanostructured metal-organic solids as the primary heat carrier and heat transfer medium to support an organic Rankine cycle. Provide information on temperature distribution, fracture spacing, and fracture surface area in EGS (Enhanced Geothermal Systems). Develop suites of tracers with different properties that can be injected into geothermal systems, extracting the desired information by interpreting the differences in transport behavior of these compounds in the reservoir. SA 56595 - Project team members from PNNL, LANL, and BNL participated in a meeting at the Energy and Geoscience Institute (EGI) at the University of Utah on December 8, 2009. The purpose of the meeting was to share information on the geothermal tracer programs at EGI and the four national labs the project team plus INL) and to explore ways that the programs can interact. Following this meeting, the project team discussed the next steps for 2004190- EGS R&D and agreed to begin laboratory testing of PFT compounds early next calendar year. A tentative schedule was developed that included a meeting in late winter at Los Alamos to further plan laboratory testing. In parallel with the laboratory effort, PNNL and LANL will develop a modeling approach, conduct predictive simulations to identify optimal thermal and surface adsorption properties for geothermal tracers, and examine the sensitivity of the model to a range of tracer properties. Results from this sensitivity analysis will be used to guide subsequent laboratory-scale testing of candidate tracers. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Less Than 50% Completed DE-AC05-76RL01830 BATTELLE ENERGY ALLIANCE, LLC Enhanced Geothermal Systems (EGS) Technology R&D ($1.953M). This scope of work includes four scopes of work. 1) Air-Cooled Condensers in Next-Generation Conversion Systems. The Idaho National Laboratory (INL) will identify and resolve issues that are associated with using air-cooled condensers in next-generation energy conversion systems, achieve the full benefits of using mixed working fluids in air cooled binary cycles, evaluate the benefits of using air-cooled condensers with flash steam cycles, and establish criteria for designing air-cooled binary plant turbines. 2) Enhanced Geothermal Systems with CO2 as Heat Transmission Fluid. The INL will conduct experiments for evaluating the effect of supercritical carbon dioxide, at elevated temperatures, on precipitation and dissolution of mineral phases that are typical of geomedia found in geothermal reservoirs. 3) Physics-Based Fracture Stimulation, Reservoir Flow and Heat Transport Simulator. The INL will develop a physics-based rock deformation and fracture propagation simulator by coupling a discrete element model for fracture generation with a continuum-based multiphase fluid flow and heat transport model. 4) Advancing Reactive Tracer Methods for Measuring Thermal Evolution in CO2 and Water-based Geothermal Reservoirs. The INL will develop a set of tracer test planning and analysis tools to define the parameters necessary for successful testing, identify new tracers suitable to a wide range of potential reservoir volumes and permeabilities, and demonstrate the utility of newly developed tracers in a system representative of Enhanced Geothermal Systems. Quarterly activities are listed below for the four scopes of work as mentioned above. 1) Personnel have been developing power plant (conversion system) models that will be used to assess the benefits of applying different equipment concepts having the potential to increase performance from air-cooled binary plants. Emphasis has been on plants to be used with EGS resources. Model development has been largely been completed. The reasonability of model performance estimates are being assessed by comparing estimates to operating data from existing plants. 2) Experimental design for batch experiments involving supercritical CO¨2/water/mineral reactions was planned. Reactor components were ordered and/or under construction. Initiated laboratory safety review and approval process. 3) Over the past quarter, significant progress was made in the development of advanced computer models for predicting the behavior of enhanced geothermal systems. 4) A high-performance liquid chromatograph was purchased and has been installed in the laboratory to perform tracer analyses. A computer program was developed to model the migration of thermally reactive tracers through a fractured geothermal system. This code was used to evaluate testing strategies for tracer experiments. Experiments were conducted to encapsulate reactive tracers. The experiments showed that encapsulsted tracers could be made and are stable at room temperature. All Other Professional, Scientific, and Technical Services Idaho Falls, ID 83415-0001 Less Than 50% Completed DE-AC07-05-ID14517 LOS ALAMOS NATIONAL SECURITY, LLC LANL?s project will develop a multipurpose (simultaneous multiple physical parameter determination) acoustic sensor for downhole fluid monitoring in EGS reservoirs over typical ranges of pressures and temperatures and then demonstrate the capabilities and performance of this sensor for conditions in different EGS systems (with a wide range of temp/pressure and geophysical/geological conditions). Specific technical challenges are finding the right material for the sensor that can withstand working temperatures of up to 374×C and pressures up to 22 MPa; developing the most efficient design/geometry for the sensor to sustain the high temperature ? high pressure conditions specific for a typical EGS system; and the fluid flow determination requires either high flow rates or turbulent flow (vortices or disturbances) and/or impurities/gas bubbles present in the fluid. The multipurpose sensor that LANL proposes is capable of accurately measuring temperature, pressure, and fluid composition at in situ conditions expected in geothermal environments and is needed in nearly every phase of an EGS project, including testing of injection and production wells, reservoir validation, inter-well connectivity, reservoir scale-up, and reservoir sustainability. The Swept Frequency Acoustic Interferometry (SFAI) technique was originally developed at LANL for noninvasive identification of chemical warfare compounds in a multitude of weapons and a wide range of containers for international treaty verification and counterterrorism purposes. Since then, the technique has been significantly refined and expanded, and LANL will adapt SFAI and combine new approaches to extract multiple fluid parameters from a single sensor. Although the underlying basis of the SFAI technique is proven, it has never been applied to geothermal exploration primarily because the requirements of high temperature and pressure were not needed in earlier applications; this application will require some novel adaptation and sensor development and associated physics. A thorough literature search was performed in order to identify the best choice of piezoelectric materials to be used. Curie temperature (TC) is an important factor in high-temperature applications, as the transducers lose their piezoelectric property completely at temperatures close to TC. Typically, it is best not to exceed half of Tc. Piezoelectric materials and their TC, in ½C: PZT (195-300), AlN (600), LiNbO3 (1150), Langasite (1000), Langatate (>1500). The langasites and langatates are piezoelectric materials discovered recently and are still under investigation by the scientific community. We are planning to investigate the material properties at high-temperatures and determine if there are advantages in using these new piezoelectric materials in the development of the multipurpose acoustic sensor. Several PZT and Lithium Niobate transducers with different center frequencies, ranging from 1 MHz to 6 MHz, were investigated above room temperature. Langasite and/or langatate piezoelectric material has to be acquired and machined into transducers. Milestone Status As planned. Significant Procurements Investigated and identified the equipment necessary: Parr Instrument Pressure Vessel, Model 4681; Air Pressure Amplifier, Haskel AAD-30; Thermocoax cables (high temperature coaxial cables); Bode 100 Vector Network Analyzer; Tektronix Arbitrary Function Generator; Tektronix Oscilloscope; Materials for transducers (Lithium Niobate, Langatate and or/Langasite). Hiring A postdoctoral job was posted on several web-sites targeting recently graduated PhD?s. From a pool of 30+ applicants, we narrowed the list to 2 potential postdocs, which we interviewed on site. Dr. Blake Sturtevant graduated in Dec 2009 form University of Maine, and is very experienced in the field of Acoustics, with extensive experience related to high-temperature piezoelectric materials. Dr. Sturtevant has accepted the job offer, and he is planning to start in middle of January 2010. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed UNIVERSITY OF UTAH, THE ECONOMIC IMPACT ANALYSIS FOR EGS The proposed project is aimed at studying the economic development and impacts associated with electric power production resulting from Enhanced Geothermal Systems (EGS), conventional hydrothermal, low temperature geothermal, and coproduced fluid technologies. The project also involves analysis of these results to develop an impact assessment model that could be used across the Nation for impact assessments with an ability to quantify the potential employment, energy and other environmental impacts associated. Further to developing such a tool, we will also be carrying out a Utah region study to validate the GEC tool developed and will publish a detailed report on the economic impacts associated with Geothermal technologies considered for this study in the Utah State. The 24- month project is divided into three discrete phases: Phase 1: Data gathering ? collect the associated cost data for each of the different technologies Phase 2: Economic Impact Analysis ? design studies to understand all the impacts associated, and Phase 3: Outreach activities ? Communicate the findings to the industry and the research community to validate the studies used to roll out an impact assessment tool, the GEC tool. Research & Public Policy Analysis 75 S 2000 E RM 211 SALT LAKE CITY, UT 84112-8930 DE-EE0002744 LOS ALAMOS NATIONAL SECURITY, LLC Field tests (Fenton Hill, USA; Hijiori, Japan) strongly suggest that our ability to image fluid flow and temperature distribution in enhanced (engineered) geothermal reservoirs (EGS) needs to be dramatically improved to optimize the operation of injection and production wells and the placement of new wells. The objectives of this project are to (1) improve image resolution for fracture detection, (2) image the flow in the fractures with super-resolution imaging, and (3) quantify fluid flow and temperature changes during and after stimulation. This research will provide vastly improved, high-resolution images of pre-existing and created fractures and fluid flow in EGS reservoirs. Focusing on the data available from short term-stimulation treatments, while developing imaging and modeling technology of importance to the long-term operation of an EGS system, we will integrate LANL?s and NETL?s unique capabilities in seismic imaging, fluid flow modeling, and laboratory measurements. ? Develop a super-resolution, seismic imaging method for imaging fractures and fluid flow using time-lapse microearthquake (MEQ) and vertical seismic profiling data. ? Improve fracture and flow imaging using MEQ and double-difference tomography. ? Utilize imaging results, time-lapse seismic data and modified Gassmann equations to quantify fluid flow and temperature changes in EGS. ? Develop a reservoir-scale fully coupled thermal-hydrologic-mechanical (THM) model. ? Use NETL?s discrete fracture network modeling to scale up constitutive relationships for porosity and permeability needed for THM. This project is innovative in that the development of super-resolution seismic imaging for mapping features and imaging fluid flow is a novel extension of a ground-breaking technique recently developed in medical imaging, and offers great potential to break through seismic imaging resolution. Typically, the use of microseismic data has been restricted to mapping gross flow paths affected by stimulation. Our proposed high-resolution mapping will provide additional information about fracture network geometry and induced deformation. Combining this information with the active seismic images will enable a more complete conceptual model of the fracture networks and fluid flow/temperature distribution in the EGS, which is vitally needed for successful EGS operations. The ability to include stress-dependent fracture permeability in reservoir simulation models allows for (more) accurately predicting future reservoir performance and offers the possibility of help in managing thermal short-circuiting. Reservoir simulation software has evolved in the past decades to a point where complete reservoirs can be efficiently simulated with a single model. Thermal hydrologic mechanical (THM) software has also progressed to the point where large scale simulations including fluid flow, heat transfer, and stress changes can be made. This capability allows ground displacement measurements and micro earthquake (MEQ) analysis to be used to calibrate and constrain reservoir models and thereby help predict future field behavior. In the THM modeling of geothermal reservoirs, relating the fracture permeability to fracture aperture and fracture aperture to changes in stress or displacement is the key to realistic and efficient computations. We surveyed the literature and found several conceptualizations of permeability-aperture-stress relationships. We like a paper by Bai et. al. (Rock. Mech. Rock Engng., 32, 195-219, 1999) because it can represent compressive, tensile, and shear stresses. We converted this to a displacement formulation and added a thermal stress term. We are testing the model on grids we developed for this purpose. In addition, we met and discussed with our collaborators at Berkeley Lab, GeothermEx, and Ormat: one meeting at LBNL and another at San Francisco during the AGU meeting. We have obtained some geophysical well log data from GeothermEx/Ormat for building a reservoir model. Milestone Status: Programmed Initial Permeability-Aperture- Stress (PAS) models in FEHM Created 2D and 3D numerical grids to test the PAS models. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed The United Technologies Research Center (UTRC) proposes to improve the utilization of available energy in geothermal resources and increase the energy conversion efficiency of systems employed by: a) tailoring the subcritical and/or supercritical glide of enhanced working fluids to best match thermal resources, and b) identifying appropriate thermal system and component designs for the down-selected working fluids. By implementing these technologies, the overall energy conversion of binary geothermal power plants is projected to increase by at least 40%. The technical approach is: 1. Screen, evaluate, and down-select working fluids and mixtures that efficiently match source and sink conditions, meet environmental and safety requirements (flammability, global warming potential, ozone depletion potential, toxicity, etc), and increase thermodynamic cycle performance. 2. Develop necessary models to identify and evaluate opportunities for energy conversion technology advancements in subcritical, supercritical and trilateral cycles. UTRC shall identify optimal cycle configurations and component designs to take full advantage of the attributes of down- selected working fluids. UTRC shall also define a two-phase expander to best match chosen fluids and cycles and conduct a proof-of-concept demonstration. 3. Conduct property measurements and develop validated thermophysical models for down-selected working fluids. 4. Characterize the heat transfer and pressure drop performance of down-selected working fluids and perform experiments to quantify and mitigate the impact of heat transfer degradation characteristic of supercritical fluids and non-azeotropic mixtures. The deliverables of the program are: 1. A comprehensive analytical study detailing the screening, evaluation, and down-selection of working fluids and identifying the appropriate technology advancements in subcritical, supercritical, and trilateral cycles 2. Improved heat exchanger and turbine designs for down-selected working fluids 3. Validated thermophysical models and experimental data for down-selected working fluids 4. Heat transfer and pressure drop data and validated correlations for down-selected working fluids over a representative operational envelope, plus an analytical study of and recommendations for the mitigation of heat transfer degradation 5. Definition and proof-of-concept demonstration of a two-phase expander Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE We propose mathematical modeling work, using both analytical and numerical methods, to design and analyze laboratory and field experiments that would (a) identify tracers with sorption properties favorable for enhanced geothermal systems (EGS) applications, (b) apply reversibly sorbing tracers to determine the fracture-matrix interface area available for heat transfer, and (c) explore the feasibility of obtaining fracture-matrix interface area from non- isothermal, single-well injection-backflow tests. 1. We performed a first series of design calculations for the laboratory heat extraction experiments with CO2 as heat transmission fluid. 2. An improved model for the specific enthalpy of the CO2-rich phase was implemented in the evolving ECO2H fluid property module for TOUGH2. 3. We started a literature survey of rock-fluid interactions in geologic systems that may serve as (partial) analogues of EGS with CO2. Reactive transport modeling studies have also been initiated. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Contracts Less Than 50% Completed Information GAO gathered to improve the description The award funds experiments on fluid flow, heat transfer, and rock-fluid chemical interactions conducted by the Lawrence Berkeley National Laboratory, in partnership with Idaho National Laboratory. The award supports an Enhanced Geothermal System (EGS) development project that seeks to achieve a rational, science-based design that tests and interrogates critical process elements of EGS with carbon dioxide. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE 1) develop a novel model and high performance code for analysis of coupled THMC processes in EGS, 2) determine quantitatively the permeability of sheared fractures and its long term changes through THMC processes, 3) refine and validate the models and codes to laboratory experiments. and 4) model couple THMC processes in near wellbore hydrofracture systems. Thermal-Hydrological-Mechanical-Chemical Code Development: An initial coupling of TOUGHREACT V2.0 to FLAC, based on the TOUGH-FLAC code has been done. This code will be used to benchmark problems handled by the fully coupled THMC code under development. Improvements in TOUGHREACT V2.0 have been made to increase efficiency and speed for strongly coupled problems encountered in EGS. Combinations of improved code and compiler capabilities have resulted in over 30% speed increases on test problems. Initial evaluation of thermal-hydrological-mechanical processes in ROCMAS was begun, that will form the basis of the fully coupled THMC code. Background investigation into chemical- mechanical processes in fractures under EGS conditions is continuing. Experimental Design and Setup: The experimental design for the rock shearing test inside a triaxial cell was updated. The new design is based upon double shearing of two axis-parallel fractures. These fractures will be induced by sequential Brasilian loading in two perpendicular directions along the core diameter A procurement request was placed for the test vessel, with the requisite operating requirements, to be used in the THMC experiments. Evaluation of potential EGS rock samples and their suitability for experimental studies was begun. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $511,200.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports experiments at the Lawrence Berkeley National Laboratory related to Thermal-Hydrological-Mechanical-Chemical (THMC) processes with the outcome of model and code development for THMC processes, as well as optimization of enhanced geothermal system development and production. The experiments will cover four different purposes: (1) develop a novel model and high performance code for analysis of coupled THMC processes in Enhanced Geothermal Systems (EGS), (2) determine quantitatively the permeability of sheared fractures and its long-term changes through THMC processes, (3) refine and validate the models and codes to lab experiments, and (4) model couple THMC processes in near wellbore hydrofracture systems. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE Lawrence Berkeley National Laboratory will determine the feasibility of jointly using data from microseismic and electrical surveys to image the fluid distribution with Enhanced Geothermal Systems. (1) We conducted feasibility studies on using electromagnetic methods to monitor enhanced geothermal processes. The preferred approach is to use time lapse measurements to image fluids associated with the geophysical attribute of electrical conductivity. The modeling experiments were based upon the Desert Peak Geothermal field. Findings show that it is critical to isolate the fluid imaging volume for successful outcome. This volume can be provided by micro earthquake hypocenter locations, obtained through standard and double difference earthquake location algorithms. (2) We initiated evaluation of standard and double difference earthquake location and corresponding tomographic algorithms to reconstruct P and S wave seismic velocities. The double difference seismic tomography looks favorable in reconstructing velocity images of greatest resolution in the earthquake stimulated region. Our future plans will include coupling of these velocities to electrical conductivity to better image fluid stimulation. This is to be done using a common structural constraint between velocities and conductivity. (3)We have successfully implemented and tested a cross-gradient constraint in our electromagnetic imaging codes. We can now image subsurface electrical conductivity, which is associated with fluids, that is constrained by seismic velocity structural information obtained from seismic tomography. We have now just started this implementation in our seismic tomographic codes, where velocity will be constrained by electrical conductivity structural information. (4)The desert peak EGS experiment will not go forward as planned. We are now investigating two new field test sites to make measurements. Bardys Nevada or Raft River Idaho. Plans call for an earthquake monitoring networks to be installed at both sites, and we are evaluating logistics for making time lapses electromagnetic measurements. A contractor has been found that will make these measurements, pending final selection. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) BERKELEY, CA 94720-0000 Less Than 50% Completed Information GAO gathered to improve the description The award funds collection of data at an Enhanced Geothermal System (EGS) site to provide a baseline study and a large EGS injection to map fluid attributes. The project will determine the feasibility of jointly using data from micro earthquake and electrical surveys to image the fluid distribution within EGSs. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE Laboratory will conduct a series of laboratory experiments to quantify the reactivity of a suite of natural chemical and isotopic tracers as a function of fluid chemistry, temperature, surface area, and time; and incorporate the measured solute reactivities into a tracer analysis model. 1. Quantification of Bulk Reactivity and Surface Area: In collaboration with, EGI, University of Utah and PI on the Raft River EGS demonstration project, core samples from the Raft River site were examined and arrangements have been made for shipping core samples to LBNL. Preliminary assessment of potential core samples from the Desert Peak EGS demonstration site has been completed. Sample selection is underway. The core samples will be used in the surface area reactivity experiments. Arrangements have been made with rock prep lab at UC Berkeley's Department of Earth and Planetary Science for preparing the core samples for the surface reactivity tests. 2. Tracer Transport Simulation In this quarter, we have focused on Task 2.1 Tracer Transport Simulation for the modeling part of the project. Specifically, we have incorporated the analytical solution of Neretnieks (2002) into the framework of the channelized flow that is expected to occur in an EGS system. The work of Neretnieks (2002) deals with both conservative and reactive (simple kd-approach) tracers for one-dimensional flow conditions. We are also extending the analytical solution for steady-state isotopic compositions of fluids flowing through fractured rock (DePaolo, 2006) to transient conditions that are important for new fractures created in an EGS system. In addition, we are evaluating whether or not the TOUHREACT code (Xu et al., 2006) needs to be modified when bulk- reactivities for species, determined as part of the experimental phase of the project, are used in place of assumed reaction rates for specific species. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $564,600.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports activities that will quantify the mineralogy of reservoir rocks and the chemical composition of fluids needed for an Enhanced Geothermal System (EGS) to incorporate into numerical models and evaluate the reactivity of different solutes as a function of surface area, temperature, fluid chemistry and time to develop the tracer-interpretation technique. The activities will develop an innovative approach for estimating the change in fracture surface area induced by well stimulation. EGS Technology R&D (Project code 2004190) consists of the following 3 subprojects: Enhanced Geothermal -- EGS R&D for Synchrotron X-Ray Studies In accordance with the approved EERE Geothermal Technologies Program, these funds are for synchrotron X-ray studies of supercritical carbon dioxide/reservoir rock interfaces. Argonne will use synchrotron x-ray measurements to monitor all aspects of atomic to nanoscale structural changes resulting from chemical interactions of scCO2-H2O binary fluids with rocks under enhanced geothermal systems conditions. EGS R&D for Utilization of Geothermal Energy In accordance with the approved EERE Geothermal Technologies Program, these funds are for the Utilization of Geothermal Energy. Argonne will develop chemical energy carrier processes to recover heat from enhanced geothermal systems as chemical energy. EGS R&D for Waveguide-based Ultrasonic and Far-Field Electromagnetic Sensors In accordance with the approved EERE Geothermal Technologies Program, these funds are for Waveguide based ultrasonic and far- field electromagnetic sensors for downhold reservoir characterization. Argonne National Laboratory will develop waveguide-based ultrasonic and far-field electromagnetic sensors to measure Enhanced Geothermal Systems reservoir parameters. Two sensor technologies to be examined are (1) microwave (MW) radiometer and (2) ultrasonic waveguide (UW) sensor. Major activities in FY2010 include: (1) Establish a laboratory hot-rock test facility, (2) Evaluate MW antenna performance under high temperature and humidity, and (3) Evaluate UW sensor performance under high temperature and humidity. Synchrotron X-Ray Studies: Silica surfaces were prepared for synchrotron x-ray reflectivity. The roughness of the surface was found less than 1 nm. X-ray reflectivity measurements of the silica surfaces under static scCO2-scH2O fluids showed no measurable dissolution and roughening as expected. The X-ray/pressure cell was modified to accommodate thinner windows (0.5~1 mm) of synthetic diamond, boron carbides, or silicon carbides. The boron carbide windows were ordered and tested. The synthetic diamond windows were ordered and yet to be delivered. Utilization of Geothermal Energy: Potential reversible reactions have been identified. Preliminary thermodynamic analyses were performed to match the temperature conditions of some of these reactions to temperatures potentially available from EGS. Aspen Plus analysis of the methane reforming /methanantion reaction cycle was conducted. Because the reforming reaction generally occurs at higher temperatures than what may be available from EGS reservoirs, a search was conducted to identify new catalysts that may enhance the performance of this reaction system at lower temperature. Waveguide-based Ultrasonic and Far-Field Electromagnetic Sensors: Completed the literature and commercial sensor/instrumentation search and a brief knowledge capture report was documented. Both literature search and commercial instrument survey show lack of high-temperature instruments and sensing techniques and development in this area is needed. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Less Than 50% Completed Information GAO gathered to improve the description The first project on synchrotron X-Ray measurements will consist of two phases: one studies rock and superconcentrated CO2 interface and the other performs measurements under variable component binary fluids with a new flow cell. The second project on chemical energy carriers (CEC) consists of six tasks for conducting tests, analysis, and development for the CEC systems. The third project on waveguide based ultrasonic includes three phases for developing and building the ultrawave sensor and microwave radiometer. BROOKHAVEN SCIENCE ASSOCIATES, LLC The Recovery Act funds received by Brookhaven National Laboratory for the Geothermal Technologies program will be used to fund (3) separate projects: $200.4k will be used for FWP#EST436NEDA and will enable BNL to elucidate the carbonation reaction mechanisms between the supercritical carbon dioxide and reservoir rocks in aqueous and non-aqueous environments, and to develop chemical modeling of CO2-reservoir rock interactions. $347.4k will be used to fund FWP#BCH139 and will allow BNL to develop and characterize field- applicable geopolymer sealing materials. $225k will fund FWP#EE632EEDA and will be used to fund the development and implementation of suites of tracers consisting of compounds with different chemicals and physical properties. Geothermal Technologies - On FWP#EST436NEDA, we are working with Alta Rock Energy for assistance in developing core samples and analysis for EGS sites. The key technical leader on this project will start at BNL the first week of January 2010. ON FWP#BCH139, work is continuing on lab setup and equipment requirements. On FWP#EE632EEDA, a specification has been written for a subcontract to develop methods of encapsulating PFTs in temperature sensitive microbeads. We expect the process to be completed in January. All Other Professional, Scientific, and Technical Services $772,800.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports three geothermal technologies projects at Brookhaven National Laboratory. Brookhaven will collaborate with four other labs on the projects. (1) The project on elucidating a carbonation reaction mechanism of reservoir rock will result in, among other things, a report on chemical analysis. (2) The project on developing and characterizing geopolymer sealing materials will, among other things, result in field demonstrations and validations. (3) The project on determining the temperature distribution and fracture/heat transfer surface area in geothermal reservoirs will result in tracer and model development, including field test design and execution. EGS Technology R&D: Geothermal Technologies Program Enhanced Geo: This award provides funding to four subprojects in support of Enhanced Geothermal Systems technology: 1) Feasibility and Design Studies for a High Temperature Downhole Tool--ORNL will perform feasibility and design studies for a high temperature downhole tool that can measure the porosity, lithology, and density profile of geothermal wells; 2) Wear-Resistant NanoComposite Stainless Steel Coatings and Bits for Geothermal Drilling--ORNL will develop ultra hard, wear resistant nanocomposite stainless steel coatings and bulk components to increase the lifetime of drill tooling in harsh geothermal environments; 3) Working Fluids and their Effects on Geothermal Turbines--ORNL will evaluate working fluids for a geothermal turbine cycle based on property measurements, molecular dynamics modeling, and thermodynamic modeling to increase the turbine cycle efficiency in binary power plants; and 4) Properties of CO2 Rich Pore Fluids and their Effect on Porosity Evolution in EGS Rocks--ORNL will characterize CO2 and water bulk and pore fluids by vibrating tube densimetry, determine changing pore and fluid structures using neutron scattering, and conduct real time imaging of the dissolution front and evolution of porosity using x-ray and neutron computed tomography. 1) High Temperature Downhole Tool--A furnace for detector testing has been ordered but not received. Several scintillator materials for testing purposes have been ordered. Design for test apparatus for temperature and vibrations tests is in progress. Preliminary modeling studies have been performed to determine the change in tool response with the change in temperature and surrounding formation environment. 2) NanoComposite Stainless Steel Coatings and Bits-- ORNL is working with Carpenter Powder Products to gas atomize a 500 pound melt of an alloy specifically designed to devitrify from an amorphous state into a corrosion resistant alloy with increased hardness for use as coating materials in geothermal applications. Carpenter has scheduled this run for late January 2010 and ORNL should receive powder in early February. ORNL is currently processing the same alloy using conventional casting techniques. A parametric study was developed to analyze the effect of various processing parameters on the laser/metal interaction. A preliminary conceptual design for an impact-abrasion testing apparatus has been developed. 3) Working Fluids--A review has been conducted on the properties of supercritical fluids to identify where there are needs for additional or corroborative data and where models need to be developed for physical properties. Work carried out during this quarter will allow us to focus both experimental and computation efforts to address gaps and deficiencies in the thermodynamic database for the heat transfer fluids selected for binary geothermal power plant operation. 4) Properties of CO2 Rich Pore Fluids--The high temperature vibrating tube flow densimeter (VTD) was tested and disassembled to make repairs and improvements needed to restore reliable operation. Proof of principle experiment was successfully conducted to synthesize low density silica mesoporous solid inside the vibrating tubes of different geometries. Oak Ridge, TN 37830-8050 Less Than 50% Completed Information GAO gathered to improve the description The award to the Oak Ridge National Laboratory consists of four projects. (1) The high temperature down-hole tool project will investigate the feasibility of developing components for enabling operation at higher temperatures, up to 400 degrees Celsius for use in geothermal wells. (2) The project on carbon dioxide fluids will use four complementary approaches to improve geochemical modeling. (3) The project on stainless steel coatings and bits will have two stages for analyzing a specific type of metal and then showing the possibility of using complex metal-boron carbides into stainless steel matrix for a type of alloy. (4) The project for working fluids will take advantage of expertise in prediction and measurement of thermodynamic properties, and accurate modeling of complex turbine cycles based on those properties. LOS ALAMOS NATIONAL SECURITY, LLC This ARRA-funded project addresses the research topic area: Tracers and Tracer Interpretation ? to adapt or develop reservoir tracers and/or tracer interpretation techniques that provide information beyond well-to-well connectivity such as fracture surface area or fracture spacing. Commercial development of geothermal energy requires quantitative characterization of temperature distributions and surface area available for heat transfer in engineered (enhanced) geothermal systems (EGS). This project will provide integrated tracer and tracer interpretation tools to facilitate this characterization by developing and implementing 1. Suites of tracers consisting of compounds with different chemical and physical properties that can be injected into wells and will interact in different and measurable ways with the fractured rock matrix. 2. Single- and inter-well test designs and corresponding interpretation methods to extract the temperature distribution and surface area information from differences in the tracer concentration-versus-time histories (breakthrough curves). We anticipate significantly advancing tracer-based methods available to geothermal operators by developing (1) tracers that can be reliably applied to provide quantitative information on temperature distribution and fracture surface area, (2) tracer test designs (both single well and interwell) to exploit the use of these tracers, and (3) interpretive methods to allow this information to be used to provide practical guidance to operators to improve heat extraction. The members of the research team participated in a meeting at the Energy and Geoscience Institute (EGI) at the University of Utah on December 8, 2009. The purpose of the meeting was to share information on the geothermal tracer programs at EGI and the four national labs and to explore ways that the programs can interact and share information. Pete Rose opened the meeting with introductions and an overview of the geothermal tracer programs at EGI. He described laboratory programs investigating the properties of different tracer candidates under geothermal conditions and field programs where fluorescent dies have been used in actual wells. Kevin Leecaster, also of EGI, described laboratory equipment and experiments used to characterize potential tracer compounds, discussed results, and presented plans for flow through reactor experiments. Paul Reimus of Los Alamos National Laboratory (LANL) discussed methods for modeling tracer behavior in geothermal applications and described the laboratory capabilities at LANL. Contact Paul Reimus or the LANL SPO office for additional details related to the meeting. The meeting finished with a discussion of how the three programs, EGI, INL, and the combined program of BNL, LANL, and PNNL, could establish working collaborations. We agreed to share information on field programs and to work towards incorporating tracers from all three programs in future field tests as well as share in design, operation, and results of laboratory experiments. On Dec. 9th, The LANL, PNNL, BNL team discussed the next steps for 2004190- EGS R&D and agreed to begin laboratory testing of PFT compounds early next year. We developed a tentative schedule and will have a meeting in late winter at Los Alamos to plan laboratory testing. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed Information GAO gathered to improve the description The award has seven milestones, including identifying materials operable at high temperatures, developing a sensor model, and determining the optimum approach for flow measurements. Recovery Act: Decision Analysis for Enhanced Geothermal Systems, Project 2004190 Recovery Act: DECISION ANALYSIS FOR ENHANCED GEOTHERMAL SYSTEMS Project 2004190. Not started yet. Start date is Feb 1 2010 Research & Public Policy Analysis 77 Massachusetts Ave., E19-750 Information GAO gathered to improve the description The award supports the development of a decision analysis procedure to assess development of an Enhanced Geothermal System (EGS). Activities will include the development of several models: a cost/time estimation model, a simple circulation/heat transfer model, and a subsurface cost/time model. The models will be integrated to assess EGS development and made accessible to EGS stakeholders to provide feedback for improvements. Pressure Sensor and Telemetry Methods for Measurement While Drilling in Geothermal Wells The scope of the proposed project is to develop a pressure sensor system consisting of silicon on sapphire based sensor transducer and SiC-based electronics to operate at 300C in Measurement While Drilling (MWD) conditions that are expected to be found in a geothermal well. Performance and deliverables in accordance with the Grant Statement of Project Objectives. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Information GAO gathered to improve the description The award will develop a pressure sensor system operating at 300 degrees Celsius and capable of surviving shock and vibration conditions similar to measurement while drilling (MWD) environments. Activities include integrating and testing a pressure sensor system and developing and testing a telemetry module and pressure system at 300 degrees Celsius. Both systems will be tested for shock and vibration conditions typically found in measurement while drilling environments. The technology can aid in the economic completion of (Enhanced Geothermal Systems) EGS wells. ALTAROCK ENERGY, INC. This project will demonstrate the development and operation of an Engineered Geothermal System, including site and resource investigation, well drilling and completion, stimulation of wells to create a geothermal reservoir, testing of well productivity and assessment of reservoir characteristics, construction of a well field and power plant, and extended operation and monitoring of the constructed facility with continuous power generation. AltaRock Energy has not commenced the project activities as described in Section 2.0 (Task Schedule) of the Project Management Plan submitted as part of its application. AltaRock is currently negotiating the award agreement with DOE and revising budget and project activities in relation to these negotiations. Power and Communication Line and Related Structures Construction Newberry Volcano, McKay Butte Road/NF-600 La Pine, OR 97739-0000 Information GAO gathered to improve the description The award funds the building of a power plant and production facility that will be capable of generating no less than 15 MWe and operating for 30 years. This will provide long-term power generation through Engineered Geothermal System (EGS) and the first source of indigenous geothermal power in Oregon. The award will allow geothermal experts to enhance geoscience and engineering techniques that are essential to the expansion of EGS throughout the country. BAKER HUGHES OILFIELD OPERATIONS, INC. RECOVERY ACT: high Temperature 300C Directional Drilling System The scope of work will be to develop a reliable drilling and steering system for the creation of Enhanced Geothermal Systems. The drilling and steering system will provide optimum performance in temperatures of up to 300×C (572×F) in hard rock formations, and under the high pressures encountered in boreholes at depths of up to 10,000 meters (33,000 feet). The drilling and steering system will be comprised of the following components: a drill bit to break up the rock formation, a downhole drive to rotate the bit, some steering means associated with the drive unit to steer the well in a pre-determined way, and a dedicated drilling fluid (mud) to serve several purposes including carrying the rock cuttings out of the wellbore. Project not started since award made very late in quarter: 12/29/2009 Information GAO gathered to improve the description The award has four phases and 26 tasks with activities including a concept review, designing equipment like drill bits and waste management equipment, conducting design reviews, manufacturing and assembling prototype equipment, and conducting integrated testing of the prototype drilling system under geothermal conditions. COLORADO MUSEUM OF NATURAL HISTORY, THE Recovery Act: Education and Collection Facilty Ground Source Heat Pumps Demonstration Project Recovery Act: Education and Collection Facility Ground Source Heat Pumps Demonstration Project No activity; start date was 12/29/09 Denver, CO 80205-5798 Information GAO gathered to improve the description The award funds installation of a commercial scale (100 ton) ground source heat pump (GSHP) heating/cooling system that will be operated and maintained for 2 to 3 years. The project is expected to significantly reduce traditional GSHP installation costs while boosting the efficiency of the GSHP system. Activities will include, among other things, developing a detailed engineering design, procuring and installing the proposed GSHP system, operating and maintaining the system for 2 to 3 years, and developing a national awareness campaign for GSHP systems. The successful design and installation of the system can drastically reduce building energy consumption, require less area and capital to install, and be economically implemented wherever access to recycled water is available. The following award description contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. ALLIANCE FOR SUSTAINABLE ENERGY, LLC Geothermal Demonstrations; Geothermal Analysis Literature search was conducted on the status of dry/wet cooling options for power plants. Interviews with candidates are scheduled. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $1,200,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports Enhanced Geothermal Systems (EGS) research and development in air cooling. The award will identify and analyze advanced cooling strategies that allow air-cooled geothermal power plants to maintain a high electric power output during periods of high air dry bulb temperatures while minimizing any water consumption. The research will include activities such as an hour-by-hour cost/performance simulation of a cost-optimized 50 MW binary-cycle geothermal power plant at resource temperatures of 125 and 175 degrees Celsius for three different heat rejection systems. Within the Department of Transportation, the Federal Railroad Administration’s (FRA) High-Speed Intercity Passenger Rail Program is working to build an efficient, high-speed passenger rail network of between 100- and 600-mile intercity corridors, as one element of a modernized transportation system. This relatively new program is based on two pieces of legislation: the Passenger Rail Investment and Improvement Act of 2008 and the Recovery Act. The 2008 investment act established new competitive grant programs for high-speed and intercity passenger rail capital improvements, and the Recovery Act provided $8 billion for these grant programs. In order to meet the goals of the Recovery Act, FRA proposed to advance the following funding tracks: Projects. Provide grants to complete individual projects that are “ready to go” with preliminary engineering and environmental work completed. Corridor Program. Enter into cooperative agreements to develop entire phases or geographic sections of corridor programs that not only have completed corridor plans and environmental documentation but also have a prioritized list of projects to meet the corridor objectives; this approach would involve additional federal oversight and support. On January 28, 2010, the administration announced the first recipients of grant funding for the high-speed rail program. In total, 70 projects were selected for funding, but no awards have been made. (See fig. 2.) FRA is working with the selected recipients to refine the projects’ scope and descriptions. The selected projects are focused on the following three key areas that may provide transportation, economic recovery, and other public benefits: Build new high-speed rail corridors that will fundamentally expand and improve passenger transportation in the geographic regions they serve. Upgrade existing intercity passenger rail services. Lay the groundwork for future high-speed passenger rail services through smaller projects and planning efforts. Although FRA has not made any awards for rail projects, it has entered into five contracts to assist the agency with program administration and architectural and engineering issues related to the evaluation of proposals and feasibility studies. For example, FRA can use the architectural and engineering contractors for site visits to specific locations to confirm engineering assessments in proposals and check calculations of various loads and capacities. We assessed the transparency of descriptive information for these five contracts: One met our transparency criteria. One partially met our criteria. Three did not meet our criteria. For the four descriptions that partially or did not meet our criteria, we collected information necessary to make the description meet our criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. Since the program is relatively new, FRA focused on selecting projects and getting awards out and did not issue any supplemental reporting guidance to eligible applicants. FRA officials considered the Office of Management and Budget’s (OMB) guidance sufficient to outline reporting requirements. While FRA has not yet issued supplemental guidance, it may in the future. The Department of Transportation and FRA make high-speed rail project information available to the public in several forms: The department’s recovery Web site (www.dot.gov/recovery). This agencywide map provides the location, cost, and a brief description for each award. FRA Web site and high-speed rail interactive project map (www.fra.dot.gov/Pages/2243.shtml). This provides information by region. Press releases. Also on its Web site, FRA provides press releases detailing the goals and plan for the high-speed rail program. FRA is also developing a more interactive recovery Web site for the general public. FRA officials told us they have not received much public feedback about the high-speed rail awards to date. However, FRA has received questions on its Web site from the public about job opportunities, and when it was soliciting grant applications, it received questions from industry officials about the application process. The following award description contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Provide assistance consisting of mission-oriented business consulting services in support of FRA's Office of Passenger and Freight Programs, with a specific focus on advising FRA in the establishment of a grants management program that is commensurate with the significant increase in discretionary grant activity resulting from ARRA. Program Support - Coordinate information and develop processes to administer ARRA grant program. Activities include: development of tools and databases to drive workflow and assist FRA in meeting statutory objectives and deadlines; support FRA in the capture, sorting and organization of all relevant grant and stakeholder information and utilize tools and processes to provide information to program leadership for analysis and presentation to relevant stakeholder audiences. Policy / Process - Assist with tasks such as project planning, grant administration process design and execution across the grants management lifecycle (Application and Approval, Award and Disbursement, Management and Monitoring, Closeout), stakeholder policy issues tracking, risk identification and mitigation. Communications and Resourcing - Assist program and FRA leadership in managing communications planning by monitoring, cataloging and coordinating responses to stakeholder inquiries submitted via program email account and docket; work with program and FRA leadership to conduct workforce analysis to identify core capabilities, organizational structure and resourcing requirements necessary to successfully administer agency programs at current stage and into the future. The following award description did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. BOOZ ALLEN HAMILTON INC. Booz Allen Hamilton will provide general technical support in environmental engineering, historic documentation, and financial analysis and organizational planning to assist RDV in reviewing ARRA high speed rail grant applications. There were no invoices submitted for this reporting period. Administrative Management and General Management Consulting Services Information GAO gathered to improve the description The award supports a contract for activities such as conducting site visits to specific locations to confirm engineering assessments in applications and conducting calculations of various loads and capacities. The activities that will occur under this contract will allow senior engineers from the Federal Railroad Administration (FRA) to do higher level assessment work on the various applications and interface with the prospective grantees. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Archiect and Engineering Support Services for Passenger Rail Programs Architect and Engeering Support Services for Passanger Rail Programs 3101 Wilson Boulevard, 4th Floor Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates and considers the feasibility of high-speed rail proposals. Activities under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and conducting calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. PB AMERICAS, INC. A/E contract for support services in areas of intercity passenger rail programs and high speed rail programs. 465 Spring Park Technology Center $99,000.00 Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates proposals and considers feasibility of high-speed rail proposals. Activities that can occur under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and conducting calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. Provide environmental engineering and historic documentation support and financial/organizational planning support for analysis of high speed rail systems. (Information not reported) Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates and considers the feasibility of high-speed rail proposals. Activities under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. Within the Department of Transportation, the Federal Aviation Administration’s (FAA) Grants-in-Aid for Airports Program (airport improvement program) provides grants for the planning and development of public-use airports. The Recovery Act provides $1.1 billion for discretionary airport improvement program grants, with priority given to projects that can be completed within two years. FAA had obligated nearly $1.1 billion in recovery funds by April 22, 2010. As of April 22, 2010, about $650 million had been disbursed by FAA to airports. About two-thirds of obligations have been for runway and taxiway projects. Approximately $481 million (44 percent) is being used on runway construction and rehabilitation projects, while nearly $220 million (20 percent) is being used for taxiway construction and rehabilitation projects. (See fig. 3.) For example, the Denver International Airport’s taxiway project rehabilitated portions of Taxiway P by removing and replacing identified distressed concrete pavement panels. We assessed the transparency of descriptive information for aviation awards available on Recovery.gov, as described earlier in this report. An estimated 18 percent met our transparency criteria, 82 percent partially met our criteria, and zero percent did not meet our criteria. For descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our sample, whether they met our criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. For recipient reporting, FAA provided technical assistance and other support to recipients but did not issue supplemental guidance. FAA officials told us they considered the Office of Management and Budget’s (OMB) guidance sufficient to outline reporting requirements, so the agency did not issue its own supplemental guidance. However, FAA distributed guidance and provided technical assistance to recipients through each airport’s division office. FAA officials said field offices have discretion in how to distribute OMB’s guidance. One field official, for example, said the division office hired a contractor to oversee Recovery Act efforts who distributed information and guidance to every airport in the division by e- mail. In addition, FAA annotated, for a few fields, the template that recipients used to enter information into FederalReporting.gov. These annotations direct recipients to use information on their grant agreement as entered into FAA’s internal grants database. Many of the recipients we spoke with indicated that they populated the award description field with the description that was on the original grant. For example, officials we spoke with for the Quad City International Airport located in Moline, Illinois, stated that they used the amount of the award, execution date, and award description from the grant award to populate fields on FederalReporting.gov. In addition, a number of recipients we spoke with stated that they received help from FAA division office officials to complete their reporting. According to FAA officials, only a small portion of airport improvement program grantees—10 percent, or about 300—received Recovery Act funds. Specifically, according to officials at the Midland-Bay City-Saginaw International Airport in Michigan, they received a tremendous amount of support from FAA’s division office with regard to identifying and explaining reporting requirements. However, several recipients we spoke with reported problems with FederalReporting.gov or OMB’s guidance. For example, officials at the John Murtha Johnstown-Cambria County Airport had difficulty determining the correct zip code to use to accurately identify the location of the project receiving Recovery Act funds. The FAA district official was able to identify the correct zip code to enter into FederalReporting.gov. Beyond Recovery.gov, the Department of Transportation and FAA make award information available to the public through various means, including the following: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes aviation awards, provides the location, cost, and a brief description for each award. FAA web site (www.faa.gov/recovery). The Web site contains a spreadsheet that outlines each award’s location, cost, and name, among other things. In addition, the Web site provides a pie chart to display awards by category (i.e., runway, taxiway). In addition, airport improvement program recipients use Web sites and other tools to provide award information to the public. Several airport improvement program recipients we interviewed disseminate award information to the public on their Web sites. For example, the Web site for the Washington Metropolitan Airport Authority, recipient of the Dulles International Airport award includes, among other things, a narrative description of the project and the estimated cost of the investment. Another Web site, for the Midland-Bay City-Saginaw International Airport Authority, describes the ongoing construction project but does not mention that Recovery Act funds are being used. Dulles International Airport also erected a sign to alert the public that its runway project was funded by the Recovery Act. According to FAA headquarters officials, the public has provided little feedback on airport improvement program Recovery Act awards, but they were unsure if the regions had received any feedback. The airport improvement program recipients we interviewed generally reported the same experience. Officials from Los Angeles World Airports told us that they had not received many calls, but those calls were typically from construction companies or individuals looking for work. The Williamson- Sodus Airport in New York and the John Murtha Johnstown-Cambria County Airport in Pennsylvania received negative media attention because the media considered them smaller airports and maintained their funds could have been better spent at larger airports. However, recipients at both airports told us they received support from FAA and the local communities that they service. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Rehabilitate Taxiway D (+/- 3,000 feet by 50 feet) and Overlay This project consisted of the design, bid and award, and construction phases for the rehabilitation of Taxiway 'D' at the Bartow Municipal Airport. Taxiway 'D' and associated ttaxiway connectors are approximately 3000' in length and 50' wide and had severe cracking and spalling. The cracks were sealed and covered with a self-adhesive engineering fabric prior to the P-401 overlay. The project improved the quality of the pavement of our primary taxiway at the Bartow Airport. This project now provides a safer environment for aircraft by placement of the asphalt overlay on a poor pavement surface which was oxidized and raveling, creating a FOD situation. The overall purpose and expected results of this project is the project improved the quality of pavement of a primary taxiway at the Bartow Municipal Airport. The project provided a safer environment for aircraft by the placement of the asphalt overlay on a poor pavement surface which had oxidized and raveled, creating a FOD situation Highway, Street, and Bridge Construction Airport Improvement project to replace and rehabilitate runway and taxiway lighting and associated NAVAIDs. This project will bring the current airfield lighting system into compliance standards, prevent further failures and increase safety, and reduce associated maintenance and operational costs. Current system tests show that the megohm readings are out of acceptable range to by an excessive amount. The new system is designed to prevent pre-mature deterioration and reduce maintenance and operational costs while providing a more reliable and visable lighting system. An overall cost savings will be realized over the life of the new system. Contractor has run 1,137 ft of homerun conduits from the regulator station. Contractor has installed one pull box at the end of the 512 ft run. Contractor has completed 7 runs of homerun conduits to the junction box where the conduits split to the various runways and taxiways. Contractor trenched and ran conduits to Taxiways Alpha and Fox Trot. Contractor has completed the conduit runs to Taxiways Alpha and Fox Trot. Contractor started installation of the threshold lights on the north end of 12/30 and installed conduit for Taxiways Alpha and Fox Trot through the threshold. Contractor completed installation of the threshold cans on the north end of 12/30, ran 1800 feet of conduit along the north side of 12/30, and set runway light cans. Contractor completed installation of the conduit and cans on the northwest side of 12/30. Contractor installed ground rods in homerun junction boxes back to the regulator station. Contractor installed pull strings from the regulator station through the homerun conduits in prepartion for pulling wire. Contractor completed the work at the intersection of 12/30 and 18/36 and has cleared the runway safety area of 18/36. Contractor completed the installation of the cans and conduit on the west side of Runway 12/30 and is currently working on the REILs. Contractor pulled conductors on the west side of Runway 12/30 and completed the installation of the REILs on the north end. Contractor pulled the home run wiring on five active circuits. Contractor began installing lights on the northwest end of Runway 12/30. Contractor began installation of the lights and transformers on the northwest end of Runway 12/30. Contractor backfilled and grated around the newly installed cans. Contractor completed installation of the cans and lights on the west end of the runway. Contractor tied in the existing lights on the east end of the runway and tested the runway lighting. The runway was opened for air traffic. Less Than 50% Completed SIERRA VISTA, CITY OF Runway 12-30 Reconstruction and Taxiway J Realignment Design and reconstruct Runway 12-30 and construct Taxiway J realignment at the Sierra Vista Municipal Airport-Libby Army Airfield. The existing Taxiway J pavement was removed. All excavation and subgrade compaction was completed on Taxiway J. The pavement at the intersection of Runway 12-30 and Taxiway J was milled off and the existing base course was removed to finish grade. Approximately 17,042 square yards of subgrade at the intersection was repaired to eliminate unstable spots. Base Course materials have been placed and compacted on Taxiway J and Runway 12-30. Approximately 23,576 sy of concrete pavement was placed on Taxiway J and 14,445 sy concrete on Runway 12-30 that intersects with Taxiway J and D. Asphalt pavement was placed on the Taxiway J shoulders and a test strip has been placed for the P- 401 asphalt on Runway 12-30. Electrical conduit crossings and extensions have been installed, guidance signs were installed and the shoulder pavement has been cored for the new taxiway edge lights. The existing concrete storm drain pipe was extended 80 feet. Highway, Street, and Bridge Construction Sierra Vista, AZ 85635-6334 More than 50% Completed 373715-Rehabilitate Taxiway AND 377259-Runway Incursion Markings Airport Development - This project included the rehabilitation of T/W B and its adjacent apron, as well as constructing holding position markings for Runway 12-30. This project included rotomilling approximately 20,000SY of pavement, excavating and backfilling 13,000 CY of material, installing 2,300 LF of edge drain, 5000 Tons of bituminous surface course, 45,000SF of airfiled markings (including enhanced and surface painted holding position markings), and other miscellaneous airfield improvements to Taxiway Bravo. Construct new taxiway, apron, and safety markings on airport to maintain safe taxiway and airfield for commercial, jet, and general aviation fleet. Highway, Street, and Bridge Construction East Wenatchee, WA 98802-9233 More than 50% Completed 3-53-0084-030-2009 REDWOOD FALLS, CITY OF Rehabilitate Runway 12/30 and Taxiway Airport Development to include Runway 12/30 and adjacent taxiway pavement rehabilitation project at the Redwood Falls Municipal Airport (RWF). Project scope includes bituminous mill & overlay of the pavement, incidental grading, and pavement markings per FAA pavement management program requirements. Project will extend the useful life of the runway and taxiway pavement complying with the overall airport pavement management program at the Redwood Falls Municipal Airport. Project includes construction and engineering costs. Activities on this project include engineering and construction activities. Total project engineering includes preparation of engineering plans and specifications on the project, construction observation and administration, and grant assistance activities. Project construction tasks include completing a bituminous mill & pavement overlay, incidental grading, and pavement markings on Runway 12/30 and adjacent taxiway at the Redwood Falls Municipal Airport. Project plans and specifications were completed in April 2009. Construction and construction observation was completed September 25th, 2009 in the first reporting period. On-going grant administration was also completed. For this reporting period (October 1 ? December 31), construction administration, documentation, as-built plans were completed. Grant administration, reporting, and closeout procedures were also completed. Highway, Street, and Bridge Construction Redwood Falls, MN 56283-2827 WOOD COUNTY AIRPORT AUTHORITY (INC) Acquire Aircraft Rescue and Fire Fighting Vehicle Replace old worn out ARFF vehicle with new more capable and lower maintenance vehicle for this quarter all payments have been made to the engineering firm for developing bid specs and awarding the bid for construction of the new ARFF vehicle. This vehicle will be paid for in a lump sum upon delivery. The truck has been delivered, we are awaiting maintenance/operations training. Highway, Street, and Bridge Construction Grants More than 50% Completed Economic Recovery Program Construction to Remove Obstructions-Relocate Powerlines in the Runaway 30 Approach Zone at the North Las Vegas Airport. This grant is for removal and relocation of a high tension power line located beneath the final approach to runways 30L and 30R of the North Las Vegas Airport. The power line is located approximately 1,200 feet from the threshold of Runway 30L and 1,500 feet from the threshold of Runway30R. The lines are 45 feet tall (AGL) and are listed as an obstruction in the Airport Facilities Directory. The transmission and distribution ductbanks are now approximately 95% complete. Four of the six transmission vaults are in place. The next phase of construction involves the construction of the foundations for the six new towers, which will allow the transmission and distribution ductbanks to be completed. Cable installation is not expected to take place until the local power company can arrange for an outage on the existing lines. Electric Bulk Power Transmission and Control 2730 Airport Drive, Suite #101 North Las Vegas, NV 89032-0000 More than 50% Completed Airport Development: Rehabilitate runway 3/21 Survey, excavation, compacting, grinding existing asphalt, re-laying new asphalt, replace electrical lighting to insure safety of National Air Transportation System. Highway, Street, and Bridge Construction 9000 W Airport Dr, #204 More than 50% Completed Rehabilitate Taxiway E 4 from Sta.9-46.86 to Sta. 16-20.65, rehabilitate Taxiway E5 from Sta 9+46.29 to Sta 15+97.53 The objective of this grant is the rehabilitation of a portion Taxiway E-4 from the edge of the Runway 17L-35R pavement to just west of the runway hold-lines including the shoulders and electrical replacement, and rehabilitation of a portion of Taxiway E-5 from the edge of the Runway 17L-35R pavement to just west of the runway hold-line including shoulder and electrical replacement at the Colorado Springs Airport. This taxiway system supports the primary runway for passenger carriers and Peterson Air Force Base. The project includes the reconstruction of existing concrete, replacement of airfield lighting, and an upgrade of all associated drainage systems. The existing airfield pavements are deteriorating due to the existeance of Alkali-Silca Reactivity (ASR) and will experience failure if the pavement is not replaced. Project physically completed; final inspection completed in November Highway, Street, and Bridge Construction 7770 Milton E Proby Parkway Colorado Springs, CO 80916-4961 More than 50% Completed 3-08-0010-046-2009 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY (THE) ( ) McGhee Tyson Airport (TYS) is the sole commercial service airport for the greater Knoxville and East Tennessee Areas. The airport has two parallel 9000 ft. runways with RWY 5L/23R being the primary instrument approach runway equipped with an Instrument Landing System (ILS). Funds provided by the ARRA are being executed on TWY Bravo to reconstruct sections B1 to B6; TWY Bravo is the taxiway network that services our primary instrument approach runway (RWY 5L/23R) that is used by both commercial and military aircraft. In essence, TWY Bravo is our second highest priority paved aircraft movement area with RWY 5L/23R being the first priority. TWY Bravo from B1 to B2 was constructed in 1976 and received a Portland Cement Concrete (PCC) maintenance overlay in 1986. This section of taxiway had received numerous spall repairs, crack repairs and full-depth slab repairs over the past 20 years and was becoming a revolving maintenance and FOD issue. As part of this project, an aggregate surfaced access roadway to the airfields Automated Weather Observation Station (AWOS) will be improved with a durable solid surface course (asphalt). The Runway Safety Action Team (RSAT) recommended paving this section of roadway thus greatly reducing the potential for FOD on the aircraft movement areas. The ARRA funds being spent on this TWY Bravo project have a direct impact on the safety and level of service to the traveling public at McGhee Tyson Airport. Significant deliverables will be concrete measured in square yards and asphalt measured in tons. Funds provided by the ARRA are being executed on TWY Bravo to reconstruct sections B1 to B6. As part of this project, an aggregate surfaced access roadway to the airfields Automated Weather Observation Station (AWOS) will be improved with a durable solid surface course (asphalt). Highway, Street, and Bridge Construction More than 50% Completed 3-47-0037-057-2009 MOSES LAKE, PORT OF Rehabilitate T-Hangar Taxilanes; Install Enhanced Taxiway Centerline Markings Taxiway Rehabilitation and Runway Incursion Markings. This project will replace the failed pavements of that T-Hangar areas, including the Taxiway leading into the area, and the taxilanes within. The project will also complete the enhanced Runway Markings. This project is designed to replace the failing asphalt and concrete in the T-Hangar area of the airport, and also includes the installation of enhanced markings for protection of Runway Incursions. The completion of this project will do two things: 1) opens up an area of T-Hangars that have not been previously usable and 2) create a safer environment for pilots. The use of the T-Hangars will increase the need for other airport employees to handle aircraft maintenance, fueling, tower operations, etc. Highway, Street, and Bridge Construction Grant County International Airport, 7810 Andrews Street, NE, Suite 200 Moses Lake, WA 98837-3204 More than 50% Completed Construct Aircraft Rescue and Fire Fighting (ARFF) Building - Phase IV Fitiuta Airport does not have an ARFF facility to comply with FAA Regulations Part 139 for this airport. Therefore to comply and satisfy this requirement, a certified complying ARFF facility is required to be built. This project is 18% complete. Preliminary items to start the project moving as in mobilization of equipment and personnel to Fitiuta Island is completed. Excavation of project site is currently in progress. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Final project checkout and reporting, Developing grant cloesout papers. Information GAO gathered to improve the description The award funds rehabilitation of the existing general aviation apron, which is the extensive paved part of an airport immediately adjacent to the terminal area or hangers, at the Upshur County Regional Airport. The rehabilitation activities will consist of removing the existing pavement section, lowering the profile grade of the existing subgrade, installing a new pavement section, apron markings, tie-downs, and lowering of the existing taxiway lights to accommodate the change in grade. Also the taxiway hold-short markings and the replacement of the runway light globes inside the “caution zone” will be enhanced to bring the airport into compliance with current Federal Aviation Administration (FAA) standards. Rehabilitation of Apron, South Field, OIA Quarterly activities include: project surveying and marking of project limit; installation of temporary pavement striping and marking; demolition of taxiway centerline line light and edge light fixtures. Procurement and installation of new centerline and edge light fixtures, demoliton of existing jet blast fence, utilities, and storm drains; installation of water line and fire hydrant; installation of miscellaneous asphalt pavement patches. Vendors: Manufacture and furnish electrical and general co Highway, Street, and Bridge Construction 530 Water Street, PO Box 2064 Less Than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of the apron--a surface where aircraft park and are serviced--adjacent to the port maintenance shop, Terminal 1 luggage area, and Terminal 2 tug ramp area at Oakland International Airport. The award will provide long-term pavement reliability to maintain airport air cargo, flight, and baggage operations. Rehabilitate Runway 14-32 Phase 3 Airport Development - Rehabilitate Runway 14-32 - Pittsburgh International Airport - Allegheny County Airport Authority Winter weather activities only. Highway, Street, and Bridge Construction Pittsburgh International Airport, Findlay and Moon Township P.O. Box 12370 $9,770,201.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of Runway 14-32 at Pittsburgh International Airport, including activities such as improving pavement and grading, and updating pavement markings, airfield signage and lighting systems. The rehabilitation is expected to maintain the airport's primary runway for night time arrivals and noise abatement procedures, thus enabling continued environmentally friendly and efficient operations for military and civilian aircraft. Rehabilitate Taxiways D,E,F & G Airport Development - Rehabilitate Taxiways D,E,F & G - Allegheny County Airport - Allegheny County Airport Authority Project 35% complete. Winter weather activities. Highway, Street, and Bridge Construction Allegheny County Airport, Lebanon Church Road West Mifflin, PA 15122-2605 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates 75,000 square feet of new airfield asphalt pavement. Rehabilitation activities include the removal of deteriorated pavement and base materials, the rebuilding of the base and repaving of the taxiways, the rebuilding of any necessary storm water drainage infrastructure, and the remarking and relighting of the taxiways in accordance with Federal Aviation Administration (FAA) specifications. The rehabilitation will help maintain airfield safety and usefulness, preventing extensive maintenance costs, correcting an antiquated physical layout, and allowing for airport economic development. Airport Development rehabilitate Runway 17R/35L Highway, Street, and Bridge Construction Grants Less Than 50% Completed Information GAO gathered to improve the description This award completes a total rehabilitation project of Runway 17R/35L at Laredo International Airport that began roughly 7 to 10 years earlier. The rehabilitation work encompasses an area of approximately 5,900 feet long by 150 feet wide. Specific activities include engineering, surveying, and demolition of existing pavement; replacing underground drainage; compaction of the sub base, adding a 6- inch asphalt base and a 16-inch concrete pavement; and testing, grooving, cleaning, and repainting the new surface. The rehabilitation will provide a safer runway that is less costly to maintain by using a rigid Portland concrete that does not create foreign object debris (FOD) and does not require frequent sweeping. Rehabilitate Runway, Rehabilitate Taxiway The project is for Airport Development, specifically, the reconstruction/realignment of the taxiway and rehabilitation of the runway. The project will enhance safety, protect the federal investment and increase the life of the pavements. Mix designs and test strips are complete. Paving is underway. Project is 60% complete. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports airport development activities at Salinas Municipal Airport. These activities include rehabilitating runway 08/26, taxiway B, taxiway D, and converting runway 14/32 to a taxiway. DELAWARE RIVER & BAY AUTHORITY Construct Runway (design, Phase VI)-09/27 (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the design of a new runway and taxiway system at Delaware Airpark. The project will include a new Runway 9-27 (4,200 feet by 75 feet) and a parallel taxiway. The taxiway will incorporate the old runway pavement (3,582 feet by 60 feet) plus new pavement (1,300 feet by 35 feet). It also will include connector taxiways, a wetland mitigation site, lighting, signage and drainage. The award will result in a design for a new runway in accordance with the 2003 Airport Master Plan, which recommended a new runway to accommodate projected regional general aviation growth. PALM BEACH, COUNTY OF Airport development - The award purpose is to rehabilitate Runway 05/23. The overall purpose of this award is to rehabilitate runway 05/23. Highway, Street, and Bridge Construction Boca Raton, FL 33431-6409 More than 50% Completed Information GAO gathered to improve the description The award rehabilitates a runway in Boca Raton Airport in order to improve its quality. Rehabilitation activities include removing the asphalt, relaying it, and marking up the two ends of the runway. Rehabilitate Taxiways 'C'& 'L'; Rehabilitate Taxiways 'D' & 'M' This project can be described as the rehabilitation of pavements on Taxiways 'C' and 'L' and Taxilane 'K', including the replacement of existing taxiway edge lights with LED lights, the replacement of failed drainage pipes beneath affected airfield pavement areas, and re- shaping of taxiway shoulders. The project also includes the rehabilitation of pavements on Taxiways 'D' and 'M' (approximately 1,200 ft. x 50 ft.) and the adjacent Customs Apron (approximately 5,800 sf.) to include full depth pavement reconstruction, replacement of failed drainage pipes beneath affected airfield pavement areas, re-shaping of taxiway shoulders, and adjustment of existing edge lights. This project can be described as the rehabilitation of pavements on Taxiways 'C' and 'L' and Taxilane 'K', including the replacement of existing taxiway edge lights with LED lights, the replacement of failed drainage pipes beneath affected airfield pavement areas, and re- shaping of taxiway shoulders. The project also includes the rehabilitation of pavements on Taxiways 'D' and 'M' (approximately 1,200 ft. x 50 ft.) and the adjacent Customs Apron (approximately 5,800 sf.) to include full depth pavement reconstruction, replacement of failed drainage pipes beneath affected airfield pavement areas, re-shaping of taxiway shoulders, and adjustment of existing edge lights. Highway, Street, and Bridge Construction 8 Airport Rd. Information GAO gathered to improve the description The award is for rehabilitation at Morristown Municipal Airport. Upgrade Edge Lights, Taxiways A, B, C, D, and H; Upgrade Edge Light Base Housings Runway 17L/35R and Taxiway H. Upgrade airfield lighting and lighting equipment on select runway and taxiways. Electrical Contractors and Other Wiring Installation Contractors Will Rogers World Airport, 7100 Terminal Drive Oklahoma City, OK 73159-0937 Less Than 50% Completed Information GAO gathered to improve the description The award upgrades the 20-year-old lighting and lighting fixtures at Will Rogers Airport in Oklahoma City, Oklahoma, which will increase energy efficiency, improve safety, and make it easier to obtain replacement parts in the future. Saw cut groove (7400' X100'). Mark (7400'X100') & transition the connecting TWYS to overlay on RW 17-35 Stillwater Reginal Airport Rehabilitate runway to increase safety and decrease delays. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award rehabilitates the south 4,800 feet of existing Runway 17-35 to bring it to a level or quality equivalent to that of the north 2,600 feet of runway. Rehabilitation activities include a geotechnical investigation of soils analyses to determine optimum stabilization methods and parameters, as well as a field survey to determine appropriate grades and profiles for new pavement. Airport Development. Columbia Owens Downtown Airport Airfield Pavement Rehabilitation Project - Phase III (Taxiways, taxilanes, & partial apron) During the quarter ending December 31, 2009, the paving operation and pavement markings were completed. Crews began seal coating, but stopped due to weather issues. There were no hours completed during the month of December due to weather. The purpose of this project is to rehabilitate and resurface major portions of the aircraft parking ramp and active taxiway at the Jim Hamilton - L.B. Owens Airport. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award includes specific activities such as milling of old asphalt; application of asphalt overlay, pavement rejuvenator and temporary markings; quality control material testing; and application of permanent markings. The construction will improve safety, reliability, and general aviation service to the airport and surrounding area by improving the condition of the taxiway, taxi lanes, and apron pavements. (An apron is a surface where aircraft park and are serviced.) The airport provides facilities for general aviation traffic and flight training activities and serves as the reliever airport to Columbia Metropolitan Airport. The existing pavements were constructed in 1985 and were exhibiting signs of deterioration, including lane separation, block cracking, and loss of asphalt content due to aging and oxidation from sunlight exposure. This condition has the potential to contribute to Foreign Object Damage (FOD) to aircraft. COLUMBUS, CIVIL CITY OF RW RE LI Rehabilitate Runway LIghting Completed design & bid phases for project required to receive grant, substantially complete with site work. Highway, Street, and Bridge Construction 4770 Ray Boll Blvd. Columbus, IN 47203-4764 Less Than 50% Completed Information GAO gathered to improve the description The award supports the design, construction, inspection and testing of a new electrical vault at Columbus Municipal Airport. The award will ensure the safety of aircraft in the event of a power failure affecting airport lighting and communication systems. BOULDER CITY, CITY OF The project is for Airport Development, specifically, the rehabilitation of the primary runway. The project will enhance safety, protect the federal investment and increase the life of the pavements. Completed pavement mix designs , test strips and pavement preparation taking the runway project over 50% complete. Highway, Street, and Bridge Construction Boulder City, NV 89006-1350 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for Runway 9R-27L at Boulder City Municipal Airport. Rehabilitation activities include leveling and covering the safety area around the runway in aggregate to provide a stable surface, sealing cracks, constructing a 2-inch overlay, grooving and repainting. AIRPORT AUTHORITY FOR THE CITY OF GREENVILLE & COUNTY OF PITT Terminal Building Addition (Lobby/Circulation-3500 sq ft and New Departure Lounge- 10,400 sf) Terminal building improvement; footings poured, commencement of steel erection Commercial and Institutional Building Construction Grants Less Than 50% Completed Information GAO gathered to improve the description The award supports the expansion of a terminal and improvement of the facade by incorporating green technologies such as solar panels and ground source (geothermal heat pumps). The expansion will allow the Pitt-Greenville Airport's capacity to better meet the community's air service needs due to increased air traffic. Acquire Mobile Aircraft Rescue and Fire Fighting Training Facility Acquire Mobile Aircraft Rescue & Fire Fighting Training Facility Approval of Configuration Drawings and Start of Fabrication for the acqisition of a Mobile Aircraft Rescue and Fire Fighting Training Facility Regulation and Administration of Transportation Programs Less Than 50% Completed Information GAO gathered to improve the description This award will support preparations for the facility, including installing electrical components, running propane lines to and from the facility, as well as fabrication (bending steel to specification) and engineering. The award will result in improved aviation safety, as this facility will provide training to firefighting departments throughout the entire state of Virginia for the next 15 years. Asphalt overlay and pavement markings Highway, Street, and Bridge Construction (Information not reported) Dauphin Island, AL 36528-0000 Information GAO gathered to improve the description The award supports activities to fix damaged pavement on Dauphin Island Airport's runway 12/30, the only runway at this airport. The activities included reconstruction of the pavement on the entire runway, which measures 3,000 feet long and 80 feet wide. The result of the award was to improve the quality of the runway. TRANSPORTATION AND PUBLIC FACILITIES, ALASKA DEPARTMENT OF Akiachak Airport Relocation-Stage 1. This project will construct a new airport facility approximately 1.5 miles northwest of the community, consisting of a new 60 ft by 3300 ft runway, 120ft by 3900ft runway safety area, a 35ft by 400ft taxiway with a 79ft wide safety area and a 200ft by 400ft apron. The project is approximately 6% complete. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award replaces the current airport with a new airport that meets current design standards. The result of this award will be an airport that improves safety and operational efficiency by reducing injuries, fatalities, and property damage, and by improving the mobility of people and goods. Rehabilitation of the center portion of Runway 6/24 - 960 feet long by 150 feet wide - bring the entire runway up to the same length, at Decatur Airport. Decatur, Illinois Engineering & Construction Services for Decatur Airport Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports reconstruction activities for 960 feet of Runway 6-24. These activities include pavement milling, paving, grooving, and marking. The award will result in a preserved runway with strengthened pavement that meets Federal Aviation Administration (FAA) requirements. Airport Development. The rehabilitation of the primary air carrier runway and the construction of runway shoulders and blast pads. Project has been beset with weather delays. No invoices received for reporting quarter Other Support Activities for Air Transportation $5,400,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates the entire length of runway 13/31 in order to increase safety features and create a better landing surface. Additionally, two shoulders and blast pads will be added to the runway. Activities include milling, or stripping, the top layer of runway, putting down a new overlay, and repainting/restriping the runway. Reconstruct EFD Taxiways A, D, & F Airport Development -- Reconstruction of Taxiways A, D and F Taxiways A and D are complete The existing concrete on Taxiway F has been removed. The base is being laid. Anticipated completion is before March 31, 2010 More than 50% Completed Information GAO gathered to improve the description The award supports the reconstruction of around 42,000 square yards of pavement for taxiways A, F, and two portions of D at Ellington Airport. Reconstruction includes removing pavement that had been in place for over 20 years and replacing it with concrete pavement. Activities included construction phasing, sodding and seeding, pavement markings, and preservation of the existing electrical facilities along the taxiways, in order to meet new industry standards. A B WON PAT INTERNATIONAL AIRPORT AUTHORITY Rehabilitate 1000 feet of Runway 06L/24R to maintain and improve safety for aircraft operations Highway, Street, and Bridge Construction Grants Less Than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for Runway 06L-24R at A B Won Pat International Airport. These activities include removal of the existing blast pad, localizer concrete pads and steel posts, electrical conduits, wiring and signs; and construction of the runway extension subgrade and subbase, and base course. The activities also will include milling the existing asphalt pavement and construction of pavement surface pending resolution of Voids in Mineral Aggregate (VMA), a hot mix asphalt mixture property; restoration of Taxiway Julia; installation of runway lighting; runway grooving; and painting the runway and taxiway. Modify Aircraft Rescue and Fire Fighting (ARFF) Building Site work, drainage, foundation, structural steel, decking, finish exterior brick, electrical & plumbing rough-in Highway, Street, and Bridge Construction 9430 Jackie Cochran Blvd., Suite 300 Baton Rouge, LA 70807-8020 More than 50% Completed Information GAO gathered to improve the description The award supports the renovation and expansion of the existing Aircraft Rescue and Fire Fighting building. The award will result in a building that will accommodate airportwide training activities and facilitate the use of an emergency command center. ST MARY, PARISH OF Project completed/runway asphalt patched, rejuvenated, and restriped. Highway, Street, and Bridge Construction Harry P. Williams Memorial Airport Information GAO gathered to improve the description The award funds rehabilitation of a deteriorating runway, runway 06/24, which is approximately 5,400 feet long. The rehabilitation covers the entire surface of the runway, patching places where the concrete joints have come through the asphalt, and where lightning has taken out chunks. Additionally, the runway will be coated and restriped and the new runway will meet general aviation standards. WINDOM, CITY OF (INC) Windom Municipal Airport Runway Project Rehabilitate Runway 17/35 (approximately 75'x3,599') Rehabilitated runway - Concrete overlay of existing runway by placing 3 inches of gravel and 5 inches of concrete to replace runway asphalt surface. The shoulders were re-graded due to the raised concrete surface. Shoulders were filled with black dirt and seeded. Highway, Street, and Bridge Construction 48572 County Road 28, PO Box 38 $1,149,062.00 Information GAO gathered to improve the description This award replaces Runway 17-35, which was originally constructed in the late 1960s and is the only hard-surfaced runway available in Cottonwood County. The runway's condition was recently classified as "fair poor" in the Minnesota Department of Transportation annual survey of airport pavement. This award ensures continued access to aviation for business, medical, agricultural, and private use by re- constructing this runway and its taxiways. Rehabilitate Runway (Phase III)-09R/27L Survey and layout were performed, permits were obtained and contractor mobilization costs were incurred. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for runway 9R-27L, Philadelphia International Airport's longest runway. These activities include replacing the runway's pavement and lighting system. The award will result in extended life for this runway. Install Guidance Signs (Phase II) Install airfield signs. Demobilization. Highway, Street, and Bridge Construction 100 Terminal Drive More than 50% Completed Information GAO gathered to improve the description The award encompasses the signage for all of the airfield runways and taxiways. The award will update wiring for runway and taxiway edge lights installed prior to 1970 and signage last updated in 1991. PALM BEACH, COUNTY OF Airport development - The award purpose is to rehabilitate Runway 05/23. The overall purpose of this award is to rehabilitate runway 05/23. Highway, Street, and Bridge Construction Boca Raton, FL 33431-6409 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for runway 5/23, Boca Raton Airport's only asphalt runway. These activities included removing the existing asphalt, overlaying the runway with new asphalt, and marking it up. The award improved the quality of the runway. The milling and asphalt pavement are 100% complete. The striping is 95% complete. The project is 98% complete. Grants More than 50% Completed Information GAO gathered to improve the description The award supports a rehabilitation project for Runway 18-36 (75 feet by 5,002 feet) at Orlando Sanford International Airport. A Pavement Management Program evaluation conducted by the Florida Department of Transportation in 2008 determined that Runway 18-36 was past due for routine maintenance, and therefore in poor condition, requiring total rehabilitation. Reconsturct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways Airport Development - Reconstruct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways. The existing taxiways have numerous large cracks and failures throughout the surface. A site investigation has shown that organic debris (tree stumps) was used as a fill material under the existing taxiways and apron. This organic debris is causing failures in the asphalt in several locations. Full depth reconstruction is required. Reconstruct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways Highway, Street, and Bridge Construction Information GAO gathered to improve the description The award reconstructs approximately 1,330 lineal feet of parallel taxiway, including two connecting taxiways at Shoshone County Airport. Activities include removing existing pavement; constructing the parallel taxiway, including transitional pavement, shoulders, grading and reflectors; constructing connector taxiways; and relocating aircraft tie-downs. Reconstruction of the taxiway will help maintain a safe aircraft operational surface. Peoria International Airport - PIA-3912-ARRA Construction of a New Terminal Building (Phase 5 - Electrical, Doors & Windows & Site Preparation Divisions) at the Peoria International Airport, Peoria, Illinois. Architectural and Building Construction Services for an airport terminal expansion. Commercial and Institutional Building Construction 6100 W. Everett McKinley Dirksen Parkway Less Than 50% Completed Information GAO gathered to improve the description. The award supports work which will facilitate completion of the new terminal building at the Peoria International Airport, which replaces the original terminal building built in 1959. Acquire Aircraft Rescue and Fire Fighting (ARFF) Vehicle Construction of the vehicle began in December 2009, currently 19% complete. 99 Sinclair Drive, c/o Muskegon County Airport Less Than 50% Completed Information GAO gathered to improve the description This vehicle will provide necessary fire fighting capabilities as required by the Federal Aviation Regulation Part 139. Crack route and seal, 2' asphalt overlay on Runway 4/22 Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of all of runway 4/22, which is 75 feet wide by 4,000 feet long, at Mankato Regional Airport. Rehabilitation activities include obtaining materials and services to prepare the area, removing old runway pavement, laying new pavement, and repainting the runway. The rehabilitation will improve the pavement condition and extend the useful life of the runway by sealing the surface to prevent water damage. Dixon Municipal Airport C73-3914-ARRA; Waukegan Regional Airport UGN-3908-ARRA Airport Development under the State Block Grant Program, including: Dixon Municipal Airport (C73) - Rehabilitate Apron; Waukegan Regional Airport (UGN) - Rehabilitate Runway 14/32. Engineering Services for Waukegan Regional Airport and Dixon Municipal Airport. Power and Communication Line and Related Structures Construction 3580 N. McAcree Rd. $2,155,560.00 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates the apron--a surface where aircraft park and are serviced--at Dixon Municipal Airport; specific activities include 11,000 linear feet of cleaning and sealing cracks and 3,450 square feet of pavement marking. The award also rehabilitates a runway at Waukegan Regional Airport; specific activities include approximately 14,000 square feet of pavement marking, 8,200 square yards of pavement milling, and 4,100 feet of cleaning and sealing cracks. The rehabilitation at both airports will strengthen the pavement to Federal Aviation Administration (FAA) requirements and preserve the existing investments. ALBERT LEA, CITY OF Airport Development: Construct new Runway 16/34 Work this quarter involved site grading, draintile, and subbase. Highway, Street, and Bridge Construction Albert Lea, MN 56007-2081 Less Than 50% Completed Information GAO gathered to improve the description The award funds construction of a new, asphalt runway that is 5,000 feet long, reconstruction of the existing runway (as a 35-foot wide parallel taxiway), and rehabilitation of the crosswind runway that is 2,899 feet long at Albert Lea Municipal Airport. The activities will include grading, drainage and paving work for the relocated runway; new edge lighting for the runway and taxiway; new navigational aides for the runway; new airfield signage; and rehabilitation of a runway involving milling, asphalt overlay, and painting. These activities will assist in accommodation of the airport’s current and projected aircraft fleet. Rehabilitate Apron to extend life Highway, Street, and Bridge Construction Grants More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for the existing south paved asphalt apron--a surface where aircraft park and are serviced-- and taxiways leading to this apron at the Somerset Airport in Bedminster, New Jersey. These activities include an excavation to remove deteriorated asphalt surface and sub-base soils for placement of a geotextile stabilization fabric, new sub-base course, and asphalt pavement and pavement markings. The award is expected to result in improved surface drainage. TW ST CO Construct Taxiway Relocate Taxiway A (Construction Phase 3 - 5000' x 100') Construction substantially completed in 4th quarter. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award will improve the safety of the airfield geometry and correct the pavement condition of Runway 18-36 at Findlay Airport to be within the recommended Federal Aviation Administration (FAA) standards. The runway will be relocated to 400 feet from the runway centerline north of Runway 7-25. Along with relocating the runway, activities include construction of connector taxiways as appropriate, and the completion of construction of a second taxiway to access the apron (a surface where aircraft park and are serviced) from the south. TRANSPORTATION, WISCONSIN DEPARTMENT OF Construct Runway Safety Area- 01L/19R The grant to General Mitchell International Airport improves the airport's infrastructure by constructing Phase II of Runway Safety Area Improvements to runway 01L/19R. The outcome of this project will be to enhance the safety and efficiency of the airport. Power and Communication Line and Related Structures Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the second phase of a project that will construct a tunnel to provide a clear runway safety area. Airport Development. Rehabilitate Runway - 09/27. Paving, Pavement Marking Applications and Grading Highway, Street, and Bridge Construction 41771 Highway 77, P.O. Box 187 More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of a runway at Ashland/Lineville Airport. Rehabilitation activities will preserve airport infrastructure by removing old runway pavement, preparing the area, laying new pavement, and repainting the runway. SAN DIEGO COUNTY REGIONAL AIRPORT AUTHORITY Install airfield guidance signs and elevated runway guard lights Airport Development. Project mobilization including construction trailer; review of product submittals; beginning of construction of electrical dutc bank, laying conduit and surveying for location of trenches, pull boxes, and new lights and signs. Highway, Street, and Bridge Construction San Diego, CA 92101-1045 Less Than 50% Completed Information GAO gathered to improve the description The award will replace aging lights and signs throughout the San Diego International Airport with new LED lights and directional signs that meet Federal Aviation Administration (FAA) standards and improve safety. The new LED lights also will be more energy efficient, thereby reducing the cost of their operation. SAN FRANCISCO, CITY & COUNTY OF Reconstruction of a Runway (28R-10L) Airport Development. This project will overlay and reconstruct Runway 28R-10L to repair deteriorating pavement, improve the surrounding drainage system, upgrade the electrical runway and taxiway lighting system, and repaint runway markings to increase visibility and improve safety for aircraft on the airfield. Additionally, this project consists of pavement grinding, excavating, paving, runway marking, and installing of runway and taxiway lights. Activities included pavement grinding, asphalt paving, shoulders grading and watering; demolition of existing steel conduits; and installation of runway centerline light extensions, edge lights installation, wiring, transformers, and steel conduits on runway 28R-10L. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports work at San Francisco International Airport. This overall program consists of increasing the height of the existing perimeter fence to 10' in height and the installation of underground wildlife deterrent. Highway, Street, and Bridge Construction $845,698.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports increasing the height of the perimeter fence to 10 feet and installing wildlife deterrent measures. The award will result in securing the airport property from wildlife. IOWA CITY, CITY OF Rehabilitate Runway 12/30 (Phase 2) Construction, Engineering Design and Construction Observation. Highway, Street, and Bridge Construction Iowa City Municipal Airport, 1801 South Riverside Drive Iowa City, IA 52246-5704 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for approximately 2,500 feet of runway 12/30 at Iowa Municipal Airport. This runway is 60 years old and the award will result in improved safety. MADISONVILLE, CITY OF (INC) Other Heavy and Civil Engineering Construction Madisonville, KY 42431-0000 More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of the ramp and apron--a surface where aircraft park and are serviced--at Madisonville Municipal Airport. The apron is 272 feet wide and 385 feet long. This award will allow the airport to continue its mission of catering to military, corporate, private, and recreational flyers. In addition, the award will provide more space to aircraft when they are parked and tied down overnight. TRANSPORTATION, WISCONSIN DEPARTMENT OF The grant to Rhinelander-Oneida County Airport improves the airport's infrastructure by rehabilitating taxiways A, B, and D. The outcome of this project will be to enhance the safety and efficiency of the airport. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports taxiway rehabilitation activities, including removing old taxiway pavement, laying new pavement, and preparing the new taxiways for use. TRANSPORTATION AND PUBLIC FACILITIES, ALASKA DEPARTMENT OF Allakaket Airport Improvements. Repair and stabilize the runway embankment, taxiway and apron to correct areas that have experienced serious differential settlement, side slope failures and erosion. Highway, Street, and Bridge Construction Grants (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports activities to improve taxiways A-E and aprons--surfaces where aircraft park and are serviced--including resurfacing and installing new lighting. BURBANK GLENDALE PASADENA AIRPORT AUTHORITY Rehabilitation of Taxiways C, D & G Rehabilitation of Taxiways C, D & G to improve pavement Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description Taxiways C, D, and G at Bob Hope Airport are deteriorating and reaching the end of their life spans. This award funds the rehabilitation of these runways to bring them up to Federal Aviation Administration requirements and give them life spans of approximately 10 years. Activities include removing the existing pavement by milling and replacing with new asphalt pavement, installing new striping, and applying creak seal and seal coat. DENVER, CITY & COUNTY OF Rehabilitate a portion of Runway 17L/35R from Station 494+57 to Station 583+62 Rehabilitate a portion of Runway 17L/35R from Station 494 + 57 to Station 583 + 62. Pavement rehabilitation of portions runway 17L/35R complex including runway 17L/35R by removing and replacing identified distressed PCCP pavement panels and portions of asphalt shoulders. Benefits include replacement of distressed aircraft pavement to improve safety, increase overall runway and taxiway pavement life, and reduce FOD and possible aircraft damage FOD can cause. All work was completed September 3, 2009. Pavement Rehabilitation of portions Runway 17L/35R by removing and replacing identified distressed PCCP pavement panels and portions of asphalt shoulders. Benefits include replacement of distressed aircraft pavement to improve safety, increase overall runway and taxiway pavement life, and reduce FOD and possible aircraft damage FOD can cause. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award funds the removal and replacement of deteriorated concrete panels on portions of the east runway at Denver International Airport to, among other things, reduce foreign object debris (FOD). GULFPORT BILOXI REGIONALL AIRPORT AUTHORITY( INC) Mill and Overlay Runway 18/36 Overlay and groove Runway 18/36 (4,93'5 +- x 150') Completed and closed out related contract on time and under budget. Highway, Street, and Bridge Construction $1,828,988.00 Information GAO gathered to improve the description The overlay covers holes that develop in the runway concrete. The grooving reduces the slick nature of the runway to meet Federal Aviation Administration (FAA) friction requirements. The result of the award enhances the safety of landing aircraft and will help attract more general aviation aircrafts to use the airport. Airport Development - Runway 15-33 is in need of improvement to reconstruct pavement to reconstruct pavement, upgrade the lighting system, and provide better airfield drainage. Purchase construction materials & project administration. Highway, Street, and Bridge Construction Less Than 50% Completed Information GAO gathered to improve the description The award supports the reconstruction of Runway 15-33 at Harry Stern Airport. Reconstruction of this runway is a state priority because the North Dakota Aeronautics Commission determined that the runway was in poor condition. TRANSPORTATION, TEXAS DEPARTMENT OF Rehabilitate and mark Runway 17/35 and reconstruct 17/35 end in PCC Runway improvements to increase and sustain economic activity for the airport and its local community Primary runway reconstruction at the Curtis Field/Brady Municipal Airport Highway, Street, and Bridge Construction 3821 N US Hwy 377 More than 50% Completed Information GAO gathered to improve the description The reconstruction of 500 feet of runway 17/35 involves pouring Portland Cement Concrete (PCC) to fix the failures in the pavement. The rehabilitation of 4,104 feet of the runway includes resurfacing with asphalt and remarking of the runway. Demo of existing asphalt apron, add de-icing catchment and pave the area with concrete. PO Box 1677, 1801 Roeder Avenue More than 50% Completed Information GAO gathered to improve the description The award reconstructs the portion of Taxiway D at the intersection of Taxiway E and A at Bellingham International Airport. Since the runway is currently experiencing rapid pavement failures, the reconstruction will improve the pavement and add drainage to ensure the runway has a longer life. Rehabilitate Emergency Generator and Acquire Index B Air Rescue and Fire Fighting Vehicle The project involves the cosntruction of a new backup generator that will serve the airport terminal, airfield lights,FBO and ARFF building. The project also involves the purchase of a new ARFF vehicle. The generator is installed. The punchlist will be completed next week. The ARFF vehicle has been delivered. Waiting on the training which should be later this month. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award funds a backup generator at North Central West Virginia Airport, including construction of two different facilities to house the generator and installation of the generator. The award also funds the acquisition of the new Air Rescue and Fire Fighting (ARFF) vehicle including designing the specification of the ARFF and the purchase itself. TRANSPORTATION, GEORGIA DEPARTMENT OF Federal Aviation Administration-Grants-in-aid for Airports, Recovery Act FAA Airport Improvement Program Grant for Non-primary development projects in the State Block Grant Program. This grant provides 100% federal funding for five general aviation airport construction projects in Georgia. This grant provides 100% federal funding for five general aviation airport construction projects in Georgia. All five of Georgia's aviation projects received notice to proceed with construction in June 2009. All projects to be funded with this grant are under construction.: Adel-Cook County Airport: Construct Parallel Taxiway for $656,000 Alma-Bacon County Airport: Construct Parallel Taxiway for $734,000 Brunswick-McKinnon-St. Simons Airport: Rehabilitation of Terminal Area Apron for $5,864,000 McRae-Telfair-Wheeler County Airport: Rehabilitate Runway 3/21 for $890,000 Peachtree City-Falcon Field Airport: Construct Area 'C' Aircraft Parking Apron-Phase II for $2,000,000 Other Heavy and Civil Engineering Construction 600 West Peachtree Street, NW Less Than 50% Completed Information GAO gathered to improve the description This award funds projects at five Airports that not only were (1) previously delayed due to lack of funds and (2) part of the state's respective Airport Layout Plan and Airport Improvement Programs, but which (3) could begin construction within 45 days. Airport Development - design and construction of a building to house fire fighting equipment site work, framing, roofing, siding, plumbing, electrical installation Highway, Street, and Bridge Construction 143 Caruso Drive, Suite 1 More than 50% Completed Information GAO gathered to improve the description The award provides adequate space at the Hancock County-Bar Harbor Airport for fire fighting personnel, vehicle, equipment and their related functions. The Recovery Act provides funding to states for restoration, repair, and construction of highways and other eligible surface transportation activities under the Federal Highway Administration’s (FHWA) Federal-Aid Highway Surface Transportation Program and for other eligible surface transportation projects. FHWA apportioned $26.7 billion in highway funds to states and the District of Columbia through existing federal-aid highway program mechanisms, and states must follow existing program requirements and Recovery Act requirements in the use of funds. FHWA has obligated $26 billion in Recovery Act Highway Infrastructure Investment funding. (See fig. 4.) As of May 3, 2010, FHWA had reimbursed states for about $7.6 billion (29 percent). Almost two-thirds of Recovery Act highway obligations nationally have been for pavement projects, including reconstruction, resurfacing, and widening projects. In addition, $1.6 billion (6 percent) is being used on new roadway construction projects. Transportation enhancements account for about $1 billion (4 percent) of highway obligations. Of this $1 billion for transportation enhancements, the largest portion—71 percent—went to facilities for pedestrians and bicycles, while an additional 18 percent went for landscaping and other scenic beautification projects. (See table 7.) We assessed the transparency of descriptive information for highway awards available on Recovery.gov, as described earlier in this report. We found that an estimated 25 percent met our transparency criteria, 69 percent partially met our criteria, and 6 percent did not meet our criteria. For highway descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our transparency criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. FHWA established a new data system and guidance to support recipient reporting, which may have affected the transparency of reported information. For the Recovery Act, FHWA created a new database called the Recovery Act Data System (RADS) to help fulfill Recovery Act reporting requirements. In addition to oversight and agency reporting requirements, highway recipients—state highway departments—can use RADS to complete their recipient reports. RADS information, including descriptive information, can be uploaded by recipients into FederalReporting.gov. FHWA officials told us that highway recipients can also use RADS information to check the accuracy of their own state highway award data before submitting the data as part of their recipient reports. Several highway recipients we interviewed said they relied heavily on FWHA guidance, specifically RADS guidance, to fulfill their recipient reporting requirements. RADS includes several data fields to describe highway awards, including one specifically designed to provide descriptions more understandable to the public. After a state certifies a highway project, the highway recipient submits descriptive information to the database. FHWA’s guidance for RADS provides specific instructions on this information; for example, the project name data field in RADS should be consistent with the name used in state planning documents. In fall 2009, FHWA added a narrative field to RADS to describe awards in plain terms to facilitate public understanding. FHWA division offices in each state were tasked with submitting this information to RADS. In several cases, state highway department officials we spoke to helped division offices generate this information. Colorado and Ohio state highway officials, for example, told us they generated the information from various sources, such as state databases and project managers. In some cases, the addition of this plain-language description field in RADS may have improved the narrative information in recipient reports to make it more understandable for the second reporting round. For state highway recipients that used RADS data to complete recipient reports, the new RADS description field was reported on Recovery.gov. The Ohio highway department submits RADS data to fulfill its reporting requirement, and for one pavement improvement project in Ohio, the narrative information changed between reporting rounds as follows: First round project description: “It is proposed to widen SR104 from US35 to the new relocated SR207 by adding additional thru traffic lanes and a center turn lane. PE Only-100% LPA Funds.” Second round project description: “State Route 104 is currently a two- lane highway between U.S. Route 35 and the new state Route 207 extension to U.S. Route 23, and it serves as the northwest bypass of Chillicothe. The project consists of widening approximately three miles of roadway from two to four lanes. It also provides for adding traffic signals at two intersections, the rerouting of Pleasant Valley Road and the upgrading of entrances to the two state prisons located on the route. One of the signals will serve Moundsville Road, a main artery for Union Scioto Schools and one of the largest districts in the county; the other signal will serve Gateway Industrial Park.” As state highway recipients can choose whether to use RADS data for recipient reporting, the addition of this plain-language description field will not affect all highway recipient reports. Moreover, FHWA is still working to gather plain-language descriptions in all states. FHWA officials told us they regularly check that the new field in RADS contains information for each award and subsequently work with FHWA division officials in each state to get the necessary information when it is missing. Because of the fluid nature of the Office of Management and Budget’s (OMB) guidance, FHWA officials told us that aligning their agency’s supplemental guidance with OMB’s has been a challenging process. However, FHWA officials said communication with OMB has improved over time. During the first two reporting rounds, FHWA worked with OMB to revise its guidance in response to concerns over the agency’s definitions for the award amount fields, including amounts received and expended. However, OMB did not provide formal approval of this guidance. For the third reporting round, FHWA officials told us they did receive written approval for FHWA’s supplemental guidance, after again working with OMB to address problems with the award amount fields, though it took 2 to 3 months to finalize and gain approval of this guidance. In addition to the RADS database and guidance, FHWA provided other reporting assistance to recipients. First, FHWA held webconferences for recipients prior to the second reporting round. FHWA also provided targeted assistance to state highway recipients to discuss specific problems or concerns with recipient reporting. Some state-specific factors may also have affected the transparency of recipient-reported information. For the state’s transparency Web site, the Massachusetts Recovery and Reinvestment Office required the state highway department to write detailed descriptions understandable to the public. Massachusetts highway officials told us that creating these descriptions was time-consuming for the first round of reporting but that descriptions did not change for second round of reporting. In Georgia, the state highway department typically develops both a short and an extended description for a highway project. According to Georgia highway officials, the extended descriptions are written in nontechnical terms and include details beyond the project’s name and location. Georgia officials told us they used these extended descriptions in FHWA’s RADS database and used them to fulfill recipient reporting requirements. Regarding award location, several recipients we interviewed said they experienced problems entering information into FederalReporting.gov. Recipients faced difficulty entering zip code and congressional district information for awards. While highway projects can occur in more than one locality or congressional district, FederalReporting.gov allows only one zip code and congressional district per award. In these cases, highway officials in Colorado and Pennsylvania told us that multiple entries for location would be useful. In Pennsylvania, for example, a project to construct curb ramps compliant with the Americans with Disabilities Act in Chester County spanned two congressional districts, forcing the state department of transportation to select a single zip code—the geocenter of the county—and one congressional district—the lowest number—to report for the award. The Department of Transportation and FHWA make highway award information available to the public in several forms. For example: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes highway awards, provides the location, cost, and a brief description for each award. FHWA online map (fhwaapps.fhwa.dot.gov/rap/). The map provides, among other things, the cost, type (e.g., bridge improvement), and a brief description of each award. FHWA weekly summary of projects (http://www.fhwa.dot.gov/economicrecovery/index.htm). On its Recovery Act Web site, FHWA publishes location, cost, and descriptive information on awards in three stages—awarded, in construction, and completed. FHWA also provides a weekly summary of obligation and status information by state. At the state and local level, recipients provide various types and amounts of award information to the public. The six state highway departments we interviewed posted descriptive information on Recovery Act awards on their Web sites. Several state Web sites provided a list of awards, while some state highway departments provided award information in alternative formats. In Massachusetts, for example, the state highway Web site made award information available through an interactive map. Other state highway departments provided more extensive award information. For most Recovery Act awards to the state, the Ohio highway department provides cost, location, and status information, as well as a description and photos. For highway awards administered at the local level, some localities also used Web sites and other tools to promote award information. The City of Olmsted Falls in Ohio used the city Web site and newsletter to share information on the construction of a new bridge on State Road 252 to improve safety by eliminating a railroad crossing. FHWA officials and recipients we interviewed said they had not received much feedback from citizens on Recovery Act highway awards. As they have no data for comparison, FHWA officials told us that they could not determine whether Recovery Act awards received more public feedback than regular awards. Based on their experience, public feedback on the Recovery Act often involves requests for a definition of a transportation enhancement and an explanation for why it is included in a highway program. At the recipient level, state highway departments experienced varying levels of feedback from the public and the media. Massachusetts highway officials told us they were surprised at the level of inquiry received on the Recovery Act. By contrast, New Jersey and Colorado highway officials said they had received little public feedback on Recovery Act awards. According to Colorado officials, the state highway department has not had to respond to many inquiries, since award information is available on the department’s Web site. At the local level, officials from the City of Olmsted Falls in Ohio told us that they had received both positive and negative comments on the bridge project. In addition, officials told us that the availability of award information has kept public interest alive and created an outlet to publicize volunteer opportunities to landscape the project area after the new bridge is completed. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. US 6 CHANNAHON RD RAILROAD ST Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the pavement life by resurfacing 3.0 miles on US Route 6 in Channahon and Rockdale (Northeast Illinois). Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, MARYLAND DEPARTMENT OF Resurfacing Pegg Road from Forest Run Drive to Westbury Boulevard Highway Infrastructure Investment Grant: Available for Use in Any Area (Flexible) To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) 0003129 RESURFACING AND RELATED WORK ON ROUTE 2 HARVARD LITTLETON - RESURFACING & RELATED WORK ON ROUTE 2 Resurface Route 2 from the vicinity of the Littleton Road Bridge to the Boxborough town line, a distance of approximately 4.4 miles. Work includes minor box widening to extend existing sub- standard acceleration and deceleration lanes. Contract has been awarded and project advanced to 91% of scheduled construction before winter weather forced paving work to shut down. The project will resume in the Spring. Highway, Street, and Bridge Construction 10 Main St. More than 50% Completed TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Replace deficient bridge carrying NC 73 over Long Creek in Stanly County. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed 0073019 Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the bridge life by replacing the bridge deck and making other roadway improvements on 112th Place over I-57 in Chicago in Cook County. (Northeastern Illinois). Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This project provides for the acquisition of right-of-way to construct trailhead parking area to access the Lake Brandt Greenway on US 220 North of Strawberry Road in Guildofrd County. This is a locally administered project bu the Town of Summerfield. Highway, Street, and Bridge Construction (Information not reported) 0729002 TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This project adds sidewalks along SR 1149 (Lee Street/Old NC 11) in Ayden from West Barwick Street to Allen Drive in Pitt County to improve pedestrian safety. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, NEW YORK DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible), Rural Areas with Population under 5K Replace two culverts on NY Route 242 in the towns of Ellicottville and Little Valley, Cattaraugus County. This project will eliminate culvert deficiencies and ensure good structural condition. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed 5017283 HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF I-40 OFF RAMP-ON RAMP (CONWAY) (REHAB) Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) THE PURPOSE OF THIS PROJECT IS TO REHABILITATE 0.37 MILE OF HIGHWAY 65 BETWEEN THE INTERSTATE 40 OFF AND ON RAMPS IN THE CITY OF CONWAY, FAULKNER COUNTY. WORK INCLUDES PAVEMENT REHABILITATION, COLD MILLING, MAINTENANCE OF TRAFFIC, PAVEMENT MARKING AND MISCELLANEOUS ITEMS. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, GEORGIA DEPARTMENT OF SR 9 FROM CHATTAHOOCHEE RIVER TO MARIETTA HWY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a maintenance construction project in Fulton County. This project is the milling and resurfacing of SR 9 from the Chattahoochee River to Marietta Highway. This section of SR 9 needs resurfacing because the existing pavement is deteriorating. SR 9 was last resurfaced in 2000. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed M003942 Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This project will extend the pavement life by resurfacing on Wondermere Rd from Greenwood Rd to Thompson Rd in the Village of Greenwood (Northeastern Illinois) Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, GEORGIA DEPARTMENT OF CR 41/GREEN TOP RD @ CSX RAILROAD 2 MI NE OF NEWNAN Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project is the replacement of a structurally deficient bridge in Coweta County. This project will replace the bridge on County Road 41 over the CSX Railroad, 2.0 miles northeast of Newnan, Georgia. The existing bridge, constructed in 1950, is a 92-f x 21.33-f steel truss structure with a sufficiency rating of 21. County Road 41 at this location is a rural two lane roadway with 10-f lanes with variable 3-f to 8-f grass shoulders with a posted speed of 45 MPH. County Road 41 is an east-west roadway classified as an urban local road. The project will construct a new 170-f x 40-f concrete bridge over CSX Railroad at the existing bridge site. The approaches will consist of two 12-f lanes with 8-f rural shoulders. The existing bridge will be closed to traffic during construction. Traffic will be detoured using an offsite detour. Highway, Street, and Bridge Construction (Information not reported) 0006956 WEST VIRGINIA DIVISION OF HIGHWAYS Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will improve safety for motorists by replacing the McBee Bridge due to condition. The bridge is located on County Route 17 at approximately milepoint 3.68 in Wetzel County. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION , MISSISSIPPI DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K The city of Pontotoc will resurface Industrial Drive/South Industrial Circle east of First National Bank on Hwy 15 to intersection of Bolton Street. This project will make the road smoother and extend the life of the pavement. Highway, Street, and Bridge Construction (Information not reported) 0102008 TRANSPORTATION, IOWA DEPT OF US 52 From Just S. Of NCL Garnavillo N. to Just S. of IA 13 This project includes performing cracking and seating of the existing portland cement concrete pavement and then applying a hot-mix asphalt overlay on approximately 9.0 miles of US Highway 52 from just north of the northern coprporate limits of Garnavillo north to just south of Iowa Highway 13 in Clayton County. Improvements will also include the addition of 4- ft paved shoulders. The project will result in an improved driving surface and enhance safety. US 52 From Just S. Of NCL Garnavillo N. to Just S. of IA 13 Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This project will improve the surface and rebuild sections of the bridge on SR 912 over I-80 in Lake County. Highway, Street, and Bridge Construction (Information not reported) 0900336 TRANSPORTATION, INDIANA DEPARTMENT OF HMA Overlay, Preventive Maintenance Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will improve sections and extend the life of Walnut Street from Center Street to Wayne Street in Dekalb County with a pavement surface overlay. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, FLORIDA DEPARTMENT OF CR 491 (LECANTO HWY) FROM N OF PINE RIDGE BLVD TO SR 200 RESURFACING - This award was reported 3rd Quarter 2009 as 4261501ARRA091 In Citrus County, due to the poor condition of the road, this project resurfaces 6.8 miles of County Road 491 from Pine Ridge Boulevard to State Road 200. Highway, Street, and Bridge Construction (Information not reported) CITRUS (COUNTY), FL 34434-8125 Less Than 50% Completed ARRA091 TRANSPORTATION, FLORIDA DEPARTMENT OF CITRUS WAY FM CR484 (FT DADE AVE) TO KENSINGTON RD WIDEN/RESURFACE EXIST LANES - This award was reported 3rd Quarter 2009 as 4261271ARRA107 In Hernando County, due to the poor condition of the road, this project resurfaces 3.8 miles of Citrus Way and widens the 11-foot lanes to 12-foot lanes from Ft. Dade Avenue to south of Centralia Road. Highway, Street, and Bridge Construction (Information not reported) HERNANDO (COUNTY), FL 34601-8659 Less Than 50% Completed TRANSPORTATION, FLORIDA DEPARTMENT OF SW 72 ST/SUNSET DR. FROM S.W. 65 AVENUE TO S.W. 63 AVENUE RESURFACING - This award was reported 3rd Quarter 2009 as 4264161ARRA409 The City of South Miami will enhance sections of Sunset Drive by resurfacing, reconstructing sidewalks, upgrading drainage, and installing median landscaping and irrigation. This project will create a pedestrian-friendly corridor. Highway, Street, and Bridge Construction (Information not reported) MIAMI-FT LAUDERDALE-WPALM BCH, FL 33143-3242 Less Than 50% Completed ARRA409 TRANSPORTATION, IOWA DEPT OF S23 Highway: G24 Highway to IA Hwy 5 Warren County will resurface 3.2 miles of County Road S-23 with new asphalt between County Road G-24 and Iowa Highway 5 west of the City of Hartford. This project will improve driving quality by providing a more smooth riding surface. S23 Highway: G24 Highway to IA Hwy 5 Pave Highway, Street, and Bridge Construction (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, MARYLAND DEPARTMENT OF Updating Existing Traffic Barrier and Design New Median Barrier - District 4 Highway Infrastructure Investment Grant: Available for Use in Any Area (Flexible) To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) Bel Air, MD 21014-9999 More than 50% Completed Information GAO gathered to improve the description The award supports the as-needed replacement of guardrails along US 40, MD 41, I-83, and MD 151, located in Baltimore and Harford counties in Maryland. The award will result in increased safety for the traveling public. TRANSPORTATION, ALABAMA DEPT OF STMAA-0010(520) Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project involves the repaving of 2 miles of State Highway 10 (Camden Bypass) from State Highway 28 to State Highway 28 in Camden. Wilcox County Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports resurfacing of the road, which is needed for safety reasons and to prolong the life of the road. Based on current traffic patterns, the repaved road may last up to 12 years. Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the pavement life by milling, patching and resurfacing various locations throughout Kane County (Northeastern Illinois). Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports the repair of roads which had significant pavement damage from winter weather conditions. The project repaired the following locations: IL 19 (Shales Pkwy. to Barrington Rd.); IL 25 (I-88 to Banbury Rd.); IL 31 (Huntley Rd. to Miller Rd.); IL 31 (IL 64 to Indian Mound Rd.); IL 38 (IL 47 to east side of Anderson Rd.); IL 38 (Peck Rd. to West Ave.); IL 58 (IL 47 to I-88); IL 64 (IL 47 to Peck Rd.); and IL 72 (west of I-90 bridge to IL 31). TRANSPORTATION, COLORADO DEPARTMENT OF I 25 - COMMERCIAL TO MAIN ? SB (STIMULUS Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Constructs the Purgatoire River Pedestrian Trail, adds street lights, parking lot paving, curb and gutter, drainage inlets, landscaping and sidewalk along I-25 in Trinidad. Highway, Street, and Bridge Construction (Information not reported) $7,044,806.00 Less Than 50% Completed Information GAO gathered to improve the description The award funds reconstruction of I-25 for both northbound and southbound lanes from Goddard Ave. to Van Buren St., which will replace aging infrastructure and provide a safe transportation system to and from the city of Trinidad, Colorado. This award includes construction of a multi-use/pedestrian trail along the Purgatoire River, under and adjacent to the Main St. exit and entrance ramps. These activities will extend the city of Trinidad’s planned trail to Van Buren St., a distance of 2500 feet. Construction includes earthwork, pre- cast panel retaining walls, riprap, trail/path paving, and pedestrian guardrail. TRANSPORTATION , MISSISSIPPI DEPARTMENT OF UPGRADE ROADS IN SHARKEY COUNTY-STREETS IN THE TOWN OF ANGUILLA - VARIOUS STREETS Highway Infrastructure Investment Grant: Rural Areas with Population under 5K This project will resurface various roads in the town of Anguilla, Sharkey county. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award resurfaces 3.85 miles of 20 roads to improve rideability of the roads. Hot asphalt will be laid over the old road, and new grass will be planted along the shoulders. Once construction is completed, roads will be restriped and new signs will be placed along the roads. Highway Infrastructure Investment Grant: Rural Areas with Population under 5K This project will extend the pavement life by resurfacing a section of Shady Rest Road approximately 15 miles west of Champaign (East-Central Illinois) Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports road resurfacing from FAS (Federal Aid Secondary) Highway 1532 to IL10. TRANSPORTATION, MISSOURI DEPARTMENT OF Jackson County, Route 150 Widen from two lanes to four lanes from Horridge Road to Route 291 Highway, Street, and Bridge Construction (Information not reported) Kansas City, MO 64106-2706 Less Than 50% Completed Information GAO gathered to improve the description The award funds the change of the original rural section of Route 150 to a narrower urban/suburban section to reflect the community's future development and changing land uses. ROADS, NEBRASKA DEPARTMENT OF Highway N-116, Concord Southwest Highway Infrastructure Investment - Bridge replacement - From funding for use in any Area (flexible) This bridge replacement project brings this roadway to a state of good repair. It replaced a 52-year old structure with a new quintuple 10' x 8' box culvert. As of December 31, 2009, project is substantially complete. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The bridge is on Highway N-116 southwest of the town of Concord in Dixon County. TRANSPORTATION, ARIZONA DEPT OF US-95 (16th St) @ I-8 ( MP 24.2 to MP 24.8) in YUMA Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) The Arizona Department of Transportation proposes to construct a widening project in Yuma County along US 95 (16th Street), I-8 to Palms Ave. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports widening of the road in order to reduce traffic congestion. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Live Oak. The project is described as: Rehabilitate Apricot St: N St-Broadway Highway, Street, and Bridge Construction 703 'B' Street More than 50% Completed Information GAO gathered to improve the description The award repaves 0.2 miles of Apricot St. from North St. to Broadway. The resurfaced road will result in a smoother driving surface. TRANSPORTATION, WISCONSIN DEPARTMENT OF This is a reconstruction project in Dodge County on County Highway G, Beaver Dam - Randolph. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports pavement improvement activities on 2.1 miles of County Highway G in Dodge County to provide two 12-foot travel lanes and two 6-foot shoulders (including 3 feet paved). The activities will include pulverizing, injecting and relaying existing asphalt pavement, spot grading, culvert replacements, base aggregate dense, concrete curb and gutter, pavement, pavement marking and all incidental items necessary to complete work. The award will improve rideability of the road and increase safety of the road's intersections due to grading to meet current standards. TRANSPORTATION, MISSOURI DEPARTMENT OF City of Washington Resurfacing of Various Streets Resurfacing of various streets within the city of Washington. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds asphalt resurfacing on approximately 3.1 miles. The activities include sealing of cracks, providing an asphalt level course and a 2-inch surface course, and Americans with Disabilities Act (ADA) compliant curb access ramps. The streets include W. Eighth St., W. Main St., Grand Ave., Pottery Rd., Old Route 100, and Route 47 to Stafford St. These activities are a cost-effective method to extend the life of the pavement, provide a smoother riding surface, increase the structural capabilities of the pavement, and postpone a costly reconstruction project. TRANSPORTATION, OKLAHOMA DEPARTMENT OF USDOT - FHWA Transportation Infrastructure Project in partnership with the Oklahoma Department of Transportation Transportation Infrastructure Project for the Oklahoma Department of Transportation identified as RESURFACE OKC ARRA: MULTIPLE LOCATIONS ON MACARTHUR, MERIDIAN, MAY &NW 10TH Highway, Street, and Bridge Construction (Information not reported) Oklahoma City, OK 73102-3457 $2,202,725.00 More than 50% Completed Information GAO gathered to improve the description The award supports resurfacing 6 miles of road in Oklahoma City and installing new curb ramps in order to improve ride quality and extend the life of the pavement. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Gilroy. The project is described as: Rehabilitate local street Highway, Street, and Bridge Construction Information GAO gathered to improve the description This award repairs 11 street sections that are roadway corridors for arterial and collector streets and repairs sidewalks that lead to schools. The sidewalk construction project will improve the sidewalks for safety on the following streets: Welburn Ave. from Santa Teresa Blvd. to Wayland Ln.; Murray Ave. from Lincoln Ct. to Lewis St.; Sixth St. from Wren Ave. to Eigleberry St.; Princevalle St. from Sixth St. to Luchessa Ave.; Westwood Dr. from First St. to Third St.; Eighth St. from Uvas Park Dr. to Monterey St.; Forest St. from I.O.O.F Ave. to Sixth St.; Wren Ave. from First St. to Mantelli Dr.; Miller Ave./Wayland Ln. from Arnold Dr. to Eighth St.; Mantelli Dr. from Santa Teresa to Lions Creek Dr.; Church St. from First St. to Las Animas Ave. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Pedestrian and Class 1 Bike Path Highway Infrastructure Investment Grant: Transportation Enhancements This is a Facilities for Pedestrians and Bicycles project by a local agency in the City of Orange. The project is described as: Construction of a Class I bike trail along the Santiago Creek from Tustin Street to Collins Avenue and other amenities Highway, Street, and Bridge Construction Grants 3347 Michelson Dr Ste 100 Information GAO gathered to improve the description The award will result in a grade separated and safe Class I bikeway from central Orange to Main Place Mall and the Discovery Science Center. TRANSPORTATION, MONTANA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements Installation of accessible curb ramps on existing sidewalks at multiple locations within the City of Missoula. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will install between 100 to 200 sidewalk curb ramps in Missoula, Montana to make sidewalks Americans with Disabilities Act (ADA) accessible, install and repair sidewalks where the need is greatest, and upgrade existing sidewalks. The award will improve walkability in Missoula by providing a continuous sidewalk system throughout the community, provide safe and efficient pedestrian movement and meet the standards of the ADA, as well as identify pedestrian corridors for creating preferred routing for schools, children, disabled residents, elderly, community and neighborhood trips. TRANSPORTATION, RHODE ISLAND DEPARTMENT OF State CCVE/RVD Installation for Incident Detection and Data Collection Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project involves the installation of radar-based vehicle detectors, at the same location as existing traffic cameras, to collect data on traffic volume and speeds. The new detectors provide alerts to Traffic Management Center operators to announce increasing traffic congestion. Technology will allow RIDOT to post travel time on electronic message signs (40 locations). Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports the installation of radar detectors at 43 stations, including Narragansett, Warwick, North Smithfield, Lincoln, Richmond and Middletown. TRANSPORTATION, PENNSYLVANIA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Bridge deck replacements for various structures in Bedford County Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports bridge rehabilitation activities on two structurally deficient bridges in Bloomfield and Monroe Townships on State Route 2029. Rehabilitation activities include removing the existing overlay, placing a new concrete deck, and paving the new deck with asphalt. The award will extend the life of these bridges and improve safety by replacing the existing deteriorated bridge decks. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the County of Marin. The project is described as: Rehabilitate local street Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports the construction of a High-Occupancy Vehicle (HOV) lane and bike path along US 101 in San Rafael from 0.8 km south of Coleman Pedestrian Overcrossing to North San Pedro. The current HOV lane stops and starts at various locations in Marin County. This project, called the Gap Closure Project, will provide an uninterrupted HOV lane through the most densely populated section of Marin County. The award will result in an alternative to single-occupancy commuting. Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will substantially improve the roadway by reconstructing a section of Armour Road in the city of Bourbonnais (East-Central Illinois). Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award improves pavement and safety by resurfacing 1.23 miles of Armour Rd. between US 45/52 and IL 50. TRANSPORTATION, IDAHO DEPARTMENT OF STC-6762, MAIN ST; BRIDGE ST TO 6TH E, ST ANTHONY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will repair and overlay 0.5 mile of pavement on Main Street in City of St.Anthony, Fremont County and will include minor drainage improvements, replacement of traffic signal detection loops, and adjustments to manholes and valves. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description This award will repair the road, as it was in a state of disrepair. HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) THE PURPOSE OF THIS PROJECT IS TO WIDEN 4.91 MILES OF HIGHWAY 167 BETWEEN THE SALINE RIVER AND NORTH MILLERVILLE IN GRANT COUNTY. WORK WILL INCLUDE WIDENING THE EXISTING ROADWAY TO 4-LANES WITH AN 11' PAINTED MEDIAN AND 8' SHOULDERS, TWO BRIDGES, DRAINAGE IMPROVEMENTS, EROSION CONTROL AND MISCELLANEOUS ITEMS. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the widening of the road which goes to the growing town of El Dorado. This widened road, which will be 4 lanes, will connect El Dorado to the highway system. The award will result in reduced congestion and help spur economic development. TRANSPORTATION, CALIFORNIA DEPARTMENT OF RESURFACE, REPAIR, RESTRIPE AND CONCRETE REPAIRS Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K and Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of San Buena Ventura. The project is described as: Steet Rehab. Olive Street Phase I Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 Information GAO gathered to improve the description The award provides a new roadway surface on Olive St., from Stanley to Main St., because the road was in a state of disrepair. TRANSPORTATION, CALIFORNIA DEPARTMENT OF PAVEMENT REHABILITATION- 2009 ON SYSTEM ROADS. Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the County of Ventura. The project is described as: On system roads - Phase A various locations Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 More than 50% Completed Information GAO gathered to improve the description The award rehabilitates roads which were in a state of disrepair; the rehabilitation will result in new roadway surface pavement. The locations of the rehabilitation are Mission Dr., Beardsley Rd., Corsicana Dr., Simon Way, West Petrero Rd., Center School Rd., Tico Rd. and Spring Rd. TRANSPORTATION, MISSOURI DEPARTMENT OF North Sarah Street Belle To Page Preliminary engineering associated with resurfacing and sidewalk improvements from north Sarah Street to Belle. Highway, Street, and Bridge Construction (Information not reported) Saint Louis, MO 63101-1371 Information GAO gathered to improve the description The award supports widening sidewalks, improving pavement, and replacing street lights and traffic signals to improve safety. TRANSPORTATION, WYOMING DEPARTMENT OF Federal project I801176, involving microsurfacing and miscellaneous work on 23.20 miles of I-80 at various locations between Carter and LaBarge, in Sweetwater and Uinta counties. 100% of funds are under contract. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award will support preventive maintenance, including microsurfacing, to improve the pavement and safety of the road. TRANSPORTATION, OKLAHOMA DEPARTMENT OF USDOT - FHWA Transportation Infrastructure Project in partnership with the Oklahoma Department of Transportation Transportation Infrastructure Project for the Oklahoma Department of Transportation identified as BRIDGE & APPROACHES CO BR: OVER SPRING CREEK, 1.0 MI WEST & 0.7 MI SOUTH OFUS-177/SH-66 JCT. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award replaces a structurally deficient bridge that was scheduled for replacement in the next couple of years. The award provided the county with the necessary funding to accelerate the construction process. The new bridge will be approximately 1/4 mile in length and will provide improved safety and enhanced capacity for the Lincoln County road system. TRANSPORTATION, OHIO DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population Resurface a portion of the Reed Hartman Hwy. Also, perform pavement repair, curb & gutter repair, replace signal loops with video detection, replacing pavement striping, place new RPMs, and where ap Highway, Street, and Bridge Construction (Information not reported) $799,432.86 Information GAO gathered to improve the description The award supports rehabilitation activities for the Reed Hartman roadway from Cooper to Glendale-Milford Roads. These activities include removing the existing deteriorated asphalt surface and replacing it with a stress membrane and a new surface course of asphalt. In addition, ramps will be constructed at all intersections within the project area to comply with the Americans with Disabilities Act (ADA). Video vehicle detection cameras will also be installed at intersections instead of wire "loops" in the pavement to improve intersection performance. TRANSPORTATION, TEXAS DEPARTMENT OF ADD SHOULDERS : FM 372 ; Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award widens 8.58 miles of highway FM 2071, from FM 372 to FM 922, by adding shoulders to the north and southbound lanes to improve road safety. EXECUTIVE OFFICE OF THE COMMONWEALTH OF KENTUCKY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) GRIND PAVEMENT AND REHABILITATION OF PAVEMENT ON I-264 IN LOUISVILLE, KENTUCKY FROM NEWBURG ROAD AT MILEPOINT 13.710 TO BRECKINRIDGE LANE AT MILEPOINT 18.410 IN JEFFERSON COUNTY. Highway, Street, and Bridge Construction Grants (Information not reported) Louisville Urban Service Area, KY 40207-1112 Less Than 50% Completed Information GAO gathered to improve the description The award is for a section of road that is in poor condition and will help to improve pavement of the road. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Baldwin Park. The project is described as: RAMONA BOULEVARD ROADWAY PRESERVATION AND REHABILITATION (A)- INTERSTATE 605 TO FRANCISQUITO. THIS PROJECT CONSISTS Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 Less Than 50% Completed Information GAO gathered to improve the description The award supports repaving the roadway to make a smoother driving surface. TRANSPORTATION, OHIO DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Replace existing box beam bridge on SR 154, located approximately one mile east of SR 7 at Rogers, with a steel beam superstructure. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports the replacement and modernization of a bridge in Columbiana County, near Rogers, Ohio. The award will increase the bridge's life expectancy to up to 75 years. TRANSPORTATION, UTAH DEPARTMENT OF ADA PED ACCESS REGION ONE - PACKAGE 1 Highway Infrastructure Investment Grant: Transportation Enhancements This project constructed safe sidewalks and installed pedestrian ramps in various locations in Region 1(Northern Utah). Highway, Street, and Bridge Construction (Information not reported) Salt Lake City, UT 84119-5977 Information GAO gathered to improve the description The award funds construction of 43 pedestrian access ramps, 38 of which are at primary need locations--those locations that had existing curb, gutter, and sidewalk, but no curb cuts. The ramps will improve safety and compliance with Americans with Disabilities Act (ADA) standards and are located in the counties of Davis, Weber, Morgan, Box Elder, Cache and Rich. TRANSPORTATION, PENNSYLVANIA DEPARTMENT OF Hawthorn Bridge No. 4 Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Replacement of PA 28 Hawthorn Bridge over Pine Creek in Redbank Township Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will replace a bridge that was built in 1931. TRANSPORTATION, MARYLAND DEPARTMENT OF Safety and Resurfacing from Garrett County Line to East of Tisdale Street Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award improves pavement along 0.79 miles of US 40 Alt. The resurfacing will fix a deteriorating roadway and improve ride conditions. TRANSPORTATION, WASHINGTON DEPT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Reconstruct approximately 0.7 miles of Speyers Road, from the west City limits to Fremont Avenue, including curb and gutter, sidewalk, stormwater drainage system, and street lighting. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The activities under this award will improve pedestrian safety. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This is a Facilities for Pedestrians and Bicycles project by a local agency in the City of San Francisco. The project is described as: Pedestrian Enhancements Highway, Street, and Bridge Construction Less Than 50% Completed Information GAO gathered to improve the description The award covers an area in San Francisco bounded by 4th Ave., Moraga St., 9th Ave. and Lincoln Way. The sidewalk bulb-outs will encourage people to use alternative forms of transportation by improving pedestrian safety and comfort while also improving the connections between new cultural attractions in Golden Gate Park, the commercial corridor, the University of California Medical School, schools, a dense residential area, and several transit lines. TRANSPORTATION, NEW YORK DEPARTMENT OF SFY 09/10 PMI PAVING; ORANGE AND ULSTER COUNTIES Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Repave approximately 22 miles of state roadway in Orange and Ulster counties. The top layer of worn, deteriorated pavement will be removed and replaced with new asphalt and fresh pavement markings to extend the service life of pavement. Highway, Street, and Bridge Construction (Information not reported) PINE BUSH, NY 12566-0000 More than 50% Completed Information GAO gathered to improve the description The award supports repaving of short sections and intersections along state routes 10, 104, 104a, 109, 115, 116, 117, 118, 119, 120, 120a, and 121. TRANSPORTATION, TENNESSEE DEPARTMENT OF Highway Infrastructure Investment: Urbanized Areas over 200K Population This project is for improvements to the intersection of SR-8 (Ringgold Road) at Camp Jordan Parkway and including traffic signals Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds the installation of 10 traffic signals and 4 pedestrian signals at the intersection of Ringgold Rd. and Camp Jordan Pkwy. in order to help reduce congestion and improve pedestrian safety. TRANSPORTATION, GEORGIA DEPARTMENT OF CR 415/PHILLIP CAUSEY ROAD FROM SR 33 TO CR 412/SUMNER ROAD Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project is a roadway maintenance repaving project in Worth County. This project is the milling and resurfacing of County Road 415/PHILLIP CAUSEY ROAD from SR 33 to County Road 412/SUMNER ROAD for a total project length of 5.48 miles. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The pavement had deteriorated, and the resurfacing will bring the roadway into a state of good repair. TRANSPORTATION, CONNECTICUT DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Installation of epoxy pavement marking lines and intersections Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award enhances safety for both the motoring public and pedestrians in District 2 by replacing crosswalks, stop bars, and lane arrows at 396 intersections. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will improve drainage by replacing the structure on US 41 over Jane Feddeler Ditch in Lake County. Highway, Street, and Bridge Construction (Information not reported) Saint John, IN 46373-0000 More than 50% Completed Information GAO gathered to improve the description The drainage structure, called a "culvert," is located on US 41 over Jane Feddeler Ditch, 0.08 KM North of US 231. The new structure is a four-sided box culvert with a 10-foot span and 9-foot rise, and is 88 feet in length. The new structure is a sound structure satisfying contemporary design standards and has an estimated functional life of 60 to 80 years. Due to its age, overall structural condition, and, more specifically, deterioration at the widening joints, the structure is being replaced. SOUTH DAKOTA, STATE OF US18 - From the east junction with SD50 to the east junction with US281; US281 - From the east junction with US18 to the south city limits of Armour.; US18 - From the east junction with US281 to the junction with SD37; SD50 - from the East US18 Junction Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Highway, Street, and Bridge Construction (Information not reported) $6,323,010.95 Information GAO gathered to improve the description The award supports the milling and paving of sections of US Highways 18 and 281 and South Dakota Highway 50 in Charles Mix, Douglas, and Hutchinson Counties. These sections of highway were rated by the South Dakota Department of Transportation as being in "fair" condition, the project would take little time to begin, and the area that these roads are located in was economically distressed at the time of project proposal. The total length of roadway to be milled and paved is 30.2 miles and has a life span of about 15 to 18 years. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) SR 39 - 1.25 miles N of E jct of SR 10 Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The purpose of the award was to correct existing structural deficiencies and safety hazards by lining the existing pipe. The award supports lining for a corrugated metal pipe 5 feet in diameter and 58 feet in length. An High Density Polyethylene (HDPE) liner is placed in a pipe when an existing pipe is structurally deficient. A pipe liner is more cost effective in many cases than a full pipe replacement. The award will result in a newly lined pipe with an estimated functional life of 80 years. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will restore the pavement on Madison County Road 600 W with a new surface course. Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports the resurfacing of County Road 600 West from County Road 400 North to State Route 128 in Madison County. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population, Available for Use in Any Area (flexible) This project will improve the traffic signals on Market Street from State St to Vincennes Street. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports a traffic signal modernization project. This project includes the replacement of existing mast arms (with span mounted signals), controllers, signal indications (vehicular and pedestrian), and the installation of new vehicle detection at the following six intersections: three signals on East Market St. at Pearl St., Bank St., and East 7th St., and three signals on East Spring St. at Pearl St., Bank St. and East 7th St. The vehicle detection system being installed is wireless, which eliminates issues typical to wired loop detection systems such as broken loop wire. The pedestrian signal indications will visibly countdown the remaining crossing time. New controllers and antennae will be installed where State St. intersects East Market St. and East Spring St. to create a coordinated traffic signal system. Signal heads will be LED lights which are brighter, last longer, and much more energy-efficient. TRANSPORTATION, MICHIGAN DEPARTMENT OF Hot mix asphalt base crushing and shaping, resurfacing, trenching and aggregate shoulders. To improve the transportation infrastructure and the economic development capacity of the state of Michigan. Power and Communication Line and Related Structures Construction Less Than 50% Completed Information GAO gathered to improve the description The award provides resurfacing for 1.37 miles of West Holt Rd. from Heatherton Dr. to Thornburn St. in Ingham County to improve rideability and make the roadway smoother. TRANSPORTATION, MICHIGAN DEPARTMENT OF Cold mill, HMA resurfacing Hot mix asphalt base crushing, shaping, cold milling, resurfacing, ramp realignment, misc safety and drainage To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Less Than 50% Completed Information GAO gathered to improve the description In order to make the road smoother and improve driving quality, the award resurfaces 2 miles of US-10 from the west county line of Osceola to the US-131 interchange in the vicinity of Reed City. TRANSPORTATION, MICHIGAN DEPARTMENT OF Pavement remremoval, hot mix asphalt pavement, concrete curb and gutter and earth work To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description The award provides resurfacing for 0.5 mile to maintain the pavement condition and improve the ride quality of Riverside Dr. in Port Huron. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Resurfacing from Austin Rd to Airport Way Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Ripon. The project is described as: Rehabilitate roadway between Airport Way and Austin Road Highway, Street, and Bridge Construction Information GAO gathered to improve the description The award funds the resurfacing of West Ripon Rd., which is in a state of disrepair. The resurfacing will result in a smoother driving surface. TRANSPORTATION , MISSISSIPPI DEPARTMENT OF North St/Court St. (8035/8032) Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K The city of Cleveland will construct sidewalks along Court Street and North Street. This project will improve pedestrian access along these roads. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will cover 0.55 miles. TRANSPORTATION, NEW YORK DEPARTMENT OF HUDSON VALLEY RAIL TRAIL: HAVILAND ROAD TO COMERCIAL AVENUE Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) A project for a new/improved bicycle facility on the Hudson Valley Rail Trail from Haviland Road to Commercial Avenue in the town of Lloyd. All Other Specialty Trade Contractors (Information not reported) Information GAO gathered to improve the description This award converts 1.36 miles of abandoned rail corridor into a continuous multi-use trail facility for bicycles by constructing the missing links in a publicly owned bicycle/pedestrian facility. The trail will increase accessibility and mobility options, enhance the integration and connectivity of the transportation system, and preserve and improve existing transportation systems. TRANSPORTATION, IDAHO DEPARTMENT OF STP-7181, GOULD ST BR, POCATELLO Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will remove and replace existing bridge joints on Gould Street Bridge in the City of Pocatello and improve pavement markings along the roadway. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds the repair of the bridge deck joint seals and associated concrete work in order to seal the bridge expansion joint system and protect the structural components below the joint. Recent bridge inspections indicated deteriorated elements of the Gould Street Bridge, including the deck expansion joint seals, deck wearing surface, and girder bearings. Failed deck joints can cause extensive damage to bearings, abutment back walls, and diaphragms, resulting in improper movement of the bridge, diminished structural integrity of the structure, and further deterioration of the deck. TRANSPORTATION, NEW JERSEY DEPT OF Chester Branch RR Rehabilitation - Morris County Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population Rehab of existing Rail Road Highway, Street, and Bridge Construction (Information not reported) $5,800,000.00 Information GAO gathered to improve the description The award supports the rehabilitation of 4 miles of rail track alignment including five rail spurs, bridge and steel structures, and grade crossings, as well as rehabilitation of the rail right of way to include the following: change out the rails; remove and replace tie; lay new ballasts; new switches and switch timbers; surface the entire right of way; new runarounds and turnouts; and brush cutting and wood chipping. TRANSPORTATION, NEW MEXICO DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will include grinding down existing old pavement and replacing with new pavement on 12th Street from Gold Street to Mississippi Street. In addition, it will include inspection and oversight. On Silver Street from US 180 to 32nd Street, new pavement will be placed. Highway, Street, and Bridge Construction (Information not reported) Silver City, NM 88062-0000 Information GAO gathered to improve the description The award supports pavement improvements to ensure that the road complies with the Americans with Disabilities Act (ADA). TRANSPORTATION, KANSAS DEPARTMENT OF GREENWOOD HOTEL BUS DEPOT @ 300 N MAIN IN EUREKA Highway Infrastructure Investment Grant: Transportation Enhancements Restore part of the interior and exterior and establish a transportation museum/welcome center in the former bus depot of the Greenwood Hotel at 300 N Main Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports the renovation of the first floor and exterior restoration of the Greenwood Hotel. TRANSPORTATION, ALABAMA DEPT OF STMTE-TE09(927) Highway Infrastructure Investment Grant: Transportation Enhancements 'This project involves a Historic Downtown Sidewalk and Canopy Restoration for Hartselle Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description This award supports the reconstruction of .24 miles of sidewalks and the canopy above the sidewalks in the historic downtown area of Hartsell, Alabama. This reconstruction is being done so that the sidewalks meet Americans with Disabilities Act (ADA) standards and the canopy meets historical preservation standards. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award funds one shelter, four trash containers, two tables, and one bike rack at the Bayview Beach ferry terminal in Beaufort County, which will increase pedestrian access and safety. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description The award supports pavement improvement activities by the Clinton County Road Commission. The Commission will improve 4 miles of pavement on West Colony Rd. from the West Clinton County Line to Tallman Rd. The award will result in improved safety and extend the service life of the roadway. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description In order to improve road safety, the award resurfaces 2.282 miles of shoulder on County Road 498 in Schoolcraft County from Newborn Rd. to the County line. The resurfacing defines the inside edge of the shoulder, adds additional gravel material and grade shoulder to proposed slope, removes excess material, and compacts the shoulder with a roller. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Information GAO gathered to improve the description The award supports pavement improvement activities to resurface 7.8 miles of Featherstone Rd. from M-66 to Engle Rd. north of Sturgis. The award will result in improved driving quality by making the road smoother. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Information GAO gathered to improve the description The award supports the resurfacing of .1 miles of Shook Rd. in Romulus, Michigan. The award will result in improved driving quality and increase the service life of the road. The Recovery Act appropriated $1.5 billion to the Supplemental Discretionary Grants for a National Surface Transportation System—which the Department of Transportation termed “TIGER grants.” The purpose of the program is to make capital investments in surface transportation that will have a significant impact on the nation, a metropolitan area, or a region. The act required the selection of awards on a competitive basis. Although grant agreements have yet to be signed, the department announced the selection of 51 awards on February 17, 2010. Department officials said they received over 1,400 applications from all 50 states, territories, and the District of Columbia for projects totaling nearly $60 billion. With $1.5 billion available, about 3 percent of the projects will be awarded grant funds. The projects selected include a range of efforts to improve highways, bridges, rail, port, transit, and intermodal facilities. As shown in figure 5, transit projects totaled about $383 million (26 percent), and rail projects totaled about $374 million (25 percent). These were the largest transportation categories for projects to improve the movement of people and freight. These projects are geographically dispersed throughout the United States. Highways were the next largest category at $338 million (23 percent). Most of these projects are located in the West and South. According to the department, these projects were selected because they demonstrated the potential to meet all of the selection criteria, which included such key components as the ability to have a significant impact on desirable near- and long-term transportation outcomes of the nation, a metropolitan area, or a region and the creation of jobs, and the ability to apply innovation and partnership to achieve long-term transportation outcomes or new approaches to financing, contracting, or project delivery. As no TIGER grants have been awarded, the department has not issued any reporting guidance or other assistance to date. Therefore, for this program, we could not perform our transparency assessment. According to an official, the administrative oversight and reporting requirements for these awards will be similar to those for other Department of Transportation Recovery Act awards. Each TIGER grant will be administered by the modal administration responsible for the majority of the activities within the award. For example, an award for public transportation activities will be administered by the Federal Transit Administration. The modal administration will also oversee recipient reporting for these grants. Department officials have implemented steps to inform the public about the TIGER grants and selected projects: Department of Transportation Web site (www.dot.gov/recovery/ost/.) A Web site was established to provide information about the TIGER grants and to address general questions. In announcing the grant awards, the department issued a press release along with a report listing the grant amounts. The report also included for each project a brief summary that describes the project and its benefits. (See table 8.) The press release and report are also available on the Web site. Department of Transportation interactive map of awards (www.dot.gov/recovery). This interactive map will include the TIGER awards and provide the location, cost, and a brief description for each award. According to an agency official, there has been little public feedback regarding the announced grants or the information that is available on the agency’s Web site. To date, most of the public comments on TIGER grants are not from the general public but from unsuccessful applicants—that is, the 97 percent of applicants that were not selected. Under the $6.9 billion Transit Capital Assistance program, the Federal Transit Administration (FTA) apportioned Recovery Act funds to recipients through existing program formulas. Recipients of funds include both large and medium urbanized areas, as well as states, which administer transit awards for small urbanized and nonurbanized areas. These funds can be used for activities such as vehicle replacements, facilities renovation or construction, preventive maintenance, and paratransit services. The Transit Capital Assistance program also includes a new discretionary grant program to support transit projects that reduce greenhouse gas emissions or energy use. FTA had obligated nearly all the Recovery Act Transit Capital Assistance program funding as of April 5, 2010. Of the amount obligated, $1.6 billion had been reimbursed by FTA. Almost half of Recovery Act transit obligations have been for transit construction and non-vehicle infrastructure activities. This includes about $1.2 billion for station stops and terminals and about $1.1 billion for support facilities and equipment. In addition, 30 percent is being used for purchasing or rehabilitating buses; a majority of these funds are being used to replace or rehabilitate buses. (See fig. 6.) We assessed the transparency of descriptive information for transit awards available on Recovery.gov, as described in the report. We found that an estimated 50 percent met our transparency criteria, 50 percent partially met our criteria, and zero percent did not meet our criteria. For transit descriptions that partially met our transparency criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. For the first two reporting rounds, FTA created detailed assistance documents for recipients that may have affected transparency results. FTA annotated the Office of Management and Budget’s (OMB) guidance— specifically, the data reporting model—by adding a transit-specific comment and example for each reporting field. For some data fields, such as project name, FTA directed recipients to use information from FTA’s grants database, Transportation Electronic Award Management. In the award description field, FTA outlined items that recipients should include in their narrative. (See table 9.) According to FTA officials, OMB’s guidance is open to different interpretations and does not provide enough information to guide recipients to provide descriptions understandable to the public. In its reporting model, therefore, FTA provided clarification to help recipients do so. Several recipients we interviewed told us this annotated reporting model was very useful in crafting their recipient reports. Chicago Transit Authority officials, for example, told us that FTA’s annotated reporting model helped them interpret the ambiguous parts of OMB’s guidance. For many of the transit awards we reviewed in detail, the Recovery.gov reports directly reflected FTA’s annotated reporting model. Specifically, recipients included the introductory language and other conventions suggested by FTA in the award description field. For the third reporting round (for the quarter ending March 31, 2010), FTA updated its annotated reporting model. However, officials told us they called this updated reporting model and all other reporting resources “technical and training assistance” for this round. They did so because OMB’s March guidance directs agencies to not call any of their materials “guidance” unless they have been formally approved by OMB. In general, FTA officials said that the agency has had to adjust its plans and processes for recipient reporting because of the fluid nature and late release of OMB’s guidance. In addition, FTA conducted webinars for each reporting round to support transit recipients. For the second reporting round, FTA’s webinar provided tips on completing narrative fields that advised recipients to use plain language and avoid acronyms and jargon, imagine that you are writing for your mother, who will have to explain what is written to someone else, and think about the public, reporters, and auditors reading published reports. According to several recipients we interviewed, FTA’s webinars were helpful in completing reports. Officials from the Port Authority of Allegheny County told us that the FTA webinars were the main source of assistance used to complete their recipient reporting. FTA also held a webinar with recipients after the first reporting period to identify concerns and collect lessons learned for use in future reporting rounds. Other FTA efforts may have affected the transit transparency results. First, FTA produced a tip sheet to help recipients avoid and resolve problems when reporting. A few recipients we interviewed also said that FTA regional office staff helped clarify reporting guidance and solve problems. Officials from the Greater Attleboro-Taunton Regional Transit Authority in Massachusetts told us they worked closely with FTA regional staff to initially develop a description for the Recovery Act award, as it required more detail than normal. In addition, Massachusetts Bay Transportation Authority officials told us that FTA regional staff were helpful in answering questions that arose during the reporting process. Finally, FTA regional officials reviewed narrative descriptions to ensure that they were understandable and accurate, though the volume of descriptions prevented them from doing a thorough review. While FTA’s transparency results were generally positive, a few recipients we interviewed told us that space limitations in the narrative reporting fields affected their ability to fully convey award information on Recovery.gov. For example, officials from the Greater Attleboro-Taunton Regional Transit Authority said that they wanted additional space to explain activity details and status information. Massachusetts Bay Transportation Authority did not face space limitations; however, officials told us that the multiple activities under their grant, from purchasing paratransit vans to repairing fencing systemwide, did not lend themselves to a single description, as is the convention in FederalReporting.gov. Beyond Recovery.gov, the Department of Transportation and FTA make award information available to the public through various means, including the following: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes transit awards, provides the location, cost, and a brief description for each award. FTA grants digest (www.fta.dot.gov/index_9440.html). Published on FTA’s Recovery Act Web site, this searchable digest provides a short summary of each grant including location, cost, and an overview of activities. FTA spreadsheet of awards. Also on FTA’s Web site, the spreadsheet outlines information on each award like the grant number and a short, descriptive title. This spreadsheet does not include detailed descriptions of the activities within each award. The source of the data—FTA’s Transportation Electronic Award Management database—limits the length of the descriptive field. FTA fact sheets. For a limited number of awards, FTA posted on its Web site detailed fact sheets that describe the purpose and nature of the award. In addition, transit recipients use Web sites, newsletters, and other tools to provide award information to the public. Several transit recipients we interviewed disseminate Recovery Act award information to the public on their Web sites. In California, the Orange County Transportation Authority created a dedicated Web site for the county’s Recovery Act transportation awards (www.octa.net/rtw_response.aspx). This Web site includes, among other things, information on the transit activities in the authority’s transit award, including bus preventative maintenance and facility repairs in Irvine, California. On its Web site, the Chicago Transit Authority posted press releases to announce plans and progress on activities. Press releases covered the delivery of the first hybrid bus purchased under the award and a status update on the replacement of 7 miles of subway track. Similarly, the Northeast Illinois Regional Commuter Railroad Corporation—Metra— used its monthly newsletter to announce Recovery Act activities, including the construction of a new station on the Rock Island Line. A few recipients also used social media like Facebook and Twitter to make award information available to the public. The Metropolitan Transportation Authority in New York, for example, maintains a Facebook page that contains a video explaining the Long Island Rail Road Atlantic Avenue viaduct span replacement project. According to FTA officials, most of the feedback on transit Recovery Act awards has been positive. The press also reported on the use of funds for specific projects at the local level, but press coverage has decreased over time as the Recovery Act has become more routine. Many of the transit recipients we interviewed said that, in general, they had not received much public feedback. Pennsylvania state transit officials told us they had not received any public comments on the state’s rural transit award, which involved transit activities like building an intermodal transit center and replacing buses in various locations in the state. The Port Authority of Allegheny County used its transit award to pay for a portion of the ongoing construction of its light rail system from downtown Pittsburgh into the developing North Shore area of the city, which involves tunneling under the Allegheny River. While the project received some negative feedback early on, Port Authority officials told us that those remarks have faded as the benefits of using public transportation to support development of the North Shore have become evident. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Purchase of 17 replacement buses. Rehabilitaion of maintenance garage. Purchase of bus washer and vacuum cleaning system. Purchase of diagnostic equipment and tools. Invest in public transportation by purchasing 17 new compressed natural gas buses and related tools for repair, rehabilitating a bus maintenance garage, and replacing a bus wash and vacuum cleaning system. This grant has allowed the Birmingham-Jefferson County Transit Authority to begin the administrative and soliciatation process to acquire 17 compressed natural gas buses and related diagnostic equipment and tools. This grant sill also provide for the rehabilitation of a maintenance garage and replacement of a buswash and vacuum cleaning system at the same location within the next year. Bus and Other Motor Vehicle Transit Systems Preventive Maintenance and ADA Complementary Paratransit Service Sustain mass transit service by funding Alameda Contra Costa Transit's (AC Transit) Preventive Maintenance ($23,165,013), and AC Transit/Bay Area Rapid Transit jointly funded Complementary Paratransit Service (East Bay Paratransit): ($2,573,890), financed by American Recovery and Reinvestment Act Funds appropriated through the Federal Transit Administration Urbanized Area Program (Section 5307; 49 CFR). The purpose of this program is to sustain mass transit and paratransit operations in the AC Transit service area and to preserve critical jobs to ensure service can be maintained at existing levels. Purpose of grant activities is to provide regular and ongoing bus maintenance and rehabilitation, including associated administrative costs, to sustain fixed-route transit service and paratransit service. As one of the largest bus transit systems in the country, AC Transit currently provides bus service to approximately 67 Million passengers per year, in addition to nearly 500,000 paratransit riders annually . This service covers a 364-square mile service area in Alameda and Contra Costa Counties, with over 100 bus lines providing bus transportation to 13 cities and 9 unicorporated areas, as well as to the City of San Francisco via the San Francisco-Oakland Bay Bridge, and San Mateo and Santa Clara Counties via the Hayward-San Mateo and Dumbarton Bridges. American Recovery and Reinvestment Act funds allowed transit service to be sustained for nine (9) months. These funds were committed to fund jobs critical to maintain fixed-route mass transit and paratransit services. Without the American Recovery and Reinvestment Act funds, AC Transit woul dhave been forced to make mandatory layoffs in all areas and draconian service cuts would have gone into affect last year. Bus and Other Motor Vehicle Transit Systems AC Transit, 1600 Franklin Street SIMI VALLEY, CITY OF Shelters, Buses, Garage Modernization, Wheelchair Scale, Operating Assistance and Non Fixed-Route ADA Paratransit Service Fiscal Year 2009 Transportation Enhancement projects eligible for funding under the Federal American Recovery and Reinvestment Act (ARRA) for the City of Simi Valley/Simi Valley Transit include funding for the following: 1) TRANSIT SHELTER PROGRAM ($484,000) - Like-kind replacement and upgrade of 26 deteriorated bus shelters, 72 concrete benches, and other amenities at bus stops throughout the City. 2) PURCHASE OF THREE REPLACEMENT 40-FT BUSES ($1,380,000) - Like-kind replacements for Compressed Natural Gas (CNG) buses that have met their useful service life by accumulating in excess of 568,000 miles each. The replacement vehicles will be low-floor, 40-ft New Flyer buses that will have an expected service life of 12 years or an accumulation of at least 500,000 miles. These buses will meet the Clean Air Act Standards (CAA) and the Americans with Disabilities Act (ADA) requirements. 3) TRANSIT GARAGE MODERNIZATION ($563,949) - Project to include work on electrical, ventilation and mechanical systems; retrofitting the mechanic work bays; upgrading the hydraulic lifts; increased storage area and like-kind replacement of the bus washer. 4) WHEELCHAIR SCALE ($5,000) - Purchase of one scale to be used during the ADA application process to weigh wheelchairs. 5) OPERATING ASSISTANCE ($303,400) - 10% of total allocation to provide for operating assistance for the City's fixed-route and non- ADA paratransit service. 6) NON FIXED-ROUTE ADA PARATRANSIT SERVICE ($303,400) - 10% of total allocation to assist with ADA/DAR paratransit operating costs. Have entered into a cooperative purchasing agreement with Orange County Transportation Authority (OCTA) for the replacement of three (3) New Flyer of America buses. The design and locations for transit shelters is complete. Staff will be seeking authorization from City Council to solicit bids by March 2010. Architectural services on the garage modernization project have been approved. Staff will be seeking authorization from the City Council by February 2010 to solicit bids. Purchase of the wheelchair scale has not been completed. Bus and Other Motor Vehicle Transit Systems 490 West Los Angeles Ave Simi Valley, CA 93065-1646 Less Than 50% Completed LOS ANGELES, CITY OF This grant applies the 2009 ARRA Formula allocation of $8,022,665 to bus replacement. The City of Los Angeles Department of Transportation will purchase approximately sixteen 40-foot over-the-road type coaches that will have an expected useful life of 12 years or 500,000 miles. The vehicles that will be replaced have either met or exceeded their useful life of 12 years. A Federal ratio of 100/0 will apply. The buses purchased through this grant will comply with both the Clean Air Act (CAA) standards as well as with the requirements of the Americans with Disabilities Act (ADA). The goal of this project is replace approximately 16 existing buses. The new buses will have a useful life of 12 years or 500,000 miles. The new buses will also comply with current environmental standards as well as with the ADA. The City of Los Angeles initially anticipated that this project would be completed no later than June 30, 2010. During the 4th quarter of calendar year 2009, the project experienced slippage. The City currently anticipates that the project will be completed by the second quarter of 2011. Completion means that the buses will be assembled, delivered, placed into the service, and the grant closed out. During the most recent quarter (October 1, 2009 to December 31, 2009) arrangements were made with the proposed vendor to provide a sample bus for testing. The sample bus is currently being shipped to Altoona, Pennsylvania. If the sample bus performs as expected, production of the 16 buses are scheduled to begin in the summer of 2010. The City anticipates to begin taking delivery of these buses in the summer of 2010. To date, no funds have been expended nor obligated. 100 S. Main Street-10th Floor Los Angeles, CA 90012-3712 Less Than 50% Completed Transit Capital - Bus Replacement Transit Capital - Bus Replacement of 6 Hybrid Gasoline-Electric buses. Contract awarded on 8/11/09 to purchase 6 hybrid gasoline-electric buses from New Flyer. Bus and Other Motor Vehicle Transit Systems CA-96-X051 NAPA COUNTY TRANSPORTATION & PLANNING AGENCY Purchase 4 hybrid buses and construct multi-modal Park and Ride Facility Invest in Public Transportation- Replace four 15+ yeal old diesel buses with new, clean air, gasoline/electirc hybrid buses. In addition, funds will be used to construct a multi-modal Park and Ride facility featuring: commuter parking, transit hub, bicycle accomodations, and a potential future rail platform. Green building elements (such as solar power) will be incorporated into the design. This grant will allow for the modernization of the transit fleet with the purchase of 4 gasoline/electric hybrid vehicles. In addition, once the multi-modal Park and Ride lot is constructed, hundreds of residents/commuters a day will be able to make more efficient, safe and timely transit connections. Bus and Other Motor Vehicle Transit Systems (Information not reported) Preventative Maintenance, Capital Cost of Contracting, and Paratransit Offset This project invests the American Recovery and Reinvestment funds to preserve public transportation service by funding vehicle maintenance, providing fixed-route service, and help fund local transit services for the disabled community for 2010. The funds applied in this application will help reduce the potential reduction of these services as a direct result of declining local sales tax revenues. Due to declining sales tax revenues, Mountain Metropolitan Transit is facing up to a 50% reduction in local fixed route services and up to a 10% reduction in paratransit services for 2010. This ARRA grant will allow Mountain Metropolitan Transit to fund 3rd Party Captial Cost of Contracting for its fixed route service for 2010; fund a portion of the ADA Paratransit services for 2010; and fund building and vehicle Preventative Maintenance for 2010. As a result of these investments, the local match , annually budgeted for these grant funded capital expenditures, has been freed up to help preserve portions of the local fixed-route and paratransit services in 2010. Bus and Other Motor Vehicle Transit Systems Grants (Information not reported) Colorado Springs, CO 80901-1575 SANTA ROSA, CITY OF Invest in public transportation. These funds will partially finance the purchase of one replacement bus. The bus to be replaced is a 1998 40’ diesel fixed route urban public transit bus. This bus will have met the end of its 12 year useful life by 2010. The 1998 bus will be replaced with a 40-foot, low floor Gasoline Hybrid Electric Bus (GHEB) fixed route, urban public transit bus. This bus will be procured in accordance with FTA’s Procurement Requirements. The bus will meet the Clean Air Act (CAA) standards and the Americans with Disabilities Act (ADA) requirements. These funds will partially finance the purchase of one replacement bus. The bus to be replaced is a 1998 40’ diesel fixed route urban public transit bus. This bus will have met the end of its 12 year useful life by 2010. The 1998 bus will be replaced with a 40-foot, low floor Gasoline Hybrid Electric Bus (GHEB) fixed route, urban public transit bus through the exercising of options on an existing contract. This bus will be procured in accordance with FTA’s Procurement Requirements. The bus will meet the Clean Air Act (CAA) standards and the Americans with Disabilities Act (ADA) requirements. Expected contract award by March 2009. Bus and Other Motor Vehicle Transit Systems 1101 College Avenue, Suite 200 Santa Rosa, CA 95404-3940 Less Than 50% Completed CA-66-X010 TRACY, CITY OF (INC) Invest in public transportation by imrpovement of bus stop including, but not limited to, installation of bus shelters, benches, and trash recepticles at over 50 locations. The City of Tracy currently operates 5 fixed bus routes serving over 90,000 passengers annually. Additionally, the City operates a Paratransit system which services over 24,000 passengers annually. The addition of bus shelters and benches will provide a safer environment for passengers to wait for the bus. The City of Tracy has not yet started its ARRA project this quarter. Bus and Other Motor Vehicle Transit Systems (Information not reported) SAN FRANCISCO, CITY & COUNTY OF Infrastructure Enhancement and Maintenance Projects Invest in public transportation by restoring the door and step components on light rail vehicles; engaging in preventive maintenance activities to preserve/extend the functionality of the SFMTA's assets; rehabilitating articulated motor coaches; upgrading the SFMTA’s mileage and fuel tracking system for diesel and trolley coaches; equipping an interim Operations Control Center to support dispatching and rerouting of vehicles, incident detection and response, and voice communications with transit operators; replacing the inductive loop cable in the subway; procuring a customized software application for capital planning and grant management; procuring new personal computers for the bus yards; replacing sales kiosks for cable car fares; replacing change machines in the subway system; replacing track switches for light rail vehicles; replacing the SFMTA's existing subway fare collection system with a new fare collection system; and engaging in rehabilitation and upgrade activities at various sites, facilities, and right-of-way locations. This grant will allow the SFMTA to restore the worn out door and step components of approximately 143 light rail vehicles; engage in preventive maintenance activities to preserve/extend the functionality of the SFMTA's assets; rehabilitate about 35 standard and 27 articulated motor coaches; upgrade the SFMTA’s obsolete mileage and fuel tracking system for diesel and trolley coaches; equip an interim Operations Control Center to support dispatching and rerouting of vehicles, incident detection and response, and voice communications with transit operators; replace the worn out inductive loop cable in the subway; procure a customized software application for capital planning and grant management; procure about 70 new PCs for the bus yards; replace up to 2 outdated sales kiosks for cable car fares; replace obsolete change machines in the subway system; replace approximately 19 worn out track switches for light rail vehicles; obtain a new automatic fare collection system for the subway; and engage in rehabilitation and upgrade activities at various sites, facilities, and right-of-way locations, including the SFMTA's Presido and Burke facilities and right-of-way locations including 19th Avenue, Carl and Cole Streets, and Duboce Portal. All applicable projects are under contract, with the SFMTA actively working on performing preventive maintenance on its vehicles, implementing automatic fare collection equipment in the subway, rehabilitating the doors and steps of light rail vehicles, installing new workstations at bus yards, implementing various infrastructure and facility enhancements, and establishing the Central Control Interim Line Management Center. The SFMTA has completed the installation of change machines in the subway station. (Information not reported) San Francisco, CA 94103-5417 Less Than 50% Completed Lease (46) 40-Ft Buses Monterey-Salinas Transit Capitalized Preventive Maintenance;Lease (46) 40-Ft Buses, Acquire Mobile Fare Coll Equip. The project consists of the purchase up to forty (40)buses from Gillig Corp. and six (6) trolleys from Optima Bus Corp. to replace 38 buses in current fleet and expand by 8 buses. This will fund the remaining payments on bus financing payments 17, 18, 19, and 20. Buses have been paid off. Bus and Other Motor Vehicle Transit Systems 1 Ryan Ranch Road Purchase of 2 replacement paratransit vehicles. Invest in public transportation by purchasing new replacement paratransit vehicles. This grant will allow the purchase of two paratransit vehicles to replace old vehicles that are currently in the fleet. As a result of these investments, the agency will be able to continue to offer public transportation service that is safer, more reliable, and accessible for people with disabilities. (Information not reported) REDONDO BEACH, CITY OF (INC) 30' and 35' Bus Replacement and Bus Stop Improvements Invest in public transportation by purchasing replacement transit vehicles and implementing bus stop improvements. The fund will be utilized to 1) purchase up to three 18 passenger, 30', CNG-powered cut-away buses that have an expected useful life of five years or 150,000 miles; 2) purchase one 29-passenger, 32', CNG-powered bus that has an expected useful life of 10 years or 350,000 miles; and 3) to implement bus stop improvements throughout the City of Redondo Beach, which will include replacing the old concrete and terracotta bus benches with new, more durable and aesthetically pleasing corrosion resistant steel construction benches, replacing pre-existing bus stop sign poles with new standard rail poles, replacing bus stop signs with new high-visibility reflective signs, and replacing old and deteriorated or missing trash receptacles with new metal vandal resistant receptacles. This grant allows the City of Redondo Beach to move forward with the purchasing of three, up to 27', CNG powered cutaway buses and procuring of bus stop improvements. Bus and Other Motor Vehicle Transit Systems Redondo Beach, CA 90277-2836 More than 50% Completed TRANSPORTATION, FLORIDA DEPARTMENT OF FY 09 (4) ARRA Locomotives Invest the 2009 ARRA Formula allocation of $13,431,438 to purchase up to four (4) locomotives # 802,803,804 and 805. The original locomotives were manufactured in the mid 1960's and were last remanufactured in 1988. They lack any fuel efficient technology and are not required to meet any EPA emission standards. Due to the design of the HEP unit, these locomotives consume excessive fuel. The locomotives have an approximate expected useful life of 25 years. A Federal ratio of 100/100 will apply. The new locomotives wll meet the Clean Air Act (CAA) standards and the American with Disabilites Act (ADA) requirements. This grant also includes transit enhancements ($135,670) that will fund various station beautification improvements such as landscaping, painting, etc. SFRTA issued the Notice to Proceed to the Consultants on September 22, 2009. At this time the solicitation package is being prepared and is due to be advertised by the end of Januar, 2010. It is estimated that the procurement period will be sixty (60) days. The estimated Notice of Award to the manufacturer will be in late April early May. All activities are in complaince with ARRA regulations. Pompano Beach, FL 33064-2046 Less Than 50% Completed FL-96-X015-00 Purchase of 4 replacement buses; 3 replacement Trolley buses; Enhancements replacement and security equipment installation. Invest in public transportation by purchasing new 35 Ft Low Floor Clean Diesel Transit Buses, installing security cameras and annunciation systems on buses and replacing worn out transit enhancements to include, bus stops signs, bus shelters, benches and trash cans. This grant allowed the transit agency to purchase 4 low-floor clean diesel and 3 trolley clean diesel buses, replace worn out bus shelters, trash cans, benches, install security cameras on 8 existing buses and install automatic stop announcements systems on 5 buses. As a result of these investments, the transit agency will be able to offer public transportation service that is safer, more reliable, and more enviromentally friendly. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed SIOUX CITY, CITY OF 1 Medium Duty Bus - Flex Funds Purchase one (1) 31 Ft low-floor Medium Duty (MD) expansion bus. The vehicle will help to expand the spare ratio for the fleet and provide much needed reliable service backup for the aging fleet. These are flex funds through Nebraska. The vehicle will be procured via State of Minnesota consortium. One (1) 31 ft. medium duty (MD) low-floor bus. The MD bus is an expansion vehicle for enhancement of the transit service primarily for disabled passengers and to provide backup for fixed route service. This unit will increase the spare ratio to 4 units. With 21 units in peak service, the 4 spares will increase the ratio to 16% once the vehicle is acquired. 2505 East 4th Street, PO Box 447 Sioux City, IA 51102-0447 Purchase 15 biodiesel replacement buses. Invest in public transportation by purchasing new biodiesel buses. The purchase of 15 low-floor, biodiesel, replacement buses allows Madison County Transit District to continue providing safe and reliable public transportation services in a more environmentally friendly manner. Bus and Other Motor Vehicle Transit Systems Granite City, IL 62040-2868 Less Than 50% Completed PACE, THE SUBURBAN BUS DIVISION OF THE REGIONAL TRANSPORTATION AUTHORITY Purchase 58 replacement fixed route 30' buses, Puchase 190 replacement paratransit vehicles, and purchase 76 replacement support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. Invest in public transportation by purchasing 58 30' transit buses, 190 paratransit vehicles and a minimum of 76 support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. This grant allows Pace to purchase 58 30' replacement fixed route buses, 190 replacement paratransit vehicles, and 76 replacement support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. As a result of these investments, Pace will be able to provide public transportation service that is safer and more reliable. In this quarter, we have awarded a contract for inspection services. We received delivery of 10 trucks with plows for maintenance/supervisory personnel and 6 paratransit buses. Production will continue for the paratransit buses next quarter. Production will begin in February for the fixed route buses. Bus and Other Motor Vehicle Transit Systems Arlington Heights, IL 60005-4412 Less Than 50% Completed Capital Projects: Buses, vans and facility improvements. Investing in public transportation by purchasing four new 35' buses to replace four 1993 35' buses, by purchasing two new wheelchair lift vans to replace two 1999 wheelchair vans, by repairing and remodeling the bus storage building built in 1980, by installing a water recycling system in the existing bus washer to reduce the amount of water used, and by repairing and seal coating the existing asphalt parking lot and driving lanes around the Transit Administration Building. Although no jobs were created and no funds were paid out this quarter, the City of Decatur has already awarded purchase orders for 4 buses ($1,500,000) and for 2 wheelchair lift vans ($104,202). The buses are tentatively scheduled to be built by Gillig Corp. about July 15, 2010, and the 2 vans were tentatively scheduled for delivery around January 1, 2010. Staff advertised nationally for bids for the installation of a water recycling system. Since only one bid was submitted by the Dec. 3 deadline and that bid was significantly higher than the pre- bid estimate, this project will be re-bid. Staff has been preparing to advertise for bids for the other facility improvement projects. Those projects are expected to be under contract this quarter, or as soon as the weather permits. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed IL-96-X014 ARRA Funds for Buses, Lift, Generator OTS is investing in public transportation by purchasing three new transit busses, installing a commercial generator at the Transit Office, and rehabilitating the bus garage by installing a new hydraulic bus lift to assist with maintenance operations. This grant will allow the transit agency to purchase three low-floor transit busses to replace busses which have exceeded their useful life. The transit agency is also purchasing a hydraulic bus lift for the maintenance garage to assist with repairs and maintenance of the new busses. The transit agency is also installing a commercial generator at the main Transit Office, so that transit operations can continue through times when the city is without power. January 2010 Update: Three transit busses are on order from Gillig. The hydraulic lift will be installed in January 2010. The commercial generator has been ordered. Bus and Other Motor Vehicle Transit Systems Owensboro Transit Sytem, 430 Allen Street Less Than 50% Completed SHREVEPORT TRANSIT MANAGEMENT, INC Purchase buses, renovate facility, preventive maintenance, purchase miscellaneous equipment. Invest in public transportation by purchase of new compressed natural gas (CNG) buses; constructiopn of a CNG fuel station; conversion of existing maintenance facility to CNG fueling; rehabilitate/upgrade 22 year old bus terminal; acquire maintenance support ewuipment, mobile surgeillance/security equipment, and upgrade of maintenance record system; and perform preventive maintenance on existing buses. This Grnt allowd the transit agency to purchase a new computer and map software for the teminal information booth, purchase the first bus bike racks, select a bus vendor from which to purchase the first 5 CNG buses, and issue reqest for bids for an architect to design and manage consturction of a CNG fuel station and upgrade of maintenance facility. As a result of these activities the agency's customers will be able to optain accurate information on best bus route to a sepcific destination, have a means to combine bus/bike transportation and prepare to purchase the first environmentally friendly buses and their support system. Bus and Other Motor Vehicle Transit Systems Grants Less Than 50% Completed Purchase of two new vehicles and provide preventative maintenance on existing buses. Invest inpublic transportation by purchasing new wheelchair lift buses and performing preventative maintenance on existing buses. This grant will allow the transit agency to purchase two new wheelchair lift equipped vehicles to expand its fleet and to conduct preventative maintenance on 4 existing vehicles. As a result of these investments the the transit agency will be able to continue offering the public a safe, reliable and accessible service. Bus and Other Motor Vehicle Transit Systems LA-96-X013-00 This grant will allow MART to invest in public transportation by allowing us to purchase new vehicles and equipment and to construct a vehicle storage facility to protect our investment. A budget of $750,000 is allocated to the purchase of 3 new hybrid buses to replace existing diesel buses for use on our fixed route service within the Fitchburg/ Leominster/Gardner service area. This investment will allow us to bring down the maintenance costs by reducing fuel quantities and the disposal of olders buses which have higher maintenance costs than a new vehicle under warranty. A budget allocation of $2.1 million is for construction of a vehicle storage facility at 840 N. Main Street in Leominster, MA. The A&E is complete and was funded through grant MA-04-0004 for $1,485,000. The ARRA funds will pay for the actual construction. MART, at this time, has a large number of vehicles which are stored outside. The construction of this vehicle storage facility will allow us to get these vehicles out of the elements - which include a harsh New England winter. This again will drive down overall maintenance and repair costs. The remainder of the allocated funds will purchase bus maintenance equipment including a new bus washer for the Fitchburg Maintenance facility and related peripheral equipment. The existing bus maintenance equipment is old and in need of replacement. . This grant allowed MART to order the three Hybrid buses, but delivery is not expected until February 2010. One bus has been completed and sent for Altoona testing (1 of 3 tests are complete). The other 2 buses are complete but will not be delivered until the 1st bus is finished testing. The funds for these buses has been obligated but remains unliquidated at this time (no expenditures have been made). Construction of the Storage Facility started on October 1st and is progressing. The remaining items have not been ordered yet and are unobligated as of this reporting period. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed MA-96-X003-00 GREATER ATTLEBORO-TAUNTON REGIONAL TRANSIT AUTHORITY Purchase bus, minibus, vans; construct improvements at train station, bus terminal, walkway, prev. maint., scheduling software, ADA service; SmartCard & software Invest in public transportation by purchasing low-floor buses, minibuses and vans; purchase scheduling software; construction of renovations to commuter rail station; construction of improvements to bus facility; construction of accessible walkway at commuter rail station; preventative maintenance; provision of ADA paratransit service; purchase smartcard equipment and software. This grant allowed GATRA to purchase 4 transit buses, 12 minibuses, and 10 vans (all on order with delivery shortly), improvements to Attleboro Commuter Rail Station (one project completed and ongoing), improvements to Taunton Terminal and Maintenance facility (2 projects completed and ongoing), construction of ADA accessible walkway (design at 80%), preventative maintenance, provision of ADA service, purchase of dispatch/scheduling equipment and purchase of SmartCard Equipment and software. All of the above will enable GATRA to offer public transportation service that's safer, more reliable and more accessible for people with disabilities. All activities are less than 50% complete. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed ARRA Bus replacement & Bus Wash Rehab Invest in public transportation by rehabilitating a Bus Wash Facility and replacing two high maintenance low-floor buses that have exceeded their useful life of twelve years. This grant allowed recipient (City of Billings MET Transit) to rehabilitate the Bus Wash Facility, which was built in 1983, and to replace two low-floor buses that have incurred more frequent and higher than normal maintenance costs. As a result of these investments, recipient will be able to continue to offer economical public transportation service that is safer, more reliable and more environmentally friendly. Bus and Other Motor Vehicle Transit Systems 1705 Monad Road, P.O. Box 1178 Less Than 50% Completed Invest in public transportation by supporting a portion of the construction activities (30.2%) for a new Transit Maintenance and Operations Facility and Administrative Offices for the Greensboro Transit Authority. This 'LEED Gold Designed' facility is being built to address current and future service delivery needs for maintenance and operations of GTA transit vehicles and administrative functions. Phase 1 consists of the programming and schematic design of the facility, site design, permitting and the site work construction phase. Phase 2 will include a 64,000 SF facility building design and construction. Over the past five years, GTA's ridership has doubled (2M to 4M passenger trips) with the implementation of improved services and vehicles. Therefore, a new transit facility is desperately needed to replace an aging facilty that no longer meets GTA's needs. This project is one of the city's priority facility projects that will significantly enhance the GTA's service delivery, efficiency and the quality of transit services to current and future transit riders (over 200,000 population) in the Greensboro community. Completed Phase 1 project activities. Efforts to comlete the final punch list. Specifically, checking the soil bearing pressure to make ready work for the building pad for Phase 2. In addition, initiated Phase 2 of the project, which includes the 69,254 SF facility building design and construction. A ground breaking ceremony was conducted on 11/19/09. This project was initially advertised for bids on 1018/09 and bids were opened from all eight prequalified bidders on 11/19/09. All bidders had minimal DBE participation. Following discussions with FTA, NCDOT and GDOT-Public Transportation Division, it was determined that the project would need to be rebid due to the fact that the need to apply GS 143-28 and rebidding will provide an opportunity to improve DBE participation and Buy America compliance. Efforts have been continued to ensure full compliance with the applicable federal requirements. A conference call was held (December 2009) with FTA Region IV officials to discuss the DBE and Buy America compliance requirements. FTA concurrence was provided regarding the city's decision to rebid the project. On 12/15/09 City Council authorized the rebidding of the GTA Maintenance/Operations Transit Facility and Administrative Offices Phase 2 project. The Pre-Bid meeting will be held on January 7, 2010, with the Bid Opening scheduled for January 26, 2010. Bus and Other Motor Vehicle Transit Systems Greensboro, NC 27406-3607 More than 50% Completed AVL/GPS, Fareboxes, Vans, Furnishings 2009 Transit Capital Assistance Grants - This grant applies the 2009 ARRA Formula allocation of $700,000 an AVL/GPS system for complete tracking of 12 buses. This includes hardware, software, and training for a total of $700,000. This grant applies the 2009 ARRA Formula allocation of $320,000 for Automated electronic fareboxes for 10 Gillig buses, 2 LTV and 1 spare. This includes additional vaults and docking/communication systems. This project will have an estimated useful life of 12 years. This grant applies the 2009 ARRA Formula allocation of $145,000 for 2 non-revenue LTV service vans. These will be used to augment late buses and missed stops as well as serving as driver relief vehicles. These support vehicles will meet the Clean Air Act standards (CAA) and the American with Disabilities Act (ADA) requirements. They will have a useful life of 4 years. This grant applies the 2009 ARRA Formula allocation of $100,000 for furnishings and equipment for the new transit center to include cubicles, desks, chairs, passenger seating, computers, printers, copier, base station radio, antenna, phones. (1) AVL System project is 40% complete. Installation for 10 buses complete with modems, base station, software, database, AVM. Also mapping services for area. (2) Automated Farebox System is on order. (3) Light Transit Vehicles on order. (4) Transit Center Furnishings RFP to go out in January. Bus and Other Motor Vehicle Transit Systems 850 Warren C. Coleman Blvd. Less Than 50% Completed NC-96-X011-00 ARRA TOR ands TZx Buses Invest in Public Transportation by procuring two (2) 35 FT hybrid-electric buses, two (2) 40 FT hybrid-electric buses for Transport of Rockland (TOR), the County's inter-county bus system. We will also procure three (3) 45 FT hybrid-electric over-the road coach buses for the Tappan ZEExpress (TZx) service, the County's commuter coach service over the Tappan Zee Bridge to Westchester County to meet connecting Metro-North trains into New York City. This grant will allow Rockland County Public Transportation to purchase seven (7) environmentally friendly hybrid-electic replacement buses. These buses will replace older buses that have reached their useful life and have become too costly to maintain and are no longer environmentally friendly. As a result of these investments, Rockland County Public Transportation will be able to offer the riding public service that is safer, more reliable, more environmentally friendly and more accessible for people with disabilities. There were no building activities this quarter. We have reviewed our commuter coach bid and expect our County Legislature to make an award in 1st quarter 2010. Bus and Other Motor Vehicle Transit Systems New City, NY 10956-3664 NEW YORK, CITY OF Staten Island Ferry System Asset Maintenance NYCDOT operates the Staten Island Ferry (SIF) system that operates from St. George Ferry terminal in Staten Island and Whitehall ferry terminal in Manhattan, New York. It is the largest ferry system nationwide carrying 70,000 on weekdays or approximately 21 million passengers annually. It is the principal means of transportation for Staten Island residents traveling to Manhattan?s central business district and other activity centers. The major assets of Staten Island Ferry system consist of a fleet of eight passenger ferries, the St. George Ferry Terminal in Staten Island and the Whitehall Ferry Terminal in Manhattan, New York, several support floating stock, bridges, slips, ramps, a ferry maintenance facility with auxiliary buildings. This project will invest in public transportation by carrying out preventive maintenance activities of the Staten Island Ferry system assets, for two different projects: 1) Dry-docking services for ferry vessels through a third-party contract ($37,747,237) 2) Personnel costs for in-house maintenance on ferry vessels ($9,000,000) In the past quarter, the shipyard dry-docking third party contractor completed all maintenance activities for the Marchi ferry vessel including underwater hull repair, propulsion system repairs, and sea valve repairs. The in-house maintenance personnel has maintained Staten Island ferry assets in a state of good repair by executing daily maintenance work. Staten Island, NY 10301-2510 Less Than 50% Completed BUTLER, COUNTY OF OHIO Purchase of Vehicles, Equipment, Facility Improvments and Preventitive Maintenance To invest in public transportation by purchasing five replacement small buses (14 passenger), purchasing eight small vans, and purchasing four service vehicles (one service truck and three four-wheel drive vehicles to provide essential services during bad weather and to back up daily operations). All vehicles being replaced are several years past their normal useful life cycle and the new vehicles will be more fuel efficient and help reduce routine operating costs. In additon we will be replacing shop and office equipment which is past it normal useful life. This grant will also allow for some facility improvements including a covered parking area to better protect the buses and extend their useful lives. Finally this grant will allow us to do necessary maintenace on our vehicle fleet and facilty to ensure all assets are maintained to the highest standards, thus helping to reduce operating cost in the future. This grant allowed BCRTA to order and receive eight replacement transit vehicles which are being used to expand service. This investment will allow BCRTA to offer public transportation service that is safer, more reliable, environmentally friendly, and more accessible for customers with disabilities. Funds from this grant are also allowing us to replace outdated equipment, make much need facility improvements, and do preventitive maintenance on the existing fleet of vehicels and facility. All of which will result in reduced operating costs and ensure that all assets are in prime condition. Bus and Other Motor Vehicle Transit Systems Hamilton, OH 45011-5373 More than 50% Completed GREATER DAYTON REGIONAL TRANSIT AUTHORITY Preventive Maintenance, purchase of twenty five replacement 40ft diesel buses and purchase of twenty two replacement <30ft medium duty buses. To invest in Public Transit by purchasing twenty five replacement 40' low floor public transit buses. These buses meet or exceed current Clean Air Act (CAA) standards and the American with Disabilities Act (ADA) requirements and will have a service life of at least 12 years or 500,000 miles. GDRTA will also purchase twenty two replacement smaller transit buses (less than 30' long) for use with our Project Mobility service to the disabled community. In additon GDRTA is also using funds to perform preventive maintenance on existing buses, facilities and equipment to ensure that all assets are properly maintained. Both of these projects will improve customer comfort and operating efficiencies. It is anticipated that both projects will also help retain jobs in the public transit / vehicle production industries. Since the award of funds GDRTA has completed the preventitive maintenance project which has resulted in both the retention on jobs and the proper upkeep of federally funded assets. This will lead to greater operational efficiencies and passenger comfort. We have received the order of smaller buses being used for our Project Mobilty service and these buses are being placed in service. In addtion we exercised an existing option from our vehicle manufacturer and the 40' replacement buses being funded with this grant are on order. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed OH-96-X005 Renovate two separate facilities in addition to the purchase of three replacement buses and vehicle GPS/AVL systems Invest in public transportation by restoring and preserving a historic New York Central Train Station to become the Lorain County Transportation Center. The Transportation Center will be a transportation hub for Lorain County Transit, Greyhound and Amtrak as well as housing Lorain County Transit administrative offices. Renovations of an existing building to be a maintenance facility, performing preventative maintenance on buses. The maintenance facility will include office space, restrooms, parts storage and a mechanics shop. Purchase of 3- 30 Ft. buses replacing vehicles that have met their useful life of seven years. Purchase/install intelligent transportation systems technology on vehicles. This grant allowed the transit agency to renovate a historic train station and make it a transportation hub for Lorain County Transit, Greyhound and Amtrak as well as a community space available to the public for rent. The transit agency was able to renovate a building as a maintenance facility to maintain Lorain County Transit's vehicles and will include office space, restrooms, parts storage and a mechanics shop, this project is about 95% complete. The grant also gave the ability to purchase 3- 30-Ft. buses, replacing an aging fleet, the purchase of the vehicles has been completed. The vehicles were delivered the week of December 14. This grant will also give the ability to purchase/install intelligent transportation systems technology on vehicles. As a result of these investments, the transit agency will be able to offer public transportation service that is safer, more reliable, more environmentally friendly, and more accessible for people with disabilities. Bus and Other Motor Vehicle Transit Systems (Information not reported) More than 50% Completed OH-96-X023 SALEM AREA MASS TRANSIT DISTRICT 09 ARRA 5307 Buses (8);Rehab Tran Ctr Salem Area Mass Transit District is making an investment in public transportation through the following projects: purchase of three (3) 35-foot fixed route buses (the Transit District initially applied to purchase four (4) buses, but the number was decreased to three to allow funding for operational assistance), the purchase of four replacement buses and one bus for the expansion of the fleet to serve Americans with Disabilities (ADA), replacement fareboxes for fixed route buses, Performance Management Software will be purchased to maximize the gathering of information about services provided, the surface of the Transit Center Mall in downtown Salem will be re-done to provide for greater pedestrian safety, work will take place for the installation of a Transit Center in Keizer at the north-end of transit services provided in the community, and funds are designated in support of operational assistance to support tasks required to complete the above stated projects. During the October-December 2009 Quarter, Salem Area Mass Transit District paid for the shipping of Fareboxes that were purchased in the preceding quarter. The Transit District received the delivery of four replacement buses and one bus to expand the fleet of buses that serve Americans with Disabilities (ADA). The environmental study was completed on the site selected for the Keizer Transit Center. Bus and Other Motor Vehicle Transit Systems 555 Court Street NE, Suite 5230 Less Than 50% Completed This project uses a portion of the federal funds to finalize a bus driver break area and public rest room building at the new SMART Central at Wilsonville Station multi-modal facility located adjacent to the WES Commuter Rail Station in Wilsonville, Oregon. In addition the federal funds will allow SMART to construct an artistic clock tower, passenger shelters and pedestrian safety enhancements located at SMART Central station. Finally, the funds will conduct preliminary engineering/design and site plan preparation for the construction of a new SMART administrative building located adjacent to the SMART Central at Wilsonville Station multi-modal facility. All projects have been designed to ensure increased access for all users of the multi-modal facility and the design has taken into consideration eco-friendly storm water management elements and building materials. Further each element is designed to deter crime and ensure public safety at the station through the placement of security cameras, lighting and the increase of SMART personnel at the Station. This grant is funding the design and construction of an artistic clock tower, passenger shelters and pedestrian crosswalks as well as the site planning for an administrative and maintenance facility. In addition, this grant will supplement grant X003 funds for the construction of the operator breakroom. All of these projects are being completed at SMART Central at Wilsonville Station. This quarter, activities included engineering and design of the clock tower and passenger amenities. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed BERKS AREA READING TRANSPORTATION AUTHORITY Purchase 11 buses, security equipment and facility improvements. Invest in public transportation by purchasing four new hybrid-electric buses, four new hybrid- electric paratransit vans, three new diesel paratransit vans, installation of surveillance and security equipment on 25 transit vehicles, and renovation of BARTA's Intermodal Transportation Complex. This grant has allowed BARTA to purchase four hybrid-electric 40ft transit buses, which will be delivered in June 2010, in order to expand service on its fixed routes. With this grant, BARTA is also purchasing seven paratransit vans (four hybrid-electric and three diesel) to replace paratransit vans that have met the minimum 5 year useful life requirement for this size vehicle as set forth in FTA Circular 9030.1C. The three diesel paratransit vans will be delivered in November, 2009. Also, these funds will allow BARTA to purchase and install security and surveillance cameras on 25 transit vehicles that are not equipped with safety and security cameras. Furthermore, this grant will also allow BARTA to upgrade and repair its Intermodal Transportation Complex. The maintaining of this facility is critical to the overall efficiency of the operations of BARTA. Bids for the upgrade of the transportation complex will be accepted on October 30, 2009. Moreover, as a result of these investments, BARTA will be able to offer public transportation service that is safer, more reliable, more environmentally friendly, and more accessible for people with disabilities. Bus and Other Motor Vehicle Transit Systems (Information not reported) Less Than 50% Completed ARRA - Acquisition of 40 hybrid replacement units Investment in public transportation by purchasing 40 replacement hybrid units, 40-foot length, heavy duty low floor buses for fixed route service in the San Juan Metropolitan Area. As a result of this investment, the Metropolitan Bus Authority will be able to offer public transportation service that is safer, more reliable, more environmentally friendly and more accesible to people with disabilities. Contract was awarded to Daimler Buses North America on October 2009. Advance payment was isssued by December 2009 for 41 (40 plus one spare) Cummins engines delivered to Daimler Buses North America as part of the purchase order to deliver 40 buses by Summer 2010. This transaction was authorized as per FTA letter of October 20, 2009. Jobs to be created will contribute to preserve and maintain jobs in the manufacturing industry and will be reported as units are delivered and invoices paid. Bus and Other Motor Vehicle Transit Systems #37, Ave De Diego, San Fransisco, Monacillo Ward San Juan, PR 00919-0000 Less Than 50% Completed PR-96-X011-00 Acquisition of Two Minibuses and Maintenece Improvements to Public Transportation Terminals Use of ARRA funds to purchase two minibuses, make deferred maintenance improvements to Public Transportation Terminal and administration of grant program. The project includes: 1. Purchase of two cut-away small buses with a five year duty cycle, ADA access complaint to provide demand response service to areas not currently served by the Public system under ALI 11.13.04 in the amount of $138,000 of ARRA funds. 2. Renovation of the Public transportation Terminal to improve illumination, provide surveillance, repair roof and bathrooms, and install wheelstops under ALI 11.34.01 in the amount of $56,000 of ARRA funds. 3. Administration costs to comply with FTA regulations such as publication of bids and submittal of quaterly reports, under ALI 11.79.00 with $2,850 of ARRA funds. Bus and Other Motor Vehicle Transit Systems (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, ALABAMA DEPT OF This is a FY 2009 American Recovery and Reinvestment Act (ARRA) Section 5307 application in the amount of $4,033,530.00 for the State of Alabama. This application incorporates ARRA Governor Apportioned Section 5307 funds in the amount of $3,834,718.00 and Columbus, GA MPO ARRA Apportioned Section 5307 funding in the amount of $198,812.00. This application includes the purchase of 33 replacement vehicles and 6 expansion vehicles ($2,439,834), bus facilities ($25,000), equipment ($988,634), signal and communications ($4,900), and additional capital program items ($575,162). The funds will be used to fund small urban transportation programs for the following six (6) subrecipients: Auburn-Opelika, Phenix City, Anniston, Florence, Decatur, and Dothan. None for quarter ending 12/31/2009. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award supports transit improvements at six small urban public transit systems selected by the State of Alabama. These improvements include replacing old vehicles, expanding fleets, and installing bicycle racks and signal systems. These activities assisted in keeping transit systems running at current levels and enhancing public transit. Capital Assistance for Transit Projects Pre-audit completed on bus order for eight replacement buses, four replacement paratransit vans received, bus parts, shop equipment ordered and received. Replaced surveillance system, purchased 75 bus and streetcar fare boxes, waiting delivery, A&E completed for Trolley Barn expansion, construction has begun, A&E contract in place for platform stop addition, work to begin shortly. Bus and Other Motor Vehicle Transit Systems 901 Maple Street North Little Rock, AR 72114-4647 More than 50% Completed Information GAO gathered to improve the description The award will result in residents and visitors to Central Arkansas traveling more safely and easily through Little Rock and the surrounding areas. HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF ARRA funds will be used to purchase 126 replacement buses for transit providers throughout the State of Arkansas. In addition, transit providers will receive funding for ADP hardware and software; support vehicles and equipment; construction or rehabilitation of maintenance facilities, administrative facilities, and park and ride lots; and for the performance of preventive maintenance. Our expectations are that the above mentioned expenditures will enhance public transportation, retain existing jobs for Arkansas providers, enable contractors to retain and maybe create new jobs within their companies, in the state of Arkansas. To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits. Bus and Other Motor Vehicle Transit Systems Little Rock, AR 72209-4206 Less Than 50% Completed Information GAO gathered to improve the description The award supports activities in several Arkansas counties, including Pulaski, Randolph, Carroll, Benton, Saline, Boone, Jefferson, and Phillips counties. FORT SMITH, CITY OF Investment in public transportation by completing the transfer station facility at 200 Wheeler Avenue in Fort Smith, AR, purchase four demand response buses, purchase and install approximately 30 bus shelters, purchase and install security cameras/surveillance equpment for transit buildings and buses, purchase mobile data terminals and renovate the administrative and maintenance buildings. Completed projects within this ARRA grant include the purchase of 4 demand response buses, purchase of 4 automatic electronic defibrillators, replacement of 5 garage doors in the maintenance building, heaters for the maintenance shop and the purchase and installation of a bus hoist. Ongoing projects include the renovations of the administrative and maintenance facilities. An architect has been selected for the renovations and coordination will begin soon. Specifications are being completed by our Information Technology Service (ITS) Department for the purchase and installation of security cameras for the facilities and buses. Bus shelter sites are currently being selected for the placement of passenger shelters. The onboard computers to be used as mobile data terminals are being reviewed by the ITS Department at this time. The mobile data terminal software will be a one vendor source that will work in conjunction with the already existing scheduling software. Projects currently not underway at this time include the addition of the underground fuel tank and associated software as well as the fare counting equipment. These two projects will begin once the renovations to the administrative and maintenance facilities are nearing completion. Bus and Other Motor Vehicle Transit Systems 6821 Jenny Lind, PO Box 1908 Fort Smith, AR 72902-1908 Less Than 50% Completed Information GAO gathered to improve the description The activities funded by the award will improve safety and security for both passengers and staff, improve transit performance and communication, and provide cost savings. ARRA - (10) Replacement; (2) Expansion; equipment REPLACEMENT/EXPANSION OF ROLLING STOCK, ACQUISITION OF BUS SHELTER AND ACQUISITION OF RADIOS. Replacement of 12 fixed route buses; construction of bus shelter located in Bienville Square and purchase of a digital and analog 800 Mhz radio system Bus and Other Motor Vehicle Transit Systems 1224 W. I-65 Service Road S. Less Than 50% Completed Information GAO gathered to improve the description The award supported the replacement of old buses with 10 buses and 2 transit vans. The award also constructed a bus shelter in downtown Mobile to connect various bus routes. The award also replaced the obsolete radio system for the buses with a new analog and digital radio system, which aids in Mobile's emergency preparedness plans. 1.) COP Debt Service, 2.) Capital Cost of Contracting, 3.) Preventive Maintenance, 4.) Non Fixed Route ADA Paratransit Service, 5.) Transit Enhancements Invest in public transportation by providing assistance to the following projects: COP debt service payment, capital cost of contracting, capitalized preventive maintenance, non-fixed ADA paratransit service operations and transit enhancements. 1.) Semi-annual COP debt service payment processed in September 2009 for purchase of (55) 40-foot CNG buses. 2.) Contracted transit operations and maintenance to support ongoing fixed route and demand response (ADA) paratransit service. 3.) Preventive Maintenance of the agency's vehicle fleet and facilities to support the ongoing operation. 4.) Contracted transit operations and maintenance to support ongoing demand response (ADA) paratransit service. ARRA 5307 funded portion of this service completed as of September 2009. 5.) Transit Enhancement project not started. Bus and Other Motor Vehicle Transit Systems 1825 Third Street Less Than 50% Completed Information GAO gathered to improve the description The award supports transit operations in Riverside County through the purchase of items including benches, shelters, light poles and extensions, signs, and trash receptacles. The award will result in enhanced safety and security of the bus stops and transit facilities. TRANSPORTATION, COLORADO DEPARTMENT OF ARRA Summit County - Statewide Rolling stock Invest in public transportation by building a fleet maintenance facility, purchasing new buses, and providing some operating assistance This grant allowed the county to build a new 42,000 sq. foot bus maintenance facility. As a result of this project, the county will be more efficient in maintaining and servicing its fleet buses in a high altitude environment. Commercial and Institutional Building Construction 0222 County Road 1003, PO Box 2179 Less Than 50% Completed Information GAO gathered to improve the description The award supports the construction of a fleet transit and vehicle maintenance garage facility as well as a 3,147 square foot stand-alone wash bay, a diesel/unleaded multi-use fuel island, and a bulk fuel storage area in the city of Frisco, Colorado. Services at the facility will be available for Summit Stage transit buses and other vehicles providing public transit services. TRANSPORTATION, CALIFORNIA DEPARTMENT OF 5311 Transit Improvements in non-urban areas. The grant will fund a variety of transit capital projects in all 58 California counties. Projects include vehicles, bus and intermodal terminals, fare collection systems, security equipment, information signage, construction and renovation of maintenance and storage facilities, park- and-ride lots, bus shelters and signal and communications equipment, including radios. The grant will also support preventive maintenance programs and provide a source of operating assistance for ADA-required paratransit. A grant to modernize transit fleets through vehicle replacement and expansion, to modernize and upgrade physical facillities, such as bus terminals, stops, maintenance and storage facilities and park-and-ride lot, to improve fare collection, security, information and communications systems and to support preventive maintenance programs and ADA-required paratransit operation. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description This award supports transit upgrades in rural communities. The award will be used to purchase 105 buses, 2 vans, 11 automobiles, 7 trolleys and 1 commuter vehicle. The award also will be used to build and renovate facilities and bus station terminals, as well as to purchase and install bus fare collection systems, computer hardware and software, signal and communications equipment, bus route signs and bus shelters; to upgrade safety and surveillance security equipment; and to perform preventive maintenance. The award will result in promoting and enhancing public transportation in rural areas through capital infrastructure investments and stimulate local economies. SAN FRANCISCO BAY AREA RAPID TRANSIT DISTRICT Replacement of Train Auxiliary Power Equipment, Cables on Transbay Tube, and Coverboards, Improve walkway safey at a station, Car Interior Modifications, and Wheel Truing Machine Study. The overall purpose of the grant is to invest in public transportation to improve the safety and reliablity of the transit system and to improve the passenger comfort in the modified revenue vehicles. Therefore, the BART passengers should have a safer and better riding experience. Activities include soliciting bids and awarding contracts to initiate work on the projects. Less Than 50% Completed Information GAO gathered to improve the description The award supports capital improvements, including construction of a new walkway at the Balboa park station; installation of new auxiliary power supply equipment on 30 railcars; new coverboards over the electric third rail; replacement of cables in the Transbay Tube; replacement of worn-out vehicle interiors and reconfiguration of interiors for improved passenger circulation; installation of between-car safety barriers; and preliminary work on a wheel truing machine. Information GAO gathered to improve the description This award funds the purchase of nine buses. SANTA ROSA, CITY OF Transit Operations, Americans with Disabilities Act Paratransit Operations, Preventative Maintenance, Transit Enhancements Invest in public transportation by providing funds for assistance to transit operating, preventative maintenance of buses, Americans with Disabilities Act paratransit service operations, and transit enhancements, including solar bus shelters, benches and map display cases. These funds will support transit operations for Santa Rosa CityBus, which is housed in the City of Santa Rosa's Transit Department and is the municipal transit provider for the City of Santa Rosa. In addition to providing fixed route bus service, the agency is responsible for the provision of complimentary Paratransit services (required by the Federal Americans with Disabilities Act), the management of the City’s Transportation Demand Management (TDM) Program, as well as bicycle and pedestrian planning efforts. CityBus operates seventeen fixed routes within the City of Santa Rosa and Roseland and carries approximately 2.8 million passengers annually. For the provision of paratransit service, the agency contracts with MV Transportation to provide approximately 50,000 trips annually for disabled patrons that are not able to take fixed route transit. Additionally, through the TDM Program, CityBus reduces approximately 100,000 car trips and an average of 200,000 car miles annually. This grant funds fixed route transit operations (with the completion of the first amendment to this grant, due in the second quarter of Federal Fiscal Year 2010) , ADA paratransit operations (contract awarded November 17, 2009), preventative maintenance expenses ($2,182,095.78 expended and drawn down through the end of Federal Fiscal Year 2009), and Transit Enhancements (in the form of a bus stop amenity purchase order executed November 18,2009). Bus and Other Motor Vehicle Transit Systems 1101 College Avenue, Suite 200 Santa Rosa, CA 95404-3940 More than 50% Completed Information GAO gathered to improve the description The award supports the maintenance of all 500 bus stops and shelters, trash receptacles at all stops, and display cases. Maintenance includes power-washing. The award also supports preventive maintenance and upkeep of the entire fleet of 35 buses and 11 paratransit buses to Federal Transit Administration (FTA) standards, paying driver salaries, and maintaining transit facilities. The award does not support capital improvements or gains, only day-to-day operations. SAN JOAQUIN REGIONAL TRANSIT DISTRICT RTD This grant, CA-96-X045, will provide funds for preventive maintenance for upkeep of San Joaquin Regional Transit District’s buses and paratransit vehicles. Funds will also be used for the following projects: Construction of the Mall Transfer Station; Design/engineering of the Regional Operations Center; Associated capital maintenance items; Computer/communications equipment and software; Capital tire lease; Passenger amenities and transit enhancements; Development of the BRT Phase II- Airport Way Corridor that include environmental and preliminary eng/design; and, Safety and security equipment related to bus and bus facilities. This grant has allowed the San Joaquin Regional Transit District to conduct preventative maintenance on its 134 existing buses; construction of the Mall Transfer Station; design/engineering of the Regional Operations Center; purchase associated capital maintenance items; purchase computer/communications equipment and software; contract for a capital tire lease; purchase and install passenger amenities and transit enhancements; development of the BRT Phase II- Airport Way Corridor that include environmental and preliminary eng/design; and, purchase of safety and security equipment related to bus and bus facilities. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The Channel St. amenities improvement project in the downtown area provides passenger amenities and transit enhancements such as adding benches for additional seating in the boarding area, new landscaping to provide shade, and trash receptacles. Construction of the Mall Transfer Station will improve customer comfort and boarding area aesthetics at the station on Pacific Ave. near Sherwood Mall, which gives passengers easy access to the downtown area. The improvements include: construction of bus shelters; installation of passenger information kiosks, benches, and trash receptacles; reinforcing the pavement; and installation of crosswalks for increased safety of passengers. Development of the Bus Rapid Transit system design will allow the transit agency to increase capacity by extending the current system to a new corridor. The Regional Operations Center will allow the transit agency to expand and house all the buses and maintenance activities in one facility. Currently, the transit agency has three facilities that are at maximum capacity and are no longer suitable for their operations. The Center will include a service station, bus wash, and fueling center for public transit buses as well as private buses. The award also funds an extension of a transit hopper service in the Stockton Metropolitan area. Specifically, this includes activities such as branding the buses, installing bus stop signs, and rehabilitation of some buses. The hopper service is designed for elderly and disabled passengers. SOUTHERN CALIFORNIA REGIONAL RAIL AUTHORITY Track Rehab, Positive Train Control Invest in public transportation for 1) Track Rehabilitation/renovation on San Bernardino Line; 2) System Communication Improvements on SCRRA's Metrolink commuter train system in Riverside County; 3) partial funding for Positive Train Control system (PTC) on the Southern California Regional Rail Authority's (SCRRA) Metrolink commuter train system, in Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties. 1/14/10 update: 1) Project #510046 Track Rehabilitation on San Bernardino Line contracts awarded is $1,864,144. Rail Frogs, plates, ties, and turnouts ordered 10/26/09 and delivery expected 2/2010. Project completion expected 6/2010. ARRA Funds received on this project $4,909. 2) Project #510095 System Communication Improvements contracts awarded is $0. A System-Communication feasibility study to determine how to best link and integrate Riverside County Service will be completed first. Project completion expected 9/2015. ARRA Funds received on this project $49. 3)Positive Train Control (PTC) contracts awarded is $1,187,000; ARRA grant #CA-05-0007-00 also funds PTC. PTC is 10% completed. Work is progressing on Map & Validate Existing Assets/Rules; Validate Existing Locomotive Cab Systems; Validate New Locomotive/ Cab Systems; Validate Passive Braking algorithm; Initial Evaluation for General Electric Transportation Signals Systems (GETS) Module Upgrade; Map & Validate Signal Assets on San Gabriel Sub, Valley Sub, Ventura Sub, Olive Sub, and Orange Sub; Relocate & Reconfigure Signals; Operational Study; Validate System Safety Plans; Map & Validate Communications System; Validate Network Systems; finalizing Scope and Requisition Documents to our Procurement Dept; Disadvantaged Business Enterprise (DBE) Consultant Review; Agency Project Manager Review of Draft Evaluation Criteria; Prepare Development Plans; Prepare Draft Implementation Plan; Prepare Draft Development Plan; Prepare Safety Plan; Procure Spectrum in 220 MHZ Band; Prepare Interoperability Agreement with the following Railroads UP, BNSF, and NC; Re-Design Main Operation Center (MOC) backroom to accommodate for PTC. Tasks finished: Validate Train Dispatch System; NEPA-Compliant Categorical Exclusion. Substantial completion expected 12/31/12. We are using up funds first from grants that expire before the ARRA grants. 700 S Flower St, Suite 2600 Los Angeles, CA 90017-4104 Less Than 50% Completed Information GAO gathered to improve the description The award supports safety and capacity upgrades and improvements such as the replacement of approximately 5,000 feet of rail on the San Bernardino Line as well as the rehabilitation of two grade crossings on the Metrolink system in the Los Angeles area. Invest in public transportation by expansion of the commuter fleet with the purchase of three 57 passenger clean diesel buses. Awarded contract for the purchase of three 57 passenger commuter buses on November 3, 2009. Bus and Other Motor Vehicle Transit Systems Yuba-Sutter Transit Authority, 2100 B Street Information GAO gathered to improve the description The award supports fleet expansion for the Yuba Sutter Transit Authority, which provides transit services in and around Yuba City, Marysville, Linda, and Olivehurst. The commuter bus fleet will be expanded from 14 to 16 and one bus from 1997 will be replaced. The award will result in new buses which will help control air pollution. Capital equipment and security improvements Purchase 1 replacement coach for Clean Air Express, 2 ADA vans, 4 replacement buses for local service, 6 particulate safety traps for existing buses, 6 replacement bike racks and bus security cameras for all rolling stock. Bus and Other Motor Vehicle Transit Systems (Information not reported) $1,342,268.00 Information GAO gathered to improve the description The multiple activities under this award will improve security and safety equipment. The purchase of vehicles allows the agency to replace the rolling stock of buses that have reached their lifespan. The new Americans with Disabilities Act (ADA) compliant vans will have a higher ceiling and provide more head room. Security cameras for all buses will help with problems on buses, prevent problems, and respond to complaints. Bike racks are being replaced because the current racks are deteriorated due to increased use by residents. Safety traps will secure buses at night, and prevent vandalism or theft. INDIAN RIVER, COUNTY OF Invest in public transportation by constructing a new transporatation administration/bus parking facility. An RFP for architectural & engineering services for the design of the new transit administration facility has been issued. Upon completion of project design, a general contractor will be selected by a bidding process. Bus and Other Motor Vehicle Transit Systems Vero Beach, FL 32960-0000 Less Than 50% Completed Information GAO gathered to improve the description The new facility is approximately 5,000 square feet and approximately 2 acres of secured parking for the door-to-door and fixed-route transit vehicle fleet. The new building and parking area will reduce non-revenue mileage by shortening the travel distance of the transit fleet from the old depot to refueling and maintenance areas, improve safety and security, improve office efficiency--including dispatching, communications, and response times--and improve disaster planning, since the new facilities will be built to exceed current hurricane standards. Transit Vehicles, Preventive Maintenance, Surveillance equipment to enhance the operations and functionality of Transit Property in Ocala, FL, SunTran. No activities completed to date. Getting project underway. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award supports maintenance activities for the passenger bus fleet of the city of Ocala. Activities include replacing transmissions and overhauling engines to keep all nine buses running properly. The award also supports the purchase of surveillance equipment for the buses. This equipment, which includes cameras and monitoring devices, will improve safety. TRANSPORTATION, GEORGIA DEPARTMENT OF Georgia Statewide Rural Transit Grant: 182 vehicles, ITS, facilities, software Invest in public transportation in rural areas of Georgia by purchasing new vehicles, upgrading rural bus facilities, procuring scheduling software and installing intelligent transportations systems technology on vehicles. This quarter contracts have been executed with sub-recipients; however most sub-recipients will begin work in the next quarter. This grant will allow Georgia to assist rural transit agencies to purchase 182 vehicles, upgrade ITS equipment, upgrade transit facilities and purchase scheduling software. Regulation and Administration of Transportation Programs 600 West Peachtree Street, NW Less Than 50% Completed Information GAO gathered to improve the description The award funds various transit activities in 30 counties throughout Georgia. Activities include the following: installing intelligent transportations systems technology on vehicles in order to dispatch and schedule information from many transportation providers and allow the public to visit the transportation provider's Web site to schedule necessary trips on line; replacement of aged equipment in order to maintain Georgia's rural paratransit fleet in a state of good repair; purchasing scheduling and dispatching software that will allow for computer-based dispatch, integration with GPS and GIS mapping, and automated route planning, among other things; and upgrading rural bus facilities or purchasing buildings that will serve as rural transit agencies that will also house equipment for the dispatching and scheduling of trips. CAT ARRA 7 replace bus/Trans Enhancement This grant is for FY 2009 ARRA Economic Stimulus Funds. The funds will be used to purchase seven(7) 30-foot replacement vehicles. The buses will be hybrid electric/diesel buses. These vehicles have a useful life of seven(7) years/350,000 miles. CAT will acquire a security system for the facility, monitoring, security guard, and razor wire for fencing. Included in the Project Administration will be the RFP, Advertising and Procurement Cost. Chatham Area Transit Authority will follow all third party procurement policies as defined in C4220.1F. Chatham Area Transit Authority will check the Federal Excluded Parties List System (EPLS), and DOT regulations, 'Non-procurement Suspension and Debarment' 2 CFR Parts 180 and 1200 as one step in the process of determining only 'responsible' contractors that possesses the ability, willingness, and integrity to perform successfully under the terms and conditions (See 49 U.S.C. Section 5325) are awarded contracts. We understand and will follow the proper procurements procedures. 7 new buses have been ordered from the manufacturer. Manufacturing is expected to begin mid year 2010. New radios have been ordered and delivery is expected in January 2010. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description The new buses replace those past their expected life and will increase energy efficiency for the agency. The security system and cameras will cover the entire facility and increase safety measures. HONOLULU, CITY & COUNTY OF Bus and Handi-Van Acquisition Program, Pearl City Bus Transit Facility Parking Expansion Program, Wahiawa Transit Center, Middle-Street Inter-Modal Center,Bus Stop Pad Improvements Rehabilitation/Renovation, Preliminary Engineering for New Starts Honolulu- High Capacity Transit Cooridor Project. STIP #OC16, Amount budgeted this grant: $19,345,207, Bus and Handi-Van Acquisition Program - Contract for purchase of 19 buses under review by City. Funds to be used with $254,793 from ARRA HI-56-0001-00. STIP #OC17, Amount budgeted this grant: $4,000,000, Honolulu-High Capacity Transit Corridor Project - Consultant contract documents for planning and engineering work under review by City. STIP #OC19, Amount budgeted this grant: $3,104,793, (includes security and transit enhancement activities)Middle Street Inter-modal Center - Construction contract documents under review by City. STIP #OC31, Amount budgeted this grant: $2,000,000, Bus Stop Pad Improvements Rehabilitation/Renovation -Construction contract documents under review by City. STIP #OC32, Amount budgeted this grant: $7,899,148, Pearl City Bus Facility - Bus Parking Expansion - Construction contract documents under review by City. STIP #OC33, Amount budgeted this grant: $4,300,000, Wahiawa Transit Center - Letter from Mayor Mufi Hannemann to Hawaii Governor Linda Lingle was sent during the 3rd quarter of 2009 requesting release of State of Hawaii funds budgeted for this joint development project. No response from Governor's office. The City will continue its efforts to resolve the matter. New radio communication units will be installed in the replacement buses. 1% transit enhancement requirement totaling $377,398 will be met through artwork at the Wahiawa Transit Center ($200,000) and at the Middle Street Inter-modal Center ($200,000). The 1% transit security requirement of $406,491 will be met through security fencing elements at the Middle Street Inter-modal Center ($400,000) and the Wahiawa Transit Center ($16,938). 650 South King Street; 3rd Floor Information GAO gathered to improve the description The award funds multiple transit activities including construction of an interim parking facility with 100 stalls at the Middle Street Intermodal Center and completing construction of the Transit Center and the Park and Ride Facility at the Wahiawa Transit Center. Activities funded by this award will result in reducing fuel usage by replacing old buses and purchasing hybrid buses, increasing capacity at the Pearl City Bus Transit Facility by increasing the number of parking spaces for buses, and allowing the city and county of Honolulu to move forward with its bus stop pad improvements at a more rapid pace by installing 32 bus pads this year. ARRA grant to purchase three medium duty buses Purchase three medium duty buses and security cameras. Let RFP to purchase buses by 12-30-2009. We have negotiated bus purchase price with the sucessful bidder for RFP#BET2009 (Intermountain Coach Leasing Inc.)to build 3 M.D. low flooor buses. Intermountain has offered their best and final price of $179,832 for each bus for a total of $539,467.00 for three buses. The City is currently considering the bid and will make a decision to accept the offer, of to re-negotiate. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the replacement of old buses that have exceeded their lifespan according to Federal Transit Administration (FTA) standards. Buses will also be equipped with security cameras to monitor passengers, drivers, and any incidents inside or accidents outside the bus. 09 ARRA 5307 Buses (8) and Oper Vendor has delivered 6 of the 8 buses that were award, and final 2 buses are in production. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The award will support the purchase of new buses for the transit service area that includes the cities of Pocatello and Chubbuck. TERRE HAUTE, CITY OF Replacement buses and remodeling of maintenance facility Have started working on this project to improve and remodel the bus maintenance garage. Engineering cost and replacement estimate design work has been received and invoiced to the Terre Haute Transit Utility. Vendor has started estimating the replacement cost for several pieces of equipment that will be replace in bus maintenance garage. Bus and Other Motor Vehicle Transit Systems Terre Haute, IN 47807-4923 Less Than 50% Completed Information GAO gathered to improve the description This award funds the purchase of 5 30-foot replacement buses, 5 passenger shelters, 14 fare boxes, and 14 radios. Funds will also be used to renovate the transit maintenance and storage facility. These activities will renew the fleet and modernize its system. Replace 6 35' buses, rehabilitate maintenance facility, provide transit enhancements Invest in public transportation by purchasing replacement transit buses, rehabilitating a maintenance facility, installing a disaster recovery system, and providing various transit enhancements to system riders. The main objective of GPTC's service provision is to enhance the ability of Lake County, Indiana citizens to access shopping, education, recreation, public services, and employment by adequately developing, improving, and maintaining a regional passenger bus system. This award will allow GPTC the capacity to realize these objectives, which also include creating and maintaining jobs associated with funded projects. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award funds the replacement of buses because the vehicles were beyond their useful life. The new buses will allow the transit agency to provide better service to transit riders. Transit enhancements at the University Park Transit Center, a transfer center for bus routes, near Indiana University, include beautification of the center with trees and landscaping. This transfer center will improve connectivity between bus routes and improve safety for transit users. Rehabilitation of the maintenance facility includes installing new garage doors and repaving the staging area due to deteriorating pavement. This rehabilitation will extend the life of the maintenance facility. These funds will be used to purchase replacement public transit vehicles which will invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits. We are currently in the process of securing contract opportunities for the purchase of vehicles. Bus and Other Motor Vehicle Transit Systems PO Box 708, 6 East 6th Street Information GAO gathered to improve the description The award supports the replacement of up to four 40-foot buses that comply with the Americans with Disabilities Act (ADA). LAFAYETTE CITY PARISH CONSOLIDATED GOVERNMENT Pur. 1 Bus,Shelters,Security,PM,Signage Invest in public transportation by completeing funding of the final phase of the multimodal center, complete funding for one additional bus, fund bus shelters, fund safety and security equipment, fund new bus stop signs, fund bus stop ADA improvements and fund preventative maintence on the bus fleet. 1. Lafayette Multi-Modal Facility Final Phase: Went to bid and bid awarded. 2. Bus purchase: Went to bid and bid awarded. 3. Bus stop shelters: preliminary site selection. 4. Safety and security equipment: Developing specifications. 5. Bus stop signs: Selecting design and deciding on options. 6. ADA bus stops: preliminary site selection. 7. Preventive maintenance on buses: preparing for bid or option selection. Bus and Other Motor Vehicle Transit Systems (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports public transportation improvements in the City of Lafayette, Louisiana. These improvements include the purchase of one 35-foot bus, approximately 20 bus shelters, and bus stop signs. The award also supports preventive maintenance, including oil changes and bus engine inspections, as well as renovations of a small number of bus stops to make them accessible, per the Americans with Disabilities Act (ADA). The improvements also include purchasing and installing video cameras on the new bus and replacing damaged cameras on the other buses so that all buses are connected to the security system. The award also provides partial financing for the Rosa Parks Transportation Center. The center is a two-story, 41,000 square foot building which will house a U.S. Post Office and Traffic and Transportation Department offices, as well as Lafayette’s Intelligent Transportation System (ITS) center. Purchase of four replacement buses. Invest in public transportation by purchasing four new thirty-foot buses for replacement This grant allowed the transit agency to purchase four thirty foot replacement buses. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The award replaces older buses with new buses that meet the standards of the Clean Air Act and the Americans with Disabilities Act. Notification was received from FTA on July 10, 2009 that the City of Charlotte's ARRA Grant had been approved by FTA's Regional Office, the Department of Labor, and Washington's Special Committee. The City of Charlotte was, therefore, given official approval to execute the grant application in FTA's TEAM System. Relocation activities are in progress. Construction contract was awarded to Clancy & Theys Construction Company and a Notice-To-Proceed was issued November 25, 2009. Procurement activities include the selection process for Inspection Services and Safety & Security Certification. Expenditures include project administration, plans review fee, construction management services toward 3rd Party Contracts, advertisements, and relocation expenses along with pre-award expenditures eligible within the grant. (Information not reported) $20,766,306.00 Less Than 50% Completed Information GAO gathered to improve the description The award funds improvements for the North Davidson Bus Facility. Activities include updating facility conditions; upgrading mechanical, electrical, and plumbing systems; replacing original bus maintenance equipment; and constructing a new parking garage. These improvements will delay the need for a third bus facility, allow Special Transportation Services to relocate to the North Davidson Bus Facility, and provide sufficient space and support for up to 200 buses. ROCKY MOUNT, (INC) CITY OF ARRA 2 BUS, PM, EQUIP, RE, SHELTERS Purchase of new buses to expand existing urban transit routes; purchase of equipment to upgrade vehicles and maintenance operations; and facility improvements to operational facilities utilized by riders, including transfer stations and shelters. Activity in the 4th Quarter of 2009 comprised of purchasing an existing building for relocation of TRT driver opearations, along with the preparation of bids for the purchase of vehicles, equipment, and services to be funded with additional grant funds. Tar River Transit (TRT), the urban public transportation provider for the City of Rocky Mount, will utilize ARRA Transit Urban Capital Assistance funds to expand and improve transit operations through the purchase of vehicles and equipment, along with improvements to distribution and maintenance facilities. 100 Coastline St. Rocky Mount, NC 27804-5849 Less Than 50% Completed Information GAO gathered to improve the description The award funds the purchase of two 25-foot light transit vehicles; seven replacement engines; and equipment, real estate, and shelters for Tar River Transit. Work on the transfer and administrative facility includes purchasing the facility and landscaping the transit center. The transit garage improvements include work on the paint, lights, heaters, and transmission stand. Other activities include painting the bus station and renovating the taxi shelter. RUTGERS, THE STATE UNIVERSITY FTA project and construction management training To provide training for transit systems through the delivery of 34 Project Management for Transit Professionals and 6 Management of Transit Construction Projects sessions. Planning course deliveries began in September and courses will commence in the next quarter. All Other Support Activities for Transportation (Information not reported) New Brunswick, NJ 08901-8559 Less Than 50% Completed Information GAO gathered to improve the description Federal transit laws require a grant applicant for a major capital investment project to prepare and carry out a Project Management Plan (PMP) approved by the Federal Transit Administration (FTA). The award supports project and construction management training for transit management professionals so that they can prepare and carry out a PMP. The training teaches good project management skills to transit management professional and builds capacity at transit organizations. The training also includes specific emphasis on the requirements that are presented in the report Project and Construction Management Guidelines 2003 Update. PORTAGE AREA REGIONAL TRANSPORTATION AUTHORITY ARRA Maint. Facility Rehab./ Preventative Maintenance Invest in public transportation by replacing the roof of a bus storage/maintenance facility, performing preventative maintenance on existing buses, and completing preliminary engineering and design for facility projects on PARTA's property located at 2000 Summit Road, Kent, OH 44240. During the CY 4th quarter, PARTA continued to perform preventative maintenance on its 73 vehicles. The labor for the roof renovation is substantially complete and we are now in the contract close out period. PARTA has continued to complete preliminary engineering and design for facility projects on PARTA's property located at 2000 Summit Road, Kent, OH 44240. Bus and Other Motor Vehicle Transit Systems 2000 Summit Road More than 50% Completed Information GAO gathered to improve the description The award supports preventive maintenance activities to extend the life of the buses, including safety inspection, oil change, fluid change, brakes, labor for mechanics, and replacement parts if needed. The award also supports replacement of the facility’s roof. The roof was deteriorating and leaking water, which caused damage to equipment inside the building. The new roof is expected to last for 15 years. TRANSPORTATION, OKLAHOMA DEPARTMENT OF Purchase of 241 replacement buses and five over-the-road intercity buses. Invest in public transportation by replacing the nonurbanized and rural transit provider's aging fleet with efficient and reliable vehicles. A total of 246 vehicles will be purchased. The purchase will include 241 replacement buses of which 17 will be configured with Compressed Natural Gas. Also, five over-the-road buses are programmed for purchase. Awarded 19 contracts to subrecipients. Request for Bids for nine vehicle types were solicited. Awards were made for eight types of vehicles. One vehicle type was canceled due to ambiguous bid specifications. A total of 37 purchase orders were awarded during this report period. Interurban and Rural Bus Transportation (Information not reported) Information GAO gathered to improve the description The award serves 18 counties throughout the state. TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT OR Street Maint Improve; Milwaukie Park&Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to I-205 Light Rail Tracks; Morrison/Yamhill Intersect Repairs; Portland Streetcar Signals; Rail Preventive Maintenance. Invest in public transportation by initiating Bus Priority Street Maintenance Improvements; Milwaukie Park & Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to the I-205 Light Rail Tracks; Morrison/Yamhill Intersection Repairs; Portland Streetcar Signals, Ramps, ITS; and performing rail Preventive Maintenance on existing light rail vehicles. Bus Priority Street Maintenance Improvements; Milwaukie Park & Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to the I-205 Light Rail Tracks; Morrison/Yamhill Intersection Repairs; Preventive Maintenance. More than 50% Completed Information GAO gathered to improve the description The award supports various improvement activities including (1) repaving two deteriorating major bus transit streets and adding concrete bus pads at stops in order to reduce ongoing preventive maintenance at these locations and improve the rider experience; (2) replacing the shoulder on Foster Rd. with a concrete pad and base to accommodate buses, minimize future maintenance costs, and address the degradation of the standard roadway surface and base; (3) replacing infrastructure beneath the light rail tracks at 10 corridor intersections in the Morrison and Yamhill corridors to maintain safe and reliable service; (4) extending lighting along the I-205 multi-use path from the Lents Town Center Station to Gladstone to enhance safety along the corridor and encourage more people to ride bikes and walk to transit; (5) constructing a new 315-space Milwaukie Park & Ride facility at the intersection of SE Milport Rd. and SE Main St. for the heavily traveled McLoughlin corridor, enabling more commuters to use bus lines. WEST FLORIDA REGIONAL PLANNING COUNCIL Invest in public transportation by constructing new transit facility and security fencing, performing preventive maintenance on existing revenue fleet, installing automatic passenger counters on existing revenue vehicles, installing automated fareboxes on existing revenue vehicles, installing stop annunciators on existing revenue vehicles, purchasing and installing passenger shelters, purchasing a service vehicle, for a total of $2,377,250. Received and installed automatic stop announcement (annunciator) systems in all (17) buses, received and installed automatic passenger counting system (APC) in 8 buses, received (have not installed) automated fare boxes for all (17) buses. Performed preventive maintenance for fleet vehciles. Annunciators and APCs will be configured in January. Automated fareboxes will be installed in February. Bus and Other Motor Vehicle Transit Systems Panama City, FL 32401-3485 Less Than 50% Completed Information GAO gathered to improve the description The new transit facility being constructed will house the administrative functions of the transit agency, maintenance facilities, and response system, as well as store buses. The new facility will be located in unincorporated Bay County, outside of Panama City limits on Sherman Ln. and Douglas Rd. The current transit facility in Panama City is no longer big enough to house buses, and has inadequate office and maintenance space. Invest in public transportation. Cherokee County will use the 2009 ARRA funds to purchase a 5307 fixed route expansion vehicle. The 30' passenger vehicle will provide the opportunity to increase ridership and expand fixed route service to Cherokee County residents. Preventive Maintenance vehicle surveillance, and other communications and fleet maintenance miscellaneous support equipment, and bus shelters, will be purchased. Transit enhancements, including transit technology, MDCs and AVLs, will also be purchased. We plan to add one (1) expansion vehicle with a useful life of 6-8 years. The bus will meet CAA and ADA requirements. The fleet status section of TEAM has been updated to reflect this fleet addition. We are able to operate and maintain the vehicle expansion. The County is aware of FTA C 4220.1F regarding third-party procurement and will follow federal, state and local procurement policies. County will ensure that contractors are not on the debarment and suspension list. Will adhere to any/all special conditions of this award. (4th Quarter) The Project Description has not changed, however, the activities this quarter have. Expenditures for the 4th Quarter include $188,705.06 for Miscellaneous Support Equipment (11.42.20); $12,123.80 for Landscaping under Scenic Beautification (119.00 Transit Enhancements; $11,533.00 for Preventive Maintenance (117-00 Other Capital Items). ___________________________________________ (3rd Quarter) The Cherokee County Board of Commissioners has received 15 bids relevant to the ARRA Capital expenditure to date. $20,037 for Communications Equipment (11.62.02); $20,642 for Control/Signal Equipment (11.62.01) and $151,975.59 obligated to Misc. Support Equipment (11.42.20), as well as $12,000 obligated to Scenic Beautification adn property security (11.92.03 - 11.42.09) Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description The award funds the purchase of 14 technology units (Automatic Vehicle Locators and Mobile Data Computers), 3 bus shelters in the city of Canton, and 1 set of 4 portable lifts to help perform bus maintenance. The intelligence technology system software and hardware will help map and coordinate routes and ultimately save money by providing for more efficient pick-up/delivery. The new equipment is expected to save on tire wear and outsourcing costs. ARRA Aug 3 repl bus/1 van/1 truck/misc expense Invest in public transportation by purchasing additional buses including a hybrid and replacing a totally depreciated bus. Also fund maintenance costs including mechanics salaries and additional training. Also fund ADA expenses,salaries,training, fuel maintenance costs. Invest in public transportation by purchasing additional buses including a hybrid and replacing a totally depreciated bus. Also fund maintenance costs including mechanics salaries and additional training. Also fund ADA expenses,salaries,training, fuel maintenance costs. Bus and Other Motor Vehicle Transit Systems 530 Greene Street, Room 207 Less Than 50% Completed Information GAO gathered to improve the description The award supports the transit department of the County of Augusta-Richmond in replacing buses that were scheduled to be replaced and upgrading their fleet, funding salaries and maintenance work on vehicles, and replacing an old supervisor van and maintenance truck. The award allows the transit department to maintain service levels. Renewable Energy/Retrofit-Solar Lgt&Sec Invest in public transportation by replacing conventional petroleum dependent energy/security lighting system with a photovoltaic solar system in FTA funded vehicle maintenance and storage facilities. Bus and Other Motor Vehicle Transit Systems PR-172, 2nd Floor Public Transportation Terminal $1,000,000.00 Information GAO gathered to improve the description The award supports the conversion of the Cidro Public Transportation Center from a gas-powered to a solar-powered facility. The solar system will rely on inverters for power rather than batteries. The energy backup will be the electric company. The award will lower pollution by producing clean energy. The Recovery Act appropriated $5.55 billion for the Federal Buildings Fund, which provides money for measures necessary to convert federal buildings into high-performance green buildings, renovate and construct federal buildings and courthouses, and renovate and construct land ports of entry. This fund is administered by the General Services Administration (GSA), which selects projects for funding (such as the construction of a new building), and contracts with construction and engineering professionals to complete the project. Generally, GSA issues a number of contracts for each project. Nature and Type of Projects GSA had obligated just over $4 billion as of April 23, 2010. Of this amount, GSA has spent about $315 million. This spending represents the total value of payments made to contractors for work they have already completed. Of the $5.55 billion in Recovery Act funds, about $4.3 billion was made available for measures necessary to convert GSA facilities to high- performance green buildings, $750 million was made available for federal buildings and U.S. courthouses, and $300 million was made available for border stations and land ports of entry. Overall, GSA selected 263 projects in all 50 states, the District of Columbia, and two U.S. territories. As shown in table 10, GSA’s Recovery Act projects fall into four main categories: (1) new federal construction, (2) full and partial building modernizations, (3) limited scope projects, and (4) small projects. We assessed the transparency of descriptive information for Federal Building Fund awards available on Recovery.gov, as described in the report. We found that an estimated 29 percent met our transparency criteria, 64 percent partially met our criteria, and 7 percent did not meet our criteria. For the descriptions that did not fully meet our transparency criteria, we collected additional information necessary to make the descriptions meet our criteria. The descriptions of awards, whether they met our criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. GSA has provided additional guidance to Federal Buildings Fund contract recipients, established an Outreach Call Center to help recipients fulfill reporting requirements, and reviewed the recipient reports before the reports were made public on Recovery.gov. According to GSA officials, these efforts were designed to ensure that recipients followed reporting requirements and provided information on awards that the public can understand. GSA provided technical assistance to recipients that was designed to augment the Office of Management and Budget’s (OMB) guidance on recipient reporting. GSA made this guidance available on its Web site and also mailed a copy of the guidance to each recipient. This guidance, first issued in September 2009 and updated in October 2009, December 2009, and March 2010, describes the time frames for reporting and specific data element instructions, among other things. GSA’s guidance did not supply any information that supplemented OMB’s guidance on describing projects, including how funds are being used and expected outcomes. According to GSA officials, this guidance was meant to be a synopsis of OMB’s guidance; they did not think supplemental guidance was needed to describe how funds are being used and what outcomes are expected because they considered OMB’s guidance sufficient. GSA’s Outreach Call Center has provided both outreach and support to contract recipients. Specifically, prior to each reporting quarter, staff at the center have contacted recipients to update contact information and remind recipients of the reporting deadlines. In addition, staff at the center are available to answer questions from recipients and provide technical support to recipients as they complete their reporting requirements. For the second round of recipient reporting, GSA staff also developed data quality reviews that compared the financial data in recipient reports with financial data in GSA’s financial management systems. GSA staff contacted the recipients and clarified any information that was not consistent with GSA data. In addition, GSA staff reviewed the narrative information in the “award description” and “project description” fields to ensure that the information was accurate and to clarify any technical jargon or acronyms. According to GSA officials, GSA staff did not attempt to provide additional information; instead, GSA officials clarified the information that was already in the description. GSA officials have worked with members of the media to inform the public about GSA’s work under the Recovery Act. In addition, GSA issues press releases on major project milestones and informs national and local media when GSA awards a project. However, according to GSA officials, GSA cannot communicate all of its available information to the public because of the large volume of information available on GSA projects. In addition, some information is procurement-sensitive and cannot be released to the public. In addition to information on Recovery.gov, GSA has published information on its Recovery Act program on its own Recovery Act Web site. This information includes the following: A Federal Buildings Fund Program Plan. This plan contains a summary of the objectives and activities that GSA’s Public Buildings Service plans to implement with the $5.55 billion in Recovery Act funds. The plan also includes information on the projects’ selection, delivery schedule, and performance measures. Additionally, the plan contains information on how GSA will address issues such as monitoring and evaluation, transparency, and accountability for its Recovery Act program. A Public Building Service Project Plan. This plan details how GSA will spend its $5.55 billion in Recovery Act funds; lists all the GSA building projects that will receive Recovery Act funds; and, for each project, includes the name, location (city and state), and estimated cost of the project. A Federal Buildings Fund Investments Map. This interactive map shows where GSA is spending its Recovery Act funds and provides information on spending to date, measured in obligations and outlays, for individual projects or states. According to GSA officials, they have received positive comments about GSA’s role in helping to revive the construction sector in numerous communities. GSA has also received negative comments about the pace of its spending. According to GSA officials, the pace of spending lags behind the amount of work and number of jobs that GSA projects are generating because GSA pays for work on a reimbursable basis after the work has been completed. As a result, work can be ongoing at a GSA project, even though GSA has not spent any money on the project. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. GRUZEN SAMTON ARCHITECTS PLANNERS & INTERIOR DESIGNERS LLP This contract is a for A/E services for the design of a federal employee parking garage and a master plan for the San Juan, PR FBI Field Office Consolidation project. The project as a whole will result in the design and construction of a new approx. 240,000 GSF Federal Building, on existing government property (a 27 acre site) for the Hato Rey area, San Juan FBI field offices. Design and construction of the FBI facility wil be procured under a separate contract. Delivered Final Master Plan and Final Concept Design for the Garage. (Information not reported) SAN JUAN, PR 00918-1700 More than 50% Completed GS-02P-06-DTD-0054 WESTLAKE, REED, LESKOSKY, LTD. The objective of this work order is to achieve the re-commissioning and retro-commissioning goals set forth in the ARRA for the Howard M. Metzenbaum USCH by creating bid and construction documents that describe all construction phase project work required by the NRPC identified projects and support the NRPC with project identification and definition. The design shall consist of but is not limited to the following: Mechanical Systems Upgrade/Replacement: Chillers, cooling towers, air conditioning units, boilers, hot water converters, steam pressure reducing stations, condensate return systems, primary and secondary pumping systems, domestic hot water heaters, heat exchangers, air handling units, terminal or variable air volume (VAV) boxes, heat recovery units, motors, steam traps, dampers, pumps and air ducts. Energy conservation and renewable energy projects ? Water Quarterly Activities/Project Description: During the final Quarter of 2009, WRL held an on-site kick off meeting with the GSA Project Manager, at the Metzenbaum Federal Courthouse. Field investigation was performed, and base drawings of the building were developed. WRL participated in reviews of the Commissioning agent?s reports prior to producing documents based on their Recommisioning recommendations. WRL produced 30% and 75% Documents which were used to solicit proposals from a Construction Manager. WRL participated in pre-proposal conferences with GSA and the potential Offerors for the role of Construction Manager. (Information not reported) Less Than 50% Completed PDG, INC. Wind Tunnel Testing Structural Study for the Micky Leland FOB (TX0298ZZ located at 1919 Smith Street, Houston, TX 77002). Provide engineering testing and analysis services for the site, as well as, to determine building cladding design loads. Attended meeting with Leland FOB building manager and COTR to verify existing conditions & establish working schedule. Reviewed existing architectural and engineering plans & technical reports. Verify Bldg. site climatology & develop wind speeds. Perform wind tunnel testing for the FOB that simulates the natural wind environment for the building site. Document all findings, conclusions & recommendations into a report. MESSER CONSTRUCTION CO. The Project Award includes $35,500,000 for Construction Phase Services for the GS-05P-08- GBC-0005 Fire/Life Safety and HVAC Modernization for the Minton Capehart Federal Building in Indianapolis, IN. It also includes Estimated Additional Scope Items of $4,304,513; and GSA Contingency of $2,805,739.21; M&I Services of $500,000. The base project scope (Fire/Life Safety and HVAC Modernization) includes replacement of: air handlers, fiberglass branch distribution ductwork, stair pressurization fans, temperature controls, fire alarm system, fire pump and jockey pump, fire protection system, ceilings and lighting. Electrical systems and emergency generator system are to also be upgraded as necessary to support the project scope of work. The project scope should also include LEED Silver certification. We are working to complete preconstruction services funded prior to the ARRA funding. Preconstruction services are proceeding as scheduled. We anticipate major subcontract awards to take place in first quarter of Calendar Year 2010. We are also working on M&I services, including forensic testing to verify condition of building piping systems prior to completion of design. Commercial and Institutional Building Construction Less Than 50% Completed GS-05P-08-GBC-0005 HEERY INTERNATIONAL, INC. Provide engineering and commissioning expertise to conduct recommissioning / retro- commissioning planning, identify energy conservation measures, scoping, testing, investigation, evaluation, analysis, calculations, recommendations, and report writing services for the following GSA federal buildings: (1) TX, Houston, Bob Casey US Courthouse, (2) TX, Houston, Alliance Tower, (3) TX, Houston, LaBranch Federal Building, (4) TX, Corpus Christi, US Courthouse and (5) TX, Victoria, ML King, Jr. Federal Building. Responsed to government's comments on the Draft Report (submitted last quarter) and completed Final report for submission by end of the year. (Information not reported) FORT WORTH, TX 76102-6105 More than 50% Completed GOSHOW ARCHITECTS, L.L.P. A/E Services for Bridging Documents for the high-performance, green, building modernization and other alteration work Clement Ruiz Nazario Courthouse and Federico Degetau Federal Office Building in Hato Rey, Puerto Rico. Review and evaluate site conditions, existing studies, surveys, analyses and reports, and identify additional services and tests that are required to fully document the project. Included in this phase were Courthouse/FOB Tours; Systems Upgrade Analysis; Fire Protection/Life Safety Analysis; Enviromental Hazards report; Conveyance System Study, Structural Analysis Study; Accessibility Study; Thermographic Imaging Study; Energy Model and Existing Building Analysis. Hato Rey, PR 00918-0000 More than 50% Completed Purpose is to investigate and provide recommendations for optimizing building performance through identifying energy improvements and demand reduction strategies. A feasibility study is being generated to include the following information: 1) The integration of geothermal heat pumps in the facility to offset the cost of cooling and heating the building. 2) Determine the feasibility of installing PV panels on the roof. 3) Provide suggestions for the most methods of retrofitting the roof to accept PV panels where existing roof can not supoort PV panel installation. 4) Provide conceptual renderings and drawings depicting vehicle canopies and covered walkways that use PV panels as protection from weather. 5) Provide any other suggestions for reducing the electrical load of the building. 6) Provide a fully developed Lifecycle costing, pay back period, and energy savings. The Architect/Engineer are to develop a Design-Build scope of work to implement the findings of the Retro-Commissioning Study that can be executed within the available funding. The Architects and Engineers took the findings from the Retro-Commissioning Study and began preparing a Design-Build scope of work specification report. A draft copy of the report was submitted to the agency for review and comments. More than 50% Completed GS-03P-03-CDD-0028 HEERY INTERNATIONAL, INC. Initial scope is for pre-design services for the design and construction of new office space for the Army Corp of Engineers on the Federal Center South campus in Seattle, WA. Design and construction will be procured under a design-build procurement methodology using a two- step best value competitive award. The deliverables include an update Program of Requirements, a design-build performance specification, a comprehensive bidding procurement document. The design-build contractor is expected to be under contract in early March 2010. Developed and refined concept estimate for the DB scope of work.Completed Owner Project Requirements (OPR) document. Completed development of the DB competition bid document. Participated in DB Q&A meetings with GSA and USACE. (Information not reported) More than 50% Completed JACOBS FACILITIES INC. Construction Management Services for Judges' Swing Space at Samuel M. Gibbons Federal Courthouse The purpose of this scope of work is to provide GSA guidance and direction as the Construction Manager as Advisor (CMa) Contractor who will be the government's on-site manager responsible for the successful renovation of Space Alterations at the Samuel M. Gibbons Federal CourthouseThe goal of the project is to construct the project on schedule and within budget while addressing minimum criteria for integrated design, energy and water usage, indoor environmental quality and materials usage.Major deliverables include Cost Estimating, Communications Plan, Detailed Project Schedule Development and Maintenance, Project Progress Meetings and Presentations, Meeting Minutes and Correspondence, General Progress Reports, Record Keeping, Construction Submittal and RFI Processing, Project Photography, Inspections and Testing Reports, Punch-List and Final Inspection, and Closeout Documentation. Interior buildout wall framing completed, wall rough-in of electrical completed, walls insulated and drywall has been installed and finished complete. Overhead electrical rough-in nearly complete and HVAC rough is nearly complete. All walls are painted and ceiling grid installation started.Project is ahead of schedule and going well. Commercial and Institutional Building Construction (Information not reported) More than 50% Completed The restoration project will replace the waterproofing membrane and increase the insulation of the plaza, replace the lighting systems in the below grade Post Office workroom levels with more energy efficient lighting, repair damages caused by water leaks and upgrade sidewalk access ramps to meet current ADA requirements. Further, the granite pavers will be cleaned, restored and reset at the Federal Plaza. The mnain goals are as follows: ?? Replace the waterproofing system. ?? Increase insulation of the Plaza. ?? Replace the lighting and/or lighting controls in the below grade Post Office workroom levels with more energy efficient lighting. ?? Repair structural damage. ?? Repair damages to interior structural elements and finishes caused by water leaks. ?? Ensure ease and efficiency of long term operation and cost effective maintenance. ?? Complete the design and construction per GSA P-100. ?? Develop 3D Building Information Model (BIM) for the Post Office space and Plaza. ?? Complete a project that satisfies the requirements of the existing building tenants and GSA. ?? Maintain the visual integrity and historic nature of the Plaza and all its elements after the project is complete. ?? Complete the design and construction within established schedules. ?? Complete the project within the budget by maintaining fiscal responsibility, communicating that responsibility to all parties involved, and by constantly updating and tracking project cost estimates. ?? Develop a high performance green complex. ?? Adhere to all elements and guiding principles of the LEED program where practical. ?? Per the Energy Policy Act of 2005, GSA’s targeted maximum annual energy consumption level for this project is 87,571 BTU's per gross square foot. ?? Promote and demand excellence in design and construction to produce a final project/building that reflects the dignity and significance of the United States Government. Pre-Construction Phase Services: 1) Review of the Architects design 2) Review of the Architects schedule. 3) Conduct a design review charette 4) Conduct bi-weekly meetings for the project team and maintain meeting minutes/ project directory and the distribution list. 5) Track Progress via monthly report. 230 South Dearborn Less Than 50% Completed Owner's Construction Representative services for the Modernization of the 10W. Jackson, 18 W. Jackson, and 230 S. State Street Project, located in Chicago, IL. The contract award is for the Base Services-Design/Pre-Construction Phase, Construction Year One of Option 1, and Options 2 and 3: Cost Estimating and Project Scheduling. The purpose of this project is to modernize and renovate the three buildings to create a safe and functional environement for the federal government and the public that will use the building. Owner's Construction Representative, project Kick-Off, run and organize weekly meetings, meeting minute documentation, review of existing and new documents, review drawings, site visits, project organization, tenant meetings attendnace, notes, review of plans, peer reviews, HVAC report review, schedule review, design review, final concept design review, scheduling, GMP cost estimating reconciliation, conduct value engineering work shops. (Information not reported) Less Than 50% Completed GS-05P-08-GBD-0023 The award is for Architectural/Engineering Briding Design services including, but not limited to, Pre-Design Services, Design Concepts, Briding Design-Build Services, and Contract Close our Services for th eBan Buren Land Port of Entry. The project is a new Land Port of Entry (LPOE) for the town of Van Buren, Maine, located on the St. John River approximately 320 miles north of Portland, 40 miles north of Presque Isle, and 25 miles southeast of Madawaska. The existing Border Station was damaged when the St. John River flooded in late April and early May of 2008. Rather than merely repair the undersized and outdated 40- year old facility, the GSA and the Department of Homeland Security’s Customs and Border Protection (CBP) felt that this would be an excellent opportunity to build a new port that would meet CBP’s needs for the future. This new port will be a gateway to our country and will replace a flood-damaged and obsolete border facility with a state-of-the-art commercial port of entry. It should make a distinct architectural statement that is responsive to the local community, the efficient movement of trade and commerce, the security requirements of law enforcement agencies, and the welcoming of visitors and citizens to the United States of America. Design Concepts services, including: space planning, space efficiency reporting, model building, systems life cycle assessments, design, review, and presentation of three conceptual project alternatives, cost estimating. 2400 Rand Tower, 527 Marquette Avenue Less Than 50% Completed CH2M HILL, INC. The Denver Federal center has antiquated utilities in need of repair or rehabilitation. CH2M HILL has been working with the GSA over the past three years to design a new water distribution system to replace the antiquated one, design rehabilitation and replacement of the sewer system that has been in place since the 1940's, and upgrades to the existing stormwater and electrical systems. The ARRA funding allowed this much needed project to be constructed and also allows for further design and construction to improve the Gulch that runs through the DFC to provide channel stabilization, replace the main electrical conductors, repair parking lots and provide a sewer upgrade. Provided engineering construction services for the construction of Phases I through III of the Utilities Infrastructure Project at the Denver Federal Center. Completed 30% design of Phase IV and began 60% design of Phase IV. (Information not reported) Less Than 50% Completed JACOBS FACILITIES INC. The New Custom House in Denver, CO, is an 8-story office building containing 172,502 usable square feet with 47 outdoor parking spaces on a 2.4 acre site. This 8-story stone building was constructed in 1931 and has 5 floors above grade plus a basement, sub- basement, and a partial floor below the sub-basement. In 1979, the building as listed on the National Register of Historic Places and is now designated as a level 2 historic asset. The building is primarily used as office space, the building also contains a child care center, as food service area, and provides space for US Bankruptcy court proceedings. Tenants include: the Small Business Administration, the US Bankruptcy Courts, the Military Entrance Processing Station, Department of the Army, Department of Justice, Department of Labor, Department of the Treasury, the Railroad Retirement Board, and the Department of Homeland Security.The proposed capital project will protect this 78-year old historic asset and improve the energy efficiency by upgrading air handling units, updating/replacing . Induction units and condensate piping, updating lighting and controls, updating mechanical controls, air intakes, installing isolation valves, updating/replacing domestic and mechanical plumbing, replacing ceilings and flooring, site work and new dock, updating restrooms, upgrading life safety system, and updating interior and exterior finishes. The project will also include replacement of all the windows with blast resistant construction. The amount of swing space is estimated at approximately 10,000 square feet. Construction is anticipated to begin in the summer of 2010 and the project duration is estimated at 24 - 30 months. The project is required to meet all American Recovery and Reinvestment Act (ARRA) regulations and applicable environmental and energy requirements.The contract scope of services includes Pre Design Phase Services to assist, review and provide technical support during the procurement process. Specifically, the Construction Manager will compile and/or develop the Design/Build criteria package and review offeror proposals for adequacy and completeness. After award, during the Design/Build design phase, services include review of the Design/Builders design submittals to confirm that the design meets the Solicitation for Offers, budget, and special requirements. The Construction Management team will also perform code compliance reviews; constructability reviews;conduct/participate in Value Engineering workshops; analyze Value Engineering proposals; prepare independent cost estimates, scheduling and design problem resolution. Project Construction Phase Services include monitoring/observation services and attending onsite construction coordination meetings that occur among the Government, General Contractor, and Architect. Pre-Design services have initiated with review and analysis of existing documentation. The first deliverable for the CM team is in progress. The deliverable is augmentation of the DB study, the DB specifications, the bid form, consultation on the technical proposal and DB SOW. Products from this analysis will be included in the DB RFP which will be issued to the shortlisted offerors in mid-December. Subcontracting and scheduling of geotech subconsultant is in progress. Commercial and Institutional Building Construction (Information not reported) Less Than 50% Completed This project is to study options and make recommendations for a photovoltaic system to be located at the terry Sanford Federal Building in Raleigh, NC. The complex consists of a courtroom tower and a large postal annex. The proposed PV system will be mounted on the roof of the annex, which is estimated to have 116,140 square feet of useable roof area. The project is initiated to use solar energy to generate power and reduce dependency on grid power. The overall goal of the project is to provide an alternative energy source that will provide supplemental power to the Terry Sanford Federal Building. The goal for this award is to provide a pre-project study and to develop a requirements package for construction. Project Management, Structural Engineering, Architecural Services, & Electrical Engineering Raleigh, NC 27601-1483 More than 50% Completed ENVIROSERVICES & TRAINING CENTERS LLC Ensure safe work conditions and prevent release of asbestos and lead during renovation activities at the Federal Building and US Post Office, 154 Waianuenue Ave, Hilo, Hawaii. Mobilized to the island of Hawaii. Provided oversight of asbestos related work for the 3rd Floor, rooms 302 to 305, including air monitoring and asbestos clearance testing. Asbestos clearance testing failed criteria and additional follow-up cleaning and testing is expected. Performed sampling and analysis of soil and thermal system insulation debris on bare soil to determine asbestos content. Debris contained regulated levels of asbestos. Soil in 2 of 4 sections contained detectable levels of asbestos less than 1 percent which is considered contaminated by Hawaii Dept of Health. Will provide design specifications for asbestos abatement if required. Further oversight activites are expected for lead related work and in different areas of the site. Mobilized to the island of Hawaii. Provided oversight of asbestos and lead related work for the 3rd Floor, rooms 302 to 305, including air monitoring and asbestos clearance testing. Asbestos clearance testing failed criteria and additional follow-up cleaning and testing is expected. Performed sampling and analysis of soil and thermal system insulation debris on bare soil to determine asbestos content. Debris contained regulated levels of asbestos. Soil in 2 of 4 sections contained detectable levels of asbestos less than 1 percent which is considered contaminated by Hawaii Dept of Health. (Information not reported) Less Than 50% Completed GS10F0173U KEY ENGINEERING GROUP, LTD. Overall purpose of this study was to comply with the National Environmental Policy Act (NEPA). NEPA study for the Chicago Federal Plaza restoration project. Project deliverables included preparation of an agenda (complete), meeting minutes and action items (complete), roster of team members (complete), Class I Cultural Resource Review - Section 106 Compliance (complete), preparation of a draft documented Categorical Exclusion (CATEX) checklist (complete), final checklist (complete). Significant services performed included agenda (complete), meeting minutes and action items (complete), roster of team members (complete), Class I Cultural Resource Review - Section 106 Compliance (complete), preparation of a draft documented Categorical Exclusion (CATEX) checklist (complete), final checklist (complete). In accordance with the scope of work, this project has been invoiced to 90% of completion. The remaining 10% will be invoiced after GSA public notice is completed. CHICAGO HEIGHTS, IL 60411-1001 More than 50% Completed CORNERSTONE ARCHITECTURAL GROUP, PS Provide a study to determine the condition of the Federal Center South Building's roof structural system and address potential roofing material alternatives while meeting the ARRA requirements, initial capital, sustainability, life cycle costs, good stewardship, historic preservation and performance. A cool roof, a vegetative roof, a building integrated photovoltaic or photovoltaic ballasted roof were to be considered and a recommendation provided. The study will be used to provide guidance for a future roofing construction project. The entire work under this award was completed in this quarter. Site visits, inspections, meetings, draft reports, reviews and the final report was submitted and approved. 6161 NE 175th Street JACOBS TECHNOLOGY INC. Data collection services to determine the feasibility of Project Labor Agreements in two areas and the risk associated with each (San Francisco, CA and Honolulu, HI). The report will look at the utilization of Project Labor Agreements in high union density states (such as California and Hawaii) and will determine if large-scale construction projects to be built in predominantly unionized areas would benefit from the use of a Project Labor Agreement. The report will look at the utilization of Project Labor Agreements in high union density states (such as California and Hawaii) and will determine if large-scale construction projects to be built in predominantly unionized areas would benefit from the use of a Project Labor Agreement. Research and study continued for Honolulu and San Francisco. Contract modification forthcoming to perform similar Project Labor Agreement studies on additional cities. (Information not reported) Less Than 50% Completed GS03P09DXA0025 HEERY INTERNATIONAL, INC. Heery International is providing Construction Manager as Agent (CMa) services for the San Juan FBI Consolidation Project for the Master Plan & Garage Design. The services include; attending design meetings and preparing agendas and minutes. Heery is also providing design reviews and estimates at each phase of the design. All of these services are being performed to provide quality assurance and project management oversight. Also, include in the scope of services are the design phase commissioning services required to obtain LEED Silver Certification. The expected outcome of these services is to provide a project that is completed on time, within budget, and in accordance with the contract requirements. October - Attended the kick-off meeting and prepared the 35% DD Estimate and performed the 35% DD Design Review. November - Attended periodic design meetings and prepared the 50% CD Estimate and performed the 50% CD Design Review. December - Attended periodic design meetings and prepared the 95% CD Estimate and performed the 95% CD Design Review. (Information not reported) San Juan, PR 00918-1700 Less Than 50% Completed JACOBS TECHNOLOGY INC. CM services for Clemente Ruiz Nazario Courthouse and Federico Degetau Federal Office Building The project is a High Performance Green Building Modernization. The scope of the work for the building includes the following: Redesign and replacement of HVAC system; upgrade of electrical panels and distribution system; implementation of energy conservation program; installation of photovoltaic panels; improve interior finishes; renovation of restrooms; compliance to ADA requirements; upgrade of fire protection and life safety system and partial site improvement. This quarter 100% Bridging documents were submitted by the Architect and have been reviewed and construction cost estimates prepared by Jacobs for reconciliation prior to bid. The initial phase of a two phase solicitation for a design build contractor has been completed. Jacobs was issued a modification on Dec 28, 2009 to provide design phase services in connection with the buildout of a new courtroom and ancillary space in the Jose Toledo Courthouse, Old San Juan,PR to be used as swing space during the modernization project in Hato Rey. (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our assessment: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. STL ARCHITECTS, INC. Study to investigate three existing 300 ton chillers with one that will be more fuel efficient. Preparation and presentation of a Pre-Design Report determining methods of altering existing chiller systems in order to increase energy efficiency. (Information not reported) $17,821.76 Information GAO gathered to improve the description The study of energy-efficient chiller options is part of a planning and designing effort for the recommissioning and retro-commissioning of the existing Metcalfe Federal Building in order to improve the energy efficiency and minimize the environmental impact of the existing building. The study will lead to preparation and presentation of a pre-design report highlighting areas of the subject property that may be altered or added to in order to increase energy efficiency. This particular report will focus on the chiller system. A/E Desgin Services for Land Port of Entry at Columbus, New Mexico Corpus Christi, TX 78401-3025 Less Than 50% Completed Information GAO gathered to improve the description The award was originally for expansion of the facility in its current location, but recent flooding along the border requires relocation of the facility away from the flood zone. This award will allow completion of design to incorporate flood protection and compliance with new statutory energy requirements. The facility will replace the existing, functionally obsolete facility with a new, energy-efficient facility that will meet the Customs and Border Protection (CBP) mission requirements. PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. Construction Management (CM) Services for the Mondernization & Expansion of the Otay Mesa Land Port of Enty (LPOE) in San Diego California. This Delivery Order covers services A-B as indicated in the contractor's proposal date 7/17/2009. Parsons has not yet received a Notice to Proceed from the Government concerning this Task Order. Commercial and Institutional Building Construction Contracts Otay Mesa Land Port of Entry San Diego, CA 92101-2058 Information GAO gathered to improve the description The award provides the funding required to complete the design, provide construction management and inspection services, and acquire the site necessary to expand the port. The port is a multi-modal (commercial, non-commercial, and pedestrian) port of entry and is one of the 10 busiest land ports in the country. The current facility is obsolete, inefficient, and causes severe traffic congestion. The proposed project will reconfigure and expand the existing port through the purchase of adjacent properties to meet Customs and Border Protection's (CBP) mission needs while meeting General Services Administration's (GSA) energy reduction and green building requirements. Cotter Federal Building Located at 135 High Street Hartford CT, Roofing And PV Project: Will consist of a Intergraded PV & TPO Roofing system: TPO will be a fully adhered Cool Roof with the Photo Voltaic panels intergraded in the field sheet. The TPO roof will be heat welded using robotic field sheet welders and Lyister- Triack hand-held welders for detail and penetration welds. All electrical components will also be intergraded into the TPO roofing system and insulation. The project includes ongoing monitoring and support.. Asphalt Shingle and Coating Materials Manufacturing Information GAO gathered to improve the description The award modernizes the Cotter Federal Building and makes it more energy efficient by improving roofing and adding photovoltaic (PV) panels. The scope of work is focused on building systems affecting energy use and indoor environment, including shell infiltration and heat loss for the Moakley Federal Courthouse loacted in Boston, MA. Site Survey; System Review; Design Review; Energy Modeling; Functional Performance Tests, energy conservation measures, life cycle cost calculations, construction estimates. 153 Milk Street, Suite 200 Information GAO gathered to improve the description The award will result in a study that includes information on energy conservation measures. The Thurgood Marshall Courthouse infrastructure upgrade. During the period of October 1, 2009 thru December 31, 2009 Cauldwell Wingate has continued to work on the shop drawing and coordination of the MEPS Systems through out the project. In addition to this we have fabricated and installed the ductwork, sprinkler piping and electrical distribution on 7 tower floors and 2 base floors. The Main Electrical Distribution Switchboards have been fabricated and set in place with the installation of the conduit and wire throughout the electrical closets. The Basement underground plumbing was installed in the parking garage was completed. Commercial and Institutional Building Construction NEW YORK, NY 10007-1502 $64,000,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award upgrades the infrastructure and addresses life safety and accessibility issues of the building and will extend the useful life of the building. The award includes coordination of mechanical, electrical, and plumbing (MEP) systems throughout the project. JACOBS ENGINEERING GROUP INC. Provide Pre-Design and Design Review Servicesfor the building system modifications to meet NARA 2009 requirements for the VA file storage space located in Building 104 of Goodfellow Federal Complex. ARRA VA AT BLDG. 104, 4300 GOODFELLOW, ST. LOUIS, MO No project activities from Jacobs, waiting on design. (Information not reported) St. Louis, MO 63120-1703 Less Than 50% Completed Information GAO gathered to improve the description The award provides pre-design and design services for the building system modifications to meet National Archives and Records Administration (NARA) 2009 requirements for the VA file storage space. The VA file storage space does not currently have any HVAC or humidification, which is a requirement from the NARA 2009 standards for file storage. These activities will include new high efficiency chillers, new high efficiency chilled water, condenser water and hot water pumps, new high efficiency cooling tower(s), new high efficiency air-handling units and distribution ductwork, chilled and heating hot water pipe, and a humidification system for approximately 130,000 square feet of file storage. Construction management services for the design phase include, but are not limited to the following: (1) Attend the 35 percent, 65 percent, and 95 percent design review meetings; (2) Review drawings and specifications at 35 percent, 65 percent, and 95 percent; (3) Attend design kick-off meeting; (4) Attend three additional design development meetings; and (5) Evaluate construction cost estimate and attend three reconciliation meetings. PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. Prepare an Environmental Impact Statment to determine whether the proposed action warrant a finding of no significant impact or the preparation of the record of decision to improve, through modernization and new construction, the functionality, operational capacity and security of the Otay Mesa (OTM) Land Port of Entry (LPOE). Conducted project kick-off meetings and site inspections, provided Environmental Impact Statement (EIS) notice of intent (NOI),provided draft and final versions of public scoping EIS fact sheet,provided draft and final versions of public scoping meeting display and project information posters, conducted public scoping meeting, provided draft and final versions of scoping report, completed a Phase I environmental site assessment (ESA) of the LPOE and submitted both draft and final versions of the Phase I, completed internal draft threatened and dangered species biological assessment(BA) for the LPOE site and surrounding area, completed cultural resources evaluation for the LPOE site and surrounding area and submitted draft and final versions of the cultural resources report, with the final version submitted, provided draft endangered and threatened species consultation letters to GSA for submittal to US Fish and Wildlife Service and California Department of Fish and Game. Otay Mesa Land Port of Entry San Diego, CA 92101-4433 Less Than 50% Completed Information GAO gathered to improve the description The Environmental Impact Statement prepared from this award will allow the agency to determine if the proposed action would significantly affect the environment. GARLAND COMPANY INC, THE Remove and replace approximately 4,950 square feet of bituminous built-up roofing, add new insulation to create an R-50 insulation value when complete, and install architectural metal at all parapet and coping locations. The project shall include all low slope or flat levels of the roof Since the project has not started, Since the last report, manufacturing had manufactured and shipped roofing materials to the site. Contracts (Information not reported) FERGUS FALLS, MN 56537-2576 Less Than 50% Completed Information GAO gathered to improve the description The award replaces the roof of the United States Postal Service Building and Courthouse located at 118 S. Mill Street in Fergus Falls, Minnesota. Replacing the roof will reduce the repair and alteration liability of the building and help reduce energy consumption. SMITHGROUP, INC. Window replacement - FaÁade Thermal Performance Improvement for the John F kenedy Federal Building in Boston, Massachusetts. The work to be performed under the Contract includes updating the existing window and curtain wall replacement documents for code compliance and energy efficiency. Typical window design was revised as an additional bidding option. The revised design is to be installed from the exterior as opposed to the interior. Additional bidding options were added for sealant joint replacement and concrete repair. 500 Griswold Street, Suite 1700 More than 50% Completed Information GAO gathered to improve the description The award supports design services for window and curtain wall replacement for the entire John F. Kennedy Federal Building in Boston, Massachusetts. HOF CONSTRUCTION, INC. The Robert A. Young Building is a high rise historic brick strucutre approximately 1 million square foot in size, housing 3000 tenants. The existing cafeteria kitchen, dish room, servery, and dining area have become outdated, and much of the equipment is aging with high energy consumption. This work is being performed under the 'Building Tune-up, Lighting Replacement, Building HVAC Systems and Energy Saving' categories as defined in the ARRA descriptions of High Performance Building Improvements. This field is not applicable yet since we haven't started work yet and no funds have been received. Commercial and Institutional Building Construction 1222 Spruce St. St. Louis, MO 63102 SAINT LOUIS, MO 63103-2818 Less Than 50% Completed Information GAO gathered to improve the description The award supports construction to upgrade the cafeteria at the Robert A. Young Federal Building. The nature of the activities is renovations to the cafeteria, including coordination and phasing to minimize disruptions to cafeteria service, building operations, and tenants. The activities under this award include construction of a new dish room with an accumulating conveyor; reconfiguring the servery with new food service equipment and all associated rough-ins; renovating the servery with new finishes on the walls, floors, and ceilings with down lighting and accent lighting; replacing the existing equipment and hoods in the kitchen with higher efficiency equipment; constructing two conference rooms at the north end in the dining room; and installing new pendant lighting, diffusers, and finishes throughout the dining room, including ceiling, wall and floor finishes. Billings, MT Federal Courthouse: ALTA/ACSM survey with boundary amendments; Amended Subdivision Plats; topographic survey; exhibit preparation 4th Quarter: topographic survey Other Activities Related to Real Estate 26th Street West More than 50% Completed Information GAO gathered to improve the description The award funds an American Land Title Association (ALTA) survey of property to be acquired in Billings, Montana for the construction of a new Federal courthouse. In addition to the ALTA survey, additional site survey work includes adjacent parking lots, land, and streets, and a topographic and power pole survey. This work is intended to survey the property and provide data for the next steps in the construction of the courthouse. STANGER INDUSTRIES INC. This award was for the ARRA-Wichita Air Handler Replacement - U.S. Courthouse - replacement of air handling units in the Wichita Courthouse.Install new high-efficiency hot water boilers, new off-hours chiller, VAV's and direct digital control upgrades. * Air handling unit replacement; * Variable frequency drive installation; * New hot water piping and mechancial insulation; * New Sheet Metal,distribution ductwork and grilles; * Accoustical ceilling removal/replacement; * Building Automation Upgrades. * Removal and replacement of three (3) air handling units; * Misc. Electrical power for the air handling units; * Minor lighting modifications; * General project clean-up; * Building Automation Engineering; * Pre- Construction Services and drawing coordination; * Value Engineering; * Quality Control; & Solicit Sub-Contracting pricing. Commercial and Institutional Building Construction Less Than 50% Completed Information GAO gathered to improve the description The award will result in decreased energy consumption and operational costs. CONSTRUCTORS HAWAII INC. Repair, alteration, and seismic upgrade to the Federal Building and U.S. Post Office at 154 Waianuenue Avenue, Hilo, Hawaii. The work includes asbestos removal work, installation of new concrete shear walls in the two wings, reconstruction of architectural concrete elements, renovations of existing toilet rooms, custom doors, windows and millwork, installation of fire sprinkler and other fire protection systems, plumbing, new electrical systems, natural stone, quarry tile, ceramic tile, and other finishes. First Quarter: Furnished payment and performance bond, mobilized on site, started erecting temporary barriers, started demolition work. Second Quarter: Constructed new concrete shear wall at West Wing from basement thru the third floor, new stairs at loading dock, new stairs and curbs at courtyard, new ramp at basement. Work is ongoing at the West Wing first floor restroom and the finishes in the West Wing first, second, and third floors. Commercial and Institutional Building Construction Less Than 50% Completed Information GAO gathered to improve the description The activities funded by the award will modernize the buildings and are part of General Services Administration's (GSA) overall effort to improve federal buildings. Install VFD on Chiller # 3 at the Federal Bldg Install new VFD or the chiller for energy efficiency Commercial and Institutional Building Construction (Information not reported) LOS ANGELES, CA 90024-3602 $72,807.65 Information GAO gathered to improve the description The award funds the installation of a variable frequency driver for a chiller at the Federal Building in Los Angeles, California. JACOBS TECHNOLOGY INC. Requirements and Estimating Sevices for facilities in GSA Region 10 Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects. This is to include high performance Green buildings. The intent is to gather project data and performancerequirmentstoprepareperformance based Statement of Objectives. Deliverables include budget estimating, initial schedule development and solicitation phase services. Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects. This is to include high performance Green buildings. The intent is to gather project data and performancerequirmentstoprepareperformance based Statement of Objectives. Deliverables include budget estimating, initial schedule development and solicitation phase services. Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects - completed 3 of 4 locations. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award provides plans for energy-efficient buildings at several sites in General Services Adminstration (GSA) Region 10, including the GSA Region 10 headquarters in Auburn, Washington; the federal Building in Baker City, Oregon; a historical building project in Spokane, Washington; and the federal building in Anchorage, Alaska. This contractor’s place of performance will be at the Jacobs office in Bellevue, Washington. URS GROUP, INC. TAS::47 4543::TAS - RECOVERY - CONSTRUCTION MANAGEMENT SERVICES IN SUPPORT OF JACKSON FEDERAL BUILDING MODERNIZATION PROJECT. SERVICES INCLUDE PRE-DESIGN AND DESIGN PHASE. Construction Management Assist services for the Jackson Federal Building Modernization Project from inception through June 20, 2011 (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The construction management services provided by this award are in support of an effort that will improve the building shell and repair or replace the building’s HVAC/electrical systems. The modernization of the building will result in the facility being an economically and operationally efficient high-performance green building. The services also include additional energy conservation measures in support of LEED Existing Building designation. BOVIS LEND LEASE LMB, INC. Moderization and facade reclad of Peter W. Rodino Federal Building in Newark, NJ 100% Bridging design and Final Report Commercial and Institutional Building Construction $542,023.00 More than 50% Completed Information GAO gathered to improve the description The award is part of a larger modernization project of the building consisting of exterior cladding for the entire building, upgrading fire egress for entire building, asbestos abatement and build out of 6 floors, upgrading HVAC for 9 floors, replacing 32 AHU’s, and a new cafeteria. This award includes repair/replacement of the HVAC system, domestic water distribution system, fire protection system, lighting and electrical systems, interior restoration, infrastructure work, exterior façade repairs, and hazardous materials remediation. Telephone, data networks, and security systems will also be upgraded and the restrooms will be modernized in compliance with Americans with Disabilities Act (ADA) and Uniform Federal Accessibility Standards (UFAS) regulations. The modernization will improve the building’s façade, which, due to the age of the building, is showing signs of significant deterioration, and replace or modernize various aging original systems. NICHOLSON & GALLOWAY, INC Façade Repair and Slate Roof Replacement at the U.S. Post Office and Courthouse located at 271 Cadman Plaza East, Brooklyn, NY 11201 Continuation of Security Clearance with the Department of Homeland Security / Mobilization of Job Site / Installation of Pipe Scaffold / Installation of Sidewalk Bridge / Temporary Electric Installed Commercial and Institutional Building Construction 271 Cadman Plaza, East Less Than 50% Completed Information GAO gathered to improve the description The award updates the original structure built in 1892 and the expansion built in 1933, including replacement of nearly all of the existing deteriorated terra cotta cladding; retention, repair, restoration, re-pointing, and cleaning of existing terra cotta and granite cladding on the facades of both structures; replacement of the entire slate roofing system on both structures, to match the appearance and character of the existing slate roof; installation of an access and fall protection/prevention system in compliance with all applicable Occupational Safety and Health Administration (OSHA) regulations at the slate mansard roof on both structures to facilitate periodic maintenance of perimeter gutters and drains; and hazardous materials investigation and abatement associated with the above work items. These activities will correct the deficiencies in the exterior envelope of the building and preclude further façade deterioration and damage to the structure and the recently renovated historic interior. NORTHERN MANAGEMENT SERVICES, INC. Northern Management Services Inc shall supply and install four cartons of polardam form in the Data Center. Based on the revised scope of work, Northern Management has received a credit for not using the special order brushed grommets. Thus adjusting the original project from $20,383.00 to $16,228.00. Sub contractor has completed approximately 100% of the work. The Airflow panels have been relocated, the installation of the 126lf of Plenum Divider is finished and the floor work has been completed. None of the completed work has been invoiced in this quarter. GSA requirement of payment after 100% completion with inspection of work and release for payment documented. Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The award provides repair work at the data center of the Bureau of Alcohol, Tobacco and Firearms (ATF) facility in Martinsburg, West Virginia. The air flow handlers in the data center--which houses many computers--were not distributing air properly. The handlers were moved to the racks at the front of the room and now work properly. The contract was reduced from $20,383 to $16,000 because they did not need to use special order grommets that were originally thought needed for installation. The award will result in air flow handlers that cool the data center to appropriate temperatures needed for computer functionality. NORTHERN MANAGEMENT SERVICES, INC. Perform testing of the EMS systems at the Giaimo building in New Haven, CT and the McMahon CH/FB in Bridgeport, CT, in support of the energy audits at these locations. The Subcontractor had been contracted and the EMS systems testings have been completed at both buildings as per the notice to proceed by General Services Administration. Northern Management Services' Project Manager and Chief Engineer oversaw the work by the Subcontractor was completed in a timely manner. This project is 100% completed.The General Services Administration has been billed in the amount of $6,437.52. Contracts Information GAO gathered to improve the description The award supports testing of the energy management systems (EMS) to improve energy efficiency. Wissahickon Building in Philadelphia, PA - PV Roof, CM Services Task#1-Design & Shop Drawings/Submittal Reviews/Meetings Commercial and Institutional Building Construction 1120 Connecticut Ave NW, Suite 310 More than 50% Completed Information GAO gathered to improve the description The award supports electrical inspection services for the roof replacement and photovoltaic (PV) array installation project at the Veteran's Affairs Center at 5000 Wissahickon Ave. in Philadelphia, Pennsylvania. The design and construction of a new modified built-up roofing system is intended to replace the existing roof, which is 10 years old and currently in poor condition, with some portions of the roof leaking. Additionally, the PV array will reduce the environmental impact of the building. SQUARE D COMPANY (INC) Energy retrofit of the ATF Facility in Martinsburg, WV. Provide and install two utility meters and all associated hardware. Provide associated monitoring services. No activity- project not started yet Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The award supports the installation of two utility meters in support of a larger effort to retrofit the Alcohol, Tobacco and Firearms (ATF) facility with a ground source heat pump system, a photovoltaic (PV) solar array and replacement of the building’s chillers and adjustments to the HVAC system in the building. The retrofit effort will provide heating and cooling and reduce the amount of energy consumed by the building. W. G. YATES & SONS CONSTRUCTION COMPANY The purpose of this award was to incorporate field changes and add VE option back into the scope work. The major options added back were the Blue fins, Pavers at the Rotunda and Granite steps at the entrance The work performed during this calendar quarter included reworking the sprinkler heads at holding cells, update walls and doors with the revised life safety drawings, revising the dimming board locations, adding blue fins on the performance mockup, changing the floor framing plan @ elevator 5, 6 & 11; adjustments to the steel framing in the field, relocating masonry walls for the Judges mantrap and elevator, relocation of the floodgate and pneumatic tube system, adding additional security conduit, revising the courtroom millwork and revising the locations of the Sally port sprinklers Commercial and Institutional Building Construction More than 50% Completed Information GAO gathered to improve the description The award allowed the contractor to incorporate value engineering (VE) into the construction of a new Federal Courthouse at 555 South President Street in Jackson, Mississippi. VE is an organized effort to analyze the functions of systems, equipment, facilities, services, and supplies to achieve essential functions at the lowest lifecycle cost, consistent with the required performance, reliability, quality, and safety. COMMUNITY SERVICES AGENCY OF THE METROPOLITAN WASHINGTON COUNCIL, AFL-CIO Pre-apprenticeship training job and placement services all staff hired, 6-week training completed for 20 individuals, job placement activities underway, recruitment for next adult and youth classes underway 888 16th Street NW, Suite 520 Less Than 50% Completed Information GAO gathered to improve the description This award provides pre-apprenticeship training and placement services to low-income area residents through September 2010. Graduates of the program will be placed at registered apprenticeship programs at construction sites to gain on-the-job experience and industry-recognized credentials. The award is expected to result in 150 individuals trained and placed in jobs by September 2010. PLATINUM ONE CONTRACTING, INC. Design and install roof replacements and improvements of the Wilke D Ferguson Federal Building. Design and install roof replacements and improvements of the Brickell Plaza Federal Office Building Mobilization : Design in process, submittals, bonding, insurance Wilkie D Ferguson Federal CH, Brickell Plaza Federal Office Building $1,377,500.00 Information GAO gathered to improve the description This award supports the evaluation and installation of new rooftops at both federal buildings. The evaluation phase of this project will test whether the current roof structures can sustain the weight associated with green roofs. After testing, the construction phase of the project will be subcontracted to local builders. The expected outcome is greater energy efficiency at both buildings. NATIONAL BUILDING CONTRACTORS, INC. ARRA-funded replacement of penthouse and stair enclosure roofs with vegetated roofs. The field survey of the roof replacement project has been completed, the asbestos testing has been performed, the 35% design submittal has been prepared and submitted, the project staging has been completed, and the demolition phase has begun. 401 West Peachtree St. Less Than 50% Completed Information GAO gathered to improve the description This award funds the design and installation of roof replacement and improvements at the Peachtree Summit Federal Office Building at 401 West Peachtree St. in Atlanta, Georgia. Architect-Engineer Services, Milwaukee, Wisconsin High Performance Green Building at the Federal Building & U.S. Courthouse 517 E. Wisconsin Avenue Less Than 50% Completed Information GAO gathered to improve the description The award provides architect-engineering design services in support of high performance green building work at the Milwaukee United States Courthouse and Federal Building in Milwaukee, Wisconsin. These services will create scopes of work for building system improvements based on the findings of a Recovery Act-funded retro-commissioning study and support the implementation of building features to increase energy efficiency. ALLIED BUILDING SERVICE COMPANY OF DETROIT, INC. Installing light sensors through out the building. Installing an A/C unit on the roof for Computer room Haven't started. NO Detais Yet Commercial and Institutional Building Construction 333 Mt. Elliot Avenue, Rosa Parks Federal Building Information GAO gathered to improve the description The award supports energy conservation activities at the Rosa Parks Federal Building in Detroit, Michigan. These activities include replacing water-cooled air conditioning unit with air-cooled air conditioning unit, replacing weather stripping at the front entrance, and installing occupancy lighting sensors throughout the facility. The award will result in reduced energy consumption. FREDERICK CONSTRUCTION, INC. Modernization Project at the Federal Building & US Courthouse. This project is in a Design Phase as a Construction Manager project. No subcontracts have been awarded as of 12-31- 09. Bids for subcontracted work will be reviewed and contracts awarded at a future date. No services have been performed in this quarter. Commercial and Institutional Building Construction ANN ARBOR, MI 48104-2129 Information GAO gathered to improve the description The award provides upgrades to the lighting and building automation systems at the Federal Building and U.S. Courthouse in Ann Arbor, Michigan. The upgrades to the HVAC and lighting controls will increase cost efficiency and energy conservation. FREDERICK CONSTRUCTION, INC. This project was awarded to conduct building automation system upgrades at the Theodore Levin US Courthouse. This project is in a Design Phase as a Construction Manager project. No subcontracts have been awarded as of 12-31-09. Bids for subcontracted work will be reviewed and contracts awarded at a future date. This project is in the final design phase and the pre-bid phase no work has been performed on site in this quarter. Commercial and Institutional Building Construction $801,980.18 Information GAO gathered to improve the description The award funds activities to modernize the building automation systems at the Theodore Levin Courthouse in Detroit, Michigan in order to make the building more energy efficient. SAINT LOUIS, MO 63103-2818 More than 50% Completed Information GAO gathered to improve the description The award funds design services for the renovation and upgrade of the cafeteria at the Robert A. Young Federal Building in St. Louis, Missouri. The work being done under this award includes: design services for the cafeteria project, completing necessary technical updates, revising the project numbers and titles on all drawings, revising the specifications to require Energy Star equipment (where available), and updating projected construction schedules. The larger renovation and upgrade project includes an upgrade to air handlers, exhaust hoods, replacement of existing water-cooled appliances, and replacing existing kitchen equipment with Energy Star or LEED certified equipment. GARLAND COMPANY INC, THE 1. Test for asbestos in or under roof (current roof may have been laid over an older roofing system). DUE: Two weeks after award of contract. 2. Specifications and schematic design for roof replacement. Documents must be sufficient to fully describe requirements for a design- build contractor, to include the design-build contractor’s requirements for design completion, but need not be stamped by a PE (although work must be by competent professional engineers as applicable). DUE: 30 calendar days after award of contract. 3. Recommendations for a PV system to be coordinated with roof replacement. DUE: two weeks after award of contract. 4. Upon GSA approval of recommended PV system, provide specifications and schematic design for the PV system. The schematic design should be flexible enough to permit competition among PV equipment manufacturers. The design must carefully avoid compromising historic aspects of the building, and must consider any other tenant impacts (e.g., glare reflected into windows). Documents must be sufficient to fully describe requirements for a design-build contractor, to include the design-build contractors requirements for design completion, but with the exception of the structural calculations need not be stamped by a PE (although work must be by competent professional engineers as applicable). DUE: Two weeks after GSA approval of PV system recommendations. 5. Provide structural calculations with the specifications and schematic design for the PV system. Structural calculations must be stamped by a PE. Since the project has not started, their have not been any significant service performed or supplies delivered. To date, project set-up service and security badging administration has been delivered. (Information not reported) Information GAO gathered to improve the description The award supports an engineering assessment and plans for roof replacement and photovoltaic (PV) system installation to be performed at the United States Courthouse in Pasadena, California. SAMUEL ENGINEERING, INC. Compile exisitng as-built drawings and site plans to display the ground areas being proposed for ground mounted PV panels. Also display the parking areas being proposed for ground mounted PV panels. Also display the parking areas of Buildings 25, 53, and 810 for the installation of carport PV s. Indicate existing electrical system on-lines at both the building 480V and/or 13.8 kV for PV tie-in. This information will be utilized to effectively portray the level of effort and existing conditions for a design-build contractor. Greenwood Village, CO 80111-2816 More than 50% Completed Information GAO gathered to improve the description The award supports the development of preliminary design build documents, including one-line diagrams, plan drawings, tie-in locations, and general design notes for potential new construction projects of photovoltaic (PV) panel systems at the Denver Federal Center in Lakewood, Colorado. The award recipient also developed cost estimates for electrical tie in at each proposed PV panel system location. The award will result in increased solar power capacity through new ground-mounted and carport PV panel systems. Parking lot lighting. Completed site survey and 90 percent of design $48,284.00 More than 50% Completed Information GAO gathered to improve the description The award provides a design draft for LED parking lot lighting installation at the Laguna Niguel Federal Building. The new lighting will provide energy-efficient lighting and reduce energy costs at the federal building. This is a Design Build Project which requires General Contractor to furnish and install two (2) new centrifugal chiller variable frequency drives at the Phillip Barton Federal Buiding and Court House located in San Francisco, California. No services have been performed as of yet, as the project has not started. We attended a pre-construction meeting on Thursday, January 14, 2009. We are now awaiting a Notice To Proceed Letter from GSA, as to when we will physically be able to start the Project. Electrical Contractors and Other Wiring Installation Contractors SAN FRANCISCO, CA 94102-3434 Information GAO gathered to improve the description The award supports activities to improve the energy efficiency of the Phillip Burton Federal Building and United States Courthouse. These activities include installing variable frequency drives, which control electronic motor speeds to modulate the power being delivered to a motor to reduce energy costs and equipment maintenance. Design and construction services as required for design build construction of a New US Federal Courthouse Selection of Winning was made and under contract Commercial and Institutional Building Construction Contracts (Information not reported) SAN JOSE, CA 95110-1347 Information GAO gathered to improve the description The award is part of a larger effort to construct a new U.S. federal courthouse in Bakersfield, California, which will meet the 10-year requirements of the courts and will satisfy federal energy standards. BPA Call is for Project Management services associated with GSA's Public Building Services. Building enevelope, including curtain wall, windows and roofing, Lighting-day lighting and energy efficient electric with sophisticated controls, HVAC energy retrofit and replacement, including boilers, chillers, cooling towers, piping, pumps and air distribution, building systems controls, including HVAC and lighting and acoustics, renewable energy generation, including photovoltaic. Administrative Management and General Management Consulting Services (Information not reported) Fort Worth, TX 76102-0181 Less Than 50% Completed Information GAO gathered to improve the description The award supports 2 people in the operations branch to provide project management support services for General Services Administration (GSA) Recovery Act construction projects. The individuals will provide project management support for all phases of ongoing construction projects from conception to commission. The location is the GSA office at 819 Taylor St., Fort Worth, Texas. The award will enable GSA to complete its Recovery Act-related construction workload. CORNERSTONE ARCHITECTURAL GROUP, PS PROVIDE LIGHTING REQUIREMENTS AS PART OF A FUTURE RELIGHTING PROJECT AT TWO FEDERAL FACILITIES. Information GAO gathered to improve the description The award will result in professional engineering and lighting services for the federal building in Fairbanks, Alaska and the General Services Administration (GSA) Region 10 headquarters in Auburn, Washington. The award will result in increased energy efficiency and cost savings. Design and construction services to include all labor, installation, tools, equipment and design-build services for new boiler system for Eugene Federal Building, Eugene, Oregon and replacement boiler system for James A. Redden Courthouse in Medford, Oregon. Administrative Co-ordination activities. Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The new boiler system for the Eugene Federal Building is an energy-efficient system. The boiler system for the James A. Redden Courthouse is being replaced because it is old and the replacement system is energy-efficient. TISHMAN/AECOM, A JOINT VENTURE Construction Management Services for the Daycare Facility, Central Utility Plant, Phase 1 B Adaptive Reuse. Construction Management Services for Security and IT upgrades Design review, Meetings, Construction Review/Coordination 2700 Martin Luther King Jr, SE Washington, DC, DC 20032-0000 Less Than 50% Completed Information GAO gathered to improve the description The award will support construction management services for the renovation of multiple buildings on St. Elizabeth's West Campus. These services include design and cost estimate review, schedule control, construction progress reporting, safety and inspecting reporting, claims prevention, and close-out services. In addition, the award will ensure that the renovation project complies with the Recovery Act and historical and environmental considerations. The award will result in renovations to the St. Elizabeth's West Campus buildings for use by the U.S. Department of Homeland Security (DHS). Provide Procurement Analyst Support Services in support of DHS Consolidation Program at St Elizabeths, SE, Washington, DC Performed procurement analyst in support of the DHS consolidation at St. Elizabeths. Services included monitoring, managing, planning, organizing, and documenting all procurement of services/construction/AE contracts, including administrative duties. Commercial and Institutional Building Construction (Information not reported) $175,400.00 Less Than 50% Completed Information GAO gathered to improve the description The award is part of a larger three-phase Department of Homeland Security (DHS) project to consolidate and develop St. Elizabeths Campus in Washington, DC. The phase of this project that is funded with Recovery Act funds incorporates the design and construction costs of: 1) U.S. Coast Guard Command; 2) U.S. Coast Guard Parking Structure; and 3) Amenity spaces for U.S. Coast Guard. The award will also fund the remaining design work (which was not completed in a previous project phase): 1) The new DHS and Federal Emergency Management Agency (FEMA) Headquarters; 2) Historical preservation of St Elizabeths buildings; 3) Design of DHS National Operations Center (NOC), and 4) DHS parking structures. ProCon Consulting, LLC will be involved in design and construction management support services. The project will help move DHS closer to completing its effort to consolidate and develop its headquarters in the National Capital Region, though it will not complete the project. The remaining work will cost an estimated $1 billion. JACOBS TECHNOLOGY INC. Provide Intergrated Planning Sessions with GSA staff managing the 17 High-Efficiency Limited Scope Projects in the New England Region (1). Identify key objectives, critical scheduling requirements, opportunities and constraints posed by the Region's 17 Limited Scope Projects. Lead interactive planning sessions that will yield defined schedules and management plans for each Limited Scope Project. Interactive planning sessions held with GSA Regional staff managing the 17 Limited Scope Projects. All significant project details and activities reviewed and scheduled through completion. Management plans for each project prepared and distributed to Regional leadership. Administrative Management and General Management Consulting Services (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports integrated planning sessions with representatives from each of the General Services Administration's (GSA) 11 regions as well as representatives from the Office of Chief Architect and other related program offices. These limited-scope projects are system upgrades--such as upgrades to lighting or cooling systems--that are discrete and do not require major space re-design or architectural changes. JACOBS TECHNOLOGY INC. Construction Management (Agency) Services for Modernization ofU.S. Department of Interior Headquarters ARRA - DOI MODERIZATION CM SVS ARRA - DOI MODERIZATION CM SVS Project has not started. Plan to start the first quarter of 2010. (Information not reported) Information GAO gathered to improve the description This award supports the renovation of the Department of Interior building in Washington, DC to make the building more energy efficient. PROJECT SUPPORT SERVICES, INC. Project management support to the office of Portfolio Management Division facilities management & services program division; providing operational, technical, and management support to the region in areas such as safety and health, concessions, childcare facilities, maintenance, energy efficiency, and accessibility. Provided project management to the GSA Budget Program, ARRA Budget Team for support of GSA Manager P. Johnson, Portfolio Management Division. (Information not reported) $216,617.84 Less Than 50% Completed Information GAO gathered to improve the description This award provides one subject matter expert to support the Office of Portfolio Management Division, Facilities Management & Services Program Division for the General Services Administration's (GSA) National Capital Region in Washington DC. Specifically, the individual provides consultation for resolving Americans with Disabilities Act (ADA) and Architectural Barriers Act (ABA) cases at GSA facilities and review of ADA/ABA construction drawings submitted by third-party architects. The award will result in assistance for GSA in approving ADA/ABA-related facility changes and reviewing specification drawings. The Project Information Portal (PIP) tracks/reports on prospectus level projects for project managers, customers and PBS executives. In an effort to support the ARRA, a host of enhancement will need to be made to the PIP. These ehancements will provide transparency and accountability over the recovery dollars applied to GSA capital projects. These enhancements will also provide PBS managers access to real time reporting tools to provide validity and consistency to the data reported to bother internal and external stakeholders. Develop field level and form anhancements for recovery tracking to expand what has already been produced in PIP. Update integrations and connections with BI to support OMB reporting requirments. 1800 West Street, NW Less Than 50% Completed Information GAO gathered to improve the description The Project Information Portal (PIP) is a Web-based tool created for project teams to share information on prospectus and non- prospectus level projects with stakeholders. General Services Administration (GSA) uses the centralized system for tracking the more than 5,000 projects throughout its 11 regions for over 14,000 users. The award will develop field level and form enhancements to allow GSA to track Recovery Act spending. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken. directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. GASTINGER AND WALKER ARCHITECTS INC Construction Management, Site Visits Commercial and Institutional Building Construction More than 50% Completed Information GAO gathered to improve the description The award provides construction management services for roof replacement at the Roman L. Hruska, United States Federal Building/Courthouse in Omaha, Nebraska. Despite being a relatively new building, the condition of the roof was poor. This roof replacement is part of a larger project to replace the roof, upgrade energy controls so that energy use can be reported back to General Services Administration (GSA), and then install photovoltaic cells (PV). A contractor will perform all construction management services from construction to commissioning. The award will result in a more energy-efficient facility and facility sustainability. Assist with Functional Perforance Testing at the Rosa Parks Federal Bulding. Other Services to Buildings and Dwellings Ann Arbor, MI 48104-2129 Information GAO gathered to improve the description The award supports the testing of a cooling system at the Rosa Parks Federal Building in Detroit, Michigan, in order to ensure that the system is working efficiently. KPH CONSTRUCTION, CORP. RECOVERY - Light Court Roof Replacement RECOVERY - Light Court Roof Replacement (Information not reported) Information GAO gathered to improve the description The award supports installation of a high performance green building light court roof located in the south building of the United States Courthouse and Federal Building in Milwaukee, Wisconsin. The activities under this award include all management, supervision, labor, materials, supplies, and equipment necessary to replace the Light Court Roof. The work will consist of removing and replacing approximately 10,000 square feet of roofing covering a first floor space at the base of the light court. The award is in the amount of $997,358.00. SAINT LOUIS, MO 63108-2208 More than 50% Completed Information GAO gathered to improve the description The award funds design services for the mechanical upgrade to the building automation system, HVAC upgrades, energy-efficient lighting, and new occupancy sensors at the Robert A. Young Federal Building in St. Louis, Missouri. NORTHSTAR PROJECT MANAGEMENT, LLC Administrative Management and General Management Consulting Services Information GAO gathered to improve the description The award supports design-build consulting services for renovation of the Byron Rogers Federal Office Building in Denver, Colorado. The proposed renovation capital project will address all major building components including the following: structural, mechanical, electrical, plumbing, fire protection, and elevators. In addition, hazardous materials such as asbestos and PCBs will be abated. The Recovery Act provides $4.6 billion to the U.S. Army Corps of Engineers’ (Corps) Civil Works program to accomplish the goals of the act through the development and restoration of the nation’s water and related resources. Funding is also provided to support the Corps’ permitting activities for protection of the nation’s regulated waters and wetlands and cleanup of sites contaminated as a result of the nation’s early efforts to develop atomic weapons. The Corps is an executive branch agency within the Department of Defense (Defense) and a direct reporting unit within the U.S. Army. Headquartered in Washington, D.C., the Corps has eight regional divisions and 38 districts that carry out its domestic civil works responsibilities. Corps headquarters primarily develops policies, based on administration guidance, and plans the direction of the organization; divisions coordinate the districts’ projects; and the districts plan and implement the projects. The Corps is the world’s largest public engineering, design, and construction management agency and leverages its expertise primarily through contracts with civilian companies for all construction work and much of its design work. Civil Works projects are generally authorized by various Water Resources Development Acts and funded by annual appropriations for energy and water development. The Civil Works program includes efforts to provide safe and reliable waterways; reduce risk to people, homes and communities from flooding and coastal storms; restore and protect the environment; provide hydroelectric power to homes and communities; provide educational and recreational opportunities; prepare for natural disasters and act when disaster strikes; and address water resource challenges. The Operations and Maintenance account focuses on preserving, operating, and maintaining river and harbor projects that have already been constructed. The Construction account funds construction and major rehabilitation projects related to navigation, flood control, water supply, hydroelectric power, and environmental restoration. The Mississippi River and Tributaries account funds planning, construction, and operation and maintenance activities associated with projects on the Mississippi River and its tributaries that reduce flood damage. The Formerly Utilized Sites Remedial Action Program account is for cleanup of contaminated sites throughout the United States where work was performed as part of the nation’s early atomic energy program. The Investigations account funds studies to determine the necessity, feasibility, and returns to the nation for potential solutions to water resource problems, as well as design, engineering, and other work. The Regulatory account funds efforts to protect the aquatic environment by regulating dredge and fill materials and other construction-related activities in jurisdictional waters of the United States. Through April 23, 2010, $3.5 billion (about 76 percent) of the $4.6 billion in Recovery Act Civil Works program funds had been obligated by the Corps. (See table 11.) Of the $3.5 billion in obligated funds, the Corps had outlayed about $1.3 billion. Of the obligated funds, the Corps obligated about 49 percent ($1.7 billion) for Operations and Maintenance and 37 percent ($1.3 billion) for Construction. As of April 23, 2010, the Corps had identified 830 Civil Works projects to receive Recovery Act funding. These included 533 Operations and Maintenance projects, 175 Construction projects, 45 Mississippi River and Tributaries projects, 10 Remedial Action Program projects, 66 Investigations projects, and funding for the Regulatory program. contracts and not for projects. According to Corps headquarters officials, and as discussed later in this appendix, it is not easy to associate individual contracts with Recovery Act projects. We assessed the transparency of descriptive information for Civil Works awards available on Recovery.gov, as described in this report. We found that an estimated 14 percent met our transparency criteria, 70 percent partially met our criteria, and 16 percent did not meet our criteria. For descriptions that partially met or did not meet our transparency criteria, we collected additional information to complete the award descriptions for the elements of transparency that we believed were missing. The descriptions of awards in our sample, whether they met our criteria, and additional information that we found to complete the narrative descriptions, are provided at the end of this appendix. In order to assist the public in better understanding how a particular contract fits into a larger project context, the Corps issued supplementary material to its district offices, directing them to instruct recipients to include the project name—information that districts would need to provide to recipients—in the award description. According to Corps headquarters officials, the Corps districts were to provide this information to recipients in a quick reference sheet that contained key award information, including the project name, which recipients were to use to report contract information. The Corps headquarters instructed the districts to provide this information to the recipients. We identified three factors that may have affected the transparency of reported information. First, because the Corps awarded multiple contracts to support its projects, depending on the nature of a contract, a recipient may not know which Corps project the contract supports. For example, a Corps district awarded a contract to purchase a boat that will be used to perform maintenance at a dam and reservoir project; however, the recipient was not aware of the intended use of the boat sold under the contract. Moreover, according to Corps headquarters officials, without receiving information from the Corps, a recipient may not know which Corps project the recipient’s contract supports and would not be able to report this information. In addition, even if the project name associated with each contract was provided to the recipient, the nature of Corps contracts may make it difficult for the recipient to report information, particularly with regard to location. For example, engineering services provided for a construction project in Texas may be provided by a recipient located in another state. Second, according to Corps headquarters officials, the Corps awarded about three-fourths of its Recovery Act contracts to small businesses that may not have experience with this type of reporting and may have limited administrative capacity. Finally, Corps headquarters officials told us that the Recovery.gov system was designed for reporting on grants and loans and was adapted for contracts; therefore, it may have been difficult for recipients to report certain information. For example, certain contract actions such as modifications to existing contracts or task orders—which can include multiple activities across multiple locations—are reported in the system as a single award, and recipients may have been unsure how to indicate this information when reporting. As a result, a single award description may appear in Recovery.gov for work involving multiple activities and locations and this information may not be explained in the award description. projects and identify some descriptive information about the projects. The information available on the Web site is specifically related to Recovery Act projects; however, detailed information about individual contracts that support these projects is not available through the Web site. Prior to awarding Recovery Act contracts, the Corps also provides information about contracts through solicitations it posts on the Federal Business Opportunities Web site. According to Corps headquarters officials, the comments they have received on the Corps’ Recovery Act awards were mainly from recipients requesting technical assistance and from reporters requesting information about a specific contract they were researching. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program TETRA TECH, INC. Contractor must review as-built information and collect supplemental data to meet the certification requirements outlines in 44 CFR 65.10 and detailed in National Flood Insurance Program for the massillon Levee, located in Massillon, Stark County, Ohio. The contractor will be responsible for determining that interaction among the companents will not result in possible failure. Responsible for producing these supporting engineering analyses and reporting the component condition and certification recommendation. Contractor will be responsible for performing the certification determination. Certification engineering analysis shall consist of Hydrology and Hydraulics, Geotechnical, Structural, Electrical, and Mechanical evaluation. Major factors to be considered in the technical evaluation include: O&M plans, levee certification field inspection, characterizing the flood hazard, capacity exceedence/failure criteria, freeboard, closure devices, embankment protection, seepage analysis, embankment and foundation stability, settlement, construction records and control testing, performance records, major maintenance and rehabilitation, interior drainage, and residual risk and public safety. A Levee Certification Report shall be prepared to document and describe the basis for the certification recommendation of the Massillon levee system. The LCR shall be sufficient to support the execution of the Independent Technical Review process described in paragraph 10.c of NFIP ETL (draft)_1110-2-570. Five copies of the draft submittals shall be submitted . Upon completion five (5) copies of the final report shall be submitted and properly bound. The report shall include all text tables, figures, and exhibits to support the findings, results, and recommendations. In addition to hardcopies, all computer files generated shall be submitted on CD rom formatted in Microsoft Word. To insure all work submitted is technically accurate the Contractor shall develop and execute an Independent Technical Review Plan. This plan shall be submitted for review and approval by the government. The Contractor is responsible for Quality Control. The Contractor is responsible for the formulation and preparation of all work required in this Statement of Work. All final reports, figures, drawings, calculation, and report cover letters will be sealed or stamped by the responsible engineer. The intermediate reports and final report will be submitted for Quality Assurance review and shall be complete and free of spelling, typographic, and grammatical errors. The 50% and 90% drafts reports will be submitted for QA review and comments by Corps of Engineers personnel. The 50% draft report shall be submitted within 5 month of the notice to proceed and the 90% draft report shall be submitted within 7 month of the notice to proceed. Task 1 - Data Collection and Review. Completed data collection and review. Reviewed readily available materials and Identified additional resources referenced Task 2 - Topographic Mapping. Obtained topographic Mapping in GIS format. Task 3 - Site reconnaissance Visit. Performed post-processing of GPS data. Prepared draft inspection log/report. Task 4 - Geotechnical Assessment. Performed review of past design data and geotechnical information. Prepared drilling plan. Performed field exploration. Task 5 - Engineering Assessment. Performed Hydrologic Evaluation. Performed Hydraulic Evaluation. Performed Initial Scour/Aggradation Analysis (Pending Internal Review) Task 7 - Levee Certification Report. Prepared Hydrologic section of the Levee System Report. Performed hydraulic section of the Levee System Report. Task 8 - Independent Technical Review. Performed review of Hydrologic section of the Levee System Report. Performed review of Hydraulic section of the Levee System Report. Task 9 - Meetings and Coordination. Coordination with City of Massillon and USACE. Task 10 - Project Management. Invoicing and reporting. Engineering Services Appendix XI Civil Works Program (Information not reported) Less Than 50% Completed DAVID FORD CONSULTING ENGINEERS INC The accelerated CWMS deployment campaign (hereinafter referred to as the project) is a component of the American Recovery and Reinvestment Act (ARRA) of 2009. The objectives of the project are as follows: 1. To enhance the capability of the Corps of Engineers offices nationwide to make well informed decisions for managing reservoirs and water control systems. This will be achieved by expanding, at an accelerated pace, the availability of advanced information technology resources for hydrometeorological data management, display, and dissemination; watershed runoff forecasting; flood stage prediction; reservoir operation analysis; and flood impact analysis. 2. To create and maintain jobs for US citizens, in keeping with the goal of the ARRA. This will be achieved by using HEC?s BPA contractors to undertake the work and manage its successful completion. Those contractors, in turn, may use local consulting resources if appropriate and useful to the project. The intended deliverable of the overall project is, for critical Corps of Engineers watersheds, a fully functional CWMS decision support system that will enhance water management. The CWMS decision support system includes HEC-HMS, HEC-RAS, HECResSim, and HEC-FIA. For each watershed, software will be installed as needed and configured by a contractor, with cooperation of HEC and Division or District staff. Contractors will configure and calibrate the models, using data and information collected from District and Division staff. Contractors will test the software under simulated real time high flow conditions, demonstrating the deployment under a stress test. Contractors will document actions taken to deploy the decision support system. Finally, contractors will transfer the technology to Corps staff in the appropriate District or Division offices. This task order is for a ?lead contractor? (LC) to assist HEC in managing rapid deployment of CWMS at Corps districts and coordinate the day-to- day activities of the blanket purchase agreement (BPA) contractors contributing to this effort. This role includes working with HEC on selecting watersheds to be implemented, identifying what models and tasks are necessary for each implementation, developing management plans, and performance work statements. The LC will recommend assignments of tasks to other BPA contractors through the Corps PM. The LC will facilitate the work of the BPA contractors, clarifying statements of work, deliverables, and schedules with the PM. The LC will monitor the progress of the BPA contractors, reporting to the PM and supply the weekly reporting information to meet ARRA requirements. The LC will take all necessary actions to ensure the project objective is met. Appendix XI Civil Works Program Task 1: Worked with HEC project manager (PM) to identify priority basins and locations for accelerated CWMS deployment, and prepare list of candidate sites for deployment. Contacted technical representative (TR) at each candidate site to confirm selection and to gather relevant information about sites. Coordinated with PM to develop a detailed project management plan (PMP). Obtained buy-in and signatures from relevant BPA contractors, Corps District staff, and HEC. Task 2: Coordinated with PM to develop detailed work plan and work statement for each deployment site (8) for initial effort by BPA contractors. Task 3: Reviewed initial Site Assessment reports submitted to HEC from BPA contractors. Advised PM on any technical or administrative issues. Wrote a summary report of the site assessments with LC recommendations. Coordinated with PM on selecting additional candidate watersheds for the second round or on deleting candidate watersheds from first round if funding is not available for all sites. Task 4: Prepared performance work statements (PWS) for each of the 8 candidate watersheds. Task 5: Reviewed work plans and schedules submitted by BPA contractors. Wrote a summary report of the work plans with LC recommendations. (Information not reported) Less Than 50% Completed FURNISH ALL DRAWINGS, LABOR, MATERIALS AND EQUIPMENT NECESSARY TO FABRICATE, DELIVER AND INSTALL ONE (1) COMPLETE NEW BOAT DOCK SYSTEM WITH THREE (3) 8-FOOT WIDE X 20-FOOT LONG ALUMINUM DOCK SECTOPMS AND ONE (1) 4-FOOT WIDE X 20-FOOT LONG ALUMINUM TAPERED GANGWAY. DOCK SYSTEM MUST BE ABLE TO USE EXISTING ANCHORING SYSTEM. FABRICATION, DELIVERY AND INSTALLATION HAS BEEN COMPLETED. ACCOUNTING COMPLETED BILLING AND OFFICE ASSISTANT IS COMPLETING FEDERAL REPORTING. SMARTSVILLE, CA 95977-0006 Appendix XI Civil Works Program Furnish all equipment, labor, layouts of work features, and supervision necessary to obtain sufficient subsurface information, perform analysis, and provide the government recommendations to help alleviate seepage at left abutment of Winfield Locks and Dam, Red House, WV. Drilling, Lab Evaluations, and Initiated Study More than 50% Completed Original Contract was awarded August 30, 2007: Contract was for the completion of foundation drilling and grouting at the Clearwater Dam in Piedmont, Missouri. This work is a continuation of Phase I which was completed Oct 15, 2007. The scope of this contract was to complete the foundation rock treatment down to elevation 325, 250 ft below the working platform, prior to the installation of the proposed cutoff wall. The lower 50 ft of the grout curtain is to be grouted to a value of 3 lugeons or less and the upper rock mass to a value of 10 lugeons or less. This type of work is highly technical in nature and will provide enormous amounts of valuable data to be used in the design and construction of the proposed cutoff wall (Phase II). Beginning with Modification P00012 executed May 6, 2009, ARRA funds were incorporated into the contract in order to provide for adjustments in quantity and scope of work required in order to meet the project objectives. The project was successfully completed, final reports have been submitted and the contractor is demobilized. In excess of 25,000 LF of drilling; over 500,000 CF of grout materials placed; over 1117 LF of borehole stage imaging; relocation of water lines in preparation of Phase II work. Appendix XI Civil Works Program Poured Concrete Foundation and Structure Contractors JACOBS/SEH, A JOINT VENTURE Main Lock Culvert Valve Machinery Study Phase I, Melvin Price Locks and Dam, Mississippi River, Preliminary Engineering report, per attached Scope of Work and proposal dated 18- Jun-09. DJ04 - MEL PRICE MAIN LOCK CULVERT This task involves static and kinematic measurement, disassembly, material inspection and testing, evaluation and reporting as part of an investigation of failures that have occurred in the culvert valve machinery components of the main lock, Illinois-side emptying valve at Mel Price Locks and Dam on the Mississippi River. All field activities are complete. The draft report was submitted this quarter. We are awaiting comments before submission of the final report. (Information not reported) St. Louis, MO 63102-2131 More than 50% Completed W912EK-09-D-0006 Appendix XI Civil Works Program In support of fish studies, perform adult Coho salmon and steelhead radio telemetry monitoring, green river Seattle, Washington. The contractor must: analyze and report on radio telemetry monitoring of adult Coho salmon released above Howard Hanson Dam, WA, (HHD) into the upper Green River in fall 2008; monitor the movement and distribution of adult Coho released above HHD into the upper green river in fall 2009; analyze and report on 2009 results incorporating information from 2008 study. Work for this project has not begun. (Information not reported) Regulatory document imaging and digital conversion to search able format. Approximately 800,000 documents. Grace Hill (Prime) has converted approximately 50% of the microfiche to digital format. We are now in the process of converting the documents to a searchable (OCR) format. We expect to be 50% complete by end of January 2010. Data Processing, Hosting, and Related Services Less Than 50% Completed W912ES-10-P-0015 Appendix XI Civil Works Program Provide all transportation, parts, materials, equipment and laborer to provide and install a complete security camera monitoring system (SCMS) designed for marine environment on board the US Army Dredge Ship Wheeler. Removed antiqated security system and installed three PTX (Pan, Tilt, Zoom) Cameras and 11 fixed cameras at various locations throughout the ship. All work was completed; however, two of the fixed cameras are working intermittantly during the first cruise and will be replaced as soon as the ship returns to port. Electrical Contractors and Other Wiring Installation Contractors New Orleans, LA 70118-3651 More than 50% Completed DIAZ CONSULTANTS, INC. PROJECT SYNOPSES: Conduct field and laboratory investigations to characterize the nature and level of contamination of sediments deposited behind three dams (Carbon Canyon Dam, Lopez Dam, and Prado Dam) and prepare a report and logs summarizing those investigations. Carbon Canyon has been awarded as the base contract; Lopez and Prado may be awarded as options to be executed at a later date. Completed Field Invetigation and Laboratory Testing. Completed and submitted draft report for review. (Information not reported) Santa Ana, CA 92701-0810 More than 50% Completed W912PL06D0004 Appendix XI Civil Works Program SECURITY CONSTRUCTION SERVICES, INC. Replace roofs at Knightville Gatehouse, Littleville Gatehouse and Intake Tower and Birch Hill Dam Gatehouse. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program MANSON CONSTRUCTION CO. Capital (deepening) dredging at the Port of Anchorage Other Heavy and Civil Engineering Construction Less Than 50% Completed Information GAO gathered to improve the description The award funds dredging, which will support the port's ongoing intermodal expansion project, planned to allow larger ships to call and offer more room for commercial cargo handling, a cruise ship terminal, and to support rapid deployment from Alaska's military bases. ROMERO GENERAL CONSTRUCTION CORP. REPAIR BADLY DETERIORATED ROADS, SUCCESS LAKE CA Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds road repair to multiple areas including the entryway to Success Lake, the South Tule Recreation Area, and the South Tule parking lot. The repairs included replacement and repaving of roads, which involved digging up the asphalt, cement treating, and paving. Success Lake is located just east of Porterville in Tulare County, California. Appendix XI Civil Works Program ROSS LABORATORIES, INC. MFG AND DELIVERED SIDESCAN SONAR SYSTEM (MODEL 4900) INCL SUB BOTTOM, PROFILING SYSTEM MFG AND DELIVERED SIDESCAN SONAR SYSTEM (MODEL 4900) INCLUDING A SUB BOTTOM, PROFILING SYSTEM. ALSO DELIVERED A VESSEL MOTION SENSING SYS AND HYDROGRAPHIC SURVEY SOFTWARE. Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing Information GAO gathered to improve the description The award supports the manufacture and delivery of a sidescan sonar system (model 4900) including a sub bottom profiling system. This award also includes the delivery of a vessel motion sensing system and hydrographic survey software. This equipment and software is for maintaining shipping/navigation channels in the New York Harbor area. BIOHABITATS, INC. Schukylkill River, Wissahickon Creek Feasibility Study Field assessment, analysis, and report preparation for restoration actions. Other Scientific and Technical Consulting Services More than 50% Completed Information GAO gathered to improve the description The award supports the completion of Feasibility Study Scoping documentation for ecosystem restoration within the Wissahickon watershed. Based on a previous study, it was determined that the primary problems within the Wissahickon watershed include stream flow variability, poor quality aquatic habitat, aquatic habitat degradation, flooding, and overall ecosystem imbalances. Various solutions exist to address these problems and will be considered in depth during feasibility investigations. This documentation will include definition of the existing conditions, the "without project" conditions, and the site selection screening process to continue the feasibility study of this critical urban watershed for ecosystem quality improvements. COMPLETE THE REHABILITATION OF THE ADA CAMPSITES AT SOUTH ABUTMENT, DUB PATTON, AND HERNANDO POINT RECREATION AREAS AT ARKABUTLA LAKE IN ACCORDANCE WITH THE ATTACHED SCOPE OF WORK - (PROJECT #1) completed installation of concrete pads, grading of disturbed areas and installing of latern hangers, picnic tables and service tables. Facilities Support Services Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of campground sites to make them Americans with Disabilities Act (ADA) accessible, allowing persons with disabilities to safely utilize the campground areas. Rehabilitation included procurement and installation of ADA-compliant items including tables, lantern holders, and grill services tables. Work also included installation of concrete pads and grading of areas to make them ADA compliant. The award provided rehabilitation of 56 campground sites at 3 recreation areas, including 18 sites at South Abutment, 14 sites at Dub Patton, and 24 sites at Hernando Point. T & C MOBILE HOME & CONSTRUCTION SERVICES, LLC Remove and replace furnaces and fuel tanks in the gate house at Whitney Point Lake, NY. The sub-contractor provided all labor, equipment, tools, and materials necessary for removing and replacing two furnaces and two 275 gallon fuel oil tanks in the gate house at Whitney Point Lake, NY. Plumbing, Heating, and Air-Conditioning Contractors Whitney Point, NY 13862-0706 Information GAO gathered to improve the description Replacing the furnaces will permit a much more efficient use of energy and replacing the fuel tanks will permit operation of flood control gates during a power outage. WILSON & COMPANY, INC., ENGINEERS & ARCHITECTS CEPD Compliance Surveys. Appendix XI Civil Works Program Land surveying, geodetic. Surveying and Mapping (except Geophysical) Services Less Than 50% Completed Information GAO gathered to improve the description The award supports surveys for Comprehensive Evaluation of Vertical Datums that will establish new vertical control, based on the North American Vertical Datum of 1988 (NAVD 88), for each of 70 projects located in New Mexico, Colorado, and Texas, within the U.S. Army Corps of Engineers Albuquerque District. This work will ensure that all of the flood control projects within the Albuquerque District are referenced to at least three vertical control benchmarks. This will take the district one step further in ensuring that all of its flood control projects are referenced to NAVD 88. This effort is needed to meet requirements of an executive order that calls for the standardization of the use of the most current vertical datum, which is NAVD 88. Vertical datums are used to reference protection elevations on flood control structures or excavated depths in navigation projects. TAS::96 3134::TAS DESIGN AND CONSTRUCT LAND PORT OF ENTRY AT SHERWOOD NORTH DAKOTA FOR CUSTOMS AND BORDER PROTECTION Commercial and Institutional Building Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports construction of a new land port of entry (LPOE) building in Renville County, North Dakota for use by Customs and Border Patrol (CBP) personnel. The award also supports interim repair and alterations activities to address immediate and emerging needs of the existing LPOE until new construction is completed. Appendix XI Civil Works Program Lower Willamette River Ecosystem Restoration General Investigation Feasibilty Study/Draft PEIS We completed the field surveys for HTRW, topography, cultural resources, and utilities. We also completed the hydraulic modeling, cross sections, and refined the preliminary drawings. at the beginning of October. We submitted the draft Notice of Intent. We got about haflway through the geotechnical section, and completed the writeup for soils and geology. Less Than 50% Completed Information GAO gathered to improve the description The award funds a study that will assess the feasibility of ecosystem restoration, including remediation of contaminated sediments over a portion of a 25-mile reach of the Willamette River in Portland, Oregon. The feasibility study will be used to examine and prioritize ecosystem restoration opportunities in the study area. The purpose of the study is (1) to identify and evaluate substantial ecosystem degradation problems in the Lower Willamette River Basin; (2) to formulate, evaluate, and screen potential solutions to these problems; and (3) to recommend solutions that are in the federal interest and are supported by a local entity willing to provide the items of local cooperation (i.e., a cost-sharing sponsor). The recommended plan will contribute to the identified restoration objectives of restoring fish and wildlife habitat and natural processes of the basin. The Lower Willamette River Ecosystem Restoration project is from Willamette Falls to its confluence with the Columbia River. ATLANTIC MARINE CONSTRUCTION COMPANY, INC. Furinsh all labor, material, equipment, incidentals, supervision and transportation for work necessary to provide security, road, and parking improvements. Job duration is 90 days from NTP. Project is in design at this time?..billed for Bond cost of $18,770.00 Commercial and Institutional Building Construction Elberton, GA 30635-5420 Appendix XI Civil Works Program Less Than 50% Completed Information GAO gathered to improve the description The award provides security, road and parking improvements to the access road at the Richard B. Russell Dam and Lake Project in Elberton, Georgia. Tidal Datum Determinations for Small Boat Harbors in southeast Alaska. The scope of work is to do a tidal determination to establish a new vertical datum and tie existing control of each harbor to its new vertical datum at Hoonah Small Boat Harbor, Hoonah, Alaska, the Kake Small Boat Harbor, Kake, Alaska, the Metlakatla New Harbor & Metlakatla Old Harbor (one station), Metlakatla, Alaska, and the Pelican Small Boat Harbor, Pelican, Alaska and re- establish the horizontal control at Hoonah Small Boat Harbor for the US Army corps of Engineers, Alaska District. Field work is complete. Installed tide gauges at the villages of Hoonah, Kake, Pelican, and Metlakatla in Southeast Alaska. Gauges collected water level information for a period of 35 days, then removed from the water. Installed new tidal bench marks at each location. Determined bench mark positions with GPS and updated positions for other historical bench marks and survey monuments at each harbor. Determined bench mark elevations by differential leveling and updated elevations for other historical bench marks and survey monuments at each harbor. Iniated data processing. Surveying and Mapping (except Geophysical) Services More than 50% Completed Information GAO gathered to improve the description The award supports the collection of tidal data published by the National Oceanic and Atmospheric Administration (NOAA) at specific locations known as tide stations. Commercial and private boats use these data to safely navigate waters and in the long run, these tidal data will help establish four tide stations at these harbors as well as inform harbor improvements. Appendix XI Civil Works Program DAVID FORD CONSULTING ENGINEERS INC This project is for HEC-RAS steady and unsteady model development for the Red River of the North (RRN) from the Canadian border to Halstad, MN. Scope tasks include review of the existing HEC-RAS steady models, consolidation to one model, cross section expansion and refinement, and calibration to the flood of record. Both steady flow HEC-RAS and unsteady flow HEC-RAS models will be completed. The completed unsteady flow model is intended to be used by the National Weather Service (NWS) North Central River Forecast Center. A brief report should also be prepared to discuss model construction and simulation results. Quarterly activities: Task 1. Completed kickoff phone conference call and began meeting coordination. Task 2. Began to review existing HEC-RAS models and data and began to complete a Memorandum for the Record (MFR). Task 9. Provided required monthly status reports. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the development of a Hydrologic Engineering Centers River Analysis System (HEC-RAS) hydraulic model for the entire Red River. The model will be used for project planning and flood forecasting. Provide labor, equipment and materials required to perform the work at the Lake Washington Ship Canal Spalling Concrete Repairs, including placement of concrete/epoxy repair system. Erection of scaffolding, cleaning of application area, application of epoxy based concrete patch material, final cleanup and gridning of finished areas, disassembly of scaffolding. Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the repair of spalling concrete on the sides of lock chambers. Spalling is the minor failure of the concrete lock sidewalls that occurs due to age. The spalling concrete is a safety issue because it could fall on boats and/or presents a hazard for boaters and employees. GUSTIN, COTHERN, & TUCKER, INC. Survey #09-079, Perform all A_E services for topographic, geodetic, property/boundary, and construction surveys for EDEN(WCS) Benchmark Monumentation ; counties of Broward, Miami-Dade, Monroe and Palm Beach GPS Sessions for completion of required benchmark monumentation Surveying and Mapping (except Geophysical) Services (Information not reported) West Palm Beach, FL 33401-0001 More than 50% Completed Information GAO gathered to improve the description The award supports benchmark documentation activities in Florida's Water Conservation Areas as part of the Comprehensive Everglades Restoration Plan, Adaptive Assessment, and Management program. These activities will provide necessary data for scientists and engineers to restore America's Everglades. BLACK & VEATCH SPECIAL PROJECTS CORP Black & Veatch is performing structural engineer anlaysis and design of mass concrete structures for the new upstream monoliths for Kentucky Lock. We are producing construction plans and specifications. The work has required structural, civil and electrical engineering, as well as, construction cost estimating and scheduling. CADD Technicians put together the construction plans. Completed final plans and specifications for New Upstream Lock Monoliths. Included foundation design and other miscellaneous features. Appendix XI Civil Works Program (Information not reported) Grand Rivers, KY 42045-0001 More than 50% Completed Information GAO gathered to improve the description This design work supported by the award is part of the Kentucky Lock Addition project to construct nine partial height monoliths--the 60- foot wide by 60-foot deep by 100-foot tall concrete blocks that hold back the water--for the upstream one-third of the new lock; this will create a more stable configuration for the existing lock. MIKE HOOKS, INC. CIN-007: Disposal Area Maintenance & CIN-008: New Spill Boxes - Calcasieu Parish, Louisiana CIN-007: Disposal Area Maintenance Work consists of ditching in the Disposal Areas. The depth and width of the ditching will be site specific. The linear footages for each disposal area are: D/A 2 = 2,300 ft., D/A = 25,450 ft., D/A 9 = 22,900 ft., D/A 10 = 16,050 ft., & D/A 11 = 16,800 ft. CIN-008: Install new spill box weirs in Disposal Areas #2, #8, #9, #10, & #11. The existing spill boxes in each disposal area shall be removed from the site. Surveys of the disposal areas to determine the location of the new spill boxes. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The work performed under this award will extend the life of the levees in Calcasieu Parish. Appendix XI Civil Works Program URS GROUP, INC. TAS::96 3135::TAS - MASTER PLANNING SERVICES FOR ALUM CREEK LAKE, LEWIS CENTER, OH. Prepared URS Project Execution Plan (PXP), performed project administrative start-up activities. Master Plan (MP) Task 1- Project Start-up: Prepared and submitted draft Plan of Study (POS). MP Task 1- Project Start-up: Participated in Kick-off Meeting. MP Task 2 - Develop Geographic Database: Began GIS setup and data acquisition. All Other Professional, Scientific, and Technical Services (Information not reported) GREAT LAKES DREDGE & DOCK COMPANY, LLC This project entails dredging of 1.2 million cubic yards of maintenance material in the Oregon Inlet Spit Channel and the Ocean Bar. Dredging is to be to -15 feet. Dredged material is to be placed on the beach at Pea Island. The only non-ARRA funding is a portion of the mobilization and demobilization ($2.5 million out of $3.6 million). Approximately 268,000 cubic yards of material were placed at the disposal site during the fourth quarter of 2009 by the Hydraulic Cutter Suction Dredge Alaska. Equipment was demobilized in the fourth quarter. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The award funds maintenance dredging operations to provide a safe, reliable navigable channel. The dredging material was then used to re-nourish the beach. W. M. SMITH & ASSOCIATES, INC. Cleaning and Janitorial Services for Alum Creek Lake, Ohio Cleaning and Janitorial Services for Alum Creek Lake, Ohio (Information not reported) Information GAO gathered to improve the description The award supports additional janitorial services for Alum Creek. These services include cleaning the Recreation Office at Alum Creek as well as grounds pick-up for half the facility, including the picnic area. The award will result in a clean recreation office and clean grounds. JENTREE FOREST PRODUCTS, INC. Landscaping Services Appendix XI Civil Works Program (Information not reported) Information GAO gathered to improve the description The award supports maintenance work being done at Sutton Lake recreational facilities. The award is a task order for mowing services for Hillside Areas 1 and 2. Hillside Area 1 covers 25 acres and includes the Downstream, Bee Run, and Bug Ridge Recreation Areas. Hillside Area 2 covers 4 acres and includes office access and dam abutments. JENTREE FOREST PRODUCTS, INC. (Information not reported) Information GAO gathered to improve the description The award supports maintenance work at Sutton Lake recreational facilities. The award is a task order for mowing services at several areas at Sutton Lake; specifically, mowing services were provided at Lower Gerald R. Freeman Campground covering 18 acres; Upper Gerald R. Freeman Campground covering 12 acres; Middle Gerald R. Freeman Campground covering 9 acres; the Downstream Day Use Area covering 10 acres; and the South Abutment Day Use Area covering 5 acres. MAINTENANCE SERVICES AT DEER CREEK LAKE, MT STERLING, OH Appendix XI Civil Works Program RESTROOM AND RECREATION AREA CLEANING (Information not reported) MT STERLING, OH 43143-9505 Information GAO gathered to improve the description The award supports trash pick-up along the river, cleaning of public restrooms below the dam, and cleaning the picnic shelters in the recreational area. The award also provides cleaning and janitorial supplies. The award will result in clean areas along the river, a clean recreational area, and a clean picnic area. W-P CONSTRUCTION SERVICES, INC. Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia 105 Centennial Heights Road, PO Box 105 Information GAO gathered to improve the description The award supports the removal of pea gravel and timber over 10 acres at the Crane's Nest Playground in the J.W. Flannagan Dam Recreation Area. The award also includes installation of pipe in the mulch to improve drainage in the area. These activities will help maintain the recreational facilities. Appendix XI Civil Works Program W-P CONSTRUCTION SERVICES, INC. Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia 105 Centennial Heights Road, PO Box 105 Information GAO gathered to improve the description The award supports work at North Fork Pound Lake, which is a U.S. Army Corps of Engineers-operated Big Sandy flood protection system project. Award activities include mowing at the Dam Access Road, overlook area, and office, which covered 2.5 acres. Construction 96-3135 TAS Demolish and Rebuild Summersville Lake Battle Run restrooms located at the campground, beach and boat launch areas. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The new restroom facility provides a healthier and safer environment for the visiting public. Appendix XI Civil Works Program ALLEN, J. F. COMPANY (INC) as part of U.S. Army Corps of Engineers - civil program financing only-Operation and Maintenance, Recovery Act on Bulltown Campground project Delivered stone to Bulltown Campground project Brick, Stone, and Related Construction Material Merchant Wholesalers (Information not reported) More than 50% Completed Information GAO gathered to improve the description This award funds 1717.72 tons of 3/4-inch crush-and-run limestone to Burnsville Lake to resurface a gravel parking area. UNITED PROCUREMENT, L.P. CAN STYLE BUOYS DELIVERED TO EAST LYNN LAKE PART DESCRIPTION: 45101 BUOY RB 962 W/ LETTERING & SYMBOL 6-MODEL B961RC H.D. RED NUN BUOY 6- MODEL B961GC H.D. GREEN CHANNEL MARKER 5-MODEL B961R H.D. BUOY 'SLOW NO WAKE' W/ CONTROL SYMBOL 3-MODEL B961R H.D. BUOY 'ROCKS' W/HAZARD SYSMBOL 2-MODEL 96R1R H.D. BUOY 'BOATS KEEP OUT' W/RESTRICTED SYMBOL DELIVERED TO EAST LYNN LAKE, EAST LYNN WV. THE JOB HAS BEEN COMPLETED AND ALL PAYMENTS HAVE BEEN RECIEVED. All Other Plastics Product Manufacturing EAST LYNN, WV 25512-9746 Information GAO gathered to improve the description The award funds the procurement of 22 buoys to the U.S. Army Corps of Engineers in order to enhance water safety for boaters and swimmers at East Lynn Lake in West Virginia. Appendix XI Civil Works Program READY TO HAUL - COLUMBUS, LLC Supply of bulk engineered wood fiber for use at Sutton Lake playground. Delivery of engineered wood fiber for playground at Sutton Lake. Engineered Wood Member (except Truss) Manufacturing Information GAO gathered to improve the description The wood supplied through this award supports the overall maintenance, including the purchase and installation of playground equipment to meet playground safety standards and provide Americans with Disabilities Act (ADA) accessibility at Gerald R. Freeman Campground. KINGSBOROUGH ATLAS TREE SURGERY, INC (Information not reported) Information GAO gathered to improve the description The award supports trimming hazardous trees and tree limbs in recreation areas near New Melones Lake, California (downstream channel) and New Hogan Lake, California. Appendix XI Civil Works Program PARAGON INDUSTRIAL APPLICATIONS, INC. Design Build Boat Storage building Information GAO gathered to improve the description This award supports the design and construction of a boat storage building that will replace the inadequate boat storage building at the Piney Woods Regional Office. This is part of a larger project to improve the health and safety of the public at Ferrells Bridge Dam, Lake O’ the Pines, Texas. WISS, JANNEY, ELSTNER ASSOCIATES, INC. RIP RAP - embankment repair recovery Aggregate testing including Loas Angeles abrasion, Magnesium soundness,unit weight, specific gravity, absorption and petrographic analysis of rip rap materials 13581 Pond Springs Road, Suite 107 Less Than 50% Completed Information GAO gathered to improve the description This award supports the testing of rip rap materials from Miller Springs Quarry in Belton, Texas to be used for embankment repair at Navarro Mills, Belton and Granger Lakes. Appendix XI Civil Works Program ENGINEERING DESIGN TECHNOLOGIES, INC. As part of construction on the Atlanta environmental infrastructure projects-Mark Ave stormwater structure in Cobb County, GA (Information not reported) Information GAO gathered to improve the description The award supports engineering design services. This structure is part of a priority storm water sewer capacity relief project in this region. MITCHELL INDUSTRIAL CONTRACTORS, INC. Millers Ferry Renovation HVAC System Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing (Information not reported) Information GAO gathered to improve the description The award supports replacement and renovation of the HVAC system at Millers Ferry powerhouse, which houses hydroelectric generators for the production of electricity. The powerhouse is located in Wilcox County, Alabama near Camden Lake. Award activities will include renovating the HVAC system by replacing air handlers, chillers, and ductwork, and performing electrical upgrades. The award will result in a more efficient and maintenance-friendly HVAC system. Appendix XI Civil Works Program ADVANCED CRANE TECHNOLOGIES, LLC Rehabilitation of the Overhead Powerhouse Bridge Cranes at the USACE Powerhouses, located in West Point, GA, Cartersville, GA & Basset, VA Rehab Powerhouse cranes, various locations Overhead Traveling Crane, Hoist, and Monorail System Manufacturing (Information not reported) Information GAO gathered to improve the description Rehabilitation activities under the award include modernizing crane controls; replacing wiring; and replacing the operators’ cabs. The rehabilitation will restore full capacity to the cranes, including critical lift capabilities; allow for safer operations; and reduce future maintenance costs. The state-of-the-art-controls will improve how the cranes operate. An overhead powerhouse bridge crane runs along the ceiling of the powerhouse and is used to set and maintain equipment in the powerhouse. Manufacture of four gearboxes. Manufacture of the gearboxes. Speed Changer, Industrial High-Speed Drive, and Gear Manufacturing (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds the purchase of secondary gearboxes at Dardanelle Lock & Dam in Russellville, Arkansas, to replace the existing gearboxes that power gates in the powerhouse. A failed gearbox renders the gate inoperable and replacement of the gearboxes reduces the risk of failure. Appendix XI Civil Works Program ADH TECHNICAL SERVICES, INC. As a part of the maintenance for the installation of a strong motion seismic instrument on the Cottonwood Springs Dam Project. None yet. Project will begin in 2010. Geophysical Surveying and Mapping Services (Information not reported) Cottonwood Springs, SD 57747-0664 Information GAO gathered to improve the description This award supports the installation of a new seismic instrument to monitor the area for the magnitude of earthquake activity, which will allow for the assessment of potential impacts to the dam and foundation. This work will ensure that dam safety instruments are installed and operating satisfactorily, thus increasing the safety of the dam and downstream residents. BRUNSWICK COMMERCIAL & GOVERNMENT PRODUCTS, INC. Small Craft (17' Guardian Boat) CB9039- Shipment date Oct 28, 2009 Information GAO gathered to improve the description The award supports the purchase of a boat for Beltzville Lake to maintain project grounds and facilities at this 4,200-foot long dam and reservoir project. The boat replaced a 30-year-old vessel, and can be used for, among other things, conducting sampling for water quality, video surveillance of the dam, bridge inspections, debris removal, and reservoir inspection to determine erosion of the rim of the reservoir. Appendix XI Civil Works Program INSTALLED MOTION GATE AT MILFORD PROJECT OFFICE All Other Specialty Trade Contractors JUNCTION CITY, KS 66441-8342 Information GAO gathered to improve the description The award supports installation of one motion gate at the Milford Lake Project Office in Junction City, Kansas. The installation activities will include removing the existing gate and fence, installing a 24-foot motion gate with accompanying accessories such as a photo eye, gate edge for safety, and additional fencing. The award will result in enhanced security at the office's equipment lot. PRUDENT TECHNOLOGIES, INC. Removal of Underground Staorage Tanks and installation of above ground storage tanks at Hillsdale Lake and Clinton Lake Sites in Kansas The underground tanks were removed and disposed. The above ground tanks were installed. Other Heavy and Civil Engineering Construction Information GAO gathered to improve the description The award supports the removal of four underground tanks (two from Clinton Lake and two from Hillsdale) and the addition of six above ground tanks (four in Clinton Lake and two in Hillsdale). The award will result in tanks which are easier to access and obtain gas for government vehicles, and easier to maintain. Appendix XI Civil Works Program UTILITIES FORESTRY SERVICES, INC. Provide all labor,material, supplies and equipment to remove all trees and stumps from Penn St to College Ave along top of Embankment At Indian Rock Dam, York County, York, PA . Operations and Maintenance-Army, the removal of all trees and stumps from the area between College Ave to Penn St. Along the top of an embankment at Indian Rock Dam, York County, York, PA was awarded utilizing ARRA funds. Information GAO gathered to improve the description The award supports the removal of trees from the York levee. The trees' rooting system was beginning to degrade the structural integrity of the Cordours River Levee. The award will ensure compliance with new U.S. Army Corps of Engineers levee safety criteria. GEO-TECHNOLOGY ASSOCIATES, INC. Preventative Maintenance of 34 relief wells No work performed - releif well inspection and rehabilitation services. Support Activities for Oil and Gas Operations (Information not reported) Information GAO gathered to improve the description The award provides funds for preventive maintenance and well inspections at Curwensville Dam in Curwensville, Pennsylvania. There are 34 relief wells located along the downstream toe of Curwensville Dam for the purpose of relieving hydrostatic pressures within the dam. Preventive maintenance of the wells will assure the project continues to operate in a safe manner. Appendix XI Civil Works Program ANDERSON PERRY & ASSOCIATES, INC. No activity this period. Job completed. Walla Walla, WA 99362-1876 Information GAO gathered to improve the description The award supports the attendance of two Anderson-Perry employees to attend levee inspection training in Portland, Oregon, for 3-4 days. The U.S. Army Corps of Engineers requires completion of this course, which includes software training, for all levee inspectors. Upon completion of the workshop, attendees acquired certification to inspect levees managed by the Corps. SEALS UNLIMITED, INC. MOOREHAVEN LOCK & DAM LOWER SECTOR GATE SEAL SETS Gasket, Packing, and Sealing Device Manufacturing 525 Ridgelawn RD. Information GAO gathered to improve the description The award supports the purchase of rubber fabricated lock and dam gate seals for use at Moore Haven Lock and Dam. Moore Haven Lock is located in Clewiston, Florida and is part of the Okeechobee Waterway Project. Purchase of these seals is part of a larger project to complete major maintenance of all four sector gates at Moore Haven Lock. The larger project provides for the continuation of operations significantly reducing the likelihood of failure for this highly utilized recreation site. Appendix XI Civil Works Program Periodic Inspection of Levees per list in the Statement of Work Conducted levee inspections and submitted activity reports 1210 Pemier Drive, Suite 200- Less Than 50% Completed Information GAO gathered to improve the description This award is for the inspection of two levee systems in the Memphis District to determine their condition and assess if repairs or additional maintenance is required. One levee system encompasses 67 miles, 6 segments, and 3 drainage structures and the other one encompasses 34 miles, 5 segments, and 5 drainage structures. Both the East Bank St. Francis Floodway System and the Big Lake Floodway West Levee System are located in Arkansas and Missouri near Rivervale, Arkansas. SCIPAR, INC. Deliver Powerplant Protective Relays per specifications. inspected, packaged, and delivered all relays per the contract requirements. A pending modification is needed for shipment of last required relay. Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers $185,265.00 Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the purchase of new protective relays, which are digital electronic equipment used to support transmission of electrical power. The U.S. Army Corps of Engineers Fort Randall Project Office, in Pickstown, South Dakota, purchased 65 protective relays of various types as well as related components and two communication processors and software. New relays are needed to support the operational system for transmitting electrical power to the customer, which enables the hydroelectric plant to continue to produce electrical power. BOWEN ENGINEERING & SURVEY INC Hydrographic Surveys, Mile 28.0 to 35.5, Kaskaskia River, Illinois Project is 100% Complete Surveying and Mapping (except Geophysical) Services 1078 Wolverine Lane, Suite J Cape Girardeau, MO 63701-9002 Information GAO gathered to improve the description The award supports the verification of older surveys and existing depths. These efforts were a precursor to the St. Louis Army Corps of Engineers performing dredging and other related work on the Kaskaskia River. ELITE ROOFING CO. - GENERAL CONTRACTOR To install Shoreline power at six lock sites along the Tennessee River including Guntersvills, AL, Chickamauga, TN, Nickajack, TN, Watts Bar, TN, Fort Loudon, TN and Grand Rivers Kentucky Lock, KY. We have completed the Guntersville project and the Chickamauga project. As of 12/29/09 we were 82% complete with the Nickajack project. Appendix XI Civil Works Program (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds the electrical wiring for the installation of shoreline power at six locks, which comprise a heavily used lock system along the Tennessee River. Power was not accessible along the shoreline of the lock system prior to this shoreline installation. Installation of electrical wiring is needed along the lock system for a variety of reasons, including powering tools needed to perform routine maintenance along the lock system. Recover-To provide labor, supplies and materials to furnish 76 pieces Hollaender 2' HD base flange mill finish fittings, 48 pieces 2' Hollaender #5-9 tees, 36 pieces 2' Hollaender #7-9 cross, 24 pieces #11-9 Hollaender side outlet tees, 20 pieces Hollaender #9-9 side outlet 90 ells, 40 pieces #3-9 Hollaender 90 ells, 408 pieces 4' toeplate bevels, 100 pieces TB brackets 3x2 angle hardware, 8 pieces Hollaender gate 2' hinge assm & pin latch hardware, and 1152 pieces 2' S40 pipe. Recover-To provide labor, supplies and materials to furnish 76 pieces Hollaender 2' HD base flange mill finish fittings, 48 pieces 2' Hollaender #5-9 tees, 36 pieces 2' Hollaender #7-9 cross, 24 pieces #11-9 Hollaender side outlet tees, 20 pieces Hollaender #9-9 side outlet 90 ells, 40 pieces #3-9 Hollaender 90 ells, 408 pieces 4' toeplate bevels, 100 pieces TB brackets 3x2 angle hardware, 8 pieces Hollaender gate 2' hinge assm & pin latch hardware, and 1152 pieces 2' S40 pipe. Plumbing and Heating Equipment and Supplies (Hydronics) Merchant Wholesalers 1850 Gravers Road, #100 Plymouth Meeting, PA 19462-2837 Information GAO gathered to improve the description The award funds the purchase of handrail components (2-inch aluminum handrails and various 2-inch aluminum handrail fittings to be placed around valve and gate pits) for Guntersville Lock, Alabama, located at Tennessee River mile 349 in Grant, Alabama. These purchases will allow the Nashville District’s Tennessee River project to address a backlog of infrastructure maintenance. Appendix XI Civil Works Program NEWLAND ENTITIES, INC. Construct and install new waste water lift station Awarded but NTP was not issued until January 2010 Other Heavy and Civil Engineering Construction Information GAO gathered to improve the description The award supports wastewater facility upgrades at Lake Mendocino's Coyote Valley Dam in Ukiah, California. The upgrades include positioning a new wastewater lift station, repairing wastewater plant tanks, and replacing leach fields. The award upgrades Lake Mendocino's 50-year-old recreational facilities for visitor health and safety. Rental of equipment to be used at the Carlyle Lake/Kaskaskia Nav Project IAW the contract specs, clauses,and provisions. CTI AND ASSOCIATES, INC. St. Louis flood protection Reach 3 pilot holes for new relief wells Geotechnical investigations, soil/laboratory soil sampling, monitoring well design, installation and documentation (Information not reported) St. Louis, MO 63108-2833 Less Than 50% Completed Information GAO gathered to improve the description This award is for drill machine borings at 13 locations landside of the St. Louis flood protection district in Reach 3 and 20 locations landside of the St. Louis flood protection district in Reach 4. These activities are part of a larger flood protection project that protects approximately 3,160 acres of industrial and commercial development from Mississippi River flooding. The flood protection system was constructed with inadequate closure structures and underseepage protection. These design deficiencies are being corrected to ensure that the system provides its authorized level of service. Appendix XI Civil Works Program HOWARD W. PENCE, INC. Provide all labor, materials and equipment for Port Oliver Phase II Project, including; 0017, Weigh in Shelter; 0018, Weigh In Area; 0019, Amphitheater; 0020, Amphitheater Restroom; 0021, ADA Sidewalk; 0022, Boat Ramp Extension; 0023, Western Boardwalk; 0024, Picnic Areas; 0025, ADA Sidewalk; 0026, Eastern Boardwalk. Project was started in November as of 12/31/09 the following progress is reported: Primary electric is 67% complete, Boat ramp restrooms are 66% complete, Western Boardwalk is 51% complete, Boat Ramp extension is 37% complete, Eastern Boardwalk is 31% complete, Picnic Area restroom is 25% complete, Amphitheater ADA Sidewalk is 22% complete, Picnic Area is 20% complete, Amphitheater restroom is 18% complete, Gravel overflow parking lot is 17% complete, Weigh-in shelter is 15% complete, Overlook is 15% complete, Picnic Loop road is 14% complete, Weigh in Area is 12% complete, Boat ramp ADA loading ramp is 10% complete, Picnic Loop Road Parking Lot is 10% complete, Amphitheater is 8% complete, Sewage treatment plant is 7% complete, Water Line (Main) is 7% complete, Picnic Area Playground is 6% complete, ADA Sidewalk is 5% complete,Picnic Area Shelter is 5% complete, Port Oliver Road Paving is 3% complete, Boat Ramp Parking Lot Paving is 1% complete, Courtesy Dock 1 & 2 are unstarted. Appendix XI Civil Works Program north springfield, VT 05150-0001 Information GAO gathered to improve the description The stairs being repaired include 3 flights and 2 landings. The work was needed to replace a 30-year-old set of stairs that were rotting and unsafe to use. The stairs allow safe access to the swimming beach and picnic area from the recreation parking lot. The Stoughton Pond Recreation Area is part of the North Springfield Lake project. North Springfield Lake is part of the system of reservoirs and local protection works for the control of floodwaters in the Connecticut River Basin. Sewer Connection from Cape Cod Canal Field Office to Town, Buzzards Bay, MA Commercial and Institutional Building Construction 42 Academy Dr. More than 50% Completed Information GAO gathered to improve the description The award connects the project office to the town sewer system in order to improve office environmental conditions and reduce future maintenance costs. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program This modification is issued to add CLIN 7001 in the funded amount of $5,000. Subsequently, the total amount of this Order is increased from $40,441.18 to $45,441.18. Senior Project Schedule services. St. Louis, MO 63103-2833 More than 50% Completed Information GAO gathered to improve the description The award supports an existing contract for one employee to provide database maintenance and project status reporting services for several Corps projects. The employee will provide these services for a base period with the option of a 12-month extension. The employee will work at the U.S. Army Corps of Engineers Office at 1222 Spruce Drive, St. Louis, Missouri. URS GROUP, INC. TAS::96 3134::TAS NON-TIME CRITICAL REMOVAL ACTION - ELIZABETH MINES SUPERFUND SITE, DESCOPE TASK 3.1 - TP-1 TOPOGRAPHIC SURVEY, EXERCISE OPTIONAL TASKS 1.1 - PROJECT MGMT. 3.1 - SURVEY JOSSLER PROPERTIES, 9.6 - LYSIMETER SAMPLING AS WELL AS AMEND SOW. Property Boundary/Survey Delineation Environmental Site Monitoring Engineering Evaluations (Hydraulics and Hydrology) Material Testing (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award is part of a larger contract for Hazardous Toxic Radioactive Waste (HTRW) cleanup at the Elizabeth Mines Superfund site. The award is for the collection of analytical data that will support the environmental engineering design for cleanup of the site. The Superfund site includes 35 acres of waste and the property boundary survey will determine how much private property is involved on a portion of the site. The work includes conducting a property boundary survey which will provide data to supplement the design report. The design will support the larger project goal of cleaning up the Superfund site and restoring the West Branch of the Ompompanoosuc River which discharges into the Connecticut River north of White River Junction, Vermont. REHIBILITATION FENCE BURNSVILLE LAKE Appendix XI Civil Works Program (Information not reported) Information GAO gathered to improve the description The award provides fencing related materials to the Corps at Burnsville Lake. Materials included 52,800 rolls of wire fence, 400 ACQ treated posts, 5,000 T fence posts, 10 lbs. of 1.25 inch galvanized fence staples, 15 steel tubular farm gates, and 56 bags of 60 lbs ready-mix concrete. HDB CONSTRUCTION, INC. Big Hill, Marion, Fall River, Elk City and John Redmond Lakes, Kansas Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The award supports maintenance and upgrades of recreation areas at Fall River, Marion, Big Hill, Elk City, and John Redmond Lakes in Kansas. The activities under this award include paving road and recreation vehicle sites, improvement or repairs of electric pedestals, and sewer and water service to a number of storm-damaged recreation sites. The award also provides for modification of a boat launching ramp at John Redmond Lake. Much of the activities are related to repairing of damage suffered during severe storms over the past 2 years. Appendix XI Civil Works Program kansas city, KS 66105-1200 Information GAO gathered to improve the description The award provides a 40-horsepower boat motor to be used for water safety purposes at Smithville Lake, Missouri. SHANNON & WILSON, INC. Time histories for Dworshak Dam Information GAO gathered to improve the description The award provides electronic time histories for the Dworshak Dam site in Idaho. Time histories, or seismological records, provide pictures of the ground and its movements. These time histories will assist the U.S. Army Corps of Engineers in modeling and evaluating the dam's ability to withstand earthquakes. Appendix XI Civil Works Program More than 50 % Complete All Other Professional, Scientific, and Technical Services More than 50% Completed Information GAO gathered to improve the description The award supports oversight and inspection of a contractor installing a riser pipe in the Yalobusha River Watershed. The project office is in Sardis, Mississippi, but the installation project covers three counties in the state. The installation of a riser pipe will help control the discharge of water so flooding does not occur in the area surrounding the river. Appendix XI Civil Works Program Less Than 50% Completed Information GAO gathered to improve the description The award provides funds to hire an Engineering Technician VI for the Levee Inspection Program. This technician will conduct inspections in various locations across the U.S. Army Corps of Engineers St. Louis District. As part of the Levee Safety/Inspection Program, inspections will examine and confirm the operations of elements of a levee system, such as pumps, relief wells and closures. Inspections include the creation of condition reports using a tool called the Levee Inspection System (LIS). The award will result in improved public safety by providing a better understanding of levee systems performance, including how to better evaluate levee systems and their predicted performance before they are tested by a flood. The award will also help ensure a nationwide standard for evaluating levees, which ultimately should provide information that will help prioritize fixes and rehabilitation, where necessary. GEOKON, INC. Geotechnical Instrumentation - Load Cells Other Measuring and Controlling Device Manufacturing (Information not reported) East Alton, IL 62024-2406 Information GAO gathered to improve the description The award funds pressure temperature humidity instruments for work being done to the upstream lift gate at Melvin Price Lock and Dam, specifically five strain gauge load cells. These were provided in support of the overall project at Melvin Price Lock and Dam and are typically used during repairs or refurbishments, when a dam may have shown leaks or needs upgrading for seismic evaluations, for example. The strain gauge load cells provided will ultimately allow the project to continue in a safe manner by measuring loads and holding the dam in place during repairs. Appendix XI Civil Works Program LAKE CONTRACTING, INC. Rip Rap Placement complet 50% or more Other Heavy and Civil Engineering Construction REND LAKE, 12220 REND CITY ROAD More than 50% Completed Information GAO gathered to improve the description The award supports the provision of vegetative management services at Rend Lake. The contractor is to furnish all labor, equipment, and material necessary to prepare sites and place rip rap. The work includes the repair of east and west side flood-damaged shoreline revetment and breakwaters. Repair of flood damaged shoreline revetment and breakwaters will stabilize the shoreline and breakwaters, increasing public safety and reliability of the features to protect valuable resources. Water and Sewer Line and Related Structures Construction Information GAO gathered to improve the description The award supports installation of individual sewer hookups for camp sites at the Littcarr Campground at Carr Creek Lake, 843 Sassafras Road, Sassafras, Kentucky. Some of these hookups will be connected to a main sewage line that in turn is connected to the sewage lift station. The hookups provide campers a means of disposing of waste material from recreational vehicles and trailers without having a negative impact on the local environment. The waste is carried to the lift station and from there to the treatment plant. This work improves the environment and also provides better services for visitors. Appendix XI Civil Works Program Install entrance gate and barriers Install entrance gate and barriers All Other Specialty Trade Contractors (Information not reported) Information GAO gathered to improve the description This award supports the installation of force protection measures at Northfield Brook Lake in Thomaston, Connecticut. Specifically, a single-arm heavy duty gate was installed to replace an older style chain-link access gate at the entrance to the lake providing access to the U.S. Army Corps of Engineers' flood control protection project. Work also included the placement of concrete jersey barriers on the dam at Brook Lake. This appendix describes federal agencies’ actions to review Recovery.gov information for accuracy. In addition, to supplement our findings on the information that describes awards (as discussed in the body of this report), we performed certain computer edit checks to test certain Recovery.gov information for apparent errors. Prime recipients, as owners of the recipient reporting data, have the principal responsibility for the quality of the data submitted, and subrecipients delegated to report on behalf of prime recipients share in this responsibility. OMB’s guidance does not explicitly mandate a methodology for conducting data quality reviews at the prime and delegated subrecipient level. In its June 22, 2009, guidance, OMB says that, at a minimum, recipients and subrecipients should establish internal controls to ensure data quality, completeness, accuracy, and timely reporting of all amounts funded by the Recovery Act. review told us they did not typically review the information provided in narrative fields, and of the three programs that do, none had a systematic process in place to evaluate the accuracy or transparency of the information. In light of the importance of the quality of the Recovery Act data, the Recovery Accountability and Transparency Board (Recovery Board) has worked with federal Inspectors General to establish a multiphased review process to look at the quality of the data submitted by Recovery Act recipients. All but one of the agencies covered in our review were included in the first phase of the Inspectors General review process—to determine if agencies had developed data quality reviews in anticipation of the data to be submitted. The first phase report revealed that all of the federal agencies in our review had designed processes to perform limited data- quality reviews intended to identify material omissions and significant reporting errors in information reported by recipients of Recovery Act funds. The second phase review included only seven agencies, three of which have programs covered in our review—Departments of Defense and Transportation and GSA. The second phase report identified data errors and omissions in recipients’ first cycle reports and factors that may have contributed to them and the actions taken by agencies, OMB, and the Recovery Board to improve the quality of the data that recipients will submit in future reporting cycles. However, the report did not comment on the quality of the data in the narrative fields. According to the Recovery Board, future reports will focus on the effectiveness of the agency data quality review processes. error message if the entry exceeds this limit. In addition to these completeness checks, FederalReporting.gov includes over 30 data quality checks that primarily focus on the numerical fields, such as the award amount and congressional district. One such edit returns an error message if the submitted place of performance congressional district does not correspond with the place of performance zip code. A senior OMB official told us that such edits were added after the first reporting round to help ensure that congressional districts are correctly entered. We conducted a number of electronic edit checks on all of the 467 prime recipient awards, and any associated subrecipients, in our probability sample, to determine whether there were anomalies that may have affected the transparency of the award information. There were 950 subrecipients associated with the 467 awards in our sample, but not all awards had subrecipients. We found that 109 awards had subrecipients, and the number of subrecipients among these 109 awards ranged from 1 to 79. At the low end of the range, 53 awards had just 1 subrecipient each, and 12 awards had 2 subrecipients. At the high end, 14 awards had 20 or more subrecipients. The 4 awards with the highest number of subrecipients per award had from 60 to 79 subrecipients. Most of the awards with 20 or more subrecipients were within the weatherization program. In total, we performed edit checks on all 1,417 prime recipient and subrecipient reports. For both prime recipient and subrecipient reports, the electronic edit checks resulted in no missing information for the following fields: award number, award date, award amount, fiscal year, fiscal quarter, status, recipient name, recipient congressional district, and recipient Data Universal Numbering System (or DUNS) number. For prime recipients only, we also checked the funding agency code, funding agency name, awarding agency code, awarding agency name, project status, and final report. There was no information missing in these fields either. 950 missing the second. However, neither prime recipients nor subrecipients were missing information on the country, state, city, or zip code. For prime recipient and subrecipient reports, we checked to see if any award dates were on or before February 17, 2009 (before the Recovery Act was enacted) and after December 31, 2009 (the end of the quarter for round two reporting). We found three cases in which the award date was on or before February 17, 2009 (one prime recipient, and two subrecipients). Six cases had award dates after December 31, 2009 (one prime recipient and five subrecipients). These nine cases amount to only about one-half of 1 percent of all prime recipient and subrecipient reports in our sample and are not material to our findings or conclusions. We also performed additional electronic checks to determine if total Recovery Act funds received exceeded the award amount, as well as whether total funds expended exceeded the award amount. There were no cases in our probability sample of prime recipients or any identified subrecipients for whom the total funds received exceeded the award amount. To identify the information that is required to be included as part of the descriptions of awards funded by the Recovery Act, we reviewed the reporting requirements contained in the act, OMB’s guidance, Recovery.gov reporting instructions, and supplemental agency reporting guidance that were applicable for the quarter ending December 31, 2009. We discussed the reporting requirements, guidance, and reporting instructions with officials from OMB, the Recovery Board, and the federal program agencies for the programs included in our review. We also discussed with federal, state, and local officials and recipients their experiences in providing descriptions of awards funded by the act, including any positive reactions to or concerns they had about the requirements and guidance. The state and local officials that we contacted were those that were part of a judgmental sample of 52 awards we selected from those that we had previously contacted as part of our work to report bimonthly on how the Recovery Act is being implemented and from our search of media stories about Recovery Act awards. We contacted officials in 15 states and the District of Columbia regarding the following programs—Grants-in-Aid for Airports, Highway Infrastructure Investment, Transit Capital Assistance, Broadband Technology Opportunities Program, and Weatherization Assistance Program—because these were the programs that we were already reviewing as part of our bimonthly Recovery Act efforts. Because we selected these awards judgmentally, we do not assert that the experiences related by state and local officials about these awards are necessarily representative of all awards in a particular program. required for recipient reporting that describe the uses of Recovery Act funds, including the 3 narrative fields previously discussed. In table 12, we reproduced OMB’s Recipient Reporting Model instructions, specifically the definitions and examples, for these fields. cost (amount awarded), status (percentage complete), and outcome (what is expected to be achieved; e.g., increased safety or reduced congestion as a result of a redesigned highway intersection or increased energy efficiency from installation of a new heating, ventilation, and air-conditioning system). To these six specific attributes we used our professional judgment to add a seventh that seemed to be a reasonable adjunct to OMB’s attributes: scope (i.e., information on the magnitude or extent of an award). For example, scope could be the number of homes to be weatherized statewide or the number of miles (or lane miles) to be repaved. Finally, using these seven attributes and our professional judgment, we assessed the clarity and understandability of the narrative text, together with the completeness of the descriptions in their entirety. Those that were clear, understandable, and complete we considered to be “transparent.” In conducting the transparency assessment, we reviewed information reported by prime recipients on Recovery.gov for the quarter ending December 31, 2009, and available to the public on February 10, 2010. While more recent information became available in April 2010 (for the quarter ending March 31), we could not have analyzed this information in the time that we had for our study. We chose to use recipient-reported data from Recovery.gov because the administration considers it to be the official information on Recovery Act spending. to try and identify recipient reports with incorrect program codes. Our population size for each of the nine programs represents the number of correctly recorded recipient reports in Recovery.gov, as of the date on which we downloaded the records. We treated the samples within each of the programs as a stratified design when producing the estimate for overall award transparency. Because we followed a probability sampling procedure, based on random selection, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 90 percent confidence interval. This is the interval that would contain the actual population value for 90 percent of the samples we could have drawn. As a result we are 90 percent confident that each of the confidence intervals in this report will include the true values in the study population. reviewed the award information without regard to the original determinations, compared his or her determination with the results of the two analysts, and made a deciding assessment. The practical difficulties of making sometimes subjective decisions about whether awards meet our transparency criteria may introduce errors, commonly called nonsampling errors. We took steps to minimize these errors, such as by developing instructions for analysts to guide assessing the transparency of award information; conducting a calibration exercise on an initial selection of 70 awards (before drawing the probability sample) to assess the transparency criteria and to ensure that all analysts were interpreting the criteria consistently; having two analysts independently review each award and reach agreement; and, after all results had been entered, reviewing all results within a program for consistency of interpretation. For descriptions that partially met or did not meet our transparency criteria, we visited publicly available federal, state, and recipient Web sites, and reviewed publicly available documents (e.g., state weatherization plans) to attempt to obtain insight into the aspects of the award information that we considered missing, nonspecific, or unclear. While we were often able to “complete” the descriptions using this approach, for some of the awards we had to call award officials to get the needed information. In all these cases, we were able to get this information. We did not attempt to quantify the proportion of awards for which we called award officials. information was missing in any address fields, particularly for the city, state, zip code, and country, but also for the award number, award date, award amount, fiscal year, fiscal quarter, status, recipient name, recipient Data Universal Numbering System (or DUNS) number, funding agency code, funding agency name, awarding agency code, awarding agency name, project status, or final report. Our second sample was a certainty sample of larger dollar awards. We drew this sample because our probability sample did not consider the size of awards. As a result, it is possible that the sample we drew contained a disproportionate number of smaller awards compared with the entire population of awards; therefore, we could not accurately determine the amount of total award dollars for each of our three levels of transparency (i.e. met, partially met, did not meet), and any association of dollars would be misleading. In drawing our large dollar sample, we selected between 2 and 28 of the largest awards in each program, for a total of 70 awards. Overall, the transparency results of this sample are consistent with those of the probability sample (31 percent met, 63 percent partially met, and 6 percent did not meet). This gives us a reasonable level of confidence that that the dollar amount of awards is not necessarily related to the level of transparency of the description. Our third sample was a judgmental sample of 52 awards described at the beginning of this appendix. Much as we did for our probability sample, we reviewed award information reported on Recovery.gov and used publicly available information from state and federal agency Recovery Act Web sites to complete the information, where needed. In addition, we gathered source documentation, such as grant documents, to gain a sense of the accuracy of the information being reported on Recovery.gov. We also discussed with award officials the feedback that they have received from the public and press. Finally, we contacted state and local auditors about issues raised about these awards, if any. activities (such as a transit agency’s purchasing buses and building transit maintenance facilities) that are part of a self-contained Recovery Act award. Other awards may be part of a larger project. For example, one award may be to install a higher-efficiency heating, ventilation, and air- conditioning system and another award may be to install a new roof, both for the same federal building under the Federal Buildings Fund Program. The Corps’ Civil Works program awards have the similar attribute of being part of a larger whole. We assessed descriptions for these two programs against the activities in the award. Because individual awards under these two programs are not tied together to an overall project in any way on Recovery.gov, we did not rate an award lower if it did not make reference to the larger goal of which the award was a part. For example, we did not mark down an award to install a seawall for the outcome of controlling erosion if the description did not state that the award was part of an overall effort by the Corps to make a waterway more navigable. As another aspect of our work to review transparency of award information, for the 11 programs we covered, we discussed with federal agency officials and reviewed efforts by federal Inspectors General to assess the reliability and usefulness of the data reported by recipients. Finally, as discussed in appendixes I through XI, we determined the nature and scope of Recovery Act funding, obligations, and expenditures for the 11 programs covered by our review. Regarding the nature and scope of funding, for each program, we reviewed the act to determine the overall level of funding. We obtained data from the program agencies on the obligations, expenditures, and general purposes of funded awards (e.g., pavement improvements for highways). We chose to analyze information from the federal agencies’ databases because it offers greater ability to parse program activities than do recipient-reported data on Recovery.gov. Relatedly, because the federal agencies keep information on these awards in different levels of detail, our ability to categorize it extends only as far as the detail in the agencies’ databases. The federal agencies update their data at different frequencies. As a result, data for the 11 programs covered by our review are as of different dates, although they all are recent. The earliest data that we report are as of March 31, 2010, for the Weatherization Assistance Program, the latest data are as of May 12, 2010, for the Broadband Technology Opportunities Program. This appendix presents the estimated error rates associated with the results of our transparency assessment, on the extent to which awards from our representative sample were transparent, presented in table 2 of this report. For example, if we had taken 100 samples of Weatherization Assistance Program awards, we would expect that in 90 of the samples, between 6.4 percent and 19.3 percent of the awards would have met our transparency criteria, established elsewhere in this report. Katherine Siggerud (202) 512-2834 or siggerudk@gao.gov for buildings, telecommunications, and transportation issues. Patricia Dalton (202) 512-3841 or daltonp@gao.gov for energy and Army Corps of Engineers issues. James Ashley, Carl Barden, Jonathan Carver, A. Nicole Clowers, Daniel Cain, Janice Ceperich, Michael Clements, Maria Edelstein, Elizabeth Eisenstadt, Susan Fleming, Mark Gaffigan, Joy Gambino, Kimberly Gianopoulos, Diana Goody, H. Brandon Haller, Daniel Hoy, Vondalee Hunt, Bert Japikse, Anar Ladhani, Hannah Laufe, Joanie Lofgren, Grant Mallie, Kristen Massey, David Maurer, Anu Mittal, Sara Ann Moessbauer, Joshua Ormond, James Ratzenberger, Amy Rosewarne, Beverly Ross, John Shumann, Larry Thomas, and Susan Zimmerman made significant contributions to this report. In addition, Laura Acosta, Silvia Arbelaez-Ellis, Paul Begnaud, Sarah Jane Brady, Laurel Breedon, Myra Watts Butler, Waylon Catrett, Sunny Chang, Richard Cheston, Chase Cook, James Cooksey, John H. Davis, Bonnie Derby, Kathleen Drennan, Daniel Egan, James Elgas, Nagla’a El-Hodiri, K. Eric Essig, Mattias Fenton, Christine Frye, Kathy Hale, John Hansen, Kay Harnish-Ladd, Barbara Haynes, Adam Hoffman, Sabur Ibrahim, Richard Jorgenson, Emily Larson, Alexander Lawrence, Jennifer Leone, Nancy Lueke, Richard Mayfield, Gail Marnik, Cory Marzullo, Ronald Maxon, Marietta Mayfield, Daniel Newman, Loren Obler, Keith O’Brien, Kathryn O’Dea, Carol Patey, Leslie Pollock, Gloria Proa, Frank Putallaz, Nadine Garrick Raidbard, Nitin Rao, Sanford Reigle, Matthew Rosenberg, Mark Ryan, Connie Sawyer Jr., Paul Schmidt, Ryan Scott, David Shoemaker, A. Paige Smith, Ray Smith, Ronald Stouffer, Rosemary Torres-Lerma, Robyn Trotter, and Stephen Ulrich contributed by conducting audit work at state and local governments. Moreover, Jennifer Andreone, Shea Bader, Steven Banovac, Deyanna Beeler, Amanda Cherrin, MacKenzie Cooper, Abbie David, George Erhart, Janida Grima, Michael Hanson, Paul Hobart, Dana Hopings, William King, Claire Li, Angela Miles, Justin Monroe, Meredith Moore, Michael Pahr, Chhandasi Pandya, Jonathan Stehle, April Van Cleef, Richard Winsor, and Katherine Wunderink contributed by conducting research that allowed us to complete descriptions for hundreds of Recovery Act awards. Finally, Joyce Evans, Jena Sinkfield, and Cynthia Taylor provided technical assistance. | A hallmark of efforts to implement the $862 billion American Recovery and Reinvestment Act of 2009 (Recovery Act) is to be transparent and accountable about what the money is being spent on and what is being achieved. To help achieve these goals, recipients are to report every 3 months on their award activities and expected outcomes, among other things. This information is available on Recovery.gov, the government's official Recovery Act Web site. As requested, this report covers 11 federal programs focused on broadband, energy, transportation, federal buildings, and civil works activities, representing $67 billion in Recovery Act funding. Primarily, the report (1) describes how the Office of Management and Budget (OMB) and federal agencies implemented the act to report funds' uses and (2) assesses the extent to which descriptions of awards meet GAO's transparency criteria. It also describes reported uses of funds for the 11 programs. GAO reviewed requirements for reporting in the act and OMB's guidance. Based on these requirements, GAO developed a transparency assessment and applied it to a probability sample of descriptions from 14,089 recipient reports. In addition, GAO reviewed 52 projects in detail in states that it had contacted as part of its bimonthly reviews and interviewed federal, state, and local officials about their experiences with reporting descriptions of awards. This report focuses on one aspect of transparency and accountability: the extent to which descriptions of awards found on Recovery.gov foster a basic understanding of award activities and expected outcomes. Section 1512 of the act created broad requirements for recipient reporting. The act does not further explain these requirements. To implement the act, OMB provided generic guidance instructing recipients to report narrative information, among other things, that captures the overall purpose of the award and expected results. GAO estimates that, for the nine programs with funds awarded by December 31, 2009, 25 percent of the descriptions met its transparency criteria; that is, they had sufficiently clear and complete information on the award's purpose, scope and nature of activities, location, cost, outcomes, and status of work. Two factors may have influenced what GAO found. First, GAO's results were somewhat more positive for programs in which the federal agencies provided program-specific materials that supplemented OMB's guidance with detailed information on what recipients should include in the narrative fields. The highway, transit, and geothermal programs that GAO reviewed tended to have more transparent descriptions compared with programs that only supplied general guidance. Second, officials in many programs told GAO that they did not typically include the narrative fields in their data quality reviews. While an estimated three-quarters of the recipient-reported information did not fully meet GAO's transparency criteria--thus potentially hampering understanding of what is being achieved with Recovery Act funding--GAO found that federal and state Recovery Act Web sites, in some cases, provided additional information that could aid the public in understanding what its tax dollars are being spent on and what outcomes are expected. GAO collected information on the reported uses of funds from federal agencies for the 11 programs it reviewed. These uses ranged from improving infrastructure to improving Internet access. Agencies have obligated program funds at different rates, which may be due, in part, to whether the programs were new, existing, or received sizable funding increases. GAO also asked the federal agencies and selected state agencies in its review about how they make Recovery Act project information available to the public and what feedback they have received. Each agency has established a Recovery Act Web site, as have states, some state auditors and Inspectors General, and some recipients. These sites contain varying amounts of information, such as program objectives, lists of projects, and interactive maps. To further public understanding of what Recovery Act funds are being spent on and the expected results, GAO recommends that the Director, OMB, (1) revise the agency's recipient reporting guidance to remedy the unclear examples and enhance instructions for completing narrative fields; (2) work with agencies to determine whether supplemental guidance is needed to meet the intent of the act and whether that supplemental guidance or other technical assistance proposed by agencies dealing with narrative descriptions of awards provides for transparent descriptions of funded activities; and (3) periodically review, in partnership with federal agencies, the recipients' descriptions of awards to determine whether the information provides a basic understanding of the uses of the funds and expected outcomes, and, if not, encourage agencies to develop or improve program-specific guidance, as well as work with the Recovery Board as the board reviews the results of agencies' data quality reviews to further reinforce actions to meet transparency goals. In commenting on a draft of this report, OMB agreed with GAO's recommendations. OMB and the federal agencies provided a number of specific comments, many of which GAO incorporated. |
The Air Force’s manpower requirements are determined by individual major commands, using a number of methodologies, including manpower standards, logistical models, and crew ratios. Once approved by Air Force leadership, the results serve as the basis for authorizing military, civilian, and contractor positions in the Air Force and are entered into the Air Force’s Manpower Data System. The Air Force’s Directorate of Manpower and Organization designed the Total Force Assessment (TFA) process to assess whether the various methodologies used by the Air Force to determine manpower requirements generated sufficient manpower to accomplish two purposes: (1) meet deployment commitments should it be called on to fight two major theater wars and (2) conduct multiple small-scale contingency operations in peacetime. To assess whether the authorized manpower was adequate for the wartime scenario, the Air Force compared the authorized forces in the Manpower Data System to the deployment commitments demanded by the two major theater wars. It then calculated the effect of deploying these forces on the manpower needed to continue operations at existing airbases (i.e., in-place support forces). Demands for the deployment commitments were identified using troop deployment listsgenerated from war plans for conducting wars in Southwest and Northeast Asia. The requirements for in-place support forces were calculated using a model that adjusts manpower requirements to account for changes in the personnel needed to support ongoing Air Force operations when forces are deployed. Plans for assessing the adequacy of forces in peacetime were never finalized. The Air Force conducted only the wartime component of the assessment, not the component assessing the adequacy of its manpower in conducting multiple contingency operations in peacetime. Moreover, the wartime component of the assessment was stopped before all discrepancies were resolved and, as a result, it was not conclusive. The incompleteness and irregular timing of this and similar past assessments indicate that they have not been a high priority for the Air Force. The Total Force Assessment was not entirely implemented as planned, and as a result the Air Force cannot objectively demonstrate that it has the manpower needed to carry out the operations envisioned by DOD. Begun in May 2000, this effort was conducted, in part, to provide the Air Force with an overarching analysis of its personnel requirements in preparation for the 2001 Quadrennial Defense Review. It was to be completed by January 2001. However, as of January 2002, the Air Force had essentially completed its assessment of wartime requirements, but it had not yet begun its assessment of whether Air Force authorized personnel were sufficient to support contingency operations in peacetime. The peacetime analysis was important because it would demonstrate whether particular career fields might be overburdened in peacetime even if sufficient forces were available to meet the two-theater-war scenario. The results of the wartime analysis were somewhat inconclusive because the Air Force stopped work on the study before some discrepancies in the assessment’s results were resolved. These discrepancies occurred because the process used for the study resulted in double counting some requirements, which in turn required the Air Force to manually review results for accuracy. Air Force officials told us they discontinued further work resolving discrepancies because Air Force leadership believed there was a strong likelihood that defense guidance would be changed from the two major theater war scenario to some other scenario. Such a change would have reduced the utility of any further efforts to produce more accurate results. At the time they stopped work, Air Force officials had concluded that results were about 90 percent accurate. According to Air Force officials, the leadership of the Air Force Directorate of Manpower and Organization believed that, at that point, the assessment results showed that forces were adequate to support the wartime scenario, and these results were subsequently briefed to the chief of staff of the Air Force. At the time of our review, Air Force officials still planned to conduct the peacetime analysis, but in view of the change in defense strategy they no longer plan to complete this portion of the current assessment. Instead, the Air Force plans to revamp the TFA process. Air Force officials advised us that in the future the TFA might be streamlined and shortened in duration since Air Force leadership believes that the current assessment is too time-consuming and manpower intensive. These officials said that they had proposed that the next TFA capitalize on the modeling that was used in the most recent Quadrennial Defense Review to test whether Air Force manpower is sufficient to meet a wide range of scenarios indicated by that review. Using this new approach, Air Force officials now anticipate completing a new iteration of TFA, covering the full spectrum of conflict, by December 2002. The incomplete implementation of the TFA reflects that, to some extent, the Air Force has not placed a high priority on achieving the goals of this type of assessment, as evidenced by the long interval experienced between assessments. A forerunner to Total Force Assessment, FORSIZE, was last completed in 1995—more than 6 years ago. No FORSIZE study was conducted in 1996 or 1997 because the analytical resources needed to conduct the assessment were devoted to the 1997 Quadrennial Defense Review instead. Planning for the most recent TFA began in 1999, but efforts were impeded by other changes the Air Force was undergoing, such as the recognition that the Air Force needed forces to conduct contingency operations as well as forces to meet the wartime scenarios, a need that then had to be incorporated in TFA’s design. While these changes certainly complicated the Air Force analysis, such uncertainty and change have almost become constants within DOD. Doing without a regular, institutionalized process— on the basis of inevitable complications—denies the Air Force’s Directorate of Manpower and Organization a way to determine objectively whether it has the forces needed to carry out the defense strategy. The Air Force did not use the results from the assessment for all of the purposes it had envisioned. On the positive side, Air Force officials told us that TFA results had been useful in helping some functional managers discuss the health of their career fields in briefings to the chief of staff of the Air Force. For example, the Total Force Assessment showed that the number of active forces fell somewhat short of the numbers demanded for the wartime scenario, while the number of reserve forces exceeded demands. In some situations, functional managers were asked to consider making greater use of reserve forces if active forces were deemed insufficient. On the other hand, the Air Force did not use TFA results as anticipated to support changes in budget submissions or to influence day- to-day management of manpower assets. Officials also noted that TFA results were not used to reallocate forces among various functional managers to make the best use of available forces, although they noted that TFA was not designed to do this. As a result, TFA has not lived up to its full potential for assisting Air Force leadership in making manpower decisions that can lead to a more effective force. We believe there are two possible reasons why the Air Force did not use TFA results to the full extent expected. First, because implementation of TFA was incomplete, the results themselves are incomplete and thus may have been viewed as of limited value for supporting changes to the budget or in making day to day management decisions. For example, officials told us that, with the changes to defense guidance and deployment schedules, TFA results are now viewed as one more data source on which to base decisions. Second, because TFA has not been institutionalized and does not occur on a regular basis, its results may have been viewed as insufficient or not timely for these purposes; for example, the Air Force might not have been able to link TFA results to very formalized and regularly occurring systems like the budget. Because the Air Force cannot objectively demonstrate that it has the forces necessary to carry out the full spectrum of military operations envisioned in defense guidance, its operational risk in both wartime and peacetime may not be fully understood. Both the secretary of defense and the Congress need this information to effectively discharge their respective oversight responsibilities. Without an institutionalized process for assessing risk, which occurs on a regular basis, the Air Force has no way of knowing what mitigating actions might be warranted. On the positive side, the Air Force has identified other aspects of force management that could benefit from the results of a Total Force Assessment. However, it has not been able to capitalize on this potential because the results to date have been incomplete and irregularly obtained. By not placing a high enough priority on conducting a regularly occurring assessment and by underutilizing assessment results, the Air Force may be shortchanging itself in terms of achieving an appropriate force size and mix and in terms of fully developing the related funding requirements. To enable the Air Force to objectively demonstrate it has the forces necessary to support the spectrum of military operations envisioned in the defense strategy and to enhance force management processes, we recommend that the secretary of defense direct the secretary of the Air Force to institutionalize a Total Force Assessment process to be conducted on a regular basis with clearly articulated uses for its results. In commenting on a draft of this report, DOD concurred with our recommendation that the Air Force institutionalize TFA but took issue with some of the findings and analysis in our assessment. DOD’s concerns center around whether the Air Force implemented TFA as planned and was able to establish its ability to carry out the full spectrum of missions envisioned by the defense strategy. Our assertion that the TFA was not implemented as planned is based on the fact that the chief of staff of the Air Force tasking letter that initiated TFA and the subsequent overarching guidance written by the Air Force specified an assessment of manpower requirements for both peacetime and wartime operations. At the time of our review, the Air Force had completed the wartime portion, but had not yet addressed peacetime operations. We understand, and noted in our report, that the Air Force now expects to complete a new iteration of TFA, covering the full spectrum of conflict, by December 2002. We endorse this effort and are hopeful that it reaches fruition. It does not alter the fact, however, that the fiscal year 1999 TFA was not fully implemented as planned, and that, lacking requirements for peacetime operations, it did not objectively establish the Air Force’s ability to fully execute the defense guidance. DOD’s comments also stress that the two major theater war portion of TFA was completed and briefed to the chief of staff of the Air Force and that the results showed that the Air Force had sufficient manpower to satisfy mission requirements. Our report acknowledges these facts. We noted, however, that the numbers resulting from the assessment were somewhat inconclusive and less useful than they might have been because work on the study was discontinued before all discrepancies were resolved. As stated in our report, Air Force officials estimated that final results were about 90 percent accurate. DOD’s comments further questioned our conclusion that TFA had not capitalized as anticipated on the assessment’s results, stating that the results of TFA were used widely for initiating taskings and making decisions. Our report does not indicate that TFA results were not used at all, only that its intended potential was not realized. We were unable to document the extent to which TFA was used for tasking and decision- making because the Air Force Directorate of Manpower and Organization did not produce a final report on TFA results, and it did not establish procedures for systematically tracking issues developed from TFA data and resulting actions to resolve them. Based on information provided by Air Force officials, we did acknowledge in our report that TFA results were used by functional managers to explore increasing the use of reserve forces to mitigate shortfalls in the active forces. However, during our review Air Force officials told us that TFA results would not be used for other purposes envisioned in the initial guidance written for TFA (e.g., supporting budget submissions and for day-to-day management of manpower assets). The department’s written comments are presented in their entirety in appendix I. To evaluate whether the Air Force’s Total Force Assessment demonstrated that forces are adequate to carry out the defense strategy, we reviewed Air Force policy, guidance, and documents used in planning and conducting the assessment from calendar year 1999 through 2001. We also reviewed the assessment’s results and discussed these results with officials responsible for this analysis. These included representatives of the Air Force’s Directorate of Manpower and Organization at the Pentagon; Air Force Manpower Readiness Flight at Fort Detrick, Maryland; and the Air Force Manpower and Innovation Agency in San Antonio, Texas. We also discussed the assessment’s methodology and past assessments with these officials. We did not independently verify the underlying manpower- requirements system information that serves as the starting point for the Total Force Assessment. To determine how the Air Force used the assessment’s results, we identified its anticipated uses and discussed with Air Force officials how these results were actually used. We conducted our review from July 2001 through January 2002, in accordance with generally accepted government audit standards. We obtained comments on a draft of this report from the Department of Defense and incorporated its comments where appropriate. We are sending copies of this report to the secretary of defense and the director, Office of Management and Budget. We will also make copies available to appropriate congressional committees and to other interested parties on request. If you or your staff has any questions about this report, please call me at (202) 512-3958. Major contributors to this report were Gwendolyn R. Jaffe, James K. Mahaffey, Norman L. Jessup, Jr., and Susan K. Woodward. | The Air Force began to test the force requirements in its manpower requirements-determination process in May 2000. The defense strategy envisions simultaneously fighting two major theater wars and conducting multiple contingency operations in peacetime. The Total Force Assessment was the Air Force's first evaluation of manpower adequacy in these contexts since 1995. Because the Total Force Assessment was not implemented as planned, the Air Force cannot demonstrate that it has the forces needed to carry out the full spectrum of military operations. Although intended to examine whether authorized Air Force personnel were sufficient to meet both the wartime and peacetime scenarios, the assessment only addressed the wartime scenario and did not address the adequacy of manpower for conducting multiple contingency operations in peacetime. Air Force officials concluded that manpower was adequate to support the wartime scenario but this assessment was inconclusive because the effort was discontinued before all discrepancies in the assessment's results were resolved. Although the Air Force spent considerable time and effort conducting at least a portion of its planned assessment, it has not used the results to the extent anticipated. |
IRCA provided for sanctions against employers who do not follow the employment verification (Form I-9) process. Employers who fail to properly complete, retain, or present for inspection a Form I-9 may face civil or administrative fines ranging from $110 to $1,100 for each employee for whom the form was not properly completed, retained, or presented. Employers who knowingly hire or continue to employ unauthorized aliens may be fined from $275 to $11,000 for each employee, depending on whether the violation is a first or subsequent offense. Employers who engage in a pattern or practice of knowingly hiring or continuing to employ unauthorized aliens are subject to criminal penalties consisting of fines up to $3,000 per unauthorized employee and up to 6 months imprisonment for the entire pattern or practice. The Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) of 1996 required INS and SSA to operate three voluntary pilot programs to test electronic means for employers to verify an employee’s eligibility to work, one of which was the Basic Pilot Program. The Basic Pilot Program was designed to test whether pilot verification procedures could improve the existing employment verification process by reducing (1) false claims of U.S. citizenship and document fraud; (2) discrimination against employees; (3) violations of civil liberties and privacy; and (4) the burden on employers to verify employees’ work eligibility. The Basic Pilot Program provides participating employers with an electronic method to verify their employees’ work eligibility. Employers may participate voluntarily in the Basic Pilot Program, but are still required to complete Forms I-9 for all newly hired employees in accordance with IRCA. After completing the forms, these employers query the pilot program’s automated system by entering employee information provided on the forms, such as name and social security number, into the pilot Web site within 3 days of the employees’ hire date. The pilot program then electronically matches that information against information in SSA and, if necessary, DHS databases to determine whether the employee is eligible to work, as shown in figure 1. The Basic Pilot Program electronically notifies employers whether their employees’ work authorization was confirmed. Those queries that the DHS automated check cannot confirm are referred to DHS immigration status verifiers who check employee information against information in other DHS databases. In cases when the pilot system cannot confirm an employee’s work authorization status either through the automatic check or the check by an immigration status verifier, the system issues the employer a tentative nonconfirmation of the employee’s work authorization status. In this case, the employers must notify the affected employees of the finding, and the employees have the right to contest their tentative nonconfirmations by contacting SSA or USCIS to resolve any inaccuracies in their records within 8 days. During this time, employers may not take any adverse actions against those employees, such as limiting their work assignments or pay. Employers are required to either immediately terminate the employment, or notify DHS of the continued employment, of workers who do not successfully contest the tentative nonconfirmation and those who the pilot program finds are not work-authorized. In 1986, IRCA established the employment verification process based on employers’ review of documents presented by employees to prove identity and work eligibility. On the Form I-9, employees must attest that they are U.S. citizens, lawfully admitted permanent residents, or aliens authorized to work in the United States. Employers must then certify that they have reviewed the documents presented by their employees to establish identity and work eligibility and that the documents appear genuine and relate to the individual presenting them. In making their certifications, employers are expected to judge whether the documents presented are obviously counterfeit or fraudulent. Employers are deemed in compliance with IRCA if they have followed the Form I-9 process, including when an unauthorized alien presents fraudulent documents that appear genuine. Since passage of IRCA in 1986, document and identity fraud have made it difficult for employers who want to comply with the employment verification process to ensure they hire only authorized workers. In its 1997 report to Congress, the Commission on Immigration Reform noted that the widespread availability of false documents made it easy for unauthorized aliens to obtain jobs in the United States. In past work, we reported that large numbers of unauthorized aliens have used false documents or fraudulently used valid documents belonging to others to acquire employment, including at critical infrastructure sites like airports and nuclear power plants. In addition, although studies have shown that the majority of employers comply with IRCA and try to hire only authorized workers, some employers knowingly hire unauthorized workers, often to exploit the workers’ low cost labor. For example, the Commission on Immigration Reform reported that employers who knowingly hired illegal aliens often avoided sanctions by going through the motions of compliance while accepting false documents. Likewise, in 1999 we concluded that those employers who do want to comply with IRCA can intentionally hire unauthorized workers under the guise of having complied with the employment verification requirements by claiming that unauthorized workers presented false documents to obtain employment. The large number and variety of documents that are acceptable for proving work eligibility have complicated employer verification efforts under IRCA. Following the passage of IRCA in 1986, employees could present 29 different documents to establish their identity and/or work eligibility. In a 1997 interim rule, INS reduced the number of acceptable work eligibility documents from 29 to 27. The interim rule implemented changes to the list of acceptable work eligibility documents mandated by IIRIRA and was intended to serve as a temporary measure until INS issued final regulations on modifications to the Form I-9. In 1998, INS proposed a further reduction in the number of acceptable work eligibility documents to 14, but did not finalize the proposed rule. Since the passage of IRCA, various studies have addressed the need to reduce the number of acceptable work eligibility documents to make the employment verification process simpler and more secure. For example, we previously reported that the multiplicity of work eligibility documents contributed to (1) employer uncertainty about how to comply with the employment verification requirements and (2) discrimination against authorized workers. In 1998, INS noted that, when IRCA was first passed, a long inclusive list of acceptable work eligibility documents was allowed for the Form I-9 to help ensure that all persons who were eligible to work could easily meet the requirements, but as early as 1990, there had been evidence that some employers found the list confusing. According to DHS officials, the department is assessing possible revisions to the Form I-9 process, including reducing the number of acceptable work eligibility documents, but has not established a target time frame for completing this assessment and issuing regulations on Form I-9 changes. DHS released an updated version of the Form I-9 in May 2005 that changed references from INS to DHS but did not modify the list of acceptable work eligibility documents on the Form I-9 to reflect changes made to the list by the 1997 interim rule. Moreover, DHS recently issued interim regulations on the use of electronic Forms I-9, which provide guidance to employers on electronically signing and storing Forms I-9. Various immigration experts have noted that the most important step that could be taken to reduce illegal immigration is the development of a more effective system for verifying work authorization. In particular, the Commission on Immigration Reform concluded that the most promising option for verifying work authorization was a computerized registry based on employers’ electronic verification of an employee’s social security number with records on work authorization for aliens. The Basic Pilot Program, which is currently available on a voluntary basis to all employers in the United States, operates in a similar way to the computerized registry recommended by the commission, and shows promise to enhance employment verification and worksite enforcement efforts. Only a small portion—about 8,600 as of June 2006—of the approximately 5.6 million employer firms nationwide have registered to use the pilot program, and about 4,300 employers are active users. The Basic Pilot Program enhances the ability of participating employers to reliably verify their employees’ work eligibility and assists participating employers with identification of false documents used to obtain employment by comparing employees’ Form I-9 information with information in SSA and DHS databases. If newly hired employees present counterfeit documents, the pilot program would not confirm the employees’ work eligibility because their employees’ Form I-9 information, such as the false name or social security number, would not match SSA and DHS database information when queried through the Basic Pilot Program. Although ICE has no direct role in monitoring employer use of the Basic Pilot Program and does not have direct access to program information, which is maintained by USCIS, ICE officials told us that program data could indicate cases in which employers do not follow program requirements and therefore would help the agency better target its worksite enforcement efforts toward those employers. For example, the Basic Pilot Program’s confirmation of numerous queries of the same social security number could indicate that a social security number is being used fraudulently or that an unscrupulous employer is knowingly hiring unauthorized workers by accepting the same social security number for multiple employees. ICE officials noted that, in a few cases, they have requested and received pilot program data from USCIS on specific employers who participate in the program and are under ICE investigation. However, USCIS officials told us that they have concerns about providing ICE broader access to Basic Pilot Program information because it could create a disincentive for employers to participate in the program, as employers may believe that they are more likely to be targeted for a worksite enforcement investigation as a result of program participation. According to ICE officials, mandatory employer participation in the Basic Pilot Program would eliminate the concern about sharing data and could help ICE better target its worksite enforcement efforts on employers who try to evade using the program. Moreover, these officials told us that mandatory use of an automated system like the pilot program, could limit the ability of employers who knowingly hired unauthorized workers to claim that the workers presented false documents to obtain employment, which could assist ICE agents in proving employer violations of IRCA. Although the Basic Pilot Program may enhance the employment verification process and a mandatory program could assist ICE in targeting its worksite enforcement efforts, weaknesses exist in the current program. For example, the current Basic Pilot Program cannot help employers detect identity fraud. If an unauthorized worker presents valid documentation that belongs to another person authorized to work, the Basic Pilot Program would likely find the worker to be work-authorized. Similarly, if an employee presents counterfeit documentation that contains valid information and appears authentic, the pilot program may verify the employee as work-authorized. DHS officials told us that the department is currently considering possible ways to enhance the Basic Pilot Program to help it detect cases of identity fraud, for example, by providing a digitized photograph associated with employment authorization information presented by an employee. Delays in the entry of information on arrivals and employment authorization into DHS databases can lengthen the pilot program verification process for some secondary verifications. Although the majority of pilot program queries entered by employers are confirmed via the automated SSA and DHS verification checks, about 15 percent of queries authorized by DHS required secondary verifications by immigration status verifiers in fiscal year 2004. According to USCIS, cases referred for secondary verification are typically resolved within 24 hours, but a small number of cases take longer, sometimes up to 2 weeks, due to, among other things, delays in entry of data on employees who received employment authorization documents generated by a computer and camera that are not directly linked to DHS databases. Secondary verifications lengthen the time needed to complete the employment verification process and could harm employees because employers might reduce those employees’ pay or restrict training or work assignments, which are prohibited under pilot program requirements, while waiting for verification of their work eligibility. DHS has taken steps to increase the timeliness and accuracy of information entered into databases used as part of the Basic Pilot Program and reports, for example, that data on new immigrants are now typically available for verification within 10 to 12 days of an immigrant’s arrival in the United States while, previously, the information was not available for up to 6 to 9 months after arrival. Furthermore, employer noncompliance with Basic Pilot Program requirements may adversely affect employees queried through the program. The Temple University Institute for Survey Research and Westat evaluation of the Basic Pilot Program concluded that the majority of employers surveyed appeared to be in compliance with Basic Pilot Program procedures. However the evaluation and our review found evidence of some noncompliance with these procedures, such as those that prohibit screening job applicants or limiting of employees’ work assignments or pay while contesting tentative nonconfirmations. The Basic Pilot Program provides a variety of reports that may help USCIS determine whether employers follow program requirements, but USCIS officials told us that their efforts to review employers’ use of the pilot program have been limited by lack of staff available to oversee and examine employer use of the program. According to USCIS officials, due to the growth in other USCIS verification programs, current USCIS staff may not be able to complete timely secondary verifications if the number of employers using the program significantly increased. In particular, these officials said that if a significant number of new employers registered for the program or if the program were mandatory for all employers, additional staff would be needed to maintain timely secondary verifications. USCIS has approximately 38 Immigration Status Verifiers allocated for completing Basic Pilot Program secondary verifications, and these verifiers reported that they are able to complete the majority of manual verification checks within their target time frame of 24 hours. However, USCIS officials said that the agency has serious concerns about its ability to complete timely verifications if the number of Basic Pilot Program users greatly increased. Worksite enforcement is one of various immigration enforcement programs that competes for resources and among INS and ICE responsibilities, and worksite enforcement has been a relatively low priority. For example, in the 1999 INS Interior Enforcement Strategy, the strategy to block and remove employers’ access to undocumented workers was the fifth of five interior enforcement priorities. In that same year, we reported that, relative to other enforcement programs in INS, worksite enforcement received a small portion of INS’s staffing and enforcement budget and that the number of employer investigations INS conducted each year covered only a fraction of the number of employers who may have employed unauthorized aliens. In keeping with the primary mission of DHS to combat terrorism, after September 11, 2001, INS and then ICE focused investigative resources primarily on national security cases. In particular, INS and then ICE focused available resources for worksite enforcement on identifying and removing unauthorized workers from critical infrastructure sites, such as airports and nuclear power plants, to help reduce vulnerabilities at those sites. We previously reported that, if critical infrastructure-related businesses were to be compromised by terrorists, this would pose a serious threat to domestic security. According to ICE, the agency adopted this focus on critical infrastructure protection because the fact that unauthorized workers can obtain employment at critical infrastructure sites indicates that there are vulnerabilities in those sites’ hiring and screening practices, and unauthorized workers employed at those sites are vulnerable to exploitation by terrorists, smugglers, traffickers, and other criminals. ICE has inspected Forms I-9 and employer records at hundreds of critical infrastructure sites, including at about 200 airports as part of Operation Tarmac and at more than 50 nuclear power plants as part of Operation Glow Worm. More recently, ICE announced conducting worksite enforcement operations at other critical infrastructure sites, including at an airport, chemical plants, and a water and power facility. Since fiscal year 1999, INS and ICE have dedicated a relatively small portion of overall agent resources to the worksite enforcement program. As shown in figure 2, in fiscal year 1999 INS allocated about 240 full-time equivalents to worksite enforcement efforts, while in fiscal year 2003, ICE allocated about 90 full-time equivalents. Between fiscal years 1999 and 2003, the percentage of agent work-years spent on worksite enforcement efforts generally decreased from about 9 percent to about 4 percent. Although worksite enforcement has been a low priority relative to other programs, ICE has proposed increasing agent resources for the worksite enforcement program. For example, in its fiscal year 2007 budget submission, ICE requested funding for 206 additional positions for worksite enforcement. Yet, at this point, it is unclear what impact, if any, these additional resources would have on worksite enforcement efforts. The number of notices of intent to fine issued to employers as well as the number of unauthorized workers arrested at worksites have generally declined. Between fiscal years 1999 and 2004, the number of notices of intent to fine issued to employers for improperly completing Forms I-9 or knowingly hiring unauthorized workers generally decreased from 417 to 3. (See fig. 3.) The number of unauthorized workers arrested during worksite enforcement operations has also declined since fiscal year 1999. As shown in figure 4, the number of worksite arrests for administrative violations of immigration law, such as for violating the terms of a visa, declined by about 84 percent from 2,849 in fiscal year 1999 to 445 in fiscal year 2003. ICE attributes the decline in the number of notices of intent to fine issued to employers and number of administrative worksite arrests to various factors including the widespread availability and use of counterfeit documents and the allocation of resources to other priorities. Various studies have shown that the availability and use of fraudulent documents have made it difficult for ICE agents to prove that employers knowingly hired unauthorized workers. ICE officials also told us that employers who agents suspect of knowingly hiring unauthorized workers can claim that they were unaware that their workers presented false documents at the time of hire, making it difficult for agents to prove that the employer willfully violated IRCA. In addition, according to ICE, the allocation of INS and ICE resources to other priorities has contributed to the decline in the number of notices of intent to fine and worksite arrests. For example, INS focused its worksite enforcement resources on egregious violators who were linked to other criminal violations, like smuggling, fraud or worksite exploitation, and de- emphasized administrative employer cases and fines. Furthermore, ICE investigative resources were redirected from worksite enforcement activities to criminal alien cases, which consumed more investigative hours by the late 1990s than any other enforcement activity. After September 11, 2001, INS and ICE focused investigative resources on national security cases, and in particular, focused worksite enforcement efforts on critical infrastructure protection, which is consistent with DHS’s primary mission to combat terrorism. According to ICE, the redirection of resources from other enforcement programs to perform national security- related investigations resulted in fewer resources for traditional program areas like fraud and noncritical infrastructure worksite enforcement. Additionally, some ICE field representatives, as well as immigration experts, noted that the focus on critical infrastructure protection does not address the majority of worksites in industries that have traditionally provided the magnet of jobs attracting illegal aliens to the United States. As part of the Secure Border Initiative, in April 2006 ICE announced a new interior enforcement strategy to target employers of unauthorized aliens, immigration violators, and criminal networks. Under this strategy, ICE plans to target employers who knowingly employ unauthorized workers by bringing criminal charges against them. ICE has reported increases in the numbers of criminal arrests, indictments, and convictions between fiscal years 2004 and 2005 as a result of these efforts. Between fiscal years 2004 and 2005, ICE reported that the number of criminal arrests increased from 160 to 165. Furthermore, in fiscal year 2005 ICE reported that the number of criminal indictments and convictions were 140 and 127, respectively, and in fiscal year 2004 the number of indictments and convictions were 67 and 46, respectively. In addition, ICE reported arresting 980 individuals on administrative immigration violations in fiscal year 2005 as a result of its worksite enforcement efforts. INS and ICE have faced difficulties in setting and collecting fine amounts that meaningfully deter employers from knowingly hiring unauthorized workers and in detaining unauthorized workers arrested at worksites. ICE officials told us that because fine amounts are so low, the fines do not provide a meaningful deterrent. These officials also said that when agents could prove that an employer knowingly hired an unauthorized worker and issued a notice of intent to fine, the fine amounts agents recommended were often negotiated down in value during discussion between agency attorneys and employers. The amount of mitigated fines may be, in the opinion of some ICE officials, so low that they believe that employers view the fines as a cost of doing business, making the fines an ineffective deterrent for employers who attempt to circumvent IRCA. According to ICE, the agency mitigates employer fine amounts because doing so may be a more efficient use of government resources than pursuing employers who contest or ignore fines, which could be more costly to the government than the fine amount sought. An ICE official told us that use of civil settlements and criminal charges instead of pursuit of administrative fines, specifically in regard to noncritical infrastructure employers, could be a more efficient use of investigative resources. In 2005, ICE settled a worksite enforcement case with a large company without going through the administrative fine process. As part of the settlement, the company agreed to pay $11 million and company contractors agreed to pay $4 million in forfeitures—more than an administrative fine amount ever issued against an employer for ICE violations. ICE officials also said that use of civil settlements could help ensure employers’ future compliance by including in the settlements a requirement to entire into compliance agreements, such as the Basic Pilot Program. In addition, as part of ICE’s new interior enforcement strategy, the agency plans to bring criminal charges against employers who knowingly hire unauthorized workers, rather than using administrative fines to sanction employers. The practice of using civil settlements and criminal charges against employers is in the early stages of implementation; therefore, the extent to which it may help limit the employment of unauthorized workers is not yet known. The former INS also faced difficulties in collecting fine amounts from employers, but collection efforts have improved. We previously reported that the former INS faced difficulties in collecting fine amounts from employers for a number of reasons, including that employers went out of business, moved, or declared bankruptcy. In 1998, INS created the Debt Management Center to centralize the collections process, and the center is now responsible for collecting fines ICE issued against employers for violations of IRCA, among other things. The ICE Debt Management Center has succeeded in collecting the full amount of final fines on most of the invoices issued to employers between fiscal years 1999 and 2004. In addition, ICE’s Office of Detention and Removal has limited detention space, and unauthorized workers detained during worksite enforcement investigations have been a low priority for that space. In 2004, the Under Secretary for Border and Transportation Security sent a memo to the Commissioner of U.S. Customs and Border Protection and the Assistant Secretary for ICE outlining the priorities for the detention of aliens. According to the memo, aliens who are subjects of national security investigations were among those groups of aliens given the highest priority for detention, while those arrested as a result of worksite enforcement investigations were to be given the lowest priority. ICE officials stated that the lack of sufficient detention space has limited the effectiveness of worksite enforcement efforts. For example, they said that if investigative agents arrest unauthorized aliens at worksites, the aliens would likely be released because the Office of Detention and Removal detention centers do not have sufficient space to house the aliens and they may re-enter the workforce, in some cases returning to the worksites from where they were originally arrested. Congress has provided funds to the Office of Detention and Removal for additional bed spaces. Yet, given competing priorities for detention space, the effect, if any, these additional bed spaces will have on ICE’s priority given to workers detained as a result of worksite enforcement operations cannot currently be determined. Efforts to reduce the employment of unauthorized workers in the United States necessitate a strong employment eligibility verification process and a credible worksite enforcement program to ensure that employers meet verification requirements. The current employment verification process has not fundamentally changed since its establishment in 1986, and ongoing weaknesses have undermined its effectiveness. Although DHS and the former INS have been contemplating changes to the Form I-9 since 1997, DHS has not yet issued final regulations on these changes, and it has not yet established a definitive time frame for completing the assessment. We recommended that DHS set a target time frame for completing this assessment and issuing final regulations to strengthen the current employment verification process and make it simpler and more secure. Furthermore, the Basic Pilot Program shows promise for enhancing the employment verification process and reducing document fraud if implemented on a much larger scale. However, current weaknesses in pilot program implementation would have to be fully addressed to help ensure the efficient and effective operation of an expanded or mandatory pilot program, or a similar automated employment verification program, and the cost of additional resources would be a consideration. USCIS is currently evaluating the Basic Pilot Program to include, as we have recommended, information on addressing the program’s weaknesses to assist USCIS and Congress in addressing possible future use of the Basic Pilot Program. Even with a strengthened employment verification process, a credible worksite enforcement program would be needed because no verification system is foolproof and not all employers may want to comply with IRCA. ICE’s focus of its enforcement resources on critical infrastructure protection since September 11, 2001, is consistent with the DHS mission to combat terrorism by detecting and mitigating vulnerabilities to terrorist attacks at critical infrastructure sites which, if exploited, could pose serious threats to domestic security. This focus on critical infrastructure protection, though, generally has not addressed noncritical infrastructure employers’ noncompliance with IRCA. As a result, employers, particularly those not located at or near critical infrastructure sites, who attempted to circumvent IRCA have faced less of a likelihood that ICE would investigate them for failing to comply with the current employment verification process or for knowingly hiring unauthorized workers. ICE is taking some steps to address difficulties it has faced in its worksite enforcement efforts, but it is too early to tell whether these steps will improve the effectiveness of the worksite enforcement program and help ICE identify the millions of unauthorized workers and the employers who hired them. This concludes my prepared statement. I would be pleased to answer any questions you and the Subcommittee Members may have. For further information about this testimony, please contact Richard Stana at 202-512-8777. Other key contributors to this statement were Frances Cook, Michelle Cooper, Orlando Copeland, Michele Fejfar, Rebecca Gambler, Kathryn Godfrey, Eden C. Savino, and Robert E. White. Social Security Numbers: Coordinated Approach to SSN Data Could Help Reduce Unauthorized Work. GAO-06-458T. February 16, 2006. Immigration Enforcement: Weaknesses Hinder Employment Verification and Worksite Enforcement Efforts. GAO-05-813. August 31, 2005. Immigration Enforcement: Preliminary Observations on Employment Verification and Worksite Enforcement Efforts. GAO-05-822T. June 21, 2006. Social Security: Better Coordination among Federal Agencies Could Reduce Unidentified Earnings Reports. GAO-05-154. February 4, 2005. Immigration Enforcement: DHS Has Incorporated Immigration Enforcement Objectives and Is Addressing Future Planning Requirements. GAO-05-66. October 8, 2004. Overstay Tracking: A Key Component of Homeland Security and a Layered Defense. GAO-04-82. May 21, 2004. Homeland Security: Challenges to Implementing the Immigration Interior Enforcement Strategy. GAO-03-660T. April 10, 2003. Identity Fraud: Prevalence and Links to Alien Illegal Activities. GAO-02-830T. June 25, 2002. Illegal Aliens: Significant Obstacles to Reducing Unauthorized Alien Employment Exist. GAO/GGD-99-33. April 2, 1999. Immigration Reform: Employer Sanctions and the Question of Discrimination. GAO/GGD-90-62. March 29, 1990. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The opportunity for employment is one of the most important magnets attracting illegal immigrants to the United States. The Immigration Reform and Control Act (IRCA) of 1986 established an employment eligibility verification process and a sanctions program for fining employers for noncompliance. Few modifications have been made to the verification process and sanctions program since 1986, and immigration experts state that a more reliable verification process and a strengthened worksite enforcement capacity are needed to help deter illegal immigration. This testimony is based on GAO's August 2005 report on the employment verification process and worksite enforcement efforts. In this testimony, GAO provides observations on (1) the current employment verification process and (2) U.S. Immigration and Customs Enforcement's (ICE) priorities and resources for the worksite enforcement program and the challenges it faces in implementing that program. The current employment verification (Form I-9) process is based on employers' review of documents presented by new employees to prove their identity and work eligibility. On the Form I-9, employers certify that they have reviewed documents presented by their employees and that the documents appear genuine and relate to the individual presenting the documents. However, document fraud (use of counterfeit documents) and identity fraud (fraudulent use of valid documents or information belonging to others) have undermined the employment verification process by making it difficult for employers who want to comply with the process to ensure they hire only authorized workers and easier for unscrupulous employers to knowingly hire unauthorized workers with little fear of sanction. In addition, the large number and variety of documents acceptable for proving work eligibility has hindered employer verification efforts. In 1998, the former Immigration and Naturalization Service (INS), now part of DHS, proposed revising the Form I-9 process, particularly to reduce the number of acceptable work eligibility documents, but DHS has not yet finalized the proposal. The Basic Pilot Program, a voluntary program through which participating employers electronically verify employees' work eligibility, shows promise to enhance the current employment verification process, help reduce document fraud, and assist ICE in better targeting its worksite enforcement efforts. Yet, several weaknesses in the pilot program's implementation, such as its inability to detect identity fraud and DHS delays in entering data into its databases, could adversely affect increased use of the pilot program, if not addressed. The worksite enforcement program has been a relatively low priority under both INS and ICE. Consistent with the DHS mission to combat terrorism, after September 11, 2001, INS and then ICE focused worksite enforcement efforts mainly on detecting and removing unauthorized workers from critical infrastructure sites. Since fiscal year 1999, the numbers of employer notices of intent to fine and administrative worksite arrests have generally declined. According to ICE, this decline is due to various factors, such as the prevalence of document fraud that makes it difficult to prove employer violations. ICE officials told us that the agency has previously experienced difficulties in proving employer violations and setting and collecting fine amounts that meaningfully deter employers from knowingly hiring unauthorized workers. In April 2006, ICE announced a new interior enforcement strategy to target employers who knowingly hire unauthorized workers by bringing criminal charges against them, and ICE has reported increases in the number of criminal arrests and indictments since fiscal year 2004. However, it is too early to tell what effect, if any, this new strategy will have on enhancing worksite enforcement efforts and identifying unauthorized workers and their employers. |
The private sector is an important partner with the government in responding to and recovering from natural disasters such as Hurricanes Katrina and Rita. As we recently noted, such partnerships increasingly underlie critical government operations. With hundreds of billions of tax dollars spent each year on goods and services, it is essential that all federal agency acquisitions be handled in an efficient, effective, and accountable manner. Over $87 billion of federal funding has been appropriated in response to the recent hurricanes. In responding to Hurricanes Katrina and Rita, the government depended heavily on contractors to deliver ice, water, and food supplies; patch rooftops; and provide housing to displaced residents and temporary facilities to local government agencies. Overall, the circumstances caused by the hurricanes created a difficult environment in which agencies had to balance the need to deliver goods and services quickly with the need for appropriate controls. Although achieving that balance is sometimes hard to accomplish, that fact must not be allowed to serve as an excuse for poor contracting practices. The need for strong planning is one of the themes identified by the Comptroller General in regard to the government’s overall response to the hurricanes. Planning also must explicitly address the need for and management of the contractor community. In this regard, we found that some key agencies did not always have adequate plans for contracting in a major contingency situation. We also noted the competing tensions between the selection of national contractors and the requirement under the Stafford Act for a preference for contractors from the affected area. Better planning could have alleviated those tensions. While contracts for some items were in place prior to the storm, the Federal Emergency Management Agency did not adequately anticipate needs for such services as providing temporary housing and public buildings. The practice of the U.S. Army Corps of Engineers is to establish Planning and Response Teams for various missions assigned to it by FEMA prior to an event, with specific responsibilities assigned to team members. However, the Corps indicated it did not know prior to the hurricane that it would be tasked by FEMA with some of the mission assignments it received. In one case, faced with a compressed time frame for acquiring portable classrooms and with no prior knowledge about the classroom mission they were assigned, Corps contracting officials placed an order, under an existing agreement, with a subsidiary of an Alaska Native Corporation under the Small Business Administration’s section 8(a) Business Development Program. The Corps accepted the contractor’s proposed price of $39.5 million even though the Corps had information that the cost for the classrooms was significantly less than that. Based on our analysis of a quote obtained by the contractor from a local Mississippi business, the price the contractor actually paid for the classrooms, and prices for similar units from General Services Administration (GSA) schedule contracts, our preliminary conclusion is that the Corps could have, but failed to, negotiate a lower price. Similarly, better management of requirements development could have avoided costs to house workers and victims. Based on information provided by local officials, FEMA spent $3 million for 4,000 base camp beds that were never used. Preparation was also lacking in implementation of the Stafford Act preference for contractors residing or doing business in the affected area. The Corps staff expressed uncertainty regarding how to apply preferences or determine if a company was in an affected area. Several GSA and FEMA officials indicated they were aware of the Stafford Act, but stated it is difficult to immediately factor in local businesses in such a catastrophic event. GSA officials stated they plan to review the Federal Acquisition Regulation (FAR) to see if additional Stafford Act guidance is necessary. In discussing our findings and observations with FEMA officials, they indicated that in order to better respond to future disasters, they were taking steps to improve in areas such as staffing and premobilization capabilities. However, they also stated that such pre-planning and preparedness has a cost. The Corps commented that contracting staff need to have defined requirements in order to get the right type of contracts put in place, and the contracting staff did not always get defined requirements in a timely manner. Additionally, a Corps official commented that until funding for a particular mission is secured, preparation for it cannot go forward and this also delayed contracting efforts. Finally, both GSA and the Corps noted that they tried to reach out to local and small businesses through forums and other means to make them aware of opportunities to contract with the federal government. We also found that processes for executing contracts were hindered by poor communication. As envisioned under the National Response Plan (NRP), federal agencies responding to a disaster carry out their acquisition functions through a network of federal, state, and local agencies. In some instances, the local or state officials determine the requirements and communicate them to FEMA; FEMA may write and award the contract or communicate the requirements to another agency that writes and awards the contract; and then FEMA or another agency oversees contract performance. This approach puts a premium on aligning roles and responsibilities clearly and maintaining good communications to ensure effective execution of the contract. Our fieldwork identified examples where unclear responsibilities and poor communications resulted in poor acquisition outcomes. For example: FEMA officials stated that a contractor spent approximately $10 million to renovate 160 rooms and furnish another 80 rooms in military barracks in Alabama that a FEMA survey team identified for use as temporary housing. To renovate the facility, FEMA headquarters awarded a contract without consulting local FEMA officials in Alabama. According to FEMA officials in Alabama, however, the facility was not needed and they tried to stop the renovation. These same FEMA officials stated that few evacuees agreed to live at the facility, and when officials decided to close the facility, it had only six occupants. The process for ordering and delivering ice heavily depends on effective communications between FEMA and the Corps. However, according to Corps officials, FEMA did not fully understand the contracting approach used by the Corps and ordered at least double the amount of ice required, resulting in an oversupply of ice and a lack of distribution sites available to handle the volume ordered. Additionally, the local Corps personnel were not always aware of where ice might be delivered and did not have the authority to redirect ice as shipments arrived, resulting in inefficient distribution and receipt at the state level. FEMA tasked GSA to write three contracts in Louisiana for base camps, hotel rooms, and ambulances, with a total value of over $120 million. GSA contracting officers awarded the contracts, but could not tell us which FEMA officials would be responsible for overseeing contractor performance. The FEMA official identified as the main point of contact by GSA did not have any knowledge of these contracts or who was responsible for oversight. Only after contacting multiple FEMA officials over a 3-week period were we able to determine the agency officials responsible for contract oversight. In commenting on our findings, GSA officials stated that their role is to provide resource support in the response phase of a disaster, meaning they are responsible for executing contracts under the NRP, and FEMA is responsible for monitoring the contracts. FEMA officials commented that there needs to be more clarity regarding procurement roles and indicated one of their goals is to work with GSA to clarify procurement responsibilities for the future. GSA officials indicated that the current memorandum of understanding between GSA and FEMA is being updated to reflect the standards of the new NRP as well. The purpose of agencies’ monitoring processes is to ensure that contracted goods and services are delivered in accordance with the agreed-upon schedule, cost, quality, and quantity provisions stated in the contract. Without sufficient numbers of trained people properly deployed, however, effective monitoring is hampered and agencies may not be able to identify and correct poor contractor performance in a timely manner. Furthermore, agencies can be at risk of paying contractors more than the value of the services performed. Our work indicated that while monitoring was occurring on the contracts we reviewed, the number of monitoring staff available was not always sufficient, and staff were not always effectively deployed. For example: FEMA’s contracts for installing temporary housing in four states had only 17 of the 27 technical monitors that had been determined necessary to oversee contractor performance. Corps officials responsible for overseeing the “blue roof” program’s field operations told us it was slowed down due to the lack of sufficient monitors. Deployment practices did not always provide for appropriate notification of responsibilities or overlap of rotating contracting officers and oversight personnel, thus making knowledge transfer and continuity of contract management operations difficult. For example: For four of the contracts we reviewed, officials were either unaware or not notified by FEMA of their oversight responsibilities. The lack of overlap between oversight personnel for a large temporary housing contract left the most recent contract administrator with no knowledge or documentation of who had authorized the contractor to perform certain activities or why the activities were being performed. While discussing our findings and observations with FEMA officials, they emphasized that they lacked adequate staffing, but said they have made efforts to fill staffing gaps. Additionally, FEMA officials stated they recognize the need for continuity in contract oversight and indicated they are implementing a process to ensure workload and knowledge sharing among rotating personnel. However, they also believe that fewer transition difficulties exist now as a result of hiring more people and having more oversight officials staying in the affected areas. GSA officials indicated there may also be other alternatives for ensuring adequate contract oversight, such as designating GSA employees to conduct oversight on some contracts. Corps officials stated their policy is to rotate certain personnel every 29 days to keep personnel costs to a minimum because of regulations under the Fair Labor Standards Act. In reviewing contracts awarded for Iraq—another contingency situation— GAO found that without effective acquisition planning, management processes, and sufficient numbers of capable people, poor acquisition outcomes resulted. GAO made recommendations regarding the need for ensuring that requirements for placing orders are within the scope of contracts; timely definition of contract terms and conditions, and sufficient numbers of trained staff who have clear responsibilities and guidance for overseeing contractor performance. Having these capabilities requires preparation, such as having prearranged contracts in place in advance of the disaster or other contingency. Among the issues that we have identified in previous reports that warrant consideration by agencies when contracting in an emergency are: the strategies and flexibilities they will use to plan their procurements to avoid the risks associated with undefined contracts; the knowledge they need to have to identify, select, and manage contractors to achieve successful outcomes; and the need to have competitively awarded contracts in place prior to the event against which orders can be placed as needed. In executing these contracts, agencies should consider such issues as how to effectively communicate and coordinate with other agencies and with contractors; define contract terms and conditions to avoid excessive costs and ensure desired performance; and monitor contractors. Finally, agencies should consider crosscutting issues that affect their overall ability to manage contractors, such as the capability of their information systems to provide visibility into financial and contracting operations; skills and training of the acquisition workforce; alignment of responsibilities among the key officials in managing the award and oversight of contracts; and the policies, procedures, and guidance for managing contracts. In closing, in any acquisition, agencies must have in place sound acquisition plans, processes to make and communicate good business decisions, and a capable acquisition workforce to monitor contractor performance so that the government receives good value for the money spent. These components are critical to successfully managing contracts in any environment—even in a contingency situation such as that presented by Hurricanes Katrina and Rita. - - - - - Mr. Chairman this concludes my statement. I would be happy to respond to any questions you or other members of the Subcommittee may have at this time. For further information regarding this testimony, please contact William T. Woods at (202) 512-4841 or woodsw@gao.gov. Individuals making key contributions to this testimony included Penny Augustine, James Kim, John Needham, and Shannon Simpson. Hurricane Katrina: Comprehensive Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance. GAO-06-460, Washington, D.C.: April 6, 2006 Hurricane Katrina: Policies and Procedures Are Needed to Ensure Appropriate Use of and Accountability for International Assistance. GAO-06-600T, Washington, D.C.: April 6, 2006 Hurricane Katrina: Status of the Health Care System in New Orleans and Difficult Decisions Related to Efforts to Rebuild It Approximately 6 Months After Hurricane Katrina. GAO-06-576R, Washington, D.C.: March 28, 2006 Agency Management of Contractors Responding to Hurricanes Katrina and Rita. GAO-06-461R, Washington, D.C.: March 16, 2006 Hurricane Katrina: GAO's Preliminary Observations Regarding Preparedness, Response, and Recovery. GAO-06-442T, Washington D.C.: March 8, 2006 Emergency Preparedness and Response: Some Issues and Challenges Associated with Major Emergency Incidents. GAO-06-467T. Washington: D.C.: February 23, 2006. Disaster Preparedness: Preliminary Observations on the Evacuation of Hospitals and Nursing Homes Due to Hurricanes. GAO-06-443R. Washington: D.C.: February 16, 2006. Investigation: Military Meals, Ready-To-Eat Sold on eBay. GAO-06-410R. Washington: D.C.: February 13, 2006. Expedited Assistance for Victims of Hurricanes Katrina and Rita: FEMA’s Control Weaknesses Exposed the Government to Significant Fraud and Abuse. GAO-06-403T. Washington: D.C.: February 13, 2006. Statement by Comptroller General David M. Walker on GAO’s Preliminary Observations Regarding Preparedness and Response to Hurricanes Katrina and Rita. GAO-06-365R. Washington, D.C.: February 1, 2006. Federal Emergency Management Agency: Challenges for the National Flood Insurance Program. GAO-06-335T. Washington, D.C.: January 25, 2006. Hurricane Protection: Statutory and Regulatory Framework for Levee Maintenance and Emergency Response for the Lake Pontchartrain Project. GAO-06-322T. Washington, D.C.: December 15, 2005. Hurricanes Katrina and Rita: Provision of Charitable Assistance. GAO- 06-297T. Washington, D.C.: December 13, 2005. Army Corps of Engineers: History of the Lake Pontchartrain and Vicinity Hurricane Protection Project. GAO-06-244T. Washington, D.C.: November 9, 2005. Hurricanes Katrina and Rita: Preliminary Observations on Contracting for Response and Recovery Efforts. GAO-06-246T. Washington, D.C.: November 8, 2005. Hurricanes Katrina and Rita: Contracting for Response and Recovery Efforts. GAO-06-235T. Washington, D.C.: November 2, 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. 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. Army Corps of Engineers: Lake Pontchartrain and Vicinity Hurricane Projection Project. GAO-05-1050T. Washington, D.C.: September 28, 2005. Hurricane Katrina: Providing Oversight of the Nation’s Preparedness, Response, and Recovery Activities. GAO-05-1053T. Washington, D.C.: September 28, 2005. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The devastation experienced throughout the Gulf Coast region in the wake of Hurricanes Katrina and Rita has called into question the government's ability to effectively respond to such disasters. The government needs to understand what went right and what went wrong, and to apply these lessons to strengthen its disaster response and recovery operations. The federal government relies on partnerships across the public and private sectors to achieve critical results in preparing for and responding to natural disasters, with an increasing reliance on contractors to carry out specific aspects of its missions. At the same time, the acquisition functions at several agencies are on GAO's high-risk list, indicating a vulnerability to fraud, waste, and abuse. This testimony discusses how three agencies--the General Services Administration, the Federal Emergency Management Agency (FEMA), and the U.S. Army Corps of Engineers (the Corps)--conducted oversight of key contracts used in response to the hurricanes. Efforts are ongoing by these agencies to address issues GAO and others have identified. Agency acquisition and contractor personnel have been recognized for their hard work in providing the goods and services required to be responsive. The response efforts nonetheless suffered from three primary deficiencies: First, there was inadequate planning and preparation in anticipating requirements for needed goods and services. Some key agencies did not always have adequate plans for contracting in a major contingency situation. For example, while contracts for some items were in place prior to the storm, the Federal Emergency Management Agency did not adequately anticipate needs for such services as providing temporary housing and public buildings. There were also competing tensions between the selection of national contractors and the Stafford Act requirement that there be a preference for contractors from the affected area. Better planning could have alleviated those tensions. Second, there was a lack of clearly communicated responsibilities across agencies and jurisdictions to ensure effective outcomes. In a disaster situation, sometimes local or state officials determine the requirements and communicate them to FEMA, which then may write and award the contract or communicate the requirements to another agency that writes and awards the contract; and then FEMA or another agency will oversee contract performance. To ensure effective execution of the contract, this approach puts a premium on clear alignment of responsibilities and good communications, but our fieldwork identified examples where unclear responsibilities and poor communications resulted in poor acquisition outcomes. For example, the process for ordering and delivering ice heavily depends on effective communications between FEMA and the Corps. However, according to Corps officials, FEMA did not fully understand the contracting approach used by the Corps and ordered at least double the amount of ice required, resulting in an oversupply of ice and a lack of distribution sites to handle the volume ordered. And third, there were insufficient numbers and inadequate deployment of personnel to provide for effective contractor oversight. The purpose of monitoring is to ensure that contracted goods and services are delivered in accordance with the agreed upon schedule, cost, quality, and quantity provisions stated in the contract. Without sufficient numbers of trained people properly deployed, however, monitoring will not be effective, agencies may not be able to quickly identify and correct poor contractor performance, and agencies will be at risk of overpaying contractors. Our work indicated that while monitoring was occurring on the contracts we reviewed, the number of staff available was not always sufficient and staff were not effectively deployed. For example: FEMA's contracts for installing temporary housing in four states had only 17 of the 27 technical monitors that had been determined necessary to oversee contractor performance. |
The Criminal Justice Act of 1964 required the federal judiciary to provide for the legal representation of eligible federal criminal defendants who were financially unable to afford their own attorneys. In response, the federal judiciary created the Federal Defender Services program. In August 1993, AOUSC reported that about 85 percent of all criminal cases prosecuted in federal courts required court-appointed legal counsel. The Defender Services Committee of the Judicial Conference of the United States provides overall policy direction and guidance of the program, and the Defender Services Division of AOUSC provides administrative and program support. Legal services for eligible defendants in the nation’s 94 federal district courts and 12 circuit courts of appeals are provided through a mixed system, which at the end of fiscal year 1994 included 45 Federal Public Defender Organizations (FPDs) serving 54 districts; 10 Community Defender Organizations (CDOs) serving 11 districts; and private “panel” attorneys chosen from a list, or panel, maintained by the district courts. Together, FPDs and CDOs are generally referred to as Federal Defender Organizations (FDOs). As shown in table 1, the number of FPDs and CDOs has gradually increased since 1990. FPD attorneys are federal employees; CDO attorneys are not. CDOs are private organizations funded by federal defender services grants. FPD and CDO attorneys are salaried; panel attorneys receive an hourly rate for their services that varies by district. Higher panel attorney hourly rates are generally paid for death penalty cases in all districts. Panel attorneys generally provided all court-appointed representations in the 29 districts that had neither a FPD or CDO, and by statute panel attorneys must receive a “substantial” number of representation appointments in districts with such organizations. To date, death penalty representations have generally been handled by panel attorneys (including some pro bono representations) or the DPRCs. Occasionally, FDOs have also been appointed in such cases. At the end of fiscal year 1994 there were 20 DPRCs serving 50 federal judicial districts. The DPRCs are specialized CDOs that provide legal services—through direct representation and/or consultation and support services to panel attorneys—for persons appealing state death penalty convictions and/or sentences. The DPRCs are also authorized to represent defendants in federal capital prosecutions and in appeals of federal death penalty convictions. Under the grant agreement between each center and the Judicial Conference, use of each DPRC’s federal funds is to be limited to federal death penalty habeas corpus cases and the defense of those charged with capital crimes in federal district courts. A DPRC’s nonfederal funds must be used to support representations in state court proceedings. To meet our objectives, we reviewed prior studies by the Judicial Conference, AOUSC, and consultants. We met with federal judges and AOUSC officials, members of AOUSC’s Defender Services Advisory Group, defender services attorneys, and other officials in six judgmentally selected judicial districts. To try to identify potential causes of workload and cost increases and to compare FDO and panel attorney costs per representation, we reviewed previous analyses and available AOUSC data on FDO and panel attorney workload and costs. For FDOs, AOUSC provided data for fiscal years 1990 through the first 6 months of 1994 on type of representation; type of disposition; representations opened, closed, and pending; and in-court hours per representation closed. For the same period, we analyzed the panel attorney voucher automated database, which included data by type of representation and criminal offense on (1) total in-court and out-of-court compensation requested and approved, and (2) the in-court and out-of-court hourly rates paid for representations in which the panel attorney had requested payment. To provide comparable workload data for FPDs, CDOs, and panel attorneys, we used representations closed because this was the only workload measure available for panel attorneys. Although we did not verify the accuracy of the data we received, we did some edit checks and a distributional analysis of the data, which raised questions about the accuracy of some of the data in the panel attorney database, including the hourly rates recorded in the database. We have qualified our conclusions to take this possibility of error into account. We also used data from AOUSC’s master criminal file database and other sources to determine total district court criminal workload and to try to assess the impact of such variables as the number of trials on Defender Services workload. Our analysis of data on criminal trials and cases with multiple defendants used data on total district court workload because the database did not reliably identify that subset of cases in which defendants had court-appointed attorneys. This limitation is noted in our analysis and conclusions. Certain information, including data on cases involving mandatory minimum sentences and federal prosecutions of state-developed cases, was either unavailable or too incomplete for analysis. Also, because data reported by FDOs and panel attorneys differed, workload and cost comparisons between the two were limited. To determine the additional costs of paying panel attorneys the higher standard hourly rates, we used AOUSC’s database to calculate the difference in compensation at the higher and lower standard hourly rates. We calculated the in-court and out-of-court compensation approved for those representations in the 16 districts compensated at the higher standard hourly rates. We then estimated the in-court and out-of-court compensation that would have been requested at the lower standard hourly rates of $40 out-of-court and $60 in-court. We subtracted the lower rate estimate from the actual amounts approved for payment at the higher standard rates. The difference was the estimated additional costs of paying the higher standard rates. As explained in more detail in appendix I, this produced a conservative estimate of the additional costs of paying the higher standard hourly rates in the 16 districts. We used DPRC quarterly reports for fiscal years 1990 through the first half of 1994 to examine trends in DPRC workload and costs. However, due to data limitations we could not fully assess whether DPRCs had lowered the costs of death penalty representations. The Defender Services program has been reviewed by various sources, and where appropriate we have incorporated the results of these studies into our work. To determine what actions the Judiciary has underway to improve Defender Services program data and analyses and to control costs, we obtained copies of AOUSC and Judicial Conference reports, directives, and other documents addressing these issues, and we talked to AOUSC officials. We did our work primarily in Washington, D.C.; New York; and Detroit, between April 1993 and February 1995 in accordance with generally accepted government auditing standards. Our objectives, scope, and methodology are discussed in greater detail in appendix I. AOUSC provided written comments on a draft of this report, which are discussed on pages 28-29 and printed in full in appendix III. Data on Defender Services representations are not fully comparable to district court criminal filings or terminations (case closings). In fiscal year 1993, 46,786 criminal cases involving 65,653 defendants were filed in federal district courts. In the same year, district courts closed (disposed) 44,800 cases involving 64,048 defendants. Since Defender Services represents defendants, not cases, the district court defendant data are more appropriate than case data in comparing district court and Defender Services workloads. Defender Services attorneys closed 78,016 representations in fiscal year 1993, which was 13,968 more than the number of defendants reported as disposed in district courts. Of this additional Defender Services workload, at least 9,478 representations (about 68 percent) were not reported in district court criminal workload statistics. The Defender Services 1993 workload, for example, included 6,126 appeals, reported in appellate court statistics; 1,028 habeas corpus proceedings, reported in district court civil statistics; and 2,324 bail proceedings, which Defender Services reported as a separate workload category, but district courts did not. Criminal representations appeared to be the category of Defender Services representations most comparable to district court criminal workload. In fiscal year 1993, Defender Services closed 54,907 criminal representations, or 9,141 less than the 64,048 criminal defendants disposed in federal district courts in 1993. The 9,141 additional defendants reported in district court statistics may have paid for their own attorneys rather than having court-appointed attorneys. However, we found no consistent data on the number of defendants in federal courts who received court-appointed attorneys. Defender Services appropriations, obligations, representations closed, and costs per representation closed have generally grown in recent years. As shown in table 2, from fiscal years 1990 through 1994, total budget obligations grew about 118 percent from $122.5 million to $266.7 million.According to AOUSC, the growth in representations closed and obligations was less in fiscal year 1994 than in recent years, but it was not clear at the time whether this was the beginning of a long-term trend or a short-term phenomenon. The Judiciary initially requested $387 million for fiscal year 1994, which included $14 million to extend the standard higher panel attorney rates beyond the 16 districts in which they were being paid. Congress rejected this expansion and appropriated $280 million for fiscal year 1994. Defender Services requested $290.3 million for fiscal year 1995, an increase of 3.7 percent. Congress appropriated $250 million for fiscal year 1995. The Judiciary has requested $295.8 million for fiscal year 1996—an increase of 18 percent over the 1995 appropriation and 1.9 percent more than the 1995 budget request. As shown in figure 1, from fiscal years 1990 to 1993 growth in the number of representations closed, total obligations, and the average cost per representation closed for panel attorneys, FPDs, and CDOs varied. To provide comparable data for defender organizations and panel attorneys, our workload figures are based on representations closed, because data for ongoing representations were not available for panel attorneys (see app. I). While panel attorney workload grew more than that of FPDs or CDOs, panel attorney costs per representation closed grew less than FPDs or CDOs. Compensation approved for panel attorney fees grew about 88 percent, while total panel attorney budget obligations—a figure an AOUSC official told us included payments for investigators and experts in addition to attorney fees—grew about 96 percent during the period. Defender Services representations closed annually increased by about 23 percent from 63,504 to 78,016 between fiscal years 1990 and 1993. Of this total, panel attorney representations closed increased about 33 percent from 28,575 to 38,005, or about twice as fast as FDOs’ workload, which increased from 34,929 to 40,011, about 15 percent. Within this FDO total, FPD representations closed grew 28 percent and CDO representations closed declined 12 percent. Most of the CDO decline was due to a drop in immigration representations closed at the CDO in the Southern District of California. Excluding this district’s workload, CDO representations closed declined about 5.5 percent. Although still a very small percentage of total panel attorney workload (less than 1 percent), panel attorney death penalty representations closed grew from 9 to 246. (More detail is found in the tables in app. II.) As shown in figure 2, from fiscal years 1990 through 1993 criminal representations closed were by far the largest proportion of total representations closed for both FDOs and panel attorneys, followed by “other” and appeals. The number of FDO and panel attorney criminal representations was about even in fiscal year 1990, but FDO criminal representations increased 8 percent during the period while panel attorney criminal representations increased almost 23 percent. Consequently, by 1993 panel attorney criminal representations closed exceeded those of FDOs by 3,567. The growth in panel attorney appeals representations closed (118 percent) was also greater than that for FDOs (54 percent). From fiscal years 1991 through 1993, panel attorneys closed at least 75 percent more appeals representations each year than did FDOs. On the other hand, the number of FDO “other” representations closed was more than twice that of panel attorneys each year for 1990 through 1993, reflecting the much higher number of bail and probation/parole revocation proceedings handled by FPDs and CDOs. We disaggregated criminal representations closed into five major offense categories—weapons, immigration, drugs, fraud, and other—to examine changes in representations closed by type of offense and type of Defender Services attorneys. As shown in figure 3, within each major offense category, FPDs, CDOs, and panel attorneys had different growth rates. For some offenses there were fewer representations closed in 1993 than in 1990. However, we could not determine the reasons for the variations shown in figure 3. Changes in Defender Services costs are basically the result of two factors—changes in the number of representations combined with changes in the average cost of each representation. If the number of representations increases, program costs will also increase even if the average cost per representation remains unchanged. Conversely, costs will rise if the cost per representation increases, even though the number of representations remains unchanged. To determine the impact of increased workload from fiscal years 1990 through 1993—as measured by representations closed—on fiscal year 1993 FPD, CDO, and panel attorney costs, we estimated what fiscal year 1993 costs would have been if the average cost per representation closed in 1993 were the same as the 1990 average cost (unadjusted for inflation).As shown in figure 4, about 26 percent of the increase in FPD costs and 38 percent of the increase in panel attorney costs between fiscal years 1990 and 1993 could be attributed to the increase in representations closed in 1993. However, CDO representations closed declined from 11,706 in 1990 to 10,299 in 1993; consequently, none of the increase in CDO costs could be attributed to increased representations closed. However, as the panel attorney data in figures 5 and 6 indicate, these overall estimates can mask considerable variation by type of representation. For some types of panel attorney representations closed—appeals, other, death penalty—from about 69 to 92 percent of the increase in costs could be attributed to increased numbers of representations closed (fig. 5). Within criminal representations, increased representations closed accounted for more than half of the increase in the costs of weapons, drugs, and fraud representations closed, but they accounted for only about 13 percent of the increase in the costs of immigration representations closed (see fig. 6). Other criminal representations closed declined 7 percent between fiscal years 1990 and 1993. Thus, all of the increase in costs for these representations must have been the result of factors that have increased the average cost per representation closed. As discussed later in this report, Defender Services officials and AOUSC have suggested a number of factors, such as the sentencing guidelines and a higher number of defendants charged with mandatory minimum offenses, that could have contributed to higher average costs per representation closed. For each fiscal year 1990 through 1993, panel attorney costs per representation closed were the highest and CDO costs the lowest. (See fig. 7.) Costs per representation closed for all three types of Defender Services attorneys increased each year. Although CDOs still had the lowest cost per representation in 1993), the 134-percent growth in CDO costs per representation had narrowed the gap between CDOs and the other two types of attorneys. In 1990, the FPD cost per representation closed was about $300 lower than that of panel attorneys. By 1993, the cost advantage had narrowed to about $100 per representation closed. However, if the average panel attorney cost per representation is calculated excluding death penalty representations, FPD average cost per representation closed in fiscal year 1993 was about $130 more than the panel attorney average. Including death penalty representations in calculating the overall panel attorney average cost per representation added about $10 per representation closed in fiscal year 1990 and about $223 in fiscal year 1993. One possible reason for the generally higher panel attorney cost per representation closed may be the higher average number of panel attorney in-court hours per representation closed (see fig. 8). We could not determine why panel attorneys apparently expended more in-court hours per representation closed than did FPDs and CDOs. However, these additional in-court hours can affect program costs. In 78 of the 94 districts the hourly rate for in-court hours is $20 more than the rate for out-of-court hours. Overall, between fiscal years 1990 and 1993, we estimated that factors other than increased representations closed accounted for about 74 percent of FPD cost growth, 62 percent of panel attorney growth, and 100 percent of CDO cost growth. Defender Services officials and Judicial Conference and AOUSC studies offered a number of reasons why the cost per representation closed had steadily increased for FPDs, CDOs, and panel attorneys. These reasons included implementation of the federal sentencing guidelines, which require additional attorney time; changing prosecutorial priorities that increased the number of complex drug and multiple defendant cases prosecuted in federal court, which were more likely to result in trials for one or more defendants; and greater numbers of offenses carrying mandatory minimum sentences, which were more likely to result in trials. These arguments were supported by some anecdotal evidence and such aggregate empirical data as total district court criminal caseload statistics showing a rising number of criminal trials and multiple defendant cases. However, it was difficult to document that the reasons cited were in fact the major contributing factors to rising workload and/or costs. This was largely due to the absence of consistent, reliable data on such potential causes of rising program costs as the number of Defender Services cases involving multiple defendants or defendants charged with mandatory minimum offenses; the percentage of such cases that go to trial; or the number of cases investigated and developed by state agencies and handed off to federal prosecutors because federal law and the sentencing guidelines provided longer sentences. A more detailed analysis of the data sources available to measure the impact of these factors is included in appendix I. As discussed in the following sections, there is some evidence that certain of these factors may have affected program costs. Recent Defender Services budget submissions have noted that the federal sentencing guidelines, which became effective November 1, 1987, “have profoundly altered the nature of the sentencing process and dramatically increased federal and panel attorney workloads.” Contributing to the impact on both attorney workload and program costs has been the need to consider the accuracy of all facts in the judicial proceedings that could affect the potential sentence under the guidelines; the many guidelines amendments (434 between November 1987 and November 1991, for example); the increasing complexity of the guidelines; more defendants choosing to go to trial under the guidelines; and the increased number of sentencing appeals. Our August 1992 sentencing guidelines report concluded that although empirical data and reliable work measurements did not exist, available statistics and our interviews suggested that the guidelines had apparently increased criminal justice workload. Though Defender Services estimated that the sentencing guidelines implementation had increased the time required to provide representation by about 25 to 50 percent in most cases, AOUSC officials could not provide data to substantiate this observation. In addition, subsequent to the sentencing guidelines implementation, there has been a rise in criminal appeals. The authorizing legislation for the sentencing guidelines, the Sentencing Reform Act of 1984, provided for appeals of sentences imposed by U.S. District Courts. For example, the act provided that a defendant or the federal government may appeal a sentence on the basis that the sentence was imposed as a result of an incorrect application of the guidelines. Generally, appeals of sentences were not common prior to the Sentencing Reform Act’s appellate review provisions. There were 2,534 such sentencing appeals in fiscal year 1992, or almost 23 percent of all criminal appeals. Defender Services appeals representations closed more than doubled from about 3,300 in 1987 to over 6,700 in 1993, but we could not determine how much of this increase was attributable to appeals of sentence only. The increase in the number of appeals and cost per appeals representation closed has affected program costs. From fiscal years 1990 through 1993, the cost per panel attorney appeals representation closed rose 24 percent from $2,567 to $3,187, while the number of such appeals rose 118 percent from 1,825 to 3,977. During the period, the cost per panel attorney appeals representation closed was at least 20 percent more than criminal representations closed and more than twice as much as “other” representations closed. The number and length of criminal trials can also affect program costs. The fiscal year 1994 Defender Services congressional budget submission noted that the number of trials had increased, particularly for defendants in multiple defendant cases or those charged with offenses requiring a mandatory minimum prison term upon conviction. Although specific data on trials involving defendants represented by Defender Service attorneys were not available, we did review general AOUSC statistical data on overall trial trends. The number of criminal jury trials increased more than total criminal trials (9.5 percent versus 2.9 percent) between statistical years 1990 and 1993. Jury trials with 4 or more defendants increased about 15 percent (from 425 to 488) during the same period, though they tended to be a small and stable percentage (between 8.4 and 8.8 percent) of total jury trials. Longer criminal jury trials, those requiring 6 to 10 or 11 to 20 days, increased 22.9 and 17.3 percent, respectively, between 1990 and 1993. But such trials have remained fairly constant as a percent of criminal jury trials. The number of trials lasting 20 days or more has fluctuated by both district and criminal offense. The in-court hours recorded by FPDs, CDOs, and panel attorneys can be one rough measure of trial time for Defender Services attorneys. While average in-court time from fiscal years 1990 through 1993 has generally increased for FPDs, CDOs, and panel attorneys, no clear pattern emerged. For example, while average number of in-court hours for FPDs and CDOs in drug offense representations closed generally increased, it generally declined for panel attorneys. In average hours per representation closed, the largest increase for panel attorneys was for fraud offenses (from an average of 7 to 11 hours); the largest for FPDs was fraud offenses (3.2 to 4.6); and the largest for CDOs was for “other” offenses (2.1 to 4.3). Panel attorneys consistently reported more in-court hours for all types of representations than did FPDs or CDOs, but we could not determine why this was so. Fiscal year 1993 data from the CDO for the Southern District of California in San Diego provided some indication that representations for defendants who had been charged with an offense carrying a mandatory minimum prison term were more likely to be disposed of by trial than other criminal representations. However, the CDO’s attorneys spent about the same amount of in-court and out-of-court time on trials that did and did not involve defendants charged with mandatory minimum offenses. The San Diego data indicated that attorneys spent more time negotiating guilty pleas in multiple defendant drug cases that involved mandatory minimums than in multiple defendant drug cases that did not. The Judiciary also has stated that workload and costs of Defender Service attorneys in federal criminal cases have increased as a result of Justice Department prosecutorial initiatives, such as the organized crime and drug enforcement task forces. Although specific data were not available, the Judiciary pointed out that these investigations often lead to cases that can be rather complex and expensive to prosecute and defend. Operation Weed and Seed is a multiple agency approach to combatting violent crime, drugs, and gangs in high-crime areas. Project Triggerlock targets dangerous, repeat offenders for prosecution in federal court as opposed to state court to take advantage of federal mandatory minimum penalties for firearms offenses. According to the Judiciary, both initiatives have increased the complexity of cases and the subsequent costs of Defender Services attorneys. However, the courts do not maintain detailed data on the number of criminal cases resulting from these initiatives. Our analysis showed that from fiscal years 1990 through 1993, the number of weapons representations closed by Defender Services attorneys increased by 75 percent to 3,279. Data were not available to determine how many of these resulted from Operation Triggerlock investigations and/or carried mandatory minimum sentences. Various sources have also cited the growing number of multiple defendant cases as a major contributor to increased program costs. Multiple defendant cases can be more complex and time-consuming than other cases, particularly when they involve sophisticated drug trafficking organizations. Conflict of interest concerns have led FPDs and CDOs generally to represent only one defendant in multiple defendant cases. The remaining defendants are generally represented by panel attorneys, whom our analysis and that of AOUSC showed were, overall, more costly per representation closed than FPD and CDO lawyers. Statistics were not available on the number of representations by Defender Services attorneys in multiple defendant cases. However, AOUSC does maintain national data on multiple defendant cases. These data showed that the number of multiple defendant cases increased by about 9 percent between statistical years 1990 and 1993 to about 8,100. However, as a percent of all criminal cases, multiple defendant cases remained fairly constant (between about 19 and 20 percent). The total number of multiple defendant drug cases also increased; cases involving two to five defendants accounted for most of the increase. In 1992 almost 4,000 cases, or 36 percent of all drug cases, involved multiple defendants. However, there were no reliable data available showing multiple defendant drug cases by type of counsel. The number of Defender Services representations closed for drug offenses increased by 39 percent from 15,271 to 21,270 between fiscal years 1990 and 1993. Drug representations closed were 43 percent of all panel attorney criminal representations closed during the period and, excluding death penalty representations closed, generally were the most costly, rising about 18 percent to an average of $3,152 in fiscal year 1993. Similar cost data were not available for FDOs. The current standard panel attorney rates of $40 for each out-of-court hour and $60 for each in-court hour were set in 1984. On the basis of its assessment of such factors as attorney compensation and expenses, the Judicial Conference has approved higher rates in 89 districts (as of March 1995). However, at congressional direction, the Judicial Conference has limited the actual payment of higher standard rates—a single rate of $60, $70, or $75 per hour for both in-court and out-of-court hours—to all or parts of the 16 districts for which the higher standard rates were approved in January 1990. Had the Judiciary paid the full amount panel attorneys requested in these 16 districts during fiscal years 1991 through 1993, the additional costs of paying the higher rates would have been about $40.4 million, about 12 percent of total panel attorney obligations during the period. However, with some regularity judges approved less than the total compensation requested. Based on the amounts judges approved for payment, a more accurate measure, the additional costs were about $33.5 million, or about 10.2 percent of total panel attorney obligations during the period. Because they exclude virtually all appeals representations, these estimates probably underestimate the additional costs. Appeals were excluded because virtually all appeals representations in the database—at least 98 percent in each year for 1990 through 1993 and 85 percent in the first 6 months of 1994—were identified only by the appeals circuit and, thus, could not be associated with a specific district (see app. I). Because the jurisdictions of 11 of the 12 circuit courts of appeals cover several states and a number of districts, we could not use the circuit identifier for our analysis in 11 of the 12 circuits. DPRCs were created in part to help reduce or contain the cost of death penalty representations. Budget requests and appropriations for the centers have increased sharply since the establishment of the first one in 1988. From fiscal years 1989 to 1994 the number of centers increased from 14 to 20, and the amounts appropriated for the centers more than tripled, from $5,890,000 to $19,800,000. During the period, the overall cost per case increased from $9,521 to $17,247, up about 81 percent (in current dollars). (See table 3.) AOUSC offered three major reasons for the increases in total costs and costs per representation: more operational centers, increased caseload, and increased complexity of death penalty litigation. While the number of death penalty cases in federal courts has increased, the lack of a reliable death penalty identifier in the database precluded an accurate measure of the increase. Almost all death penalty cases in federal courts arise from state death penalty convictions. Between the end of calendar years 1989 and 1993, the total number of persons sentenced to death, including those convicted and sentenced in state courts, rose from 2,186 to 2,785. As of March 1995, only 6 persons had been convicted and sentenced to death in federal courts. AOUSC asserted that the services provided by the centers actually lower federal death penalty litigation costs by encouraging competent private attorneys to immediately accept death providing consultation, investigative, and other services to private using expert, salaried center attorneys to directly represent defendants/prisoners. Due to data limitations, we could not fully assess the validity of these assertions. Comparable empirical data on case complexity and reliable baseline data concerning death penalty litigation costs prior to implementation of the resource centers were not available, and much of the available cost information was anecdotal. Our analysis of aggregate data from quarterly reports was limited because (1) comparable reports were available only for fiscal years 1991, 1992, and 1993; (2) the 1992 and 1993 reports included centers not operational in 1991; and (3) complete data were not available from all operational centers. These data limitations in turn precluded a full assessment of the costs of death penalty litigation. The absence of a reliable district identifier in panel attorney death penalty representations precluded a cost comparison of such representations in districts with and without DPRCs to determine if the costs were less in districts with DPRCs. In its fiscal year 1995 congressional budget submission, the Judiciary acknowledged that it did not have sufficient data or analyses to explain the causes of increased panel attorney costs and announced steps to improve Defender Services program operations, enhance data collection and analysis, and reduce costs. According to AOUSC officials, many of these initiatives were undertaken in response to congressional concerns and/or our inquiries. Several were recommended by the Economy Subcommittee of the Judicial Conference’s Budget Committee or the Defender Services Committee. Among the initiatives are (1) the creation of a nine-person program analysis office within the Defender Services Division of AOUSC; (2) efforts to develop Defender Services case weights and FDO work measurement formulas and improve available analytical data by requiring additional financial and statistical data, including FDO reporting of out-of-court time; (3) implementation of new “death penalty” panel attorney vouchers to aid improved cost analysis; (4) continuation of a study to assess the impact of the federal sentencing guidelines on program costs; and (5) improved audits of FPDs, CDOs, and DPRCs. The Judiciary also announced steps to control FDO costs, such as limitations on space alterations, salary increases, and travel. The Judicial Conference’s Committee on Defender Services has established a Death Penalty Representation subcommittee (generally known as the Cox Committee, after its Chair, Judge Emmett R. Cox) to reevaluate the DPRC concept and report on proposals for containing death penalty litigation costs. The subcommittee is reviewing available data, soliciting the views of various sources, and planning to complete its work during the summer of 1995. AOUSC’s Office of Audit continues to play a role in evaluating various aspects of the program. The Office, either directly or through its contractor accounting firm, conducts periodic financial audits of court operations, which include reviews of FPD activities and panel attorney payments. The Office’s audit staff has identified some FPD office deficiencies regarding payroll, time and attendance, and disbursements, as well as problems in some DPRCs’ reporting on time spent on federal representations. At its January 1995 meeting, the Judicial Conference’s Committee on Defender Services directed AOUSC to contract centrally for audits of CDOs and DPRCs. AOUSC’s comments on a draft of this report mentioned some additional initiatives (see app. III). AOUSC’s written comments incorporated the views of the Chair of the Judicial Conference’s Committee on Defender Services. AOUSC said that the findings and issues identified in our report would assist the Judiciary in its ongoing efforts to increase the type, quality, and consistency of data being collected on the activities of FDOs, DPRCs, and panel attorneys. AOUSC identified a number of specific efforts, planned and underway, to improve data collection and analysis and contain Defender Services costs. A number of these efforts were initiated in response to our work. On the basis of our review of the information provided by AOUSC, we agree that successful completion of AOUSC’s efforts—both those mentioned in its letter and those discussed in our report—would help to rectify the issues identified in our report. The full text of AOUSC’s comments are in appendix III. We are sending copies of this report to the Subcommittees on Commerce, Justice, and State, the Judiciary, and Related Agencies of the House and Senate Appropriations Committees; the Chairmen and Ranking Minority Members of the House and Senate Committees on the Judiciary; the Chairman and Ranking Minority Member of the House Judiciary Subcommittee on the Judiciary and Intellectual Property; the Chairman and Ranking Minority Member of the Senate Judiciary Subcommittee on the Courts and Administrative Practice; the Director of the Administrative Office of the U.S. Courts; the Chairman of the Judicial Conference of the United States’ Committee on Defender Services; and other interested parties. We will also make copies available to others upon request. Major contributors to this report are listed in appendix IV. If you have any questions about the contents of this report, please call me on (202) 512-8777. The former Chairman, and now Ranking Minority Member, of the Subcommittee on the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies, Senate Committee on Appropriations, requested that we examine a number of issues regarding the Federal Defender Services program and the causes of the rapid growth in both program workload and costs. Specifically, we were asked to assess, for fiscal years 1990 to 1993 and the first half of 1994: the causes of the growth in overall Defender Services workload and costs, including the reasons that Defender Services workload has grown faster than district court criminal cases; the comparative costs of representations closed provided by FDOs and panel attorneys and, if the FDO costs were lower, what actions the federal judiciary was taking to increase the use of FDOs; the additional costs of paying standard higher hourly rates to panel attorneys in all or parts of 16 districts; and the causes of the increased workload and costs of the DPRCs, including whether the DPRCs had helped to reduce or contain the costs of panel attorney death penalty representations. However, because of the data limitations described below, and as agreed with the requestor, we changed our objectives to provide information on (1) reasons that Defender Services workload has grown faster than district court criminal cases; (2) data available to assess the causes of increased Defender Services workload and costs; (3) comparative costs of representations closed by federal defender organizations and by private attorneys directly assigned by federal judges; (4) additional costs of paying higher standard hourly rates to private, court-appointed attorneys in all or parts of 16 districts; (5) the comparative costs of panel attorney and DPRC death penalty representations; and (6) the potential causes of increased DPRC workload and costs. To meet these objectives, we reviewed prior studies of the Federal Defender Services program, including those of the Committee to Review the Criminal Justice Act (commonly referred to as the Prado Committee), the Judicial Conference of the United States, the Defender Services Division, and the Financial Analysis Office of the Administrative Office of the U.S. Courts (AOUSC). We also reviewed a number of private studies of death penalty litigation, including studies of DPRCs by the Spangenberg Group, a consulting firm. We met with federal court officials, including the Chairman of the Executive Committee of the Judicial Conference of the United States, the Chair of the Judicial Conference Committee on Defender Services, the Defender Services Advisory Committee, and the Chief Judge of the Second Circuit court of appeals. We also met with judges, federal and community defenders, and other officials in the Eastern and Southern Districts of New York, Eastern District of Michigan, District of New Jersey, District of Delaware, and Southern District of California. These districts were judgmentally selected. Delaware was chosen because it was served by the FPD for New Jersey. The districts of Southern and Eastern New York, Eastern Michigan, and New Jersey had large criminal caseloads and were near our regional office staff. We chose the Southern District of California because Defender Services officials told us this district had developed a method of tracking attorney hours that captured many of the elements, such as representations for defendants charged with offenses carrying a mandatory minimum sentence, not captured by the national data systems used in our analysis. We also met with AOUSC officials in the Office of Audit, Defender Services Division, Office of Finance and Budget, and Statistics Division to discuss a number of issues, including studies they had or were conducting on Defender Services workload and costs. We identified the workload and cost data available from AOUSC. FPD and CDO workload data are reported semiannually by each office on form JS-50. We obtained these semiannual workload reports for fiscal years 1990, 1991, 1992, 1993, and the first half of fiscal year 1994 and produced a dataset to analyze FPD and CDO workload by case type, disposition (where available), and type of representation—criminal, appeals, and all other representations (such as bail and probation/parole revocation hearings and habeas corpus proceedings). We obtained a copy of the automated database created from the vouchers submitted by panel attorneys for fiscal years 1990 through 1993, plus the first 6 months of fiscal year 1994. This database contained data on the amount of in-court and out-of-court compensation requested by panel attorneys and approved by the court, the approval date, the payment date, and the attorney’s authorized hourly in-court and out-of-court billing rates. We did not verify the accuracy of the data entered on the forms or the database AOUSC provided. However, edit checks on the internal reliability of data in selected data fields in the database, such as attorney hourly rates, revealed some questions about the accuracy of the data in these fields. These problems are discussed in later sections of this appendix. AOUSC’s master criminal file provided a wide variety of data on overall criminal workload in the federal district courts. We used this database, the annual statistical reports of the courts, and a Statistics Division analysis to identify trends in total district court criminal workload, such as the number of multiple defendant criminal cases filed in district courts, the number of trials with four or more defendants, and trial lengths in days. However, the master criminal file did not reliably differentiate between Defender Services cases and other cases, precluding a comparison of overall workload trends and Defender Services workload trends. In addition, data on some of the workload and cost variables we were asked to examine were unavailable or too incomplete to be analyzed. These included data on: the number of defendants who required court-appointed counsel because their assets had been seized or frozen (not available); the total number of cases in which defendants were charged with offenses carrying mandatory minimum sentences (not available nationally, although we found that the CDO for the Southern District of California maintained such data, beginning in fiscal year 1993); the number of panel attorney appointments resulting from multiple defendant cases in which more than one defendant required a court-appointed attorney (not available nationally);the additional hours Defender Services attorneys expend on representations because of the implementation of the federal sentencing guidelines (not available); federal prosecutions of cases developed by state investigative agencies, such as weapons or drug cases prosecuted in federal courts to take advantage of higher mandatory minimum sentences imposed under the federal sentencing guidelines (not available from AOUSC).the link between the increased number of assistant U.S. Attorneys and the number of criminal cases filed in U.S. district courts (only basic trends can be described from available data, such as the percent increase in resources for criminal prosecutions and criminal cases initiated in federal courts). Defender Services officials said that each of these factors had contributed to increased attorney hours and costs per representation closed. Early in our work we informed Subcommittee staff that these data limitations precluded an assessment of the direct impact of individual factors on Defender Services workload and costs. Therefore, as agreed with the requestor, we changed our objectives. Table I.1 summarizes the limitations of available Defender Services workload and cost data for criminal representations closed. Number of new defendants who cases were completed (disposed) The types of data reported for panel attorneys and for FDOs differed in many respects, significantly limiting the comparisons that could be made between the work of panel attorneys and defender organizations. As shown in table I.1, the criminal caseload data available from the principal judiciary databases were varied and not always comparable. While the number of multiple defendant cases could be obtained from the master criminal file, for example, we could not determine how many defendants in these cases required court-appointed counsel. The national workload data available for FDOs and CDOs included the number of new representations, number of representations closed, and number of representations pending at the end of the fiscal year. However, the data available on panel attorneys included only the number of representations closed—representations for which panel attorneys had requested payment. If the representation were closed, but the panel attorney did not request payment during the same fiscal year, the representation would not appear in the database until the attorney had submitted a voucher for payment. To determine why the rate of Defender Services representations closed has exceeded the increase in criminal filings in recent years, we tried to identify those Defender Services representations that were most analogous to criminal filings in district courts. Defender Services representations were reported in three broad categories—criminal, appeals, and other. After consulting with Defender Services and AOUSC’s Statistics Division, we determined that the category “criminal representations” was most analogous to criminal filings as reported by the district courts and recorded in the master criminal file. Appeals are reported in AOUSC statistical reports as workload of the courts of appeals. Thus, such representations would not be reported in district court workload statistics. The category “other representations” included proceedings, such as prisoner petitions and habeas corpus petitions, that are civil actions and reported in district court civil workload statistics. Defendants disposed rather than commenced in district courts was the most appropriate comparison between Defender Services criminal representations and district court criminal workload statistics. This was because panel attorney data were not available on new appointments but were available only for representations closed (those for which payment had been requested). When this comparison was made, we found that Defender Services criminal representations did not exceed the number of criminal defendants disposed in district courts. As summarized in table I.1, comparable workload and cost data for FDOs and panel attorneys were limited. FPDs and CDOs reported aggregate data on case disposition (such as trial or guilty plea); panel attorneys did not. Panel attorneys reported both in-court and out-of-court hours; FPDs and CDOs reported only in-court hours. Because panel attorneys submitted vouchers for each type of representation they were assigned—criminal representations, appeals, other—it was possible to calculate the average cost per representation for different types of panel attorney representations. However, FPD and CDO cost data were not available by type of representation. Consequently, we could not determine FPD and CDO costs by type of representation using existing data. Therefore, we used aggregate FPD and CDO costs per representation when comparing panel attorney and FDO costs per representation. An AOUSC study found that CDOs had a lower average cost per representation closed than FPDs or panel attorneys. Defender Services officials suggested that a large number of relatively inexpensive immigration representations, particularly in the CDO for the Southern District of California in San Diego, may have largely accounted for the lower average CDO costs. The CDO for the Southern District of California accounted for more than half of all Defender Services immigration representations. Because of its impact on total CDO workload and costs, we examined CDO workload and costs with and without San Diego included in the analyses. The San Diego CDO has developed its own system for tracking attorney assignments and hours that captured a variety of data not available from the AOUSC forms, such as representations involving offenses carrying a mandatory minimum prison term, dispositions by type of offense, in-court and out-of-court hours by type of offense, and multiple defendant cases. The San Diego system was not designed to capture costs per representation closed but was principally designed to track attorney hours and aid in attorney assignments. The fiscal year 1993 San Diego data on attorney hours provided a case study of the impact of multiple defendant cases and representations involving mandatory minimum offenses on attorney hours. The San Diego data also illustrated how such attorney hour data could aid the Defender Services Division in analyzing its workload. To compare the workload and per representation costs for FPDs, CDOs, and panel attorneys, we developed a working definition of representation, and calculated costs and in-court hours per representation. As explained below, we used representations closed as our basic measure of Defender Services workload. Because FPDs and CDOs did not report out-of-court hours per representation closed for the years we reviewed, we could only compare in-court hours per representation closed for FPDs, CDOs, and panel attorneys. Prior to its fiscal year 1996 submission, the Judiciary’s congressional budget submissions counted workload differently for FDOs and panel attorneys. FPDs and CDOs have been reported as cases opened, the basic equivalent of new court appointments. For panel attorneys, the submissions have used “cases against which payment is made in a given fiscal year.” In its fiscal year 1996 submission, the Judiciary used “representations closed” for reporting FPD and CDO workload, adopting the method we used to count workload. Our analysis used FPD and CDO representations closed as reported on the AOUSC forms, because data for panel attorneys were available only for (1) closed representations; or (2) representations for which panel attorneys had requested partial payment, though the case may not yet have been completed. We defined a panel attorney representation as the representation of a defendant charged with or convicted of a specific offense by a private, court-appointed attorney. Representations for convicted defendants included appeals of conviction and/or sentence or habeas corpus proceedings in which the defendant may be challenging a state conviction in federal court. We took several steps to avoid double-counting panel attorney representations closed. When a panel attorney was appointed, the court assigned a unique voucher number that the panel attorney was to use when submitting request(s) for payment. Panel attorneys may submit more than one voucher for each representation using the voucher number they were assigned upon appointment. We considered all claims for payment under a single voucher number to be part of a single representation. If payments under the same voucher number were approved and paid in two successive fiscal years, AOUSC counted the request for payment in the new fiscal year as a separate representation. We found 691 voucher numbers that appeared in fiscal years 1990 and 1991, 900 numbers that appeared in fiscal years 1991 and 1992, and 1,202 numbers that appeared in fiscal years 1992 and 1993. Thus, AOUSC would have counted as separate representations 691 voucher numbers in 1991, 900 in 1992, and 1,202 in 1993. We followed the AOUSC convention because we were tracking payments per representation closed in each fiscal year. Thus, like AOUSC, our counts of representations closed in each fiscal year were not precisely accurate. First, we overestimated representations actually closed in fiscal year 1990 by as much as 691 (2.4 percent of the 28,575 representations we attributed to 1990); in fiscal 1991 by as many as 900 (2.5 percent of 36,027 representations); and in fiscal year 1992 by as many as 1,202 representations (3.3 percent of 36,479 representations). Second, this method of counting did not accurately reflect panel attorney costs per representation closed. If each voucher number appearing in two fiscal years represented a single representation, then the true cost for each representation closed would be the total of all the payments made under each voucher number for both fiscal years. This approach affected hours per representation closed for the same reason. The total attorney hours appearing in both fiscal years would be the true hours per representation closed. Some defendants were represented by more than one panel attorney in the same case, but we counted such situations as a single representation. To determine a single panel attorney representation, we matched offense, court district, docket number, and defendant name. Multiple records and multiple voucher numbers that matched exactly on these data elements were considered part of a single representation. If they did not match on all data elements, we counted them as separate representations. We calculated FPD and CDO costs per representation closed by dividing the total budget obligations for all FPDs or CDOs by the total number of FPD (or CDO) representations closed in that fiscal year, as reported on the AOUSC forms. Thus, if total FPD obligations were $100,000 and total representations closed were 1,000, the cost per FPD representation closed would be $100 ($100,000/1,000). This calculation was not very precise, but available data did not permit a more detailed estimate of costs per representation closed. This methodology may have overstated the FPD and CDO costs per representation closed because an undeterminable portion of their budgets was used for representations opened, but not closed, during the fiscal year. In addition, FDO attorneys provide training for panel attorneys, the costs of which are included in FDO budgets. The calculation of panel attorney costs per representation closed was somewhat more complicated. The AOUSC used “payment date”—the date on which the check was written—to calculate per representation costs. In fiscal years 1991 and 1992, payments to panel attorneys were deferred due to shortage of funds, with large numbers of payments made in the first month of the new fiscal year. Thus, payment date was not necessarily the best measure of when the representation was closed. Therefore, we used “certification date,” the date on which the court approved payment, because this date was likely to be closer to the date on which the work was completed and payment requested than the payment date. We calculated costs per representation closed using a two-step process. First, to determine costs for closed representations having a single panel attorney, we aggregated all payments for each voucher number. That is, if there were five payments approved for voucher number 12345, we combined all five payments to obtain a single cost for that voucher number. Second, we aggregated all payments for each voucher number associated with the same representation. For example, if voucher numbers 54321 and 67890 were associated with the same representation, we combined them into a single total for that representation. As noted, our panel attorney costs per representation closed may be somewhat understated since in the database we used the costs for as many as 691 representations that were split between fiscal years 1990 and 1991, 900 between 1991 and 1992, and 1,202 between 1992 and 1993. Moreover, our costs per representation closed included attorney time only. The costs of experts, investigators, and other services, reported on another form, were not included in our costs because of the difficulty of matching these payments, recorded in a separate database, with the representations recorded in the AOUSC database for attorney hours. However, such costs were included in the costs for FPDs and CDOs, since these costs were included in the total budget obligations we used to calculate FPD and CDO costs. Thus, the FPD and CDO cost per representation closed used in our analysis included all costs incurred by these organizations, while our panel attorney cost per representation closed included only attorney time. Consequently, any FPD or CDO cost advantage we found in our analysis was probably somewhat understated. We used the in-court hours reported on the JS-50 forms for representations closed to calculate FPD and CDO in-court hours per representation closed. FPDs and CDOs did not report out-of-court hours. Panel attorney vouchers included separate sections for in-court and out-of-court compensation requested and approved. In all but 16 districts panel attorneys were reimbursed at the standard rate of $60 per hour for in-court time and $40 per hour for out-of-court time. Thus, in these districts in-court hours are reimbursed at a rate 50 percent higher than out-of-court hours. The court may reduce the amount requested for either in-court compensation, out-of-court compensation, or both. However, where the court made a reduction in the amount approved for payment, the database did not usually indicate the number of attorney hours by which the request had been reduced. Rather, the database showed separately the amount requested and the amount approved for payment. Because attorney hours were not entered into the automated database, AOUSC calculated the actual number of in-court hours expended per panel attorney representations by dividing the total amount of compensation requested (for example, $2,400) for in-court time by the authorized hourly rate ($60 in most districts). The same calculation was made for out-of-court hours. The database supports no other reasonable method of calculation. Consequently, we used the same method to calculate attorney hours per representation closed. If the the authorized hourly rate is recorded erroneously on the CJA-20, this would affect the calculation of attorney hours. We found a wide variety of hourly rates reported in the database for both death penalty and nondeath penalty representations. Some appeared to be keying errors. For example, in more than 1,300 nondeath penalty panel attorney representations in fiscal year 1993 the out-of-court hourly rate was recorded as $752, perhaps reflecting a data entry error. The correct rate was probably $75—the higher standard hourly rate in those districts authorized to pay the higher rates. However, because of the method used to calculate panel attorney hours, this error would reduce by a factor of 10 the actual out-of-court hours reported as expended in such cases. Due to resource limitations, we did not validate the hourly rates entered in the database. Consequently, we could not determine the magnitude of the error that may be attributable to such erroneous hourly rates, and the data used in our analyses were based on the rates as reported in the database. FPDs and CDOs were not assigned death penalty cases during the period of our review. Therefore, when comparing FPD, CDO, and panel attorney average costs per representation closed, we used the average panel attorney cost per representation closed, excluding death penalty representations. We separately calculated the costs for panel attorney death penalty representations closed for the analysis on death penalty representations. To estimate the impact of increased workload (as measured by representations closed) on program costs, we estimated what fiscal year 1993 costs would have been if the average cost per representation closed had remained unchanged throughout the period at the fiscal year 1990 average cost per representation closed (unadjusted for inflation). For example, in fiscal year 1990, total panel attorney criminal representation costs were $47,212,797, with an average cost of $1,985 each. At $1,985 each, the 29,237 panel attorney criminal representations closed in fiscal year 1993 would have cost $58,035,445, or $10,822,648 more than the total 1990 costs. However, total 1993 panel attorney costs for criminal representations were actually $30,009,222 more than the 1990 total. Thus, we estimated that the increased workload accounted for about 36 percent of increased panel attorney costs for criminal representations between fiscal years 1990 and 1993. We did not adjust the 1990 cost per representation closed for inflation because we wanted a comparable estimate for panel attorneys and FDOs. While FDO attorneys received cost-of-living adjustments during the period (though not always at the same time in the fiscal year), the basic panel attorney hourly rates in 78 of 94 districts remained unchanged at $40 (out-of-court) and $60 (in-court). We had already separately estimated the impact of paying higher standard hourly rates to panel attorneys in the 16 districts in which higher rates were paid in fiscal years 1991, 1992, and 1993. Although our use of 1990 average costs unadjusted for inflation may have underestimated the impact of increased workload on program costs, particularly for FDOs, it was the most straightforward method of developing reasonable, comparable estimates for panel attorneys and FDOs. In 78 districts, panel attorneys are paid a standard hourly rate of $40 for each out-of-court hour and $60 for each in-court hour. In all or parts of 16 districts, panel attorneys are paid a single, standard higher hourly rate of $60, $70, or $75 for both in-court and out-of-court hours. The applicable rate varies by district. The AOUSC database included the hourly rate and the separate amounts of compensation requested for in-court and out-of-court hours, but the database did not include the number of in-court or out-of-court hours on which the request was based. We excluded from our analysis representations compensated at rates other than the standard higher rates, as applicable, of $60, $70, or $75 per hour in these 16 districts. Representations compensated at other hourly rates would, by definition, have been exceptions to the standard higher hourly rates prevailing in these districts. In some of these districts, the higher rate applies only to specific location(s) within the district. To the extent that the higher standard rates were approved in specific cases outside these locations, they would be included in our analysis because we could identify representations only by district, not by specific locations within a district. We calculated the number of in-court hours and out-of-court hours by dividing the total requested amount by the approved hourly rate. We used these hours to recalculate the requested compensation at the rate of $40 for each out-of-court hour and $60 for each in-court hour. This provided a comparison between requested compensation at the higher standard rate in these districts and the amount that would have been requested using the lower standard hourly rates of $40 out-of-court and $60 in-court. However, the courts reduced some requests for compensation at the higher rates. Consequently, a comparison based solely on requested compensation would overstate the amount actually paid in the higher-rate districts. To determine how much had actually been approved and paid in each of the 16 higher-rate districts, we used the AOUSC database to identify the amount by which the requests for compensation had been reduced in each district. We then compared the amounts actually approved and paid at the higher rates with the amounts that would have been requested at the lower rates. We did not also reduce the calculation using the lower rates because the database provided no basis on which to make such an adjustment. The database did not explain the basis for the reductions in requested compensation, nor were there any data on the number of hours disallowed—only final dollar amounts approved and paid. Our method of calculation produced a conservative estimate of the additional costs of paying the higher rates in the 16 districts. Our estimates and cost comparisons were also conservative because we excluded from the analysis any voucher without a district identifier. For every type of representation—criminal, appeals, other—some representations did not include district identifiers, but only the appeals circuit in which the district was located. Each circuit, except the District of Columbia circuit, covers a number of states and districts. The higher-cost districts are in the second, third, seventh, ninth, and tenth circuits, but not all districts in each of these circuits were authorized to pay the higher panel attorney hourly rates. At least 98 percent of all appeals in the database for fiscal years 1990 through 1993, and 85 percent in the first half of 1994, were identified only by the circuit in which the appeal was filed. Consequently, our estimate of paying the higher rates excluded the costs of most appeals originating in the districts authorized to pay the higher rates. To assess the costs of representations by DPRCs we relied primarily on DPRC budget and workload data included in the DPRCs’ quarterly reports and data on panel attorney costs per death penalty representation closed from the AOUSC database. Because there were no baseline cost data prior to the DPRCs’ creation, we could not determine whether the services the DPRCs provided had helped to reduce the costs of death penalty litigation. Because of considerable variations in the type of work each DPRC does, including the mix of direct representations and assistance provided to private counsel, we could not determine whether the increased costs of the DPRCs were justified by the workload. About 37 percent of panel attorney death penalty representations closed in fiscal year 1991, 23 percent in fiscal year 1992, and 17 percent in fiscal year 1993 were not identified by district. This precluded a comparison of the costs of panel attorney death penalty representations closed in districts with and without DPRCs. To develop descriptive information on DPRCs, we reviewed the fiscal year 1991, 1992, and 1993 quarterly reports submitted by the DPRCs on their workload. California did not submit quarterly reports until fiscal year 1994 because it submitted monthly vouchers instead; fiscal year 1991 quarterly reports for the Georgia DPRC were also unavailable. We also reviewed studies by the Spangenberg Group, a consulting firm, on death penalty litigation and costs, and incorporated some of their data in our analysis, as appropriate. This appendix provides selected tables on Defender Services workload and costs for fiscal years 1990 through 1993. Where available, data for the first 6 months of fiscal year 1994 are included. The tables in this appendix supplement the tables and figures in the letter. Only overall costs per representation closed were available for FPDs and CDOs. However, per representation costs by type of representation and major offense category (within criminal representations) were available for panel attorneys and are shown in tables II.7 and II.8. Michigan, Eastern (Detroit) Arizona (Phoenix and Tucson) California, Eastern (Sacramento and Fresno) Nevada (Las Vegas and Reno) Washington, Western (Seattle) New Mexico (Las Cruces) x Table II.10: Estimated Additional Cost of Paying Panel Attorneys Higher Standard Rates in Sixteen Districts (Based on Amounts Approved for Payment) Totals reflect any court reductions in the amount of compensation requested. Totals at lower rate assume compensation for total number of hours requested. Because the database did not reflect the number of hours by which requests were reduced, only dollar amounts of the reductions, we could not correspondingly reduce the amount that would have been approved at the lower rates. AL (N, M, S) AR (E, W) CA (N, E, C, S) FL (N, M, S) Georgia Appellate Practice and Educational Resource Center, Inc. GA (N, M, S) IL ( N, C, S) KY (E, W) LA (E, M, W) MS (N, S) MO (E, W) Nevada Appellate and Post-Conviction Project, Inc. NC (E, M, W) OH (N, S) OK (E, N, W) South Carolina Death Penalty Resource Center Capital Case Representation Resource Center of Tennessee, Inc. TN (E, M, W) TX (N, E, W, S) VA (E, W) Jan Montgomery, Assistant General Counsel The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO examined the Defender Services program, focusing on: (1) the causes of the program's increased workload and costs; and (2) whether death penalty resource centers (DPRC) have reduced the federal costs of representing indigent defendants in death penalty cases. GAO found that: (1) the Defender Services program represents individual defendants rather than cases and during fiscal years (FY) 1990 through 1993 there was an average of 1.4 defendants per criminal case filed; (2) the Defender Services program workload has grown and costs have increased because the number of defendants have increased and the cases have become more complex, resulting in more work for attorneys in each case; (3) there was insufficient data to determine why overall program costs doubled and DPRC costs tripled between FY 1990 and FY 1993; (4) federal public defender and community defender organization representations cost less than panel attorney representations, although the cost advantage has gradually declined; and (5) death penalty representations accounted for 0.6 percent of all panel attorney representations closed in FY 1993, but accounted for 8.7 percent of all panel attorney payments. |
Prepositioning is an important part of DOD’s overall strategic mobility framework. It allows DOD to field combat-ready forces in days rather than the weeks it would take if the forces and all necessary equipment and supplies had to be brought from the United States to the location of the conflict. The U.S. military can deliver equipment and supplies in three ways: by air, by sea, or by prepositioning. While airlift is fast, it is expensive to use and impractical for moving all of the material needed for a large-scale deployment. Although ships can carry large loads, they are slower than airlift. Prepositioning lessens the strain of using expensive airlift and reduces the reliance on slower sealift deliveries. The value of prepositioned stocks was demonstrated during operations in Iraq. The military used equipment and supplies stored at land sites in the region and offloaded much of the stocks from its prepositioning ships. Having the equipment prepositioned allowed troops to fly in, deploy rapidly, and train with prepositioned equipment before beginning combat operations in Iraq. As the ongoing war has depleted those items, the Army is in the process of reconstituting its prepositioned equipment and supplies. The Department of the Army provides strategic-level guidance for the Army’s prepositioned stock program and allocates funding for prepositioned stock requirements. The Army Materiel Command provides the overall management of the Army’s prepositioned stocks program. Within Army Materiel Command, the Army Sustainment Command manages the operations and maintenance of the program, and issues the stocks in theater in support of contingency operations or exercises. At each prepositioned stock location, the Army Sustainment Command also provides an Army Field Support brigade and battalion for day-to-day maintenance and operational management of the program. The Army’s prepositioning program involves three primary categories of stocks stored at land sites and aboard prepositioning ships: combat brigade sets, war reserve sustainment stocks, and operational projects as described below. Are designed to support 3,000 to 5,000 soldiers. Include heavy weaponry such as tanks and Bradley fighting vehicles. Include support equipment such as trucks and High Mobility Multi- purpose Wheeled Vehicles. Include spare parts and other sustainment stocks to support the early stages of a conflict. War reserve sustainment stocks include Items to sustain the battle unit until resupply can be ramped up to wartime levels and arrive in theater. War Reserve Secondary Items include rations, clothing and textiles, construction and barrier materiel, medical supplies, repair parts, and major assemblies (reparables and consumables). Authorized material above unit authorizations designed to support Army operations or contingencies. Equipment and supplies for special operations forces, bare base sets, petroleum and water distribution, mortuary operations, and prisoner- of-war operations, among others. The Army’s April 2006 report to Congress on the status of its prepositioned program addressed the areas required by Congress, but the Army has significantly shifted its prepositioning strategy since then. The Army’s report included descriptions of operational capabilities as outlined in the Army Prepositioned Stocks Strategy 2012; addressed the maintenance condition of prepositioned equipment; and noted recent efforts to improve management and maintenance oversight of the program, including forming an independent inspection team. However, since the report’s publication, the Army has begun a reexamination of its overall prepositioning strategy. According to the Army, this shift was based on insights gained from the 2006 Quadrennial Defense Review, but Army officials told us that recent budget reprogramming decisions and worsening Army-wide equipment shortfalls also influenced the reexamination. The Army concluded that its Prepositioned Stocks Strategy 2012 was no longer viable and began work on a revised strategy that was approved by Army leaders in late August 2006 and is expected to be completed by the end of 2006. The Army’s report to Congress addressed the required areas included in the National Defense Authorization Act for Fiscal Year 2006. The Army determined that over $4 billion would be needed to fill equipment, secondary item, and facility shortfalls. The Army reported that additional covered storage and maintenance space was needed at prepositioning sites in Southeast and Northeast Asia as well as at the Charleston, South Carolina, facilities used to maintain afloat stocks envisioned under the 2012 strategy. Further, it indicated that the facilities in Europe would be sufficient to meet the prepositioned requirements once the construction project in Italy was completed. The equipment sets at each location were at a high percentage of mission capability, it reported, with the exception of Kuwait. The equipment sets in Kuwait had been issued in support of Operation Iraqi Freedom and Operation Enduring Freedom, and by 2006 had a low mission-capability rate. It did stipulate, however, that the equipment set was undergoing repair, recapitalization, and replacement. Regarding the program’s management and maintenance oversight, the report acknowledged that weaknesses in the quality control program had been revealed by both internal and external audits, including GAO’s September 2005 report. The Army Sustainment Command created the Logistics Support and Evaluation Team to address identified quality control problems. According to the Army report, the team provides an additional layer of review to ensure that the Army Prepositioned Stock readiness levels reported are accurate and that sufficient quality assurance measures are in place. Since the release of its report to Congress in April 2006, several decisions led the Army to conclude that its existing strategy was no longer viable. In particular, an internal DOD reprogramming action required the Army to offload a Heavy Brigade Combat Team equipment set stored on a prepositioned ship and redistribute it to meet existing equipment shortfalls and reduce costs. The Army had two equipment sets already aboard prepositioned ships and planned to upload a third set in 2013. The reprogramming action directed the Army to offload the third equipment set. However, because the third equipment set had not yet been created, the Army decided to offload one of the existing equipment sets instead to meet the reprogramming guidance. This decision effectively reduced the Army’s program in the near term from two to one heavy brigade combat team afloat, with implications for the operational plans of the regional combatant commanders. Several factors combined to create a ripple effect that impacted the viability of the Army Prepositioned Stocks 2012 Strategy. First, the department told us the Army changed its strategy based on insights gained from the 2006 Quadrennial Defense Review. Also, Army officials told us that equipment shortfalls made it difficult for the Army to meet the requirements in the strategy at least partly because Army prepositioned stock equipment was continuing to be drawn to support ongoing operations. Also, the Army transformation to modularity exacerbated shortfalls in certain types of equipment and created excesses in others. In addition, the Army eliminated most of the remaining facilities and prepositioned stocks from Western Europe but was completing a new maintenance and storage facility in Italy which needed a mission. As a result, the Army’s 2006 report was outdated soon after its publication and should not be used by Congress or DOD for funding decisions. The future success of the Army’s prepositioning program depends not only on how well the Army aligns its efforts with those of the department as a whole, but also on how well long-standing management issues are addressed as the new strategic plan is implemented. The Army expects to finalize its implementation plan for the revised Prepositioned Stocks Strategy 2013 by December 31, 2006, but DOD will not complete its departmentwide strategy before mid-April 2007. Further, problems persist with the Army’s management of its secondary item and operational project stocks programs, including lingering questions about the overall requirements and the lack of reliable readiness measures for these programs. In addition, the lack of a comprehensive prepositioning storage and maintenance facilities plan contributes to increased maintenance costs and uncertain future facility requirements. Finally, the Army has not demonstrated adequate oversight to ensure the proper maintenance condition of prepositioned stocks. The Army is developing a new prepositioning strategy to address recent decisions that have affected the viability of its existing plan. According to Army officials, the new strategy is intended to promote greater flexibility in the use of prepositioned stocks while concurrently increasing the Army’s access to unstable areas. While continuing to rely on stocks in South Korea, the proposed strategy includes significant changes to the program—among them, less reliance on heavy combat equipment afloat and expanded reliance on heavy equipment in Kuwait, Qatar, and Italy. The Army’s draft revisions to its prepositioning strategy were approved by the Army Vice-Chief of Staff in late August 2006. The Army established an Integrated Process Team to develop a comprehensive implementation plan for the new strategy and to provide direction to working groups that would assess the areas of strategy, capabilities, equipping, facilities, and funding. The Army plans to have this task completed by late December 2006. However, since the Army’s Integrated Process Teams were still performing their work, we could not evaluate progress at the time we completed our review. DOD has efforts underway that will address gaps identified in GAO’s September 2005 report but have implications for the Army’s efforts. First, to address gaps in departmentwide oversight, DOD convened a working group that includes representatives from the Office of the Secretary of Defense, Joint Staff, Defense Logistics Agency, the Army, Joint Forces Command, and the other services to develop joint doctrine for the prepositioning programs. This group was also working to update the departmental-level directive that describes responsibilities and provides broad guidance to the services during our review. While the efforts begun by this group represent progress, DOD had not yet developed joint doctrine for the program at the time we completed our work. Second, DOD also initiated a study in the spring of 2006 to address the need for a departmentwide prepositioning strategy to guide the department’s future prepositioning efforts. This study was a follow-on to the 2005 Mobility Capabilities Study that, while identifying the importance of prepositioning in meeting mobility objectives, along with interrelated airlift, sealift, and basing decisions, recognized the need for further analysis of prepositioning. Thus, the DOD-wide prepositioning study will determine how and what prepositioned equipment should be used and whether the prepositioned assets are in the best locations to support the department’s priorities and posture plans. According to DOD officials, this DOD-wide prepositioning study was not scheduled to be finished until the spring of 2007 at the earliest. However, on October 17, 2006, Public Law 109-369 was enacted directing the Secretary of Defense to complete its DOD-wide prepositioning strategy by mid-April 2007. DOD and Army officials told us during the course of our review that they discuss such strategy issues during their joint working group meetings and felt that they have coordinated their prepositioning plans. However, if the two strategies are not synchronized, DOD could be limited in developing an optimal DOD-wide strategy because the Army strategy already exists. Alternatively, the Army could be at risk of filling requirements that will be superseded when the DOD-wide strategy is ultimately issued. In fact, DOD anticipates that when the DOD-wide strategy is issued the Army will have to modify its service-specific prepositioning strategy to align with the new requirements. Finally, since prepositioning is interconnected with airlift, sealift, and overseas basing, the Army’s decisions will have an as-yet undetermined effect on lift requirements and basing. Despite recent efforts to improve requirements setting, the Army has not yet determined reliable secondary item and operational project requirements. In its efforts to reassess secondary item requirements, the Army ran its requirements-determination model, called the Army War Reserve Automated Process, in 2005. It had not previously run the model since 1999, even though Army guidance at that time called for requirements to be updated every 2 years. Because the model yielded questionable outputs, Army officials told us they were conducting a management review to scrub the requirements and help to determine investment priorities. Army officials said they expect requirements to be significantly adjusted as a result of their reviews. For example, the Army has already lowered the U.S. Army Europe meals-ready-to-eat stockage levels to match the smaller force structure there. This action resulted in over 1 million meals being made available to fill other high-priority requirements. In addition, the Army War Reserve Automated Process that is used for computing secondary item requirements will now be updated annually instead of biennially. Addressing these problems is critical for ensuring Army readiness in future conflicts. Experiences in Iraq showed that prepositioned secondary item stocks did not adequately support the troops in combat operations. Secondary items encompass a wide range of inventory, including critical readiness-enabling spare parts. In 2005, we reported that inaccurate requirements and insufficient funding led to shortages in critical items during Operation Iraqi Freedom. For example, demand for nonrechargeable lithium batteries and track shoes for armored vehicles were more than three times greater than the stated requirements for those items. We concluded that these shortfalls were directly traceable to problems in requirements computation. In addition to critical shortfalls, lessons learned also show considerable mismatches between what was available in prepositioned stocks and what units actually needed. In retrospect, the Army did a poor job in forecasting what it would need. As a result, it had to use scarce and expensive airlift to get needed stocks to the troops in the field, essentially defeating the purpose of prepositioning such items in the first place. Subsequent analyses have detailed the extent of the mismatches between stock levels, requirements, and actual usage. For example, most of the 16,000 different spare parts that were actually positioned in Kuwait were ultimately shipped back from the theater because they were not needed by the forces there, according to a RAND study commissioned by the Army. Most spare parts had to be airlifted to the theater, according to RAND. In addition, RAND compared the Army’s requirements for prepositioned spare parts to the actual demands during 2003 in Kuwait and found considerable mismatches. Only about half of the spare parts the Army thought would be required for prepositioned stocks were actually demanded in theater by Army units during 2003. According to Army officials, secondary items have historically not been fully funded at least partially because of concerns over the accuracy of the requirements. As shown in Operation Iraqi Freedom, inaccurate requirements resulted in limited demand for some items and excessive demand for others, greatly surpassing the on-hand inventory. The Army had to employ high-cost air transportation to bring needed items to the warfighter. As with secondary item requirements, long-standing issues exist within the operational project program—which includes important items like chemical defense equipment, pipeline systems, mortuary units, and bare base sets for housing soldiers in austere environments, among other items not typically part of unit equipment. These sets are typically kept to meet the specific needs of regional combatant commanders, and Army regulations require that they be revalidated every 5 years to ensure that the sets are still needed for an operational plan. Despite this requirement, the most recent revalidation for many of the projects was conducted in 1998. However, in response to our recommendation in 2005 that this long- standing problem be addressed, the Army initiated a revalidation of its Operational Project Stocks in April 2006. By October 2006, when we completed our work, the Army had queried Army commands worldwide to revalidate the needs for the various sets and had obtained validations for most of the sets. However, Army officials told us that they have already taken actions to eliminate projects that are no longer needed and are planning to conduct a management review of this program to further refine the requirements. To date, the Army has consolidated some projects and has cancelled other projects that were no longer needed. For example, three projects to support aerial delivery operations were cancelled because they were no longer required to support current operational plans. In addition, United States Army, Europe has cancelled two projects for bridging and aircraft matting because they no longer meet current operational requirements. One of the most significant consequences of having questionable requirements underpinning the programs is that it makes it difficult to assess their overall readiness, and the risk associated with shortfalls. Typically, the Army measures readiness of prepositioned equipment programs by assessing the inventory levels against requirements as well as the maintenance condition of on-hand equipment. However, the Army does not routinely measure or report readiness for the secondary item and operational project programs. According to Army and DOD officials, shortfalls in secondary items and some operational projects are identified in combatant command priority lists and through joint quarterly readiness reports to the Joint Staff, but not as part of the Army’s readiness reporting system. This situation is largely unchanged since 1998, when we recommended that the Army fix requirements problems and develop readiness-reporting mechanisms for these programs. Despite their lower priority relative to combat equipment programs, secondary item and operational project programs can be critical during a war. They contain items such as spare parts that are essential to keep the combat equipment operational, as well as chemical defense equipment and other items likely to be needed during the early stages of a conflict. The budgetary stakes are high: according to the April 2006 report to Congress, the Army estimated that it had a shortfall of about $1.7 billion in secondary items alone. Without sound requirements, the Army cannot reliably assess the readiness of its programs. Once sound requirements are set, the Army will need reporting mechanisms to assess their readiness and the impact of any shortfalls. In the absence of such mechanisms, the Army cannot make sound risk-based decisions about what investments it should make in the programs in the future. Although the Army reported maintenance and storage facility shortages to Congress, it lacks a comprehensive plan for maintenance and storage facilities for prepositioned stocks. According to Army officials, facility shortfalls are a concern in Kuwait and Korea, while facility excesses were an issue in Italy. Army policy recommends storing prepositioned equipment in controlled-humidity storage facilities, since outdoor storage results in increased maintenance costs. However, requirements for these facilities are currently uncertain. Until the Army develops a comprehensive plan that identifies how prepositioned equipment will be utilized and where it will be located for the long term, the existing facilities problems can not be addressed. The Army’s lack of adequate storage facilities for prepositioned equipment has led to equipment being stored outdoors, leaving it relatively unprotected from moisture, sand, and other elements and thus contributing to a number of maintenance problems, including corrosion. Army Regulation 740-1 stipulates that prepositioned equipment should be stored in controlled-humidity storage facilities. If controlled-humidity storage is not available, then covered storage space is preferred. More frequent inspections are required for equipment stored outside. Inadequate storage facilities in both South Korea and Kuwait have resulted in outdoor storage of prepositioned equipment. Figure 1 shows the storage situation in Kuwait, with prepositioned equipment stored at outside locations. Outdoor storage accelerates equipment deterioration and increases costs due to additional maintenance requirements. For example, if tanks are stored outside, preventive maintenance inspections must be performed every 30 days. If they are stored in controlled-humidity warehouses, inspections are only performed every 6 months. According to Army officials, maintenance inspections and repairs for equipment stored outdoors cost about four times that of equipment being stored in controlled-humidity warehouses. Army officials estimate that it costs an additional $24 million per year per heavy brigade combat team to maintain the equipment in outdoor storage. Facility requirements for the Army’s prepositioning program depend on equipment requirements, and as was discussed above, these have not yet been established. Consequently, facility requirements are uncertain. Prepositioned equipment can be used as rotational—that is, equipment provided to units arriving in theater for deployment; training—that is, equipment provided to units for training exercises but then returned to the storage location; or simply as stored prepositioned—equipment that is stored for undetermined future use. According to Army officials, there will be increased maintenance and maintenance facilities requirements if prepositioned equipment is to be used for training or to support a rotational presence in the region. Concurrently, there may be a decreased requirement for humidity-controlled storage space, depending on how the rotation is scheduled. Rotational unit equipment will have more repair requirements than stored units, due to damage and wear. If the prepositioned equipment is maintained solely for future use, more storage facilities and less maintenance capability will be needed. In Kuwait, the Army has not determined whether the prepositioned equipment will be used for units rotating in and out of theater, used as a combat brigade team training set, or stored. Storage facilities in Kuwait will likely be needed, but until Army officials decide how the equipment in Kuwait will be used, they will not be able to determine the type and amount of facilities needed. Storage facilities intended for prepositioned equipment at Camp Arifjan are currently being used as headquarters buildings for Army Central Command, and it is not clear when these buildings will revert to their storage function. While the Army is exploring numerous options for providing covered storage of the equipment in Kuwait, ranging in cost from $20 million to $37 million, none are currently funded. Additional maintenance and storage facilities are needed in South Korea to support the prepositioned equipment at Camp Carroll. The Army has already broken ground on a new maintenance facility that is expected to be operational in November 2007. The Army has plans to build an additional 200,000 square feet of storage space at a cost of $18.6 million. This project is currently unfunded, yet it has a target completion date of 2012. However, while the Army is addressing the prepositioning facility shortfalls at Camp Carroll, it is considering relocation of the set to another site near a port further south. Army officials believe it would provide for more flexible use of the prepositioned assets. If the Army decides to move the equipment set, the additional covered storage at Camp Carroll may be unnecessary. The Army’s new strategy also includes a plan to store heavy equipment at a newly constructed Italian site, to make use of a facility that previously had no mission. When initially approved, the construction project was intended to support the storage of a prepositioned combat brigade team equipment set, but this plan was eliminated in the 2012 strategy. However, since the contract for this project had already been awarded and construction was underway, the Army decided to complete the construction. Army officials stated that it would be more costly to cancel the project than to finish it. The cost for the initial phases of the construction project is approximately $48 million. A $5 million ammunition maintenance and storage facility is also planned as part of this construction project. Figure 2 shows the new facility, including seven controlled-humidity warehouses, a maintenance facility, an administration building, and a brake test facility and wash rack. The new Army strategy includes a prepositioned combat brigade team equipment set at Livorno with the intention of using the port to upload the prepositioned equipment onto ships as needed. The Army has also been discussing using the equipment in Livorno for rotational training exercises in Eastern Europe in locations like Bulgaria and Romania. However, specific plans for this had not been developed. Afloat stocks are reduced in the Army’s new 2013 prepositioning strategy, but the Army plans to continue to utilize the Charleston, South Carolina, prepositioning facility to unload, repair, and reload prepositioned equipment from afloat prepositioning ships. The facility was originally used to maintain Polaris missiles and was converted by the Army to provide maintenance support of the prepositioned afloat fleet. According to Army officials, upgraded maintenance and storage facilities will be required to support the facility’s prepositioning mission but the implications of the new strategy on facilities have not yet been determined. Table 1 shows the current status of maintenance and storage facilities at selected Army prepositioning locations. Management oversight of the maintenance of equipment in Korea has improved since we published our report in 2005. Previously, significant issues and problems were found with the mission capability of stocks in South Korea. We stated that despite reports of high mission capability, the majority of the stocks in South Korea were not mission capable. During our May 2006 visit to South Korea, we observed that the Army had hired additional personnel to bring the equipment up to full mission capability and ensure that the equipment was properly maintained. A new organizational structure was established that created clear lines of responsibility and standard operational procedures for each aspect of the cyclic maintenance program. A training program for production control was established for both U.S. and South Korean employees, and there was a continued emphasis on the need for oversight. While the problems we identified in 2005 in South Korea have been corrected, recent inspections of contractor-maintained equipment in Kuwait revealed a high percentage of equipment failure, indicating that maintenance oversight is a continuing problem. Analyzing data available at the site, we found that 28 percent of the prepositioned equipment in Kuwait submitted for government acceptance had failed quality assurance testing between June 2005 and June 2006. However, the maintenance battalion had not routinely tracked this information or monitored this important performance measure. Additionally, much of the equipment recently certified by the contractor during preventative maintenance inspections failed random governmental checks. Beginning in May 2006, the quality assurance team began performing random preventative maintenance checks on equipment items inspected and certified by the contractor within the previous 10 to 14 days. Nearly half of the 49 pieces of equipment sampled during May and June 2006 by the quality assurance inspectors had nonmission-capable faults needing repair. We accompanied inspectors on three random inspections. The nonmission-capable faults we observed included inoperable lights, fluid leaks, lack of battery power, and an inoperable rear door on a Bradley Fighting Vehicle. Army officials told us this failure rate was not acceptable and that they had informed the contractor it needed to improve performance. Yet Army officials recently reported successful issuance in August 2006 of some of the prepositioned equipment for units heading to Iraq. This inspection failure rate raises questions about the true mission capability of the prepositioned equipment, and it demonstrates the need for rigorous management oversight of the maintenance contractor in Kuwait. Without improved oversight of maintenance, prepositioned equipment and supplies could be less than mission capable when needed. While prepositioning is considered critical to DOD’s ability to meet its mobility needs, the department does not yet have a clear strategy laid out that identifies the role that prepositioning will play in the 21st century. The Army took steps to revise its prepositioning strategy in the latter part of 2006; however, its efforts are not fully synchronized with the evolving DOD-wide strategy. The Army’s decisions today have profound future implications for the entire department and potentially affect our ability to respond to conflict. The primary risk of having the Army develop its strategy in advance of a DOD-wide strategy is that the Army could develop plans without an understanding of how the Army and other services’ programs will fit together or, alternatively, limit the options of the department because it must incorporate the Army’s plans into the overall strategy. The importance that prepositioned stocks are envisioned to have in the future underscores the need for DOD-wide consensus on the direction and priority for the programs, and the necessity of strong leadership and direction from the top levels of DOD. The choices may well be difficult. Unlike the period following the end of the Cold War, the Army no longer has an excess of relatively modern combat and support equipment. Depending on the strategy that is eventually chosen, billions of investment dollars could be required to recapitalize prepositioning programs and build an infrastructure to support them. Alternatively, should the Army and DOD decide to focus less on prepositioned stocks, this decision will likely have a ripple effect on airlift and sealift needs. A DOD-wide strategy would become the foundation for an investment plan that balances costs and risks and would guide the department as it chooses where it will invest in an environment that is increasingly becoming resource constrained. Setting and aligning broad strategies, however, will not be enough to ensure success in the Army’s program over the longer term. Once the DOD-wide strategy is set and the Army’s efforts are aligned with it, the Army must turn its attention to the fundamentals of program management. Dozens of reports from GAO and other organizations point to pervasive management problems in determining requirements and ensuring program readiness, as well as in providing adequate storage and maintenance for prepositioned equipment. To its credit, the Army recognizes this and has taken critical first steps toward redefining its prepositioning program and building a plan for its implementation. However, focused and sustained attention will be required to overcome these long-standing issues. We recommend that the Secretary of Defense direct the Secretary of the Army to take steps to synchronize the Army’s prepositioning strategy with the DOD-wide strategy to ensure that future investments made for the Army’s prepositioning program align with the anticipated DOD-wide prepositioning strategy. Once the strategic direction is aligned with the DOD strategy, we recommend that the Secretary of the Army develop an implementation plan that completes ongoing reevaluation of the secondary item and operational project stock requirements as well as establishes systematic readiness measurement and reporting of secondary items and operational project stock programs, identifies the optimal mix of storage and maintenance facilities at each location to support the emerging strategy, and prescribes oversight requirements for the maintenance of prepositioned equipment to ensure that equipment is ready for combat. In written comments on a draft of this report, DOD generally concurred with our recommendations but stated that it had already taken steps to address the recommendations and that further actions are not needed. We acknowledge that the Army and the department have taken some initial steps; however, we continue to believe that our recommendations have merit and that additional actions and sustained management attention will be needed to ensure the viability of the Army’s prepositioning program as part of the overall departmentwide effort to meet mobility needs. DOD also commented that our report contained misleading information and provided technical comments to improve the accuracy and clarity of the report. We disagree that the facts in our report are misleading and have addressed each of the department’s technical comments in appendix III. DOD partially concurred with our first recommendation that the Secretary of Defense take steps to synchronize the Army’s prepositioning strategy with the emerging DOD-wide strategy, and stated that the Army had developed a service-specific strategy that is being incorporated into ongoing mobility studies and the emerging DOD-wide effort. The department stated that, since the Army is participating in ongoing studies, further direction is not required. Some of the technical comments DOD provided also addressed the strategy-setting issue, but seemed to contradict the overall response. For example, DOD stated that the timing of the two strategies could cause “disconnects” and that the Army will have to modify its strategy when the DOD-wide strategy is issued. Since DOD’s comments lack internal consistency, it is not clear to us what the department intends to do to address the recommendation. As our report points out, successful management practices dictate that strategy setting should begin at the top, and that strong leadership will be needed from the department to ensure that the programs of the Army—as well as other military services—are aligned with the overall departmentwide strategy, not the reverse. Moreover, taking a service-centric approach to prepositioning may preclude opportunities for innovation, or lead to duplication across the department. Prepositioning should be viewed in a joint context, as part of broader mobility objectives. The ultimate departmentwide strategy should not just cobble together the plans of the individual services into a departmentwide strategy. In our view, as it develops the DOD-wide strategy, the department should take advantage of the opportunity to reexamine its approach to prepositioning as part of broader mobility considerations including its interrelationship with airlift and sealift. In the technical comments, the department also stated that the Army should not be criticized for its timing and lack of synchronization with a DOD strategy that had not yet been issued. The Army did expedite its strategy revision during the course of our review, completing it from start to finish in the latter half of 2006. The Army completed this revision while a broader strategy effort—specifically, a follow-on to the Mobility Capabilities Study focused on the future of prepositioning—was ongoing but had an unclear completion date. In a September 2005 report, we recommended that DOD develop a departmentwide strategy to set direction for and underpin the prepositioning programs of the services but this has still not been completed. Underscoring its interest in prepositioning—and consistent with our previous recommendation—the John Warner National Defense Authorization Act for Fiscal Year 2007 required the department to finalize a departmentwide prepositioning strategy by April 2007. Had the department implemented our recommendation in a more timely fashion, this synchronization concern would be moot and DOD may not have been called upon to establish a strategy for the department’s prepositioning programs. The department concurred with our second recommendation that, once the Army’s strategy is aligned with the DOD-wide strategy, the Secretary of the Army should develop an implementation plan to address the requirements, readiness reporting, facilities, and maintenance oversight issues that we identified in our report. The department stated that the Army had included an implementation plan in its revised prepositioning strategy that addressed these issues and that the implementation plan had been aligned with a joint staff instruction published in November 2006 that provides logistics planning guidance for prepositioning and a department directive dated December 2003 that provides war reserve materiel policy. As a result, the department stated that no additional direction is required. We disagree. The Army’s implementation plan was to have been completed in December 2006, but was still unavailable as of the end of January 2007. As a result, GAO could not determine whether the elements of our recommendation have been addressed. However, we reviewed the recent logistics planning guidance and while the instruction provides general logistics planning guidance for prepositioned stocks, there are few specifics about requirements setting and readiness reporting for secondary items and operational project stocks, facilities, or maintenance oversight. We also reviewed the identified department guidance. While it does require the determination of war reserve materiel requirements, and annual reports of the existing levels of these items, we do not believe this is a systematic reporting of readiness. In fact, our 2005 report found that the department was not enforcing the readiness-reporting provision, and planned to rescind it. Neither Instruction addresses the optimum mix of storage and maintenance facilities or prescribes oversight requirements for the maintenance of prepositioned equipment to ensure that it is combat ready. Moreover, since these issues have been long-standing, recognized both in prior GAO reports and assessments made by the Army’s own audit organizations, we continue to believe that additional direction is needed. We will send copies of this report to the Secretary of Defense and the Secretary of the Army. We will also make copies available to others upon request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. If you or your staff has any questions, please contact me at (202) 512-8365. Key contributors to this report are listed in appendix IV. To assess whether the Army’s report comprehensively addressed the required reporting areas in Public Law 109-163, we reviewed the Army’s prepositioned stocks program. We obtained the Army’s report and reviewed and compared it to the legislative mandate as well as other documents including Department of Defense (DOD) regulations, Army regulations that govern storage and maintenance of prepositioned stocks, and the Army Prepositioned Stocks Strategy 2012. We also reviewed Inspector General and Army Audit Agency reports on prepositioning issues as well as any relevant GAO reports. We interviewed officials in the Department of Defense Joint Staff, Department of the Army, Army Materiel Command, and the Army Sustainment Command and its subordinate units at each prepositioning location. We also collected and analyzed internal Army reports on inventory and readiness to verify the reported inventory levels and readiness rates of prepositioned stocks. To assess the major challenges facing the Army as it revises and implements its prepositioning program, we reviewed the Army Prepositioned Stocks Strategy 2012 and DOD regulations and documents pertaining to a joint prepositioning strategy, along with relevant past GAO, Inspector General, and Army Audit Agency reports. We interviewed officials from the Department of the Army, the Office of the Secretary of Defense for Policy, the Department of Defense Joint Staff, the Army Materiel Command, and the Army Sustainment Command and its subordinate units at prepositioning locations in Europe, South Korea, South Carolina, and Kuwait. We conducted site visits to Army prepositioned stock facilities at each location to observe firsthand the current status of their storage and maintenance facilities and also reviewed existing maintenance and storage procedures and oversight processes. We also examined the Army’s planned revisions to its existing Army Prepositioned Stocks Strategy 2012 and the efforts on behalf of DOD to develop an overarching prepositioning strategy. We examined the level of coordination between the Army and DOD with regard to the new prepositioning strategies currently under development. We could not fully assess these strategies, as they are still in the process of being developed. We also documented current inventory levels, funding for the program, and equipment readiness rates by collecting and analyzing internal Army reports on inventory, funding, and readiness. We reviewed past reports prepared by GAO, the Army Audit Agency, the Army Materiel Command Inspector General, and the Army Logistics Support and Evaluation Team that identified problems with the prepositioning program. We conducted our review from February 2006 through October 2006 in accordance with generally accepted government auditing standards. We reviewed available data for inconsistencies and also verified with the Army information technology contractor in Kuwait that they review and validate the input data we used in the report. We determined that the data we used were sufficiently reliable for the purpose of this report. We interviewed officials, and obtained documentation when applicable, at the following locations: U.S. Army Headquarters, Washington, D.C. U.S. Army Material Command, Ft. Belvoir, Virginia. U.S. Army Forces Command, Ft. McPherson, Georgia. U.S. Army Central Command, Ft. McPherson, Georgia. U.S. Army Sustainment Command, Rock Island, Illinois. U.S. Army Europe, Campbell Barracks, Germany. 8th U.S. Army, Yongsan Garrison, South Korea. U.S. Army Field Support Brigade, Seckenheim, Germany. Material Support Center – Korea, Camp Carroll, South Korea. U.S. Army Field Support Battalion – Livorno, Camp Livorno, Italy. U.S. Army Field Support Battalion – Northeast Asia, Camp Carroll, Korea. U.S. Army Field Support Battalion – Southwest Asia, Camp Arifjan, Kuwait. U.S. Army Field Support Battalion- Afloat – Charleston, South Carolina. U.S. Forces Europe, Patch Barracks, Germany. U.S. Forces Korea, Yongsan Garrison, South Korea. Joint Chiefs of Staff, J-4, Washington, D.C. The Army’s prepositioning program has faced a number of long-standing challenges including inadequate oversight and management; equipment and facility excesses and shortfalls; and invalid, inaccurate, poorly defined, and otherwise questionable requirements. In addition to problems with the prepositioning program, the Army has also had difficulty associated with the successful implementation of strategic plans and programs. GAO, the Army Audit Agency, Army’s and the Department of Defense’s (DOD) Inspector Generals along with others have called attention to these problems in products issued over the years. Table 2 provides summaries of the challenges to the Army and DOD’s prepositioning programs along with program implementation concerns identified in past GAO reports and testimonies issued between January 1996 and September 2006. Table 3 provides summaries of similar issues identified in select products released by other organizations during the same time period. 1. DOD comments indicate that the reason the Army shifted its prepositioning strategy in 2006 was not due to budget reprogramming decisions; instead it was due to the 2006 Quadrennial Defense Review. We interviewed Army officials during the summer of 2006 who told us that the budget reprogramming decision and equipment shortfalls throughout the Army were the main impetus of the strategy review. We have added the Army’s assertion that the quadrennial review influenced the decision to the text. 2. DOD indicates that the DOD policy under development “will result in the Army creating/modifying its strategy in accordance with the guidance in the DOD policy” when issued. We have added the department’s assertion to the text. We agree that having an Army implementation plan in place before the DOD policy is issued will result in the need to modify the Army’s strategy. However this is an apparent inconsistency with the main text of the department’s comments stipulating that the Army’s completed strategy will be incorporated into the DOD-wide strategy. As a result, we continue to believe that additional department-level direction is needed to ensure that future investments made by the Army are aligned with DOD policy. 3. We believe that strategy is a better description as it provides linkage to the recommendation in our 2005 report calling for a DOD-wide prepositioning strategy. 4. The department stated that the Army should not be criticized for creating an implementation strategy before the DOD policy is issued. Our intent was not to criticize but to demonstrate the potential risks associated with individual service strategies being implemented before the department’s strategy is issued. In a September 2005 report GAO recommended that DOD develop a departmentwide strategy to set direction for and underpin the prepositioning programs of the services but this has still not been completed. The Army can ill afford to invest scarce resources to meet requirements that will not be aligned with the DOD policy when issued. 5. The department disagreed with several aspects of our description of the operational project and secondary item programs. We have included additional information to the report that, in response to a past GAO recommendation, the Army has conducted revalidations of most operational project stocks. Further, the Army asserted that it tracks the funding of the prepositioned secondary items and operational project stocks as part of the Army’s Strategic Management System and that this constitutes readiness reporting. We disagree. The requirements underpinning these programs are questionable, and funding information is inadequate for determining readiness. 6. We have changed the text to reflect the department’s definition of war reserve sustainment stocks. 7. Since the Army strategy evolved during our review, we continue to believe our caption better reflects the substance. 8. See comment 1. 9. We have changed the text to delete “reset”. 10. We have changed the text to insert “DOD”. 11. We have made changes to the text to reflect the role of Combatant Commanders in operational planning. 12. The department’s suggested language indicated that the shift in strategy was the result of the 2006 Quadrennial Review. We have reflected this throughout the report. The department also suggested deleting language in the draft report concerning the lack of mission in Italy in the previous Army strategy but offered no reason why this information should be deleted. When initially approved, the $55 million construction project in Italy was intended to support the storage of a prepositioned combat brigade team equipment set there, but this requirement had been eliminated in the 2012 strategy leaving the facility with no mission. The Army decided to complete the construction as it was more costly to cancel than complete, and the Army’s 2013 strategy indicates placing a combat brigade team equipment set at that location even though existing operational and contingency plans for the area do not require this type of equipment. We have retained this information in the report because we believe this information illustrates the need for better facilities planning by the Army. 13. We have made changes to the text to include the Joint Forces Command in DOD’s working group. 14. We added information to reflect the facilities in Qatar. In addition to the contact named above, John Pendleton, Assistant Director, Jeff Kans, Travis Thomson, Jennifer Jebo, Erika Prochaska, and Cheryl Weissman also made key contributions to this report. | Prepositioned military equipment and supplies on ships and overseas on land have become an integral part of the U.S. defense strategy. However, the Army's program has faced long-standing management challenges, including equipment excesses and shortfalls, invalid or poorly defined requirements, and maintenance problems. In Public Law 109-163, Congress required the Army to conduct an assessment of its prepositioning programs and required GAO to assess (1) whether the Army's report addressed the areas required by Congress, and (2) the major challenges the Army continues to face in its prepositioning program. GAO analyzed the Army's report and other information it obtained from the Joint Staff, the Army, and its subordinate commands to identify the issues affecting the Army's prepositioning program. GAO also visited prepositioned equipment sites in South Carolina, Europe, South Korea, and Kuwait. The Army's April 2006 report on the status of its prepositioning program addressed the areas required by Congress; for example, it included descriptions of operational capabilities, as well as inventory shortfalls expressed in terms of procurement costs. However, the Army significantly shifted its prepositioning strategy in the latter part of 2006, since that report was issued. According to the Army, this shift was based on insights gained from the 2006 Quadrennial Defense Review, but Army officials told us that budget reprogramming decisions and worsening Army-wide equipment shortfalls also influenced the expedited strategy revision. The Army's revised strategy proposes less reliance on heavy combat equipment afloat and the expansion of heavy equipment in Kuwait and Italy. As a result, the Army's April 2006 report to Congress is outdated, and neither Congress nor DOD should base funding decisions on it. The Army faces several major strategic and management challenges as it revises and implements its prepositioning program. From a strategic perspective, the Army cannot gauge how well its emerging strategy will align with DOD plans currently under development. The Army plans to begin implementing its revised strategy by the end of 2006. DOD has a departmentwide prepositioning study underway intended to set strategy and joint doctrine, but this will not be completed for several months and it anticipates that the Army will have to modify its prepositioning strategy when the DOD-wide strategy is issued. As a result, the Army is at risk of resourcing requirements that may be superseded by the DOD strategy. Moreover, because prepositioning is linked to airlift, sealift, and basing, the Army's decisions will have an as-yet undetermined effect on these areas. In addition to these strategic concerns, the Army faces three key management challenges. First, the Army has yet to determine sound secondary item and operational project stock requirements, and to systematically measure and report readiness. While the Army has been taking steps to address long-standing requirements-determination problems in certain parts of its program, the effort was not finished when GAO completed its work. Without accurate requirements and systematic readiness reporting, Army managers are not able to determine the extent to which the existing inventory reflects what the Army needs. Second, the Army lacks a comprehensive plan for maintenance and storage facilities for prepositioned stocks, resulting in uncertain future facility requirements. In the interim, prepositioned stocks are being stored outside, resulting in higher maintenance costs. Finally, inadequate maintenance oversight of the Army's prepositioning program has raised concerns about the true condition of the equipment at some locations. Until these strategic and management challenges are addressed, the Army will face uncertain risks should new conflicts occur. |
Tantalum is a hard, gray metal with a high melting point that is highly resistant to corrosion. It is a good conductor of heat and electricity. These attributes make it a valuable material for use in numerous military applications such as capacitors used in electronics equipment including computers, turbine engines for aircraft, and the linings of missile warheads. It is also used in numerous commercial consumer products such as mobile phones, personal computers, chemical processing equipment, heat exchangers, anti-lock brake systems, and airbag activation systems. It is possible to substitute other materials for tantalum, but substitutions usually result in a loss of performance. Worldwide tantalum supply begins with mining tantalum ore—a concentration of tantalum-containing minerals, such as tantalite, microlite, and wodginite—that is economically feasible to mine. Ore is the principal raw material from which tantalum is derived, and can be mined through industrial operations which may be mechanized or through artisanal mining operations, which are characterized by a lack of mechanization. The ore is further processed into tantalum concentrate by physically removing unwanted materials. Tantalum is also derived from synthetic concentrates, where tantalum is extracted from slags, for example, from processing tin concentrates or other forms of industrial processing. These concentrates can be chemically processed into tantalum salts, tantalum oxides, or other marketable tantalum materials such as tantalum powder, metal, and alloys, which are then further manufactured into end- products. Figure 1 shows details of the tantalum supply chain. The USGS collects, monitors, and analyzes information about natural resource conditions, issues, and problems, including those related to tantalum, to provide information to various government agencies, including DOD. Within USGS, the National Minerals Information Center develops and provides statistics and information on the worldwide production, consumption, and flow of minerals and materials essential to the United States economy and national security. To communicate this information, the USGS produces two publications that include information on tantalum, among other minerals. The Minerals Yearbook is an annual publication that provides statistical data on over 90 commodities over a 5-year period. It also includes data from over 175 countries on mineral production and trade, among other things. The Mineral Commodity Summaries is based on the data reported in the Yearbook and published each January. The annual summary includes similar historical data as reported in the Minerals Yearbook, as well as production estimates from the current reporting year. According to the USGS’ 2015 Mineral Commodity Summaries, the United States relies solely on imports to meet needs for tantalum; there has been no significant tantalum mined in the United States since 1959 because the tantalum cannot be economically mined at prevailing prices. Countries for which the USGS reported tantalum mine production in 2014 are Brazil, Burundi, China, Democratic Republic of the Congo, Ethiopia, Mozambique, Nigeria, and Rwanda. Although Australia has some of the largest reserves of tantalum, USGS reported no production for the country in 2014. The USGS estimated in its 2015 Mineral Commodity Summaries that the two largest producers of mined tantalum in 2014 were Rwanda and the Democratic Republic of the Congo, producing approximately 600 and 200 metric tons, respectively. This amount represented approximately two-thirds of USGS’ total 2014 estimated global mine production. The National Defense Stockpile maintains a domestically held inventory of strategic and critical materials. DOD uses USGS information on materials, in part, to help address its National Defense Stockpile program objectives. One objective of the National Defense Stockpile program is to decrease the risk of dependence on foreign suppliers or single suppliers for strategic and critical materials, such as tantalum, that are used in defense and essential civilian applications. Authority for stockpiling strategic and critical materials, which can include tantalum, is contained in the Strategic and Critical Materials Stockpiling Act (Stockpile Act) that lays out the purpose and responsibilities for the National Defense Stockpile. DOD generates national emergency scenarios for the Stockpile Act and related National Defense Stockpile Report. These scenarios cover four- year timeframes where the first year represents a period of conflict, and years two through four represent a period of recovery. The one-year period of conflict takes into consideration the following conditions: (1) a catastrophic attack on a United States city by a foreign terrorist organization or rogue state, (2) two near simultaneous major combat operations, (3) war damage from a highly capable enemy, and (4) ongoing military activities such as a military presence in a foreign country. On behalf of DOD, DLA-Strategic Materials serves as the National Defense Stockpile program manager, whose functions include: determining materials deemed strategic and critical, precluding, when possible, a dangerous and costly dependence by the United States upon foreign sources for supplies of such materials in times of national emergency, and submitting a biennial report to Congress detailing stockpiling requirements and recommendations for the National Defense Stockpile based on certain national emergency planning assumptions. USGS and DOD have an interagency support agreement to facilitate data sharing in support of DOD’s biennial Stockpile Report. According to the agreement, USGS provides DOD with data on United States production, consumption, imports, exports, and world production by country for materials in the National Defense Stockpile and other materials critical for defense applications. USGS data on worldwide tantalum production is the primary production data source used by DOD to support its stockpile analyses. As the program manager for the National Defense Stockpile, DLA-Strategic Materials is responsible for compiling the data it receives from a number of entities, including the USGS and Department of Commerce, and performing analyses to determine if shortfalls for materials will occur during potential conflict scenarios. Table 1 provides a list of the sources of data and examples of the data used by DLA- Strategic Materials. The analyses focus on the sources of materials and the likelihood these materials will be available in the conflict scenario based on forecasted demand for materials in critical defense and civilian uses. In the case of a material shortfall, the analyses also consider mitigation strategies such as increased production or substitutions that could be made for these materials. The results of these analyses are published biennially in DOD’s Stockpile Report and are the basis for DOD’s recommendations to stockpile certain materials. Government and industry tantalum information differ because the government reports on tantalum ore from mining operations, whereas industry data include not only mining but also data on additional forms of processed tantalum, such as synthetic concentrates and scrap. In addition, government and industry have different data collection methods to address their specific needs. Differences include which forms of tantalum are measured, the frequency of data collection, and data validation practices. Having reliable tantalum data is important because DOD uses the information to assess the availability of tantalum supply by country during specific planning scenarios, among other efforts. Government and industry data differ on the forms of tantalum reported. DOD’s primary government source for mineral production data, the USGS, captures data on tantalum ore from mining operations but does not include or estimate synthetic concentrates such as tantalum derived from tin slags, other means of industrial processing, or secondary types of tantalum such as scrap or recycled tantalum. USGS officials told us that they have limited visibility into the supply from secondary types of tantalum, such as scrap or recycled materials, and thus for reliability reasons, only report mine production. However, USGS officials also said their data includes some artisanal mining reported from countries like Rwanda or the Democratic Republic of the Congo, although it is difficult to quantify how much of the tantalum production they report is from industrial versus artisanal mining. Industry data, which, for the purpose of our review, are largely publically available data from the TIC, include tantalum supply from sources other than mined ore. For example, the TIC reports tantalum data that includes supply from mining as well as synthetic concentrates and slags from processing tin concentrates and other materials. Further, the TIC reports data on purchases of tantalum ore, synthetic concentrates, and some recycled material from member companies. These data may also include artisanal mined ore and processed materials of unknown origin. As a result, TIC data on tantalum purchased by processors—companies that modify the tantalum and change it into different forms for use—show higher supply figures than USGS reports on tantalum ore from mining operations. Our review also identified differences in data collection methods that affect USGS and industry tantalum reporting, including differences in how and when data are collected and validated. The USGS collects data on tantalum and other minerals to provide information to various government agencies, including DOD. Table 2 summarizes a comparison of government and industry data reporting and collection practices. To facilitate its data collection, the USGS employs country and mineral commodity specialists to help estimate tantalum production by country of origin. USGS officials said they use the term commodity to refer to ore, minerals, and materials, and their mineral commodity specialists have expertise in mineral and material markets and industries. According to USGS and DLA-Strategic Materials officials, providing production information by specific country is important to DLA-Strategic Materials’ ability to assess tantalum supply risks and how much tantalum the United States may be able to acquire during conflict scenarios. USGS country and mineral commodity specialists annually survey foreign governments on the production of tantalum from mining, gather data and information from in-country visits, and review mineral reporting provided by embassies and industry sources to estimate tantalum production. USGS officials told us that while the quality of the data provided by foreign governments can vary widely, its specialists use their expertise with a mineral commodity or country to estimate production even if the data are incomplete or questionable. For example, in cases where the amount of tantalum reported is significantly different than previous information, specialists can use mining permits, trade analysis, and mine capacities to confirm estimates. In contrast, TIC data are provided as a service to its member companies rather than in support of the federal government, and are based on tantalum supply data voluntarily reported by those members. The TIC employs an independent company to compile surveys from its member mining and processing companies on a quarterly basis. Supply data are compiled and aggregated into categories such as raw material reported by mining, sales of tantalum products, and material purchased by companies that further process tantalum. These data are not reported by company or country of origin. USGS and industry also vary in their procedures for validating tantalum data. USGS data are required to meet USGS Fundamental Science Practices, a set of consistent practices, philosophical premises, and operational principles that serve as the foundation for research and monitoring activities. These practices describe how USGS work is carried out and how the resulting information products, such as maps, imagery, and publications, are developed, reviewed, and approved. The USGS also examines the mineral commodity data it collects by using a set of 14 statistical standards, most recently revised in November 2014. These 14 standards include definitions of statistical terms, conversion factors, and guidelines for graphic display of statistical information, among other things. In addition, USGS mineral commodity or country specialists compile and review survey data. In cases where these experts have different estimates, USGS officials said that managers resolve the differences based on discussion with the analysts, their own expertise, and contacts within other governments or industry to arrive at a final USGS position. Further, USGS guidelines provide that at least 75 percent of surveys should be returned in order to report data in its publications. In comparison, TIC officials stated that they do not have processes in place to validate the data received from their member companies, but they do have some guidelines for compiling the data. For example, the TIC guidelines request that member companies not report sales and purchases from other member companies to avoid double-counting of primary tantalum production. Further, the guidelines require that two- thirds of member companies, and certain major companies, provide data before the publications are released. However, industry officials we spoke with told us the TIC is not in a position to check or validate information provided by its members and that it is uncertain how much of the tantalum market the TIC’s members encompass, making it difficult to ascertain how much of the worldwide tantalum market is reflected in its data. DOD has established a process for evaluating materials’ availability, including tantalum, as part of the National Defense Stockpile’s biennial requirements assessment process as required under the Stockpiling Act. To inform DOD’s stockpile analysis, USGS provides DLA-Strategic Materials with the data it collects and validates, and DLA-Strategic Materials takes steps to ensure that the data are reliable. Further, as the program manager for the National Defense Stockpile, DLA-Strategic Materials assesses the availability of tantalum and other materials for national defense emergency planning scenarios as required under the Stockpiling Act. For example, in DOD’s 2015 Strategic and Critical Materials Report on Stockpile Requirements, tantalum was among over 90 materials assessed for a potential shortfall. DLA-Strategic Materials is also taking additional steps to review and analyze industry data sources to address tantalum data challenges and better inform its stockpile analysis. DOD has a process for assessing the available supply of tantalum in selected planning scenarios as part of the National Defense Stockpile’s biennial requirements assessment process, as required under the Stockpiling Act. Prior to evaluating tantalum and other materials’ availability, DOD officials take steps to ensure that supply data used in its stockpile analysis are reliable. As discussed previously, USGS has documented procedures to validate its data and DLA-Strategic Materials officials identified additional steps they take to ensure that data are reliable, consistent with Standards for Internal Control in the Federal Government and other guidelines. For example, DLA-Strategic Materials officials said that their material specialists coordinate closely with USGS commodity and country specialists to verify data sources, such as whether production data are from USGS surveys or mining publications, and to determine how missing or incomplete data have been accounted for in its reports. Moreover, DLA-Strategic Materials officials told us they check USGS calculations and unit conversions to ensure accuracy prior to sending the data to the Institute for Defense Analyses, the federally funded research center responsible for the model used to perform the stockpile analysis. DLA-Strategic Materials officials also noted that they rely heavily on their own subject matter expertise, as well as interviews with knowledgeable industry and government officials and complementary data sources to inform their review of USGS production data and make decisions about whether to adjust tantalum figures. While DLA-Strategic Materials officials told us they are aware of limitations to USGS data, they told us they have generally relied on USGS mine data as the primary source for production data because its estimates are more conservative. Nevertheless, representatives stated that they believe the information USGS is able to collect and confirm is a basis for DOD’s stockpile recommendations. Further, DLA-Strategic Materials officials told us that USGS has the knowledge-base and resources to effectively gather and validate reliable and unbiased mine production data as part of its stated mission and responsibilities. The Stockpiling Act is intended to provide a process to mitigate dangerous and costly reliance on foreign sources of materials during national emergencies. In accordance with the Stockpiling Act, DLA- Strategic Materials reports its findings of potential shortfalls of materials in the Stockpile Report every two years. In its 2015 report, tantalum was among over 90 materials assessed for a potential shortfall. Additionally, from 2011 through 2015 DLA-Strategic Materials identified potential shortfalls for tantalum. Since 2013, it has recommended stockpiling various amounts of tantalum. For example, in its 2013 Stockpile Report, DLA-Strategic Materials reported a shortfall for tantalum of 623,307 pounds, and DLA-Strategic Materials subsequently recommended stockpiling 187,000 pounds of tantalum divided evenly over a four-year period along with other mitigation strategies to address the estimated shortfall. In May 2015, subsequent to issuing the 2015 Stockpile Report, DLA-Strategic Materials was provided with updated primary tantalum production data from USGS that revised the supply of tantalum upward, reducing the estimated shortfall. However, based on historical and consistent shortfalls as well as the United States’ reliance on foreign sources, DLA-Strategic Materials officials told us they plan to continue to seek legislative authority to stockpile tantalum. Table 3 identifies the reported tantalum shortfalls in DOD’s Stockpile Report from 2011 to 2015 and recommended stockpiling actions. DLA-Strategic Materials uses a repeatable three-step process to identify potential shortfalls for materials during national emergency scenarios. In the first step, DLA-Strategic Materials identifies materials to assess and establishes data requirements needed for the shortfall assessments. DLA-Strategic Materials monitors a “watch list” of over 160 materials, which includes tantalum, that are of interest to the defense community. DLA-Strategic Materials then narrows the watch list to a smaller number of materials using an internal ranking system where additional weight is given to risks associated with heavy reliance on foreign sources of supply and single points of failure along the supply chain, among others. In the second step, DLA-Strategic Materials determines whether material shortfalls exist in the context of national emergency scenarios. A component of this step is to estimate the global supply of tantalum available for United States civilian and defense needs. To estimate available supply, DLA-Strategic Materials and the Institute for Defense Analyses rely on country reliability assessments, as well as the specific assumptions of the national emergency scenarios, to decrement foreign production during a conflict. DLA-Strategic Materials receives inputs from the intelligence community for the country reliability assessments and officials told us they may “zero out” a country’s supply as part of their analyses if that country is deemed to be unreliable under the assumptions of the national emergency scenario. Because USGS production data is country- based, DLA-Strategic Materials can apply the assumptions of the national emergency scenario and country reliability assessments to decrement those amounts. In the third step of the process, DLA-Strategic Materials decides what mitigation strategies are appropriate to reduce any identified shortfalls, which may include recommendations to stockpile the material. For example, when a shortfall estimate is initially generated, DLA-Strategic Materials will determine whether mitigating options, such as substitution, reducing exports, or additional purchases of a material are sufficient to eliminate the shortfall. If mitigating options are not sufficient to eliminate the shortfall, the result is a net shortfall and DLA-Strategic Materials may decide to recommend a stockpiling action for that material. Figure 2 illustrates the shortfall analysis processes. While DOD has a detailed process for evaluating the availability of tantalum and other materials, DOD, USGS, and industry officials identified several challenges that affect their ability to gather complete and reliable tantalum data. For example, the USGS reported that unlike other materials and precious metals, tantalum concentrates are not publicly traded through commodities exchanges. Rather the material is bought and sold through networks of dealers and on contract between producers and consumers, some of whom may not provide accurate statistical data. Further, according to industry officials, artisanal mining, which is difficult to quantify in USGS reporting, may account for a significant portion of global tantalum production. In addition, industry officials commented that some artisanal mining production may enter the supply chain labeled as scrap to disguise its origin. While DLA-Strategic Materials officials told us that some of these concerns are not unique to tantalum, they said the lack of transparent tantalum supply data affects their ability to collect complete information to inform the stockpile analysis. Given the above challenges, officials from DOD, USGS, and industry acknowledged that tantalum has an “opaque” supply chain, making it difficult to collect more accurate data. Recognizing these challenges, DLA-Strategic Materials is taking additional steps to inform its analysis of tantalum availability. For example, DLA-Strategic Materials has requested that the Institute for Defense Analyses perform additional work on materials of interest. In 2013, the Institute for Defense Analyses completed a review that identified weaknesses in the supply chain for processed tantalum used in some defense applications. Further the Stockpiling Act permits DOD to identify materials requiring further study. According to the 2015 Stockpile Report, significant reliance on foreign sources or a single point of failure is the main basis for additional study, but other reasons, such as a net shortfall or the potential for supply chain disruption can also result in additional research into a material. Under this authority, DLA-Strategic Materials said they are conducting research into whether certain materials, such as tantalum, could be recovered through recycling of manufactured materials. Moreover, citing concerns about differences in tantalum data reported by USGS and industry sources, DOD’s 2015 Stockpile Report noted that DLA-Strategic Materials will be comparing data and performing additional analyses on these two sources in advance of their 2017 report. DOD’s efforts to review industry data were ongoing during our review, but officials noted several limitations to TIC data. For example, as discussed above, the TIC’s data is not reported by country, which limits its use in support of the National Defense Stockpile analyses. Further, DLA- Strategic Materials officials told us they are uncertain about what portion of the industry is covered by TIC’s reporting members, or how accurate the data are since there may be incentives for members to over- or under- report. Given these concerns, DLA-Strategic Materials officials identified several potential next steps they are considering upon completing their review of the TIC data. For example, officials said they could use the data as a complementary source to inform their review of USGS mine production data, similar to DLA-Strategic Materials’ use of Roskill Information Services market report data. Additionally, officials told us that given the challenges of collecting accurate and reliable tantalum data, they may consider running two sets of analyses for tantalum in future stockpile reports—one using only USGS data and another that includes industry data estimates. In addition to their review of TIC’s data, DLA-Strategic Materials is also in the process of compiling its own estimates for the supply of tantalum derived from slag, scrap, and recycled tantalum based on data and interviews with various sources, including USGS, Roskill Information Services, and tantalum processing companies. DLA-Strategic Materials officials told us that they plan to use these estimates to inform their 2017 analysis since the United States mostly imports these secondary types of tantalum, which are not included in USGS figures. We are not making recommendations in this report. DOD and the Department of the Interior were provided copies of the draft report. Neither DOD nor the Department of the Interior provided written comments. The Department of the Interior provided technical comments that were incorporated, as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Acquisition, Technology, and Logistics, the Secretary of the Interior, the Director of the United States Geological Survey, the Secretary of Commerce, the Chairman of the Securities and Exchange Commission, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or at makm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. The House Armed Services Committee Report on a bill for the National Defense Authorization Act for Fiscal Year 2016 included a provision for GAO to examine the global tantalum supply chain. This report addresses (1) how data on tantalum supply reported by government sources differ from data reported by industry and (2) the extent to which the Department of Defense (DOD) has assessed the availability of tantalum during national defense emergency planning scenarios. To compare available tantalum data reported by government sources to industry sources, we met with United States Geological Survey (USGS) officials, Defense Logistics Agency Strategic Materials (DLA-Strategic Materials) and other DOD officials, and tantalum industry officials from the Tantalum-Niobium International Study Center (TIC) to identify tantalum data sources and collection methods, and to discuss the availability of tantalum supply data. For the purpose of our review we focused on USGS tantalum production estimates, which are DOD’s primary source for estimated tantalum production in the 2015 Strategic and Critical Materials Report on Stockpile Requirements (Stockpile Report). We also reviewed industry data collected by the TIC, an international, non-profit association founded in 1974 with about 90 member companies worldwide. Some of the TIC’s data are publically available, and the TIC is one of several industry data sources used by DOD to inform their analysis in the Stockpile Report. We obtained and analyzed the USGS tantalum production data that DOD used in developing the 2015 Strategic and Critical Materials Report on Stockpile Requirements as well as industry data to identify similarities and differences between the data sources and the methods of compiling estimates. We assessed the reliability of USGS data by (1) reviewing existing information about the data and the system that produced them, and (2) interviewing agency officials knowledgeable about the data. USGS takes steps to collect and confirm production estimates for use in their publications such as the Mineral Commodity Summaries and the Minerals Yearbook. Based on our review of the data and interviews with USGS and DOD we determined that USGS data were sufficiently reliable for our purposes. To assess the processes used by USGS to ensure the reliability of its data, we obtained USGS Fundamental Science Practices and Statistical Standards and discussed how those practices are implemented in the reviews of data to be published in USGS publications. In addition, due to differences in data collection and reporting methods, USGS and industry tantalum data are not directly comparable and, therefore, we do not compare supply estimates from these sources for the purpose of this report. We use the information to demonstrate differences between industry and USGS data and collection methods. For industry, we met with officials from the TIC, Roskill Information Services Ltd., Commerce Resources Corporation, and Global Advanced Metals. To the extent possible we confirmed types of information provided by the TIC by comparing it to published reports. We examined quarterly reports showing tantalum supply and discussed the types of data collected and reported and the processes used to assess reliability. However, based on our review of the process for collecting the data and assessing the reliability of the data provided by the members and on interviews with industry officials, we determined that the industry supply numbers were self-reported, but not verified, and, therefore, not sufficiently reliable for direct comparison to USGS data. Therefore, we did not compare USGS and industry figures for this report. To assess the extent to which DOD has evaluated the availability of tantalum during national defense emergency planning scenarios, we obtained and analyzed information in reports prepared by DLA-Strategic Materials for DOD’s Office of the Undersecretary of Defense for Acquisition, Technology, and Logistics including the Stockpile Reports from 2011 through 2015 and the Annual Industrial Capabilities Reports to Congress. We met with officials from DLA-Strategic Materials and the Institute for Defense Analyses, the federally funded research center that assists with the stockpile analysis, to determine what steps were taken to assess the reliability of data used in the assessment process and mitigate risk. We obtained and examined DLA-Strategic Materials’ proposed Annual Materials Plans for fiscal years 2015 through 2017. We reviewed relevant legislation, regulations, and policy including: the Strategic and Critical Materials Stock Piling Act (50 U.S.C. § 98 et seq.); provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203 §1502; policy documents from the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics concerning determining potential shortfalls and the organizational structure for executing the provisions of the Stockpiling Act. We reviewed DLA-Strategic Materials data used in the assessments and documentation of the steps they took to assure data reliability. To determine the extent to which DOD has assessed the availability of tantalum during specific national defense emergency scenarios as part of the National Defense Stockpile’s biennial requirements assessment process, we reviewed the interagency support agreement between USGS and DLA-Strategic Materials. To understand the data and support USGS provides DLA-Strategic Materials, we reviewed the worldwide USGS production data provided to DLA-Strategic Materials for its assessment. We reviewed DOD reports to understand the analyses DOD had conducted to identify risks related to the availability of tantalum. Further, we met with officials from USGS, DLA-Strategic Materials, and with analysts from the Institute for Defense Analyses. We discussed sources of tantalum supply with industry representatives to determine what other sources of tantalum supply data are available and the general reliability of such data. We obtained documentation on the model DLA-Strategic Materials uses to conduct its stockpile analysis including the categories of information considered by the model to determine potential shortfalls and provide support for recommending stockpiling amounts. In addition, we interviewed DOD officials from the Under Secretary of Defense for Acquisition, Technology, and Logistics and DLA-Strategic Materials about actions underway to increase the accuracy of the data reported in the Stockpile Report. We obtained and analyzed such documentation as was available about proposed and ongoing actions to improve the reliability and accuracy of tantalum data. We assessed DOD’s policies, procedures, and practices against criteria in applicable statutes, Standards for Internal Control in the Federal Government, and GAO’s Framework for Assessing the Acquisition Functions at Federal Agencies. We determined whether or not documentation for the determination of reliability of the data used in the DLA-Strategic Materials model was provided but did not assess the adequacy of the information provided. We interviewed officials from USGS and DLA-Strategic Materials to clarify the issues. We concluded that the data had been collected and used in accordance with principles developed by USGS and DLA-Strategic Materials and were sufficiently reliable for the purpose of obtaining an understanding of the process used to collect the data, the model for determining potential shortfalls of material, and the reports produced by DLA-Strategic Materials. We conducted this performance audit from August 2015 to March 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Penny Berrier, Assistant Director; Marie Ahearn; Pedro Almoguera; John Beauchamp; Stephanie Gustafson; Jeffrey Harner; Mathew Jacobs; Carol Mebane; Jean McSween; Meghan Perez; Katrina Pekar-Carpenter; and Roxanna Sun made significant contributions to this review. | The United States relies on foreign mine production of tantalum, a corrosion-resistant metal that is used in commercial and defense applications. Having reliable information on the global supply of tantalum is important for defense planning, particularly in determining if it is necessary to stockpile in case of future shortages. The House Armed Services Committee Report on a bill for the National Defense Authorization Act for Fiscal Year 2016 included a provision for GAO to examine the global tantalum supply chain, with a focus on why data reported by the government and by industry vary. This report addresses (1) how tantalum supply data reported by government sources differ from industry data, and (2) the extent to which DOD has assessed the availability of tantalum during emergency planning scenarios. GAO reviewed data compiled by the USGS—DOD's primary source for tantalum production data—and by a tantalum industry organization that makes its information publicly available. GAO interviewed DOD and industry officials about the reporting and collection methods for the data; examined the data DOD uses to determine potential shortfalls of materials, including data for its biennial Strategic and Critical Materials Reports on Stockpile Requirements; and discussed with DOD officials steps they have taken to assess the reliability of the data used in the analyses. Data published by government and industry on the global supply of tantalum vary due to differences in forms of tantalum reported and data collection methods. For example, government data prepared by the United States Geological Survey (USGS) on tantalum production reports information on tantalum ore from mining. Industry data GAO obtained from the Tantalum-Niobium International Study Center includes additional forms of processed tantalum, such as synthetic concentrates and slags and recycled tantalum materials. In collecting data, the USGS employs specialists to estimate production data by country of origin for government agencies, including the Department of Defense (DOD), by conducting annual surveys of foreign governments on mine production and relying on country specialists. In contrast, industry data compiled by the Tantalum-Niobium International Study Center is based on aggregated data voluntarily reported by its member companies as a service to those members rather than in support of the federal government. The table below summarizes the differences in USGS and industry data. Source: GAO analysis of United States Geological Survey and tantalum industry data and collection methods. I GAO-16-335 DOD assesses the availability of tantalum, among other materials, for selected planning scenarios for the National Defense Stockpile's biennial assessment process. Further, DOD takes steps to help ensure that tantalum supply data used in its stockpile analyses are reliable. For example, USGS provides the Defense Logistics Agency-Strategic Materials (DLA-Strategic Materials)—the stockpile program manager—with the data it collects and validates. Consistent with internal control standards, DLA-Strategic Materials officials said they then verify sources and check calculations to ensure that data are reliable before conducting their stockpile analyses. Since 2013, DLA-Strategic Materials has identified potential shortfalls for tantalum and recommended stockpiling. Given DLA-Strategic Materials' interest in using the most accurate information available, it is taking additional steps to review and analyze existing industry tantalum data sources to better inform its stockpile analyses. GAO is not making recommendations. Neither DOD nor the Department of the Interior provided written comments. |
IHS oversees the CHS program through 12 area offices. The federally and tribally operated facilities in each of these areas use CHS program funds to purchase health care services from external hospitals, physicians, and other providers. Medicare-participating hospitals are required to accept CHS program patients at rates no higher than the rates paid by the Centers for Medicare & Medicaid Services’ (CMS) Medicare program, while federal and tribal CHS programs pay physicians and other nonhospital providers at either their billed charges or at reduced rates an IHS area office or tribal CHS program negotiates with them. Other federal health care programs—administered by the Department of Defense (DOD) and the Department of Veterans Affairs (VA)—have adopted Medicare rates as the basis for their standard payment rate for both hospital and nonhospital services. IHS manages the CHS program through a decentralized system of 12 area offices, which oversee individual CHS programs in 35 states where many American Indian and Alaska Native communities are located. (See fig. 1 for a map of the counties IHS designates as CHSDAs. Residence in these counties is generally a requirement for obtaining contract health services.) About 46 percent of CHS program funds are distributed by IHS to federal CHS programs, and the other 54 percent to tribal CHS programs. Tribal CHS programs must meet the same statutory and regulatory requirements as federal CHS programs, but they are not generally subject to the same policies, procedures, and reporting requirements established for federal CHS programs. Funds permitting, federal and tribal facilities use CHS program funds to pay for eligible patients to receive services from external providers if the services are not available at IHS-funded facilities. The services purchased include hospital, specialty physician, outpatient, laboratory, dental, radiology, pharmacy, and transportation services. Patients must meet certain requirements to have their services paid for by the CHS program. For example, patients must be members of federally recognized tribes and live in specific areas. If these requirements are met, CHS program committees at each federal or tribal facility evaluate the medical necessity of each patient case and assign it a priority level. Facilities first pay for the highest priority services. If there are other health care resources available to the patient, such as Medicare, Medicaid, or private health insurance, these resources must first be used to pay for services before the CHS program covers any remaining costs because the CHS program is generally the payer of last resort.once the service has been approved and the care provided, providers obtain payment for CHS program services by sending their claims to IHS’s fiscal intermediary, BlueCross BlueShield of New Mexico (BCBSNM). BCBSNM processes claims for all of the federal CHS programs. The tribal CHS programs process their own claims or contract with a fiscal intermediary of their choosing; a small number of tribal programs contract with BCBSNM. The rate that a CHS program pays a provider is determined by several factors, including whether the provider is a hospital subject to MLR reimbursement or the provider has negotiated reduced payment rates with IHS or the tribe. (See fig. 2.) CHS program payments for hospital services—inpatient and outpatient services provided in Medicare- participating hospitals—are subject to the MLR requirement. IHS generally calculates the MLR using the same methodology that Medicare uses to pay its claims, so the amount the CHS program pays for a service generally equals the amount that Medicare would pay the hospital for that same service. CHS program payments to providers for nonhospital services—including services provided by hospital- and office-based physicians—are not subject to the MLR requirement. Each CHS program pays these providers at their billed charges unless the IHS area office has negotiated with the provider for a reduced rate. Each IHS area office can negotiate contracts with the providers that serve the CHS programs in its geographic area. Tribally operated facilities are independent and may negotiate their own contracts with providers. However, IHS officials said that when they negotiate with providers, they may ask those providers to honor the negotiated rates when they interact with tribal CHS programs. In 1986, IHS issued a policy advising area offices to negotiate rates no In discussing the need for the policy, IHS higher than Medicare rates.noted that paying providers for CHS program services at billed charges resulted in a depletion of funding that often required the postponement of needed care for American Indians and Alaska Natives. The agency also noted that IHS should not pay more than other federal agencies for the same services. The agency recommended that area offices identify and prioritize high-volume providers with whom to negotiate lower rates. In addition, the agency indicated that contracts negotiated with providers for payments at rates higher than those paid by Medicare, such as a discount off billed charges or a percentage above Medicare rates, would be approved by IHS on a case-by-case basis. Further, the agency stated that CHS programs should only use providers that do not have a contract with the CHS program in two situations: if a patient needs emergency care and if the patient’s health requires that the services be rendered by a noncontract provider. However, IHS has since stated it has not been possible to negotiate contracts with each of the providers that the CHS program uses because of limitations in area office contracting staff and some providers not being willing to enter into a contract. For services provided in calendar year 2010, IHS’s federal CHS programs paid $262.8 million to 6,113 providers for services for 66,750 patients. Of these payments, federal CHS programs paid $104.0 million (about 40 percent of total payments) for hospital services where the CHS program was the primary payer and about $114.7 million (about 44 percent of total payments) for nonhospital services where the CHS program was the primary payer. Of these payments for nonhospital services, the federal CHS programs paid $62.5 million (about 55 percent) for hospital- and office-based physician services. (See fig. 3.) CMS uses Medicare payment methodologies that take many factors, such as the type and location of service delivery, into account when calculating hospital and physician payments for a given service. CMS periodically reassesses the specific Medicare payment rates to adjust for increases in the cost of delivering care. The Medicare Payment Advisory Commission (MedPAC) has stated that the goal of Medicare payment policy should be to keep payment rates low enough to ensure efficient use of taxpayer funds, but high enough to ensure that patient access to care is not negatively affected by reduced provider participation.$549 billion in 2011 for care provided to Medicare’s almost 49 million beneficiaries. In fiscal year 2010, DOD offered health care to over 9.5 million eligible beneficiaries through TRICARE. Under TRICARE, eligible beneficiaries may obtain care either from military hospitals and clinics, referred to as military treatment facilities, or from civilian providers. with Medicare, which VA described as the federal government’s standard for purchasing care from private-sector providers. We and MedPAC have reported that Medicare beneficiaries have generally experienced few problems accessing physician services, although access problems may exist in certain situations. For example, in 2009, we reported that the percentage of Medicare beneficiaries who reported major difficulties accessing specialty care was the same for those living in urban areas and in rural areas in 2008—2.1 percent. We also noted that the number of physicians billing Medicare for services had increased between 2000 and 2007, suggesting that more physicians were generally willing to accept Medicare patients. Some studies have found that access-to-care problems may exist for certain types of Medicare beneficiaries, such as those in fair or poor health, racial minorities, or those living in the most remote areas. However, studies have also suggested that factors other than payment rates, such as physician capacity to accept patients and travel time, are important influences on patient access to care. With respect to DOD’s TRICARE program, we have reported that reimbursement rates and provider shortages in some locations have hindered access to care. Additional studies by DOD have cited reimbursement rates as the primary reason civilian providers may be unwilling to accept TRICARE beneficiaries as patients. DOD and VA have each made modifications to their payment methodologies in an attempt to address concerns about access to care. For example, both agencies pay higher rates in Alaska because of concerns that providers would not accept their beneficiaries at Medicare rates. In contrast to the Medicare rates it pays elsewhere, in Alaska, VA and DOD pay providers using separate payment methodologies. In prior reviews of DOD’s program, we have noted that there is little evidence these increased payments improved patient access to care. We noted that increased payment rates do little to address more systemic causes of limited access, such as scarcity of physicians and patient transportation difficulties. We have also noted that the potential for payment rate changes to affect patient access to care points to the need to monitor beneficiary access. This type of monitoring is conducted by some federal agencies paying providers at Medicare rates. For example, as part of its monitoring, CMS conducts annual surveys of Medicare beneficiaries to assess their satisfaction with care and their ability to access health care. Additionally, in fiscal year 2004, in response to concerns about certain TRICARE beneficiaries’ access to care from civilian providers, the Congress directed DOD to monitor access through a survey of civilian providers. As these concerns continued, DOD was further directed in fiscal year 2008 to conduct annual surveys of both beneficiaries and civilian providers to determine the adequacy of access to health care and mental health care providers for certain beneficiaries. More than 80 percent of IHS’s federal CHS program payments to physicians for services provided in 2010 were paid to noncontracted physicians at billed charges, rather than to contracted physicians at negotiated, reduced rates. IHS’s federal CHS program payments to these physicians were significantly higher than what we estimate Medicare and private insurers would have paid for these same services. More than 80 percent of IHS’s federal CHS program payments to physicians for services provided in 2010 were paid to noncontracted physicians at billed charges, rather than to contracted physicians at negotiated, reduced rates. With the exception of uninsured patients, who are expected to pay providers at billed charges, other public and private payers typically pay providers at lower rates.$62.5 million that federal CHS programs paid physicians, they paid about $50.5 million (about 81 percent) to noncontracted physicians at billed charges and about $12.1 million (19 percent) to contracted physicians at negotiated, reduced rates. IHS’s federal CHS program payments to other However, of the types of nonhospital providers for services provided in 2010 showed similar trends. Specifically, the federal CHS programs paid $40.3 million out of a total of $52.1 million (77 percent) to other noncontracted nonhospital providers at billed charges and about $11.8 million (about 23 percent) to other contracted nonhospital providers at negotiated, reduced rates. (See fig. 4.) While IHS’s policy states that CHS programs should purchase services from contracted providers in most situations, a significant majority of physicians paid by federal CHS programs for services provided in 2010 did not have contracts. Specifically, of the 3,531 total physicians paid by federal CHS programs for services provided in 2010, 3,085 were noncontracted physicians paid at billed charges and 516 were contracted physicians paid at negotiated, reduced rates for at least some of their services. Although IHS’s policy also states that contracting efforts should be focused on high-volume providers, the majority of these high- volume providers did not have contracts. For example, on the basis of the number of services provided, about 78 percent of the top 25 percent of physicians did not have contracts, nor did about 74 percent of the top 5 percent of physicians. In addition, an examination of the data by area office showed that noncontracted physicians constituted the majority of paid physicians in all IHS areas. Specifically, for each of the 10 IHS areas with federally operated CHS programs, noncontracted physicians constituted more than two-thirds of all physicians paid for services provided in 2010. (See fig. 5.) For all other nonhospital providers, the numbers of contracted and noncontracted providers showed similar trends. Specifically, of the 3,590 other nonhospital providers paid for services provided in 2010, 3,145 other nonhospital providers did not have contracts and were paid at billed charges and 507 other nonhospital providers did have contracts and were paid at negotiated, reduced rates for at least some of their services. For those physicians whom IHS’s federal CHS programs paid under contracts for reduced rates, the programs achieved significant savings relative to the physicians’ billed charges. Specifically, the federal CHS programs paid about $12.1 million for these services, which represented an estimated $16.7 million (58 percent) in savings, relative to the physicians’ billed charges. The percentage of savings was fairly consistent across the IHS area offices. The savings attributed to physician contracts ranged from 50.4 percent in the Aberdeen and Albuquerque Areas to 69.1 percent in the Phoenix Area. (See table 1.) IHS’s federal CHS programs’ savings from contracts with other nonhospital providers showed similar trends, achieving estimated savings of 68 percent, or $25.3 million, relative to billed charges. IHS’s federal CHS program payments to physicians for services provided in 2010 were higher than what we estimate Medicare and private insurers would have paid for these same services. These higher payments resulted from payments federal CHS programs made to noncontracted physicians at billed charges, as the CHS program generally paid contracted physicians at rates similar to Medicare. IHS’s federal CHS programs paid, in total, two times what we estimate Medicare would have paid for the same physician services provided in 2010. Specifically, of the $62.5 million in total payments for services provided in 2010, the federal CHS programs could have saved an estimated $31.7 million if they paid physicians what Medicare would have paid for the same services. The federal CHS programs could have used these savings to pay for more than double the number of physician services they provided in 2010—approximately 253,000 additional physician services (based on an average Medicare rate of $125 per IHS physician service). Further, savings for the overall CHS program may be even higher, as this analysis does not include payments for other types of nonhospital services paid by the federal CHS programs, as well as payments by tribally operated CHS programs, which receive over half of annual CHS program funding and have also been found to pay for nonhospital services above the Medicare rates. For example, a 2009 OIG report found that there was no difference between federally and tribally operated CHS programs in terms of the percentages of nonhospital claims paid above Medicare rates. It estimated that federally and tribally operated CHS programs could have saved almost half of total spending on nonhospital services if nonhospital payments were capped at Medicare rates. This suggests that both federally and tribally operated CHS programs are likely to achieve significant savings if they paid physicians and other nonhospital providers according to what Medicare would have paid for the same services. The potential for savings is particularly significant in light of the CHS program’s inability to pay for all needed services. IHS’s federal CHS programs paid physicians at rates that were higher than Medicare rates because they primarily paid physicians at their billed charges. Services provided by noncontracted physicians accounted for approximately $30.5 million of the $31.7 million in estimated total savings (96 percent) for the federal CHS programs. Specifically, the federal CHS programs paid noncontracted physicians a total of about $50.5 million at billed charges, which was two and a half times what we estimate Medicare would have paid for the same services (about $20 million). (See fig. 6.) Most, but not all, payments to contracted physicians were similar to what Medicare would have paid. Federal CHS programs paid contracted physicians about $12.1 million for services provided in 2010 and these payments to contracted physicians accounted for approximately $1.2 million of the $31.7 million in estimated total savings (about 4 percent). The federal CHS programs’ contracts with physicians were sometimes for negotiated rates that exceeded what Medicare would have paid. Specifically, slightly over one-third of total payments to contracted physicians were higher than what we estimate Medicare would have paid. However, most payments to contracted physicians were equal to or lower than what we estimate Medicare would have paid. Most of the 10 physicians whom we interviewed indicated that the CHS program represented a small portion of their practice and was not a significant source of revenue. The physicians identified advantages of capping CHS program payments for nonhospital services, including physician services, at Medicare rates, but also expressed concerns about the effect of such a cap on their finances. According to most of the 10 physicians whom we interviewed, the CHS program represented a small portion of their practice. All of the physicians we interviewed were among federal CHS programs’ top 25 percent of physicians in terms of their volume of paid services in 2010. However, 8 of the 10 physicians said total CHS program payments constituted 10 percent or less of the total payments they received from all payers. The remaining 2 physicians said the CHS program accounted for a larger portion of their total payments. For example, payments from the CHS program constituted 39 percent of total payments for 1 physician who was located on a reservation. Payments from the CHS program to the other physician, who was located near three reservations, constituted 15 to 20 percent of total payments. The 10 physicians we interviewed were divided between those who were paid above Medicare rates by the CHS program and those who were paid at or below Medicare rates. According to IHS 2010 claims data, federal CHS programs paid the 10 physicians we interviewed a total of about $990,000. Four of the 10 physicians had a contract with the CHS program and were paid at or below Medicare rates.with IHS saved the program about 60 percent relative to the physicians’ billed charges, which is comparable to the federal CHS programs’ percentage of estimated savings across all physician contracts in that year. The other 6 physicians were paid by the CHS program at billed charges that were higher than Medicare rates. For example, 1 physician said he was paid at 133 percent of Medicare rates and another said he was paid at 250 percent of Medicare rates. In terms of other payers, most physicians we interviewed said they received the majority of their payments from Medicare and Medicaid. Eight of the 10 physicians said their payments from Medicare and Medicaid were close to 50 percent or more of their total payments, private insurance and self-pay patients constituting most of their remaining payments. Two of these 8 said that, respectively, they received 50 percent and 75 percent of their total payments from Medicare alone. The remaining 2 of the 10 physicians said they received the majority of their total payments from private insurance or self-pay patients. All 10 physicians reported that they are accepting new patients from all payers, including Medicare and the CHS program. Medicaid physician fees vary by state, but are generally less than the fees paid by Medicare in that state. See Stephen Zuckerman, Aimee Williams, and Karen Stockley, “Trends in Medicaid Physician Fees, 2003-2008,” Health Affairs, vol. 28, no. 3 (2009). The 10 physicians we interviewed identified advantages of capping CHS program payments for nonhospital services, including physician services, at Medicare rates, but also expressed concerns about the effect of such a cap on their finances. The 4 physicians who were already getting paid at or below Medicare rates, as well as 4 of the other physicians who were getting paid at higher billed charges, said such a cap would have little or no effect on their practices. Two of these physicians noted that there would be little effect because the CHS program is a small percentage of their practice. The remaining 2 of these 10 physicians, who were paid at higher billed charges, cited concerns that a cap could affect their finances or patient access to care. Six of the physicians we interviewed, three of whom were paid at or below Medicare rates, said they would support a cap on CHS program payments for nonhospital services, including physician services, at Medicare rates and provided various rationales for their support. For example, one physician said that capping CHS program payments for nonhospital services at the Medicare rates is a “good idea” that would save IHS money. This physician expected that capping the CHS program payments would allow him to substantially decrease the time his practice spends negotiating with different CHS programs, especially the numerous tribal CHS programs in his area. Others noted that Medicare rates are nearly universally accepted by physicians and, therefore, physicians are familiar with the Medicare Physician Fee Schedule. One of these physicians added that paying physicians according to Medicare rates would allow all physicians to receive payment under a consistent methodology. Another physician said he negotiated a contract with the CHS program for lower, Medicare rates because, in his opinion, IHS should not be paying physicians at billed charges that are higher than the rates paid by Medicare. A physician paid by the CHS program at billed charges higher than Medicare agreed that Medicare rates were appropriate. He said that he is already receiving Medicare rates for many patients because the majority of his work is done in a hospital and many patients needing his services are older. Further, one physician noted that such a cap could increase his practice’s CHS program payment, as he currently receives Medicare Physician Fee Schedule rates from the CHS program, but a cap on payments for nonhospital services could allow him to be paid at the higher cost-based reimbursement that he receives from Medicare. Four of the physicians we interviewed, three of whom said they were paid by the CHS program at billed charges higher than Medicare, did not support such a cap and expressed varying concerns about its effect on their finances and patient access to care. Specifically, two physicians noted that if their CHS program payments were capped at Medicare rates and Medicare rates were reduced in the future, this could have a significant adverse financial effect on their practices. One physician said that reducing his rates to Medicare levels would not allow him to cover his practice’s costs, as his billed charges are 133 percent of Medicare rates and CHS program payments represented 39 percent of his practice. Two physicians also indicated that certain specialists might be particularly affected by a cap at Medicare rates. For example, one physician noted that there have been significant reductions in Medicare rates for certain cardiology services in recent years. The other physician said that an orthopedic practice in his area that had previously contracted with a CHS program decided to stop accepting tribal patients at Medicare rates. Two physicians also noted they use the higher payments from the CHS program and private payers to compensate for their payments from Medicare and Medicaid, which they indicated do not cover their costs for providing care. Three physicians who did not support a cap on CHS program payments for nonhospital services, including physician services, at Medicare rates said they would support a rate cap set at a higher payment rate than Medicare but lower than billed charges. Two of the physicians suggested a cap set at a percent of their billed charges, while the third suggested a cap set at 125 to 133 percent of the Medicare rates. The Medicare Physician Fee Schedule is updated annually under the sustainable growth rate system, with the intent of limiting the total growth in Medicare spending for physician services over time. Because of rapid growth in Medicare spending for physician services, the sustainable growth rate has called for fee reductions since 2002. However, the Congress has averted such fee reductions for 2003 through 2013. Under current law, Medicare’s fees to physicians are scheduled to be reduced by about 27 percent in 2014. See 42 U.S.C. § 1395w-4(d). When we asked physicians if they had any concerns unrelated to CHS program payment rates but that have had a financial effect on their practice, all 10 cited challenges processing their CHS program payment requests or receiving timely claims payment. The physicians said, for example, that to receive payment from the CHS program they spent a disproportionate amount of time, relative to other payers, gathering paperwork in support of payment requests or monitoring the progress of those requests. Specifically, 1 physician indicated that she received the same rates as Medicare for the CHS program, but her claims processing costs for the CHS program were significantly higher than for Medicare. Physicians’ concerns about claims administration echoed those that we heard from physicians as part of a 2011 report examining the CHS program. Officials from most of the nine hospitals that we interviewed indicated that the MLR requirement has had little or no financial effect on their hospital. They said the CHS program accounted for a small percentage of their total payments. Officials from eight of the nine hospitals said the program accounted for between 0.02 and 10 percent of their total payments;accounted for about 14 percent of its total payments. officials from the other hospital said the CHS program Officials from seven of the nine hospitals noted that the CHS program already paid them at Medicare rates prior to implementation of the MLR requirement. Of these seven, officials from five hospitals said the implementation of the MLR requirement has had little or no financial effect on their hospital. Officials from the other two of the seven hospitals did not experience a change in rates from the implementation of MLR, but they had concerns with Medicare payment rates in general, saying they do not cover their hospital’s costs of providing patient services. For each of the two hospitals, officials said that the Medicare program accounted for a larger portion of their payments than the CHS program—29 percent and 28 percent, while the CHS program accounted for 0.02 percent. Officials from two hospitals indicated that the MLR requirement reduced their payment rate. Officials from one of these hospitals said that, prior to the implementation of the MLR requirement, the hospital had a contract to be paid by the CHS program at 90 percent of its billed charges; an official from the other hospital said the CHS program had paid it at 100 percent of its billed charges. The official described these previous rates as “ridiculous” because no other payer they interacted with paid such high rates. Officials from both hospitals indicated that they are now paid at MLRs. Officials from both of these hospitals noted that they see most CHS program patients through the emergency room and their hospital has an obligation under the Emergency Medical Treatment and Active Labor Act (EMTALA) to treat them regardless of their ability to pay. Officials from one of the hospitals that did not experience a decrease in rates also noted its EMTALA obligation in the context of access to care. Medicare designates some small, rural hospitals as CAHs, which allows them to be paid at higher rates under a different payment methodology. not have the funding flexibility to settle with hospitals if the interim report is later determined to need adjustment. While the implementation of the MLR requirement had little financial effect on most of the hospitals that we interviewed, officials from all nine hospitals cited other factors that affected the payments they received from the CHS program. For example, officials from seven hospitals said they experienced problems having claims paid in a timely way by the CHS program or that they spent more staff time processing CHS program claims than they did for other payers. hospitals added that they were negatively affected when IHS made the decision to close the emergency room in local IHS facilities because this resulted in an increased patient load that placed greater pressure on their emergency rooms. We previously reported that a selection of hospital and office-based providers described similar burdens resulting from their interactions with the CHS program, including challenges in determining patient eligibility for CHS payment of services, in obtaining CHS payment, and in receiving communications on CHS policies and procedures from IHS related to payment. See GAO-11-767. IHS and tribal officials we interviewed said that setting payments for hospital services at MLRs (as required by statute) allowed the CHS program to reduce payments and expand access to care. They also agreed that a cap on payments to nonhospital providers, including physicians, could have similar benefits, although some officials noted that these benefits may not be achieved by all CHS programs. IHS and tribal officials we interviewed said that the implementation of the MLR requirement in 2007 allowed the CHS program to reduce payments for hospital services. Although IHS officials told us that prior to the implementation of the MLR requirement, area offices had negotiated to pay many hospitals at Medicare rates, officials we interviewed from four of the six area offices noted that some hospitals were unwilling to negotiate reduced rates and therefore were paid at billed charges. The MLR requirement required these hospitals to accept Medicare rates. IHS officials noted that tribally operated CHS programs likely experienced more savings from the MLR requirement than federally operated CHS programs because tribally operated CHS programs were generally less successful at negotiating contracts with hospitals for reduced rates. Officials from three tribes, for example, told us that they had difficulty negotiating for reduced rates with hospitals and the MLR requirement enabled them to pay lower rates than they had been able to negotiate. Overall, the tribal officials we interviewed agreed that the MLR requirement benefited tribal programs by allowing them to achieve savings. IHS officials also indicated that the MLR requirement allowed them to devote less staff time to negotiating contracts for hospital services at lower rates. One tribal official also noted that her tribe had already successfully contracted with hospitals for Medicare rates, but said that the MLR requirement allowed the tribe to save the time and staff resources it had spent negotiating contracts. IHS and tribal officials indicated that reduced payments from the MLR requirement allowed the CHS program to expand access to care. For example, officials from two area offices said that the lower rates from the implementation of the MLR requirement have allowed some federal CHS programs that could previously only fund high-priority (priority level I) cases to now fund both priority level I and priority level II cases—cases that would have previously been deferred or denied. IHS officials indicated that the lower payment rates paid to providers under the MLR requirement have also allowed IHS to sustain the Catastrophic Health Emergency Fund (CHEF) longer than it could prior to the implementation of MLR because the higher payment rates would deplete the fund earlier in the fiscal year. They said that IHS is now able to reimburse CHS programs for more high-cost medical cases under CHEF than it could prior to the implementation of the MLR requirement. In addition, IHS officials said that, prior to the implementation of the MLR requirement, hospitals were not required to accept IHS patients and would sometimes turn them away in nonemergency situations. As part of the MLR requirement, Medicare-participating hospitals are required to accept IHS patients at the MLR rates, which IHS officials said has expanded access to care for IHS patients. IHS and tribal officials we interviewed did not identify any ongoing challenges with patient access to care related to implementation of the MLR requirement. Officials from three area offices said that they were not aware of any challenges resulting from the implementation of the MLR requirement, although officials from the other three area offices and some tribal officials said that there were some initial challenges. They said that some hospitals initially refused to accept the new rates, so CHS program staff may have had to spend time educating them about the new requirement. They noted that the hospitals eventually accepted the required rates and it did not negatively affect patient access to care. IHS and tribal officials said CHS programs experienced challenges contracting for negotiated rates with nonhospital providers. Five of the six IHS area offices that we interviewed acknowledged that they were unlikely to be able to negotiate with many additional providers. Officials from all six area offices described their efforts to contract with any known nonhospital providers, which included sending contract documentation to frequently used providers or new providers in their areas. However, officials from three area offices noted that many providers do not respond. Officials from two area offices said that there can be challenges negotiating contracts in rural areas served by a single physician who may have little incentive to negotiate a reduced rate. Area office officials also noted that certain physician subspecialties, such as those providing services for cancer or kidney disease, tend to be more resistant to negotiating contracts. The officials said that this could be because these physicians see fewer CHS program patients or because the physicians believe that the lower rate would not cover their cost of doing business. These challenges are not new for the CHS program. For example, in 1991, IHS stated that it had not been possible for the program to contract The with each of the 4,600 professionals that it used on a regular basis.agency noted that it had experienced difficulty negotiating contracts because many providers were unwilling to contract and the area offices lacked the resources necessary to negotiate contracts. Tribal officials described similar challenges related to contracting. In addition, some tribal officials noted that nonhospital providers are particularly hesitant to negotiate contracts because of a history of problems getting paid in a timely way by the CHS program. Officials from all six of the area offices said that a cap on nonhospital services, including physician services, at Medicare rates would reduce payments to providers and they believed that the overall effect for the CHS program would be positive. Officials from all six area offices specifically cited the resulting financial savings from the cap and indicated that this would allow the CHS programs to pay for more care. Officials from four area offices noted that a cap would be particularly beneficial in lowering the cost of certain high-cost nonhospital services, such as cancer treatments, dialysis, and air ambulance services. Officials from some of these areas said that providers of these services have been less likely to negotiate contracts. IHS headquarters also identified these same services as high-volume and high-cost services that could benefit from a rate cap. Officials from two area offices added that a cap based on an established fee schedule would help standardize the rates that CHS programs pay physicians, which would make it easier for programs to estimate their spending. Officials from one area office indicated that it was time consuming to identify physicians and attempt to negotiate contracts for lower rates, and a cap would eliminate the need for these efforts. However, IHS headquarters officials told us that they would not be able to implement a cap for nonhospital services, including physician services, unless the agency received explicit statutory authority to do so, because the current law requiring MLRs is limited to hospital services. The other two area offices indicated that they did not expect a cap on nonhospital services to create any problems with patient access to care. Medicare payment rates using the different payment methodologies used by CMS. BCSBNM officials also noted that a cap on nonhospital providers would require them to implement changes to their payment system to track and collect additional claims data. Officials from one area office noted that the added complexity could be especially challenging for tribal CHS programs that do not contract with a fiscal intermediary to process their claims. Similarly, officials from one tribal area indicated that it was difficult for some tribes to learn how to calculate hospital rates when the MLR requirement was implemented, and they expected that calculating rates for nonhospital services would be more challenging. The tribal officials that we interviewed agreed that a cap on payments for nonhospital services, including physician services, could reduce CHS program payments to providers and achieve savings, although some officials noted that these benefits may not be achieved by all CHS programs. Some tribal officials indicated that a cap on nonhospital services at Medicare rates could save them money. For example, officials from one tribe said that, because individual providers had been unwilling to contract with them, they contract with a private insurer to utilize the rates that insurer has negotiated with providers. However, the tribal officials noted that the insurer’s negotiated rates are still higher than Medicare rates, so capping CHS program payments for nonhospital services at Medicare rates would allow the tribe to further lower its rates without having to contract with the private insurer. They indicated that these savings would allow them to expand patient access to care. However, officials from some tribes worried that a cap could result in access-to-care problems if physicians decided to stop seeing CHS program patients because of the lower payment rates. For example, tribal officials from one area noted that, while a cap could be beneficial for the general CHS program, it could lead to problems for certain tribes. They said that some physicians serving a large, rural tribe in their area had already chosen not to participate in Medicare because of the low payment rates. IHS headquarters officials noted that they had heard similar concerns during their discussions with tribal officials, although the tribal officials had generally been supportive of a cap to reduce CHS program payments for nonhospital services, including physician services. IHS officials indicated that it would be important to monitor patient access to care if CHS program payment rates for nonhospital services were changed. The officials said that IHS currently tracks the number of individuals who are unable to have care funded by the CHS program because, for example, of a lack of funding. However, it does not have a mechanism, such as a survey, to obtain information about patient access to care and physicians’ willingness to accept CHS program payments. They said that IHS would likely be able to monitor these issues if mechanisms were put in place prior to any changes in payment rates. IHS’s CHS program serves as an important resource for American Indian and Alaska Native patients who need health care services that are not available in federal and tribal facilities. However, most federally and tribally operated CHS programs are unable to pay for all needed services, which underscores the need for them to maximize the care they can purchase within available funding. The 2007 implementation of the MLR requirement for hospitals allowed IHS and tribes to reduce the cost of hospital services and use those savings to pay for more care. Nonhospital services, including physician services, were not included in the scope of the MLR requirement, and the CHS program continues to rely on the ability of area offices to negotiate contracts with individual providers for reduced rates that are lower than billed charges. Since 1986, IHS policy has stated that area offices should attempt to negotiate with providers at rates that are no higher than Medicare rates, and IHS officials we interviewed described time-consuming efforts to establish such contracts. However, in 2010, IHS still primarily paid nonhospital providers, including physicians, at their billed charges. Our findings, which indicate that IHS could have saved an estimated $32 million out of the $62.5 million that federally operated CHS programs spent on physician services provided in 2010, are consistent with a 2009 OIG report and a 2009 internal IHS study. If trends in payments for other types of nonhospital services and the tribal CHS programs are similar to the payments for the federal CHS program physician services that we examined, we estimate that savings from capping all nonhospital services paid by federal and tribal CHS programs at Medicare rates could be significantly higher. These savings could be used to pay for some of the many services that the CHS program is unable to fund each year. As a steward of public resources, IHS is responsible and accountable for using taxpayer funds efficiently and effectively. Despite the OIG’s 2009 recommendation that IHS seek legislative authority to cap CHS program payments for nonhospital providers, including physicians, the agency has not pursued that authority. As a consequence, while other major federal health care payers have based their payment methodologies on Medicare, IHS still pays significantly higher billed charges for many services. Setting CHS program physician and other nonhospital payments at rates consistent with Medicare and the rates of these other federal agencies would enable IHS to achieve needed savings that could be used to expand patient access to health care. Moreover, given the possibility that a change in payment rates could affect access to care in certain areas, it is important that IHS put mechanisms in place to monitor patient access to care to assess how new payment rates may benefit or impede the availability of care. Congress should consider imposing a cap on payments for physician and other nonhospital services made through IHS’s CHS program that is consistent with the rates paid by other federal agencies. Should the Congress decide to cap payments for physician and other nonhospital services made through IHS’s CHS program, we recommend that the Secretary of Health and Human Services direct the Director of IHS to monitor CHS program patient access to physician and other nonhospital care in order to assess how any new payment rates may benefit or impede the availability of care. We provided a draft of this report to HHS for review and received written comments, which are reprinted in appendix I. HHS agreed with our conclusions and our recommendation. Specifically, HHS indicated that implementing a cap on CHS program payments to physicians and other nonhospital services at Medicare rates would enable the CHS program to fund additional services. HHS also indicated that monitoring patient access to care in light of any payment changes is essential to providing high-quality health care to American Indians and Alaska Natives. We are sending copies of this report to the Secretary of Health and Human Services and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. In addition to the contact name above, Catina Bradley, Assistant Director; Julianne Flowers; William Hadley; Sarah-Lynn McGrath; Lisa Motley; Laurie Pachter; and Michael Rose made key contributions to this report. | Indians and Alaska Natives. When care at an IHS-funded facility is unavailable, IHS's CHS program pays for care from external providers. Hospitals are required to accept Medicare rates from federal and tribal CHS programs, while physicians and other nonhospital providers are paid at either billed charges or negotiated, reduced rates. The Patient Protection and Affordable Care Act requires GAO to compare CHS program payment rates with those of other public and private payers. GAO examined (1) how payments to physicians by IHS's federal CHS programs compare with what Medicare and private health insurers would have paid for the same services, (2) physicians' perspectives about how a cap on payment rates could affect them, (3) hospitals' perspectives about how the MLR requirement affected them, and (4) IHS and tribal officials' perspectives about the MLR requirement and a potential cap on nonhospital services. GAO compared 2010 physician claims data for federal CHS programs with the Medicare Physician Fee Schedule and claims from private insurers. GAO also spoke to a nongeneralizable sample of 10 physicians and 9 hospitals that interacted frequently with IHS and spoke to IHS and tribal officials where these providers practiced. The Indian Health Service's (IHS) federal contract health services (CHS) programs primarily paid physicians at their billed charges, which were significantly higher than what Medicare and private insurers would have paid for the same services. IHS's policy states that federal CHS programs should purchase services from contracted providers at negotiated, reduced rates. However, of the almost $63 million that the federal CHS programs paid for physician services provided in 2010, they paid about $51 million (81 percent) to physicians at billed charges and about $12 million (19 percent) to physicians at negotiated, reduced rates. Payments for other types of nonhospital services followed similar trends, with about $40 million out of $52 million (77 percent) paid at billed charges. GAO estimated that IHS's federal CHS programs paid two times as much as what Medicare would have paid and about one and a quarter times as much as what private insurers would have paid for the same physician services provided in 2010. If federal CHS programs had paid Medicare rates for these services, they could have used an estimated $32 million in savings to pay for many of the services that IHS is unable to fund each year. Savings for the overall CHS program may be even higher, as this analysis does not include other types of nonhospital services or the CHS program funding that goes to tribal CHS programs, which the Department of Health and Human Services' (HHS) Office of Inspector General found also paid for nonhospital care above Medicare rates. Although the 10 physicians GAO interviewed were among those most frequently paid by federal CHS programs, 8 said their CHS program payments constituted 10 percent or less of their total payments. Some physicians identified ways that capping CHS program payments for nonhospital services, including physician services, at Medicare rates could benefit the CHS program and physician practices. However, other physicians were concerned that reducing payment rates to Medicare levels could negatively affect their practices. Seven of nine hospitals GAO interviewed said the Medicare-like rates (MLR) required by statute had little negative effect, generally because they already had contracts with the CHS program to be paid Medicare rates. While two hospitals previously paid by the CHS program at or near billed charges said they were financially affected by the MLR requirement, both said it had not affected their delivery of care to CHS program patients. IHS and tribal officials GAO interviewed said the MLR requirement for hospital services generated savings that allowed CHS programs to expand access to health care. They said that a cap on nonhospital service payments, including physician services, could have benefits and challenges. Most IHS officials indicated that it was unlikely they could negotiate many more contracts. Some tribal officials said that some physicians might think Medicare rates were too low and decide to no longer accept tribal patients, although they agreed that a cap at these rates could save money. IHS officials noted, however, that they would not be able to implement a cap for nonhospital services, including physician services, unless the agency received explicit statutory authority to do so. HHS stated in its comments that it concurred with GAO's conclusions and recommendation and added that imposing a cap at Medicare rates would allow IHS to fund additional services. Congress should consider capping CHS program payments for nonhospital services, including physician services, at rates comparable to other federal programs. Should Congress cap payments, we recommend HHS direct IHS to monitor access to care. |
FSIS and FDA are the two primary food safety agencies. FSIS is responsible for the safety of meat, poultry, and processed egg products, and, pursuant to the Farm Bill, is given authority to inspect catfish as soon as it issues final regulations to carry out a catfish inspection program. FDA is responsible for virtually all other food, including seafood. Under the Federal Food, Drug, and Cosmetic Act, FDA is responsible for ensuring that the nation’s food supply, including seafood, is safe, wholesome, sanitary, and properly labeled. Since 1997, FDA has used the internationally recognized Hazard Analysis and Critical Control Point (HACCP) system as its main oversight tool for seafood safety. FDA requires seafood processing firms—those that, among other things, manufacture, pack, or label seafood products—to use a HACCP system. Under this system, processors are primarily responsible for the safety of the seafood they process. That is, processors are responsible for identifying where in their processing system one or more hazards are reasonably likely to occur (hazard analysis) and implementing control techniques to prevent or mitigate these hazards. Processors are to lay out their hazard analysis and control techniques in HACCP plans. FDA verifies through inspections that the techniques are adequate to control the identified significant hazards and are being effectively implemented. FDA inspects domestic and foreign seafood processors in an effort to ensure their compliance with HACCP regulations. FDA supplements its HACCP oversight activities with an import oversight program that includes examination and testing of some imported seafood at ports of entry to ensure the products meet U.S. requirements, including the absence of residues of drugs that are unapproved for use in the United States and would render the seafood adulterated under the Federal Food, Drug, and Cosmetic Act; FDA also maintains data on the shipments of seafood that it has refused to allow into the United States. The FDA Food Safety Modernization Act (FSMA), enacted in January 2011, gives FDA new authorities to improve its ability to oversee the safety of imported foods. As described in FSMA, FDA must establish a system for recognizing accreditation bodies to accredit third-party auditors, including foreign governments, to conduct food safety audits to determine compliance with the Federal Food, Drug, and Cosmetic Act and to certify that eligible foreign entities, including seafood processors, meet applicable requirements. FDA may directly accredit third-party auditors under certain circumstances. FSMA also contains provisions on laboratory accreditation that enable FDA to leverage state, foreign government, and private laboratory resources for food testing. Furthermore, these laboratories must meet model standards developed by FDA that ensure quality and reliability of the test results used to verify the safety of any food product, including imports. In April 2011, we stated that FDA’s current program to ensure the safety of imported seafood is limited because the agency relies on document review at individual foreign processing facilities and on importers for HACCP compliance, conducts only a few inspections of foreign facilities, samples a limited number of imports at the U.S. border, and does not make effective use of laboratory resources. For example, in fiscal year 2011, FDA examined about 3.4 percent of all seafood entries and performed laboratory analysis on 0.7 percent of these entries. We recommended, in part, that FDA study the feasibility of adopting practices that the European Union employs to ensure the safety of imported seafood products, such as requiring foreign countries that want to export seafood to the United States to develop a national residues monitoring plan to control the use of drugs used in aquaculture (fish farming). Because fish grown in confined aquacultured areas can have high rates of bacterial infections, farmers may treat them with drugs, such as antibiotics and antifungal agents, to increase fish survival rates. According to a 2008 FDA report, the residues of some of these drugs can cause cancer, allergic reactions, and antibiotic resistance when consumed by humans. As imports of aquacultured seafood products increase, so do the concerns over the presence of drug residues. NMFS’s Seafood Inspection Program provides fee-for-service inspections, primarily under the authority of the Federal Agricultural Marketing Act of 1946. According to NMFS officials, NMFS’s experience with seafood controls dates to the1970s, when the agency began systematically evaluating controls as part of its inspection program. NMFS more formally adopted the systematic evaluation with the development of its Quality Management Program in 1993, which integrates quality into its HACCP-based inspection system. Currently, NMFS provides inspection services on request to the seafood industry— including domestic and foreign processors, distributors, and other firms— to certify that these seafood firms comply with HACCP requirements and other federal food safety standards, among other things. Some retailers require this certification as a condition for purchasing the seafood products. Before 2002, various fish in the order Siluriformes were commonly labeled and sold as “catfish.” However, in 2002, Congress amended the Federal Food, Drug, and Cosmetic Act to allow only fish from the family Ictaluridae (in the order Siluriformes) to use the name catfish in labeling. All other fish, such as those from the Pangasiidae family (in the order Siluriformes) that had previously been labeled as catfish, had to have other names on labels, such as basa, swai, or tra. In making catfish subject to mandatory FSIS inspection, the Farm Bill gave the Secretary of Agriculture discretion to define “catfish” for the purposes of inspection— that is, to distinguish between different types of catfish or to consider all fish in the order Siluriformes as catfish. For purposes of this report, we refer to all catfish potentially subject to regulations as catfish, including fish in the family Ictaluridae, which are primarily of domestic origin, and Pangasiidae, which come primarily from Vietnam (see fig. 1). In recent years, the volume of imported catfish of all families entering the U.S. market has continued to increase, while the volume of domestic catfish entering the market has declined. In 2002, the percentage of imported catfish in the U.S. market was estimated at 2 percent, and by 2006, imported catfish of all families accounted for an estimated 12 percent of the U.S. market. This trend has continued: by 2010, imported catfish accounted for 23 percent of the U.S. catfish market, and domestic catfish accounted for 77 percent. The most recent data show a 29- percent decline in domestic catfish production from 2010 to 2011. Figure 2 shows the trend in the volume of domestic and imported catfish from 2006 to 2010. Overall, imported Siluriformes catfish constituted a small fraction of seafood imported to the U.S. in 2010, at about 3 percent. Figure 3 shows the major countries exporting catfish to the United States. The volume of catfish subject to FSIS’s proposed catfish inspection program will depend on the definition of catfish that the Secretary of Agriculture decides to apply. In 2010, 79 percent of the catfish in the U.S. market consisted primarily of domestically processed catfish as well as some imported catfish from the family Ictaluridae, while the remaining 21 percent consisted of imported catfish from the family Pangasiidae. If the Secretary of Agriculture chose to limit the definition to catfish to the family Ictaluridae, FSIS’s inspection program would thus cover almost 80 percent of the catfish in the U.S. market in 2010. The Farm Bill requires that FSIS issue the final regulations for its new catfish inspection program before it can begin inspecting catfish. Citing requirements of the Federal Crop Insurance Reform Act of 1994, FSIS prepared a risk assessment and an impact analysis and made them available for public review. FSIS used the risk assessment to determine the primary hazard of concern associated with consuming farm-raised catfish in the United States, and it conducted an impact analysis to examine the costs and benefits of the proposed regulations. FSIS prepared these documents to evaluate the potential public health benefits of its proposed program if the primary hazard were addressed. The Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 requires an analysis of the health risks and costs and benefits for major proposed regulations that regulate human health, human safety, or the environment (i.e., defined as regulations the Secretary of Agriculture estimates are likely to have an annual impact on the U.S. economy of $100 million in 1994 dollars). In addition, Executive Order 12866 established the guidance that agencies are to follow when developing regulations. Under this guidance, agencies are to identify the problem new regulations are intended to address and evaluate the significance of the problem. The executive order further directs that the agencies consider the alternative of not regulating, but it recognizes that agencies should issue regulations as required by law, as are the regulations for the catfish inspection program. The executive order directs agencies to provide a description of the need for any significant regulatory action, how that action meets the needs, and the costs and benefits of the action. A significant regulatory action includes any regulatory action that has an annual effect on the economy of $100 million or more or adversely affects, among other things, the economy or a sector of the economy. Under the executive order, the Office of Management and Budget (OMB) has a review function to, among other things; ensure that regulations are consistent with principles set forth in the executive order. In determining that Salmonella is the primary food safety hazard in catfish, FSIS officials told us that the agency focused on Salmonella at the direction of OMB, which considered Salmonella the most practical hazard to evaluate. However, we found that FSIS used outdated and limited information as its scientific basis for implementing a catfish inspection program that was required by law. According to FSIS, the agency initially focused its risk assessment of potential contaminants in catfish primarily on public health outcomes associated with chemical contaminants, with limited attention to Salmonella. (The appendix to FSIS’s risk assessment includes information on these hazards.) However, upon reviewing the initial FSIS assessment, agency officials said that OMB directed FSIS to focus its catfish risk assessment on Salmonella, not as the “riskiest hazard” but as the “most practical” and to note that there was uncertainty regarding the sufficiency of information used to demonstrate the association between Salmonella and catfish. Furthermore, FSIS officials agreed that Salmonella was a practical choice, in part, because the agency could show that it is a major cause of illnesses in the United States, although not necessarily from catfish. For example, a 2011 report from the Department of Health and Human Services’ Centers for Disease Control and Prevention stated that Salmonella infection causes more hospitalizations and deaths than any other bacteria and showed that the major sources of illnesses caused by Salmonella from 2004 to 2008 were poultry; eggs; pork; beef; and vine vegetables, fruits, and nuts. Moreover, the risk assessment cited FSIS’s knowledge and experience working with Salmonella detection and prevention, but that its knowledge and experience related to poultry, not seafood. According to FSIS officials, because of OMB direction and availability of information, FSIS identified Salmonella as the primary hazard for catfish in its risk assessment. FSIS’s risk assessment stated it assumed that the prevalence of the identified primary hazard associated with catfish was the same for domestic and foreign catfish. The risk assessment cited the following to support the claim that Salmonella in catfish was the primary hazard: Salmonella may be a concern with catfish because catfish are raised in fish farms, and Salmonella is a potential microbial hazard for aquatic environments. Salmonella is a high-priority hazard and of great concern in the United States because of the general burden of illnesses associated with it. In particular, FSIS’s risk assessment stated that the Centers for Disease Control and Prevention had identified a 1991 Salmonella outbreak in which catfish may have been the source. A 1979 article in the Journal of Food Science indicated that Salmonella was found in 21 percent of catfish collected from ponds and retail markets. A 1998 research study found that 2 percent of catfish fillets collected from three processing facilities were contaminated with Salmonella. Researchers collected these catfish fillet samples between August 1994 and May 1995. According to an analysis by USDA’s Economic Research Service of FDA data on imports that were denied entry into the United States from 1998 to 2004 (i.e., import refusal data), about 42 percent of the violations listed for imported catfish were for Salmonella. The following describes limitations we identified in FSIS’s rationale for designating Salmonella as the basis for regulation: A 2010 United Nations Food and Agriculture Organization report on Salmonella contamination in aquaculture stated that products from fish farms are rarely involved in outbreaks of illnesses caused by Salmonella. In addition, even when a low prevalence of Salmonella is present, thorough cooking will eliminate the hazard. FSIS’s risk assessment provided one example of a Salmonella outbreak associated with catfish consumption. This outbreak occurred in 1991, and the Centers for Disease Control and Prevention was not completely sure that catfish was the source of the Salmonella that resulted in the illnesses. For example, coleslaw was also consumed along with catfish and could have been the source of the Salmonella. The 1998 study cited in FSIS’s risk assessment concluded that the health hazards from Salmonella and other bacteria in catfish were practically zero because the incidence in catfish was low and because catfish are cooked prior to consumption. Most of the information listed earlier and used by FSIS to support Salmonella as the primary hazard associated with catfish was compiled before 1997, when FDA required seafood processing facilities to implement HACCP systems. According to FDA documents, HACCP regulations initiated a landmark program to reduce seafood-related illnesses to the lowest possible levels. In its proposed catfish inspection regulations, FSIS acknowledged the impact of HACCP controls, stating that the one outbreak it identified occurred before FDA’s implementation of HACCP regulations. It also noted that since HACCP implementation, no cases of illnesses caused by Salmonella and linked to catfish have been reported. In a subsequent report, USDA’s Economic Research Service stated the analysis of FDA import refusal data that it provided to FSIS indicating a catfish violation rate of about 42 percent has its limitations and does not reflect the true violation level because this information is not based on a random sampling of imports. Rather, it reflects FDA’s focus on areas with past compliance problems, such as companies and products.FSIS stated in its risk assessment that the limitations of the catfish In addition, in commenting on FDA’s import samples, data would likely overestimate the prevalence of Salmonella contamination in catfish. FSIS also stated in its risk assessment that FDA sampling and testing limitations made reasonable assumptions about the prevalence of Salmonella in imported catfish nearly impossible. Preliminary results of microbiological testing FSIS conducted in 2011 to establish a baseline for Salmonella in catfish indicated the presence of Salmonella in over 1 percent of the total catfish samples taken in the study. This is lower than the presence of Salmonella identified in studies and other data sources that FSIS cited in its risk assessment (e.g., FDA import refusal data). FSIS stated in its risk assessment that data were limited regarding the prevalence of catfish contaminated with Salmonella. Furthermore, it stated there was substantial uncertainty about the number of illnesses caused by Salmonella that could be attributed to catfish consumption. Moreover, a peer-reviewed journal article by agency staff stated that scientific literature on foodborne hazards associated with catfish was limited and dated. The article added that extensive studies were needed to establish the baseline prevalence of Salmonella in catfish. FDA and NMFS, which each have about 14 years experience in inspecting catfish processing facilities under HACCP regulations, as well as experience in sampling catfish products, also questioned whether FSIS had adequately demonstrated that Salmonella in catfish was a problem. According to FDA and NMFS officials, FSIS did not provide any new information or data in its risk assessment indicating that catfish was unsafe to consume or that the current oversight system was not addressing any potential problems. According to FDA officials, based on the agency’s experience and information from its own testing programs, catfish is a low-risk product, and the agency generally does not have any concerns related to Salmonella in catfish. According to NMFS officials, FSIS did not adequately demonstrate that Salmonella was a significant problem with catfish because data are not available to confirm this hazard. NMFS added that it was more likely that unapproved veterinary drugs and chemical residues were the hazards most associated with catfish. According to its proposed regulations, FSIS considered several other hazards it thought might be associated with catfish. FSIS’s proposed catfish inspection program would further divide responsibility for overseeing seafood safety and introduce overlap at considerable cost. In our March 2011 report, we cited FSIS’s catfish inspection program as an example of further fragmentation of the food safety system. In reviewing the proposed catfish program, we identified four areas that raise concerns about the potential for overlap or inefficient use of resources if FSIS were to implement the catfish inspection program: (1) similar HACCP requirements, (2) inspection overlap and unnecessary frequency of inspection, (3) inconsistent oversight of imported seafood, and (4) the cost of implementing FSIS’s catfish inspection program. Similar HACCP requirements. FDA and NMFS require, and FSIS would require, facilities to implement HACCP systems to reduce the risk of illness from contaminated foods. Table 1 shows the requirements of a HACCP system for catfish and how each agency implements or would implement these requirements. As table 1 shows, the three agencies essentially do not differ from each other in their HACCP requirements. FSIS acknowledges that many domestic processing facilities are already meeting many of its proposed requirements. Nevertheless, if FSIS implements its proposed catfish program, catfish processors are likely to see their paperwork requirements increase. For example, FSIS would require written sanitation plans, while FDA inspectors do not require written sanitation plans and instead require only that sanitation be monitored and records kept, according to FDA officials. Therefore, catfish processing facilities without written sanitation plans would now be required to develop them. Catfish processing facilities that already contract for inspection services with NMFS must have written sanitation plans, but FSIS officials said the format of the FSIS sanitation plan would differ from the one already required by NMFS. FSIS officials noted that some of the additional paperwork burden required for FSIS regulations would be offset by the reduction of FDA paperwork requirements. However, facilities that process catfish and other seafood would be required to meet both FSIS and FDA paperwork requirements, which may differ. For instance, FSIS plans to develop its own forms for documenting a HACCP system, which will require processors of catfish and other seafood under FSIS and FDA oversight to enter the same information twice—once for FSIS and once for FDA. Inspection overlap and unnecessary inspection frequency. FSIS’s proposed catfish program would introduce inefficiencies into the U.S. catfish inspection system by duplicating existing FDA and NMFS inspections. Currently, about 18 major domestic facilities process catfish, according to FSIS, and an unknown number of facilities process both catfish and other seafood. With the implementation of FSIS’s catfish inspection program, facilities that process only catfish may be inspected by FSIS and NMFS, and facilities that process both catfish and other seafood may be inspected by all three agencies—FSIS, FDA, and NMFS. FDA inspects facilities that process only catfish every 3 to 5 years because it considers catfish a low-risk product, but it may inspect other facilities that process catfish, along with other seafood, more frequently, depending on the risks associated with the other seafood. NMFS conducts a minimum of quarterly inspections of processing facilities that participate in its Quality Management Program, including a majority of the domestic catfish-processing facilities FSIS identified. According to NMFS documents we reviewed, many retail and distribution firms buying processed catfish products currently require NMFS product verifications and are likely to still require NMFS verification after promulgation of the FSIS proposed regulations. For example, representatives we spoke with from two domestic facilities that process catfish and other seafood told us that they expect to continue to pay for NMFS inspections to meet retailer demands, despite any additional oversight FSIS provides. In addition to any NMFS services that they retain, facilities that process both catfish and other seafood will also be required to meet both FDA and FSIS requirements and will be subject to inspections by both agencies. According to FSIS officials, overlap of programs is outside the agency’s control because the proposed program was mandated by Congress. Implementation of the proposed catfish inspection program would also fragment the export certification processes that some foreign governments require for the export of U.S.-produced seafood. Under its proposed regulations, FSIS would issue official export certificates for shipments of inspected and passed catfish products produced in the United States for export to foreign countries, as authorized by the Federal Meat Inspection Act. However, NMFS currently provides these certification services for all seafood, including catfish. According to NMFS officials, this dual certification creates a potential problem because NMFS already has approval from multiple foreign governments to serve as the U.S. certification authority for seafood exports. FSIS’s proposed use of continuous monitoring in the form of daily inspections for catfish is also unlikely to reduce the hazard of contamination in catfish as intended and is not risk based, according to FDA and NMFS officials. (Under the Farm Bill, FSIS is required to issue final regulations to conduct continuous monitoring of catfish processing facilities, as it does for meat, poultry, and processed egg products facilities). FDA officials told us FSIS’s continuous monitoring approach is counter to HACCP-based requirements for seafood and not based on risk. According to FDA and NMFS officials, only periodic inspection is necessary to verify that a HACCP plan is being implemented and adequate preventive controls are in place. According to NMFS documents we reviewed, the current HACCP approach to seafood safety is fundamental not only in the United States but also in most seafood- producing countries around the world. Consequently, these countries rely on periodic, not daily, inspections. In addition, NMFS stated that continuous inspection will not enhance the level of safety with catfish because disease cannot be identified by visual inspection, as it can for meat and poultry. NMFS noted that because continuous or daily inspection does not necessarily improve seafood safety, its use is more costly with little effect. We have reported on duplication and overlap in federal inspection of seafood in the past, when only FDA and NMFS were concerned. In 2009, we reported that FDA does not try to determine whether NMFS has already inspected a seafood facility when it is deciding which facilities to inspect. In 2011, we reported that NMFS and FDA were still not coordinating their inspection activities. Lack of coordination can burden seafood processors. For example, according to representatives of a facility that processes seafood, the facility was inspected approximately 21 times by NMFS, FDA, and USDA over a 4-year period, from 2005 to 2008, with no significant problems identified in any of the inspections. Inconsistent oversight of imported seafood. Consistent with the Federal Meat Inspection Act, as amended by the Farm Bill, FSIS plans to apply an equivalency approach for catfish that is similar to the one it uses for imported meat, poultry, and processed egg products. Under FSIS’s equivalency approach, meat, poultry and processed egg products are not eligible for export to the United States unless FSIS has determined that the exporting country has a food safety system equivalent to that of the United States. Among other things, FSIS reviews documents provided by foreign governments, conducts on-site evaluations of government inspections of processing facilities, and audits laboratories to ensure their food safety regulations and oversight are adequate. In addition, FSIS reinspects products at U.S. ports of entry to promote compliance. Some individuals and organizations that supported the transfer of catfish safety from FDA to FSIS, which include representatives of the catfish industry and consumer groups, stated that there were several problems with FDA’s oversight system, such as limited inspection and sampling of imported seafood, and that FSIS’s proposed catfish program regulations, if implemented, would enhance catfish safety. For example, in their written comments to FSIS, some supporters stated that imported catfish may be unsafe because they were raised under less stringent standards, such as allowing the catfish to be exposed to whatever pollutants were present in the river water where they were raised. Supporters also indicated that imported catfish may contain residues from drugs that FDA has not approved for use in aquaculture. Finally, supporters noted that FSIS staff would review foreign catfish safety systems to ensure these systems met U.S. requirements before such products were admitted into U.S. commerce. In addition, FSIS inspectors would reinspect catfish imports at the ports of entry. In April 2011, we reported that FDA’s oversight of imports is limited when compared with FSIS’s more comprehensive reviews of food safety systems under its equivalence program. However, FSMA gives FDA authority to establish a system to accredit third-party auditors, including foreign governments, to take responsibility for certifying seafood processors or seafood meets FDA regulatory requirements. Under this system, a foreign government would have to demonstrate that its food safety programs, systems, and standards are capable of adequately ensuring that the foreign government and the foods it certifies, including seafood, meet FDA requirements. According to FDA officials, its new FSMA authorities complement the authority it already had to conduct comparability assessments, which are intended to help ensure the safety of imported foods. With comparability assessments, FDA can leverage the work of foreign governments whose food safety systems FDA has determined provide protections that are comparable to those of the U.S. food safety system. FDA is currently piloting a comparability assessment process with the European Union and New Zealand. New authorities provided in FSMA, including third party certification, will enable FDA to leverage resources of countries with sufficient qualifications—even though they may not have comparable systems—to help ensure that foods exported to the United States meet FDA requirements. Enacted in 2011, these new FSMA authorities were not available to FDA when the Farm Bill assigned responsibility for catfish inspection to FSIS in 2008. Cost of implementing FSIS’s catfish inspection program. Currently, FDA estimates that it spends less than $700,000 annually to inspect catfish processing facilities, and NMFS inspection services pose no additional cost to the federal government because its costs are covered by industry service fees. FSIS estimates that the implementation of its proposed catfish inspection program would cost the federal government and industry an additional $14 million annually. As estimated by FSIS, the federal government bears most of the estimated cost, about 98 percent, and industry bears the remaining cost. We did not determine the accuracy of FSIS’s estimate, but in our limited review we observed some limitations with FSIS’s cost data and assumptions that would affect the final accuracy of the agency’s estimate. For example, in its impact analysis, FSIS indicated that it did not have complete information on the total number of domestic and foreign catfish processing facilities that would be affected by the proposed regulations. In addition, the number of countries that will apply for equivalence determination is not known. The number of foreign applicants will, in turn, affect the cost FSIS will incur in making equivalence determinations and in examining shipments at ports of entry. In addition, FSIS may have overstated the federal dollars that FDA and NMFS would save if FSIS implements a catfish inspection program. For example, NMFS officials said that FSIS may have overstated the $1.5 million amount that would be saved if FSIS assumed all inspection duties previously carried out by NMFS inspectors. FDA officials stated that they could not validate the numbers FSIS used to estimate the amount of money FDA would save if FSIS implemented its proposed catfish program. In addition, FSIS estimated that it spent a total of $15.4 million from fiscal years 2009 to 2011 to develop the catfish inspection program, including costs related to catfish sampling studies. In fiscal year 2012, FSIS plans to spend an additional $4.4 million to support further program development. The cost effectiveness of FSIS’s catfish inspection program is unclear. FSIS acknowledges in its risk assessment that there is substantial uncertainty about how effective FSIS’s catfish inspection program will be in reducing the prevalence of Salmonella-contaminated catfish. In addition, FSIS acknowledged in its risk assessment that it lacks regulatory oversight experience with catfish processing facilities, although it has historically overseen the meat, poultry and processed egg products industries. FDA and NMFS officials we spoke with do not expect FSIS’s proposed catfish inspection program to make catfish safer than it already is under current federal oversight programs. Moreover, FSIS would oversee a small fraction of all seafood imports to the United States— about 3 percent—while FDA, using its enhanced authorities, could undertake oversight of all imported seafood. To implement the catfish inspection requirement in the Farm Bill, FSIS has proposed a program that seeks to mitigate the primary food safety hazard most associated with domestic and imported catfish, which FSIS identified as Salmonella. However, the agency’s proposed catfish inspection program further fragments the federal oversight system for food safety without demonstrating that there is a problem with catfish or a need for a new federal program. We recognize that FSIS developed this program because it was mandated to do so by the Farm Bill—before FDA received enhanced regulatory authority under FSMA. Even so, FSIS proposed a program that essentially mirrors the catfish oversight efforts already underway by FDA and NMFS. Furthermore, since FDA introduced HACCP requirements for seafood processing facilities— including catfish facilities—in 1997, no reported outbreaks of illnesses caused by Salmonella contamination of catfish have been reported—the hazard identified by FSIS—indicating the low risk presented by this pathogen in catfish. Consequently, if implemented, the catfish inspection program would likely not enhance the safety of catfish but would duplicate FDA and NMFS inspections at a cost to taxpayers. With FDA’s new authority under FSMA, the federal government has an opportunity to enhance the effectiveness of the food safety system of all imported seafood, including catfish, and avoid the duplication of effort and costs that would result from FSIS’s implementation of its proposed catfish inspection program. To enhance the effectiveness of the food safety system for catfish and avoid duplication of effort and cost, Congress should consider repealing provisions of the Farm Bill that assigned USDA responsibility for examining and inspecting catfish and for creating a catfish inspection program. We provided USDA and the Departments of Commerce and Health and Human Services with a draft of this report for their review and comment. We also provided a draft of this report to the Department of State, the Office of the U.S. Trade Representative, and the Office of Management and Budget. On April 25, 2012, we received written comments from USDA, which are reproduced in appendix II. USDA and the Department of Health and Human Services provided technical comments, which we incorporated as appropriate. The Department of Commerce did not provide written comments. USDA stated that it appreciated our work in planning, conducting, and issuing the report. USDA added that it is committed to completing the rulemaking process on catfish inspection in a manner that is consistent with the 2008 Farm Bill provisions. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees; the Secretaries of Agriculture, Commerce, Health and Human Services, and State; the U.S. Trade Representative; the Director of the Office of Management and Budget; and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or shamesl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. We were asked to examine the U.S. Department of Agriculture’s (USDA) Food Safety Inspection Service’s (FSIS) proposed catfish inspection program. Our objectives were to determine (1) how FSIS determined that Salmonella presented the primary food safety hazard in catfish and (2) the anticipated impact of FSIS’s proposed catfish inspection program on other federal food safety inspection programs. To address the first objective, we reviewed documents FSIS had prepared including the draft risk assessment that assessed the hazards associated with consuming catfish. We also reviewed information on the Food and Drug Administration’s (FDA) import refusals for imported catfish prepared by USDA’s Economic Research Service for 1998 through August 2010. We also reviewed the results of FSIS’s preliminary microbiological testing of catfish samples conducted in 2011. We interviewed officials from FSIS, FDA, and the National Marine Fisheries Service (NMFS) to better understand the food safety hazard catfish presents and the information FSIS presented in its draft risk assessment. We also interviewed officials from the Office of the U.S. Trade Representative, the Department of State, and the Office of Management and Budget. To gain stakeholders’ perspectives on the food safety hazards that catfish present, we reviewed comments provided to FSIS during the public comment period. We also spoke with representatives from the Catfish Farmers of America, National Fisheries Institute, the Association of Food and Drug Officials, and the Center for Science in the Public Interest. To assess the anticipated impact of FSIS’s proposed catfish inspection program on other federal food safety inspection programs, we reviewed the proposed regulations for the catfish inspection program and other agency documents including the preliminary regulatory impact analysis that describe the proposed program and the costs and benefits expected by FSIS after implementation. We reviewed the FDA Food Safety Modernization Act to identify the additional authorities to enhance the oversight of imported seafood this legislation granted FDA. We interviewed officials from FSIS, FDA, and NMFS to better understand FSIS’s proposed program, its costs and benefits, and the similarities and differences between it and FDA and NMFS inspection programs. In our review of FDA and NMFS inspection programs, we also gathered information on program costs. To gain stakeholders’ perspectives on FSIS’s proposed regulations for continuous catfish inspection, we reviewed comments from industry and consumer groups provided to FSIS during the public comment period. We spoke with representatives of the Catfish Farmers of America and the National Fisheries Institute. We also spoke with representatives of two domestic seafood processors that process both catfish and other seafood during site visits to their facilities in Massachusetts to gain their perspectives on the potential impact of the proposed regulations on their operations. We reviewed past GAO reports relevant to this topic. In addition, we analyzed Department of Commerce data on imported seafood, including catfish, for 2010. We present these data as background to illustrate the relative volume of catfish and other seafood. We also analyzed USDA National Agricultural Statistics Service data on catfish processing to illustrate trends in domestic catfish production and imports from 2006 to 2010, also as background. For both of these data sets we reviewed existing documentation about these data and any limitations. We found both data sets to be sufficiently reliable for the above-mentioned purposes. We conducted this performance audit from June 2011 to May 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the individual named above, Anne K. Johnson (Assistant Director), David Moreno (Analyst-in-Charge), Michele Sahlhoff, Carol Herrnstadt Shulman, Swati Sheladia Thomas, and Kiki Theodoropoulos made key contributions to this report. Important contributions were also made by Kevin Bray, Michele Fejfar, Jose Alfredo Gomez, and Jena Sinkfield. | Since 2007, federal oversight of food safety has been on GAOs list of highrisk areas, largely because of fragmentation that has caused inconsistent oversight, ineffective coordination, and inefficient use of resources. The Food, Conservation, and Energy Act of 2008 (Farm Bill) further fragmented the food safety system by directing FSIS to issue catfish inspection regulations. FSIS prepared a risk assessment to determine risks associated with catfish and identified Salmonella as the primary food safety hazard in catfish. The Farm Bill split responsibility for seafood safety between FSIS, for catfish inspection, and FDA, for seafood generally; in addition, NMFS provides fee-for-service inspections of seafood-processing facilities. GAO was asked to examine FSISs proposed catfish inspection program. Salmonella was a problem with catfish. With the implementation of FSISs proposed catfish inspection program, responsibility for overseeing seafood safety would be further divided and would duplicate existing federal programs at a cost. Under FSISs proposed program, processers would implement written sanitation and hazard control plans; FSIS would conduct continuous inspections of domestic catfish processing; and for imported catfishwhich equal about 3 percent of all seafood importsforeign countries would need to demonstrate equivalence to U.S. standards. According to FSIS, implementing this program will cost the government and industry about $14 million annually. If FSISs proposed program were implemented, GAO expects it would cause duplication and inefficient use of resources in several key areas. First, the program requires implementation of hazard analysis plans that are essentially the same as FDAs hazard analysis requirements. Second, if the program is implemented, as many as three agenciesFDA, FSIS, and NMFScould inspect facilities that process both catfish and other types of seafood. Both FDA and NMFS officials stated that continuous inspection will not improve catfish safety and is counter to the use of FDAs hazard analysis requirements, in which systems are most efficiently monitored periodically rather than daily. Third, the FDA Food Safety Modernization Act (FSMA) gives FDA authority to establish a system to accredit third party auditors, including foreign governments, to certify imported seafood meets FDA regulatory requirements. FDA officials stated that this new authority complements FDAs existing authority to obtain assurances about the safety of seafood exports from countries with food safety systems FDA determined are comparable to the United States. Under these systems more than catfish could be covered. With FDAs new authority under FSMA, the federal government has an opportunity to enhance the safety of all imported seafoodincluding catfishand avoid the duplication of effort and cost that would result from FSISs implementation of its proposed program. Congress should consider repealing provisions of the Farm Bill assigning USDA responsibility for catfish inspection. USDA stated it is committed to completing the rulemaking process on catfish inspection consistent with the 2008 Farm Bill provisions. |
Our work has repeatedly shown that mission fragmentation and program overlap are widespread in the federal government. In 1998 and 1999, we found that this situation existed in 12 federal mission areas, ranging from agriculture to natural resources and environment. We also identified, in 1998 and 1999, 8 new areas of program overlap, including 50 programs for the homeless that were administered by eight federal agencies. These programs provided services for the homeless that appeared to be similar. For example, 23 programs operated by four agencies offered housing services, and 26 programs administered by 6 agencies offered food and nutrition services. Although our work indicates that the potential for inefficiency and waste exists, it also shows areas where the intentional participation by multiple agencies may be a reasonable response to a complex public problem. In either situation, implementation of federal crosscutting programs is often characterized by numerous individual agency efforts that are implemented with little apparent regard for the presence of efforts of related activities. In our past work, we have offered several possible approaches for better managing crosscutting programs—such as improved coordination, integration, and consolidation—to ensure that crosscutting goals are consistent; program efforts are mutually reinforcing; and, where appropriate, common or complementary performance measures are used as a basis for management. One of our oft-cited proposals is to consolidate the fragmented federal system to ensure the safety and quality of food. Perhaps most important, however, we have stated that the Results Act could provide the Office of Management and Budget (OMB), agencies, and Congress with a structured framework for addressing crosscutting program efforts. OMB, for example, could use the governmentwide performance plan, which is a key component of this framework, to integrate expected agency-level performance. It could also be used to more clearly relate and address the contributions of alternative federal strategies. Agencies, in turn, could use the annual performance planning cycle and subsequent annual performance reports to highlight crosscutting program efforts and to provide evidence of the coordination of those efforts. OMB guidance to agencies on the Results Act states that, at a minimum, an agency’s annual plan should identify those programs or activities that are being undertaken with other agencies to achieve a common purpose or objective, that is, interagency and crosscutting programs. This identification need cover only programs and activities that represent a significant agency effort. An agency should also review the fiscal year 2003 performance plans of other agencies participating with it in a crosscutting program or activity to ensure that related performance goals and indicators for a crosscutting program are consistent and harmonious. As appropriate, agencies should modify performance goals to bring about greater synergy and interagency support in achieving mutual goals. In April 2002, as part of its spring budget planning guidance to agencies for preparing the President’s fiscal year 2004 budget request, OMB stated that it is working to develop uniform evaluation metrics, or “common measures” for programs with similar goals. OMB asked agencies to work with OMB staff to develop evaluation metrics for several major crosscutting, governmentwide functions as part of their September budget submissions. According to OMB, such measures can help raise important questions and help inform decisions about how to direct funding and how to improve performance in specific programs. OMB’s common measures initiative initially focused on the following crosscutting program areas: low income housing assistance, job training and employment, health. We recently reported that one of the purposes of the Reports Consolidation Act of 2000 is to improve the quality of agency financial and performance data. We found that only 5 of the 24 Chief Financial Officers (CFO) Act agencies’ fiscal year 2000 performance reports included assessments of the completeness and reliability of their performance data in their transmittal letters. The other 19 agencies discussed, at least to some degree, the quality of their performance data elsewhere in their performance reports. To address these objectives, we first defined the scope of each crosscutting program area as follows: Border control focuses on major federal security policies and operations that manage and govern the entry of people, animals, plants, and goods into the United States through air, land, or seaports of entry. Flood mitigation and insurance focuses on major federal efforts to proactively reduce the loss in lives and property due to floods and minimize the postflood costs of repair and construction. Wildland fire management focuses on major federal efforts to reduce accumulated hazardous fuels on public lands. Wetlands focuses on major federal efforts to protect and manage this resource, such as restoration, enhancement, and permitting activities. To identify the agencies involved in each area we relied on previous GAO work and confirmed the agencies involved by reviewing the fiscal year 2001 Results Act performance report and fiscal year 2003 Results Act performance plans for each agency identified as contributing to the crosscutting program area. One of the agencies we identified as being involved in the areas of flood mitigation and wetlands was the U.S. Army Corps of Engineers (Corps). Although we identify the Corps, we do not comment on the agency because, as noted above, the Department of Defense did not submit a fiscal year 2001 performance report or fiscal year 2003 performance plan and was not included in our review. To address the remaining objectives, we reviewed the fiscal year 2001 performance reports and fiscal year 2003 performance plans and used criteria contained in the Reports Consolidation Act of 2000 and OMB guidance. The act requires that an agency’s performance report include a transmittal letter from the agency head containing, in addition to any other content, an assessment of the completeness and reliability of the performance and financial data used in the report. It also requires that the assessment describe any material inadequacies in the completeness and reliability of the data and the actions the agency can take and is taking to resolve such inadequacies. OMB guidance states that an agency’s annual plan should include a description of how the agency intends to verify and validate the measured values of actual performance. The means used should be sufficiently credible and specific to support the general accuracy and reliability of the performance information that is recorded, collected, and reported. We did not include any changes or modifications the agencies may have made to the reports or plans after they were issued, except in cases in which agency comments provided information from a published update to a report or plan. Furthermore, because of the scope and timing of this review, information on the progress agencies may have made on addressing their management challenges during fiscal year 2002 was not yet available. We did not independently verify or assess the information we obtained from agency performance reports and plans. Also, that an agency chose not to discuss its efforts to coordinate in these crosscutting areas in its performance reports or plans does not necessarily mean that the agency is not coordinating with the appropriate agencies. We conducted our review from September through November 2002, in accordance with generally accepted government auditing standards. As shown in table 1, multiple agencies are involved in each of the crosscutting program areas we reviewed. The discussion of the crosscutting areas below summarizes detailed information contained in the tables that appear in appendix I through IV. Hostile nations, terrorist groups, transnational criminals, and even individuals may target American people, institutions, and infrastructure with weapons of mass destruction and outbreaks of infectious disease. Given these threats, successful control of our borders relies on the ability of all levels of government and the private sector to communicate and cooperate effectively with one another. Activities that are hampered by organizational fragmentation, technological impediments, or ineffective collaboration blunt the nation’s collective efforts to secure America’s borders. Each of the five agencies we reviewed in the area of border control— Agriculture, Justice, State, Transportation, and Treasury—discussed in their performance reports and/or plans the agencies they coordinated with on border control issues, although the specific areas of coordination and level of detail provided varied. For example, Agriculture, which focuses on reducing pest and disease outbreaks and foodborne illnesses related to meat, poultry, and egg products in the United States, discusses coordination with a different set of agencies than the other four agencies, which share a focus on border control issues related to travel, trade, and immigration. Agriculture stated that it is a key member of the National Invasive Species Council, which works with other nations to deal with the many pathways by which exotic pests and diseases could enter the United States. Agriculture also stated that it coordinates with the Department of Health and Human Services and EPA on food safety issues. Although Agriculture states it is responsible for inspecting imported products at ports of entry, it does not specifically describe any coordination with the Customs Service within Treasury or the Border Patrol within Justice. In its combined performance report and plan, Transportation provided general statements that the Coast Guard regularly coordinates with a variety of agencies on immigration issues and potential international agreements to ensure security in ports and waterways. However, Transportation provided a more extensive discussion of the coordination and roles played by bureaus within the agency. For example, for its goal to ensure that sea-borne foreign and domestic trade routes and seaports remain available for the movement of passengers and cargo, Transportation states that the Transportation Security Administration, the Maritime Administration (MARAD), and the Coast Guard will coordinate with the international community and federal and state agencies to improve coordination of container identification, tracking, and inspection. As an example of the roles described, Transportation states that the Coast Guard and MARAD will test deployment plans through port security readiness exercises. In its performance report, State listed the partners it coordinates with for each performance goal, but did not always provide details about the coordination that was undertaken. Both Justice and Treasury discuss expanded cooperation through BCI, which includes Agriculture; Customs; Coast Guard; the Immigration and Naturalization Service (INS), and other federal, state, local, and international agencies. According to Customs, BCI efforts toward increased cooperation among partner agencies included cross training, improved sharing of intelligence, community and importer outreach, improved communication among agencies using radio technology, and cooperative operational and tactical planning. Of the five agencies we reviewed, only Justice reported meeting all of its fiscal year 2001 performance goals related to securing America’s borders. Transportation reported not meeting either of its two goals related to border control, but provided explanations and strategies for meeting the goals in the future that appeared reasonable. For example, Transportation said it did not meet its target for the percentage of undocumented migrants interdicted and/or deterred via maritime routes because socioeconomic conditions here and abroad and political and economic conditions caused variations in illegal migration patterns. To meet the target in the future, the Coast Guard plans to operate along maritime routes and establish agreements with source countries to reduce migrant flow. For its two performance goals related to border control, State reported progress in meeting its goal of reducing the risk of illegitimate entry of aliens hostile to the nation’s interest, but not meeting the immigrant visa targets. State explained that it failed to meet this goal due to extremely high demand for visa numbers from INS to adjust the status of large numbers of aliens already in the United States, but did not provide any specific strategies for meeting this goal in the future. Treasury reported meeting its targets for all but two of its seven measures related to its strategic goal of protecting the nation’s borders and major international terminals from traffickers and smugglers. Treasury did not provide reasonable explanations for either shortfall, and did not discuss strategies for achieving those targets in the future. Agriculture reported meeting all but one of its performance targets for its three goals. The unmet performance target for significantly reducing the prevalence of salmonella on broiler chickens fell under Agriculture’s goal of creating a coordinated national and international food safety risk management system. Agriculture provides a reasonable explanation, but it is not clear if from the discussion if it is a domestic or international issue. According to their performance plans, the five agencies generally aimed to achieve the same goals as those reported on in fiscal year 2001, with targets adjusted to reflect higher performance levels. Transportation reported that it established a new performance goal and related measure in fiscal year 2002 that would also be included in the fiscal year 2003 plan. The new goal is to ensure that sea-borne foreign and domestic trade routes and seaports remain available for the movement of passengers and cargo. The new measure is the percentage of high-interest vessels screened, with a target of 100 percent for fiscal year 2003. Three of the five agencies—Agriculture, Justice, and Transportation— discussed strategies that appeared to be reasonably linked to achieving their fiscal year 2003 goals. For example, Transportation discusses strategies for each of its goals. For its new goal Transportation describes strategies, such as increasing intelligence efforts in ports; improving advanced information on passengers, crew, and cargo; and establishing or improving information and intelligence fusion centers in Washington and on both coasts. It also identified more specific efforts, such as increasing boarding and escort operations to protect vessels carrying large numbers of passengers and vessels with dangerous cargo, such as liquefied natural gas or other volatile products, from becoming targets. In contrast, Customs discussed a more limited “strategic context” for each of its goal areas and other information in sections pertaining to specific Customs activities, both of which varied in the level of detail. For example, for its goal of contributing to a safer America by reducing civil and criminal activities associated with the enforcement of Customs laws, Customs defined challenges and constraints to achieving the goal and mentions that it is playing a major role in the interdiction and detection of weapons of mass destruction entering or leaving the United States, including increased vessel, passenger, and cargo examinations. For the most part, State provided only general statements of how it plans to achieve its fiscal year 2003 goals. For example, regarding its visa issuance goal, State said it has committed itself to improving its visa procedures and coordination with other agencies and departments. Regarding the completeness, reliability, and credibility of their reported performance data, Agriculture, Justice, Transportation, and Treasury provided general statements about the quality of their performance data and provided some information about the quality of specific performance data. For example, Transportation provided extensive information on its measures and data sources that allow for an assessment of data quality. The information includes (1) a description of the measure, (2) scope, (3) source, (4) limitations, (5) statistical issues, and (6) verification and validation. Other explanatory information is provided in a comment section of Transportation’s combined performance plan and report. State did not provide consistent or adequate information for the border-control- related data sources to make judgments about data reliability, completeness, and credibility. For the most part, State provided only a few words on the data source, data storage, and frequency of the data. Floods have inflicted more economic losses upon the United States than any other natural disaster. Since its inception 34 years ago, the National Flood Insurance Program (NFIP) has combined flood hazard mitigation efforts and insurance to protect homeowners against losses from floods. The program, which is administered by FEMA, provides an incentive for communities to adopt floodplain management ordinances to mitigate the effects of flooding upon new or existing structures. It offers property owners in participating communities a mechanism—federal flood insurance—to cover flood losses without increasing the burden on the federal government to provide disaster relief payments. Virtually all communities in the country with flood-prone areas now participate in NFIP, and over 4 million U.S. households have flood insurance. The two agencies we reviewed—Agriculture and FEMA—generally address coordination efforts regarding the issue of flood mitigation. Agriculture states in its report and plan that it works with other agencies, such as FEMA and the Corps, to obtain data regarding its goal related to flood mitigation. However, Agriculture does not further specify coordination activities. FEMA’s fiscal year 2001 performance report does not state which agencies it collaborates with to achieve goals related to flood mitigation and insurance. FEMA’s plan provides an appendix that outlines the crosscutting activities and partner agencies associated with its flood mitigation and preparedness activities. For example, FEMA states it is the chair of the President’s Long-Term Recovery Task Force, which helps state and local governments to identify their needs related to the long-term impact of a major, complex disaster. Agencies FEMA coordinates on this effort with include the departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Housing and Urban Development, the Interior, Labor, and Transportation, among other organizations. Agriculture reported that it did not meet its only fiscal year 2001 goal related to flood mitigation—providing benefits to property and safety through flood damage reduction by completing 81 watershed protection structures. Agriculture explained that it did not meet the goal because (1) complex engineering can result in watershed protection structures taking several years to complete, (2) multiple funding sources, including federal, state, and local funds, may alter the schedule for completing the structures, and (3) external factors such as weather and delays in obtaining land rights and permits caused delays in construction. Agriculture states that many of the structures that were not completed in time for the fiscal year 2001 report will be complete in the next few months. FEMA reported meeting all but one of its fiscal year 2001 goals and indicators related to flood mitigation and insurance. FEMA’s five goals were (1) prevent loss of lives and property from all hazards, (2) collect and validate building and flood loss data, confirm that the reduction in estimated losses from NFIP activities exceeds $1 billion, and continue systematic assessment of the impact and effectiveness of NFIP, (3) increase the number of NFIP policies in force by 5 percent over the end of the fiscal year 2000 count, (4) improve the program’s underwriting ratio, and (5) implement NFIP business process improvements. FEMA reported that it did not meet the third goal, explaining that, although the end of year policy count for fiscal year 2001 increased, the retention rates for existing policies were not maintained. FEMA outlined three strategies that appeared reasonably linked to achieving the unmet goal in the future: (1) placing two new fiscal year 2002 television commercials that emphasize the importance of buying and keeping National Flood Insurance, (2) establishing retention goals for “Write Your Own” companies, private insurance companies that write flood insurance under a special arrangement with the federal government, and (3) targeting its marketing strategies toward those properties no longer on the books. Because it revised its strategic plan, FEMA reorganized the layout of its fiscal year 2003 performance plan. Nevertheless, FEMA’s fiscal year 2003 performance goals and measures are similar to those that appear in its fiscal year 2001 performance plan. FEMA merged its goal of implementation of NFIP business process improvements into its fiscal year 2003 goal of improving NFIP’s “bottom line,” an income-to-expense ratio, by 1 percent. In addition, FEMA merged two other goals: (1) prevent loss of lives and property from all hazards and (2) collect and validate building and flood loss data, confirm that the reduction in estimated losses from NFIP activities exceeds $1 billion, and continue the systematic assessment of the impact and effectiveness of NFIP. FEMA adopted one new goal in its fiscal year 2003 plan related to modernizing its floodplain mapping. Agriculture expects to continue making progress on its goal of providing benefits to property and safety through flood damage reduction, but has adopted a new approach to achieving the goal. Agriculture appears to have dropped its target for completing new watershed protection structures and instead plans to implement a new program of rehabilitating aging dams. Overall, the strategies Agriculture and FEMA plan to use appear to be reasonably linked to achieving their fiscal year 2003 goals. For example, to support its fiscal year 2003 performance goals, FEMA outlines several strategies, such as increasing the number of Emergency Action Plans in communities located below significant and potentially high-hazard dams. In its fiscal year 2001 Annual Performance and Accountability Report, FEMA states “the performance measurement criteria and information systems are thought to be generally effective and reliable.” FEMA does not individually identify data quality assessment methods for any of its performance indicators. However, it acknowledges a data limitation for one of its goals relating to business process improvement. FEMA explained that it relied on trend data to assess its performance in customer service for fiscal year 2001 because of a delay in obtaining OMB approval for distributing its customer surveys that year. FEMA states that it plans to conduct the surveys in fiscal year 2002 to obtain more accurate information. Agriculture addresses this issue at the beginning of its report by stating, “performance information supporting these performance goals is of sufficient quality and reliability except where otherwise noted in this document.” Agriculture also states that the data reported by state offices for fiscal year 2001 are accurate. According to estimates by FWS, more than half of the 221 million acres of wetlands that existed during colonial times in what is now the contiguous United States have been lost. These areas, once considered worthless, are now recognized for the variety of important functions that they perform, such as providing wildlife habitats, maintaining water quality, and aiding in flood control. Despite the passage of numerous laws and the issuance of two presidential orders for protecting wetlands, no specific or consistent goal for the nation’s wetlands-related activities existed until 1989. Recognizing the value of wetlands, in 1989, President George Bush established the national goal of no net loss of wetlands. However, the issue of wetlands protection and the various federal programs that have evolved piecemeal over the years to protect and manage this resource have been subjects of continued debate. We previously reported that for the six major agencies involved in and responsible for implementing wetlands-related activities—the Corps, Agriculture’s Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS), Interior’s FWS, Commerce’s NOAA, and EPA—the consistency and reliability of wetlands acreage data reported by these federal agencies were questionable. Moreover, we reported that the agencies’ reporting practices did not permit the actual accomplishments of the agencies—that is, the number of acres restored, enhanced, or otherwise improved—to be determined. These reporting practices included inconsistencies in the use of terms to describe and report wetlands-related activities and the resulting accomplishments, the inclusion of nonwetlands acreage in wetlands project totals, and the double counting of accomplishments. We recommended that these agencies develop and implement a strategy for ensuring that all actions contained in the Clean Water Action Plan related to wetlands data are adopted governmentwide. Such actions included, in addition to the ongoing effort to develop a single set of accurate, reliable figures on the status and trends of the nation’s wetlands, the development of consistent, understandable definitions and reporting standards that are used by all federal agencies in reporting their wetlands-related activities and the changes to wetlands that result from such activities. The agencies we reviewed generally discussed the need to coordinate with other agencies in their performance plans, but provided little detail on the level of coordination or specific coordination strategies. Agriculture’s annual performance plan includes a strategy to work with other federal agencies and partners to identify priority wetlands that could benefit from conservation practices in the surrounding landscape. Neither of the bureaus within Agriculture—FSA or NRCS—specifically discussed coordination on wetlands issues in their performance reports or plans. Interior’s annual performance report and plan indicate that it will work with Agriculture, EPA, the Corps, the Federal Energy Regulatory Commission (FERC), and the states on wetlands issues. EPA discusses cooperation with the Corps, NOAA’s National Marine Fisheries Service within Commerce, FEMA, FWS within Interior, and NRCS within Agriculture, but provides no specifics. Both Commerce and NOAA indicate that they work with other federal agencies to address crosscutting issues. Although NOAA mentions that it works closely with other agencies on a number of crosscutting issues to address critical challenges facing coastal areas, its plan does not specifically mention coordination with other agencies on wetlands issues. Each of the agencies we reviewed had goals related to wetlands that it reported having met or exceeded in fiscal year 2001. For example, FWS within Interior reported that it restored or enhanced 144,729 acres of wetlands habitat on non-FWS lands, exceeding its goal of 77,581 acres. However, FWS did not report on the number of acres of wetlands restored or enhanced on FWS lands and did not distinguish between the number of acres restored and the number enhanced. Furthermore, several of the agencies included nonwetlands acreage when reporting their accomplishments, and NOAA changed its performance measure from acres of coastal wetlands restored to acres benefited. Consequently, the contributions made by these agencies toward achieving the national goal of no net loss of the nation’s remaining wetlands cannot be determined from their reports. Each of the agencies we reviewed had plans to create, restore, enhance, and/or benefit additional wetlands acreage in fiscal year 2003, although the targets were in some cases lower than the targets for fiscal year 2001. Of the agencies we reviewed, only NRCS indicated in its plan that its progress would contribute to the national goal of no net loss of wetlands. The strategies the agencies planned to use appeared to be reasonably linked to achieving their fiscal year 2003 goals. For example, FSA planned to use the same strategy it has successfully used in past years to achieve its goals— working with producers to enroll land in the Conservation Reserve Program. Regarding the completeness, reliability, and credibility of the performance data reported, agency discussions varied in the specifics they provided. NOAA and FWS had overall discussions of the sources of their performance data and the verification procedures they followed in their performance reports. Within Agriculture, while FSA reported on the sources and processes used to develop the data reported for the number of wetlands acres restored, NRCS discussed its requirement that each state conservationist verify and validate the state’s performance data. NRCS also acknowledged that some discrepancies were noted when the performance data were analyzed, but indicated that there was no compelling reason to discount the performance data reported. Two agencies—FWS and EPA—acknowledged shortcomings in the data, including the possibility of double counting performance data. EPA also indicated that the measure might not reflect actual improvements in the health of the habitat. While FWS does not discuss any steps to resolve or minimize the shortcomings in its data, EPA described improvements it made to make data reported more consistent. FSA indicated some limitations to its data for the Conservation Reserve Program, which it attributed to lags between the date a contract is signed with a producer and when the data are entered, the continual updating of the contract data, and the periodic changes in contract data, but did not discuss any steps to resolve the limitation. We recently testified that the most extensive and serious problem related to the health of forested lands—particularly in the interior West—is the overaccumulation of vegetation, which is causing an increasing number of large, intense, uncontrollable, and destructive wildfires. In 1999, Agriculture’s Forest Service estimated that 39 million acres of national forested lands in the interior West were at high risk of catastrophic wildfire. This figure later grew to over 125 million acres as Interior agencies and states identified additional land that they considered to be high risk. To a large degree, these forest health problems contributed to the wildfires in the year 2000—which were some of the worst in the last 50 years. The policy response to these problems was the development of the National Fire Plan—a long-term, multibillion-dollar effort to address the wildland fire threats we are now facing. Our work on wildland fire has stressed the need for three things: (1) a cohesive strategy to address growing threats to national forest resources and nearby communities from catastrophic wildfires, (2) clearly defined and effective leadership to carry out that strategy in a coordinated manner, and (3) accountability to ensure that progress is being made toward accomplishing the goals of the National Fire Plan. Two years ago, the Forest Service and Interior began developing strategies to address these problems, and recently established a leadership entity—the Wildland Fire Leadership Council—that is intended to respond to the need for greater interagency coordination. Whether the strategy and the council will serve as the framework and mechanism to effectively deal with the threat of catastrophic wildland fire remains to be seen and will depend upon how well the National Fire Plan is implemented. To determine the effectiveness of this implementation effort, we continue to believe that a sound performance accountability framework is needed, one that provides for specific performance measures and data that can be used to assess implementation progress and problems. Both Interior and the Forest Service indicate in their performance plans their participation in developing the 2000 National Fire Plan and a 10-year Comprehensive Strategy under the plan. Furthermore, both agencies discuss current efforts under way to develop a joint Implementation Plan for the Comprehensive Strategy. Consistent with our recommendations, the implementation plan is reported to include cooperatively developed, long-term goals and performance measures for the wildland fire management program. In its performance report, the Forest Service detailed additional specific actions it collaborated on with Interior and other agencies related to wildland fire management, such as conducting an interagency review of the fire plan system. Regarding progress in achieving its fiscal year 2001 goals, Interior reported meeting only about half of its planned target of using fire and other treatments to restore natural ecological processes to 1.4 million acres. Although Interior’s report provided reasonable explanations for the unmet goals—difficulty in obtaining permits to carry out the treatments and shifting of resources from restoration to suppression of active fires—it did not discuss any specific strategies for overcoming these challenges in the future. The Forest Service reported meeting its goal of treating wildlands with high fire risks in national forests and grasslands. However, the Forest Service did not meet any of the individual indicators related to this goal. For example, the Forest Service treated only 1.4 million acres of its targeted 1.8 million hazardous fuel acres. The Forest Service provided explanations that appeared reasonable for some of its unmet targets. For example, unusual drought conditions combined with the added complexities and restrictions of treating hazardous fuels in the wildland urban interface contributed to the unmet hazardous fuels goal. The Forest Service did not provide any strategies for meeting the unmet targets in the future. In fiscal year 2003, Interior expects to treat 1.1 million acres to reduce hazards and restore ecosystem health compared to its goal of 1.4 million acres in 2001. In addition, Interior has added goals for wildland fire containment, providing assistance to rural fire departments, treating high- priority fuels projects, and bringing fire facilities up to approved standards. Interior’s strategies for achieving these goals are very broad and general and lack a clear link or rationale for how the strategies will contribute to improved performance. The Forest Service expects to treat 1.6 million acres to reduce hazardous fuels, slightly less than its 2001 target of 1.8 million acres, and assist over 7,000 communities and fire departments. The Forest Service did not include one of its targets for 2001—maximizing fire fighting production capability. The Forest Services strategies for achieving its goals, although fairly general, appear to be reasonably linked to achieving each of the performance targets. The performance data reported by Interior and the Forest Service for wildfire management generally appear to be complete, reliable, and credible. The Forest Service reported that it will use the Budget Formulation and Execution System to report on performance. However, we have found that this system is more of a planning tool for ranking fuel reduction work at the local unit level and that another system, the National Fire Plan Operations and Reporting System, is being implemented by both the Forest Service and Interior to track outputs and measure accomplishments. Interior acknowledges that its bureaus may interpret the data they collect differently and that a common set of performance measures is still being developed between Interior and the Forest Service as they implement the National Fire Plan. We have recommended that the agencies develop a common set of outcome-based performance goals to better gauge whether agencies are achieving the objective of restoring ecosystem health. The Forest Service acknowledges possible data limitations and reported that it is currently taking steps, such as conducting field reviews, to ensure effective internal controls over the reporting of performance data. We have previously stated that the Results Act could provide OMB, agencies, and Congress with a structured framework for addressing crosscutting program efforts. OMB in its guidance clearly encourages agencies to use their performance plans as a tool to communicate and coordinate with other agencies on programs being undertaken for common purposes to ensure that related performance goals and indicators are consistent and harmonious. We have also stated that the Results Act could also be used as a vehicle to more clearly relate and address the contributions of alternative federal strategies. The President’s common measures initiative, by developing metrics that can be used to compare the performance of different agencies contributing to common objectives, appears to be a step in this direction. Some of the agencies we reviewed appear to be using their performance reports and plans as a vehicle to assist in collaborating and coordinating crosscutting program areas. Those that provided more detailed information on the nature of their coordination provided greater confidence that they are working in concert with other agencies to achieve common objectives. Other agencies do not appear to be using their plans and reports to the extent they could to describe their coordination efforts to Congress, citizens, and other agencies. Furthermore, the quality of the performance information reported—how agencies explain unmet goals and discuss strategies for achieving performance goals in the future, and overall descriptions of the completeness, reliability, and credibility of the performance information reported—varied considerably. Although we found a number of agencies that provided detailed information about how they verify and validate individual measures, only 5 of the 10 agencies we reviewed for all the crosscutting areas commented on the overall quality and reliability of the data in their performance reports consistent with the requirements of the Reports Consolidation Act. Without such statements, performance information lacks the credibility needed to provide transparency in government operations so that Congress, program managers, and other decision makers can use the information. We sent drafts of this report to the respective agencies for comments. We received comments from EPA, FEMA, Commerce, and State. The agencies generally agreed with the accuracy of the information in the report. The comments we received were mostly technical and we have incorporated them where appropriate. Regarding flood mitigation and insurance, FEMA commented that performance reports and plans are static documents that are over a year old and therefore may not reflect the progress FEMA has made since then. FEMA also stated that, although not reflected in it performance reports and plans, it coordinates its flood mitigation and insurance activities extensively and maintains and employs a number of interagency agreements related to the implementation of its programs. We acknowledge these limitations to our analysis in the scope and methodology section of this report. Regarding border control, State commented that, as summary documents, performance reports and plans provide a limited opportunity to fully describe their coordination and data validity and verification efforts. State indicated that it plans to include more appropriate measures of performance and performance data that are complete, reliable, and credible in its upcoming performance reports and plans. Regarding its unmet goal for the number of visas processed, State explained that this is not an accurate measure of program performance because it depends on the demand for visas, which is beyond the agency’s control. State plans to revise this measure to one that will more appropriately reflect program effectiveness. Regarding wetlands, EPA commented on a number of initiatives it has undertaken along with other federal agencies to address the accuracy and availability of data on the extent and health of wetlands. For example, EPA states that its Region V office (Chicago) is working with other federal and state agencies to develop an integrated, comprehensive, geographic information system-based wetlands mapping system for the Minnesota River Basin. Once completed, this new wetland inventory would provide a reliable estimate of total wetland acreage for the Minnesota River Basin, provide a test to update the older National Wetland Inventory data, and serve as a pilot project for identifying wetlands throughout the country using an innovative technology. We are sending copies of this report to the President, the Director of the Office of Management and Budget, the congressional leadership, other Members of Congress, and the heads of major departments and agencies. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me or Elizabeth Curda on (202) 512-6806 or daltonp@gao.gov. Major contributors to this report are listed in appendix V. In addition to the individual named above, the following individuals made significant contributions to this report: Steven J. Berke, Paul Bollea, Lisa M. Brown, Sharon L. Caudle, Amy M. Choi, Peter J. Del Toro and Sherry L. McDonald. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to GAO Mailing Lists” under “Order GAO Products” heading. | GAO's work has repeatedly shown that mission fragmentation and program overlap are widespread in the federal government. Implementation of federal crosscutting programs is often characterized by numerous individual agency efforts that are implemented with little apparent regard for the presence and efforts of related activities. GAO has in the past offered possible approaches for managing crosscutting programs, and has stated that the Government Performance and Results Act could provide a framework for addressing crosscutting efforts. GAO was asked to examine the actions and plans agencies reported in addressing the crosscutting issues of border control, flood mitigation and insurance, wetlands, and wildland fire management. GAO reviewed the fiscal year 2001 performance reports and fiscal year 2003 performance plans for the major agencies involved in these issues. GAO did not independently verify or assess the information it obtained from agency performance reports and plans. On the basis of the reports and plans, GAO found that most agencies involved in the crosscutting issues discussed coordination with other agencies in their performance reports and plans, although the extent of coordination and level of detail provided varied considerably. The progress agencies reported in meeting their fiscal year 2001 performance goals also varied considerably. For example, wetlands was the only area in which all of the agencies GAO reviewed met or exceeded fiscal year 2001 goals. Some of the agencies that did not meet their goals provided reasonable explanations and/or strategies that appeared reasonably linked to meeting the goals in the future. The agencies GAO reviewed generally planned to pursue goals in fiscal year 2003 similar to those in 2001, although some agencies added new goals, dropped existing goals, or dropped goals altogether. Many agencies discussed strategies that appeared to be reasonably linked to achieving their fiscal year 2003 goals. |
Our work on patent examination issues, which was performed at this Committee’s request, is discussed in detail in our July 15, 1996, report entitled Intellectual Property: Enhancements Needed in Computing and Reporting Patent Examination Statistics (GAO/RCED-96-190). This section of our statement discusses the following three areas: (1) patent pendency—the amount of time that PTO spends in examining an application to determine whether an invention should receive a patent; (2) PTO’s resources committed to the patent process, the trademark process, the dissemination of information, and executive direction and administration; and (3) PTO’s workload and examination process in comparison with those of other industrialized countries. The importance of the issues addressed in our report has increased over the past year because of new legislation affecting the term of most patents. Public Law 103-465, enacted December 8, 1994, changed the term for most patents granted by the United States from 17 years from the date of issuance to 20 years from the date of the earliest filing of an application. Accordingly, the time frame for issuance reduces the effective term of the patent left to the inventor under the new law. In analyzing patent pendency, we found that the overall pendency statistics being reported by PTO do not provide inventors and decisionmakers with enough information. This is particularly the case after Public Law 103-465 changed the patent term for most applications filed after June 7, 1995. We attributed this lack of information to four reasons. First, PTO’s pendency computation method considers both issued patents and abandoned applications but does not consider applications still in-process. PTO defines pendency as the period from the date when an application is filed until the date when a patent is issued or an application is abandoned. As used by PTO, an abandoned application is any application that does not result in an issued patent and is eventually taken out of the examination process by the applicant or PTO. While PTO and other decisionmakers may be interested in knowing that overall pendency in fiscal year 1994 was 20.2 months or that applications abandoned during the year were pending for an average of 18.3 months, inventors may be most interested in knowing that the average pendency for patents issued was 21.3 months. Second, pendency can vary widely for individual applications, depending on the type of invention and factors such as whether the application is subject to a secrecy order. For example, while overall pendency for fiscal year 1994 was 20.2 months, pendency in the Computer Systems area averaged 27.6 months, while pendency in the Solar, Heat, Power, and Fluid Engineering area averaged 16.9 months. Similarly, pendency for patents issued and applications abandoned that were subject to secrecy orders averaged 62.9 months, although they were so relatively few in number that they had no appreciable effect on overall pendency. As above, such variations are of importance to the inventor, who needs to know the potential examination time associated with different types of inventions and factors such as whether a secrecy order will be imposed. Third, pendency is higher when the filing date used is that of the original, rather than the most recent, application for the particular invention. Frequently, an application may spawn other applications during the examination process. PTO refers to the original application as the “parent” and any application emerging from the original as a “child.” Some cases can involve several generations of applications. PTO’s current method for computing pendency considers the filing date of the current, or child, application whereas, under the new law, the patent term will be calculated for most patents from the filing date of the parent. Thus, PTO’s method does not provide inventors and decisionmakers with an accurate appraisal of how long applications are under examination. We found that calculating pendency by using the parent filing date rather than the current filing date raises pendency significantly. For fiscal year 1994, overall pendency would have been 28 months rather than 20.2 months. Applications in process would have been under examination an average of 25 months rather than 16 months. If only those applications that had a parent were considered, the differences would have been even more dramatic—increasing from 17.9 months to 47.7 months for fiscal year 1994 and from 14.6 months to 45 months for those applications in-process as of October 1, 1994. Fourth, the applicants themselves are partly responsible for the time taken to examine applications. PTO’s current method of computing pendency includes all of the time between the filing of the application and the issuance of a patent or the abandonment of the application. It does not separate the pendency for which PTO is responsible from the pendency created by the applicant. We calculated the pendency attributable to the applicants in one area—the time taken to respond to questions raised or requests for additional information by PTO during examination. These responses accounted for an average of 3.6 months of the 20.2 months total pendency for fiscal year 1994. Subsequent to our analysis, PTO made its own analysis of other areas where the applicant caused delays and computed an additional 3.8 months for fiscal year 1994. While we did not verify PTO’s computations, adding the applicants’ delays that PTO identified to those we computed would result in about 7.4 months of the 20.2-month average pendency for fiscal year 1994 being attributable to the applicants themselves. As a result of our findings, we recommended in our report that PTO compute and report patent pendency statistics that will separately identify issued patents, abandoned applications, and applications under examination. In commenting on our recommendations, the Department of Commerce said that more was needed than just an expansion of the pendency statistics now in use. It said that by fiscal year 2003, PTO’s goal is to complete the examination of each new patent application within 12 months. The Department said that PTO would continue to report pendency as it had in the past until new procedures associated with this new 12-month goal are implemented. We agree that PTO needs to track and report pendency when its new examination policy is put into effect. However, because this new policy may not take effect for several years, we believe that PTO needs to begin reporting pendency statistics in the interim as we recommended. Furthermore, we believe this change is needed regardless of PTO’s organizational placement. In analyzing the commitment of PTO’s resources to various functions, we found that PTO has consistently committed most of its resources to the patent process. In fiscal year 1995, about three-fourths of PTO’s funding—all of which now is generated by fees—and staff were devoted to the patent process. Other major activities in PTO include the trademark process, the agency’s executive direction and administration, and the dissemination of information. PTO’s annual obligations have increased steadily in recent years. In the 10-year period from fiscal year 1986 to fiscal year 1995, PTO’s annual obligations increased from $212 million to $589 million, an average annual increase of nearly 20 percent. The increases in resources allocated to the patent process from fiscal year 1986 through fiscal 1995 do not appear to have come at the expense of PTO’s other activities. Funding and staffing for these activities also increased in most years over this period. Overall, the patent process accounted for 56.6 to 75.4 percent of the obligations in individual years, while the range was 5.4 to 8.5 percent for the trademark process, 6.4 to 20.2 percent for executive direction and administration, and 9.9 to 18.5 percent for the dissemination of information. The majority of PTO staff also was committed to the patent process during the 10-year period. In fiscal year 1986, PTO had a total of 3,180 full-time equivalent (FTE) staff; in fiscal year 1995, the total was 5,007. In individual years, the percentage of staff ranged from 58 to 75.1 percent for the patent process, 6.8 to 9.7 percent for the trademark process, 7.1 to 15.4 percent for executive direction and administration, and 8 to 22.4 percent for the dissemination of information. In comparing PTO’s patent examination process with those of other industrialized countries, we found that they differ markedly. As one example, PTO considers the examination process to have begun when the application is filed. In the Japanese Patent Office, however, an application is not considered a request for examination. Rather, the applicant must make a separate request for examination, which may come at any time up to 7 years after the application is filed. Similarly, in the European Patent Office, examination is a two-phase process. A filing is taken to imply a request for a search to determine whether the invention is new compared with the state of the art. If an applicant then desires a substantive examination for industrial applicability, the applicant must file a separate request not more than 6 months after the publication of the search. Methods for computing pendency also differ between the three patent offices. For example, Japan and Europe consider applications in process when computing pendency, while PTO considers only those applications that resulted in a patent or were abandoned. These different computation methods would yield fundamentally different results. Consequently, caution should be exercised in comparing workloads and pendency between these offices. Our work on Copyright Office issues was summarized in our May 7, 1996, testimony before the Joint Committee on the Library of Congress. In October 1995, Senators Connie Mack and Mark Hatfield asked that we conduct a broad assessment of the Library’s management by the spring of 1996. To help meet that time frame, given that our limited resources were already committed to other priority projects, we contracted with Booz-Allen & Hamilton Inc. to conduct a general management review of the Library. Among the issues that Booz-Allen addressed in its review that the Senate Committee on the Judiciary expressed interest in were: (1) the potential for the Copyright Office to be transferred from the Library of Congress to another organization; (2) the possible additional revenues that the Copyright Office could charge if it recovered all costs; and (3) the impact on the Library, including the Copyright Office, from revisions to its competitive selection process as a result of the settlement of a class-action discrimination suit. Given the era of deficit reduction in which the federal government has found itself and the need for each agency to become as efficient as possible, Booz-Allen structured its management review to include a consideration of opportunities that might exist for the Library to reduce costs and enhance revenues. Within this context, Booz-Allen looked at various aspects of the Library’s organizational components and the Library’s fee structure. One such aspect included the potential for transferring the Copyright Office from the Library to another organization. Booz-Allen considered four elements of copyright operations, including the long-standing relationship between the Library and the Copyright Office, copyright registration as a source of material for Library collections, linkages between cataloging for copyright purposes and for Library collections, and the revenue potential from copyright receipts. Booz-Allen pointed out that its scope did not include an assessment of the operations, efficiency, or effectiveness of organizations outside the Library that might be considered potential recipients of the copyright function or the benefits of transferring it elsewhere. Booz-Allen concluded that while the transfer of the Copyright Office to another organization might not have negative operational impacts, the benefits of such a move were unknown and might cause significant disruption. Booz-Allen concluded that while there was little operational reason for housing the copyright function at the Library of Congress, the physical relocation of the Copyright Office could result in the office incurring an annual cost of $800,000 for leasing facilities that are now provided by the Library or the Architect of the Capitol at no cost to the Copyright Office. Also, the Booz-Allen analysis showed that while the Library saved $13 million a year from not having to purchase material obtained through copyright deposits and that this source of materials could be legislatively protected if the copyright function were housed elsewhere, the transportation and coordination aspects of such a shift would have to be assessed and would likely impose additional costs. Booz-Allen found that although both the Library and the Copyright Office perform cataloging processes, their purposes and methods were substantially different. With regard to the fees collected by the Library for copyright registrations, which amounted to $12.6 million in fiscal year 1995, Booz-Allen noted that the Library’s fee does not recover its full cost. Booz-Allen estimated that by increasing the fee to recover full cost, the Library could generate revenue in the range of $24 million to $29 million (or an additional $11 million to $17 million over current fees charged). In developing this estimate, Booz-Allen cautioned that it was predicated on the comparison of fees received in fiscal year 1995 with its estimate of the full cost of the copyright registration process and did not take into account possible changes stemming from a fee increase, such as a potential drop in the number of registrations received. Booz-Allen also said that the effect of increasing fees could adversely affect that part of the Library’s mission that deals with building its collection. As Booz-Allen also reported, the Copyright Law provides the Library with the authority to adjust fees at 5-year intervals to reflect changes in the Consumer Price Index, but the Copyright Office has elected not to do so. In its commentary concerning the recovery of all copyright fees, Booz-Allen also pointed out that the Library would first have to (1) refine its cost data and cost assumptions for the Copyright Office to obtain better cost information and (2) establish the capability and mechanisms to handle fee changes and possible multiple fee schedules. As part of its management review, Booz-Allen studied how well the Library of Congress managed its human resources. Since this part of the study was Library-wide in nature, the findings do not relate specifically to the Copyright Office or any other components of the Library but would apply generally to the Copyright Office. Booz-Allen found that the Library’s hiring process had been adversely affected by its settlement of a class action suit, commonly referred to as the Cook Case, which asserted the Library practiced discriminatory employment practices that denied African-American employees opportunities for promotion and advancement. The settlement required the Library to revise its competitive selection process, make a specified number of promotions and reassignments, pay monetary relief to the class, provide Library supervisors with specified training, and eliminate any discriminatory criteria for noncompetitive personnel actions. As part of the Cook Case settlement, which was approved by the court in September 1995, the court reserved jurisdiction for 4 years to ensure compliance with the settlement. The settlement agreement is currently under appeal which would delay the start of the 4-year period. Booz-Allen found that while efforts to revise the competitive selection process had resulted in significant improvements in the Library’s racial/ethnic profile, the revised process was viewed by many Library managers and human resources staff as lengthy and cumbersome. Booz-Allen found that the median number of calendar days to fill vacancies during fiscal years 1993 through 1995 was 177 days at the Library. In comparison, three other agencies took from 30 to 120 days to hire employees. As a result of inefficiently hiring qualified employees, Booz-Allen found that the Library potentially loses highly qualified candidates to other jobs, employees lack trust in the system, the Library pays the additional costs of contractors and internal staff time, and the Library is not able to handle changes to recruitment and selection requirements. Mr. Chairman, this concludes our statement. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | GAO discussed: (1) patent examination issues at the Department of Commerce's Patent and Trademark Office (PTO); and (2) examined the fees that PTO and the Library of Congress's Copyright Office charge for their services. GAO noted that: (1) PTO patent pendency statistics do not provide inventors and decisionmakers with enough information; (2) reported pendency depend on the computation method used, type of invention, filing date, and the amount of time it takes for applicants to answer additional requests for information; (3) calculating pendency using the patent filing date significantly increases pendency; (4) three-fourths of PTO funding and staff were devoted to the patent process in 1995; (5) since 1986, PTO annual obligations have increased from $212 million to $589 million, an average annual increase of 20 percent; and (6) PTO examines patent applications and computes pendency differently from its counterparts in other industrialized countries. GAO also noted that: (1) the Library's fees do not fully recover the cost of copyright registrations; (2) the Library could generate additional revenue by increasing the copyright registration fee; (3) the Library's hiring process has been adversely affected by a settlement that requires it to revise its competitive selection process; and (4) the Library's actions in response to the settlement have resulted in prospective employees taking other jobs and added additional costs to Library operations. |
The fiscal year 1989 Department of Justice Appropriation Act established the IEFA, which was to be used to reimburse any appropriation for expenses incurred in providing immigration adjudication and naturalization services. In 1990, Congress added a provision allowing the fees for providing adjudication and naturalization services to be set at a level that would ensure recovery of the full costs of providing such services, including the costs of similar services provided to asylum applicants but without a charge to such applicants. To recover the costs of providing services to asylum applicants, INS charges all other immigration and naturalization applicants a surcharge. In subsequent years, according to INS officials, Congress directed that additional services that traditionally had been paid from appropriated accounts were to be paid from the IEFA. For example, in fiscal year 1996, Congress directed that the costs of the Cuban-Haitian Entrant Program from the Community Relations Service Appropriation be borne by the IEFA. INS officials said that this transfer required the IEFA to absorb $10 million in unreimbursed services. Similarly, in fiscal year 1997, Congress required that approximately $57 million in costs for asylum applications and INS’ automated application processing system, which had been funded by the Violent Crime Reduction Trust Fund, be paid from the IEFA. INS collects fees and processes applications at 4 regional service centers and 33 district offices. At the time of its fee study, INS processed almost all applications that required an applicant interview (e.g., naturalization) at its district offices. Generally, applications not requiring an interview are processed at its service centers. According to INS budget officials, in fiscal year 1997, INS collected and deposited about $624 million in application fees into the IEFA. The IEFA comprises approximately 16 percent of INS’ estimated total fiscal year 1998 budget of about $3.8 billion. OMB Circular A-25, “User Fees,” establishes federal policy regarding fees assessed for government services and provides information on the scope and types of activities that are subject to user fees. Circular A-25 states that, as a general policy, a user charge will be assessed against each identifiable recipient for special benefits derived from federal activities beyond those received by the general public. The circular requires that the imposed charge should, whenever possible, recover the full cost to the government for providing the special benefit, or in limited circumstances, its market price. Full cost is defined in the circular as all direct and indirect costs to any part of the federal government. Moreover, the circular states that “ . . . full cost shall be determined or estimated from the best available records of the agency, and new cost accounting systems need not be established solely for this purpose.” Agencies imposing user fees are responsible for reviewing the charges every 2 years in part to ensure that existing charges are adjusted to reflect unanticipated changes to costs. The Federal Accounting Standards Advisory Board, which was established by the Department of the Treasury, OMB, and the Comptroller General, recommends accounting standards for the federal government, including standards on how to determine the costs of government services. Once the Director of OMB, the Secretary of the Treasury, and the Comptroller General approve Federal Accounting Standards Advisory Board recommendations, they are issued by the General Accounting Office and by OMB as Statements of Federal Financial Accounting Standards (SFFAS). SFFAS No. 4, which was issued in final in July 1995, sets forth managerial cost accounting concepts and standards to be followed in the federal government. In addressing the selection of a costing methodology, SFFAS No. 4 notes that its standard does not require the use of a particular type of costing system or costing methodology. Instead, SFFAS No. 4 notes that agency and program managements are in the best position to select the type of costing system that would meet their needs. However, the standard requires that whatever system is adopted should be appropriate to the agency’s operating environment and should be used consistently. SFFAS No. 4 also notes that several costing methodologies have been successful in the private sector and in some government entities. Among those discussed was activity-based costing (ABC)—the costing methodology selected by INS for its fee study. According to SFFAS No. 4, ABC focuses on the activities of a production cycle, on the basis of the premises that an output requires activities to produce, and activities consume resources. ABC’s major processes are to (1) identify the activities performed to produce outputs, (2) assign or map resources required to carry out the activities, (3) identify the outputs for which the activities are performed, and (4) assign activity costs to the outputs. In 1995, INS established a team to develop and conduct a study to determine what, if any, changes were needed to the IEFA fee schedule. INS had previously revised its user fees in 1994. Starting in the spring of 1996, the fee study team was comprised of INS personnel and contracted technical staff from McNeil Technologies, Inc., and Coopers & Lybrand L.L.P. INS identified which fees should be revised by studying all types of applications with an annual adjudicated volume of 10,000 or more (26 large-volume applications). INS chose large-volume applications so it could perform random sampling to statistically project the study’s results to the universe of similar applications. INS applied the ABC methodology to determine its costs to provide immigration adjudication and naturalization services. On the basis of the fee study, INS concluded that the 26 large-volume application fees needed to be increased to reflect the full processing costs. INS also proposed increases for the types of applications with annual adjudicated volumes below 10,000 (4 small-volume applications). For these four application types, INS determined that the processing activities were similar to certain large-volume applications and, on the basis of these similarities, established the new fees. Using the ABC methodology, INS developed processing models for the large-volume applications to be studied. On the basis of interviews and observations at INS service centers and district offices, the study team identified the activities that made up the application process and diagrammed the flow of applications from receipt through their adjudication process. For example, the study identified six common activities (e.g., receive application/petition, manage records, and respond to inquiry) and two unique activities (i.e., adjudicate application and issue end product). Each activity included a number of identified tasks. For example, the activity referred to as “receive application/petition” would include various tasks, such as get the mail, open the mail, and affix the date stamp. Using the flow diagrams and a statistical sampling plan that it had developed, the study team selected various sites, observed selected employees, and timed how long it took them to accomplish various tasks in the application processing cycle. To arrive at the proposed IEFA fee amounts, INS first calculated the total time needed to process a single application—its cycle time—by adding the resultant cycle times for each of the activities that comprised the processing of that application. INS then multiplied the total cycle time of the single application by the estimated number of applications that were expected to be received. Using this calculation, INS derived the total estimated cycle time to be spent processing a single application type. By adding the total cycle times for each of the 26 large-volume application types, INS determined the total time spent by staff processing all applications. Using the above information, INS then calculated the percentage of total time needed to process each application type to the total processing time for all application types. INS then applied the resultant percentages for each application type against the IEFA budget, which had been adjusted to include certain unfunded items. The application of the percentages to the budget determined the total cost for processing an application by type. By dividing the result by the estimated number of applications to be received, INS determined a unit cost for each application by type. To this amount, INS added a pro rata cost for processing waivers and asylee applications (i.e., applications for which fees are not charged) to develop a fee for each application type. According to Circular A-25, the fees charged are to be reviewed every 2 years and adjusted as costs change or as more precise cost determination processes become available. In August 1998, on the basis of the 1997 fee study, INS published its new fees in the Federal Register. Except for the Application for Naturalization fee, the implementation of which is being delayed until January 15, 1999, the application fees are scheduled to become effective on October 13, 1998. The implementation of the Application for Naturalization fee is being delayed to permit the full implementation of INS’ plan to address naturalization processing, which the INS Commissioner pledged to improve before implementing a revised fee. To achieve our first objective—examine the extent to which INS’ methodology for computing the proposed fees complied with federal user fee requirements and used generally accepted statistical sampling procedures—we examined whether INS (1) followed legislative requirements and federal guidance in setting application fees and (2) used generally accepted social science techniques for statistical sampling in its fee study. We reviewed applicable legislation governing federal user fees and OMB cost accounting requirements. To help assess INS’ compliance with Circular A-25, we talked to OMB staff responsible for user fee guidance who provided their perspective on INS’ adherence to the circular. We examined the costing methodology that INS used to determine the user fee amounts and how that methodology was applied. We also examined INS’ sampling plan and how it was implemented to select application processing sites and personnel for observation. We compared the sampling plan to sound social science procedures. Such procedures included (1) the identification of a known universe of application processing sites and the use of unbiased sampling procedures to randomly select sites from this universe, (2) full disclosure of study procedures and limitations, and (3) procedures to ensure the statistical validity of the data used and appropriate generalization on the basis of the data gathered and analyzed. Moreover, we interviewed key officials from the INS Office of Budget, Fee Policy and Rate Setting Branch. This branch was responsible for the 1997 IEFA fee study and the proposed revisions to the user fees. In addition, we interviewed key contractor participants on the fee study team from Coopers & Lybrand L.L.P. We also interviewed a consultant from Steeples and Associates who provided statistical analysis. These INS and contractor officials discussed the procedures and the accounting and statistical methodology used to conduct the INS 1997 study and the subsequent statistical analysis of the study’s results. The officials provided us with information and documentation on (1) how INS determined which immigration applications to examine for a rate review, (2) the selection and application of the accounting methodology that was used to determine the revised fees, (3) the sampling procedures that were used to select the locations for the study and the personnel to observe processing applications, and (4) the methodology and procedures used to aggregate and formulate the final proposed fee schedule. In addition, we analyzed the IEFA fee study report. This report lays out the basis for the increases to the revised IEFA fees and describes the accounting and statistical methodology used by INS to determine the fee schedule adjustments. We also analyzed the key policy guidance followed by INS to determine these new fees. The guidance analyzed included (1) Circular A-25, Revised, which provides information on the types of activities that are subject to user fees and the basis for setting these fees; (2) SFFAS No. 4, which sets forth managerial cost accounting concepts and standards for the federal government; (3) Department of Justice guidance on user fee programs; and (4) INS guidance on user fee programs. Regarding our second objective—determine whether INS will reassess service costs for changes it plans to make to the citizenship process—we interviewed officials from INS’ Office of Naturalization Operations and Coopers & Lybrand L.L.P. The officials provided us with information on the basis for redesigning the naturalization process, the status of their reengineering efforts, and the projected benefits to be accrued from this effort. We then contacted key Fee Policy and Rate Setting Branch members to determine whether they planned to incorporate the costs of the newly developed naturalization processing revisions into the Immigration Examinations Fee Schedule and what the projected impact revisions would have on these fees. We also obtained and reviewed key studies dealing with this topic, including A Blueprint for the New Naturalization Process (Summary Report) issued by INS in conjunction with Coopers & Lybrand L.L.P. on September 30, 1997. To provide information addressing these issues before the user fee revisions are implemented, we did not determine the validity of (1) the data INS collected and used to compute the new fees and (2) the databases INS used for budget and application processing projections. We did our work from June 1998 through August 1998 in Washington, D.C., in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Attorney General or her designees. Responsible INS officials provided oral comments at a meeting on September 9, 1998. These comments are discussed near the end of this report. On the basis of its study, INS is revising the fees for 30 types of applications for immigration and naturalization services. On the basis of our discussions with OMB staff and our review of INS’ efforts to identify the costs associated with processing applications, we believe that INS complied, to the extent it was able, with OMB user fee guidance. In the determination of appropriate user fees, Circular A-25 requires that the user fees imposed should recover, whenever possible, the full cost to the government for providing an identifiable recipient with special benefits beyond those received by the public. To identify its full cost of providing naturalization services, INS used the ABC methodology. SFFAS No. 4 recognizes ABC as one of a number of appropriate costing methodologies used in cost accounting and cost studies. However, according to its 1997 fee study report, INS was unable to determine the full costs it incurs for processing applications because (1) INS’ financial management information system cannot provide actual cost data, including such items as depreciation and support service costs from other INS functions, and (2) INS excluded certain costs items, such as unfunded pension liability and postretirement life insurance and health benefits costs, because explicit guidance on how to treat them had not been promulgated. According to INS officials, its financial management information system does not provide actual cost data. According to them, the best data source INS had available for its analysis was the President’s Fiscal Year 1998 Budget for the IEFA. To recognize certain costs that were not covered in the estimated IEFA portion of the budget, INS adjusted that amount by adding to it estimates of certain unfunded costs, including unused annual leave carryover, contingent liabilities, and bad debt expenses. However, INS was not able to calculate other cost items typically included in determining full costs. These cost items included unfunded pension liability and postretirement life insurance and health benefits costs; depreciation expenses; support service costs from other INS functions (e.g., supply costs, utilities, insurance, travel, and rents); and some inter-entity costs, which did not include reimbursable agreements (e.g., services provided to INS by other government agencies, i.e., the Department of State). INS’ fee study recognizes that these costs were not included and attributes their omission to such factors as the lack of an adequate financial management information system, time and cost constraints to develop certain information, or the lack of Office of Personnel Management and OMB guidance on how certain costs are to be incorporated into the fees. Had INS been able to calculate these amounts and include them in its fee calculations, the unfunded pension liability and postretirement life insurance and health benefits costs, depreciation expenses, support service costs, and inter-entity costs could have increased the fees. INS officials indicated that future user fee studies would address these items but that INS was awaiting guidance from the Office of Personnel Management. An OMB staff person who was responsible for reviewing INS’ study said that INS complied, to the extent it was able, with user fee setting guidance. Furthermore, he said that OMB’s goal is for agencies to achieve complete compliance with the full cost requirement. He also noted that Circular A-25 does not require agencies to include in their fee calculations costs that their financial information management systems do not capture. Subsequent to INS’ fee study, OMB issued a memorandum to federal agencies’ chief financial officers and inspectors general addressing the need to determine inter-entity costs for purposes related to SFFAS No. 4 and provided interim guidance on incorporating inter-entity costs into their financial statements. According to the memorandum, OMB believes that significant progress toward the full cost accounting standard can be made by recognizing several major categories of costs that are paid by one agency but reported by another agency. Among those costs that OMB is asking agencies to recognize are costs funded by the Office of Personnel Management, such as employees’ pension, health and life insurance, and other benefits for retired employees. For information needed to calculate these items, OMB directs agencies, where applicable, to consult with the Office of Personnel Management. Moreover, OMB asks agencies not to recognize any other inter-entity costs until OMB can provide further guidance. While OMB staff stated that the purpose of the memorandum was to provide guidance for developing full cost information for financial statement reporting purposes, we believe this cost information could be used by INS in developing full cost data that would be helpful in calculating appropriate user fees in accordance with Circular A-25. To collect data on the amount of time it took INS to process applications (application cycle time), INS’ study team developed a statistical sampling plan that was based on scientific probability sampling. The cycle times provided the means of assigning activity costs to each application using the ABC methodology. Applications to be timed were to have had a “known chance” of being selected into the sample. First, sites were to be randomly chosen. Second, employees in each site who processed applications were to be randomly selected and timed while completing certain activities. INS intended for the study results to be generalized to all INS application processing sites nationwide. However, several judgmental changes made to (1) INS’ initial sample of randomly selected sites and (2) the procedures used to select employees to be observed during the study’s implementation adversely affected INS’ ability to project the study’s results to all processing sites. The methodology INS used to select application processing sites included both random selections and nonrandom judgmental selections. While INS provided operational reasons for including the judgmental selections, their inclusion undermined the scientific basis for making statistical inferences about all INS processing sites. Thus, INS’ projection of its study results to INS offices as a whole and its claim that these results are representative is not appropriate. To select the sample of sites, INS grouped sites into strata that were based on the annual number of applications the sites processed. INS divided district offices into small, medium, and large office strata and then randomly selected seven sites from the three strata. INS selected Miami, FL, and Los Angeles, CA, to represent large offices; Honolulu, HI, Phoenix, AZ, and San Antonio, TX, to represent medium offices; and Kansas City, MO, and Omaha, NE, to represent small offices. INS grouped service centers into a separate stratum and judgmentally selected the Nebraska Service Center. After the initial random selection of district office sites, INS made several adjustments to the sample. INS judged that offices in the Eastern Region were underrepresented. To compensate for this situation, INS randomly selected the Boston District Office from a pool of district offices in the northeast and added it to the large district office selections. In addition, it removed the Honolulu District Office from the sample, because of the high costs of travel to Hawaii, and randomly selected the Philadelphia District Office from the remaining offices in the medium district office stratum to replace Honolulu. Moreover, INS added the Baltimore District Office to the sample because the district office was piloting an automated application processing system that it plans to roll out over time to other offices. INS wanted to determine how this system would affect the processing of applications. During the study, INS for various reasons made additional sampling adjustments, some of which affected the randomness of the sample. For example, (1) sample sizes of timings at specific sites were increased to better ensure that the total number of timings needed could be obtained; (2) a visit to the Toronto, Ontario (Canada) preinspection site (judgmental selection) was added to observe the processing of an application that was not processed at any other INS site; and (3) the Buffalo (NY) District Office was judgmentally added to gather timings of applications for which too few had been obtained at other sites. Although the above changes may appear to be reasonable, some adversely affected the projectability of the study’s results to all sites. The methodology to select employees within service centers and district offices also used both random and nonrandom samplings. The plan to sample employees for observation and applications for timing was based on selecting employees randomly by using a random numbers table and establishing a specific quota of timings needed at each selected office. However, judgmental changes that INS made during study implementation about how employees would be selected for observation were not appropriate for making statistical inferences about the time employees take to process applications. Therefore, the nationwide projections about the processing of the types of applications studied could be affected by these nonrandom selection procedures. In general, INS decided to observe the minimum number of employees necessary to obtain the specified quota of timings for each site; therefore, when the quota was obtained, data collection stopped, regardless of the number of timings obtained from different employees. Additionally, to obtain the quotas in the shortest time possible, team members were instructed to observe, whenever possible, other employees who processed the same type of applications and who sat in proximity to the selected employee and to time their activities as well. Therefore, employees who worked next to each other could have had higher probabilities of having timings recorded than employees who worked alone. For several reasons, INS is unable to determine the precision of the study’s estimated times for processing the various applications. Using a nonprobability sample has two important implications. First, it is not clear to what universe of INS application processing sites INS’ observations can be generalized. For example, Hawaii was excluded from the initially drawn sample due to travel costs. It is not clear whether INS would have excluded other offices, such as Anchorage, AK, or San Juan, PR, due to high travel costs had they been selected. To have precluded this problem, INS should have specified before its initial selections which offices were eligible for data collection and which were not. INS then should have specified that its projections only referred to eligible offices. Second, even if INS had defined a universe of sites, its timings of employee activities cannot be adjusted to adequately represent all employees who process applications, because of the judgmental changes made in the way employees were selected for observation. Additionally, the data collection database did not provide sufficient information about the observations or the sample design to enable calculation of sampling errors or to evaluate the accuracy of the fees. For example, observations cannot be distinguished by individual employees in the database, nor can the times for specific work tasks be separated. In part, according to INS, this was due to the nature of its work and the way some activities are performed at various offices, such as sorting mail and batching applications of the same type. We are not able to evaluate the precision of the estimates of the amount of time needed to complete the application forms, nor the fees upon which these are based. Had INS repeated the surveys under essentially the same conditions, we do not know whether the resultant fees would have been similar or different from the ones derived from this study. To increase its productivity while ensuring the fairness and integrity of the naturalization process, INS has begun implementing changes to the process. INS determined the need for a reengineered naturalization process because of (1) integrity problems relating to the fingerprinting of alien applicants, (2) continued customer service problems, and (3) a projected increase of new applications in 1998. To address these issues, in March 1997, Justice awarded a 2-year contract to Coopers & Lybrand L.L.P. to develop a plan to reengineer the naturalization process and, according to a Coopers & Lybrand L.L.P. official, to assist with the new process’ implementation and evaluate the new process once it has been implemented. On September 30, 1997, INS and Coopers & Lybrand L.L.P. issued the summary report outlining the concept for a new naturalization process. Partly on the basis of the Coopers & Lybrand L.L.P. study, INS is now in the process of implementing a number of improvements to the immigration naturalization process. According to INS officials, the majority of the improvements that are being implemented are to be paid from the IEFA. The officials said that both the costs and resulting efficiencies derived from the new processes will be reflected in future revisions to the user fees generated by the next and succeeding biennial IEFA user fee studies. According to INS, its specific goals for the new naturalization process are to establish a framework that will allow INS to (1) make the correct eligibility decisions regarding who is qualified to become a naturalized citizen, (2) make decisions in reasonable time frames, (3) conduct the naturalization process consistently, (4) design a cost-effective naturalization process, and (5) improve customer satisfaction. To achieve these goals, INS has completed some changes and is in the process of implementing several others to the naturalization process. Some of the important changes include the following: Through many sources, such as INS’ forms centers, community-based organizations, and the Internet, INS plans to distribute naturalization packets containing information that explains naturalization eligibility requirements and how the process works. INS believes this information will help reduce application processing times and the current backlog of applications by (1) improving qualified aliens’ compliance with INS documentation requirements and (2) reducing unqualified aliens’ submissions of naturalization applications. As of April 15, 1998, INS completed its implementation of a nationwide direct-mail system that routes all naturalization applications directly to INS service centers, rather than through INS’ district offices. INS expects this system to expedite processing times because (1) the service centers are centralized and better equipped to handle upfront receipt and processing of applications than district offices and (2) district offices will be able to focus their efforts on alien interviews and case completion responsibilities. Because of integrity concerns about fingerprints that aliens submitted to INS with their applications, Congress mandated that INS be responsible for taking naturalization applicants’ fingerprints. According to INS, it is now overseeing alien fingerprinting, which is now done by a contractor located in INS facilities. The new naturalization process is being substantially paid from the IEFA, which, in turn, is funded through the collection of user fees. According to INS officials, costs resulting from the reengineered naturalization process will be reflected in INS’ budget. Moreover, changes in application processing at the service centers and district offices are to be captured in the ABC methodology when INS makes its biennial fee evaluation. INS officials stated that they plan to initiate a new study of its user fees in early fiscal year 1999. INS officials told us that because the revised fees were calculated before any reengineering changes were made, those changes are not reflected in the fees. Furthermore, INS officials told us that they do not know whether full implementation of the reengineered naturalization process will increase or decrease the component fees in the immigration examination fee schedule. For example, the cost of processing applications could increase due to the cost of purchasing new computers and telecommunications equipment, but this cost may be offset by a reduction in personnel costs or, if application processing times improve, once the present application backlog is reduced. INS officials believe that some of its changes will help to reduce the existing application backlog while other changes will systemically improve the naturalization process in the long term. On the basis of our discussions with OMB staff and our review of INS’ efforts to identify the costs associated with processing applications, we believe that INS complied, to the extent it was able, with available OMB user fee guidance that requires agencies to recover the full costs of providing services. However, according to its 1997 fee study, INS was unable to determine its full costs for processing applications because (1) INS’ financial management information system does not provide actual cost data, including such items as depreciation and support service costs from other INS functions, and (2) INS excluded certain cost items, such as unfunded pension liability and postretirement life insurance and health benefits costs, because it lacked guidance on how to treat them. Circular A-25 does not require agencies to include in their fee calculations costs that their financial information management systems do not capture. Had INS been able to determine these costs and included them in its fee computation, the revised fees could have been set at a higher level. INS’ initial plan for sampling the processing of applications at regional service centers and selected district offices and by selected processing personnel to determine how long it took to process various applications incorporated generally accepted statistical sampling procedures. However, some of the changes INS made for operational reasons to its planned statistical sample during implementation undermined scientific sampling principles and adversely affected INS’ ability to project the study’s results to all application processing sites. We are unable, however, to determine the impact of these changes on the revised user fees. INS is reengineering the way it processes naturalization applications. Changes to the naturalization process are intended to improve the integrity of the process and make it more efficient and customer oriented. Some changes have already taken place while others are slated to take place in the future. Since these changes took place after INS’ fee study, the fee revisions do not recognize these changes, and INS does not know what affect these changes will have on the user fee schedule. INS officials said INS is planning to initiate the next IEFA user fee review early in fiscal year 1999. The costing methodology that INS plans to use in this study—ABC—should capture whatever reengineering or other process changes that have taken place at the time of the study. To improve confidence in the sampling methodologies used to determine future immigration and naturalization fees, we recommend that the Commissioner of INS ensure that future samples are consistent with generally accepted social science techniques and that the statistical integrity of the sampling plans are maintained throughout the study. To obtain comments on a draft of this report, we met on September 9, 1998, with officials representing INS from the Offices of Budget, Naturalization Operations, General Counsel, Congressional Affairs, Adjudications, Internal Audit, and Public Affairs. Overall, the officials agreed that the draft report was accurate and fair. They also provided technical comments, which have been incorporated in this report where appropriate. As arranged with your office, we plan no further distribution of this report until 30 days after the date of its publication, unless you release the report or its contents before that time. After 30 days, we will send copies of this report to the Chairmen and Ranking Minority Members of congressional committees with jurisdiction over INS, the Attorney General, the Commissioner of the Immigration and Naturalization Service, and other interested parties. Please contact me at (202) 512-8777 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix II. The following tables show the immigration and naturalization application fees that are currently being charged, the revised fees, and fiscal year 1995 annual volume for the various applications. Application to Replace Alien Resistration Card Application to Replace Nonimmigrant Document Petition for Nonimmigrant Worker Petition to Classify Nonimmigrant as Temporary Worker/Trainee Petition to Employ Intracompany Petition for Alien Fiance(e) Petition to Classify Status of Alien Relative for Immigration Visa Immigrant Petition for Foreign Worker Application to Extend Status - Change Nonimmigrant Status Petition to Classify Orphan as Immediate Relative Application for Advance Processing of Orphan Petition Application to Remove on Residence Application for Voluntary Departure Under Family Unity Program Filing for Action on Approved Application or Petition Application to Replace Naturalization Citizenship Certificate Application for Certificate of Citizenship (Table notes on next page) For these forms, INS did not have volume data by application. The volume data provided represent the total volume for all forms in each group. To achieve a total volume larger than 10,000, INS combined the volumes of Forms I-600 and I-600A because the processing of these forms was determined through discussions with field office personnel to be similar. Jan B. Montgomery, Assistant General Counsel The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO reviewed the Immigration and Naturalization Service's (INS) fee increase proposal, focusing on: (1) the extent to which INS' methodology for computing the proposed application fees complied with federal user fee requirements and used generally accepted statistical sampling procedures; and (2) whether INS recognized implemented and proposed changes to the naturalization process in its application fees. GAO noted that: (1) on the basis of its user fee study, INS revised the fees it charges for 30 types of immigration and naturalization applications; (2) GAO believes, on the basis of its discussions with Office of Management and Budget (OMB) staff and its review of INS' efforts to identify the costs associated with processing applications, that INS complied, to the extent it was able, with OMB user fee guidance; (3) OMB guidance requires agencies to recover, whenever possible, the full cost of providing their services; (4) however, according to its 1997 fee study report, INS was unable to determine its full cost for processing applications because: (a) INS' financial management information system does not provide actual cost data, including items such as depreciation and support service costs from other INS functions; and (b) INS excluded certain cost items because INS said it lacked guidance on how to treat them; (5) had INS been able to determine these costs and include them in its fee computation, the revised fees could have been set at a higher level; (6) INS' initial plan for sampling the processing of applications at regional service centers and selected district offices and by selected personnel to determine how long it took to process various applications incorporated generally accepted statistical sampling procedures; (7) however, some of the changes INS made for operational reasons to its planned statistical sample during implementation undermined scientific sampling principles and adversely affected INS' ability to project the study's results to all application processing sites; (8) GAO is unable to determine the impact of these changes on the revised user fees; (9) INS is reengineering the way it processes naturalization applications; (10) changes to the naturalization process are intended to improve the integrity of the process and make it more efficient and customer oriented; (11) since these changes took place after INS' fee study, the fee revisions do not recognize these changes; and (12) INS officials said INS is planning to initiate the next Immigration Examination Fee Account user fee review early in fiscal year 1999 and, at that time, the study will recognize any naturalization process or other process changes that have taken place. |
PPACA required the establishment of individual health insurance exchanges, as well as small business exchanges, within each state by 2014. PPACA does not require issuers to offer plans through these exchanges, but instead generally relies on market incentives to encourage issuer participation. Issuers seeking to offer a health plan in an individual exchange or small business exchange must first have that plan approved by the exchange in the state. We previously reported that most of the largest issuers holding the majority of the market in the 2012 individual and small-group markets participated in the 2014 exchanges, although most of the numerous smaller issuers in those markets did not. In addition, some issuers that participated in the 2014 individual or small business exchanges had not participated in that respective market in 2012. While some of these issuers had previously provided coverage in other markets in 2012, other issuers were newly established through the federally supported Consumer Oriented and Operated Plans (CO-OP) program. As I mentioned above, PPACA also changed, as of 2014, how insurers determine health insurance premiums and how consumers shop for health insurance plans. As part of this, PPACA required that health plans be marketed based on information that helps consumers compare the relative value of each plan. Specifically, plans must be marketed by specific categories—including four “metal” tiers of coverage (bronze, silver, gold, and platinum)—that reflect out-of-pocket costs that may be incurred by an enrollee. These changes occurred at the same time that PPACA required the establishment of health insurance exchanges for each state, through which consumers could compare and select from among QHPs. Finally, beginning January 1, 2014, premium tax credits and cost-sharing subsidies became available under PPACA for qualified individuals who purchased QHPs sold through an exchange. In 2016, we examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in each year, markets were concentrated among a small number of issuers in most states. On average, in each state, 11 or more issuers participated in each of three types of markets—individual, small group, and large group—from 2011 through 2014. However, in most states, the 3 largest issuers in each market had at least an 80 percent share of the market during the period. (See fig. 1.) Not all issuers in the individual and small group markets participated in the exchanges in 2014, and several exchanges had fewer than 3 participating issuers. Enrollment through the exchanges was generally more concentrated among a few issuers than was true for the individual and small group markets overall in 2014. For our examination of issuer participation in the first year of the exchanges, we reported that fewer issuers participated in most state health insurance markets in 2014 compared to 2013, though exiting issuers generally had small market shares in that prior year. Specifically, we found that from 2013 to 2014, the number of issuers participating in individual markets decreased in 46 states, while fewer states’ small-group and large-group markets had decreased participation (28 and 22 states, respectively). (See fig. 2.) However, across the three types of markets, those issuers exiting each state market before 2014 generally had less than 1 percent of the market in the prior year. There were also issuers that newly entered state markets in 2014. Their market shares in 2014 varied across the three types of markets, with some newly entering issuers in the individual market capturing a market share of over 10 percent. Most newly entering issuers in 2014 participated in the exchanges and they generally had a larger share of the enrollment sold through the exchanges than through the overall markets. In addition, some newly entering issuers captured a majority of their exchange market, with CO-OPs having a higher proportion. Since 2014, there have been additional changes to the number of issuers entering and exiting the individual and small group markets. For example, most of the CO-OPs that offered coverage in the exchanges in 2014 have since discontinued offering coverage. In addition, in an analysis of data from exchanges in states that used the FFE and state-based exchanges, where available, HHS has since reported that the number of issuers offering health plans through the exchanges decreased from 2016 to 2017, reflecting multi-state withdrawals by a few large insurers. In 2015, we reported that individual market consumers generally had access to more health plans in 2015—a year after the initial implementation of key PPACA provisions—than in 2014. Consumers in most of the counties analyzed in the 28 states for which we had sufficiently reliable data for plans offered either on or off an exchange had six or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold) in both 2014 and 2015. The percentage of counties with six or more plans in those metal tiers increased from 2014 to 2015. Specifically, in 2014, six or more bronze-, silver-, and gold-tier plans were available to consumers in the individual market (either on or off an exchange) in at least 95 percent of the 1,886 counties and were available on an exchange in at least 59 percent of the 2,613 of the counties for which we had sufficiently reliable data for plans offered on an exchange. In 2015, the percentage of these same counties with six or more bronze-, silver-, and gold-tier plans available in the individual market increased to 100 percent, and at least 71 percent had six or more of these plans available on an exchange. (See table 1.) In our 2015 report, we also found that premiums varied among states and counties, the lowest cost plans were typically available on an exchange, and in most states premiums increased from 2014 to 2015. Specifically, we found that: The range of premiums available to consumers in 2014 and 2015 varied among the states and counties we analyzed. For example, in Arizona, the premium for the lowest-cost silver plan option for a 30- year-old in 2015 was $147 per month, but in Maine, the lowest-cost silver plan for a 30-year-old in 2015 was $237. We also found that the range of premiums—from the lowest to highest cost—differed considerably by state. For example, in Rhode Island, 2015 premiums for silver plans available to a 30-year-old either on or off an exchange ranged from a low of $217 per month to a high of $285 per month, a difference of 32 percent. By contrast, in Arizona, 2015 premiums for these plans ranged from a low of $147 per month to a high of $545 per month, a difference of 270 percent. The lowest cost plans were typically available on an exchange. Specifically, in both years, taking into account plans available through an exchange and those only available off an exchange, the lowest cost plans were available through an exchange in most of the 1,886 counties we analyzed in the 28 states. In most states, the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. For example, in the 28 states included in our analysis, from 2014 to 2015 the minimum premiums for silver plans available to a 30-year-old increased in 18 states, decreased in 9 states, and remained unchanged in 1 state. At the county level, we found that premiums for the lowest cost silver option available for a 30-year-old increased by 5 percent or more in 51 percent of the counties in the 28 states. While our 2015 report examining the numbers of health plans and ranges of health plan premiums available to individuals in 2014 and 2015 was our most recent examination of these two issues, HHS has examined more recent data. For example, in 2016, HHS reported that despite a decline in the number of issuers participating in the FFE from 2016 to 2017, all consumers were able to choose among various plan options for 2017, although the options for about 21 percent of consumers were among choices of plans offered by a single insurer. HHS also conducted analyses focused on the premiums for the second-lowest cost silver plan in states that used the FFE and estimated that average premiums for these plans increased more between 2016 and 2017 (25 percent) than in previous years (2 percent between 2014 and 2015, and 7 percent between 2015 and 2016). In 2016, we reported that most enrollees who obtained their coverage through the health insurance exchanges were satisfied overall with their QHP during the first few years that exchanges operated, according to national surveys of QHP enrollees. For example, most QHP enrollees who obtained their coverage through the exchanges reported overall satisfaction with their plans in 2014 through 2016, according to three national surveys that asked this question. One survey found that most 2015 enrollees re-enrolled in 2016 with the same insurer, and often with the same plan offered by that insurer, and another survey reported that most re-enrollees expressed satisfaction with their QHP. The surveys reported that QHP enrollees' satisfaction with their plans was either somewhat lower than, or was similar to, that of those enrolled in employer-sponsored health insurance in 2015 and 2016. To varying degrees, QHP enrollees expressed satisfaction with specific aspects of their plan, including their coverage and choice of providers, and with plan affordability. We also interviewed stakeholders—including experts, state departments of insurance, and others—and reviewed literature for our 2016 report. These interviews and the literature revealed some concerns about QHP enrollee experiences that were similar to longstanding concerns in the private health insurance market. For example, according to these experts, some enrollees found it too expensive to pay for their out-of-pocket expenses before reaching their deductibles and have reported concerns about affording care or have been deterred from seeking care. Some enrollees have also faced difficulties understanding their QHP's coverage terminology and others have faced problems accessing care after enrollment, according to stakeholders and literature we reviewed. Chairman Jordan, Ranking Member Krishnamoorthi, and Members of the Subcommittee, this concludes my statement. I look forward to answering any questions that you may have. For questions about this statement, please contact John E. Dicken at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include John E. Dicken, Director; Gerardine Brennan and William Hadley, Assistant Directors; and Kristen J. Anderson, LaKendra Beard, Sandra George, and Laurie Pachter. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | PPACA contained provisions, many of which took effect in 2014, that could affect how issuers determine health insurance coverage and premiums and how they market their plans. For example, PPACA prohibits issuers from denying coverage or varying premiums based on consumer health status or gender. PPACA also requires health plans to generally be marketed based on metal tiers (bronze, silver, gold, and platinum), which allows consumers to compare the relative value of each plan. It also required the establishment of health insurance exchanges in each state, through which consumers can compare and select from among participating health plans. This testimony describes (1) private health-insurance market concentration and issuer participation from 2011 through 2014, the year by which key PPACA provisions took effect, (2) health plans and premiums available to individuals in 2014 and 2015, and (3) the experience of enrollees that obtained coverage through the exchanges from 2014 through 2016. It is based on three GAO reports issued in 2015 and 2016. For these reports, GAO examined data from the Centers for Medicare & Medicaid Services (CMS); reviewed published research; and interviewed stakeholders, including experts and officials from CMS and five states—Colorado, Indiana, Montana, North Carolina, and Vermont—that varied in geography and whether the state or CMS offered the exchange. GAO issued three reports in 2015 and 2016 on the early impact of the Patient Protection and Affordable Care Act (PPACA) on private health insurance markets. Market Concentration In a 2016 report, GAO examined enrollment in private health-insurance plans in the years leading up to and through 2014, the first year of the exchanges established by PPACA, and found that in all years analyzed, markets were concentrated among a small number of issuers in most states. Beginning in 2014, enrollment in PPACA exchange plans was generally more concentrated among a few issuers than was true for the overall markets. Plan Availability and Premiums In a 2015 report, GAO examined the availability of health plans for individual market consumers and found that they generally had access to more health plans in 2015 than in 2014. In both years, most consumers in 28 states for which GAO had sufficiently reliable data had 6 or more plans from which to choose in three of the four health plan metal tiers (bronze, silver, and gold). The range of premiums available to consumers varied considerably by state, and in most states the costs for the minimum and median premiums for silver plans increased from 2014 to 2015. In both years, the lowest cost plans were typically available on an exchange. More recent analyses by the Department of Health and Human Services found that in 2017 all consumers continued to have multiple plan options, and that premiums for exchange plans increased more in 2017 compared to the annual increases for these plans since 2014. Enrollee Experiences In a 2016 report, GAO examined national survey data to examine satisfaction of exchange enrollees. GAO found that, from 2014 through 2016, most enrollees who obtained their coverage through an exchange reported being satisfied overall with their plans. In 2015 and 2016, the satisfaction that exchange enrollees reported with their plans was either somewhat lower than or similar to that of enrollees in employer-sponsored plans. Exchange enrollees reported varying degrees of satisfaction with specific aspects of their plans, including coverage and plan affordability. Stakeholders GAO interviewed and literature GAO reviewed revealed some concerns about exchange enrollee experiences that were generally consistent with longstanding concerns in the private health insurance market—including concerns about affordability of out-of-pocket expenses and difficulties understanding coverage terminology. |
According to the U.S. Census, 4.5 million people, or 2 percent of the total U.S. population, reported that they were at least part Indian in 2007. During the 2000 Census, about 36 percent of Indians lived on reservations. The largest federal Indian reservation covers roughly 15 million acres and the smallest reservation covers slightly more than 0.9 of an acre. Indian tribes are sovereign governments that generally are exempt from federal income taxation, but individual Indians are not exempt from income taxes. Indians are among the most economically distressed groups in the United States. The Census estimated in 2006 that 32 percent of American Indians and Alaska Natives were unemployed. The Census also reported that the median household income of American Indians and Alaska Natives was $33,762, nearly $15,000 less than the median of all households in the United States, and had the highest poverty rate of all Census ethnic categories at 26.6 percent. The federal government has more than 100 programs that can assist Indians. Indian tribes also have used various strategies to stimulate economic development on reservations, but our previous work has shown that the prospects for economic growth may be limited. Tribes own enterprises on reservations in a number of sectors, including gaming, tourism, manufacturing, natural resources, and agriculture, and some tribes may encourage private companies owned by nonmembers to locate on their reservations. Still, many tribes lack some of the factors, including accessibility to population centers and adequate physical infrastructure, shown to be important for economic growth. Reservations located in rural or remote locations have limited access to markets and may lack physical infrastructure, such as roads, electricity, water, and suitable land for building, making it difficult for many businesses to operate. In 1993, Congress passed legislation enacting IRD, which acts as an incentive for investing on Indian reservations. Depreciation is an annual deduction from income that allows taxpayers to recover the cost or other basis of certain property used in a business or other income-producing activity over the useful life of the property. The deduction is calculated on IRS Form 4562. According to IRS, MACRS is used to recover the basis of most property placed in service after 1986. The General Depreciation System (GDS) is one of the recovery systems permitted by MACRS. GDS allows taxpayers to depreciate their property using specified amounts of time—called recovery periods—which differ in length according to the category—called a property class—that the property belongs. For example, tractors and race horses are categorized as 3-year property. Under IRD, taxpayers use shorter recovery periods than are otherwise permitted under GDS. Table 1 shows the GDS schedule for property class recovery periods and the corresponding IRD schedule. Table 2 shows an example of the effects that IRD has on taxpayers’ depreciation deduction. According to the rules, the same method and convention should be used when calculating the deduction for IRD and GDS. To compare the difference in deduction between IRD and GDS most simply, the example uses the straight line method and the half-year convention to depreciate a property with a basis of $30,000 and falls in the 3-year property class. Under the rules for straight line depreciation, taxpayers deduct the same amount in each year except for the year in which the property was placed in service and the final year it was depreciated. With the half-year convention, the portion of the year during which the property is to be depreciated determines the amount deducted. With the half-year convention, as shown in table 2, one-half of the amount invested (called the basis) divided by the recovery period is deducted in the first and final years. IRD provides an incentive by permitting taxpayers to deduct a greater proportion of the cost of the property earlier within the property’s depreciable life. This deduction can reduce taxpayers’ tax liability, if any. Reducing tax liability earlier acts as an incentive because of the time value of money—having a lower tax payment today is worth more to the taxpayer than having the lower payment in the future. IRD was designed to reduce the after-tax cost of capital by exploiting this timing difference in deductions and thereby make more funds available to the taxpayer for additional investment on Indian reservations. To qualify for IRD, property must be used predominately in the conduct of an active trade or business on an Indian reservation. Some property, however, does not qualify for IRD even if it is located or used on a reservation, such as residential rental property, 25-year property, property acquired from a related person, and property placed in service for conducting or housing certain gaming facilities. An additional first-year bonus depreciation deduction was allowed for certain property—including MACRS property and any applicable IRD property—placed in service after September 10, 2001, and before January 1, 2005. The bonus depreciation deduction was available for property being depreciated using the IRD and GDS systems. For property acquired after September 10, 2001, and before May 6, 2003, and placed in service before January 1, 2005, a 30 percent rate applied. For property acquired after May 5, 2003, and placed in service before January 1, 2005, a 50 percent rate applied. Essentially, bonus depreciation allowed taxpayers a greater deduction in the first year in which property was placed in service. For example, under 50 percent bonus depreciation in 2004, the initial basis of a $50,000 property would have been reduced to $25,000, which the taxpayer then would have continued to depreciate under IRS’s guidelines for GDS or IRD. In 2005, we reported that information on tax expenditures, such as IRD, was needed to evaluate their effectiveness as a means of accomplishing federal objectives and to ensure that they are achieving their intended purpose. A wide variety of data could be useful for determining whether IRD is stimulating economic development on Indian reservations, but three essential pieces of information include which taxpayers claim IRD, how much they invest in IRD properties, and on which reservations they have placed IRD properties. The taxpayers’ identities and investment amounts are needed for several reasons, including for analyses determining whether and how much the IRD incentive is leading taxpayers to change their investment behavior consistent with the provision’s purpose. The IRD tax incentive, like other kinds of accelerated depreciation, could boost economic development, in the first place, by affecting business’ decisions about how much and where to invest. The identity of IRD investors and the amounts they invest could be used to determine whether the tax incentive increases the total amount of taxpayers’ investment or induces IRD investors to shift investment onto reservations from other locations, a shift that would be consistent with IRD’s purpose. The identity of IRD claimants also could be used to determine whether IRD overlaps other programs designed to assist Indians in a way that affects the incentive to invest on Indian reservations. The location of the IRD properties being placed into service is needed to assess whether those investments are affecting the economic development of the specific reservations on which the properties are placed. However, available data cannot be used to identify IRD claimants because of limitations in the manner in which IRS instructs taxpayers to report depreciation and limitations on how IRS compiles tax return information. Although IRD properties have unique recovery periods compared to other depreciation recovery periods and Form 4562 does provide space for taxpayers to report the recovery period, depreciation deduction, and basis by property class, this information is insufficient to determine whether the depreciation is IRD in all cases. Figure 1 shows how a taxpayer would report the depreciation of a $30,000, 3-year property to IRS. The taxpayer would report the basis, recovery period, method, convention, and depreciation amount on Part III of the form. The currently required information on Form 4562 is insufficient to identify accurately all claimants of IRD or the amounts they invest in IRD property in part because taxpayers are allowed to group properties on Form 4562. Form 4562 on line 18 permits taxpayers to combine properties in the same property class. If the properties within any given property class (lines 19a to 19i in figure 1) are both IRD and GDS properties, however, IRD claimants cannot be identified unless taxpayers indicate an IRD recovery period on the form. The instructions provide no guidance for how taxpayers should record recovery IRD periods if they are reporting both IRD and GDS property. IRD users can be identified from Form 4562 when they claim depreciation only for IRD property within any given property class and enter the recovery period correctly on Form 4562. However, even in this case, it is difficult to identify all users because IRS does not transcribe recovery period data from paper-filed Forms 4562 and electronically compile recovery periods into a database. Our data analysis also shows reported depreciation deductions that could be explained by taxpayers grouping IRD with non-IRD property. Given these limitations, we attempted to use the basis and depreciation amounts from Form 4562 (columns c and g in figure 1), which IRS does compile and maintain in its SOI database, to infer the recovery period. However, we found that the amount of depreciation and basis did not uniquely determine which recovery period was used by the taxpayer and thus did not identify all claimants of IRD. The reported depreciation and basis were consistent with both the IRD and the GDS depreciation recovery period for certain property classes when different methods and conventions were used. Accordingly, although we could identify reliably a portion of those who claimed IRD and the amounts they invested, we could not do so for a possibly significant portion of those who claimed IRD. When we reviewed a non-representative sample of corporate SOI returns to verify the reliability of our inference methodology, we also found that taxpayers may not fill out the form correctly. For example, we saw several instances where all other information on the Form 4562 pointed to the taxpayer having used IRD, yet the taxpayer recorded a recovery period on the Form 4562 that was not consistent with IRD. For example, the taxpayer may have indicated that the property had a 3-year recovery period and yet the depreciation amount claimed could have resulted from the taxpayer depreciating the property over the 2-year recovery period allowed by IRD. These taxpayers may have recorded that the property with a 3-year recovery period simply because the name of the property class is “3-year property.” IRS does not collect the other essential information to assess the effectiveness of IRD in promoting economic development on reservations. IRD property location data—that is, which reservation the property has been placed into service—are necessary to evaluate the impact of IRD on economic development on Indian reservations. A common evaluation approach would be to compare development in communities that receive IRD investment to those that do not while controlling for other factors that affect development. However, IRS does not require taxpayers to list where property is placed in service. Not knowing which reservation the investment is occurring means that it is impossible to link the property invested through IRD to indicators of the reservation’s economic performance. It also is impossible to distinguish between the effect on economic growth of IRD investment and other kinds of investment that may occur on reservations, such as the growth of gaming facilities. IRS officials said that IRS did not compile information on the use of IRD or require the location of IRD property to be reported because the information was not needed for processing returns or for compliance purposes. Collecting additional data on IRD also could take resources from other priorities, such as combating tax avoidance schemes. IRS officials said that although redesigning Form 4562 for reporting IRD location information could be done, no system was in place to transcribe, collect, and analyze the information from paper returns, and they said that creating such a system could be costly. IRS officials said that IRS likely would not collect additional Indian reservation depreciation information unless doing so would result in enforcement actions that would be cost efficient. Although IRS may incur costs to acquire the appropriate data, these additional costs would be required to evaluate whether the provision is accomplishing its legislative intent. Obtaining data that identifies IRD claimants and the IRD amounts claimed could be accomplished by requiring taxpayers to self-identify IRD use with a check box on Form 4562 and file separate forms listing IRD property. IRS would need to revise Form 4562 to include the check box, and space appears to be available to do so. Thus the change would not require redesigning forms. Segregating the IRD properties also appears unlikely to impose significant additional costs on taxpayers since they already need to separately identify the properties in their books and records to be able to calculate and claim the correct depreciation amount. IRS officials also said that large corporations often file spreadsheets as attachments to Form 4562 that show their depreciation calculations for individual properties. However, to compile data on the forms that identify IRD claimants, IRS officials told us that significant changes would need to be made in how Form 4562 was processed, such as putting validation checks in place and developing a system to segregate IRD Form 4562s from non-IRD Form 4562s, which would add considerable burden to forms processing. The officials said that the benefit given the cost would be questionable. Obtaining location data for IRD properties likely also would require some change to tax forms. Form 4562 does not have sufficient space to add an address field for each of the properties being depreciated using IRD. IRS managers and officials in submissions processing and media and publications did not provide a specific dollar amount on how much it would cost to make the changes, but IRS managers said a new form would be burdensome and involve substantial changes to the way IRS processes forms, including many of the issues of form redesign already discussed, plus changes to IRS’s system for processing tax forms. Other tax forms require taxpayers to provide information analogous to what is needed to assess the effectiveness of IRD. For example, Schedule E requires those renting properties to list the location of each rental property that they claim and the low income housing tax credit form (Form 8609) also requires taxpayers to list the address of each claimed property. A form also exists for claiming the Indian employment tax credit (Form 8845), which the Joint Committee on Taxation (JCT) estimated had less than $50 million in revenue loss for fiscal year 2008, far less than the $300 million revenue loss estimate on IRD for the same year. An IRS official said that information gathered on forms varies by the program for such reasons as legislative requirements, IRS policy, compliance- enforcement needs, or the scope of the IRD provision’s use. Some economic development programs that we have studied also have more data for monitoring performance than IRD. For example, we were able to analyze the New Markets Tax Credit (NMTC) partly because its overseeing agency, the Community Development Financial Institutions Fund, collected data on NMTC investors and on the location, type and size of the investment. JCT’s most recent tax expenditure estimates for fiscal year 2008 estimated revenue loss for NMTC to be about $900 million, $600 million more than the IRD estimate. In our 2004 report on the Economic Development Administration (EDA) grants to Indian tribes, we were able to analyze the results of grants because we had information on who the recipients were and where the grants were being used from grant applications. The grants to Indian tribes were much smaller than the revenue losses estimated for IRD, totaling about $112 million from 1993 to 2002, or an average of about $11.2 million per year. But IRD is similar to other programs we have studied in lacking adequate data for evaluation of its effectiveness. For example, we said in our 2007 report that the Empowerment Zone (EZ) and Enterprise Communities (EC) program, which provides grants and tax benefits for certain impoverished urban communities, lacks complete data on program tax benefits and the data it has cannot be linked to individual communities. The JCT revenue loss estimate for fiscal year 2008 for the EZ/EC provisions was $600 million. Although having information on which taxpayers claimed IRD, how much they invested, and where those investments were located would help in assessing whether the IRD is leading to economic development on Indian reservations, gauging the effect of economic development programs is very complex. Often analyses of such programs cannot definitively show how much a program has contributed to economic development. Nevertheless, without these data on taxpayers’ use of IRD no valid assessment can be made on the effect of the IRD provision. The absence of data on IRD users could affect IRS’s ability to determine IRD compliance. To enforce IRD, IRS officials said that IRS uses a computer scoring model and other audit selection programs, such as special projects where auditors focus on identifying and analyzing specific audit issues. The model may be able to identify taxpayers who likely are noncompliant overall in claiming depreciation deductions, but it could not do so for IRD itself, because, as we found, it is impossible to accurately identify each taxpayer who uses IRD with existing data. Also, even if auditors were to detect a pattern of IRD noncompliance, a special compliance project would have difficulty targeting returns with IRD for review because taxpayers do not directly report its use on their tax returns. IRS officials also told us that despite the limitations on information reported on Form 4562, if a tax return was selected for audit, experienced auditors should still be able to recognize use of IRD from the property class, basis, and deduction amount reported on Form 4562. Based on our analysis, auditors should be able to infer the use of IRD in some cases, but not all. Of course, if the auditor reviews all of the support for claimed depreciation expenses, the taxpayer should be able to provide evidence from books and records supporting the proper claim of IRD. Although an IRS manager said that IRS would not collect data when the available data are sufficient to enforce IRD, some other IRS officials involved with audits said that additional, more accurate information on items taxpayers use to calculate their deductions would be helpful. In particular, the officials said that an automated system that taxpayers could use to calculate their depreciation deductions based on the property class and basis would be helpful. The officials pointed to the spreadsheets that some large taxpayers attach to their returns as an example of a format that would provide more useful information. In addition to the possible tax enforcement challenges caused by being unable to identify IRD users, data specifically on IRD compliance problems found during audits do not exist. For example, examination databases that track audit issues do not single out information specifically on IRD. Thus, there is no readily available way to determine patterns of noncompliance, if any, by IRD claimants from IRS examination records. We know from our previous work, however, that depreciation is a prominent audit issue, at least for individuals. According to figures from IRS’s National Research Program (NRP), depreciation was one of the four most misreported items by individuals filing business tax returns in 2001, with 42 percent of those returns containing a depreciation error. NRP did not systematically compile information on how often those errors involved IRD. A taxpayer who depreciates property under the IRD schedule will be able to make larger deductions in the near term than under the GDS schedule for the same property, and the advantage of using IRD grows as property- class recovery periods become longer. For example, figure 2 shows that for a hypothetical $50,000 property in the 3-year property class, the present value (PV) of the cumulative deduction under IRD is $577—or 1.2 percent—more than the deduction permitted under the GDS schedule. In contrast, the PV-adjusted deduction for a 39-year property (nonresidential real property class) is $6,786—or 21.7 percent—higher for IRD than the same property under GDS. The extent of the tax savings depends on how much more quickly the IRD property is depreciated relative to GDS recovery periods and how much more valuable to the taxpayer current deductions are relative to future deductions. The incentive to use the IRD schedule for shorter-life property classes is relatively small compared to longer-life property classes because the PV of the depreciation deduction does not increase as much for shorter property classes as it does for property classes with longer recovery periods. Additionally, the incentive to use IRD will vary by the discount rate, which is the interest rate used to determine the PV of a future stream of receipts or outlays. The larger the discount rate, the greater the difference in cumulative deduction amounts for each property class and the greater incentive there would be to use IRD. The availability of bonus depreciation, which narrowed the difference between cumulative IRD and GDS tax deductions, also could have reduced the incentive to use IRD. For example, a $50,000, 20-year property under bonus depreciation had a cumulative tax deduction value that was $1,901 higher in present-value terms under IRD than GDS. In comparison, the difference between the two methods without bonus depreciation for the same property was $3,802, or double the amount with bonus depreciation. Although IRD still retained a relative advantage in cumulative tax deduction PV, the smaller differences could have led more taxpayers to invest outside reservations, given that other factors besides tax savings influence decisions on where to invest. We found no way to determine reliably from available data which taxpayers use IRD, how much IRD investment is made, or whether the provision is having a positive effect on Indians. The analytical and oversight problems stemming from the lack of IRD data echo concerns we have expressed about tax expenditures in recent years. As we have said previously, information on tax expenditures is needed to evaluate their effectiveness, but inadequate or missing data can impede effectiveness studies of tax expenditures. IRD is a case in point. Without additional data, it is impossible to know whether IRD is succeeding in having its intended impact. Furthermore, with more than 100 programs on Indian economic development, the potential exists for IRD overlap with these programs. As we found with the bonus depreciation provision described in this report, overlap from other tax expenditures could interfere with IRD as an incentive. Gathering and analyzing data that identifies IRD users and the location of IRD property likely would increase administrative costs—perhaps substantially, according to IRS—for IRS, as additional forms and processing procedures would be needed. However, precedents exist for IRS collecting this kind of information on other tax provisions, such as depreciation of rental property and the low-income housing tax credit. In cases where the right data exist, economic analysis is possible, although still challenging. Our review also raises questions about IRS’s ability to ensure compliance with the IRD provision, a potentially key shortcoming given that depreciation is one of the most misreported items by individuals with businesses. Without the ability for auditors to identify IRD users from tax forms, noncompliant taxpayers could more easily go undetected. Improved information and instructions on the recovery periods taxpayers use to calculate their depreciation deductions on Form 4562—a concern given the mistakes listing recovery periods we observed on taxpayers’ returns—could help IRS auditors better ensure compliance not only of IRD but also of all depreciation deductions. Given the lack of information on IRD users and where property claimed under IRD is placed in service, Congress should consider requiring IRS to collect information identifying which taxpayers use IRD and the reservation and/or address where they have placed the property into service. In deliberating additional requirements, Congress should weigh the need for more IRD information with the associated costs of collecting and analyzing the information as well as the effects on IRS’s other priorities. We recommend that the Commissioner of Internal Revenue change the instructions on the directions for Form 4562 so that it is clear that taxpayers depreciating IRD property should use different recovery periods. The updated directions also should include an example of how to fill out Form 4562 properly. We requested written comments from the Commission of Internal Revenue and received a letter from the IRS on June 16, 2008 (see app. III). The IRS generally agreed with our findings. Its letter emphasized that compiling data on IRD would add burden to IRS administration of its processing functions and increase taxpayer burden. IRS also said it would review its publications and instructions on depreciation and determine where additional information about IRD would be beneficial. As agreed with your offices, unless you publicly release the contents earlier, we plan no further distribution of this report until 30 days from its date. At that time, we will send copies to interested congressional committees, the Secretary of the Treasury, the Commissioner of Internal Revenue, and other interested parties. The report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9110 or brostekm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. In attempting to identify and describe Indian reservation depreciation users, we analyzed data from IRS’s Statistics of Income (SOI) database on the corporate tax return (Form 1120), individual return (Form 1040), partnership return (Form 1065), and the depreciation form (Form 4562) for tax years 1998 through 2004. IRD has a unique recovery period schedule and Form 4562 provides space for taxpayers to report the recovery period. However, IRS does not compile this recovery period information electronically. Therefore, we used information on depreciation deduction and basis by property class from Form 4562 to construct an algorithm for identifying IRD claimants by comparing the depreciation they are required to claim on Form 4562 to the amount that they claimed using all available methods and conventions. To limit error from false positives to an acceptable level, we intended to identify taxpayers as claiming IRD if the calculated amount was within 1 percent of the actual amount that they claimed on the form. Our goal was to produce estimates that represented a reasonable lower bound on the size of the program. After repeated sensitivity tests and refinements of the algorithm, we concluded that the information reported on Form 4562 is insufficient to determine which taxpayers are claiming IRD. Our analysis of the IRS data showed that, in many cases, the amount of basis and depreciation did not uniquely determine which recovery period was used by the taxpayer. The reported depreciation and basis were consistent with both the IRD and the regular General Depreciation System (GDS) depreciation recovery period for the property class even when different methods and conventions were used. Therefore, the number of claimants and the amount invested with IRD cannot be determined accurately and completely from IRS data. To analyze the effects of IRD, we reviewed previous GAO work on economic development, and tax expenditures, including our 2005 report on tax expenditures in general, as well as our work on individual tax expenditures, such as the new markets tax credit and the empowerment zone and community enterprise program. We discussed our objectives with officials from IRS, which has data on depreciation and the U.S. Department of the Interior’s Bureau of Indian Affairs to discuss business on reservations. We had planned to use the SOI data to conduct an analysis of IRD investment as an initial step in analyzing how IRD affects economic development on Indian reservations. However, we determined that available information was not sufficient for this purpose because we could not identify all claimants of IRD. To show the potential tax advantages for taking accelerated Indian reservation depreciation, we calculated regular depreciation and accelerated depreciation for the following properties: 3-year, 5-year, 7- year, 10-year, 15-year, 20-year, and nonresidential real property. Further calculations included 30 percent bonus depreciation and 50 percent bonus depreciation for both regular depreciation and accelerated depreciation. We chose a basis value of $50,000 to determine the present value for all the types of depreciation. To determine the present value (PV) for all the types of depreciation, we chose the half-year convention. For 3-year, 5-year, 7- year, and 10-year property, we chose the double-declining balance method switching to straight line method in the optimal year. For 15-year and 20- year property, we chose the 150 percent declining balance switching to straight line method in the optimal year. Nonresidential real property was depreciated with the straight line method and midmonth convention as required by IRS. The discount rate for each property class was derived from the Federal Reserve’s report of (July 7, 2007) inflation-adjusted interest rates for U.S. Treasury debt instruments of corresponding maturities. We conducted this performance audit from March 2007 through June 2008, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The following is a list of the nine General Depreciation System (GDS) property classes and the corresponding Indian reservation depreciation (IRD) recovery period schedule, along with examples of the types of property included in each class. In addition to the contact named above, Kevin Daly, Assistant Director; Eric Gorman; Tami Gurley; Cheryl Peterson; Jennifer Neer; and Anne Stevens made key contributions to this report. A measure of an individual’s investment in property for tax purposes. A method established under MACRS to determine the portion of the year to depreciate property both in the year the property is placed in service and in the year of disposition. The annual deduction allowed to recover the cost of business or investment property having a useful life substantially beyond the tax year. A term that means property is ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity. The discounted value of a payment or stream of payments to be received or paid in the future, taking into consideration a specific interest or discount rate. A category for property under MACRS that generally determines the depreciation method, recovery period, and convention. The number of years over which the basis of an item of property is recovered. A way to figure depreciation for property that ratably deducts the same amount for each year in the recovery period. The rate (in percentage terms) is determined by dividing 1 by the number of years in the recovery period. An estimate of how long an item of property can be expected to be usable in trade or business or to produce income. | Indians lag behind other Americans on many key economic indicators, such as median household income. To improve such conditions, Congress in 1993 created Indian reservation depreciation (IRD), a tax expenditure offering accelerated depreciation for property invested on Indian reservations. GAO was asked to (1) describe which taxpayers claimed IRD, (2) analyze the effect of IRD on the economic development of reservations, and (3) describe the tax benefits offered by IRD. GAO used the Internal Revenue Service's (IRS) Statistics of Income data to try to identify IRD users and measure IRD's effects; however, the data were unreliable for those purposes. GAO also calculated examples of potential IRD tax benefits for different property classes. Available data are insufficient to identify users of the Indian reservation depreciation (IRD) provision. Although IRD is to be calculated using unique recovery periods, this and other information that taxpayers report are not sufficient to infer from the tax returns which taxpayers are using IRD, in part because taxpayers appear to have reported IRD in combination with other depreciation on their tax forms. In some instances, taxpayers also appear to have made mistakes filling out Form 4562, listing recovery periods inconsistent with IRD when the deduction and basis amounts they reported suggest IRD was in fact used. Data are also insufficient to determine whether IRD increases economic development on Indian reservations. Taxpayers are not required to identify the reservation on which the depreciated property is located. This location data is critical for determining the effects of IRD on the economic development of reservations. Such a determination requires linking IRD investment to economic indicators on specific reservations and controlling for the influence of other economic trends, such as the growth of gaming facilities on these reservations. The lack of data on IRD also may affect how well the Internal Revenue Service (IRS) enforces IRD compliance with the tax law. IRS does not track compliance issues related to IRD and could fail to detect taxpayers who claim IRD deductions but do not in fact have property on a reservation. IRS officials said getting additional information could be costly to obtain, but auditors told us it would be useful. In fact, IRS collects data on some other tax expenditures that allow closer examination of compliance and use. For example, the low-income housing tax credit requires taxpayers to list the address for the property they are claiming, and New Markets Tax Credits users report identifying information for the Department of the Treasury. Tax benefits can accrue to taxpayers who use the IRD schedule because they can achieve higher depreciation deductions, in present value terms, than a taxpayer who claims a depreciation deduction under the usual schedule for the same type of property over the entire life of the property. For example, on a $50,000 property, the savings range from about 1 percent savings over the normal schedule to 22 percent savings, depending on the type of property depreciated. The greatest potential tax savings come from IRD claimed for property with the longest recovery periods. Additional bonus depreciation, when available, however, may decrease the incentive to use IRD. |
AOC and its major construction contractors have made progress since the Subcommittee’s May 17 hearing. As of May 31, the construction management contractor reported that the CVC project’s construction was about 65 percent complete. The sequence 1 contractor, Centex Construction Company, which was responsible for the project’s excavation and structural work, has continued to address punch-list items, such as stopping water leaks that continue to appear in perimeter walls. According to the construction management contractor, as of May 31, the sequence 1 contractor had completed almost all of the items on the punch list. AOC expects the sequence 1 contractor to be completely done with this list and off site by June 30, although the contractor may have to return later to address some issues. Furthermore, the sequence 2 contractor, which is responsible for the mechanical, electrical, plumbing, and finishing work, continued to make progress in these areas, including erecting masonry block, placing concrete, and installing finish stone, sheetrock and plaster, and granite pavers. The sequence 2 contractor also continued work on the utility tunnel. As the Subcommittee requested, we worked with AOC on the selection of several sequence 2 milestones that the Subcommittee can use to help track the project’s progress from the Subcommittee’s May 17 hearing to July 31. These milestones are shown in appendix 1 and include activities on the project’s critical path, as well as other activities that we and AOC believe are important for the project’s timely completion. AOC’s sequence 2 contractor completed 3 of the 11 activities listed in appendix 1 as scheduled for completion by today. The 11 activities include certain stone work in the Great Hall, a portion of the masonry wall in the auditorium, and certain utility tunnel work. According to AOC, the delays in 8 of these activities were caused by a number of factors, such as unforeseen site conditions, a design problem, and delays in completing certain masonry work that had to be completed before other work could be done. AOC does not expect these delays to postpone the project’s scheduled September 2006 completion date because it believes that the sequence 2 contractor can recover the lost time. Since the May 17 hearing, AOC learned that the utility tunnel, which was expected to be operational in October 2005, is not now likely to be operational until March 2006. According to AOC, this date slipped because of unforeseen site conditions and the need to do certain work earlier than originally anticipated. The sequence 2 contractor has indicated that the impact of this delay on the project’s scheduled September 2006 completion date will be mitigated by the use of temporary dehumidification equipment. However, this mitigation approach will result in additional costs, as explained later in this statement. Also since the May 17 hearing, AOC’s contractors have updated the project’s master schedule, and the new schedule shows seven paths that are critical or are within 15 days of being critical. For example, the updated schedule shows millwork and finishing the auditorium to be within 10 days and 15 days, respectively, of being critical. Having so many critical or near-critical paths complicates schedule management and increases the risk of problems that could lead AOC to miss its scheduled completion date. In our May 17 statement, we provided several observations on AOC’s management of the project’s schedules, including our view that problems in this area contributed to slippage in the project’s scheduled completion date and additional project costs associated with delays. We also discussed recommendations we had already made to AOC to enhance its schedule management. AOC had agreed with these recommendations and had generally begun to implement them, but, it still needed, in our view, to give priority attention to them to keep the project on track and as close to budget as possible. A brief discussion follows of the issues that need AOC’s priority attention and the current status of AOC’s actions to address these issues. Having realistic time frames for completing work and obtaining fully acceptable schedules from contractors. Over the course of the project, AOC’s schedules have shown dates for completing tasks that project personnel themselves considered unlikely to be met. In addition, the master project schedule ( prepared by AOC’s construction management contractor) that AOC was using in May 2005 did not tie all interrelated activities together and did not identify the resources to be applied for all the activities, as AOC’s contract requires. On June 10, the construction management contractor told us that it had reassessed the reasonableness of the activity durations and found that they reasonably reflected the time required to perform the activities. Last week, AOC provided us with a revised master schedule that the construction management contractor said (1) reflected significant improvement in the linkage of interrelated tasks and (2) provided sufficient information to manage the project’s resources. AOC said that it planned to approve and accept this schedule subject to several conditions. Although our initial review of this revised schedule indicates that a number of improvements have been made, we have not yet had time to fully evaluate it. We will have a more complete assessment for the Subcommittee by its next CVC oversight hearing. Furthermore, as we said during the May 17 hearing, we continue to believe that AOC’s scheduled September 2006 completion date is optimistic and that the project is more likely to be done in the December 2006 to March 2007 time frame, largely because of past problems, the risks to the schedule identified during our assessment of it in early 2004, and future risks and uncertainties facing the project. We plan to update our risk assessment for AOC’s revised schedule and have our update completed in September 2005. Our update will include a review of activity durations. Aggressive monitoring and managing contractors’ adherence to the schedule, including documenting and addressing the causes of delays, and reporting accurately to Congress on the status of the project’s schedule. We noted in our May 17 testimony that neither AOC nor its construction management contractor had previously (1) adhered to contract provisions calling for monthly progress review meetings and schedule updates and revisions, (2) systematically tracked and documented delays and their causes as they occurred or apportioned their time and costs to the appropriate parties on an ongoing basis, and (3) always accurately reported on the status of the project’s schedule. AOC and the construction management contractor have been working with the schedule consultant to develop a new, systematic process for tracking, analyzing, and documenting schedule progress and delays, addressing schedule issues, approving proposed schedule changes, and reporting on the schedule’s status. On June 7, AOC, the construction management contractor, the sequence 2 contractor, and the schedule consultant conducted the first monthly schedule status review session using the newly developed approach. If effectively implemented and sustained, we believe that this new approach should generally resolve the schedule management concerns we previously raised, although it is not yet clear how delays will be handled on an ongoing basis. We believe that the successful implementation of this new approach, including the effective handling of delays, depends heavily on the CVC project team’s continuous commitment of sufficient skilled resources to schedule management. On June 9, the construction management contractor told us that a project control engineer who had been assigned temporarily to help manage the project’s schedule would be working full time on the project starting June 13. We plan to closely monitor the implementation of this new approach, including the resources devoted to it, the handling of delays, and the accuracy of the information provided to Congress. Developing and implementing risk mitigation plans. In the course of monitoring the CVC project, we have identified a number of risks and uncertainties that could have significant adverse effects on the project’s schedule and costs. Some of these risks, such as underground obstructions and unforeseen conditions, have already materialized and have had the anticipated adverse effects. We believe the project continues to face risks and uncertainties, such as unforeseen conditions associated with the project’s remaining tunnels and other work, scope gaps or other problems associated with the segmentation of the project between two major contractors, and shortages in the supply of stone and skilled stone workers. Although we have recommended that AOC develop and implement risk mitigation plans for these types of risks and uncertainties, AOC has not yet done so. AOC has agreed, however, to begin to do this shortly, and, according to AOC’s CVC project executive, is exploring possible approaches. Preparing a master schedule that integrates the major steps needed to complete CVC construction and the steps necessary to prepare for operations. A number of activities, such as hiring and training staff, procuring supplies and services, and developing policies and procedures, need to be planned and carried out on a timely basis for CVC to open to the public when construction is complete. Although AOC has started to plan and prepare for CVC operations, as we indicated in our May 17 testimony, it has not yet developed a schedule that integrates the construction activities with those activities necessary to prepare for operations. The Subcommittee requested such a schedule during its April 13, 2005, hearing on AOC’s fiscal year 2006 budget request. Because of a lack of funds, AOC had not been able to extend the work of a contractor that had been helping it plan and prepare for operations. Last week, AOC received the funding needed to re-engage this contractor, and AOC said that it would be working with the contractor to continue planning and preparing for CVC operations. As we said during the Subcommittee’s May 17 hearing, we estimate that the cost to complete the construction of the CVC project, including proposed revisions to its scope, will range from about $522 million without provision for risks and uncertainties to about $559 million with provision for risks and uncertainties. As of June 10, 2005, about $483.7 million had been provided for CVC construction. In its fiscal year 2006 budget request, AOC asked Congress for an additional $36.9 million for CVC construction. AOC believes this amount will be sufficient to complete construction and, if approved, will bring the total funding provided for the project’s construction to $520.6 million. Adding $1.7 million to this amount for additional work related to the air filtration system that we believe will likely be necessary brings the total funding needed to slightly more than the previously cited $522 million. AOC believes that it could obtain this $1.7 million, if needed, from the Department of Defense. AOC’s $36.9 million budget request includes $4.2 million for potential additions to the project’s scope (e.g. congressional seals, an orientation film, and storage space for backpacks) that Congress will have to consider when deciding on AOC’s fiscal year 2006 CVC budget request. AOC has not asked Congress for the additional $37 million ($559 million minus $522 million) that we believe will likely be needed to address the risks and uncertainties that continue to face the project. These include, but are not limited to, shortages in the supply of stone and skilled stone workers, unforeseen conditions, scope gaps, further delays, possible additional requirements or time for life safety or security changes and commissioning, unknown operator requirements, and contractor coordination issues. These types of problems have been occurring, and as of June 1, 2005, AOC had received proposed sequence 2 change orders with costs estimated to exceed the funding available in fiscal year 2005 for sequence 2 changes by about $400,000. AOC plans to help cover this potential shortfall by requesting approval from the House and Senate Committees on Appropriations to reprogram funds from other project elements that it does not believe will be needed for those elements. AOC can also request approval from these Committees to use part of $10.6 million that Congress approved for transfer to the CVC project from funds appropriated for Capitol Buildings operations and maintenance. For several reasons, we believe that AOC may need additional funds for CVC construction in the next several months. These reasons include the pace at which AOC is receiving proposed change orders for sequence 2, the problems it is encountering and likely to encounter in finishing the project, and the uncertainties associated with how much AOC may have to pay for sequence 2 delays as well as when AOC will have fiscal year 2006 funds available to it. For example, AOC is likely to incur additional costs for dehumidification if the expected delay in the utility tunnel cannot be mitigated or AOC has to obtain temporary equipment to provide steam and chilled water to CVC. AOC may be able to meet this need as well as the other already identified needs by additional reprogramming of funds and by obtaining approval to use some of the previously discussed $10.6 million. However, these funds may not be sufficient to address the risks and uncertainties that may materialize from later this fiscal year through fiscal year 2007. Thus, while AOC may not need all of the remaining $37 million we have suggested be allowed for risks and uncertainties, we believe AOC is likely to need more funds in fiscal years 2006 and 2007 than it has already received and has requested to complete the construction of CVC’s currently approved scope, although the exact amount and timing are not clear at this time. Effective implementation of our recommendations, including risk mitigation, could reduce AOC’s funding needs. Given the development of a new project schedule, the pace at which sequence 2 change orders are being proposed, and the risks and uncertainties that continue to face the project, we recommend that, in the September to November 2005 time frame, the Architect of the Capitol update the estimated cost to complete the project. We believe that such information will be useful to Congress as it considers AOC’s budget request for fiscal year 2007 as well as any other requests AOC may make for CVC funding. We expect to have our risk assessment of AOC’s new project schedule done in September and believe that the information developed during this assessment will be important in estimating future costs. In addition, we believe that AOC will have more information on the possible costs of sequence 2 delays by that time. AOC has agreed to do this update. Mr. Chairman, this completes our prepared statement. We would be happy to answer questions that you or other Subcommittee Members may have. For further information about this testimony, please contact Bernard Ungar at (202) 512-4232 or Terrell Dorn at (202) 512-6923. Other key contributors to this testimony include Shirley Abel, Maria Edelstein, Elizabeth Eisenstadt, Brett Fallavolitta, Jeanette Franzel, Jackie Hamilton, Bradley James, Scott Riback, and Kris Trueblood. construction management contractor for the actual completion dates. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | This testimony discusses the Architect of the Capitol's (AOC) progress in achieving selected project milestones and in managing the project's schedule since Congress's May 17 hearing on the project. We will also discuss the project's costs and funding, including the potential impact of schedule-related issues on the project's costs. Our observations today are based on our review of schedules and financial reports for the CVC project and related records maintained by AOC and its construction management contractor, Gilbane Building Company; our observations on the progress of work at the CVC construction site; and our discussions with CVC project staff, including AOC, its construction management contractor, and representatives of an AOC schedule consultant, McDonough Bolyard Peck (MBP). We did not perform an audit; rather we performed our work to assist Congress in conducting its oversight activities. In summary, AOC's sequence 2 contractor, Manhattan Construction Company, has met 3 of 11 significant milestones scheduled for completion by today's hearing. The sequence 2 contractor missed the other 8 milestones for several reasons, such as unforeseen site conditions and a design problem. AOC does not expect these delays to affect the CVC project's scheduled September 2006 completion date because AOC believes that the contractor can recover the lost time. Furthermore, certain utility tunnel work is scheduled for completion about 5 months later than previously reported, but AOC does not expect this delay to postpone the project's completion date because AOC plans to use temporary equipment that will allow the project to move forward but will also increase its costs. However, largely because of past problems and risks and uncertainties that face the project, we continue to believe that the project is more likely to be completed in the December 2006 to March 2007 time frame than in September 2006, as shown in AOC's schedule. AOC and its construction management contractor have continued their efforts to address two of the areas we identified during Congress's May 17 CVC hearing as requiring priority attention--having a realistic, acceptable schedule and aggressively monitoring and managing adherence to the schedule. But AOC has not yet developed risk mitigation plans or, as the Subcommittee requested, prepared a master schedule that integrates the major steps needed to complete construction with the steps needed to prepare for operations. Until recently, AOC did not have funding to continue contractual support it had been receiving to help plan and prepare for CVC operations. We continue to believe that these areas require AOC's priority attention and that the project's estimated cost at completion will be between $522 million and $559 million, and that, as we indicated during the May 17 hearing, AOC will likely need as much as $37 million more than it has requested to cover risks and uncertainties to complete the project. We believe that most of these additional funds will be needed in fiscal years 2006 and 2007, although exactly how much will be needed at any one time is not clear. We are recommending that this fall AOC update its estimate of the cost to complete the project. |
This section describes the public’s longstanding opposition to siting nuclear waste repositories, DOE’s efforts to develop a repository under the NWPA and its amendments, and DOE’s efforts since terminating the Yucca Mountain repository to develop other strategies to manage and store nuclear waste. Public opposition has prevented the federal government from siting nuclear waste repositories for decades. Between the 1950s and 1983, three different federal entities managed disposal responsibilities for nuclear waste. During the 1960s, the Atomic Energy Commission attempted to develop a high-level waste repository near Lyons, Kansas, but abandoned its plans largely due to public opposition. Federal efforts failed for similar reasons for nuclear disposal and storage facilities in Michigan, New Mexico, Utah, and Wyoming. In 1984, an independent panel concluded that these kinds of failures, among other things, contributed to the federal government’s lack of credibility with the public in selecting potential sites for nuclear waste storage. The panel described site selection as largely a political process and recommended the creation of a special advisory siting council made up of various key stakeholders for site selection and that, once sited, creation of a separate entity to develop a repository, largely because of the lack of trust in the federal government. DOE is responsible for disposing of the nation’s nuclear waste, including defense nuclear waste (see table 1). Most DOE-managed waste is defense HLW—a by-product of weapons production and other defense-related activities—and much of it is currently stored in liquid or semiliquid form in large underground tanks. DOE has agreements with the states in which this nuclear waste is stored that govern how the nuclear waste is managed. These agreements can include various dates by which DOE agrees to complete certain activities, such as processing HLW, transferring SNF and HLW to safer storage, and removing certain nuclear waste from the site. Some of these agreements include penalties if these dates, known as milestones, are not met. DOE has sites in, and agreements with, five states where it stores its waste. In enacting the NWPA, Congress allowed for multiple repositories for the nation’s nuclear waste. For example, to address equity among states, the act required that at least two repositories for commercial SNF be considered so that, according to experts, no single state would bear the long-term disposal obligations for the entire nation’s commercial SNF. In addition, the NWPA directed the President to evaluate whether the development of a repository for the disposal of defense HLW activities is required or if defense HLW could be commingled with commercial SNF in a common repository. In particular, section 8(b)(1) of the NWPA directed the President to make the evaluation on the basis of six factors: (1) cost efficiency, (2) health and safety, (3) regulation, (4) transportation, (5) public acceptability, and (6) national security. As noted above, in 1985, President Reagan found there was no basis to conclude that a separate repository for defense HLW was required. President Reagan’s finding relied on a DOE evaluation concluding that cost efficiency favored a commingled repository, specifically, commingling defense HLW with commercial SNF was estimated to cost, at that time, about $1.5 billion less than developing two separate repositories. The NWPA provides for separate funding for defense nuclear waste and commercial SNF. Specifically, the federal government would pay for the management and disposal of defense waste. In practice, these payments have come through defense appropriations, which is also the source of money used to clean up and prepare nuclear waste at DOE-sites for eventual disposal. For the management and disposal of commercial waste, the NWPA created the Nuclear Waste Fund—a trust fund established to collect fees to pay industry’s share of a repository. Under the NWPA, DOE is to determine how much industry should contribute to the fund, annually review the established amount, and evaluate whether the collection of the fee will provide sufficient revenue. The rate was originally set at one-tenth of a cent per kilowatt-hour of nuclear-generated electricity. Under its NWPA authority, DOE studied six sites in the West and three sites in the South, and by 1986, the agency recommended three candidate sites for further study or “site characterization:” Yucca Mountain in Nevada, Deaf Smith County in Texas, and Hanford in Washington. DOE was also authorized to contract with commercial nuclear reactor operators to take custody of their SNF for disposal at the repository not later than January 1998. In 1987, however, Congress amended the act to direct DOE to focus its efforts only on Yucca Mountain. As a result, DOE went from considering several repositories to only one at Yucca Mountain, which the state of Nevada vigorously opposed. Under the amendment, DOE was to perform studies to determine if the site was suitable for a repository and, if the site met certain requirements, make a site recommendation to the President. After spending nearly $15 billion over about 25 years to investigate and assess a potential repository site, in June 2008, DOE submitted a license application to the Nuclear Regulatory Commission (NRC) seeking authorization to construct a repository at Yucca Mountain that would commingle defense and commercial waste. In 2010, DOE terminated its licensing efforts at Yucca Mountain. Figure 1 shows key events in the nation’s nuclear waste management program over the past several decades. The NWPA requires DOE to annually review the amount of the fees collected from industry and evaluate whether these fees will provide sufficient revenues to offset costs. DOE reported in 2013 that the fund’s projected balance was adequate to pay for industry’s share—about 80 percent—of the costs of a commingled repository. Since DOE terminated its efforts to license the Yucca Mountain repository in 2010, the balance of the Nuclear Waste Fund is about $34 billion. Lawsuits filed in federal appeals court by the Nuclear Energy Institute and the National Association of Regulatory Utility Commissioners resulted in suspension of the fee collection in 2014. In addition, since 1998, owners and generators of commercial SNF have sued DOE primarily in the U.S. Court of Federal Claims for failing to meets its obligations under the contracts that DOE had entered into with them to dispose of commercial SNF. As of the end of fiscal year 2015, the federal government had reimbursed owners and generators about $5.3 billion in connection with such lawsuits. The reimbursements come from the U.S. Department of Treasury’s judgment fund. DOE estimates that future federal liability for litigation related to storing spent nuclear fuel will amount to $23.7 billion through 2071. Presently, the nation’s inventory of defense nuclear waste and commercial SNF remains stored at 80 sites in 35 states, generally where it was generated (see fig.2). After DOE terminated its efforts to license Yucca Mountain in 2010, it formed the Blue Ribbon Commission on America’s Nuclear Future at the direction of the President to, among other things, evaluate alternatives to managing and disposing of the nation’s nuclear waste. In 2012, the Blue Ribbon Commission reported that decades of failed efforts to develop a nuclear waste repository have produced frustration and a deep erosion of trust in the federal government. The commission recommended that the federal government develop a consent-based approach to siting—in which affected units of state, local, or tribal governments willingly enter into legally binding agreements—and create a new organization to implement the waste management program. However, the Blue Ribbon Commission reported that it did not reach consensus on whether defense and commercial nuclear waste should be disposed of separately or in a commingled repository. The Blue Ribbon Commission reported that it did not have the resources to study the merits of a commingled repository versus separate repositories for defense and commercial nuclear waste, but the commission urged the administration to review the implications of re-evaluating the 1985 finding or leaving it in place. In October 2014, responding to the Blue Ribbon Commission report, DOE issued a report that provided its analysis of disposal options and recommended that DOE pursue separate disposal options for defense HLW and some DOE-managed SNF. In January 2015, DOE submitted a report to the President that included an analysis of the six factors that the NWPA required be reviewed to determine whether to separately store or commingle defense HLW and commercial SNF. On the basis of this information, in March 2015, the President found that the development of a repository for the disposal of defense HLW is required. DOE issued a report available to the public in March 2015 that officials said reflected all the information it provided to the President that served as a basis for the presidential finding. According to the information DOE provided to the President, a defense HLW repository allows for different geologic media and repository designs to be considered because defense HLW—which is typically older than commercial SNF and has already been reprocessed or otherwise treated—is generally cooler and less radioactive than commercial SNF. In addition, DOE noted in the March 2015 report that the defense HLW most likely considered for a separate repository consists of no more than 15 percent of the nation’s total nuclear waste by volume, and about 3 percent of the total waste’s radioactivity, which is measured in curies (see fig. 3). In the information DOE provided to the President to support his finding, DOE also stated it intends to study the disposal of some defense- related HLW in 5-kilometer-deep boreholes—vertical shafts about 17 inches in diameter—in which HLW capsules with certain highly radioactive elements can be lowered and the shafts sealed. In the information DOE provided to the President, DOE cited benefits of a separate defense HLW repository but did not quantify the benefits when possible, nor did it provide detailed support demonstrating that the benefits it cited could be achieved or show the risks if certain benefits could not be realized as planned. For example, DOE cited cost efficiency as a benefit, but it did not quantify any cost efficiencies, nor did it estimate the likelihood that any cost efficiencies could be achieved. Federal guidance on planning, budgeting, and acquiring capital assets states that estimated benefits and costs should be quantified in monetary terms whenever possible and that estimates of costs and benefits should show explicitly the performance and budget changes that result from undertaking the project. The OMB guidance further states that a benefit- cost (or cost-effectiveness) analysis could be used by senior management at key decision points to help decide how best to reduce the performance gap. Furthermore, this guidance states that benefits and cost estimates involve some degree of uncertainty and that the risk that a benefit may not be realized as planned should be factored into the cost- benefit analysis. How the Department of Energy Evaluated the Six Factors under the Nuclear Waste Policy Act (NWPA) The Department of Energy (DOE) reported that in evaluating the six factors required under the NWPA, it included (1) a summary of the 1985 evaluation conclusions; (2) a discussion of post-1985 changes and new information bearing on the cost efficiency factor; and (3) conclusions as to whether each factor supports a finding that a defense high-level radioactive waste repository is required. For the cost efficiency factor, DOE reported that “cost efficiency” is a synonym for “cost effectiveness,” a term that, according to DOE, captures both the cost of an action and its benefits. Cost Efficiency. DOE did not quantify the benefits associated with cost efficiencies of separate repositories that it provided to the President, nor did DOE estimate the likelihood that a defense repository would result in cost efficiencies. DOE reported that the costs of developing two repositories will generally be greater than developing a single repository within each type of geologic media (e.g., salt, shale, or crystalline rock such as granite), but it cited potential cost efficiencies that could result from developing a separate defense HLW repository. For example, a defense HLW repository would allow greater flexibility in choosing different geologic media, since certain geologies and repository designs that might not be considered for commercial SNF may be acceptable for the cooler, less radioactive defense HLW. Figure 4 below compares DOE’s cost estimates of a single, commingled repository with the cost estimates of two separate repositories, and the amount of radioactivity associated with each set of costs. DOE also reported that developing a defense HLW repository could result in cost efficiencies for a subsequent, mostly commercial SNF repository by applying lessons learned from the defense HLW repository process. In addition, DOE reported that disposing of defense HLW may allow the department to avoid future storage and treatment requirements for defense HLW, thus reducing future costs. However, we found that DOE did not identify all costs, which we discuss later in this report, nor did it quantify its reported benefits, evaluate the likelihood that these benefits could be achieved, or demonstrate that the benefits outweighed those of a single commingled repository. Some experts agreed that DOE may learn lessons in developing a defense HLW repository, and these lessons could be applied to a subsequent, mostly commercial SNF repository. However, the experts stated that the potential benefits of such lessons—such as improving organizational structure, developing efficiencies in coordinating work, or making better decisions on prioritizing funding—would not result in significant cost savings. Other experts told us that differences between the repository requirements for defense HLW and for commercial SNF would further limit the benefits of lessons learned and likely would not result in cost savings. Public acceptability. In the information provided to the President, DOE did not demonstrate that a separate defense HLW repository could result in public acceptability benefits, nor did it assess the potential effect on its analysis if the public acceptability benefits could not be realized. The information DOE provided to the President stated that there is greater likelihood for public acceptance of a defense repository because of the smaller volume and lower heat and radioactivity of the waste destined for it and because the waste derives from national defense activities. In addition, DOE reported to the President that developing a defense HLW repository would improve the public’s trust and confidence in DOE’s planning and development of repositories, which could help the agency achieve public confidence in a subsequent, mostly commercial repository. DOE also stated that the successful siting of a defense HLW repository could demonstrate to the public that the consent-based siting process DOE plans to develop will be successful for a mostly commercial SNF repository. However, DOE provided to the President little evidence to support its assertion that the public would be more likely to support a defense HLW repository than a commingled repository. Reports spanning several decades have cited public opposition as the key obstacle to siting and building a repository for disposal of nuclear waste. Furthermore, experts and stakeholders we interviewed generally did not agree with the public acceptability benefits DOE claimed. Specifically, several experts and stakeholders—those representing a community group, an independent entity, and a state government—disagreed with DOE’s statement that nuclear waste is more acceptable to the public if it is related to defense activities. Experts from two independent entities said they generally agreed with DOE’s statements about public views on a defense HLW repository, but these experts cited as their support DOE’s experience with the development of the Waste Isolation Pilot Plant (WIPP) in New Mexico, where the state agreed to host a defense repository for “transuranic” waste after DOE efforts to site a commingled repository for HLW and SNF there failed because of the lack of public acceptance. Public Acceptance of the Waste Isolation Pilot Plant The Waste Isolation Pilot Plant (WIPP) provides an example of a success story of a repository for defense nuclear waste, but it took decades to open because of broad and significant opposition from the state and general public. In the end, if not for significant DOE concessions that allowed the state of New Mexico to regulate the waste that DOE would store at WIPP, the repository might not have opened, according to a state government official and DOE contractors. Over time, the public came to support the repository. For example, after two separate accidents at WIPP in February 2014 that led to the suspension of the facility’s operations, local officials have publicly supported DOE’s efforts to reopen the facility. Regulation. In the information provided to the President, DOE did not demonstrate that a defense HLW repository could be easier or quicker to demonstrate regulatory compliance, as DOE reported, nor did it assess the potential effect on its analysis if the regulatory benefits could not be realized. The information DOE provided to the President stated that regulatory compliance for a defense HLW repository would be simpler to demonstrate and could result in NRC licensing a defense HLW repository sooner than it might a single, commingled repository. DOE acknowledged that for any repository, the regulations—first developed by the Environmental Protection Agency (EPA) and NRC in the early 1980s to assess radiation containment requirements to protect future populations—need to be updated. In 1992, Congress required more study and directed EPA to create a separate set of regulations specifically for Yucca Mountain. EPA finalized the regulations in 2001, but certain provisions of the regulations were vacated as a result of legal challenges. The agency subsequently issued revised regulations in 2008. These Yucca Mountain-specific regulations do not apply to any other repository. Consequently, to support the licensing of a repository other than Yucca Mountain, EPA would either have to rely on the generally applicable safety standards developed in the 1980s that, according to DOE, need to be updated, or create a new set of regulations. Such regulations would likely be similar to the regulations created for Yucca Mountain, including having a broader array of assessment tools and a longer compliance period, but the regulations could also incorporate new methods of evaluating disposal system performance, according to EPA. DOE also reported that developing a defense HLW repository would provide lessons learned that could facilitate the licensing of a subsequent, mostly commercial SNF repository. However, stakeholders and federal officials told us that the regulatory licensing process would be lengthy for any repository. Moreover, stakeholders from an entity representing community action groups told us that although the reduced volume, temperature, and radioactivity of defense HLW might make it simpler for DOE to meet regulatory requirements, developing the regulatory requirements will still be a time-consuming, complex undertaking. They said developing new regulations would involve public hearings and adjudication proceedings and, as a result, licensing a defense HLW repository might not necessarily take less time than a commingled repository. Issuing Regulations for a Nuclear Waste Repository The Nuclear Waste Policy Act directed the Administrator of the Environmental Protection Agency (EPA) to promulgate generally applicable standards to protect the environment from offsite releases from radioactive materials in repositories. In addition, the act directed the Nuclear Regulatory Commission (NRC) to develop its own regulations to license and regulate repositories consistent with EPA’s standards. Although the law allowed NRC to finalize its regulation on licensing before EPA finalized its regulations, if NRC did so, it would have had to revise its regulations, if necessary, to make them consistent with EPA’s standards. Developing and finalizing the regulations can be a lengthy process involving multiple stages that require specific time frames for public notification or comment. Certain requirements may affect the rulemaking process, such as the time required for environmental studies or public input. Legislation and lawsuits may also affect the duration of the rulemaking process, such as the Energy Policy Act of 1992, which required EPA to contract with the National Academy of Sciences to conduct a study to find and recommend “reasonable” standards to protect the health and safety of the general public from a repository at Yucca Mountain. EPA would in turn base its own standards on the study’s findings and recommendations. According to federal rulemaking officials, these processes may take several years. Transportation. DOE did not explain the rationale for the benefits it cited for transportation, nor did DOE estimate the likelihood that the benefits it cited could be achieved or assess the potential effect if the benefits could not be realized. The information DOE provided to the President stated that the development of a defense HLW repository would provide an early opportunity to develop and exercise institutional procedures for transporting nuclear waste. However, we found that lessons learned from such procedures are not likely to provide benefits for the mode of transportation that will be used for commercial SNF. Specifically, representatives of state entities and communities noted that DOE plans to transport commercial SNF by rail, but it plans to transport defense HLW by truck. It is not clear how transporting defense HLW by truck to a defense HLW repository could provide benefits to DOE’s plan to transport commercial SNF by rail to a commercial SNF repository. National security. DOE did not show that the national security benefits it cited could be achieved. DOE reported that if a separate defense HLW repository is developed earlier than a mostly commercial SNF repository, DOE might be able to remove Navy SNF from the Idaho National Laboratory and allow the Navy to avoid potential financial penalties for storing SNF there beyond a certain date. DOE and the Navy may have to pay the state of Idaho $60,000 for each day SNF remains in the state past January 1, 2035, according to agreements with Idaho. We reported in 2011 that the Navy is concerned that if DOE does not remove SNF from Idaho by 2035 then Idaho may bar further Navy shipments of SNF, potentially affecting the Navy’s ability to refuel its nuclear fleet after 2035. However, DOE did not show that the national security benefits it cited can be fully achieved. DOE officials reported that it is not likely all of the Navy SNF would be included in the same repository with defense HLW because newer Navy SNF may be too thermally hot and radioactive to be stored in a defense HLW repository. If development of a defense HLW repository delays the development of a subsequent, mostly commercial SNF repository—as some experts and stakeholders say is likely to happen—then the disposal of new Navy SNF would also likely be delayed, and the benefits that DOE said would be achieved under this NWPA factor might not be realized because DOE may not meet the deadlines in its agreement with Idaho. Health and safety. DOE reported few differences in health and safety benefits between the two repository scenarios because the same level of health and safety protection would be met under any scenario. As stated earlier, federal guidance provides that estimated benefits and costs should be quantified in monetary terms wherever possible, estimates of costs and benefits should show explicitly the performance and budget changes that result from undertaking the project, and benefit- cost analysis could be used by senior management at key decision points to help decide how best to reduce the performance gap. DOE, however, did not adhere to such guidance. In addition, the guidance states that the risk that a benefit may not be realized as planned should be factored into the cost-benefit analysis. DOE officials stated that the information DOE provided to the President to support the requirement for a separate defense HLW repository addressed the requirements of the NWPA and did not have to adhere to OMB’s guidance. They stated that there are no specific requirements under the NWPA for the quality and completeness of information that is provided to support a presidential finding. DOE officials told us they are at the conceptual stages of studying options for a separate defense repository, but they said that when they move from studying repository options to planning for a separate defense HLW repository, they will comply with OMB’s guidance. Nevertheless, by DOE not providing the President with complete and, where possible, quantified benefits, the President made a decision that potentially commits the nation to spending tens of billions of dollars and decades of work without the level and type of information federal agencies need to justify key decisions and inform decision makers. Moreover, in choosing to pursue a separate repository for defense HLW without fully assessing the benefits of doing so, DOE appears to have circumvented key front-end planning principles, something DOE has recently emphasized as critically important in planning for new projects. By using quantified and complete benefits to inform its recommendation to the President, DOE would have greater assurance that the benefits of its approach to storing highly radioactive nuclear waste are greater than the costs. The preliminary cost and schedule estimates DOE provided to the President for a defense HLW repository are not reliable. Best practices for cost estimating state that, even at the early stages of project development, a reliable cost estimate should encompass all likely costs and be comprehensive, well-documented, accurate, and credible to the extent possible in order to inform decision making. In addition, best practices for schedule estimating state that at early stages of project development, reliable schedule estimates should be connected to the work planned and represent an integrated series of activities. According to DOE officials, they did not develop reliable estimates to reflect all likely costs and schedule activities because their plan was still at the conceptual stage, and DOE officials did not have enough information to generate cost and schedule estimates that met best practices; however, industry best practices documented by GAO state that it is possible to generate reliable estimates of cost and schedule even when information is limited. In the information DOE provided to the President, DOE prepared “rough order of magnitude” cost estimates for the defense HLW repository, which included cost ranges to design, construct, operate, and close the repository. DOE also included cost estimates for a second, mostly commercial SNF repository. The cost ranges corresponded to different geologies where the repository might be located and within each geology. DOE set each high and low cost range by assuming a predetermined amount of contingency, instead of by assessing the risk that costs may vary. According to DOE documents, each type of geology presents advantages and disadvantages for construction, long-term waste storage, and other technical characteristics. For example, DOE found that crystalline rock, which includes hard rock such as granite, would be more costly because the repository would need additional engineered barriers to contain the radioactive waste. In contrast, DOE told us that bedded salt would be less costly because, among other things, it isolates the waste sufficiently from the environment such that waste packaging requirements are reduced. DOE also provided cost ranges for additional geologies and designs; for example, DOE provided estimated cost ranges for a repository in sedimentary rock in which the nuclear waste would be allowed to decay and then sealed with earth (known as “backfilled”) after 100 years. DOE’s cost estimates are shown in table 2. We assessed DOE’s cost estimates against the characteristics of high- quality, reliable cost estimates as established by industry best practices, which are documented in our Cost Guide. These best practices apply to cost estimates throughout a project’s life cycle, including early, rough- order-of-magnitude estimates developed at or before project initiation. According to cost estimating best practices, four characteristics make up reliable cost estimates—they are comprehensive, well-documented, accurate, and credible. Reliable cost estimates are crucial tools for decision makers, according to industry best practices. Cost estimates are considered reliable if each of the four characteristics is substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the estimates cannot be considered reliable. OMB guidance also notes the importance of reliable cost estimates at the early stages, stating that early emphasis of cost estimating during the planning phase is critical to successful life cycle management—in short, determining whether benefits outweigh costs. We found that DOE’s cost estimates were not reliable because they excluded major costs that will likely add tens of billions of dollars, were minimally documented, lacked transparency, and were not fully credible. Table 3 summarizes our assessment of DOE’s cost estimates. We shared with DOE officials the results of our assessment of DOE’s cost estimates that DOE provided to the President. A complete analysis of DOE’s cost estimates and DOE’s response is found in Appendix II. We summarize our assessment and DOE’s responses below. Comprehensive. We found that DOE’s estimate did not fully conform to best practices for reliable cost estimates because it excluded major activities that could cost tens of billions of dollars. According to industry best practices, comprehensive cost estimates should be structured in sufficient detail to ensure that cost elements are neither omitted nor double counted. Where information is limited and judgments must be made, the cost estimates should document all ground rules and assumptions that may influence the cost estimates’ results. DOE’s cost estimate, however, did not estimate the cost of major activities that would be required to develop its two proposed nuclear waste repositories. For example, DOE’s estimates did not include the following costs: Site selection. This would likely require scientific investigation of several candidate locations, along with a lengthy consent-based siting process. DOE’s past experience with site selection indicates that site selection could cost billions of dollars. For example, a 2013 DOE study estimated that site selection costs for a new repository will exceed $3 billion, based on the historical costs incurred by Yucca Mountain. Notably, because DOE now must site two repositories, the cost of selecting a site would apply twice—once for each of the two separate sites. Site characterization. Site characterization cost about $2.6 billion for WIPP and about $8.5 billion for Yucca Mountain, according to DOE officials. As with site selection, the costs of site characterization for two repositories would apply twice—once for each of the two separate sites. Waste transportation. DOE excluded the cost of packaging, shipping, and transporting the nuclear waste. In 2013, DOE had separately estimated these costs to be a total of about $20 billion. In response to our analysis, DOE officials stated that DOE was not required to provide the President with comprehensive estimates of life-cycle costs that met industry best practices, in part because of the early stage of their plan’s development and because potential sites had not been selected, which could change repository costs. We recognize that at the early phases of a project, cost estimates are preliminary and may not include the details needed in the later stages of project development. However, industry best practices, as documented in our Cost Guide, state that a full accounting of all life- cycle costs is helpful in examining alternatives to identify which are most feasible. Figure 5 shows the cost estimates DOE provided to the President, reflecting DOE’s highest estimated costs and lowest estimated costs over time for developing a defense HLW repository. These costs would be funded with defense appropriations. As shown in figure 5, the costs are expected to be high during construction, followed by reduced but consistent costs during transportation and operations, then a period of increased costs for closure, followed by substantially reduced costs for monitoring. The figure also shows the activities for which DOE excluded costs; the amounts required are uncertain but will likely add billions of dollars to the estimates. The information DOE provided to the President did not discuss the potential budgetary impact of a defense repository funding needs—up to $1.7 billion per year over several years—on other defense programs managed by DOE. Well-Documented. We found that DOE’s cost estimate minimally met the characteristic of a well-documented estimate. According to industry best practices, a well-documented cost estimate allows tracing of the data it contains to source documents and has thorough documentation, including evidence of management review and approval. DOE officials told us that from 2012 through 2015, DOE produced hundreds of pages of engineering reports analyzing how different combinations of nuclear waste might be disposed within different geologies, including rough engineering plans and preliminary cost and schedule estimates. Officials told us that DOE used these engineering reports to support the cost estimates it presented in its March 2015 report to the President. However, when we requested DOE’s original calculations for its final cost estimates, DOE officials had to re-create these calculations. In addition, DOE’s supporting documentation for its cost estimates was not transparent. Specifically, DOE did not make many of its supporting documents available to the public, such as posting them on the agency’s website. As a result, members of the public and the scientific community were not able to evaluate the basis of DOE’s cost estimates. In response to our analysis, DOE officials agreed that DOE’s overall methodology was not clearly documented, but they stated that they provided us with documents that contained all data and assumptions DOE used to develop the cost estimates. However, we found that many of the cost figures that DOE provided to the President could not be traced to the support documents that DOE provided without acquiring additional documentation and consulting with DOE officials. Accurate. We found that DOE’s cost estimates partially met the characteristics of an accurate estimate. To be considered accurate, according to industry best practices, cost estimates should provide results that are: unbiased and not overly conservative or optimistic; based on an assessment of most likely costs; adjusted properly for inflation; reflect risk and uncertainty; and contain few, if any, mistakes. DOE’s cost estimates conformed to industry best practices in that DOE took inflation into account and the figures appeared to contain only minor mathematical errors. In addition, there was little variance between planned and actual costs, since DOE had not yet spent money to execute its plan. However, DOE’s cost estimates did not fully meet this criterion because DOE did not calculate its cost estimate ranges based on industry best practices using statistical calculations called for by industry best practices and as described in DOE’s cost estimation guidance. If decision-makers are to understand the risk of cost overruns and make wise decisions, they must understand the level of confidence DOE had in its cost estimates. In contrast, DOE did not set the high and low ranges of its cost estimates by assessing risk, but by assuming a predetermined amount of contingency—an amount of funds that DOE officials added for dealing with potential unplanned costs. In response to our analysis, DOE officials stated that at this stage, DOE does not have the details needed for the kind of statistical analysis called for by best practices. However, best practices describe how a statistical analysis can be undertaken with limited information and communicated to decision makers. Presently, it is not possible to determine whether DOE’s estimates are at risk of being either overly conservative or overly optimistic, and decision makers cannot know how much confidence they should have in DOE’s estimates. Credible. We found that DOE’s estimates minimally met the “credible” characteristic, which reflects the extent to which a cost estimate can be trusted, according to GAO’s Cost Guide. To be credible, a cost estimate should be checked for its level of uncertainty using an independent cost estimate to identify and correct potential bias and a sensitivity analysis to determine how much an estimate could vary as assumptions or conditions change. DOE did check some components of its estimates. For example, DOE documents indicate that a peer review, which served as an independent check, was conducted on some of DOE’s source documents. However, DOE has not yet undertaken an independent cost estimate or a sensitivity analysis showing how the assumptions DOE used may affect the results of its cost estimates, as called for by industry best practices. In response to our analysis, DOE officials stated that they believed the development of their estimates were well-documented. DOE officials said that departmental orders do not require the same level of analysis at this early stage that is required at later stages. We note, however, that even rough-order-of-magnitude estimates benefit from identification of potential sensitivities, and including them is an industry best practice. Without analyzing how DOE’s assumptions or conditions may affect the results of its cost estimates, DOE’s estimates cannot be viewed as credible. According to OMB guidance, poor cost estimates can undermine a program or create an unexecutable plan. DOE excluded certain costs— even in cases where reasonable comparisons were available—without indicating their eventual effect on the lifecycle cost. In doing so, the information DOE provided to the President to support the decision to develop a separate repository for defense HLW omitted billions of dollars in expected costs and was not fully comprehensive, well-documented, accurate, or credible. In this case, because not all costs were included— along with confidence levels to reflect the risks that could adversely affect the program—DOE officials do not know whether a benefit-cost analysis would have shown that a single, commingled repository would be more cost efficient. In the information DOE provided to the President, DOE estimated that both repositories could be ready to receive nuclear waste by 2048. We assessed DOE’s schedule estimate against the characteristics of high- quality, reliable schedule estimates as established by industry best practices, which are documented in our Schedule Assessment Guide. We found that DOE’s estimates for developing and operating both repositories were not well-constructed and that beginning operations at two repositories by 2048 appears optimistic. As part of its justification to develop a defense HLW repository, DOE reported to the President that a defense HLW repository, if developed first, could benefit the siting and development of a subsequent, mostly commercial repository. DOE did not report any specific time frames for when it might begin operations at a defense HLW repository, but it did report that its goal was to begin operations at a mostly commercial repository by 2048, and that a separate defense HLW repository could be available before then. The key steps required to begin operations at a repository include selecting the site, assessing or characterizing the geologic characteristics of the site, and, if the geology meets requirements, designing and constructing the repository and obtaining a license to receive and possess nuclear material. DOE provided us with its preliminary schedule estimates for developing both a defense HLW repository and a subsequent mostly commercial repository. DOE’s preliminary estimates showed that DOE could finish emplacing waste in both repositories about 47 years after site construction. DOE officials told us that these estimates were preliminary and rough order of magnitude (see table 4). DOE’s goal to open a commercial SNF repository by 2048 and a defense HLW repository even sooner appears optimistic. According to DOE’s estimates, design and construction will require 15 to 25 years; therefore, these activities would have to begin between 2023 and 2033 for DOE to meet its 2048 goal. As a result, DOE would need to complete site selection and characterization activities in 6 to 16 years (i.e., between 2022 and 2032). DOE would have even less time to complete the site selection and characterization activities required to open a separate defense HLW repository before 2048. DOE did not provide a schedule estimate for completing site selection and characterization activities for either repository, nor did DOE explain how these activities could be achieved in this timeframe. Notably, in 2013, DOE reported to Congress that such activities for a new single, commingled repository would take 28 years to complete. Furthermore, DOE spent 15 years to complete site characterization activities for WIPP, and it took 21 years to complete such activities for Yucca Mountain. We also found that DOE’s estimates for the time frames of certain activities did not adhere to industry best practices for constructing reliable schedule estimates. A reliable, well-constructed schedule is integrated and connects all planned work in a collection of logically linked sequences of activities whose forecasted dates are automatically recalculated when activities change. However, DOE did not provide any documentation about how it calculated its time frames for key activities. In addition, DOE’s time frame estimates remain the same regardless of geology or the types of nuclear waste emplaced within either of the two planned repositories. Also, DOE’s estimates exclude site selection and site characterization, which could add decades to the time frames, based on past DOE experience and plans. These excluded schedule activities could prolong the duration of the project and thereby increase the project’s costs. According to the Cost Guide, schedule delays have an effect on the costs of all aspects of a program, such as the costs of additional staff time. We shared the results of our assessment of DOE’s time frame estimates for the two repositories as summarized in DOE’s March 2015 report with DOE officials. The DOE officials agreed with our conclusion that, without a fully developed and documented integrated management schedule, it is not possible to evaluate the time frames of certain activities to determine the schedule estimate’s reliability. They also said that it was too early to construct a reliable schedule and that the schedule they developed was high-level and based on expert judgment developed from past repository experiences, most notably Yucca Mountain. DOE officials told us that they expect site characterization would not take as long if a site was selected through a consent-based process. We recognize that at the early phases of a project, schedule estimates are preliminary and lack the details applicable to the later stages of project development. However, the level of detail in the schedule should reflect the level of information available according to our Schedule Guide, and DOE excluded time frame estimates for activities where reasonable comparisons exist while providing little support for a schedule estimate that leaves little time for such activities. DOE is planning to develop a consent-based siting process for a defense HLW repository with the intention of attaining consent for an eventual repository site. However, DOE likely faces significant opposition and distrust as it develops this process. Moreover, DOE is planning to develop a consent-based siting process before it has addressed certain prerequisites—such as the possible need for EPA to update health and safety regulations—which are necessary to solicit public comment on its consent-based siting process, screen potential sites for a repository, and engage in site selection discussions with local communities. In December 2015, DOE announced plans to solicit public opinion to help develop a consent-based siting process with the ultimate purpose of attaining consent at a site for an eventual repository. DOE planned to collect public input by mail, telephone, various electronic means, and in person at a series of public meetings it planned to hold around the country. As of July 21, 2016, DOE had completed all of its nine scheduled public meetings held at various locations across the country. DOE developed a series of questions to elicit public input and included topics such as how to be fair and who should participate in consent-based siting. DOE announced that, as a result of its public solicitation effort, it had collected more than 10,000 comments; in September 2016, DOE officials issued a report that summarized the public comments it received. DOE announced plans to issue a draft report on the factors it planned to consider for siting nuclear storage or disposal facilities in December 2016. DOE stated that some of the factors it plans to consider include what constitutes consent and who should provide it, socioeconomic issues, and transportation requirements. DOE stated it plans to use these criteria to work collaboratively with potential host communities in selecting a site for a defense HLW repository. DOE likely faces significant public opposition and distrust as it develops its consent-based siting process. In commenting on DOE’s plans to solicit public input on its consent-based siting process, experts representing independent organizations, state entities, and community interest groups identified public opposition as a major obstacle DOE will have to overcome in siting any nuclear disposal or storage facility. In addition, we reviewed transcripts of DOE’s meetings and found that participants raised the theme of distrust of DOE at every meeting. In summarizing the public comments DOE had received as part of its public solicitation on consent-based siting, DOE reported in September 2016 that a lack of trust and credibility—particularly, lack of trust in DOE—were recurring themes and major impediments to the success of a consent-based siting process. We have previously reported that social and political opposition, not technical issues, are the key obstacles to developing a new repository; we also reported that some stakeholders told us that a final siting decision is inherently a political process and should be made by Congress if the decision is to have any lasting effect. Despite DOE’s commitment to developing a consent-based siting approach, its recent efforts to conduct research on borehole disposal show that it may be underestimating the extent of the public opposition it faces. Specifically, DOE issued a contract for $35 million to conduct research on borehole disposal in Pierce County, North Dakota. Despite DOE’s assertions that it had no plans to use the site for future disposal of radioactive waste and that it did not plan to use any nuclear waste in the research, county residents expressed distrust of DOE’s long-term intentions. For example, some residents stated that if the research shows boreholes can successfully be used, there were no guarantees that DOE would not dispose of nuclear waste in deep boreholes in the future. The county commission placed a moratorium on permits for deep borehole drilling in the county. DOE’s contractor then considered a site in Spink County, South Dakota, to conduct the research. According to DOE, the contractor held public meetings and engaged local elected officials, but the public raised similar concerns and DOE and the contractor mutually agreed to terminate the contract. DOE officials acknowledged that the lack of public support has been a major impediment to conducting research on borehole disposal and, in August 2016, DOE issued a new solicitation that, in part, is to address public opposition by allowing for early government and public engagement, something that did not happen in DOE’s earlier efforts. DOE has not yet addressed certain prerequisites that are needed to develop a site selection process, particularly the health and safety regulations that—as we stated earlier—DOE has said need to be updated. Without updated regulations, the public cannot provide meaningful input into a consent-based siting process, DOE may not be able to effectively screen potential sites for a repository, and local communities cannot be effectively engaged in a meaningful discussion on hosting a nuclear waste repository. For example, current regulations, which were developed in the 1980s, state that for a repository other than Yucca Mountain, the federal government must show that the repository can safely isolate radioactive material for 10,000 years. For Yucca Mountain specifically, regulations require a time period of 1 million years. Since EPA has not yet determined whether or how to update existing standards, EPA officials stated that EPA has not determined the length of time that the federal government must show it can safely store nuclear waste, but they said that EPA would consider requiring a duration longer than 10,000 years. Nevertheless, knowing the time period of compliance is a key prerequisite for the public and potential host communities to have when commenting on siting criteria, for communities to engage in discussions to host a site, or for DOE to screen a site as a potential repository. Representatives of four state entities told us that DOE may be premature in soliciting public comment for a consent-based siting process because DOE has not yet addressed certain issues that are prerequisites for having discussions with the public and soliciting their input. In particular, regarding the prerequisite for updating regulations, it is important that regulations are developed before siting a repository to avoid suspicion that the regulations would change to suit the repository. In particular, we found in 2011 that simultaneous development of safety regulations and a license application for Yucca Mountain galvanized opposition against DOE. The Blue Ribbon Commission recognized this risk in its 2012 report, stating that safety regulations—and how to demonstrate compliance with them—should be developed before selecting a site to avoid public suspicion that standards are being adjusted to fit the site. Experts and stakeholders told us that until such regulations are revised, DOE should not screen potential host communities to determine which ones DOE should enter into discussions with regarding siting. These experts and stakeholders added that it would be premature for DOE to site a defense HLW or a subsequent, mostly commercial SNF repository until health and safety regulations are revised. EPA has responsibility for revising the regulations, but EPA officials told us that they do not plan to invest resources in revising health and safety regulations without specific direction from Congress. Some attendees of DOE’s public solicitation meetings stated that having informed consent was an important element of a consent-based siting process and that lack of information on current health and safety standards did not allow them to provide meaningful consent. If the health and safety standards need to be updated for any future repository other than Yucca Mountain, as we describe earlier in this report, the public cannot provide informed input into a consent-based process if, for example, it does not know what level of protection from exposure will be required. DOE’s project management order requires that prior to approving a mission-related need, DOE perform “pre-conceptual” planning activities, such as safety planning, development of capability gaps, and defining high-level project conditions that are to be attained. DOE officials stated that they did not fulfill all pre-conceptual planning requirements because they do not yet consider the defense HLW repository a project. They told us that they will not consider it a major project until additional planning is conducted on site selection. By not yet completing key pre-conceptual planning activities—namely, what health and safety regulations will apply to siting an eventual repository—it is unclear how DOE can screen potential sites or choose which communities to engage with as part of its new consent-based approach. Moreover, without first knowing what health and safety regulations might apply to a future repository, it is difficult for any member of the public to provide informed input into a consent-based siting process. DOE may risk wasting resources if it screens sites before knowing what health and safety regulations might apply because revisions to such regulations may exclude certain sites that do not meet the requirements, or local communities may oppose hosting a repository once the regulations are revised. If DOE first addresses the need to revise health and safety regulations, it might reduce the risk of public opposition and better ensure that its resources are expended on potential sites that fit its permissible selection criteria. DOE did not provide sufficient information to the President on the prerequisites for developing a consent-based siting process and engaging local communities in siting a nuclear waste repository or the amount of time it might take to address these issues. For decades, the nation has struggled with how to dispose of its inventory of defense-related and commercial HLW and SNF. Since the passage of the NWPA, the nation has spent more than $16 billion to investigate and assess a single, commingled repository, but the prospects of developing a repository do not seem any better now than they did nearly 30 years ago when Yucca Mountain was selected. The information DOE provided to the President in 2015—concluding that a strong basis exists to find that a defense HLW repository is required—served as the basis for the decision that started the nation down the path of developing two repositories. However, the information DOE provided on the estimated costs and schedule was not well-documented, accurate, or credible, and it omitted billions of dollars in expected costs. The information DOE provided to the President also did not quantify benefits, when possible, explain the likelihood of achieving these benefits; or describe the potential impact of costs on future defense budgets. Unlike a single, commingled repository, which would have received most of its appropriations from industry fees, a defense HLW repository will likely have to be fully funded by funds appropriated for the defense budget. Without comprehensively quantifying benefits and calculating the likelihood of achieving them, or fully reflecting all costs and time frames associated with key activities, DOE asked the President to make a decision that could commit the nation to spending tens of billions of dollars and performing decades of work without knowing whether the benefits outweigh the costs, particularly when compared to the benefits and costs of a single, commingled repository. DOE faces significant public opposition in developing a consent-based siting process and engaging in site selection discussions with local communities, in part because DOE has not yet addressed certain prerequisites that are needed for the site selection process, such as the possible need to revise health and safety regulations. We and others have previously found that the greatest obstacles to the success of any nuclear waste storage or disposal effort are not technical, but social and political—that is, addressing public opposition that has been created by decades of distrust between DOE and the local communities where nuclear waste repositories may be sited. While seeking the public’s input on a siting process may go a long way toward addressing public opposition, DOE is seeking the public’s input before the public has all the information it needs. DOE may appear disingenuous if it embarks on a consent-based siting process without first providing information to the public that is a precondition for discussion and that could influence public input. Moreover, DOE may risk wasting resources if it screens sites before knowing what health and safety regulations might apply— essentially putting the cart before the horse—because revisions to such regulations may ultimately exclude certain sites or local communities may oppose hosting a repository if they are uncomfortable with the revised regulations. We are making two recommendations in this report. 1. The Secretary of Energy should direct the Office of Nuclear Energy to conduct a comprehensive assessment, which adheres to OMB guidance and best practices, of the benefits, costs, and schedules of the options it reviewed and provided to the President in 2015, and, in light of the new information and results of its assessment, revise—if needed—the report’s conclusion that a strong basis exists to find that a defense HLW repository is required. 2. The Secretary of Energy should direct the Office of Nuclear Energy to reassess its decision to engage in discussions with potential host communities, screen sites, or conduct other site selection activities until key prerequisites to these efforts—such as revising health and safety regulations—have been addressed. We provided NRC and DOE with a draft of this report for their review and comment and we provided EPA with relevant excerpts of the draft for its review and comment. NRC provided technical clarifications which we incorporated as appropriate, in addition to written comments, reproduced in appendix V, stating that NRC had no significant comments after reviewing the draft report. EPA did not have any comments on our draft report, but provided us with technical clarifications which we incorporated as appropriate. DOE provided written comments, which are printed in full in appendix VI, as well as technical comments, which we incorporated as appropriate. In its comments, DOE generally agreed with the intent of our first recommendation, disagreed with our second recommendation, as discussed below. Regarding our first recommendation, DOE stated that the department agreed that there is a need to understand and evaluate more fully the benefits and costs of a separate repository for defense waste. DOE stated that the presidential finding, as required by section 8 of the NWPA, was necessary before DOE could begin a more detailed analysis of the benefits and costs of a separate defense waste repository. DOE stated that with the Presidential finding, it now plans to acquire the information needed to analyze in greater detail the benefits, risks, costs, and schedule of a separate defense waste repository. In its comments, DOE also stated that the report did not recognize the limited nature of the analysis required by section 8 of the NWPA. We recognize that DOE was at the early stages of its analysis when it recommended to the President that separate repositories be considered, but, as discussed in the report, we believe a more thorough analysis was needed to determine whether such a recommendation should have been made in the first place. Further, the NWPA did not preclude the Department from providing the President that information, particularly a more thorough analysis on whether the benefits of departing from the nation’s longstanding nuclear waste storage strategy outweigh the costs. Specifically, we acknowledge in the report that the NWPA only requires an evaluation of six factors, but, as noted above, the NWPA does not preclude DOE from conducting its analysis of benefits and costs in accordance with best practices or its own planning requirements for major acquisitions. As we note in our report, industry best practices apply to cost estimates throughout a project’s life cycle, including early, rough-order-of-magnitude estimates. Moving forward, DOE’s stated plans to complete detailed analysis and evaluation of the costs, risks, benefits, and schedule is consistent with our recommendation and are imperative to support—or revise as needed— the department’s basis for a separate defense HLW repository. Regarding our second recommendation, DOE disagreed. In its letter, DOE stated that although it agreed that the NRC and EPA regulations governing generic repositories need to be updated, it believed that the consent-based siting process should be initiated as soon as possible to identify one or more volunteer host communities before such updates occur. DOE stated that this parallel approach would support its plans to begin screening candidate site(s) as early as possible, allowing volunteer communities the opportunity to provide input in the rule-making processes. DOE also noted that establishing a relationship with a community could reduce schedule and cost risks associated with the siting process since detailed cost estimates cannot be made until a community is identified. However, as we stated in our report, the public cannot provide meaningful input into a consent-based siting process without having key information that is a precondition for discussion and which could influence public input. Some of this information includes the status of the health and safety regulations, the degree of local and state regulatory oversight, and the durability of agreements reached. Since we provided our draft report to the department for review and comment, DOE issued draft plans in December 2016 for finalizing a consent-based siting process and developing a defense waste repository. However, DOE’s plans to develop a consent-based siting process while simultaneously engaging in site selection discussions with local communities— particularly before addressing key prerequisites that members of the public may need when providing input—may risk compounding public opposition that has been created by decades of distrust between DOE and the local communities over nuclear waste repositories. Therefore, we believe that DOE should reassess its decision to simultaneously pursue such activities until key prerequisites have been addressed. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, the Chairman of the Nuclear Regulatory Commission, the EPA Administrator, the Secretary of Transportation, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have questions about this report, please contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VII. To assess the benefits that DOE cited in its recommendation to the President about the need for a separate defense HLW repository, we reviewed DOE’s March 2015 report and additional planning and cost documents supporting that report. For example, we reviewed DOE’s October 2014 report, which DOE used as a basis for developing its March 2015 report. We also interviewed DOE officials in DOE’s Office of Nuclear Energy, Office of Environmental Management, Las Vegas field office, and Office of General Counsel, and staff from the Sandia National Laboratories who were familiar with the information presented to the President or who contributed to DOE’s March 2015 report and supporting documentation. In addition, we reviewed federal guidance on setting objectives and on planning, budgeting, and acquiring capital assets. Specifically, federal internal controls state that management should identify risks and define risk tolerances for the objectives. Risk tolerance is the acceptable level of variation in performance relative to the achievement of objectives and should be set as part of the objective- setting process. Also, OMB guidance states that when considering a new capital asset, management should assess risks and should determine whether accepting risks are justified considering the return on investment. The guidance also states that benefits and costs should be quantified in monetary terms whenever possible and that all types of benefits and costs should be included. The level of detail should be commensurate with the size and criticality of the investment. The OMB guidance states that certain benefit-cost or cost-effectiveness analysis could be used by senior management to make key decisions. Furthermore, the guidance states that benefits and cost estimates involve some degree of uncertainty and that the risk that a benefit may not be realized as planned should be factored into the cost-benefit analysis. We also interviewed experts and stakeholders from various entities about the benefits that DOE cited. To ensure balance among the entities, we considered representation among specific categories that GAO had identified and used in prior engagements. These categories covered (1) independent groups and academia, (2) community interest groups, (3) industry, (4) state and local governments, and (5) the federal government. We began interviews with experts and stakeholders in nuclear waste management from entities we had already identified in our prior work. Before we began each interview, we asked the individual to provide information on his or her background—including education, employment history, and experiences related to nuclear waste management—to assess his or her level of expertise and familiarity with DOE’s new plan. Using our professional judgment, we assessed each individual’s level of expertise and familiarity in the different issues we considered in our analysis. Opinions of experts on a topic outside their own area of expertise are presented as the opinions of “stakeholders.” In some cases, the same individual might be considered an expert in one specific issue, but a stakeholder on another issue. As our interviews progressed, we added other entities to our list based on input from the experts and stakeholders, stopping when we felt information had become repetitive or when we felt no new information could be gained through additional interviews. Once we identified the entities, we contacted individuals within each entity and confirmed their familiarity with the issues. We interviewed 52 experts and stakeholders from 23 entities that represented national organizations with a wide range of viewpoints and expertise on nuclear waste management and disposal issues. The experts and stakeholders from those entities are listed in Appendix IV. To ensure we asked consistent questions among the identified experts and stakeholders, we developed a standard set of questions that included broad questions related to DOE’s plan to separately dispose of defense HLW and more specific questions regarding certain elements of DOE’s plan. We analyzed the interviews to identify patterns and themes which we reported as appropriate, attributing the responses to the categories of people rather than to individuals. Our interviews with experts and stakeholders are nongeneralizable, meaning that opinions cannot be generalized to other experts and stakeholders, either within or across types of expertise. To assess what is known about the projected costs and schedule of DOE’s new plan to site, license, and construct a defense HLW repository, we reviewed DOE reports and documents and interviewed DOE officials about the estimates they developed for DOE’s new plan. Regarding the extent to which DOE presented reliable cost estimates in its March 2015 report, we compared DOE’s preliminary estimates against the best practices in GAO’s Cost Estimating and Assessment Guide (Cost Guide), which has been used to evaluate cost estimates across the government. To develop our assessment, we interviewed DOE officials and contractors who prepared the cost estimates about their cost estimation methodologies and the findings used to support the cost estimates in DOE’s March 2015 report. We compared this information with the best practices identified in the Cost Guide to determine whether the cost estimates were (1) comprehensive, (2) accurate, (3) well documented, and (4) credible. After a review of all source data, we assessed the extent to which the cost estimates met these best practices by calculating the assessment rating of each criterion within the four characteristics. After conducting our initial analysis, we shared it with DOE officials to provide them an opportunity to comment and identify reasons for observed shortfalls in cost estimating best practices. We took their comments and any additional information they provided and incorporated them to finalize our assessment. More information about this methodology is provided in Appendix II. To determine the extent to which DOE developed reliable schedule estimates, we requested information from DOE regarding the development of time frame estimates. We evaluated this information to determine whether the DOE-developed schedules were (1) comprehensive, (2) well-constructed, (3) credible, and (4) controlled. These four characteristics are identified in GAO’s Schedule Assessment Guide (Schedule Guide), which is intended to expand on the scheduling concepts introduced in the Cost Guide by providing best practices to help managers and auditors ensure that the program schedule is reliable. To examine DOE’s efforts to site a defense HLW repository and to examine siting challenges, if any, we interviewed DOE officials and reviewed DOE reports on previous and current siting efforts. We reviewed transcripts of the public meetings DOE held to solicit public input on a consent-based siting process. DOE held nine meetings during 2016. We attended one of those meetings and reviewed transcripts of all of them. We also reviewed DOE’s September 2016 summary of the public input it received. We also reviewed previous GAO reports, as well as relevant reports on siting from other entities, such as the Blue Ribbon Commission on America’s Nuclear Future and the National Academies of Science. One of the questions in our standard set of questions focused on DOE’s efforts to develop a consent-based siting process. Thus, we solicited input from the experts and stakeholders who we interviewed for our first objective and asked them a standard set of questions on DOE’s consent- based siting process, on the specific elements of consent-based siting that should be included or excluded, and the associated challenges with consent-based siting. We also reviewed DOE’s project management orders regarding “pre-conceptual” planning activities and similar DOE documents indicating the importance of front-end planning. In a March 2015 report, the Department of Energy (DOE) provided rough-order-of-magnitude cost estimates for (1) a separate defense high- level waste (HLW) repository and (2) a subsequent commingled repository to manage the remaining commercial spent nuclear fuel (SNF) and DOE-managed nuclear waste. DOE had previously published these cost estimates in October 2014. For each of these two cost estimates, DOE provided estimates for different geological media. A reliable cost estimate is critical to the success of any program. Such an estimate provides the basis for informed investment decision making, realistic budget formulation and program resourcing, meaningful progress measurement, proactive course correction when warranted, and accountability for results. As we have observed in our GAO Cost Estimating and Assessment Guide (Cost Guide), the Office of Management and Budget (OMB) has set the expectation that programs will maintain current estimates of cost, and cost estimates should encompass the full life cycle of the program. Among other things, the Cost Guide states that the ability to generate reliable cost estimates is a critical function necessary to support OMB’s capital programming process. Without this capability, agencies are at risk of experiencing program cost overruns, missed deadlines, and performance shortfalls. We performed a summary analysis by combining the best practices for sound cost estimating into four general characteristics. Our research has identified cost estimating best practices in the GAO Cost Estimating and Assessment Guide (Cost Guide). We conducted a summary, or abridged, analysis by summarizing portions of the best practices because DOE’s cost estimate were early in the acquisition life cycle. While rough order of magnitude estimates should never be considered high-quality estimates, rough-order-of-magnitude estimates can be considered reliable by fully or substantially meeting industry best practices. For example, we have found that other rough order of magnitude estimates substantially or fully met various characteristics of a reliable cost estimate, such as cost estimates prepared by the Department of Defense and the U.S. Customs and Border Protection within the Department of Homeland Security. Moreover, DOE cost guidance states that, “regardless of purpose, classification, or technique,” DOE cost estimates should demonstrate quality sufficient for its intended use, be complete, and follow accepted standards such as GAO’s Cost Guide. DOE’s cost guidance also describes good cost estimates as including a full life-cycle cost estimate, among other things. These best practices should result in reliable and valid cost estimates that management can use for making informed decisions. According to GAO’s Cost Guide, the four characteristics of a reliable cost estimate are: Comprehensive: The cost estimate should include both government and contractor costs of the program over its full life cycle, from inception of the program through design, development, deployment, and operation and maintenance to retirement of the program. It should also completely define the program, reflect the current schedule, and be technically reasonable. Comprehensive cost estimates should be structured in sufficient detail to ensure that cost elements are neither omitted nor double counted. Specifically, the cost estimate should be based on a product-oriented work breakdown structure (WBS) that allows a program to track costs and schedule by defined deliverables, such as hardware or software components. Finally, where information is limited and judgments must be made, the cost estimate should document all cost-influencing ground rules and assumptions. Well-documented: A good cost estimate—while taking the form of a single number—is supported by detailed documentation that describes how it was derived and how the expected funding will be spent in order to achieve a given objective. Therefore, the documentation should capture in writing such things as the source data used, the calculations performed and their results, and the estimating methodology used to derive each WBS element’s costs. Moreover, this information should be captured in such a way that the data used to derive the estimate can be traced back to and verified against their sources so that the estimate can be easily replicated and updated. The documentation should also discuss the technical baseline description and how the data were normalized. Finally, the documentation should include evidence that the cost estimate was reviewed and accepted by management. Accurate: The cost estimate should provide for results that are unbiased, and it should not be overly conservative or optimistic. An estimate is accurate when it is based on an assessment of most likely costs, adjusted properly for inflation, and contains few, if any, minor mistakes. In addition, a cost estimate should be updated regularly to reflect significant changes in the program—such as when schedules or other assumptions change—and actual costs, so that it is always reflecting current status. During the update process, variances between planned and actual costs should be documented, explained, and reviewed. Among other things, the estimate should be grounded in a historical record of cost estimating and actual experiences on other comparable programs. Credible: The cost estimate should discuss any limitations of the analysis because of uncertainty or biases surrounding data or assumptions. Major assumptions should be varied and other outcomes recomputed to determine how sensitive they are to changes in the assumptions. Risk and uncertainty analysis should be performed to determine the level of risk associated with the estimate. Further, the estimate’s cost drivers should be crosschecked, and an independent cost estimate conducted by a group outside the acquiring organization should be developed to determine whether other estimating methods produce similar results. DOE intended its rough-order-of-magnitude cost estimates to support a legal determination and spark discussion, and not to be rigorous milestone cost estimates, according to DOE officials. As a result, DOE’s cost estimation documentation may not be compiled as would be standard practice for a more rigorous cost estimate. As stated previously, it is our practice to conduct a summary analysis in cases in which the agency develops and provides cost estimates early in the acquisition life cycle, such as for DOE’s rough order of magnitude estimates. DOE’s March 2015 report provided rough-order-of-magnitude cost estimates for (1) a separate defense HLW repository and (2) a subsequent repository to dispose of commercial SNF and DOE-managed nuclear waste (which DOE described as a “Common NWPA Repository excluding Defense HLW”). For each of these two cost estimates, DOE provided estimates for five different geological media (crystalline, bedded salt, clay/shale, shale unbackfilled, and sedimentary unbackfilled). The cost estimates provided estimates for some activity phases of the life- cycle costs for developing a geological repository (design, construction, start-up, operations, closure, and monitoring), but other phases of the life- cycle cost, such as storage, transportation, siting, and other tasks were excluded. As DOE stated in its report to the President, the combined cost of two repositories is generally greater than one. Table 5 below displays DOE’s March 2015 cost estimates for two separate repositories. For comparison, table 5 also shows DOE’s estimates for a single repository to dispose of all nuclear waste. DOE’s cost estimates indicate that developing two separate repositories is about one-third higher than the costs to develop a single commingled repository in a similar geology. This is partly because some costs would be spent twice—once for each repository. However, DOE’s cost estimates understated this cost difference because DOE omitted certain costs from its estimates that must be spent for each separate repository. For example, DOE omitted the costs of selecting and characterizing separate sites, which would be in the tens of billions of dollars for each repository, according to DOE documents and its past experiences in developing geologic repositories at Yucca Mountain and in New Mexico. If the nation develops separate repositories, these costs would be spent again for each separate repository. Because DOE did not include the costs of selecting and characterizing sites for separate repositories, DOE understated the costs that would result from developing separate repositories. As a result, decision-makers are unable to directly compare DOE’s cost estimates for separate repositories with its cost estimates for a single, commingled repository. DOE provided GAO with supporting documentation for the cost estimates DOE presented in its March 2015 report: A published November 2012 DOE report (Hardin et al. 2012) provides estimates of SNF repository costs in five different geologies (salt, crystalline, clay/shale, shale open, sedimentary). A draft, unpublished July 2012 DOE report (Carter et al. 2012) provides estimates of a separate defense HLW repository in one geology (salt). A published January 2013 DOE report compared the cost of disposing of current and future nuclear waste volumes with future receipts of the nuclear waste fund. An October 2015 spreadsheet, transmitted directly to GAO, details how DOE officials used the reports described above to calculate the cost estimates for both the defense HLW repository and the subsequent repository for commercial SNF and DOE-managed nuclear waste that it presented to the President and published in its March 2015 report. Based on this analysis, we determined that DOE’s cost estimate are not reliable. A cost estimate is considered reliable if the overall assessment ratings for each of the four characteristics are substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable. Our review accounted for the nuclear waste repository estimates’ early stage in the typical DOE acquisition management system for other capital asset projects. After reviewing documentation DOE submitted for its cost estimates, conducting numerous interviews, and reviewing relevant sources, we determined that the DOE’s rough-order-of-magnitude cost estimates minimally met two of the four characteristics of a reliable cost estimate, and partially met two of these four characteristics. Comprehensive: Partially met. To determine whether an estimate is comprehensive, we examine whether the cost estimate includes all life cycle costs, including both government and contractor costs required to develop, produce, deploy, and sustain a particular program. In addition, we examine whether an objective review was performed to certify that the estimate’s criteria and requirements have been met, since they create the estimate’s framework. This step also infuses quality assurance practices into the cost estimate. In this effort, the reviewer checks that the estimate captures the complete technical scope of the work to be performed, using a logical WBS that accounts for all criteria and requirements. In addition, we examined whether assumptions and exclusions on which the estimate is based are clearly identified, explained, and reasonable. Well-documented: Minimally met. To determine whether an estimate is well-documented, we examine whether the cost estimate’s documentation explicitly identifies the primary methods, calculations, results, rationales or assumptions, and sources of data used to generate each cost element. Furthermore, we assess whether the documentation justifies all assumptions and describes each estimating method (including any cost estimating relationships) for every WBS element. Also, we determine whether the documentation was detailed enough so that the derivation of each cost element can be traced to all sources, allowing for the estimate to be easily replicated and updated. Best practices state that documentation of management approval demonstrates that upper management has been made aware of the approach to the cost estimate, its risks and uncertainties, and its strengths and limitations. Without this, agencies cannot demonstrate that their management was made aware of these considerations regarding the reliability of the estimates. Accurate: Partially met. Validating that a cost estimate is accurate requires thoroughly understanding and investigating how the cost model was constructed. For example, we checked cost elements to verify that calculations are accurate and account for all costs, including indirect costs. Moreover, proper escalation factors should be used to inflate costs so that they are expressed consistently and accurately. Checking spreadsheet formulas, databases, or cost model data inputs is imperative to validate cost model accuracy. Besides the basic checks for accuracy, we reviewed the estimating technique used for cost elements. Presenting a range of potential costs that has a clear link to a factor of confidence helps express a degree of uncertainty about the estimate. Using a risk and uncertainty analysis as the basis for a range of potential costs and contingency reserves improves decision makers’ understanding of an estimate’s accuracy. Credible: Minimally met. To determine an estimate’s credibility, key cost elements should be tested for sensitivity, and other cost estimating techniques should be used to cross-check the reasonableness of the ground rules and assumptions. It is also important to determine how sensitive the final results are to changes in key assumptions and parameters. A sensitivity analysis identifies key elements that drive costs and permits what-if analyses, often used to develop cost ranges and risk reserves. Additional details are provided in table 6 (below). Appendix III: Timeline of Key Events in Managing Nuclear Waste, 1983-2015 (Text for Interactive Figure 1) The President signed the Nuclear Waste Policy Act of 1982 (NWPA). The act directed, among other things, that (1) the Department of Energy (DOE) study sites for a repository, (2) DOE contract with industry to begin taking title to and disposing of commercial spent nuclear fuel (SNF) in 1998; and (3) the President evaluate the capacity for the disposal of high-level radioactive waste (HLW) resulting from atomic energy defense at one or more repositories developed for the disposal of commercial SNF. The Department of Energy (DOE) issued environmental assessments on nine sites considered for a repository. Under NWPA, DOE was to assess various sites and recommend the best sites for further study. Six sites were in the West and three were in the South. After conducting a Section 8(b)(1) of NWPA evaluation, President Reagan found that there was no basis to conclude that a separate defense HLW repository was required. DOE recommended three sites for further study for the nation’s first repository. Of the nine sites studied, the Secretary of Energy recommended to the President three sites for further study: Yucca Mountain, NV; Deaf Smith County, TX; and Hanford, WA. Congress amended the NWPA to direct DOE to investigate only Yucca Mountain for a national repository. The amendment also directed that funding for other candidate sites be phased out. Opponents referred to this amendment as the “Screw Nevada” bill and used it to galvanize opposition to a repository at Yucca Mountain. DOE missed the contractual deadline called for in NWPA to begin taking title to and disposing of commercial spent nuclear fuel (SNF). DOE issued a “viability assessment” reporting that DOE still considered Yucca Mountain to be a viable repository site. However, DOE’s inability to take custody of commercial SNF for disposal resulted in industry lawsuits against DOE. Congress approved Yucca Mountain as the site for a national repository. As per the process outlined in the NWPA, DOE recommended to the President approval of the Yucca Mountain site as a national repository; the then-President recommended the site to the Congress. The Governor of Nevada submitted a notice of disapproval; and Congress effectively overrode the disapproval by joint resolution. DOE submitted a license application to the Nuclear Regulatory Commission (NRC) for the construction of a permanent repository at Yucca Mountain. Under NWPA, the NRC had three years—which could be extended by a year if needed—to review the license and issue a final decision approving or disapproving the issuance of a construction authorization for a repository at Yucca Mountain. Additional legislation would be needed to begin any actual construction, if the NRC approved the license application. DOE terminated its efforts to license the Yucca Mountain repository and established the Blue Ribbon Commission on America’s Nuclear Future, at the President’s direction, to review alternatives. DOE submitted a motion to the NRC’s Atomic Safety and Licensing Board to withdraw its license application, but the Board denied DOE’s motion. Acting on directions from the President, DOE established the Blue Ribbon Commission and directed that the commission conduct a comprehensive review of policies for managing nuclear waste, including defense and commercial SNF and HLW. NRC suspended its review of DOE’s license application for Yucca Mountain. The Blue Ribbon Commission issued its report. The commission’s report recommended, among other things, that DOE adopt a new consent-based adaptive approach to siting and developing nuclear waste facilities, and that a new organization be created to implement the waste management program. However, the commission reported that it did not have the time or resources necessary to evaluate whether a new organization should manage defense waste or whether defense and commercial waste should be commingled. The commission urged the administration to review these issues. DOE issued a new strategy based on the Blue Ribbon Commission’s recommendations. DOE’s strategy included temporary storage of SNF at two interim storage sites and disposal of defense and commercial HLW and SNF in a single, commingled repository. NRC resumed its review of the Yucca Mountain license under an order from the U.S. Court of Appeals. DOE issued a technical study on various options for disposal of defense HLW and SNF. The October 2014 report evaluated three primary disposal options, which included (1) a single commingled repository for all defense and commercial waste, (2) two repositories, one primarily for defense waste and one primarily for commercial SNF, and (3) boreholes for the disposal of smaller waste forms. The President found that a separate repository for defense HLW and SNF was required. A March 2015 report summarized the information that was provided to the President to support the Presidential finding. Separately, in January, the NRC generally found that DOE’s license application for Yucca Mountain met nearly all applicable regulations. The NRC must still complete a separate adjudicatory process which could take several more years and cost about $330 million, according to the NRC. Appendix IV: Experts and Stakeholders We Interviewed Waste Control Specialists, LLC New York State Energy Research and Development Authority Eddy County, New Mexico National Research Council, National Academy of Sciences Nuclear Waste Technical Review Board TA Frazier and Associates, LLC Colorado Department of Public Health and Environment Eddy-Lea Energy Alliance, LLC The Council of State Governments, Midwestern Office Nuclear Waste Technical Review Board Institute for Energy and Environmental Research Nuclear Waste Technical Review Board National Association of Regulatory Utility Commissioners Nuclear Energy Institute National Conference of State Legislatures Nuclear Waste Technical Review Board Holtec International, Inc. In addition to the individual named above, Nathan Anderson, Assistant Director; Kevin Bray; Mark Braza; Martin G. Campbell; Lee Carroll; Jennifer Echard; Emile Ettedgui; Robert S. Fletcher; Cristian Ion; Katrina Pekar- Carpenter; Karen Richey; Robert Sanchez; Dan C. Royer; and Jack Wang made key contributions to this report. | DOE had long planned to store defense and commercial nuclear waste in a single repository at Yucca Mountain, Nevada, funded largely from commercial power fees. In 2010, DOE terminated this plan, and then considered developing separate defense and commercial repositories. This approach requires a Presidential finding under the NWPA. In 2015, DOE provided information to the President supporting separate repositories and cited several benefits, including cost efficiencies. On the basis of this information, the President in 2015 reversed a 1985 presidential finding and determined that a separate repository for defense waste was required, setting DOE down the path of developing separate repositories. Taxpayers would likely fund a defense waste repository rather than industry fees. GAO reviewed DOE's efforts to develop a separate defense waste repository. This report assesses (1) the information on benefits DOE provided to the President; (2) the reliability of DOE's cost and schedule estimates; and (3) DOE's efforts to site a defense HLW repository. GAO reviewed DOE documents and interviewed more than 50 experts. The information that the Department of Energy (DOE) provided to the President about whether a separate defense waste repository was required did not quantify cited benefits, when possible, show how these benefits could be achieved, or show the risks if certain benefits could not be realized as planned. In the information provided to the President, DOE stated that separate repositories for defense high-level waste (HLW) and commercial spent nuclear fuel (SNF) would produce certain benefits. DOE cited benefits in each area required by the Nuclear Waste Policy Act (NWPA)—cost efficiency, public acceptability, regulation, transportation, national security, and health and safety—in concluding that there is a strong basis for a defense HLW repository. Federal guidance states that benefits must be quantified when possible, and that the risk that a benefit may not be realized as planned should be factored into the cost-benefit analysis. DOE officials said their plan was still conceptual and the guidance did not yet apply. Nevertheless, DOE did not show that benefits outweighed costs in recommending to the President that the nation should depart from its longstanding nuclear waste strategy. DOE's preliminary cost and schedule estimates for the two-repository approach that it provided to the President are not reliable because the estimates do not meet industry best practices. DOE's cost estimates excluded major costs, such as site selection and site characterization costs that could add tens of billions of dollars. Regarding its schedule estimates, DOE did not provide information on how its schedules would be achieved. GAO found that DOE's estimates leave little time for major activities and that DOE's schedule appears optimistic, given its past repository siting experiences. Without reliable estimates that reflect best practices, DOE provided information to the President that supported a decision that could commit the nation to expending undisclosed but significant future resources and to a time frame that appears optimistic. DOE is planning to develop a process to obtain consent for an eventual repository site; however, DOE faces significant public opposition and certain prerequisites have not yet been established. These prerequisites include updated health and safety regulations, which are necessary for the public to consider as part of a consent-based siting process. Without updated health and safety regulations, which establish radiation exposure limits, the public cannot provide meaningful input into a consent-based siting process and local communities cannot effectively be engaged in hosting potential repository sites. DOE officials acknowledge that health and safety regulations—which were developed in the 1980s—need to be updated and revised for any future defense HLW or mostly commercial SNF repository. Revising such regulations is the responsibility of other federal agencies. Experts and stakeholders told GAO that updated health and safety regulations are a precondition for having discussions with the public and for screening potential sites. An internal project management requirement directs DOE to perform key “preconceptual” planning activities to enhance front-end planning. In proceeding with siting activities without ensuring key prerequisites have been established, DOE runs the risk of increasing public opposition and potentially wasting resources. GAO recommends that DOE (1) assess benefits, costs, and schedule estimates, and (2) reassess its decision to conduct site selection activities. DOE agreed on the need for a more thorough assessment, but disagreed on the need to reassess site selection activities, citing benefits of its approach. GAO continues to believe its recommendation is valid, as discussed in the report. |
Under Title I of the Employee Retirement Income Security Act of 1974 (ERISA), employers are permitted to sponsor two broad types of retirement plans, defined benefit—plans that promise to provide a benefit that is generally based on an employee’s years of service and frequently salary, regardless of the investment portfolio’s performance—or defined contribution—plans in which retirement savings are based on contributions and the performance of the investments in individual accounts. Over the last three decades, employers have shifted away from sponsoring defined benefit plans and toward defined contribution plans. The 401(k) plan is the predominant type of defined contribution plan in the United States. In 2009, employers sponsored over 460,000 401(k) plans with participation from over 60 million workers. The assets held in these plans totaled more than $2.4 trillion. Typically, 401(k) plans allow participants to specify the size of their contributions and direct their assets to one or more investments among the options offered within the plan. Investment choices within the plan generally include options such as mutual funds, target date funds, stable value funds, company stock, money market funds, and self-directed brokerage accounts. Industry research shows that as of the end of 2009, participants had allocated about 41 percent of 401(k) plan assets to equity funds, a type of mutual fund that mainly invests in stocks, followed by a mix of other investments, including company stock and stable value funds—funds that are designed to preserve the total amount of participants’ contributions, or their principal, while also providing steady positive returns. When deciding how to allocate assets among the various investment options, participants are generally advised to consider a number of factors, such as historical performance, investment risk, and fees associated with each option. As we previously reported, even a seemingly small fee, such as a 1 percent annual charge, can significantly reduce retirement savings over the course of a career. Under ERISA, a fiduciary is anyone who has discretionary control or authority over the management or administration of an ERISA-covered plan, such as a 401(k) plan, including the plan’s assets. Plan sponsors are typically the named fiduciaries, but others, such as trustees, investment advisers, or other service providers, may also be fiduciaries depending on the functions they perform for the plan. Plan sponsors and other plan fiduciaries have specific responsibilities under ERISA. For example, ERISA stipulates that plan fiduciaries carry out their responsibilities prudently and do so solely in the interest of the plan’s participants and beneficiaries. related Labor regulations and guidance, responsibilities of plan sponsors and other fiduciaries may include, but are not limited to, In accordance with ERISA and selecting and monitoring any service providers to the plan; reporting plan information to the federal government and to participants; adhering to the plan documents, including any investment policy identifying parties-in-interest to the plan and taking steps to monitor transactions with them; selecting and monitoring investment options the plan will offer and diversifying plan investments; and ensuring that the services provided to their plans are necessary and that the cost of those services is reasonable. 29 U.S.C §1104(a)(2). advice for a fee. After obtaining written comments from the public and holding two public hearings on the proposed regulation, Labor announced it will repropose its rule on the definition of a fiduciary in early 2012. Labor’s Employee Benefits Security Administration (EBSA) is the primary agency responsible for protecting private pension plan participants from the misuse or theft of their pension assets by enforcing ERISA. To carry out its responsibilities, EBSA issues regulations and guidance, conducts investigations of plan fiduciaries and service providers, seeks appropriate remedies to correct violations of the law, and pursues litigation when it deems that necessary. Plan sponsors may hire companies that will provide the services necessary to operate their 401(k) plans. Service providers are outside entities, such as investment companies, banks, or insurance companies that a plan sponsor hires to provide some of the services necessary to operate the plan. These services include investment management (e.g., selecting and managing the securities included in a mutual fund), consulting and providing financial advice (e.g., selecting vendors for investment options or other services), recordkeeping (e.g., tracking individual account contributions), custodial or trustee services for plan assets (e.g., holding the plan assets in a bank), and telephone or web-based customer services for participants. As shown in figure 1, services can be provided by a single “bundled” plan service provider or through contracts with a combination of several different entities—also known as an “unbundled” arrangement. In a bundled arrangement, the sponsor hires one company that provides the full range of services directly or through subcontracts with other providers. Using a bundled provider, the sponsor might also delegate the oversight for the selection and monitoring of plan services, except with respect to the bundled provider itself. In contrast, in an unbundled arrangement, the sponsor, acting in a fiduciary capacity, selects each service provider and retains an ongoing duty to monitor service providers. Service providers can be compensated for their services either directly from the plan sponsor or indirectly—payments from sources other than the plan or plan sponsor. Typically, service provider compensation comes in the form of fees charged as a percentage of total plan assets, per participant, an itemized fixed rate, or a combination of all three. How fees are assessed largely depends on the type of service provided and the plan sponsor. For example, fees for investment management services, which can vary by investment option, are generally charged as a percentage of assets and indirectly charged against participants’ accounts, because they are deducted directly from investment returns. Administrative fees, on the other hand, can be assessed as an overall percentage of total plan assets regardless of participants’ investment choices, in addition to a flat rate for some fixed services, such as the printing of plan documents. In the latter, the sponsor has the option of passing along some or all of the administrative fees to participants. We previously reported that recordkeeping and administrative fees are often paid by the plan sponsors, but participants bear them in a growing number of plans. Service providers charge an array of fees depending on the type of product and arrangement the provider may have with other entities that provide plan services. Some common investment-related fees are the following: Management fees: These fees are paid out of fund assets to the fund’s investment adviser for investment portfolio management, other management fees payable to the fund’s investment adviser or its affiliates, and administrative fees payable to the investment adviser that may not be included in some of the fees identified below. Marketing and distribution fees, also known as 12b-1 fees: These fees may be used to pay commissions to brokers and other salespersons, to pay for advertising and other costs of promoting the fund to investors, and to pay various service providers of a 401(k) plan pursuant to a bundled services arrangement. They are usually between 0.25 percent and 1.00 percent of assets annually. Sub-transfer agent (sub-TA) fees: These fees are typically used to reimburse a plan’s record keeper for shareholder services that the fund would have otherwise provided, such as maintaining participant- level accounts and distributing the fund’s prospectus. Trading or transaction costs: These fees are associated with an investment manager’s buying and selling of securities within a particular investment vehicle, such as a mutual fund, which can include commissions. These also include costs associated with portfolio turnover. Wrap fees: These fees are usually associated with insurance products, such as group variable annuities. They are aggregate fees that encompass multiple components, such as investment management fees, mortality risk and administrative expense charges, and surrender and transfer charges. Some of these fees may be paid by third parties in connection with investment-related services, also known as revenue sharing, which are ultimately indirectly paid for by the plan or its participants. Description of Revenue Sharing Arrangements Revenue sharing, in the 401(k) plan industry, generally refers to indirect payments made from one service provider, such as the investment fund provider, to another service provider in connection with services provided to the plan, rather than payments made directly by the plan sponsor for plan services. For example, a plan’s record keeper and investment fund manager may have an arrangement where the investment fund company collects sub-TA fees from plan assets invested in a particular fund that may then be used as a credit to offset the record keeper’s fees. The Form 5500 Annual Return/Report is the primary source of information for the federal agencies administering ERISA and the private sector regarding the operation, funding, assets, and investments of private pension plans and other employee benefit plans. Labor, IRS, and the Pension Benefit Guaranty Corporation jointly developed the Form 5500 so employee benefit plans could satisfy annual financial reporting requirements under ERISA and the Internal Revenue Code. Specifically, Labor uses the Form 5500, among other mechanisms, as a tool to monitor and enforce plan sponsors’ responsibilities under ERISA. The Form 5500 includes information on the plan’s sponsor, the number of participants, plan service providers, and more specific financial information, such as plan assets, liabilities, insurance, and financial transactions. According to Labor officials, the form is made publicly available to serve as a deterrent to noncompliance with the statutory duties imposed on plan fiduciaries. A research file is also available in electronic format to individuals and groups for research purposes. In November 2007, Labor implemented new regulations to expand fee and compensation disclosures on the Form 5500. Specifically, for the 2009 plan year, Labor revised the annual reporting requirements concerning service providers and to facilitate electronic filing. Labor required larger plan sponsors—mainly those with more than 100 plan participants—to classify the fees they pay service providers as either “direct” or “indirect” compensation in an updated Form 5500 Schedule C– Service Provider Information. Labor’s more recent regulatory initiatives focus on enhanced disclosure to plan fiduciaries and plan participants; see table 1 for a description of these initiatives. These regulations, as well as changes to the Form 5500 and its instructions, enhance the disclosure of plan financial information related to fees and other arrangements involving plan fiduciaries and participants. Industry Studies on 401(k) Plan Fees Pension industry studies and surveys of 401(k) plans focusing on fees have found that plans pay a range in fees. For example, BrightScope recently estimated that the average fees paid by plans with less than $10 million in assets for all recordkeeping, advice, and investment management services was 1.90 percent and 1.08 percent for plans with over $100 million in assets. However, BrightScope’s estimates do not include plans with fewer than 100 participants, which account for about 88 percent of all 401(k) plans. Another study conducted in 2011, which included plans of all sizes, estimated that the average total amount paid in defined contribution plans for recordkeeping, administrative, and investment fees was approximately 1.30 percent. Eighty-five percent of sponsors reported that they or their participants paid recordkeeping and administrative fees, as shown in figure 2. Of the respondents who reported paying fees, over three-quarters were small plans, close to 20 percent were medium-sized plans, and the remainder were large plans. In addition to sponsors who said their plans paid recordkeeping and administrative fees, sponsors of 9 percent of plans did not know if they or their participants paid for these services, and 7 percent reported fees were waived by their service providers. Of the sponsors who said either they or their participants paid fees and provided fee amounts, the range in fees reported as paid by plan sponsors for recordkeeping and administrative services was between 0.01 percent and 37.26 percent of plan assets annually. We calculated that sponsors paid an average of less than 1.77 percent of assets. However, as shown in figure 3, the average amount paid for by sponsors of small plans (fewer than 50 participants) was 1.33 percent of assets. In contrast, sponsors of larger plans—those with more than 500 participants—paid an average of 0.15 percent of assets. According to industry experts and research, plans with fewer participants generally have lower plan assets, and therefore pay higher fees as a percentage of assets than plans with more assets or older plans that have grown their assets over the years. For example, the respondent in our survey that paid the highest amount, 37.26 percent of plan assets, for recordkeeping and administrative service fees started the plan in 2009 and had less than $1,350 in plan assets at the end of calendar year 2010. Service providers and an industry expert we met with noted that administrative fees to start a 401(k) plan can be significant for small plans. Additionally, representatives of a retirement industry organization said that it may be difficult for sponsors of small plans to negotiate for lower fees, because assets in these plans are modest. Larger plans are more likely to pass recordkeeping and administrative fees along to participants than smaller plans. Of the sponsors that provided fees, sponsors of 80 percent of plans reported paying for all the fees associated with recordkeeping and administrative services. However, sponsors of only 47 percent of large plans paid for recordkeeping and administrative services, while at least 82 percent of smaller plans paid these fees. Thirty-two percent of the larger plans also reported passing along all of these fees to participants, and 22 percent shared these fees with participants. Representatives from one industry organization we interviewed said that as plans get larger, they tend to pass more of the fees on to participants. However, the reason small plans paid these fees varied. For example, one sponsor of a small plan told us that it feels responsible for its employees and, as a result, chooses to pay the fees. And since sponsors of small plans could also be the business owners, consultants from one company pointed out these sponsors may be more personally interested in the plan. Twenty-one percent of sponsors reported that either they or their participants paid for other services such as trustee, legal, or audit services covering plans of all sizes. In addition, sponsors of about 22 percent of plans reported that their service providers waived these fees or that they did not pay anything for these types of services, while 29 percent of plan sponsors did not know if their plans paid these fees. The vast majority of respondents who did not know if fees were paid for these other services sponsored small plans, those with fewer than 50 participants. Of sponsors who reported they paid for other fees, a majority, 85 percent, reported they paid all of the fees for other services. Most of the respondents reported paying less than 0.24 percent of plan assets annually for these services. However, a couple of respondents of small and medium-sized plans paid more than 1 percent. Even though investment management fees account for the majority of 401(k) plan fees, sponsors of about 50 percent of plans did not know if they or their participants paid investment management fees or believed these fees were waived. While sponsors of plans of all sizes did not know about these fees, this was more prevalent among respondents who sponsor smaller plans than those sponsoring larger plans. For example, respondents of 57 percent of small plans (fewer than 50 participants) either did not know or claimed fees were waived, compared with 31 percent of large plans. Most of the sponsors who said these fees were not paid or believed these fees were waived offered mutual funds, in which companies that manage these funds charge investment management fees regardless of whether a fund is in a 401(k) plan or sold to individual investors. Sponsors may not know if their plans paid investment management fees or believed fees are waived, because these fees are usually borne by participants and are typically charged against participants’ assets, as opposed to invoiced to the plan sponsor. Many plans have also not asked their providers about fees for investment-related services, such as 12b-1, sub-TA, or wrap fees, as shown in table 2. For example, sponsors of 82 percent of plans had not asked their service providers about sub-TA fees, which are typically used to reimburse a plan’s record keeper for shareholder services, such as maintaining participant-level accounts and 70 percent had not asked about 12b-1 fees, which may be used to market and distribute the fund. According to our survey, over half of sponsors have not asked their service providers about any of the fees listed in table 2. Further, our survey also shows that the sponsors who had not asked about these fees were more likely to not know if these fees were paid. For example, as shown in figure 4, of the sponsors who reported that they had not asked their providers about 12b-1 fees, 64 percent did not know if their plans paid these fees. Additionally, of the sponsors who had not requested information about wrap fees, which are typically associated with insurance accounts and annuities, about 50 percent of those sponsors did not know if these fees were paid. Moreover, 17 percent of plans offered insurance company accounts, such as stable value funds, and 8 percent offered annuities, which typically charge a wrap fee, but over a quarter of those sponsors that offered insurance company accounts and annuities reported not paying wrap fees. Last, of the sponsors that provided fee amounts, sponsors of about 24 percent of plans reported that they paid all investment management fees and participants paid nothing. Among respondents who provided amounts, the range in fees these respondents paid was very minimal to 1.17 percent of plan assets. However, as noted above, these fees are typically borne by participants and paid out of assets. While the amounts reported may reflect fees charged by service providers for investment- related services, it is unclear what these sponsors paid for. Participants generally paid part or all of the fees charged for key 401(k) plan services. For example, even though in many plans the sponsor paid recordkeeping and administrative fees, our survey shows that participants also paid these fees. About 10 percent reported recordkeeping and administrative fees were paid for out of plan assets—from participants’ accounts. For respondents who reported this information and provided amounts, participants paid between 0.02 percent and 1.59 percent annually, with an average of about 0.39 percent. Respondents who sponsored smaller plans were more likely to pay these fees, and their participants tend to pay higher fees than participants in larger plans. Participants in small plans (fewer than 50 participants) paid an average of 0.43 percent annually. Meanwhile, participants in larger plans—those with more than 500 participants—paid 0.22 percent. We also found that in a few plans participants paid more than 1 percent in plan assets. Two of these plans used an insurance provider and offered insurance company accounts. Plans administered by insurance companies may have higher fees and expenses because wrap fees, which include components such as mortality and expense risk fees, are imposed on these products, according to Labor research. Participants were more likely to pay for their plans’ consulting or advisory services than plan sponsors. Plans may opt to hire a consultant or adviser to help the plan sponsor with various plan responsibilities, such as monitoring investments, selecting vendors, and negotiating fees or services with other providers. Our survey shows that 85 percent of plans hired a retirement plan consultant or investment adviser during 2010 to assist the sponsor with these services. Overall, in 77 percent of plans, participants paid for the services rendered to the plan by these providers, while only 17 percent of plan sponsors paid these fees. Among respondents who reported fee amounts, participants paid between 0.01 percent and 1.40 percent annually for these plan services. In addition, on the basis of survey results, participants in smaller plans paid higher fees as a percentage of assets than participants in larger plans. For example, while the median amount participants in larger plans (500 or more participants) paid was 0.07 percent of assets, participants in smaller plans paid approximately 0.29 percent annually. Finally, as shown in figure 5, in about 73 percent of the plans, respondents said that participants paid 100 percent of investment fees, which are the largest share of 401(k) plan fees. Among respondents who reported fee amounts, participants paid between less than 0.01 percent and 3.24 percent of assets. The sponsor who said participants paid approximately 3.24 percent in plan assets reported using an insurance company for investment options and did not know if different types of investment vehicles, such as mutual funds, were offered to participants. However, most respondents reported their plans paid less than 1 percent of plan assets. These tended to be older plans, in existence for at least 10 years, and those having more than $1 million in plan assets. Among plans that paid more than 1 percent of assets, about half of these respondents told us that other factors such as the historical performance of a fund were more important than low investment fees when considering which options to offer within the plan. Our review of select plans indicates that some plan sponsors did not understand the impact of third-party fee arrangements, also known as revenue sharing, on total plan fees. Revenue sharing arrangements, in which fees for plan services are indirectly charged to the plan through an outside entity, can benefit plans if sponsors clearly understand how much they are paying for these types of arrangements and the services they can help provide. For example, according to a 2007 report by the ERISA Advisory Council’s Working Group on Fiduciary Responsibilities and Revenue Sharing Practices, many of these arrangements may help reduce overall plan costs and provide plans with services and benefits that may not otherwise be affordable to them. In addition, as we have previously reported, revenue sharing arrangements can be used to offset expenses the plan has agreed to pay, and can either be cost-neutral to the plan or may instead result in increased compensation to the service providers. Our review found examples in which revenue sharing arrangements for recordkeeping and administrative services did not offset other fees, namely investment fees. In these cases, an additional asset-based fee for recordkeeping under a revenue sharing arrangement was charged on top of each fund’s reported expense ratio, as opposed to a lower rate. Service providers and consultants we spoke with noted that plan sponsors typically do not fully understand revenue sharing arrangements. One industry expert explained that plan sponsors are commonly not aware of fees or fee arrangements disclosed outside of the expense ratio. Representatives from a consulting firm told us that some of their clients possess a good understanding of revenue sharing, but most have no understanding of revenue sharing and the potential impact on plan fees. As shown in figure 6, sponsors of an estimated 48 percent of plans did not know if their service providers had revenue sharing arrangements with other providers. Furthermore, 51 respondents that reported being aware of revenue sharing also reported that they did not consider the revenue sharing arrangements when selecting service providers, or that they did not have enough information to do so. Plan sponsors who reported not having or not knowing if their providers had revenue sharing arrangements may, in fact, have had these arrangements and were not aware of it. Our review found that at least 45 of the 91 plan sponsors who provided investment reports had revenue sharing arrangements, despite reporting not having or not knowing of such arrangements. Some of the documents provided by these plan sponsors specifically identified revenue collected from or paid to third parties for plan services, such as recordkeeping and investment adviser fees. Evidence of revenue sharing was also found through our review of some of the funds these plans invested in, which showed that 12b-1 fees were charged. Similarly, plans paid sub-TA fees, but about 50 percent of sponsors reported not knowing if these fees were paid during calendar year 2010. For example, one provider discloses that it receives revenue sharing fees, including sub-TA fees, but 7 of the 24 survey respondents that contracted with this provider reported that they did not know if their plans paid these fees. According to examples we found, in which the plan sponsor may not have been aware of revenue sharing arrangements, fees paid under such arrangements varied. Examples in Which Sponsors Unknowingly Paid Certain Fees under a Revenue Sharing Arrangement The sponsor of a plan that had about $6 million in assets reported not knowing if its plan paid 12b-1 fees, even though a review of its investment documents indicated that the plan paid about $5,000 in 12b-1 and other revenue sharing fees. The sponsor of a medium-size plan with over $4 million in plan assets reported that participants did not pay for recordkeeping and administrative services—when in fact the provider estimated that about 43 percent of the fees collected by fund providers from participants’ accounts, roughly $13,000, would be used to pay for recordkeeping and administrative services. Moreover, even plan sponsors that were aware of revenue sharing arrangements may not fully understand the impact of these arrangements on plan services and plan fees, and therefore likely paid higher fees than they reported. For example, our review of the fee report of a 401(k) plan that used revenue sharing and had over 500 participants and approximately $13.5 million in plan assets found that the plan sponsor and participant paid 16 times more in recordkeeping and administrative fees during calendar year 2010 than the sponsor reported on our survey, when we included revenue sharing fees, as shown in figure 7. Similarly, the plan sponsor of a small plan that had about 65 participants and about $5.8 million in plan assets reported that the company did not pay anything for recordkeeping and administrative fees, though the fee report the sponsor provided indicated that these fees in total were about $10,700— about $5,900 was invoiced to the company and roughly $4,800 was paid to the provider from revenue sharing fees collected from participants’ asset accounts. A failure to understand these arrangements can have adverse effects on the plan sponsor and participants. For example, because recordkeeping fees under a revenue sharing arrangement can be based on the amount of plan assets under management, the amount paid to the provider for recordkeeping services could increase as the fund grows and may get quite large if the sponsor is unaware of these asset-based fees. This could result in the plan—the sponsor and participants—continuing to pay more for recordkeeping services as assets grow, although the level of recordkeeping services provided tends to remain the same. A short video illustrating a hypothetical example of how revenue sharing arrangements can work and how the fees for services change over time under such an arrangement is available at http://www.gao.gov/multimedia/video/#video_id=590296 . Fees associated with certain 401(k) insurance products—where participants pay for some benefits but which otherwise appear similar to noninsurance 401(k) products—can be difficult for sponsors to identify and therefore evaluate. Some service providers we met with said that plan sponsors do not often know they are invested in insurance products such as group variable annuities, which are products that place a “wrapper” of benefits, namely a guaranteed lifetime annuity income or a minimum death benefit, around a bundle of investments that are similar to mutual funds—called separate accounts or subaccounts—and are unaware of the associated fees. They suggested that it is difficult for sponsors to distinguish between group variable annuity contracts and mutual funds, because the insurance company’s separate or subaccounts often use the same name as the mutual funds, as depicted in figure 8. However, representatives from one insurance provider said its separate accounts are invested in the mutual fund for which it is named, but acknowledged that other providers may mimic the fund rather than investing in the fund. In addition, our survey shows that about 17 percent of sponsors did not know if their plans had group variable annuity contracts. Furthermore, although sponsors of 72 percent of plans reported not having a group variable annuity contract, our analysis of their submitted investment statements indicates that some do currently have these contracts and are unaware of them. According to our review, it appears that at least 15 of the plans that provided investment documents and reported not being in a group variable annuity contract may actually be under such a contract. The various ways that information about these contracts is disclosed can make it difficult to determine with certainty whether or not sponsors have these contracts. As shown in figure 9, a 401(k) group annuity contract and a 401(k) plan without such a contract may look very similar. For example, the sponsor of a small plan with about 12 plan participants did not know if the plan had a group variable annuity contract. However, the statement provided by the sponsor noted that the plan was a group variable contract, and included a mortality, expense, and administrative charge— charges by an insurance company to cover the cost of insurance features in an annuity contract. Similarly, another plan sponsor we met with told us its plan did not use group annuity contracts; its advisers, however, later clarified that the sponsor’s plan is, in fact, a group variable annuity contract and charges wrap fees at 0.1 percent of plan assets. The advisers explained that these contracts are not often identified as group variable annuity contracts and suggested that a lot of sponsors would not know if their plans had such contracts. Another sponsor told us that its third-party administrator told it that its plan was not under a group annuity contract, even though it was stated on the plan’s investment report, because the provider, which is an insurance company, was required to disclose its group annuity contract terms on all plan documents, regardless of the actual terms. Fees associated with group annuities can add significant costs to a plan. The additional fees for group annuity contracts—known as wrap fees— include administrative fees and a mortality and expense risk charge, which is typically in the range of 1.25 percent of assets per year. We also found that in addition to each fund’s expense ratio, an insurance provider’s administrative service fees were up to 2.00 percent of plan assets for a few plans that responded to our survey. Furthermore, two service providers we met with said that they will often discourage their clients from using group annuities, and one noted that it was able to reduce one plan sponsor’s fees by about $90,000 off a total of $300,000 by switching the plan away from group annuities to mutual funds. However, another provider told us that it packages a range of services into its group annuity contracts and spread fees out over a number of years, making it more affordable for smaller plans to offer their employees a retirement plan. In addition to ongoing fees, these contracts also typically charge a surrender fee for terminating the contract, which may begin in excess of 4 or 5 percent, according to one service provider, but typically decline over a period of about 5 or 7 years after a purchase payment. As these fees can be significant, plan sponsors are likely contracting with providers that charge higher fee rates without knowing the benefits for which they and their participants are paying. Moreover, without being aware of whether or not their plan is a group annuity contract, for example, plan sponsors cannot adequately assess whether or not the benefits tied to that product are worth the fees associated with them. Many plan sponsors may not be aware that their participants are paying potentially significant transaction costs (also known as trading costs), which are commonly paid for indirectly by plan participants out of fund assets and typically include commissions associated with an investment manager’s buying and selling of securities within a particular investment vehicle. While transaction costs are common among mutual funds, and more than 80 percent of 401(k) plans in our survey offer mutual funds, sponsors of an estimated 48 percent of plans did not know if their plans— through the deduction from participants’ returns of investments—incurred transaction costs. In fact, as shown in figure 10, only an estimated 12 percent of sponsors said that their plans incurred these costs. Of the sponsors that did not know if their plan participants were charged transaction costs, about 95 percent of them also reported that they had not asked their service providers for information regarding transaction or trading costs. Even those that did ask about these fees sometimes did not know whether their plan participants were charged transaction costs. For example, a plan sponsor of a large plan with 15,000 participants and over $100 million in plan assets told us that its plan does not pay transaction or trading costs, and that it has asked its service provider for information on these fees. However, on the basis of BrightScope’s estimates, the plan was charged about $310,400 in transaction costs. SEC has identified four major types of mutual fund transaction costs: commissions, spread costs, market impact costs, and opportunity costs. However, no industrywide standard currently exists for calculating transaction costs. Different researchers and private sector companies have developed various methods to determine transaction costs. For example, one researcher focuses on spread costs, brokerage commissions, and tax costs using individual fund quarterly reports of stocks traded and SEC filings, while another researcher estimates trading costs using price impacts and effective bid-ask spreads. Adding to the difficulty of estimating transaction costs is the fact that even though mutual funds have transaction costs associated with them, they are not uniformly measured or disclosed Transaction costs vary by different types of investment vehicles. Our review of BrightScope data for 83 plan sponsors that responded to our survey and had corresponding BrightScope data suggests that transaction costs for an investment option can be as high as 2.72 percent. However, average transaction costs for the investment options offered in the plans we reviewed were approximately 0.45 percent of assets. Even though transaction costs for individual funds are high, the amount a participant or plan pays may be lower depending on how much is invested in these high- cost options; for example, for the plan that had an investment option with a transaction cost of 2.72 percent, only 6.57 percent of plan assets were invested in that option, resulting in transaction costs of 0.18 percent of total plan assets. Different types of investment options yield different amounts of transaction costs. For example, more actively managed funds may have higher transaction costs than less actively managed funds because they often have a higher turnover. More actively managed investment options with higher turnovers could benefit participants by producing a higher return; however, their higher transaction costs may or may not lead to a higher net return. Labor has made information, guidance, and tools regarding plan fees available to plan sponsors on its website, but our survey shows that many sponsors are not using these resources. For example, Labor undertook several educational initiatives to help sponsors ensure that the services provided to their plans are necessary and the fees for those services are consistent with ERISA requirements. We also recently reported that Labor developed online tools and a website to specifically help small plan sponsors navigate retirement plan information and make informed decisions about plan options. In addition, Labor has created a fiduciary education program intended to provide all plan sponsors and other plan officials with an understanding of the law and their responsibilities, with an emphasis on obligations, such as understanding the terms of their plans and selecting and monitoring service providers. The program includes holding nationwide educational seminars and webcasts on topics such as fees. As part of this initiative, Labor also distributes a number of publications and tools for sponsors, including a model fee disclosure form, to help them review and compare the fees charged by service providers. As described in table 3, Labor distributes other key publications, which are available to sponsors on its website. www.dol.gov. However, as shown in figure 11, our generalizable survey results indicate that the majority of plan sponsors either did not use Labor’s resources to compare and assess fees or did not know about them. Specifically, on the basis of our survey of plan sponsors, we estimate that sponsors of less than 6 percent of 401(k) plans used Labor’s publication A Look At 401(k) Plan Fees, which includes a 401(k) fees checklist, when comparing and assessing the fees charged by their various providers. In addition to the resources we specifically asked about, one sponsor noted using Labor’s Frequently Asked Questions, available on its website, but also reported not knowing how much the plan paid in investment management and consulting fees. Another sponsor, who did not know about Labor’s resources, commented that Labor’s website is massive, which could make it difficult to access 401(k) information. Additionally, in March 2012, we reported that many small employers with retirement plans were unaware of Labor’s education and outreach initiatives and recommended that Labor take steps to enhance the visibility and usefulness of federal guidance on retirement plans for small employers. Sponsors typically rely on their service providers for plan fee information and advice, which may be one reason sponsors do not use the resources on Labor’s website. Our prior work indicated that small employers use plan service providers to address various aspects of plan administration and may lack the financial resources and in-house expertise to manage a plan. Our survey of small and large plan sponsors shows that about 95 percent of plans hired outside entities, such as a plan consultant, an investment adviser, or a third-party administrator, to help with plan functions. In survey comments, some sponsors told us that their service providers either provided or could provide other types of information, such as a breakdown of fees by services performed or comparative plan size benchmarking data, to help ensure the services provided to the plan are necessary and the fees for those services are reasonable. However, our survey results do not indicate that Labor’s efforts are reaching its target audience, even though it aims to educate and assist employers, particularly small employers, in understanding their obligations under the law and related regulations. Labor has also made changes to the Form 5500, expanding plan data available to sponsors and others, but sponsors are not using the additional information to help them manage their plans. In particular, an updated Form 5500 Schedule C requires plan sponsors to collect and classify the fees they pay service providers as either direct or indirect compensation. Although these changes were implemented for plan year 2009 filings, understanding indirect fees continues to challenge plan sponsors, as we noted in the previous section of this report. On the basis of our survey, of those that reported completing Form 5500 Schedule C, the additional compensation information helped sponsors of an estimated 17 percent of plans negotiate fees with their current providers. Furthermore, even less, between 2 and 3 percent, reported that Form 5500 information was used to compare fees paid with those charged by other providers. As shown in figure 12, sponsors did not know or use Form 5500 information to compare or assess fees charged by various service providers. Specifically, sponsors of an estimated 50 percent of plans did not use Form 5500 data available on Labor’s website to compare and assess record keeper fees, and about 47 percent did not know the data could be used for this purpose. Moreover, industry experts and sponsors told us that plan reporting is an onerous and costly part of operating and maintaining a 401(k) plan. In addition, even if sponsors wanted to use Form 5500 data from other plans to determine fees, they would be hindered because of several limitations we found, such as the inability to search for reports of plans with similar features or the same provider to compare fees. Table 4 describes some limitations that pose obstacles to sponsors using Form 5500 data. As of December 2011, Labor did not have plans to address these limitations. For example, while Labor is developing an online search capability for pre-2009 filings, which are currently not searchable, it does not have plans to expand the search functions and capabilities for information filed under the new Form 5500 web-based filing system. Labor has also not taken steps to make additional information about the publicly available pre-2009 Form 5550 data to help sponsors and others use it more effectively. We previously reported that service provider disclosures can be very complicated and difficult to understand, which could reduce their usefulness to plan sponsors. Our survey results also indicate that even when certain service provider business arrangements, such as revenue sharing, are disclosed to sponsors, they may not fully understand how these arrangements affect plan fees. On February 3, 2012, Labor finalized the regulations regarding disclosure of service providers’ direct and indirect compensation, which is intended to provide sponsors with information to assess the reasonableness of fees received by plan service providers, their affiliates, and subcontractors. Additionally, the final rule encourages service providers to provide the information in a summary format or offer a guide to sponsors to help them locate information, but does not require such actions. However, our survey also shows that sponsors contract with more than one provider, some of which have revenue sharing arrangements with other providers. Therefore, under the final rule, sponsors could receive disclosure statements in different formats from different providers, which may further contribute to sponsors’ confusion about plan fees. We previously recommended that Labor require that the service provider disclosures be provided in a consistent and summary format, and in light of our survey results, making these actions a requirement and not voluntary on the part of service providers may be useful to plan sponsors. Labor has also taken steps to broaden its oversight of service providers, particularly investment advisers, which may help sponsors in their role as plan fiduciaries, but the impact of its actions remains to be seen. In October 2010, Labor proposed regulations to amend the definition of an ERISA fiduciary to account for significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice by reducing the number of conditions that need to be met to be deemed an ERISA fiduciary. These changes would likely allow Labor to oversee a broader range of plan providers. However, on September 19, 2011, Labor withdrew its proposal, citing the need for more public input and announced that it will repropose its rule in 2012. While Labor’s initial proposal to amend the definition of an ERISA fiduciary may help reduce confusion on the part of plan sponsors with respect to their providers that provide investment advice, it may not address any unclear roles related to a variety of other providers that have considerable influence over the plan sponsor. Our survey results show that, on the basis of respondents’ perceptions, various providers other than investment advisers also serve as plan fiduciaries, but some may not be considered fiduciaries under current and proposed regulations. For example, of those that use a third-party administrator, sponsors of an estimated 14 percent of plans reported that their administrator also served as a plan fiduciary. Sponsors also reported that some bundled service providers served as fiduciaries. However, most service providers, including some investment advisers, are not considered to be plan fiduciaries by plan sponsors, according to information on our survey. We also found that some sponsors relied on providers, who may not be considered plan fiduciaries under current regulations, to perform fiduciary functions, which can lead to gaps in plan oversight. As shown in figure 13, service providers who perform certain activities could be considered ERISA fiduciaries, and thus under the authority of Labor; however there are circumstances that may result in an unclear fiduciary role. During the course of our review, we found instances in which plan fiduciary roles were unclear. For example, we met with a sponsor of a small plan that told us the plan relied on its bundled provider to the extent that the sponsor considered the provider a plan manager and never felt the need to negotiate plan fees, because the sponsor trusted that the provider’s representatives would let the sponsor know if the plan was being overcharged. This sponsor also told us that the provider’s representative was always very clear that the information provided was not investment advice, and therefore the provider may not be considered an ERISA fiduciary. In another instance, a sponsor told us that the selection of the plan’s investment provider was based on the recommendation of the plan’s third-party administrator, whose fiduciary status was unclear. Nonetheless, unclear fiduciary roles can lead to gaps in plan oversight. We previously reported that Labor generally would not be able to take action against a provider that was not considered a fiduciary under ERISA, and even in instances in which the courts have allowed Labor to pursue nonfiduciaries that contribute to a fiduciary breach, Labor officials noted that remedies were limited. These limitations are further exacerbated by the fact that, as our survey shows, in the current retirement market, sponsors heavily rely on providers that may not be considered plan fiduciaries to help them manage their plans. Therefore, in addition to Labor’s ongoing effort to amend the definition of an ERISA fiduciary, Labor may need to conduct a separate evaluation of relationships between sponsors and providers, whose fiduciary status is unclear. Such an evaluation may help Labor better oversee providers that may knowingly or unknowingly charge sponsors and participants higher fees than are necessary. While some of our fee estimates are not representative of all 401(k) plans, our results indicate that small plans, which account for the majority of 401(k) plans, pay higher fees for a number of reasons. Our previous work on issues related to retirement plan sponsorship among small employers indicated that starting and maintaining a plan can be challenging. Some small plan sponsors are overwhelmed by the various administrative and fiduciary responsibilities and use service providers to help manage their plans, which can be costly. Regardless of plan size, many of these fees charged in 401(k) plans are passed along to plan participants, which ultimately results in reduced retirement savings. In this regard, plan sponsors may need to be aware of and closely monitor the fees charged by various service providers to help ensure the fees they and their participants pay are not excessive. However, in several instances, sponsors of large and small plans did not know or fully understand the fees charged to their plans, because fee arrangements have become so complex and may be disclosed differently, adding to sponsor confusion about plan fees. In addition, because sponsors of plans of all sizes may not be aware of certain fees that participants are paying, such as transaction costs and wrap fees, it is difficult to get a clear understanding of the total fees that participants are actually paying. Labor has taken actions to help educate plan sponsors and provide them with complete information about fees, but our survey shows that Labor’s efforts are not reaching its target audience. While Labor’s service provider disclosure regulation is likely to provide plan sponsors with information to help them assess the reasonableness of fees received by plan service providers, our survey results show that sponsors whose providers are already disclosing revenue sharing arrangements have trouble understanding the impact of these arrangements on plan fees. Furthermore, sponsors in our survey had more than one provider and will likely receive multiple disclosure statements under the new regulation. Thus, more disclosures from multiple service providers about their fees may not be enough to ensure sponsors, and ultimately participants, are paying the most appropriate fee for plan services if they do not fully understand how certain arrangements work. By taking a more proactive approach to its educational outreach efforts, thereby ensuring its efforts are more effective at reaching plan sponsors, particularly those of small plans, who may lack the in-house expertise and resources necessary to manage their plans, Labor can increase the awareness of how fees are charged under complex arrangements and reduce the likelihood that sponsors and participants pay higher fees than necessary. Although the Form 5500 was not intended to be a comprehensive database of plan fees, it could be a valuable source of information for sponsors to help them compare the fees they pay with those paid by other plans of similar size. Without enhancements to Labor’s website, such as search functions for multiple purposes and different audiences, it will be difficult for users, namely plan sponsors, to use Form 5500 data, if they so choose, to compare the fees charged by service providers. Labor has a unique opportunity to make the information it collects available to sponsors in a way that will help them compare and negotiate their fees. In the absence of better access to high-quality plan fee information, sponsors will continue to rely on service providers for comparative fee information, which may or may not be unbiased. In addition, sponsors will continue to believe filing the form is onerous and not beneficial to them, because they cannot easily access and use it to determine fees. Finally, our work shows that numerous providers have significant influence over sponsors and plan decisions but do not consider themselves to be fiduciaries, are not considered fiduciaries by plan sponsors, and may not be considered fiduciaries under Labor’s proposed changes because they do not provide investment advice or have not already identified themselves as fiduciaries. In addition to Labor’s ongoing efforts, an evaluation of the entire definition of the term “fiduciary” would be helpful to plan sponsors and service providers. Without an evaluation that considers the current structure of the retirement market, sponsors may continue to be unclear about the role of their providers. In addition, Labor may not have the ability to pursue service providers who have substantial influence over the plan and may seek to profit at the expense of the plan participants. In order to help plan sponsors better understand how fees are charged to their plans and to help them make well-informed decisions, we recommend that the Secretary of Labor develop and implement alternative approaches to Labor’s plan sponsor outreach and education initiatives that actively engage sponsors and allow the agency to track sponsor engagement. Such actions could include e-mailing sponsors about new regulations, guidance, and tools available on its website, and then monitoring website traffic and publication downloads to determine whether such initiatives are reaching their targeted audience. To help sponsors better understand and monitor plan fees, including those paid by participants, Labor should enhance web access to publicly available fee information it collects on the annual Form 5500 to provide sponsors with information to compare and assess fees charged by service providers, such as building in the ability to search for and create customized reports of plans with similar features or providers for the purpose of benchmarking. It should also consider developing and posting key information, such as a data dictionary, about the publicly available Form 5500 datasets on its website, similar to the information distributed about the Form 5500 research files. To help strengthen Labor’s ability to oversee 401(k) plans, we recommend that in addition to Labor’s ongoing efforts, Labor should evaluate whether individuals and service providers who exert significant control over the plan should be considered ERISA fiduciaries. We provided a draft of this report to Labor, the Department of the Treasury, and SEC for their review and comment. The Department of the Treasury did not have any comments. Labor and SEC provided technical comments, which we incorporated as appropriate. Labor also provided written comments, which are reproduced in appendix III. In its written response, Labor generally agreed with our findings and recommendations. Labor appreciated our interest in improving awareness of plan fees and in ensuring that employers and other plan fiduciaries make more informed decisions with respect to the management of 401(k) plans. Labor noted that helping plan sponsors and participants obtain objective services at a fair price by enhancing the transparency of plan fees has been one of its highest priorities in recent years. Specifically, Labor cited the completion of three regulatory initiatives—(1) a regulation regarding the disclosure of service provider fee and revenue sharing arrangements, (2) disclosure of plan and investment-related information to participants and beneficiaries in 401(k)-type plans, and (3) changes to the information large plans must report about service provider compensation on the Form 5500—designed to augment and improve the disclosure of plan fee information at all levels. Labor was surprised that these initiatives were not highlighted more prominently in the summary section of the report. In fact, we outline these regulations in the background section of the report, discuss issues related to Labor’s service provider disclosure regulation in the third section of the report, and summarize our overall assessment of Labor’s regulatory actions on our highlights page. Labor also noted that the draft report did not include a substantive discussion of how these regulations are expected to address the issues raised in the report. Of the three regulations Labor noted, two—Labor’s regulations regarding service provider disclosures to plan fiduciaries and disclosures to participants and beneficiaries—had not yet been implemented during our review, and therefore their effectiveness remains to be seen. With respect to the third regulation noted in Labor’s written comments regarding changes to Schedule C of the Form 5500 Annual Report, which began with the 2009 plan year, our report and e- supplement describe these changes and how sponsors have used the additional information collected on the Form 5500. Our survey results show that the additional information collected on Schedule C provided some plan sponsors more useful information about their provider’s compensation, but it did not help many sponsors negotiate plan fees nor did it result in the ability to compare fees paid with those charged by other service providers. We commend Labor for quickly responding to our prior recommendation to finalize the regulation regarding disclosures of service providers’ direct and indirect compensation from plan investments and Labor’s efforts to collect information on a guide or similar requirement to assist plan sponsors in identifying and understanding the disclosures. As we noted in the third section of this report, service provider disclosures under the new regulation may be difficult to understand, and multiple disclosures in different formats may further contribute to sponsors’ confusion about plan fees. Labor shared our concerns about how plan fee information could be presented to sponsors and stated it will propose for public comment a supplement to the service provider disclosure regulation to fully address our previous recommendation. Regarding our third objective, Labor appreciated our interest in EBSA’s outreach and educational efforts on key fiduciary responsibilities, such as the fees paid for operating retirement plans. With respect to our recommendation on Labor’s approach to plan sponsor outreach and education, Labor cited several ongoing efforts to engage sponsors and stated that it is exploring new ways to reach plan sponsors. We commend Labor for its efforts to provide educational information to the public; host webcasts on complex topics, such as its new fee regulations; and work with stakeholders, such as the Small Business Administration, to reach plan sponsors with its limited resources. However, throughout the section we illustrate through various survey results that Labor’s efforts are not currently reaching its target audience. Specifically, our survey results show that sponsors of more than 90 percent of 401(k) plans either did not use or did not know about Labor’s resources. We recognize that reaching sponsors may be challenging, but attempts to directly reach sponsors and help ensure they are considering all the relevant information when making plan decisions will be even more important as Labor’s regulatory changes take effect. Consequently, we continue to believe new approaches to outreach are needed to help educate sponsors about complex fee arrangements and ensure sponsors and participants do not pay higher fees than necessary. With respect to our findings on the availability of Form 5500 data, Labor shares our interest in making the data collected accessible to the public. Regarding our recommendation that Labor provide additional documentation to help users of the unedited Form 5500 data, Labor plans to explore the implementation of our recommendation. With respect to our recommendation that Labor enhance web access to facilitate sponsors’ ability to compare and benchmark fees, Labor noted that a web tool for these purposes would have a limited effectiveness because of some inherent limitations to the Form 5500 data. Our report also outlines limitations with the data including the fact that not all plan fees are explicitly reported on the Form 5500. However, we continue to believe that the fee information collected could help sponsors monitor and compare fees. Additionally, while Labor also noted that it believes its new fee disclosure regulations will be a better tool for expanding transparency and encouraging informed comparison shopping by plan fiduciaries, as we previously noted, the effects of these regulations remain unclear. Furthermore, although Labor notes that the Form 5500 was not designed to be a government database for evaluating compensation arrangements in the pension plan market, it remains the primary and most comprehensive source of information on U.S. private pension plans and could be more effectively used to help sponsors. Thus, we reaffirm our recommendation to enhance web access to publicly available Form 5500 data. Finally, with respect to our findings about the fiduciary status of service providers, Labor stated that it appreciated our support for its recent effort to update its rule defining the persons who are investment advice fiduciaries under ERISA. Regarding our recommendation to evaluate the types of individuals who should be considered ERISA fiduciaries, Labor agreed that there are individuals and service providers who exert significant control over plan decisions and should be held accountable for the advice they provide as fiduciaries. Labor noted that this regulatory initiative continues to be a high priority and that the agency plans to craft a clear and workable regulation that provides the strongest possible protections to individuals as well as to plan sponsors who offer retirement plans for their workers. While our review focused on plan sponsors, we recognize that 401(k) plan participants generally make investment decisions for their own accounts and ultimately pay the vast majority of plan fees. Therefore, we also agree with Labor’s position that the absence of adequate fiduciary protections and safeguards is particularly problematic for plan participants. As arranged with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Labor, the Secretary of the Treasury, and the Chairman of the Securities and Exchange Commission. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. On the basis of our research objectives, we obtained information on fee amounts paid by sponsors and participants for services, examined challenges sponsors faced in understanding how fees are charged, and identified actions the Department of Labor (Labor) has taken to help sponsors understand and monitor fees. We conducted this performance audit from October 2010 to April 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. To answer our research objectives, we reviewed relevant federal laws and regulations pertaining to 401(k) fees and fee disclosure. We also reviewed available guidance provided by Labor, the Securities and Exchange Commission (SEC), and industry research related to understanding and disclosing fee information. We interviewed Labor, SEC, and Internal Revenue Service officials; industry experts; plan sponsors; and service providers to learn about current and proposed regulations and the requirements governing the disclosure of fee information as well as factors that affect the amount of 401(k) fees that can be charged to sponsors and participants. We also surveyed plan sponsors to obtain information regarding their plans from calendar year 2010, such as the fee amounts paid for certain services, the factors they considered in selecting service providers, the investments offered to plan participants, and Labor resources they may have used, among other things. We conducted our survey using mail and electronic distribution from May 2011 to September 2011. To encourage survey participation, we obtained permission from our congressional requesters to remove links in our paperwork between individuals’ identities and their responses. We informed sponsors of this agreement in the introductory letter transmitted with the survey. A copy of the questionnaire and survey responses for most questions is available in the e-supplement to this report, GAO-12-550SP. The practical difficulties of conducting any survey may introduce errors, commonly referred to as nonsampling errors. For example, difficulties in interpreting a particular question or sources of information available to respondents can introduce unwanted variability into the survey results. We took steps in developing the questionnaire, collecting the data, and analyzing them to minimize such nonsampling error (see below). In order to capture information from plans of all sizes, we identified the population of 401(k) plans using Form 5500 filings submitted for plan year 2009, which resulted in approximately 468,000 unique active plans. We used Form 5500 data because they are the primary data source of information about the operations, funding, and investments of approximately 800,000 retirement and welfare benefit plans. We chose to use the Form 5500 dataset for the 2009 plan year because it was the most current and accurate available as of January 2011. For details on our methodology for identifying the population of 401(k) plans and assessing the reliability of Form 5500 data, see appendix II. We drew a representative sample of 1,000 401(k) plans from the 2009 population. We stratified our sample based on the number of participants reported at the beginning of plan year 2009 into five groups: fewer than 10 participants, 10-49 participants, 50-99 participants, 100-499 participants, or 500-plus participants. This stratification emphasized smaller plans because a majority of plans in the 401(k) plans universe have fewer than 500 participants. Although our sample was grouped into five strata, for the purposes of comparison and to help increase the statistical power of our estimates, we analyzed survey results by three groups: fewer than 50 participants (small), 50 to 499 participants (medium), and 500 or more participants (large). We defined “small,” “medium,” and “large” for the purposes of our report, as there is no industrywide definition. To inform the design of our survey instrument, we reviewed surveys conducted by companies and industry organizations and met with them to gain a better understanding of their methodology and any limitations. In addition, for each of our five strata, we conducted two to three in-person and telephone pretests with plan sponsors in four geographically different areas representing an array of businesses for a total of 13 pretests to ensure that survey questions were collecting the expected information, obtain any suggestions for clarification, and determine whether sponsors would be willing to provide fee information. For the 1,000 plans in our sample, we contacted the individuals who signed the Form 5500 as the plan sponsor or plan administrator, because these individuals are generally responsible for, or serve on the committee responsible for, selecting a 401(k) plan’s investment options or service providers, among other key plan decisions that affect plan fees. To help ensure the plan was still within the scope of our review and that the identified individual was the appropriate survey respondent to complete the survey, we contracted with a survey research firm to call sampled sponsors to confirm the name and contact information of the target. Contractor staff used a call script, which we drafted, and included questions about whether the plan was still active. The script also included several screening questions to help determine whether our identified target was the appropriate survey respondent. These questions were as follows: Are you or a committee you serve on responsible for selecting the companies that provide services such as recordkeeping, financial advice, or managing securities, for your 401(k) plan? Are you or a committee you serve on responsible for selecting the menu of investment options for your company’s 401(k) plan? Are you or a committee you serve on responsible for handling non- investment decisions for your company’s 401(k) plan, such as the level of the employer match and rules about loans, vesting, and coverage? We included these questions to help ensure that a person knowledgeable about the plan received the survey and reduce the likelihood of response bias being introduced by nonfiduciaries completing the survey. We determined that if a target did not respond affirmatively to at least two of three questions, then contractor staff should attempt to collect the name and contact information for an alternative target. If contractor staff were able to connect with the alternative target, the screener questions were again asked. Once the survey had been fielded, contractor staff conducted follow-up calls using a script to confirm that the target had received the survey and encourage participation. As with the first round of calling, the script included questions geared toward verifying the plan was still active and that the appropriate target received the survey. Inactive plans were considered to be out of scope for this survey. As summarized in table 5, we obtained questionnaires from 365 respondents, for an overall weighted response rate of 39 percent. We conducted a nonresponse bias analysis to see if the characteristics of survey respondents generally reflected population characteristics, such as plan size (i.e., the total number of participants), total plan assets, geographic distribution, and nature of business. We initially used variables available in the Form 5500 data to look at plans’ propensity to respond to the survey. We looked at a couple of models, but found that the stratification variable did as good a job of predicting response as the other models. The differences between the models were not substantively significant. The number of participants is the basis of our stratification variable and a significant factor for the propensity of response. We assumed that the nonrespondents were missing at random within each stratum and used the strata as nonresponse adjustment cells. The results of our analysis enable us to generalize our results to the total population of 401(k) plan sponsors for most survey questions. All percentage estimates from the survey have margins of error at the 95 percent confidence level of plus or minus 8 percentage points or less, unless otherwise noted. We also conducted integrity checks of answers across questions and enforced skip patterns, when appropriate. As a result of this review, we re-categorized the type of information provided by some sponsors when their responses were inconsistent. For example, if a sponsor did not respond to the question asking whether the plan paid recordkeeping and administrative fees, but in a subsequent question listed amounts paid or that were taken out of plan assets for recordkeeping and administrative services, we determined it was reasonable to categorize the plan as having paid these fees. To compare fees reported for (1) recordkeeping administrative services, (2) investment management, (3) retirement plan consulting and investment advice, and (4) other fees, we generated estimates of the amounts paid by plan sponsors and participants. We calculated our estimates as a percentage of plan assets and on a per participant basis using the annual amounts reported by sponsors for each service, plan assets, and number of plan participants for calendar year 2010. We calculated fee estimates by each service type, instead of calculating an overall fee amount, because only 14 of our 365 survey respondents provided amounts for all of the services. When generating our estimates of the amounts paid by sponsors for a particular service, we excluded a sponsor’s response if the value for the amount that the sponsor paid was missing; the sponsor indicated that it did not know the amount paid by reporting a value of “1” per survey instructions; or the value for plan assets or number of plan participants was missing, since these were needed to estimate fees as a percentage of assets and on a per participant basis, respectively. Similarly, when generating our estimates of the amounts paid by participants for a particular service, we excluded a sponsor’s response if the value for the amount that participants paid was missing; the sponsor indicated that it did not know the amount paid by participants by reporting a value of “1” per survey instructions; or the value for plan assets or number of plan participants was missing, since these were needed to estimate fees as a percentage of assets and on a per participant basis, respectively. In addition, we also exclude respondents who indicated their fees were waived or the amount the sponsor paid was zero when reporting ranges and averages to more accurately represent the fees deducted from plans and plan participants. As part of our analysis of sponsors’ understanding of how fees are charged to plans, we analyzed documents that sponsors submitted with their survey responses. Of the 365 plan sponsors who responded to our survey, 163 provided copies or successfully uploaded documents for our request for a summary of all investment options and the fees associated with each option. We reviewed the documents provided to determine if their plans paid revenue sharing fees, such as 12b-1 or sub-TA fees, and wrap fees associated with insurance products. We also reviewed investment fund prospectuses associated with the investment options included in the documents sponsors submitted to determine if their plans paid these fees. Finally, for respondents for whom data were available, we reviewed fee reports generated by a third party, BrightScope, to determine the fees associated with transaction costs for individual investment options. BrightScope calculates estimates of 401(k) plan fees by drawing on publicly available data, primarily Form 5500 filings.BrightScope fee data are limited to plans with more than 100 participants, because the data’s main source is Form 5500 Schedule H–Financial Information, which includes independently audited information, and plans with fewer than 100 participants are generally not required to file this schedule. We took actions to determine whether the BrightScope data were sufficiently reliable for our purpose of describing the range of transaction costs incurred by 401(k) plan participants by interviewing company representatives and reviewing the methodology used to develop estimates. In conducting a review of fees and analysis of supplemental documents, it was not the purpose, nor does GAO purport, to identify situations or circumstances in this report where plan sponsors or fiduciaries may have breached their fiduciary duties. Determining whether a fiduciary breach has occurred is based upon the facts and circumstances of each case. Our follow-up with plan sponsors was not aimed at reaching this determination. Therefore, our findings should not be read as indicating a breach of fiduciary or other obligation. To identify our study population of 401(k) plans, we obtained the most current and complete Form 5500 Annual Reports/Filings from Labor, which as of January 2011 were plan year 2009 data. We used Form 5500 data because they are the primary data source of information about the operations, funding, and investments of approximately 800,000 retirement and welfare benefit plans. During our initial meeting with Labor officials on November, 30, 2010, the most complete dataset available was for plan year 2007 and plan year 2008 data would be available in the spring of 2011. However, according to Labor officials, 2008 data are the least accurate and reliable of years 2007, 2008, and 2009—with 2009 being the most accurate. By January 2011, about 85 percent of the expected filings for 2009 were received and validated. The main reason that Labor has not received the remaining 15 percent of expected filings is because plans can have later beginning and ending plan dates (i.e., December 30, 2009-December 31, 2010) and therefore are not yet required to file. For example, if a plan’s begin date is December 31, 2009, and end date is December 31, 2010, the normal statutory deadline to file would be July 31, 2011. Labor officials suggested that we supplement incomplete 2009 filings with 2008 filings. On the basis of testimonial evidence from Labor officials and representatives from other entities that regularly use Form 5500 data, and our review of key variables, we determined that the 2008 data were not sufficiently reliable for our purpose of identifying the population of 401(k) plans for a single year. To assess the reliability of Labor’s data, we (1) performed electronic checking for errors in accuracy and completeness; (2) reviewed related documentation, such as the system’s Data Element Requirements; and (3) held numerous meetings and remained in ongoing correspondence with Labor to discuss data fields and analysis procedures. When we found inconsistencies, for example, between the data and information Labor officials told us about the structure of the file, we clarified them with Labor. For example, during our interviews with Labor, we learned that the unedited Form 5500 datasets contained duplicate filings for unique plans (with a unique combination of an Employer Identification Number and plan number), because filers may amend their returns and, for data file pre-2009, steps would need to be taken to identify the most current filing. After clarifying and resolving our questions pertaining to the data, we concluded that the 2009 dataset was reliable for the purpose of identifying the population of 401(k) plans. In using plan year 2009 data, we had to merge data filed from filers of the normal Form 5500, and the Form 5500-SF (Short Form) filings for small plans—generally plans with fewer than 100 participants—that choose to file the new shorter form. Our analysis also included a review of plan assets, which are filed in Schedule H–Financial Information for plans with 100 or more participants at the beginning of the plan year and Schedule I–Financial Information-Small Plan for plans with fewer than 100 participants. Because data filed for schedules are stored separately, financial information for plans also had to be merged before we could conduct our analysis of the data. For the purposes of this report, we defined our study population as unique single-employer-sponsored 401(k) plans. On the basis of discussions with Labor officials, a unique plan is defined by a unique combination of a plan’s Employer Identification Number and plan number, because private sector companies may have more than one plan. We also took the following steps to edit the data: Excluded other plan year filings: We first checked for and removed records in the dataset that were not for the 2009 filing year. Labor accepts and processes Form 5500 filings as companies submit information, which could be for an earlier plan year, but included in a different year’s Form 5500 dataset. 401(k) plans: Because the scope of the job focuses on 401(k) plans and not other pension plans, such as defined benefit plans, we created a subset of the data for only 401(k) plans by reviewing records in which the filer indicated “2J” as a pension feature. Labor officials recommended that we review the plan name for variations of 401(k), such as “401(k)” or “401k”, because some filers do not correctly complete or update their pension feature codes, a recommendation that we incorporated into our design. Single-employer plans: We exclude multiemployer plan and multiple-employer plan filers, because these plans are maintained by more than one employer for special groups such as labor unions and are typically managed by going to another source for a pension plan model. We removed records for plan filers that were not single- employer plans—multiemployer, multiple-employer, and direct filing entity. Final return: Last, we dropped plans in which the filer indicated that the report was the final return/report. We assume a final return indicates that the plan is no longer active. The establishment sponsoring the plan could have gone out of business or the plan may have been rolled over as a result of an acquisition or merger. Our analysis yielded a population of more than 468,000 active unique single-employer-sponsored 401(k) plans for plan year 2009; see the table below for additional details. In addition to the contact named above, Tamara Cross, Assistant Director; Lacy Vong, Analyst-in-Charge; Joy Myers; Nathan Gottfried; Michael Aksman; and Kun-Fang Lee made important contributions to this report. Cynthia Grant, Ying Long, Karen O’Conor, Carl Ramirez, and Walter Vance provided technical support in methodology, survey design, and data analysis. Frank Todisco provided technical advice. Roger Thomas and Sheila McCoy provided legal assistance. Ernest Powell and Mimi Nguyen created visuals for the report and provided graphic design assistance. Kathy Leslie, Delores Hemsley, Timothy Hunter, and David Chrisinger also provided support. | Studies have been conducted to better understand the fees 401(k) plan sponsors and their participants pay. However, these studies focus on larger plans. Thus, uncertainty remains about the amounts paid by small and medium-sized plans and the level of knowledge and expertise these sponsors have to assess the fees charged by service providers. GAO addressed the following related to small, medium-sized, and large plans: (1) amounts plan sponsors and participants pay for services, (2) challenges sponsors face in understanding how fees are charged, and (3) actions Labor has taken to help sponsors better understand and monitor the fees charged by service providers. GAO reviewed relevant federal laws, regulations, and retirement research, and interviewed federal officials and industry experts. GAO also conducted a survey of 1,000 401(k) plans to collect information about fees paid for plan services. The response rate allowed GAO to generalize to the population of 401(k) plans for most of the survey questions. The survey instrument and most results can be viewed at GAO-12-550SP . Plan sponsors and participants paid a range of fees for services, though smaller plans typically paid higher fees as a percentage of plan assets. For example, the average amount sponsors of small plans reported paying for recordkeeping and administrative services was 1.33 percent of assets annually, compared with 0.15 percent paid by sponsors of large plans. Larger plans were more likely to pass recordkeeping fees along to participants, but when fees were passed along to participants in small plans, those in large plans paid lower fees than those in small plans. Participants also paid for investment and plan consulting feesthrough fees deducted from their plan assetsin more instances than sponsors. GAOs survey and review of plan documents showed that some sponsors faced challenges in understanding the fees they and their participants were charged. Some sponsors did not know if their providers used complex fee arrangements, such as revenue sharing, or if their plans paid certain fees under an insurance contract, such as a group annuity contract. In addition, some sponsors reported knowing about arrangements, but did not fully understand how these fees were charged. For example, one relatively large plan underestimated recordkeeping fees by more than $58,000, because the sponsor did not include the fees charged to participants accounts under its revenue sharing arrangement. The Department of Labor (Labor) has taken several actions to help sponsors understand and monitor fees charged by service providers. For example, Labor disseminates a number of publications and resources, including a 401(k) fees checklist that is available to sponsors on its website to help them better understand plan fees. However, according to GAOs survey results, more than an estimated 90 percent of sponsors either did not know about or have not used Labors resources to compare and assess plan fees. Additionally, sponsors have access to the plan information of others, including some fees paid, through the Form 5500, but GAOs survey also shows that the information is not being used by sponsors. Finally, although Labor has recently taken on regulatory initiatives to enhance fee disclosures to sponsors, their effect remains to be seen. For example, Labor is in the process of revising a proposed change to the definition of the term fiduciary, which may allow Labor to oversee a broader range of plan investment advisers. However, Labors authority over other types of providers, who have considerable influence over sponsors and may charge sponsors and their plan participants excessive fees, is limited. The Department of Labor (Labor) has taken several actions to help sponsors understand and monitor fees charged by service providers. For example, Labor disseminates a number of publications and resources, including a 401(k) fees checklist that is available to sponsors on its website to help them better understand plan fees. However, according to GAOs survey results, more than an estimated 90 percent of sponsors either did not know about or have not used Labors resources to compare and assess plan fees. Additionally, sponsors have access to the plan information of others, including some fees paid, through the Form 5500, but GAOs survey also shows that the information is not being used by sponsors. Finally, although Labor has recently taken on regulatory initiatives to enhance fee disclosures to sponsors, their effect remains to be seen. For example, Labor is in the process of revising a proposed change to the definition of the term fiduciary, which may allow Labor to oversee a broader range of plan investment advisers. However, Labors authority over other types of providers, who have considerable influence over sponsors and may charge sponsors and their plan participants excessive fees, is limited. GAO recommends that Labor develop and implement more proactive approaches to sponsor educational outreach, improve public access to annual Form 5500 data, and examine the definition of a fiduciary to determine if it captures the current relationship between sponsors and providers. In response, Labor generally agreed with the findings and will explore ways to implement these recommendations. |
Agencies should have sufficient staff with the technical expertise to oversee the activities under their authority. Oil and gas production methods on federal lands and waters have become increasingly sophisticated over the past decade. Additionally, oil and gas companies now rely on information technology to manage and oversee their operations. In a March 2010 review, we found that Interior had challenges in hiring, training, and retaining staff in critical oil and gas oversight roles, leading to questions about the technical capacity of Interior staff overseeing oil and gas activities. We found that Interior has faced difficulties in hiring, retaining, and training staff in key oil and gas oversight positions. Specifically, we found that staff within Interior’s program for verifying that oil and gas produced from federal leases are correctly measured—including petroleum engineers and inspectors—lacked critical skills because, according to agency officials, Interior 1) has had difficulty in hiring experienced staff, 2) has struggled to retain staff, and 3) has not consistently provided the appropriate training for staff. Interior’s challenges in hiring and retaining staff stem, in part, from competition with the oil and gas industry, which generally pays significantly more than the federal government. Moreover, key technical positions responsible for oversight of oil and gas activities have experienced high turnover rates, which, according to Interior officials, impede these employees’ capacity to oversee oil and gas activities. These positions included petroleum engineers, who process drilling permits and review oil and gas metering systems, and inspection staff—including BLM’s petroleum engineer technicians and production accountability technicians onshore—who conduct drilling, safety and oil and gas production verification inspections (see app. I). For example, we found that turnover rates for OEMM inspectors at the four district offices we reviewed between 2004 and 2008 ranged from 27 to 44 percent. Furthermore, Interior has not consistently provided training to the staff it has been able to hire and retain. For example, neither onshore nor offshore petroleum engineers had a requirement for training on the measurement of oil and gas, which is critical to accurate royalty collections and can be challenging at times because of such factors as the type of meter used, the specific qualities of the gas or oil being measured, and the rate of production. Additionally, although BLM offers a core curriculum for its petroleum engineer technicians and requires that they obtain official BLM certification and then be recertified once every 5 years to demonstrate continued proficiency, the agency has not offered a recertification course since 2002, negatively impacting its ability to conduct inspections. It is important to note that BLM’s petroleum engineer technicians are the eyes and ears for the agency—performing key functions and also perhaps the only Interior staff with direct contact with the onshore lease property itself. We also found that Interior’s efforts to provide its inspection staff with mobile computing capabilities for use in the field are moving slowly and are years from full implementation. Interior inspectors continue to rely on documenting inspection results on paper, and later reentering these results into Interior databases. Specifically, Interior’s BLM and OEMM are independently developing the capacity for inspection staff to (1) electronically document inspection results and (2) access reference documents, such as American Petroleum Institute standards and measurement regulations, via laptops while in the field. BLM initiated work on developing this capacity in 2001, whereas OEMM is now in the preliminary planning stages of a similar effort. According to Interior officials, widespread implementation of a mobile computing tool to assist with production verification and other types of inspections, potentially including drilling and safety, are still several years away. Interior officials said having such a tool would allow inspection staff to not only easily reference technical documents while conducting inspections to verify compliance with regulations but also to document the results of those inspections while in the field and subsequently upload them to Interior databases. An effective oversight program should include a component for systematic inspections and reviews, whose findings should be documented and subsequently addressed. In several recent reviews, we found that Interior had been unable to complete its necessary reviews, including both environmental and oil and gas production verification inspections and certain offshore environmental analyses. We found that Interior was unable to meet its goals for conducting environmental and oil and gas production verification oversight inspections because of a management focus on drilling. For example, in June 2005, we reported that Interior devoted fewer resources to completing onshore environmental inspections—inspections to ensure that oil and gas companies are complying with various environmental laws and lease stipulations. According to Interior staff, one of the principal reasons was that management shifted available resources to processing drilling permits. More recently, in March 2010, we reported that Interior had only been able to complete approximately one-third of the required onshore oil and gas production verification inspections, raising concerns about the accuracy of the oil and gas volumes reported to MRM. In another March 2010 report, we found that MMS faces challenges in the Alaska Outer Continental Shelf (OCS) Region in conducting reviews of oil and gas development under the National Environmental Protection Act (NEPA), which requires MMS to evaluate the likely environmental effects of proposed actions, including oil and gas development. Although Interior policy directed its agencies to prepare handbooks providing guidance on how to implement NEPA, we found that MMS lacked such a handbook. The lack of comprehensive guidance in a handbook, combined with high staff turnover in recent years, left the process for meeting NEPA requirements ill defined for the analysts charged with developing NEPA documents. It also left unclear MMS’s policy on what constitutes a significant environmental impact as well as its procedures for conducting and documenting NEPA-required analyses to address environmental and cultural sensitivities, which have often been the topic of litigation over Alaskan offshore oil and gas development. We also found that the Alaska OCS Region shared information selectively, a practice that was inconsistent with agency policy, which directed that information, including proprietary data from industry, be shared with all staff involved in environmental reviews. According to regional MMS staff, this practice has hindered their ability to complete sound environmental analyses under NEPA. In an August 2009 report examining Interior’s royalty-in-kind (RIK) program, we found that although MRM staff had made progress in conducting reviews of gas imbalances—instances where Interior may not be receiving the total amount of royalties due from gas production—they were unable to determine the exact amount the agency was owed for imbalances because it lacked certain key information. For example, MRM did not verify production data to ensure it received its entitled percentage of RIK gas from leases taken in kind. Without these and other data, MRM staff were unable to quantify revenues from imbalances, leading to forgone revenues and uncertainty about how much gas the government is owed. Until recently, Interior has left key functions it oversees without review for long periods. In two reports issued in 2008, we noted that Interior received less in royalties and other payments for development of its oil and gas resources than many other countries and that Interior did less than other landowners to encourage development of resources it leased for development. In a September 2008 report on royalties and other payments, we found that Interior had not done a comprehensive analysis of its royalty and other revenue structure in over 25 years, and we recommended that it do so. In an October 2008 report, we found that Interior had done less than selected states and private landowners to encourage development of oil and gas leases, and we recommended that it develop a strategy to evaluate options to encourage faster development on federal lands. Just this year, Secretary Salazar directed Interior to conduct studies examining these issues. We are encouraged that Interior is undertaking these efforts and hopeful that the findings of the studies will identify opportunities to improve Interior’s oversight of oil and gas development. Oversight entities must have the authority to ensure that all regulated entities fully comply with the law and applicable regulations. In our March 2010 report, we determined that in some instances Interior is uncertain about its legal authority for undertaking necessary enforcement actions and may be using its enforcement authority inconsistently. We found that Interior had not determined the extent of its authority over key elements of oil and gas production infrastructure necessary for ensuring accurate measurement. This infrastructure includes meters in (or after) gas plants, which may include the meter where oil and gas are measured for royalties and meters owned by pipeline companies. These companies frequently own, operate, and maintain the meter used at the official measurement point on federal leases and own the production data the meter generates. Because it did not know the extent of its authority, Interior did not know what steps it could take to enforce its standards and regulations for meters. Thus it lacked assurances that royalty-bearing volumes of oil and gas were correctly measured. We also found that Interior inspection staff were not, in all cases, pursuing enforcement actions when they identified oil and gas production activities not in compliance with its regulations. Specifically, we found that some Interior staff were not issuing incidents of non-compliance—a type of enforcement action—when they identified certain measurement devices during the course of their inspections, as they believe the current measurement regulations were out of date. If staff do not uniformly ensure compliance with regulations through specified procedures and document their findings, Interior is at risk of not capturing data to know the full extent of particular violations. Organizations should make relevant information widely available to ensure that those most affected by operations, including the public, can fully participate in decision-making processes that can, ultimately, have significant impacts. We recently found that Interior has been providing inconsistent and limited information with respect to its use of categorical exclusions in approving onshore oil and gas activities. Also, in preliminary results from our ongoing work on public challenges to BLM’s federal onshore oil and gas lease sale decisions, we found that BLM state offices provide limited and varying amounts of information to the public on their leasing decisions. In September 2009, we found that BLM’s use of categorical exclusions was not fully transparent. In addressing long-term energy challenges, Congress enacted the Energy Policy Act of 2005, in part to expedite oil and gas development within the United States. This law authorizes BLM, for certain oil and gas activities, to approve projects without preparing new environmental analyses that would normally be required by NEPA. Section 390 of the Energy Policy Act of 2005 does not specify procedures for involving or informing either the public or other government agencies when section 390 categorical exclusions are used. According to Interior and BLM officials, there is no requirement to publicly disclose that BLM used a section 390 categorical exclusion to approve a project or to disclose approved section 390 categorical exclusion decision documents. Instead, the public depends on the discretion of each field office for such disclosure. We found that BLM field offices had different degrees and methods of disclosing information related to decisions on section 390 categorical exclusions. For example, some field offices, such as White River and Glenwood Springs, Colorado, publicly disclosed online which Applications for Permit to Drill they approved with section 390 categorical exclusions. In contrast, other field offices, such as Price/Moab, Utah, and Pinedale, Wyoming, did not publicly disclose their decisions to use section 390 categorical exclusions and, in fact, required the public to file Freedom of Information Act requests to identify which projects BLM approved using section 390 categorical exclusions and to obtain copies of approved section 390 categorical exclusion decision documents. In some cases, it was difficult for other governmental agencies—including state environmental agencies—and the public to determine whether BLM had used a section 390 categorical exclusion until it was too late to comment on or challenge BLM’s action. When the public and other federal and state agencies do not have a reliable or consistent way of determining which projects have been approved with section 390 categorical exclusions, they lack a fundamental piece of information needed to hold BLM accountable for their use. In preliminary results from our ongoing work on public challenges to BLM’s federal oil and gas lease sale decisions in the four Mountain West states responsible for most onshore federal oil and gas development, we found the extent to which BLM made publicly available information related to public protests filed during the leasing process varied by state and was generally limited in scope. We also found that stakeholders— nongovernmental organizations representing environmental, recreational, and hunting interests that filed protests to BLM lease offerings—wanted additional time to participate in the leasing process and more information from BLM about its leasing decisions. In May 2010, the Secretary of the Interior announced several agencywide leasing reforms that are to take place at BLM, some of which may address concerns raised by these stakeholder groups. For instance, BLM state offices are to provide an additional public review and comment opportunity during the leasing process. They are also required to post on their Web sites their responses to letters filed in protest of state office decisions to offer specific parcels of land for oil and gas development. The agency should be free from the direct and indirect influence of the oil and gas industry. Our past work, as well as that of Interior’s OIG, has identified several instances where Interior staff had inappropriate relationships with oil and gas industry personnel, raising questions about whether Interior’s oversight efforts were sufficient. During the course of our audit work for our report on Interior’s use of categorical exclusions, allegations were made about inappropriate relationships between Interior management and the oil and gas industry. We referred these allegations to Interior’s OIG, which initiated an investigation. The results of the investigation substantiated these inappropriate contacts, the details of which are included in an Interior OIG investigative report. Additional reports by Interior’s OIG have also identified instances that call into question the independence of key staff working in Interior’s oil and gas program. In August 2008, Interior’s OIG reported on inappropriate relationships between staff working in Interior’s RIK program and the oil and gas industry. Specifically, the OIG found that between 2002 and 2006 nearly one-third of the RIK program staff socialized with and received a wide array of gifts and gratuities from oil and gas companies with whom the program was conducting official business. Most recently, in May 2010, the OIG reported on inappropriate relationships between Interior’s offshore inspection staff and certain oil and gas companies operating in the Gulf of Mexico. Interior’s Acting Inspector General stated that her greatest concern is the environment in which these inspectors operate, particularly the ease with which they move between industry and government. In conclusion, over the past several years, we and others have found Interior to be in need of fundamental reform. This past work has found weaknesses across a wide range of Interior’s oversight of onshore and off shore oil and gas development. Secretary Salazar has taken notable steps to begin comprehensive evaluations of leasing rules and practices as well as the amount and ways in which the federal government collects revenues. Interior is also currently implementing a number of our recommendations aimed at making improvements within the existing organization of Interior’s functions. As the Secretary and Congress consider what fundamental changes are needed in how Interior structures its oversight of oil and gas programs, we believe that our and others’ past work provides a strong rationale for broad reform of the agency’s oil and gas oversight functions—at MMS to be sure, but also across other parts of Interior, including those responsible for oversight of onshore areas. If steps are not taken to ensure effective independent oversight, we are concerned about the agency’s ability to manage the nation’s oil and gas resources, ensure the safe operation of onshore and offshore leases, provide adequate environmental protection, and provide reasonable assurance that the U.S. government is collecting the revenue to which it is entitled. Reorganization and fundamental change can be very difficult for an organization. Although we have not conducted a detailed evaluation of Secretary Salazar’s proposals for reforming MMS, we believe that regardless of how MMS is ultimately reorganized, Interior’s top leadership must also address the wide range of outstanding recommendations for any reorganization effort to be effective. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions that you or other Members of the Subcommittee may have at this time. For further information on this statement, please contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. Other staff that made key contributions to this testimony include, Ron Belak, Dan Feehan, Glenn C. Fischer, Jon Ludwigson, Ben Shouse, Kiki Theodoropoulos, and Barbara Timmerman. Oil and Gas Management: Interior’s Oil and Gas Production Verification Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of Production Volumes, GAO-10-313, (Washington, D.C.: Mar. 15, 2010). Offshore Oil and Gas Development: Additional Guidance Would Help Strengthen the Minerals Management Service’s Assessment of Environmental Impacts in the North Aleutian Basin, GAO-10-276, (Washington, D.C.: Mar. 8, 2010). Energy Policy Act of 2005: Greater Clarity Needed to Address Concerns with Categorical Exclusions for Oil and Gas Development under Section 390 of the Act, GAO-09-872, (Washington, D.C.: Sept. 26, 2009). Federal Oil And Gas Management: Opportunities Exist to Improve Oversight, GAO-09-1014T, (Washington, D.C.: Sept. 16, 2009). Royalty-In-Kind Program: MMS Does Not Provide Reasonable Assurance It Receives Its Share of Gas, Resulting in Millions in Forgone Revenue, GAO-09-744, (Washington, D.C.: Aug. 14, 2009). Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties, GAO-09-549, (Washington, D.C.: July 15, 2009). Strategic Petroleum Reserve: Issues Regarding the Inclusion of Refined Petroleum Products as Part of the Strategic Petroleum Reserve, GAO-09-695T, (Washington, D.C.: May 12, 2009). Oil and Gas Management: Federal Oil and Gas Resource Management and Revenue Collection In Need of Stronger Oversight and Comprehensive Reassessment, GAO-09-556T, (Washington, D.C.: Apr. 2, 2009). Oil and Gas Leasing: Federal Oil and Gas Resource Management and Revenue Collection in Need of Comprehensive Reassessment, GAO-09-506T, (Washington, D.C.: Mar. 17, 2009). Department of the Interior, Minerals Management Service: Royalty Relief for Deepwater Outer Continental Shelf Oil and Gas Leases—Conforming Regulations to Court Decision, GAO-09-102R, (Washington, D.C.: Oct. 21, 2008). Oil and Gas Leasing: Interior Could Do More to Encourage Diligent Development, GAO-09-74, (Washington, D.C.: Oct. 3, 2008). Oil and Gas Royalties: MMS’s Oversight of Its Royalty-in-Kind Program Can Be Improved through Additional Use of Production Verification Data and Enhanced Reporting of Financial Benefits and Costs, GAO-08-942R, (Washington, D.C.: Sept. 26, 2008). Mineral Revenues: Data Management Problems and Reliance on Self- Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk, GAO-08-893R, (Washington, D.C.: Sept. 12, 2008). Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues Needs Comprehensive Reassessment, GAO-08-691, (Washington, D.C.: Sept. 3, 2008). Oil and Gas Royalties: Litigation over Royalty Relief Could Cost the Federal Government Billions of Dollars, GAO-08-792R, (Washington, D.C.: June 5, 2008). Strategic Petroleum Reserve: Improving the Cost-Effectiveness of Filling the Reserve, GAO-08-726T, (Washington, D.C.: Apr. 24, 2008). Mineral Revenues: Data Management Problems and Reliance on Self- Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk, GAO-08-560T, (Washington, D.C.: Mar. 11, 2008). Strategic Petroleum Reserve: Options to Improve the Cost-Effectiveness of Filling the Reserve, GAO-08-521T, (Washington, D.C.: Feb. 26, 2008). Oil and Gas Royalties: A Comparison of the Share of Revenue Received from Oil and Gas Production by the Federal Government and Other Resource Owners, GAO-07-676R, (Washington, D.C.: May 1, 2007). Oil and Gas Royalties: Royalty Relief Will Cost the Government Billions of Dollars but Uncertainty Over Future Energy Prices and Production Levels Make Precise Estimates Impossible at this Time, GAO-07-590R, (Washington, D.C.: Apr. 12, 2007). Royalties Collection: Ongoing Problems with Interior’s Efforts to Ensure A Fair Return for Taxpayers Require Attention, GAO-07-682T, (Washington, D.C.: Mar. 28, 2007). Oil and Gas Royalties: Royalty Relief Will Likely Cost the Government Billions, but the Final Costs Have Yet to Be Determined, GAO-07-369T, (Washington, D.C.: Jan. 18, 2007). Strategic Petroleum Reserve: Available Oil Can Provide Significant Benefits, but Many Factors Should Influence Future Decisions about Fill, Use, and Expansion, GAO-06-872, (Washington, D.C.: Aug. 24, 2006). Royalty Revenues: Total Revenues Have Not Increased at the Same Pace as Rising Oil and Natural Gas Prices due to Decreasing Production Sold, GAO-06-786R, (Washington, D.C.: June 21, 2006). Oil and Gas Development: Increased Permitting Activity Has Lessened BLM’s Ability to Meet Its Environmental Protection Responsibilities, GAO-05-418, (Washington, D.C.: June 17, 2005). Mineral Revenues: Cost and Revenue Information Needed to Compare Different Approaches for Collecting Federal Oil and Gas Royalties, GAO-04-448, (Washington, D.C.: Apr. 16, 2004). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The catastrophic oil spill in the Gulf of Mexico has drawn national attention to the exploration and production of oil and gas from leases on federal lands and waters. The Department of the Interior's Bureau of Land Management (BLM) oversees onshore oil and gas activities, the Minerals Management Service's (MMS) Offshore Energy and Minerals Management oversees offshore oil and gas activities, and MMS's Minerals Revenue Management collects revenues from oil and gas produced. Interior's oil and gas oversight has long been the subject of audits and investigations by GAO, Interior's Office of Inspector General (OIG), and others. In response to the recent oil spill, the Secretary of the Interior has proposed reorganizing MMS. Over the past 5 years, GAO has issued numerous recommendations to the Secretary of the Interior to improve the agency's management of oil and gas resources--most recently resulting in two reports in March 2010. Overall, GAO's work in this area can be useful in evaluating key aspects of the Secretary's plans to reorganize MMS. In particular, GAO's findings and recommendations can provide guidance on how to achieve effective oversight of federal oil and gas management by improving (1) technical expertise in the agency, (2) performance of analyses and reviews, (3) enforcement of laws and regulations, (4) public access to information, and (5) the degree of independence in the agency. Technical Expertise. Oil and gas production methods on federal lands and waters have become increasingly sophisticated over the past decade. GAO found in a March 2010 report that Interior had challenges in hiring, training, and retaining key staff, leading to questions about the technical capacity of Interior staff overseeing oil and gas activities. Interior's challenges partly stem from competition with the oil and gas industry, which can pay staff higher salaries. Moreover, key technical positions responsible for oversight of oil and gas activities have experienced high turnover rates, which, according to Interior officials, impede their capacity to oversee oil and gas activities. Ability to perform reviews and require that findings be addressed. In several recent reports, GAO found that Interior was unable to complete necessary reviews, including environmental and oil and gas production verification inspections, and had an ill-defined process for conducting certain offshore environmental analyses. For example, GAO reported in March 2010 that MMS faced challenges in Alaska conducting required environmental reviews, because although Interior policy directed MMS to prepare a handbook providing guidance on how to conduct these reviews, MMS lacked such a handbook. This lack of guidance also left unclear MMS's policy on what constitutes a significant environmental impact. Enforcement Authority. In a March 2010 review, GAO determined that in some instances, Interior was uncertain about its legal authority for undertaking potential necessary enforcement actions, and that Interior may be inconsistently using its enforcement authority. For example, staff from one BLM office told us that they were not issuing enforcement actions for unauthorized devices intended to modify gas flow upstream of the measurement meter--which may result in inaccurate measurement of gas production volumes. These staff explained that this was due to measurement regulations that were out of date. Public Access. In its preliminary results from ongoing work on public challenges to BLM's federal onshore oil and gas lease sale decisions in the four Mountain West states responsible for most federal oil and gas development, GAO found state-by-state variation in what protest-related information was made publicly available across BLM state offices. GAO also found that stakeholders, including industry groups and nongovernmental organizations representing environmental, recreational, and hunting interests, expressed frustration with the transparency and timeliness of the information. Independence. During GAO's work in 2009 and in Interior OIG reports in 2008 and 2010, several instances were identified where Interior staff had inappropriate relationships with oil and gas industry personnel, raising questions about whether Interior's oversight efforts were sufficient. The OIG found numerous instances of inappropriate contact between industry and Interior staff, including staff receipt of gifts. |
With WIA, the Congress sought to replace the fragmented employment and training system that existed under the previous workforce system. Among other things, WIA sought to streamline program services at one-stop centers; offer job seekers the ability to make informed choices about training, and provide private-sector leadership to manage this new workforce development system. To streamline services, WIA requires at least 17 programs administered by four federal agencies to make their core services available through the one-stops and support the operation of those one-stops. As shown in table 1, these programs represent a range of funding levels, from $2.4 billion for the Department of Education’s Vocational Rehabilitation Program to $55 million for Labor’s Native American Employment and Training Program. The programs also serve various target populations. For example, while many of the programs serve either low-income or otherwise disadvantaged or unemployed individuals, WIA’s Adult Program can serve any individual aged 18 or older, as can Labor’s Wagner-Peyser Employment Service (Employment Service). In contrast, Education’s Vocational Rehabilitation Program can only serve disabled individuals, and even then, prioritizes which of those it can serve. These programs also represent a range of service delivery methods. Public agency personnel (such as state labor or education departments) administer many of these programs’ services. Several programs are administered by, among others, nonprofit or community-based organizations, unions, Indian tribal governments, and community development corporations. Several of these programs are block grants that federal agencies provide to states and localities for a variety of efforts, which may or may not include employment and training services. Although many of the programs provide for training, such as WIA’s Adult and Dislocated Worker Programs, some, such as employment and training programs for veterans, must work with other programs to obtain training for their participants. WIA did not prescribe how the one-stops should operate, but in guidance produced in June 2000, Labor identified a range of options for one-stops, including simple collocation of program staff at the one-stops or electronic linkages between existing program offices and the one-stops. In this guidance, however, Labor laid out a vision for one-stop operations that it called “full integration.” The realization of a fully integrated system would entail all partner programs operating under one management structure and accounting system and offering joint delivery of program services from combined resources. WIA also allowed partners a wide range of methods to support the one-stop’s operation. For example, partners could pay rent for the space occupied by program staff or could provide equipment or shared services, such as providing initial intake services of greeting one- stop visitors and collecting general information from them to assess program eligibility or teaching classes to individuals at the one-stop. WIA also required that any training provider wishing to provide training services to any individual receiving training through WIA’s Adult and Dislocated Worker Programs provide key data—such as (1) completion rates, (2) job placement rates, and (3) wages at placement for students. WIA required the collection of these outcome data so that job seekers receiving training could use them to make more informed choices about training providers. Unlike prior systems, WIA allowed individuals eligible for training under the Adult and Dislocated Worker Programs to receive vouchers—called Individual Training Accounts—which they could use for the training provider and course offering of their choice, within certain limitations. WIA also required these data so that states and localities could assess training providers’ performance. For example, a state might determine that only training providers’ courses with an 80-percent completion rate would be allowed to remain on the training provider list. If a course failed to meet that level, it would no longer be available to receive WIA-funded individuals. WIA provided a 1-year initial eligibility period before these requirements went into effect. Labor’s final regulations allowed states to extend the initial eligibility period for up to an additional six months under certain circumstances. Finally, WIA called for the development of workforce investment boards to oversee WIA implementation at the state and local levels. At the state level, WIA required, among other things, that the workforce investment board assist the governor in helping to set up the system, establish procedures and processes for ensuring accountability, and designate local workforce investment areas. WIA also required that boards be established within each of the local workforce investment areas to carry out the formal agreements developed between the boards and each partner and oversee one-stop operations. According to Labor, there are 54 state workforce investment boards and approximately 600 local boards. WIA listed what types of members should participate on the workforce investment boards, but did not prescribe a minimum or maximum number of members. Also, it allowed governors to select representatives from various segments of the workforce investment community, including business, education, labor, and other organizations with experience in the delivery of workforce investment activities to be represented on the state boards. The specifics for local board membership were similar to those for the state. WIA required that private-sector representatives chair the boards and make up the majority of board members. This was to help ensure that the private-sector would be able to provide information on the available employment opportunities and expanding career fields and help develop ways to close the gap between job seekers and labor market needs. WIA’s mandatory partners are making efforts to participate in the one- stops as required by the law. However, they are wrestling with questions about how to accomplish the required participation, as well as move closer to the vision of full integration, given their clients’ needs, their programs’ rules, and their financial constraints. Responsible federal agencies have published guidance in these areas, and Labor has recently established an interagency workgroup to address these issues. However, state and local implementers said they continue to lack a clear sense of how one-stop participation, as well as rules for client eligibility and cost accounting, is compatible with their clients’ needs. First, many of the mandatory partners have expressed concerns that significantly altering existing service delivery methods to participate in the one-stops might adversely affect the quality of services they provide to their target populations. For example, staff from Education’s Vocational Rehabilitation Program, which serves the disabled, were concerned that one-stops might not adequately provide the special services, equipment, or personnel (such as staff who know sign language) that their clients need. As a result, even though Vocational Rehabilitation staff were present in some form at the nine one-stops we visited, they continued to maintain existing program offices to ensure that the special needs of their eligible clients were accommodated. Other partners said that they did not see how participation in the one-stop would benefit their eligible populations, who in some cases were already receiving services through other sources. For example, California education department officials told us that low- income and disadvantaged populations in California already have full access to the community college system at low or no cost. According to these officials, this access decreased partners’ incentive to provide Perkins or Adult Education and Literacy Program services through the one-stops. Second, a number of partners have expressed concerns that altering traditional service delivery methods to participate in the one-stops may lead to conflicts with their own program’s requirements regarding which individuals are eligible for the services they offer. For example, at several of the one-stops we visited, veterans’ staff believed they could not provide shared services, such as greeting one-stop visitors and collecting general information from them. They were concerned that doing so might mean serving individuals who are not veterans, which is not allowed under their authorizing legislation. We found that at some locations, veterans’ staff were unwilling to teach orientation or job preparation classes if anyone in the class was a not a veteran. Yet at other locations, veterans’ staff were willing to teach classes attended by nonveterans. Labor has published no guidance to address this confusion. However, Labor officials with whom we spoke agreed that having veterans’ staff serve nonveterans was a violation of the program’s mandate, but believed it was permissible for veterans’ staff to teach such classes as long as the majority of students were veterans. Nonetheless, Labor also said that any expenditures associated with delivery of services to nonveterans would be disallowed. The concerns that veterans’ staff have about violating program mandates may explain why veterans staff were collocated at the nine one-stops we visited, but served only veterans and paid rent as their required support of the one-stop rather than providing a shared service. Third, many of WIA’s mandatory partners said participation in the one- stops was problematic given financial constraints. For example, Labor and others have found that, at least in some locations, the Employment Service operates at the one-stop and also at existing offices outside the one-stops. We found this to be the case for at least two of the nine one-stops we visited, largely because the Employment Service could not afford to break leases on existing facilities. According to Employment Service officials we spoke to, limited funding also makes it difficult to assign additional personnel to staff the one-stop or to devote resources to developing electronic linkages with the one-stop. In the states we visited, partners told us that limited funding was also a primary reason why, when partners did provide individuals to help staff the one-stop, they did so on only a part-time basis. Some of the programs also have caps on spending that affect their ability to contribute to the support of the one-stop’s operations. For example, WIA’s Adult and Dislocated Worker Programs have a 10-percent administrative cap on their costs for the one-stops’ operation and staff who support the local workforce investment board. According to a survey conducted for us by a national association, 61 of the 69 counties that responded stated that this cap limits the ability to serve both functions, especially given the funding limitations of other programs. Finally, many of the partners were not sure how to define or account for allowable activities in the one-stop environment, given existing guidance from the Office of Management and Budget (OMB) and Labor. For example, OMB requires that all shared services be properly accounted for by programs. This means that if a partner dedicated a copy machine to the one-stop, the copy machine cannot be used for any purpose other than its program. Any other partner who uses the machine would have to pay or somehow reimburse that partner. According to a number of partners, tracking this kind of activity is very difficult to do. Also, partners said the guidance was not meant to address situations where costs must be allocated across programs with different or competing missions. For example, if partners are only willing to staff the one-stop 1 day a month, they only pay for that percentage of the one-stop costs, leaving other partners to make up the shortfall. According to partners we interviewed, this has led to partners with a broad client base, or those with greater connection to the one-stops—such as WIA’s Adult and Dislocated Worker Programs—paying a greater share of the one-stop operations. Partners also questioned how to account for personnel who, in the process of providing support services, may provide services to potentially ineligible populations. Although both Education and Labor have provided information to states and local implementers about how to interpret WIA’s requirements, according to state and local implementers we interviewed, the guidance does little to specifically address the concerns about how to integrate services while not adversely affecting target populations or violating program requirements. Labor has recently established a one-stop workgroup that seeks to specifically address financial concerns, but as of yet, has released no findings. Although training providers are making efforts to participate in the WIA system, they believe that the new data collection and reporting requirements it imposed are too burdensome to warrant their participation in the system, especially given the few individuals sent to training. As a result, they are reducing the number of course offerings they make available under WIA–in effect, reducing the training options from which WIA job seekers have to choose. Labor has established a workgroup in an effort to address many of the issues that training providers described as burdensome, but this workgroup may not include all the key players and, to date, has not provided any guidance. Training providers and other state and local implementers we interviewed identified the number of students for whom they potentially must collect data as one factor that makes WIA’s data collection and reporting burdensome. WIA requires that training providers report program completion, placement, and wage data, among other data elements, for all students in a class, regardless of whether they were WIA-funded. This means that even if only one student in a class of 100 was WIA-funded, the training provider would be required to provide data on all 100 students. The methods available to collect the required data are a second factor that makes data collection burdensome, according to training providers we interviewed. WIA did not specify how training providers would collect or report the required information, and in many locations, the methods being used strain training providers’ resources or raise privacy concerns. For example, in two of the states we visited, training providers planned to track students after they graduated and call them to obtain the necessary data, but said they did not have the staff necessary to call hundreds of students. In other states, training providers were considering meeting data collection requirements by providing students’ social security numbers (SSNs) to state agencies (such as departments of labor) responsible for WIA implementation. These agencies would then match the SSNs against unemployment insurance wage records (which are reported by SSNs). Although this method was more efficient, training providers worried that it might violate the privacy rights of students. They said that the Family Educational Rights and Privacy Act (FERPA) generally prohibits an educational institution from disclosing personally identifiable student information (such as an SSN) without the student’s consent. There are a number of exceptions where providing such data is allowed–for example, to the Department of Education. Although Labor and Education issued a January 2001 memo noting that certain exceptions could allow educational institutions to disclose this information without a student’s prior consent, many of the training providers we interviewed did not see the memo as sufficient assurance that such a practice could be carried out without violating FERPA. Training providers identified differences between WIA’s data collection and reporting requirements and those of other programs as a third factor that makes data collection burdensome. Training providers noted that these differences mean that data have to be collected twice for similar outcomes. For example, in Texas, the state defined completion for most WIA-eligible training programs as receipt of a 9-hour credit certificate. For Education’s Perkins program, however, the state defined program completion as receipt of a 15-hour credit certificate. While the outcomes being measured are similar, the differences require two separate measures. According to training providers, the fourth factor that makes the training requirements burdensome is their focus on process rather than the outcomes training providers achieve. Training providers believed that at least some of the required data focused on process rather than outcomes, and as a result, did not accurately reflect their performance. For example, WIA requires training providers to track the number of students who complete a program, but several community colleges told us that this measure fails to reflect how a community college serves individuals. According to training providers, often students acquire the skills they need and/or find jobs before a program is over, and so they leave the program without completing it. In such cases, a state or locality could penalize a training provider for not achieving a particular level of program completion, even though the training provider achieved one of WIA’s goals helping people find employment. Training providers we spoke with said that the few WIA clients that have been sent to training since WIA was passed made the data collection and reporting requirements even more onerous. For example, each of the nine one-stops we visited had sent training providers, on average, only six individuals for training since July 2000. According to training providers we interviewed, this is significantly fewer than they had received under the workforce system predating WIA. A variety of reasons may explain the low number of job seekers sent to training. First, many state and local implementers we interviewed, as well as federal agency officials, believe that WIA calls for a work-first approach, which encourages job seekers to obtain employment without training. Second, the strong economy over the past several years has encouraged employers to be more interested in getting workers on board quickly than waiting for them to complete training. Third, states may be discouraging one-stops from placing hard-to- employ individuals into training, fearing that this may affect their achievement of WIA performance measures that focus on employment. Finally, because the Adult and Dislocated Worker Programs have had to consistently bear a greater share of the costs associated with establishing and maintaining the one-stops, they have had little money left for training, according to local implementers. WIA data collection coupled with the few job seekers sent to training has, to date, resulted in training providers reducing the number of programs they offer. We found that the number of providers and course offerings on available course listings decreased in many locations. For example, between July 2000 and July 2001, Vermont’s list decreased from offering 600 programs by 80 providers to offering 158 programs by 46 providers. Labor has established an adult and dislocated worker workgroup in an effort to address many of the issues that training providers described as burdensome. Labor’s goal is to craft solutions that do not penalize states already collecting the data successfully. However, the workgroup has no deadline for completion, and although it invited training provider representatives to a meeting, the formal membership does not include these representatives. This may limit the value of any solutions developed and the willingness of training providers to adopt those solutions. Private-sector representatives who are supposed to be leading workforce investment boards have expressed frustrations that the manner in which boards are operated may be diluting their input and, ultimately, discouraging their participation. Private-sector representatives we spoke with believed that state and local boards are too large to efficiently address key workforce issues and that staff and committees intended to help deal with the size of the boards may not reflect private-sector views. Labor has issued little guidance on this matter, but has recently formed a workgroup to examine these concerns. Private-sector representatives and others believed that the large number of board members—exceeding 40 in most places, according to a national board association—makes it difficult to set up meetings and run them efficiently. For example, officials in one local workforce investment area noted that as the number of board members increased, so did their dispersion throughout the state. These officials said that the dispersion of members throughout the state made it difficult to find locations for the board meetings that were convenient to all members. If members were unable to attend the meetings, boards might not be able to achieve a quorum (usually a simple majority) and, therefore might be unable to vote on courses of action. Ensuring that the numerous board members all have the same information before a meeting and keeping members apprised of the board’s activities also becomes more difficult as the size of a board increases. Addressing issues, reconciling disagreements, and reaching agreements would also become more challenging because having a large number of members results in more opinions. These difficulties have been especially prevalent this past year as boards have had to perform many administrative tasks to set up the WIA system, such as developing strategic plans or certifying one-stops. Private-sector representatives also believed that the staff put in place to serve the boards may not share employer’s perspectives regarding the system. Every state and local board has assigned staff that are responsible for setting up meetings, developing the agenda, and ensuring that boards stay current with compliance issues. However, according to private-sector representatives and other implementers, the public-sector agency responsible for carrying out many of WIA’s mandatory programs, usually a labor or human services agency, employs these staff. Private-sector and other representatives expressed concerns regarding how staff are to carry out their primary focus of serving the board when they report to supervisors in their respective agencies. In addition, private-sector representatives believed that committees serving under the auspices of the boards may dilute employer’s input into the system. These committees research particular issues that the board may ultimately address. WIA is silent on the establishment of the committees and the form that they should take, but we were told that private-sector representatives are often underrepresented or not represented at all on the committees, even though the committees play an important role in influencing board activities. In the states we visited, committees generally had less than 50-percent private-sector membership, and only one committee at the state level had more than 50-percent private-sector membership. Labor has recently established a workforce investment board workgroup to consider these issues, has provided technical assistance to state and local boards, and has arranged peer assistance and provided information on promising practices to help local boards deal with some of these challenges. However, private-sector representatives and other state and local implementers said they lack information on how to balance the requirements of the board operations with the needs of the private sector. Despite the struggles of state and local implementers in these areas, many of them have found ways to overcome these difficulties. Some examples follow. One-stop partners jointly financed a separate staff person to perform shared support services, such as initial intake, to allow partners to provide shared services without violating their program requirements. A state board decided to classify expenses associated with running the one-stop as programmatic rather than administrative as a way to lessen the impact of a cap on certain spending. A state board gave the education community approval to use existing Perkins’ outcome data for the purposes of WIA data collection and reporting until the state is able to fully implement other outcome data measures. This was intended to lessen the burden posed by similar, yet different, data collection and reporting requirements. A community college enrolled WIA-funded training participants in a “separate” college. This college exists in name only and stands in for the community college where WIA-funded training participants actually take classes. This was done to avoid collecting data on non-WIA-funded students. Several local areas required that all committees have private-sector leadership and a private-sector majority and that quorums have a private- sector majority. State and local implementers we contacted also identified a number of actions they believed could enhance their ability to implement WIA in these areas and move closer to the vision of full integration. However, there was no consensus on which of these ideas had the greatest potential to address these concerns while preserving the local flexibility key to WIA. Some of the ideas included providing more specific guidance at the federal level, while others could require legislative and/or regulatory action. For example, amending the enabling legislation to more explicitly detail the level or type of one-stop participation partners should achieve; leaving partners’ authorizing legislation as is but providing incentives for participation (for example, not requiring partners to financially support the one-stops or expanding the scope of activities allowable at the one- stop); giving training providers additional funds to offset the cost of data appointing board staff either from private-sector-oriented entities (for example, economic development agencies) or nonprofit entities that reflect employers’ outlook. The workforce development system envisioned under WIA represents a sea change from prior systems, not only because of WIA’s new requirements and the additional partners involved, but also because of the flexibility allowed to state and local implementers to determine how to implement these new requirements. Given this, it is understandable that skepticism and resistance to change continue to affect the speed and caliber of implementation efforts. State and local implementers agreed that the issues we highlighted need to be addressed to enhance WIA implementation, but there was no consensus on which efforts would best achieve WIA’s goals while maintaining state and local flexibility. As a result, more specific guidance to address these concerns, in addition to time, may be what is required. Better guidance can help ensure that the flexibility provided to states and local areas under WIA fosters innovation rather than confusion, unnecessary burden, diminished customer choice, and a decline in private-sector participation. Specific guidance may also help states and localities make progress toward a seamless system of service delivery. In line with this thinking, in our report, we make several recommendations to the respective Secretaries to work together to provide more effective guidance to address the concerns raised by state and local implementers. In all of these areas we believe guidance can be detailed without being prescriptive, since the goal would be to focus on the benefits and incentives of participation rather than the requirements. Specifically, the report being issued today recommends that the Secretaries of Labor, Education, HHS, and HUD, jointly explore the programmatic and financial concerns raised by state and local implementers that affect their ability to participate and fully integrate services. We also recommend that Education and Labor disseminate best- practice information on the cost-effective methods the states and localities are using to comply with WIA’s data collection and reporting requirements, as well as address confusion concerning dual reporting requirements and FERPA privacy concerns. In addition, because training providers will also need time to resolve data collection issues before they are judged on their performance, we recommend that Congress consider giving training providers additional time to receive WIA-funded students before they have to meet all the new WIA requirements. Finally, we recommend that Labor disseminate information on successful practices by states and localities to help ensure that boards gain the most from private- sector participation. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions that you or other members of the Committee may have. | The Workforce Investment Act was passed in 1998 to unify a fragmented employment and training system. The act sought to change the workforce development system by streamlining the delivery of employment and training services, enabling job seekers to make informed choices among training providers and course offerings and enhancing the private-sector role. During the early stages of the act's implementation, state and local implementers were challenged by the significant changes to the workforce system. Mandatory partners have concerns about how to participate in one-stops without adversely affecting their respective target populations, violating their own programs' rules, or straining their financial resources. Training providers have struggled to find ways to effectively meet the act's data collection and reporting requirements that they believe are burdensome and, as a result, have reduced the courses offered to job seekers. |
Many federal and state agencies oversee the regulation of California manufacturing firms. Laws relating to the workplace and employment are overseen at the federal level by the Department of Labor (governing unemployment insurance, employee benefits such as pensions, compensation issues such as minimum wage and overtime requirements, and workplace safety); the Equal Employment Opportunity Commission (EEOC); and the National Labor Relations Board. At the state level, California agencies that oversee laws related to employment include the California Department of Industrial Relations (addressing workers’ compensation; occupational safety and health; and labor standards covering wages, hours of work, and other employment conditions) and the Department of Fair Employment and Housing (protecting individuals’ rights to seek, obtain, and hold employment without discrimination). With respect to tax law, beyond the Internal Revenue Service (IRS) at the federal level, a number of state agencies are involved. The Franchise Tax Board collects personal, corporate, bank, and franchise taxes; the State Board of Equalization collects sales and use taxes, as well as other specific taxes; and the Employment Development Department collects unemployment insurance, disability insurance, employment training, and personal income withholding taxes. Environmental laws are overseen at the federal level, by the Environmental Protection Agency (EPA) and at the state level by the California Environmental Protection Agency (Cal/EPA). In an earlier report analyzing the framework of federal workplace regulation, we noted that the magnitude, complexity, and dynamics of this framework pose a challenge for employers of all sizes. In that report, we identified 26 key statutes and one executive order on workplace regulation that affect all types of businesses, including manufacturers. The employers and union representatives with whom we met for that study generally supported the aims of these federal laws and regulations but also called for changing agencies’ approaches to developing and enforcing regulations and urged agencies to develop a more service-oriented approach to workplace regulation in general. In a more recent study that attempted to identify the impact of federal regulation on several businesses, we suggested that measuring the incremental impact of all federal regulations on individual companies, although perhaps not impossible, would be an extremely difficult endeavor. Further, while many of the companies participating in that study recognized that regulations provide benefits to society and their own businesses, they all had varied concerns about regulatory costs and the regulatory process. These concerns included perceptions of high compliance costs; unreasonable, unclear, and inflexible demands; excessive paperwork; and the tendency of regulators to focus on deficiencies. Recent changes in federal law and current initiatives by federal agencies are targeted to reducing the compliance burden on businesses as well as making the regulatory requirements clearer and more accessible. In 1980, the Congress passed two laws to reform the federal regulatory processes: (1) the Paperwork Reduction Act, which attempted to minimize the paperwork and reporting burdens federal agencies impose on nonfederal entities, and (2) the Regulatory Flexibility Act, which required agencies to assess the impact of their regulations on small entities, including small businesses. More recently, the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) made several changes to regulatory procedures, including (1) amending the Regulatory Flexibility Act to allow for judicial review of agency decisions, (2) requiring the publication of “small entity compliance guides” to explain the actions a small business or other small entity must take to comply with a rule or a group of rules, and (3) establishing a congressional review process through which the Congress can disapprove final agency regulations. To comply with SBREFA, agencies must also answer questions from small entities concerning information on and advice about complying with statutes and regulations, including interpreting the law and applying it to specific circumstances supplied by the small entity. In addition to changes required by law, under the administration’s National Partnership for Reinventing Government (formerly the National Performance Review), a series of initiatives was undertaken. Agencies were to identify obsolete regulations that could be eliminated, create partnerships between regulators and those being regulated, and identify specific regulations that could be revised. Agencies proposed plans for changing the way they enforced regulations to increase the use of partnership arrangements and reduce the emphasis on identifying procedural violations unrelated to performance. Agencies also revised their customer service standards. To conduct business in California, a manufacturing firm must comply with numerous federal and state laws and regulations dealing with labor, tax, and environmental concerns. The requirements of these laws and regulations cover diverse issues, such as overtime pay, unemployment insurance, and air pollution. With some exceptions (particularly with laws concerning labor issues), these requirements apply in equal force to manufacturing firms of all sizes, from the smallest to the largest. Smaller firms, though, may be exempted from certain requirements, such as those prohibiting racial or sexual discrimination and those requiring family leave. Most regulation involves both federal and state requirements, with California law frequently providing stricter requirements than those mandated under federal law. Table 1 broadly summarizes significant labor, tax, and environmental requirements that apply to California manufacturing firms and sets forth specific federal and state legal requirements that affect firms with different numbers of employees. For descriptive purposes, these requirements are classified into nine categories of different business issues, ranging from wage and hour matters to environmental concerns. Each of these categories represents complex regulatory schemes, originating from federal and state statutes, regulations, and judicial decisions. For a more detailed summary of these regulatory requirements, see appendix II (labor law), appendix III (tax law), and appendix IV (environmental law). For the most part, these labor, tax, and environmental requirements apply regardless of the number of workers employed by a firm. However, as indicated in table 1, some of these laws have specific legal provisions that are triggered as the number of employees at a firm increases. In general, neither tax nor environmental requirements vary with an increasing number of employees. When a firm hires its first employee, it must immediately comply with all requirements for federal and state income tax withholding, federal and state unemployment insurance taxes, and federal Medicare and Social Security taxes. Similarly, any firm, regardless of its size, must generally comply with all relevant environmental requirements if it produces specific amounts of some type of pollution or handles certain amounts of specified hazardous substances. Some labor law requirements, though, show greater sensitivity to the number of employees in a firm. In particular, adding employees to a firm has critical impact on the application of federal civil rights laws and certain federal requirements for employee benefits. Thus, federal law includes prohibitions against racial, religious, and sexual discrimination that apply only if a firm has at least 15 employees. Certain federal requirements for employee benefits also exempt firms of smaller sizes; for example, federal requirements for 12 weeks of unpaid family leave for an employee for medical or family-related reasons apply only if a firm has at least 50 employees. In addition, some other federal requirements are triggered only after a firm hires a specified number of employees, such as the requirement to give employees 60 days’ notice of a plant closing or mass layoff (100 employees) or to conduct a programmed OSHA safety inspection of a firm in a low-hazard industry (10 employees). In California, however, overlapping state labor law requirements have muted the impact of some of the federal thresholds, extending the same or similar requirements to smaller firms. For example, state law prohibits sexual harassment in firms of any size, and racial or sexual discrimination at all firms with at least five employees. As another example, state law requires all firms with at least five employees to allow their female employees up to 4 months’ pregnancy disability leave in addition to federal family leave requirements. Regarding OSHA, California law does not exempt firms of any size from safety inspections. Both federal and state governments play active roles in the regulation of the workplace, taxes, and the environment. The relationship between federal and state laws is complex and, to varying degrees, the requirements are intertwined. Thus, under the overall regulatory schemes, employers must comply with both federal and state laws and regulations. In the case of California, employers often face more comprehensive labor, tax, and environmental regulation by the state than by federal law. In addition, some areas of state regulation have no federal counterpart. Thus, federal regulatory reform efforts intended to lessen the burden of compliance may be limited by those requirements under state laws that are more comprehensive. Although some areas of labor law regulation are covered only by state law (for example, workers’ compensation insurance and disability insurance), most regulation includes various forms of federal and state interaction, ranging from the total preemption of any state regulation by federal regulation to “dual control” by federal and state governments to the implementation of minimum federal standards by state authorities. Certain federal statutes either explicitly or implicitly preempt state regulation: ERISA, the National Labor Relations Act, and the Immigration and Nationality Act. However, other statutes—for example, the Fair Labor Standards Act—specifically allow dual control if the state regulation is stricter than federal requirements. Still other federal statutes, such as the Occupational Safety and Health Act, allow states to set up and enforce their own regulatory program with federal approval, in lieu of a federal program. In California, the net effect of these combined federal and state labor law requirements is that California manufacturing firms must, in many cases, meet higher labor standards than those required by the federal government. For instance, as of March 1998 the California minimum wage was $5.75—an amount that is 60 cents higher than that required under federal law. Similarly, while the California Occupational Safety and Health Administration (Cal/OSHA) program administers all federal health and safety standards, it includes additional state standards. Tax regulation is conducted independently by both federal and state governments. Each has authority to tax its citizens and corporations for the support of its operations. Therefore, a California firm must follow separate federal and state tax codes for withholding employees’ federal and state income taxes, and for payment of corporate income taxes. Certain taxes—Medicare and Social Security—are levied only by the federal government. Unemployment insurance tax, on the other hand, is collected by both federal and state governments to run the states’ federally approved unemployment compensation programs. Even though federal and state governments run parallel tax programs, different definitions for the same key regulatory terms create complexity for employers. For example, the definition of an “employee” varies between states (including California) and the federal government. California law provides a broader definition of “employee” than that found in federal law, thereby including more workers under the provisions of state income tax withholding and unemployment insurance than would be included using the federal definition. In doing so, California ensures broader coverage of its citizens under the state unemployment insurance and disability insurance programs. Environmental regulation has become, since the 1970s, a joint effort among federal, state, and local authorities. Traditionally, regulation of pollution control, like other “police powers,” had been left to state and local governments. However, with the passage of major federal environmental statutes in the 1970s, EPA has broad authority to set minimum standards for air, water, and hazardous substances control. Typically, state authorities have used these federal minimum standards to create their own environmental program, continuing to enforce these standards within their own state. As with other regulatory areas, California environmental requirements in some areas have added stringency to the federal law. Thus, under California law, employers dealing with chemicals known to the state to cause cancer have a broad requirement to give “reasonable and clear” warning to any individual exposed to those chemicals. As another example of state regulation, employers that produce 12,000 kilograms of hazardous waste per year must develop a plan for waste reduction every 4 years, and failure to take action on the plan can lead to monetary penalties under the state program. Thus, in these three major areas of regulation—labor, tax, and environment—the combination of federal and California state law creates a complex web of regulation for employers. Moreover, California law often sets higher standards for regulatory compliance than required by federal law. Consequently, federal reform efforts may be limited in practical effect by the existence of supplementary or independent state regulatory programs. California and federal agencies have taken proactive steps to inform manufacturers about employers’ duties under existing laws and regulations as well as about proposed changes in those requirements. For example, federal and state agencies have made information available to the public on many laws and requirements through publications and Web sites. In addition, many federal and state agencies have established focal points and other mechanisms through which manufacturing employers can obtain information about the agency-specific laws. (See table 2.) Many agencies also provide information tailored to meet the needs of small businesses and start-up employers. However, California manufacturing employers cannot rely on a single governmental source or focal point to provide them with a comprehensive understanding of the many federal and state workplace, tax, and environmental laws that apply to them and must seek out information from the public agency responsible for enforcing the law. Consequently, firms we visited continued to rely on the expertise and knowledge provided by trade and business associations like the California Chamber of Commerce or by professional practitioners. Although no one federal agency has yet compiled a comprehensive set of federal laws applicable to manufacturers, the federal government, according to agency officials, has striven to expand its role beyond the promulgation and enforcement of regulations. Agencies have attempted to help businesses better understand their legal responsibilities and assist them to make regulatory compliance less burdensome. Manufacturers, in California and throughout the nation, can learn about their federal legal responsibilities from a multitude of publications, including law handbooks, informational brochures, and guides that federal agencies have compiled and made available to the business community. For example, IRS has a variety of publications that describe various business taxes and record-keeping requirements for small businesses. With the cooperation of the Small Business Administration (SBA), it disseminates much of this information through SBA district and regional offices. Labor has a variety of guides and a small business handbook that summarizes the laws Labor enforces. The guides aim to clarify the various duties placed on employers so they can more easily develop compliance strategies and identify the appropriate agency for questions and assistance. EPA has prepared publications that outline the federal environmental laws and regulations relevant to each industry sector as well as information about environmental problems and solutions, case studies, and tips about complying with regulations. For example, EPA’s publication entitled Profile of the Electronics and Computer Industry describes the manufacturing processes in the industry and identifies federal laws that apply to the industry. EPA has prepared similar profiles for 26 other industry sectors. Federal agencies responsible for enforcing workforce, tax, and environmental laws, in response to SBREFA and because of their interest in helping businesses better understand applicable laws, have placed their agencies’ laws and regulations on their Internet Web sites. Although many agencies have tailored their Web sites to address the special needs of small businesses and start-up employers in order to comply with SBREFA, much of what the agencies have made available to small businesses is also applicable and helpful to businesses of all sizes. For example, the EEOC has developed a small business information Web site that includes laws and processes that apply to all businesses. Federal agencies have also offered businesses the opportunity via Web sites to comment on the potential burden proposed changes to laws or regulations could have on their business activities. Examples follow: IRS’ Web site includes a list of tax regulations issued since August 1, 1995, with references to plain-language summaries and IRS news bulletins that provide businesses with changes in procedures and tax rulings. The Web site also offers the opportunity for interested parties to comment on proposed changes to regulations. In addition, it includes a business tax kit with a small business tax guide, information on how a business can apply for an employer identification number, and other taxpayer information. Labor’s Web site includes a handbook for small businesses that summarizes laws Labor oversees. The Web site also provides “interactive” expert advice on workplace laws in a format that mimics the interaction an individual might have with a human expert. Called Employment Laws Assistance for Workers and Small Business (“elaws”), the system provides manufacturers with advice on issues such as workplace safety and the Family and Medical Leave Act. The EEOC Web site also provides information about laws for small businesses; record-keeping and reporting requirements; substantive issues of concern to small businesses; and types of assistance, guidance, and publications available. EPA’s Web site, in addition to providing regulations and proposed rules, catalogs and profiles the laws and regulations that are relevant and applicable to several specific industries. EPA’s Office of Compliance, with input from trade groups and other federal and state agencies, has developed on-line “assistance centers” for five specific industry sectors heavily populated with small businesses that face substantial federal regulation, and it expects to add four more shortly. The centers have been designed to serve as the first place that small businesses and agencies that assist small businesses can go to get comprehensive, easy-to-understand compliance information specifically targeting these sectors. In addition to technical and regulatory information, the Web site provides users with a link to regulatory experts. SBA’s U.S. Business Advisor Web site is a compilation of laws, regulations, and proposed changes to laws from other executive agencies that cover many but not all of the environmental, safety, communications, health, immigration, and labor requirements of small businesses. In addition, the Web site contains answers to questions most commonly asked of the Department of Defense, OSHA, and IRS. In addition to providing information in publications and on Web sites, federal agencies offer manufacturers opportunities to attend training or seminars at which they can meet agency staff, learn about the current regulatory environment and record-keeping requirements, and receive technical assistance to facilitate compliance with federal laws and regulations. In addition, IRS has produced a videotape that it distributes through its district offices to help business people understand tax laws and record-keeping requirements related to starting a new business. The California state agencies responsible for enforcing workplace, tax, and environmental laws and the agency tasked with promoting economic growth in California have taken major steps to make information about the state’s laws and permit requirements for various business activities available and accessible to manufacturers in California. Although manufacturers cannot turn to a single state agency to learn about their legal responsibilities, state agencies, like their federal counterparts, have developed informational publications, including guides to starting up businesses in the state, law handbooks, brochures, and pamphlets. For example, the Department of Fair Employment and Housing has prepared brochures and publications to provide businesses with information about housing, equal employment opportunity (EEO), and discrimination laws. The state’s Franchise Tax Board, besides having the state’s tax code available in a hard copy handbook format, has also prepared a chart that provides a brief synopsis of each of the state’s tax laws and the names of the state agencies responsible for enforcing them. Cal/EPA has compiled the state’s environmental laws in a handbook. Several California state agencies have placed their laws, regulations, and requirements on their Internet Web sites for businesses to access. In addition, some agencies have provided businesses the opportunity to comment on proposed regulations using these Web sites. California’s tax agencies—the Employment Development Department, the Franchise Tax Board, and the State Board of Equalization—provide information about employer tax publications, forms, and tax rates as well as other information, such as the answers to questions most commonly asked by businesses. Cal/EPA has made its regulations and many state and local requirements for permits available to businesses through its Internet Web site. Moreover, current forms and applications required by a wide range of authorities that provide permits are available to businesses on the Internet, and some forms can be completed electronically on the Internet. The Department of Industrial Relations, the state agency responsible for worker safety and employment laws, is working toward making all of the laws it enforces available to manufacturers as well. Through California’s Trade and Commerce Agency Web site, manufacturers can access a handbook that describes the state and local processes for obtaining permits in general and the necessary paperwork businesses must prepare when applying for environmental permits. State regulatory agencies offer business representatives the opportunity to attend seminars, training workshops, and presentations designed to educate representatives on their firms’ legal responsibilities. The Franchise Tax Board has a taxpayer advocate branch that provides taxpayer education and informational seminars on Saturdays. In addition, program specialists are available to assist taxpayers with complaints or problems they may have as a result of tax audits. The Cal/OSHA staff performs outreach to businesses to ensure that they are aware of the state’s worker safety requirements. In addition, the California Trade and Commerce Agency’s Office of Permit Assistance provides businesses with a focal point for learning about requirements for obtaining state environmental permits at one location. This office has compiled and collated information from other state and local agencies responsible for enforcing state and local environmental permit requirements into the California Permit Handbook, a streamlined guide for understanding the environmental permits most often required in California. Office staff also provide technical consultation for businesses experiencing difficulties complying with state or local permit requirements. Cal/EPA has developed a system through which small businesses can access many state agencies’ laws and regulations at one location, and the Office of Administrative Law will have the entire California Code of Regulations available on the Internet through this system within the next 2 months. The agency compiled and collated many of the state and local laws and permit requirements and established permit assistance centers throughout the state. Staff at these centers help businesses understand the state, local, and regional environmental and other permit requirements businesses must satisfy before they can start up or expand. To extend this type of assistance to people located outside the geographic areas covered by existing permit assistance centers, Cal/EPA has developed an on-line program, called CalGOLD, by which people can determine the federal, state, and local permit requirements through the Internet. Someone wanting to start up a new or expand an existing business can submit information on the type of manufacturing and its proposed location, and the system will identify many of the relevant permit requirements needed to operate the business. CalGOLD also provides users with linkages to other federal, state, or local agencies’ addresses or Web sites to contact for assistance. California’s Chamber of Commerce has a number of resources available to manufacturers, most of which must be purchased, that can help businesses learn about and comply with many California and federal laws applicable to them. The Chamber of Commerce has an Internet Web site that member businesses can access to learn about employment, worker health and safety, and environmental and other requirements. In addition, the Chamber of Commerce offers businesses its California Labor Law Digest, which explains the labor laws, provides compliance advice, and includes record-keeping forms and checklists. Individuals can also purchase business start-up kits with federal, state, and local forms that they must complete before operating a new business. The Chamber of Commerce periodically issues newsletters, regulatory updates, and business survival guides to help businesses understand the current regulatory environment and any proposed changes that may affect their business operations. From the Chamber of Commerce, businesses can also purchase the posters that the government requires employers to display to inform their employees of workplace laws that protect them. In addition, associations representing the electronics and aerospace industries and human resource managers keep their memberships informed of proposed legislation and changes to existing legislation that may have an impact on their members’ business opportunities. For example, the American Electronics Association, a trade group representing the U.S. electronics, software, and information technology industries, has tracked and supported federal legislation providing for an increase in the number of highly skilled, high-technology foreign workers who are provided visas to work in this country under the federal H-1B program. In addition, the American Electronics Association has an Internet Web site, publishes newsletters, and sponsors conferences and seminars to keep its members informed of new legislation or changes to existing California and federal legislation. The Aerospace Industries Association (a national trade association for the aerospace industry), learns about changes in state laws through ongoing networking with its members and also monitors federal legislation that may have an impact on aerospace manufacturers. To keep its members informed of new or changing legislation, it publishes a monthly newsletter. The Society for Human Resource Management offers its human resource professionals a variety of ways they can learn about proposed changes in the regulatory environment. For example, it analyzes the impact current court decisions and legislation may have on the human resource community and makes this information available to its membership through its Web site and various publications. Many firms rely on trade and advocacy organizations to keep them informed about applicable laws and administrative record-keeping requirements. To learn what they need to do to comply with existing laws and paperwork requirements, firm officials have used the Chamber of Commerce’s Internet Web site, telephone hot line, newsletters, and business guides. Several firms’ officials cited the California Chamber of Commerce’s Web site and newsletters as the most reliable sources of information about state and federal laws and proposed changes. Another firm official said that the Society for Human Resource Management, through newsletters, has been effective in keeping his firm aware of changes to laws that have an impact on its human resource operations. Despite public agency and trade association efforts to inform manufacturers about applicable laws and regulations, the firms we visited continue to rely on expertise and assistance from the professional practitioners they hire. The owner of the smallest manufacturing firm we visited contracts with an environmental consulting firm to keep him informed of legal responsibilities; assist with documenting the firm’s compliance with safety, health, and environmental standards; and inspect the plant each quarter for compliance. The consulting firm also prepared the manufacturer’s permit application for its metal-plating process and waste treatment and made subsequent revisions to the original permit application. Firms, in general, used private attorneys specializing in labor law for counsel on human resource and personnel issues. For example, one firm, in implementing a new leave policy to comply with the Family Medical Leave Act (FMLA), consulted extensively with its lawyer specializing in labor law. Firm officials said they have been hesitant to rely on information provided by public regulatory agencies for several reasons. Some said that they have experienced difficulties in identifying the appropriate department or person to contact at a public agency. When they did obtain information from agency staff, officials with a few firms said they had concerns about its accuracy and reliability. One firm official said that when she contacted a federal agency for assistance she was told that the agency official could not interpret a law for her and suggested instead that she seek an attorney’s assistance. Another firm official said that several staff he consulted at the same regulatory agency interpreted the same law inconsistently. One official at a small firm said that even if public agencies have developed programs to help him learn about the relevant laws, he is too busy managing his employees and the production line to spend time researching and learning about laws and instead hires consultants to do this work for him. The firms we visited have devised different strategies to ensure compliance with those legal requirements related to their human resource operations—in general, the workplace and tax requirements listed in appendixes II and III. The type of strategy varied with the size of the firm, with larger firms more often having experts on board to handle specialized issues. The human resource staff at the firms we visited were generally aware of the firms’ legal requirements and had developed their human resource policies and procedures to meet their legal responsibilities. These individuals sometimes used outside resources to address these requirements, particularly when compliance involved very routine or highly complex tasks. Although firms generally seemed to have integrated these compliance strategies into their daily operations, firm officials continued to voice concerns about the general burden, complexity, cost, and paperwork associated with many regulatory requirements. Further, firms said that the ambiguity sometimes associated with requirements left firms unsure of whether they were in compliance. Finally, some firms expressed concerns in particular about state laws, although the firms did identify areas in which state laws have improved the workplace. As part of their regular operations, manufacturing employers must typically conduct a number of human resource management activities, which include the following personnel-related activities: setting compensation; recruiting, hiring, promoting, and terminating workers; providing training and development; assigning duties; monitoring performance; addressing labor relations; meeting health and safety requirements; administering health, pension, and other benefits; and maintaining personnel records. The location of responsibility for these activities within firms varied according to their size, industry, and particular management style and culture and was influenced by such other forces as market competition and federal and state law. At the firms we visited, activities that human resource managers oversee were affected by workplace and tax laws to the extent that these activities related to employee compensation, but these activities were not affected by environmental laws. Our case study analysis of human resource operations at the California manufacturing firms we visited indicated that larger firms had more complex human resource systems, staffed with more specialized personnel. This finding was expected and consistent with the views of experts we consulted and the general human resource literature. At the smallest firm, which had fewer than 10 employees, the owner directly handled many human resource issues, such as hiring, leave, and terminations; his secretary helped with payroll and paperwork associated with enrolling employees in the pension and health plans. At firms that had closer to 100 employees, a human resource manager handled many human resource functions. The largest firm we visited, a subsidiary of a multinational company, had several human resource specialists at its California location but handled some issues, such as its health insurance contract, through its corporate office. Responsibility for understanding and complying with legal requirements related to human resource operations at these firms was focused largely in the human resource departments but overlapped into other parts of the firms’ organization. Hence, compliance with human resource-related requirements involved multiple departments and required coordination among them. For example, meeting employee health and safety requirements, as set under OSHA and similar state laws, was addressed by human resource personnel, a separate OSHA/environmental department, or the firm’s production department. In the very small firm, the owner, who managed the firm’s manufacturing operations, was closely involved with ensuring that health and safety requirements were met. In somewhat larger firms, this was a joint effort of staff overseeing the manufacturing activities (who ensured that safety requirements were met on the production floor) and human resource departments (who handled administrative areas such as accident reports to OSHA). In the largest firm, an environmental and safety group oversaw implementation of OSHA requirements. Similarly, human resource staff worked with accounting or payroll groups to comply with requirements related to employees’ pay. For example, completing tax withholding forms or determining which employees should be paid extra for overtime to comply with the Fair Labor Standards Act (FLSA) were examples of human resource functions that were integrated with payroll or accounting. At the firms we visited, efforts to comply with those federal and state laws related to hiring, termination, and other workplace issues have been integrated into the employers’ standard operations. Firms have incorporated policies that meet their legal requirements into employee handbooks. For example, one firm’s employee handbook included sections addressing equal employment opportunity provisions, determining which employees were exempt or nonexempt from overtime pay, managing family and medical leave and pregnancy leave, limiting contributions to the 401(k) plan, and reporting employee injuries. Firms have implemented personnel procedures in many areas to ensure compliance with legal requirements. For example, to comply closely with EEO laws, one firm distributed lists of acceptable, nondiscriminatory questions to company staff before they interviewed potential employees. Several firms have modified their leave policies to comply with FMLA. Further, firms provided training on chemical and equipment safety that met California’s safety and health requirements. Notifying employees who are separating from the firm of their rights to extended health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) was also a standard procedure at firms covered by the requirement. Several firms routinely held safety committee meetings in which management and line workers discussed compliance with safety requirements. Also, completing the I-9 forms indicating that new employees were authorized to work in the United States was a routine procedure when new employees began their employment. The firms we visited frequently retained outside resources to perform certain tasks required by law, particularly those involving either very routine or very complex processes. Examples follow: To deal with routine duties involving employee payroll taxes and income tax withholding, most of the firms relied on an outside payroll service. The firms used the expertise of payroll specialists to ensure that they complied with various laws related to payroll procedures, including those requiring new employee registers, and EEO reporting. For example, with the recent requirement that new employees’ names be sent to a state agency to determine if the employee has any outstanding child support due, the payroll service for several of the firms we visited will routinely forward the names of all new employees, eliminating the need for the firm itself to report the names. Outside firms that administered certain programs completed some required reports that were particularly complex. For example, detailed annual forms required by ERISA for pension funds were prepared for a fee by the companies administering the retirement funds at all the firms we visited. Three of the firms had their health insurance administrators collect insurance payments directly from former employees with coverage under COBRA, which allowed them to continue their coverage after their employment with the firm ended. Timely collection of these funds from former employees had been an administrative problem for some firms. As table 3 shows, firms we visited used outside help to address requirements for many human resource functions. During our in-depth discussions with managers from the firms visited, each expressed some frustration about certain governmental requirements imposed on them, although there was little pattern in their complaints. Certain laws were not a problem for some firms because they had not encountered a workplace situation covered under those laws, whereas others, who had considerable experience with situations covered by the laws, found them burdensome. For example, two firms found the FMLA requirements to be no problem because no employees had ever asked for that type of leave, whereas two firms with greater family leave usage found the process of categorizing and recording leave a greater concern. Compliance with requirements to accommodate the needs of disabled workers was not an issue for several firms; some said they had not had any employees who needed special accommodations. In one case, the firm had built its plant to include handicapped access ramps and bathrooms, which it believed probably eliminated the need for some special accommodations. A January 1, 1998, change in California state law that eliminated the requirement to pay certain workers extra wages for working more than 8 hours a day—a state regulation that had been more stringent than the federal FLSA requirement—exemplifies the variation in employers’ concerns with workplace regulation. Although the regulation was repealed with the aim of permitting more flexibility in setting worker schedules, two of the firms reported that they have continued to provide overtime pay for work beyond 8 hours a day. Managers at one firm said overtime pay provides an incentive for employees to work at least their regular hours, thereby maximizing manufacturing machine use; the other firm’s managers believed that the 8-hour day rule maintained employee morale and productivity. Managers at firms often articulated frustration with excessively difficult requirements or burdensome paperwork, particularly when the managers believed the requirement did not accomplish results. Some firms complained about the requirement for tracking and categorizing family and medical leave under FMLA separately from other leave, as required under federal law. Two firms, both with several hundred employees, have decided to require that all leave be approved by one specific person in order to ensure accurate and consistent approval, even though it is burdensome for that individual. Managers at one firm were particularly frustrated with the requirement to provide separate family and medical leave because they believed they already had a very liberal leave policy without the FMLA-generated paperwork requirements. Some firms had difficulties with requirements under the COBRA provisions that govern health insurance, particularly with defining and identifying qualifying events, such as when former spouses of employees qualify for extended coverage, and informing all qualified beneficiaries. Regarding EEO requirements, one manager commented that under law he is required to collect information on applicants’ ethnic background for the EEO-1 form but is not allowed to ask applicants questions about race, age, and other characteristics. Another firm has decided not to let its workforce exceed 100 employees or bid on government contracts over a particular size to avoid certain EEO requirements, such as the need to prepare affirmative action plans and an EEO reporting form that it considers administratively burdensome. Another manager commented that she keeps careful records about attendance at EEO training and resolution of internal EEO investigations—a time-consuming process—to attempt to protect the company in the event of a lawsuit. However, some company managers believed that such steps might not be sufficient to protect the firms from potential legal liability. Managers at firms we visited were also frustrated about legal requirements that they believed were unclear and left them vulnerable to fines or litigation because of noncompliance. For example, two firms complained about what they perceived to be subjective, vague distinctions between workers who are and are not exempt from the overtime pay requirements under FLSA and the related state law. One called it “the most confusing part of labor law,” noting that it left the company vulnerable to being out of compliance and to paying back wages. The other, commenting that some job classifications in the firm are ambiguous under the law for purposes of coverage, said it looks for a clear distinction on its own and tries to apply its determinations in a consistent manner. Managers at firms also expressed concerns about ambiguity related to employee safety and health requirements as interpreted by enforcement personnel. Managers we talked to believed that the “shifting sands” of enforcement personnel’s interpretations of regulations made compliance more difficult. One plant manager said it seems that no matter how careful a company is in trying to meet Cal/OSHA requirements, Cal/OSHA inspectors will eventually write them up for some violation. A human resource manager at another firm said she believes that when Cal/OSHA inspects a firm, it always finds something wrong. A representative at another firm said unhappy employees have filed anonymous complaints with Cal/OSHA because they have learned that Cal/OSHA always finds something wrong if it inspects the plant. Some areas of concern were related to state laws only. One area that firms particularly expressed concern about was workers’ compensation for injuries. While employers acknowledged that employees should receive compensation for workplace injuries, employers believed that some employees take advantage of the system and abuse the benefit. One manager commented that the state workers’ compensation insurance board makes determinations in employees’ favor more often than it should. She commented that some employees take advantage of the system and abuse the benefit; when they know they can qualify for workers’ compensation, she said, they will do anything to stay out of work, including having unethical medical practitioners falsify medical reports. She noted that this is frustrating because employers can do little to control costs. Another employer expressed frustration with the workers’ compensation program because it covers injuries related to medical conditions that existed before employment with the firm. Although the firms’ managers had many specific concerns about regulations affecting human resources, they also cited some areas in which they believed regulations had helped to improve the workplace. Several firms had concerns about the health and safety requirements, as discussed earlier, but commented that compliance with them had improved health and safety conditions in the workplace. For example, one manager said that the ready availability of the material safety data sheets required by Cal/OSHA facilitated the identification of a chemical that was irritating an employee’s eye and enabled the employee to obtain treatment. Another mentioned that when his firm used safety committees to assess compliance with safety standards, the accident rate was half the rate experienced when the committee did not meet. He also noted that, after being charged with a Cal/OSHA violation, the company would respond and correct the problem within a day or two, thereby improving workplace safety, where previously the company had refused to take action. A manager from a relatively new firm explained that a Cal/OSHA consultant had visited the firm’s plant and explained the requirements it was expected to meet. As a result, it set up systems and procedures, such as an injury and illness program, that improved workplace safety. Similarly, because firms are required to provide workers’ compensation, a firm manager said that representatives from the insurance company inspect the plant and assess how safety conditions can be improved. Regarding unemployment insurance, one manager complimented California’s workshare program, which allows an employee to receive partial unemployment benefits when the employee’s work hours have been reduced. This program allows the company to retain an employee for a part-time schedule whereas, without it, the company would have lost the employee. The manager believed that retaining the employee resulted in benefits that outweighed unemployment insurance costs. We requested comments on a draft of this report from Labor, EPA, IRS, and SBA. Labor, EPA, and IRS provided technical comments to improve the clarity and accuracy of certain information. We have incorporated those suggestions into the report as appropriate. SBA responded that it had no comments. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days from its issue date. At that time, we will send copies of this report to the Secretary of Labor, the Administrator of the Environmental Protection Agency, the Commissioner of the Internal Revenue Service, and the Administrator of the Small Business Administration. We will make copies available to others on request. Please contact me on (202) 512-7014 if you or your staff have any questions. This report was prepared under the direction of Charles A. Jeszeck, Assistant Director. Other major contributors to this report are listed in appendix V. To address the objectives of this review, we identified the legal provisions of federal and California state laws that we believed to be significant to the operations of California manufacturing firms, including employment, tax, and environmental issues. Also as agreed with the requester’s office, we excluded local laws and requirements from our analysis, although we recognize that they can also affect firms. To help identify the relevant laws, we spoke with officials at several federal agencies, including the Small Business Administration (SBA), Department of Labor, Environmental Protection Agency (EPA), and Treasury’s Internal Revenue Service (IRS). We also spoke with officials at several California state agencies, including the California Franchise Tax Board, California Department of Fair Employment and Housing, California Department of Industrial Relations, California Trade and Commerce Agency, and California Environmental Protection Agency. To verify the accuracy of our presentation, a draft of this report was reviewed for technical accuracy by staff at Labor, EPA, IRS, SBA, and selected state agencies. Because individual laws are of varying lengths and detail, are codified, and are sometimes amended or replaced, we did not attempt to provide exact counts of laws that affect companies. In addition to speaking with federal and state agencies to identify laws, we also spoke with them about their efforts to inform businesses of their legal responsibilities, and we reviewed their publications and electronic information sources, such as web sites. We also visited seven firms to determine the implications laws have for their human resource operations. With the help of trade associations and business advocacy agencies, we selected firms in two leading manufacturing industries in California—aerospace and electronics—and chose firms with an array of different characteristics, as shown in table I.1. We note the important limitations of this information. First, these firms are not necessarily representative of other employers in these industries, either in California or the nation. Second, individual firms’ performance and the vibrant California and national economies may have affected the responses we received. For example, laws and regulations related to layoffs, health insurance coverage for separated employees, and unemployment insurance probably have less impact on firms in this environment, whereas requirements concerning the hiring of foreign workers probably have more impact. However, the firms did provide us a snapshot of strategies that firms of various sizes currently use to comply with these legal requirements. To create these tables, we reviewed various materials related to the statutes noted herein. The resulting list of “requirements” includes descriptions of significant provisions of these statutes but is not an exhaustive list of the provisions. The Fair Labor Standards Act (FLSA) (29 U.S.C. 201 et seq.), Walsh-Healey Act (41 U.S.C. 35 et seq.), and Contract Work Hours and Safety Standards Act (40 U.S.C. 327 et seq.) establish the minimum wage rate to be paid to employees, the standards of overtime compensation, and restrictions on the use of child labor. Size limitations: None; these laws apply to all employers engaged in interstate commerce or the production of goods for interstate commerce. Comparable state law: The California Labor Code, Industrial Wage Order No. 1-98, applies to the extent that it is stricter than the federal law. Employers must pay each nonexempt employee subject to FLSA at least (1) the hourly minimum wage rate set by law for all hours worked in a work week and (2) one and one-half times the employee’s regular rate of pay for all hours over 40 worked in a week. —Employers may pay employees other than an hourly rate (for example, salary, piece rate, and so on) as long as the wages paid equal or exceed the statutory minimum ($5.15 per hour). —Youths under 20 may be paid a lower minimum wage of $4.25 per hour for the first 90 days after hire. —Full-time students, handicapped workers, learners, apprentices, and messengers may be paid at less than minimum wage if employed in accordance with regulations of the Department of Labor. —For overtime compensation, the “regular rate of pay” is the actual rate of pay received by the employee. —Employers cannot retaliate against an employee who files a complaint under FLSA. —California requires employers to pay a minimum wage of $5.75 per hour. —Employers must provide meal periods and rest periods to employees who have worked a specified number of hours. —Employers must pay learners 18 years and over no less than 85 percent of the minimum wage. (continued) If manufacturing work is being conducted for a federal contract of more than $10,000, the Walsh-Healey Act requires employers to pay the “prevailing wage rate” as determined by the Secretary of Labor, which may be higher than the FLSA statutory minimum wage rate. Even if the federal contract is not covered by the Walsh-Healey Act, employers may have to pay “laborers or mechanics” the overtime wage rate under the Contract Work Hours and Safety Standards Act, which is one and one-half times the employee’s base rate of pay. —The “prevailing wage rate” under the Walsh-Healey Act has for many years been determined to be the FLSA statutory minimum wage rate and is the wage generally paid to workers in the same industry in the same locale. —The prevailing wage rates are generally set by geographic areas. Employers must comply with applicable restrictions in the wage-hour laws on the use of child labor. —Children below the age of 16 may not be employed in manufacturing. —If a business involves an occupation that the Secretary of Labor has determined to be “hazardous,” employers may not hire children below the age of 18. Employers must determine whether each worker is subject to the federal wage-hour laws: that is, whether there is an employment relationship and whether the employee is not specifically “exempt” under the provisions of the statute. —According to the “economic reality” test, an employment relationship exists if the person is dependent on the employer’s business as a means of livelihood. —Employees employed in a “bona fide executive, administrative or professional capacity” (“white collar” employees) are exempt from the federal wage-hour laws. —Administrative, executive, and professional employees are defined as either (1) employees engaged in work “primarily intellectual, managerial, or creative ... requires exercise of discretion and independent judgment” for which pay is at least $1,150 per month or (2) employees in a “recognized” profession. —All supplemental “payroll” records, wage-related agreements, and sales records must be kept for 3 years, although worker attendance records, such as daily time cards, need only be kept for 2 years. —Walsh-Healey requires, in addition to payroll records, records of occupational illness and injury. Some additional state requirements may apply. Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e et seq.), the Equal Pay Act under FLSA (29 U.S.C. 206d), the Age Discrimination in Employment Act (ADEA) (20 U.S.C. 621 et seq.), Executive Order 11246, the Immigration and Nationality Act (8 U.S.C. 1101 et seq.), the Vietnam-Era Veterans’ Readjustment Assistance Act (VEVRAA) (38 U.S.C. 4212 et seq.), and the Uniformed Services’ Employment and Reemployment Rights Act (USERRA) (38 U.S.C. 4301 et seq.) prohibit discrimination in employment on the basis of race, color, religion, sex, national origin, age, Vietnam-era veterans’ status, and military service. Size limitations: Title VII applies to employers with 15 or more employees; the Equal Pay Act applies to all employers; ADEA applies to employers with 20 or more employees in 20 weeks in the current or preceding year; Executive Order 11246 and VEVRAA apply to all federal contractors and subcontractors with a covered contract or subcontract of $10,000 or more, and provisions requiring affirmative action programs apply only to federal contractors and subcontractors with a covered contract or subcontract of $50,000 or more and 50 or more employees; and USERRA applies to all employers. Comparable state law: The Fair Employment and Housing Act (FEHA) applies to employers with 5 or more employees, except that provisions related to sexual harassment apply to all employers. California labor code also applies. Table II.2: Civil Rights—Race, Color, Religion, Sex, National Origin, Age, and Vietnam-Era Veterans’ Status Employers with 15 or more employees cannot discriminate in employment practices (hiring, firing, compensation, and so on) against people on the basis of race, color, religion, sex, or national origin. Employers with 20 or more employees cannot discriminate against people on the basis of age. Employers of any size may not discriminate in employment practices because of past, present, or intended service in the uniformed services. —Employers cannot treat people less favorably than others because of race, color, religion, sex, age, or national origin. —Employers must not allow sexual harassment in the workplace. —Under the Equal Pay Act, all employers must pay men and women equal pay for equal work on jobs requiring equal skill, effort, and responsibility unless factors other than gender (for example, seniority or merit) are involved. —Employers cannot retaliate against any employee because the employee filed a charge or participated in an investigation or proceeding under Title VII, USERRA, Executive Order 11246, or VEVRAA. —Antidiscrimination laws apply to all California employers with five or more employees and protect against discrimination based on sexual orientation. —Sexual harassment provisions apply to all California employers. —Employers must post notice of employee rights under antidiscrimination laws. —Employers must ensure that applicants and employees are treated without regard to race, color, religion, sex, national origin, or Vietnam-era veteran status in all aspects of employment. —Employers are subject to review by the Department of Labor. If an employer has a nonexempt federal contract of $50,000 or more and employs 50 or more employees, the employer must establish an affirmative action program. —Employers must post notice of employee rights under antidiscrimination laws. —Employers must develop and adopt a written affirmative action program. —Employers must update the program annually. —Employers must annually file form 100 (Employer Information Report, EEO-1). Employers must post notice of antidiscrimination minimum wage and maximum hours laws in the workplace, and employers with 100 or more employees must file workforce statistics on form 100 with the Equal Employment Opportunity Commission. —Employers must compile statistics of employment practices and workforce composition (including job applicants) by geographic area. —Employers must distribute copies of the state information sheet on sexual harassment to all employees. Some additional state requirements may apply. The Americans With Disabilities Act (ADA) (42 U.S.C. 12101 et seq.); the Rehabilitation Act, Section 503 (29 U.S.C. 793); VEVRAA (38 U.S.C. 4212 et seq.); and USERRA (38 U.S.C. 4301 et seq.) prohibit employment discrimination on the basis of disability. Size limitations: ADA applies to businesses with 15 or more employees for 20 weeks in the current or preceding year; the Rehabilitation Act, Section 503, and VEVRAA apply to all federal contractors and subcontractors with a contract or subcontract of $10,000 or more, and provisions requiring affirmative action programs apply only to federal contractors with a covered contract or subcontract of $50,000 or more and 50 or more employees; and USERRA applies to all employers. Comparable state law: FEHA applies to employers with 5 or more employees regarding physical disabilities, but coverage of provisions regarding mental disabilities is restricted to employers with 15 or more employees. Employers with 15 or more employees are prohibited from discriminating in employment practices (hiring, firing, compensation, and so on) because of physical or mental disability (ADA). —To be protected under federal law, people with disabilities must have a “physical or mental impairment” that “substantially limits” one or more “major life functions.” —To be protected, a person with a disability must also have the requisite skill, experience, education, and other related requirements for the job. —Employers cannot require a medical examination until after a job offer has been made, but the job offer can be contingent on passing a medical examination, which must be required of all applicants for a job, not just the applicant with a disability. —Employers must post notice of employee rights under antidiscrimination laws. —Employers cannot retaliate against any employee because the employee filed a charge or participated in an investigation or proceeding under ADA. —Provisions apply to California employers with 5 or more employees, except for disabilities relating to mental impairments, which apply only to businesses with 15 or more employees. Employers must provide “reasonable accommodation” to enable applicants and employees with disabilities who are “otherwise qualified” to perform the job unless to do so would cause “undue hardship.” —Employers may have to modify or adjust workplace or work practices to enable a person with a disability to do the job. —In the case of an employee returning to a job disabled as a result of military service, the employer must assign the employee to an “equivalent” position if the disability prevents the employee from performing his or her old job. If, with reasonable accommodation, the employee cannot perform in an equivalent position, the employer must place the employee in a position with the nearest approximation of status and pay, with full seniority (USERRA). (continued) If the employer has a covered federal contract or subcontract of $10,000 or more, the employer must take affirmative action to hire qualified individuals with disabilities and Vietnam-era veterans under the Rehabilitation Act, Section 503, and VEVRAA. —Employers are subject to review by the Department of Labor. —Employers must maintain records for 1 year on complaints received and action taken under the law. —Employers must report annually to the Department of Labor on the number of employees who are veterans and “special disabled veterans.” —Employers must invite employees and job applicants to identify whether they believe themselves to be covered by VEVRAA or the Rehabilitation Act, Section 503. If the employer has 50 or more employees, and a covered federal contract or subcontract of $50,000 or more, the employer must establish a written affirmative action program for special disabled veterans, individuals with disabilities, and Vietnam-era veterans. —The affirmative action program shall be available for inspection to any employee or applicant upon request. —Employers must post notice at each facility the location of the affirmative action program and the hours during which a copy of the program may be obtained. Some additional state requirements may apply. The National Labor Relations Act (NLRA) (29 U.S.C. 151 et seq.) and the Labor-Management Reporting and Disclosure Act (29 U.S.C. 401 et seq.) create the framework for the relationship among employer, employees, and labor unions, providing employees with the right to organize and bargain collectively through representation of their own choice. Size limitations: None; these laws apply to all employers. Comparable state law: None; the NLRA preempts state regulation of labor-management relations. Specific requirements (federal only) Employers cannot interfere with employees in the exercise of their rights guaranteed by the NLRA. —Employees have the right to organize, bargain collectively, and engage in collective activities. —Employers cannot discriminate against any employee because of activities protected by the NLRA. —If an employer violates any of the guarantees under the NLRA, employees may complain about an “unfair labor practice” to the National Labor Relations Board. Employers must bargain in good faith with the union selected by employees. —Employees may select, by secret ballot, a labor organization to act as their exclusive representative for the purpose of collective bargaining. Employers are prohibited from forming a “company union” to deal with labor disputes and work conditions. —Employers must restrict jurisdiction of management-employee committees to activities not covered by the NLRA. Employers must disclose certain payments or dealings with employees, unions, union officers, and labor relations consultants, and any expenditures to interfere with or restrain union activity, to the Secretary of Labor under the Labor-Management Reporting and Disclosure Act . —The report to the Secretary of Labor must include the terms and conditions of such payment. —Any person who is engaged by the employer to persuade employees not to organize or to supply information about union activities must also report to the Secretary of Labor. The Employee Retirement Income Security Act (ERISA) (29 U.S.C. 1001 et seq.) requires employers that maintain pension plans for their employees to generally ensure that rights in such plans are equitably offered to their employees, that funds held for such purposes are adequately protected, and that employees are fully informed about the status of these funds. Size limitations: None; ERISA applies to all employers with pension plans; however, there are reduced reporting requirements for certain pension plans with fewer than 100 participants. Comparable state law: None; ERISA preempts state regulation of pension plans. Specific requirements (federal only) Employers offering pension plans must allow employees to participate in pension plans in accordance with ERISA requirements. —Employers may set up various types of plans, generally classified as either “defined benefit” or “defined contribution” plans. —All employees who have reached a specified minimum age and completed a minimum amount of service with the employer must be eligible to participate. —Pension plans cannot discriminate in favor of an employer’s more highly paid employees. Employers must give employees nonforfeitable (vested) rights in pension plans in accordance with ERISA requirements. —Employers generally must follow one of three vesting schedules set out in ERISA. —Once fully vested, employees must be guaranteed a percentage of benefits even if they leave their job before retirement. Employers must fund defined benefit pension plans annually to meet the minimum standards set forth in ERISA. —Employers must fund annually all benefits earned in a defined benefit plan that year by employees and pay installments on the cost of benefit increases not previously funded. —Employers who do not meet minimum funding standards must pay an excise tax or obtain a waiver from the Secretary of the Treasury. Employers must ensure that people who manage pension plans do so in a prudent manner, solely for the benefit of the participants and beneficiaries. —Pension plans must be established under a written plan, with a named fiduciary. —People handling funds must be bonded for protection against fraud or dishonesty. —Certain types of transactions are specifically prohibited. Employers must report detailed financial data to the Department of the Treasury and disclose to employees understandable data on the financing and operation of the pension plans. —Form 5500 must be filed with the IRS annually, setting out assets and liabilities, income and expenses, as well as numerous other data. —Pension plans with fewer than 100 participants may have reduced reporting requirements. —Other reports must be filed to federal agencies when specified events occur, such as failure to meet minimum funding standards or bankruptcy. —Summaries of annual financial reports and notification of major modifications to the plan must be provided to all employee participants. —Plan administrators must retain records that verify, explain, or clarify reported information for 6 years. The Health Insurance Portability and Accountability Act (HIPAA), the Newborns’ and Mothers’ Health Protection Act (NMHPA), the Mental Health Parity Act (MHPA), USERRA, and the Consolidated Omnibus Budget Reconciliation Act (COBRA) require that employers providing employees with group health plans (both insured and self-insured) must comply with federal requirements on health coverage. Size limitations: HIPAA and NMHPA apply to employers with 2 or more employees; COBRA provisions apply to employers with 20 or more employees; and MHPA provisions apply to employers with over 50 employees. Comparable state law: HIPAA permits state insurance law to vary from federal law only in certain enumerated ways for certain requirements, and only as long as it does not prevent the application of federal law for other requirements. NMHPA permits state insurance law to supersede federal law if state law contains certain specified requirements. Specific requirements (federal only) Any employer electing to sponsor a group health plan covering two or more employees must limit the effects of a “preexisting condition” exclusion for employees, spouses, and dependents and cannot discriminate against employees, spouses, and dependents because of health status and related factors (HIPAA). —An employer’s group health plan may include a period of up to 12 months for a regular enrollee, or 18 months for a late enrollee, during which there is restricted coverage of a participant’s or beneficiary’s preexisting medical condition. —An employer’s group health plan must reduce an individual’s preexisting condition exclusion period by the number of days of “credible coverage” (generally, prior health coverage without a break in coverage of 63 days or more). —An employer’s group health plan may not exclude individuals from coverage under the terms of the plan or charge an individual more for benefits offered by the plan (that is, discriminate on the basis of specific factors related to health status). If an employer has two or more employees who are participating in a group health plan that provides coverage for childbirth, the plan must provide for a hospital stay for the mother and child of not less than 48 hours following a normal vaginal delivery and not less than 96 hours following a cesarean section (NMHPA). If an employer has over 50 employees and has a group health plan that provides both medical/surgical and mental health benefits, any aggregate lifetime or annual dollar limits on benefits for mental health services may not be lower than any such limits for medical/surgical benefits unless changing the dollar limits would increase costs for the plan by 1 percent or more (MHPA). All employers must offer continued group health coverage to employees and qualified beneficiaries after employees leave to perform military service (USERRA). Employers with 20 or more employees and a group health plan must offer continued group health coverage to employees and their spouses and dependents after a qualifying event (job termination, employer bankruptcy, divorce, death, reduced hours, and so on) unless terminated for “gross misconduct” (COBRA). —Employers must give notice of COBRA rights to an employee and other qualified beneficiaries at the time coverage begins and after a “qualifying event,” such as termination of job, death, or divorce. —Employees and qualified beneficiaries have 60 days to elect continued health coverage from the date they will lose coverage or the date of notice, whichever is later. —COBRA coverage must be available for a child born to, or adopted by, a former employee covered by COBRA during the COBRA coverage period. Specific requirements are the same as general employer duties. The Family and Medical Leave Act (FMLA) (29 U.S.C. 2601 et seq.) requires covered employers to allow employees to take leave for birth or adoption of a child, or a serious health condition of the employee or the employee’s immediate family. Size limitations: FMLA applies to employers with 50 or more employees on the payroll for 20 calendar weeks in the current or previous year. Comparable state law: The California Family Rights Act (CFRA) and FEHA, which include additional provisions for pregnancy disability leave for all employers with five or more employees, apply. Employers with 50 or more employees must allow eligible employees to take up to 12 weeks’ unpaid leave each year for medical or family-related reasons. —To be eligible, employees must have been employed with the business for at least 1 year, with at least 1,250 hours of service in the prior year. —Leave can be taken for the adoption or birth of a child by either husband or wife. —Leave can be taken for the care of the serious health condition of the employee’s spouse, child, or parent or for the employee’s own serious health condition. —Leave may be taken intermittently, on a reduced schedule basis, all at once, or in full-day increments. —California includes the same size limitations on its family leave provisions under CFRA; however California, also provides that employers with five or more employees must allow female employees up to 4 months for pregnancy disability leave. —An eligible employee can take up to 4 months for pregnancy disability leave and can also take additional leave under CFRA to “bond” with the child (or for whatever health or family reason allowed under CFRA). At the employee’s or employer’s option, certain types of paid leave may be substituted for unpaid leave during the employee’s absence, and the employer must continue the employee’s coverage in group health insurance. —Employees may choose to substitute accrued paid leave for unpaid FMLA leave, or an employer may require the employee to substitute accrued paid leave for the FMLA leave.(29 U.S.C. 2612 (d)(2)(A)) —Employers must maintain an employee’s coverage under a group health plan at the same level as would have been provided had the employee remained at work. Employers must reinstate all the employees taking such leave unless the employee’s job is eliminated or the employee is determined to be “key” to the operations of the business. —Reinstatement is generally required to be to the same or equivalent position, unless the employee’s job is eliminated and the employer can prove that the job would have been eliminated whether or not the employee had taken FMLA leave. —“Key” employees are those who are salaried, in the top 10 percent of pay at the business, and whose job restoration would cause “substantial and grievous economic injury” to the business. —If a female employee takes leave for pregnancy disability, the employer must reinstate her to her same or a comparable position with the same seniority and benefits as when leave began, unless employment would have ceased during the disability period. —In addition to posting notice of FMLA, employers must provide a general notice to all employees of rights and obligations under FMLA. —In the event an employee needs to take FMLA leave, the employer must provide specific notice to the employee of FMLA rights and obligations within 2 days after the employer learns of the need for leave. —Pay records must distinguish FMLA leave and non-FMLA leave. —Records should include notices provided to the employee, and records of any disputes. —Records must be maintained for 3 years. Some additional state requirements may apply. California Disability Insurance and California Workers’ Compensation require employers to collect employees’ contributions to the state disability insurance fund (for use of disabled workers not receiving unemployment insurance or workers’ compensation) and to compensate workers in part for the loss of pay because of a workplace injury or sickness. Size limitations: None; these requirements apply to all employers paying over $100 in wages in a calendar year. Independent contractors are not covered by workers’ compensation laws. Employers with workers considered to be employees under the California law must collect employee contributions to disability insurance. —All workers considered employees for purposes of unemployment insurance must contribute to disability insurance. Employers contribute toward disability insurance on the basis of wages recognized for this purpose by state law. —Employees must pay 1.0 percent on the first $31,767 of wages paid by the employer. —All compensation that is considered wages for purposes of unemployment insurance is also considered wages for disability insurance, unless specifically exempted. Employers must maintain insurance to pay workers’ compensation for workplace injuries. —Insurance rates can vary with the employer’s safety and accident record. —Employers can challenge the eligibility of claimants for workers’ compensation in a hearing before a state agency. —Employers with the worst state safety records must make an annual payment to the state fund. Employers must notify employees of rights to disability insurance and workers’ compensation. —Employers must give new employees and employees leaving work because of pregnancy or nonoccupational sickness or injury a notice of their rights under the disability law. —Employers must post notices of employees’ rights to disability insurance benefits. —Employers must provide injured workers with a California form notifying injured workers of their rights under the workers’ compensation program. —Employers must post notice of employees’ rights to workers’ compensation for job-related injuries. —Worker contributions are deposited with income taxes withheld, and reported on the same form required for unemployment insurance. Not applicable. The Occupational Safety and Health Act (29 U.S.C. 651 et seq.) requires employers to keep the place of employment free from recognized hazards that could cause death or serious physical harm to employees and to comply with workplace safety standards established by the Department of Labor. Size limitations: None; the act applies to all employers. However, employers with 10 or fewer employees have reduced record-keeping requirements and are exempt from programmed inspection if in a low-hazard industry. Comparable state law: The California Occupational Safety and Health Act applies to all California employers but reduces some record-keeping requirements for employers with 20 or fewer employees. —Employers must follow Occupational Safety and Health Administration (OSHA) instructions on how to keep work areas safe. —Employers must provide adequate supervision of employees. —Depending on the particular standard, employers may also have to provide employee safety training and education and adopt prescribed safety procedures or modify machinery to include safety devices. —California has its own set of standards comparable to the federal requirements. In addition, California has state-specific requirements. Employers using hazardous substances (in an amount over thresholds specified by regulation) or whose workplace presents high-risk situations (for example, confined spaces with oxygen-deficient atmosphere) must protect employees from exposure to health hazards. —Employers must conduct periodic tests to determine the presence and concentration of hazardous substances. —Employers must develop safe operating procedures and an emergency response plan. —Employees must be trained in safe operating procedures. —Employers must develop a “hazardous communication program”—that is, prepare “material safety data sheets” identifying the nature of the health hazard and notifying employees of hazards associated with substances. —All health hazard emergencies must be reported to OSHA. —Depending on the particular standard, the employer may also have to provide periodic medical examinations for each employee and obtain special work permits. —California has its own standards comparable to the federal requirements. Specific requirements may differ. (continued) Employers must maintain records on safety at the workplace, post notice of the protection due to employees under OSHA, and report certain serious injuries to OSHA. —Employers with 10 or fewer employees have reduced record-keeping requirements. —Employers in low-hazard industries with 10 or fewer employees are exempt from programmed safety inspections. —Employers must keep a continuing log of occupational injuries and illnesses (on OSHA form 200). —Employers must maintain records on employee exposure to hazards. —Employers must maintain environmental monitoring logs and “material safety data sheets.” —Employers must report any job-related fatality or accident requiring the hospitalization of three or more employees to OSHA within 8 hours of occurrence. —Employers in high-hazard industries with more than 60 employees must submit illness and injury data to OSHA’s annual survey. —Employers must establish, implement, and maintain a written injury and illness prevention program with certain specified sets of records. —Employers with 10 or fewer employees and employers with 20 or fewer employees that have a good safety program have reduced record-keeping requirements. The Immigration and Nationality Act (8 U.S.C. 1101 et seq.), Employee Polygraph Protection Act (29 U.S.C. 2001 et seq.), USERRA (38 U.S.C. 4301 et seq.), Drug Free Workplace Act (41 U.S.C. 701 et seq.), Personal Responsibility and Work Opportunities Act (42 U.S.C. 654), and Workers’ Adjustment and Retraining Notification Act (WARN) (29 U.S.C. 2101 et seq.) regulate employers when hiring new workers and provide rights to certain workers with respect to job termination. Size limitations: WARN applies to employers of 100 or more employees. Comparable state law: The relevant California Labor Code provisions apply, as well as a provision requiring employers with 25 or more employees to allow employee participation in a drug or alcohol rehabilitation program. Requires all employers to hire only those people who may legally work in the United States (that is, citizens and nationals of the United States and aliens authorized to work in the United States) (Immigration and Nationality Act). —Employers must ensure that employees fill out form I-9, with evidence of identity and employment eligibility. —Employers must physically examine documentation and complete form I-9. —Employers must retain forms I-9 for 3 years. To hire foreign workers in certain specialized professions to work in the United States, employers must meet the requirements of the H-1B temporary worker program. —Employers must pay the foreign worker wages as least as high as they pay a U.S. citizen performing the same type job in the same area. —The foreign worker must qualify as a member of a “specialized occupation” not only on the basis of academic degree but also by license, experience, or training. Employers may not use polygraphs to screen job applicants or during the course of employment, except in certain circumstances, such as those related to national security (Employee Polygraph Protection Act). —All employers must post notice of protection against the use of the polygraph test. —If employers use polygraph tests, the employers must maintain records of such tests for 3 years. —Employers may not discharge or retaliate against an employee for refusing to take a polygraph test. All employers must provide reemployment to employees who leave their jobs to serve in the “uniformed services” (USERRA). —Employers must reinstate uniformed service members who report back to their jobs in a timely manner to a position of like seniority, status, and pay. —Employers must guarantee reinstated uniformed service members pension plan benefits accruing during military service. —Employers must continue to provide health benefits for uniformed service members and their families for up to 18 months during military service. If an employer works on federal contracts of over $25,000, the employer must maintain a drug-free workplace (Drug Free Workplace Act). —Employers must publish a notice to employees that drugs are prohibited in the workplace and that action will be taken against employees who violate the prohibition. —Employers must offer drug-free awareness programs to employees. —Employers must notify the federal agency with which they are contracting of an employee’s drug conviction within 10 days of learning of such conviction. —Employers with 25 or more employees must accommodate any employee who wants to participate in a drug or alcohol rehabilitation program. —Employers must make reasonable efforts to safeguard the privacy of an employee who has enrolled in a rehabilitation program. Employers must report information on newly hired personnel to a designated state agency for the purposes of enforcing child support agreements (Personal Responsibility and Work Opportunities Act). —After October 1, 1998, employers must submit information to the responsible state agency within 20 days after hiring a new employee. Employers of 100 or more employees must provide 60 days’ notice to employees of a plant closing or mass layoff (WARN). —Employers must provide notice in writing to employees or their union representative and to local and state authorities. (Table notes on next page) Some additional state requirements may apply. The tax law requirements compiled in these tables are summaries of significant provisions in the federal Internal Revenue Code and the California Revenue and Taxation Code. As with other legal requirements outlined in this report, this is not an exhaustive list of tax provisions. The federal tax code requires employers to withhold a portion of employees’ wages and remit the withheld portion to federal authorities as payment toward the employees’ income taxes. Size limitations: None. All employers are liable for withholding taxes of employees; however, there are less frequent deposit and filing requirements for employers with smaller payrolls. Comparable state laws: State income tax code. Employers must withhold appropriate amounts if the worker is an “employee,” not an “independent contractor.” —If the worker is an “employee” under the common law test or meets other requirements of the Internal Revenue Code, the employer must withhold federal income taxes. —Even if the worker is an “employee,” income taxes may not have to be withheld if there is a “safe harbor” (that is, industry practice treats the worker as an independent contractor) and if the worker meets the other requirements of section 530 of the Revenue Act of 1978. —Specific federal tax code provisions might exempt certain workers from withholding requirements. —If a worker is an employee under common law, the employer must withhold state income taxes unless the state tax code provisions specifically exempt the worker from this requirement. —Specific state tax code provisions might require the employer to withhold state income tax even if the worker is not a common law employee. —There are no “safe harbor” provisions recognized for the purposes of California income tax withholding. Employers must withhold tax from payments subject to the income tax. —There is no withholding for payments specifically exempt from federal income tax (such as nontaxable fringe benefits and qualified moving expenses). —There is no withholding if the employee files form W-4 validly claiming an exemption from withholding. —All compensation for work done is included in wages for the purposes of state income tax withholding unless the employee is specifically exempt by state law. (continued) —Employers must withhold each pay period. —Employers must refer to the employee statement of filing status on form W-4; if there is no W-4, the employee is treated as if single with no dependents. —Employers must calculate the tax in a method approved by IRS—either by “wage bracket” tables, by percentage, or by another approved method. —Employers must withhold each pay period. —Employees can use either federal W-4 or state DE-4 to identify filing status; if no form is filed, the employee is treated as if single with no dependents. —For California income tax withholding, the employer can use only one of two methods: either the wage bracket tables or exact calculation. —Employers accumulating withheld income tax and Social Security and Medicare taxes greater than $1,000 in a calendar quarter must remit withheld taxes periodically with a form 8109; if employers withhold $50,000 or less during a 1-year period, they must deposit monthly; if over $50,000, they must deposit semiweekly; if employers accumulate over $100,000 in 1 day, that amount must be deposited by the close of the next banking day. —Employers accumulating less than $1,000 in a calendar quarter must remit withheld taxes quarterly, with a form 941. —Employers that deposited over $50,000 in withheld federal income taxes and Social Security and Medicare taxes in 1996 must make electronic deposits of all federal depository taxes in 1998 and thereafter. —For California income tax withholding, all employers collecting more than $400 a month in state income taxes must remit the taxes on the same schedule required for federal withholding; withheld taxes are deposited with a state form DE-88. Employers must report on amounts withheld and deposited. —Quarterly, employers must report on amounts withheld, filing a form 941 with IRS. —Annually, employers must file a form W-3 with the Social Security Administration, reporting on total wages paid and taxes withheld during the year, along with copies of employees’ forms W-2; in addition, employers must send each employee a copy of form W-2. —Employers submitting over 250 forms W-2 must file on magnetic media. —Quarterly, employers must report on amounts of state income tax withheld and wages paid, filing state form DE-6. —Annually, all employers must file state form DE-7, reconciling the total tax amounts withheld during the year. —Employers with more than 250 employees must use magnetic media to file quarterly wage report DE-6. Employers must report payments made to workers classified as “independent contractors.” —Annually, employers must file an information return, a form 1099, with the IRS showing payments to independent contractors who received more than $600. —For each worker named in a federal information return, an employer must provide an annual written statement showing the employer’s name, address, and identification number and the amount paid to the worker. The Federal Insurance Contributions Act (FICA) requires employers both to withhold the employee’s share and to pay the employer’s share of Social Security and Medicare taxes. Size limitations: None. Comparable state law: None. Specific requirements (federal only) Employers must withhold the employee share and pay the employer share of FICA taxes if the worker is an “employee,” not an “independent contractor.” —If the worker is an “employee” under the common law test or meets other requirements of the Internal Revenue Code, the employer must comply with FICA requirements. —Even if the worker is an employee under common law, the employee may not be subject to FICA if the employee meets the requirements of section 530 of the Revenue Act of 1978, or the employee is specifically exempted under federal law. Taxes must be withheld and paid on all employee “wages” under FICA. —Social Security taxes are not paid on wages over $68,400 for 1998; there is no limit on wages subject to Medicare tax. —Certain payments are specifically exempt from FICA tax by federal law. Employers must properly calculate taxes. —Social Security taxes withheld from an employee are currently 6.2 percent of employee wages—the employer pays an equal amount. —Medicare taxes withheld from an employee are currently 1.45 percent of employee wages—the employer pays an equal amount. Employers must remit taxes and report on taxes withheld and paid. —Employers must deposit FICA taxes with form 8109 at the same time as the employers deposit federal income tax withheld. —Employers must report quarterly on amounts paid and withheld under FICA on form 941. The Federal Unemployment Tax Act (FUTA) requires employers to pay amounts for employee unemployment insurance to federal authorities. Size limitations: None, although small payrolls may be exempted from payments or have fewer filing requirements. Comparable state law: State unemployment insurance and the state Employment Training Fund. —If the worker is an “employee” under the common law test or meets other requirements of the Internal Revenue Code, the employer must pay unemployment tax unless the employer meets the requirements of section 530 of the Revenue Act of 1978. —All workers recognized under the common law test are employees for the purposes of unemployment insurance unless there is a specific state exemption for that type of employee. —Even if a worker is not a common law employee, state tax provisions might require unemployment insurance coverage. —All wages over $7,000 are exempt. —Certain compensation is specifically exempt under federal law. —All wages over $7,000 are exempt. —Certain compensation is specifically exempt under state law. Employers must properly calculate tax. —There is no tax if total wages paid to all employees are less than $1,500 per quarter. —FUTA tax is 6.2 percent; however, employers get credit up to 5.4 percent for the amount of state unemployment tax paid. —There is no tax if total wages paid to all employees are less than $100 per quarter. —The maximum contribution rate for California employers is 5.4 percent, and new employers pay 3.4 percent for a 3-year period. Thereafter, the rate may vary depending on the individual employer’s experience. —Most employers must also pay 0.1 percent to the state Employment Training Fund. —If employers pay FUTA taxes of over $100 per year, employers remit the taxes with the form 8109 on the last day of the month following the end of the quarter. —Annually, all employers file either a form 940 or 940EZ to the IRS, reporting unemployment insurance paid during the year; in addition, employers paying FUTA taxes of less than $100 per year remit annual taxes with a form 940. —Employers remit tax payments quarterly with state form DE-88. —Employers must file state form DE-6 quarterly, reporting on unemployment contributions; annually, employers must file state form DE-7, reconciling total contribution amounts. —Employers must post general notices in the workplace. —When an employee is laid off, fired, or placed on a leave of absence, the employer must provide the employee with a form DE-2320 detailing information on benefits. Not applicable. The federal income tax code requires corporate entities to pay taxes on corporate income. Size limitations: None. Comparable state law: State income tax code. —Employers must file a corporate income tax return on form 1120 with IRS; employers may be able to use the shorter form 1120-A if gross receipts, total income, and total assets are less than $500,000. —Employers must file a return by the 15th day of the 3rd month after the end of the corporation’s tax year. —Employers doing business in California must pay an annual “franchise tax” at a rate of 8.84 percent of net income attributable to California. —Out-of-state corporations that are deriving income from sources in California but not “doing business” in the state must pay an annual “corporation income tax” at a rate of 8.84 percent of net income attributable to California. —Corporate returns and tax payments are due to the California Franchise Tax Board 2-1/2 months after the end of the corporation’s tax year. In this set of tables, we focus on legal provisions related to the electronic/computer industry, as identified in a study conducted by EPA. Since currently no similar study of provisions dealing with the aerospace industry exists, we have restricted our review to those provisions identified by EPA. As with the other tables on legal requirements, the environmental provisions listed are not intended as an exhaustive list of those related to this industry. The Clean Air Act regulates air pollution by means of air quality control standards and emission control of certain pollutants. Size limitations: None; the law applies to all employers. Comparable state law: The California Clean Air Act, the Air Toxics “Hot Spots” Information and Assessment Act, and the Tanner Act apply; state law is applied if it is stricter than federal law. If employers construct or modify certain types of equipment determined to “contribute significantly” to air pollution, they must comply with EPA New Source Performance Standards; there are specific standards for small industrial boilers, large industrial boilers, incinerators, petroleum storage tanks, volatile organic tanks, appliance surface coating, and magnetic tape coating. —Employers must notify EPA in the event of start-up, shutdown, or malfunction of such equipment. —Within 180 days of start-up or up to 60 days of full production, employers must test for performance. —Employers may have to continue to monitor equipment emissions. —Employers must report emissions in excess of EPA threshold quantities either quarterly or semiannually. —For specified types of equipment, additional special tests are required. —Local air pollution control districts may establish permit systems for any “article, machine, equipment, or other contrivance which may cause the issuance of air contamination.” If an employer’s facilities emit specified pollutants that are known to cause health hazards, the employer must comply with EPA National Emission Standards for Hazardous Air Pollutants; there are specific standards for chromium electroplating, halogenated solvent, and magnetic tape. —Employers must notify EPA of new construction of a facility that has hazardous emissions; notification should be before start-up of the facility. —Employers must prepare start-up/shutdown plans before the completion date of the facility. —Employers may have to install compliance controls. —Employers may have to conduct a performance test of the new facility. —Once the new facility is operational, employers may have to continually monitor emissions. —Employers may have to report emissions in excess of EPA threshold quantities semiannually. —For facilities using specified chemical processes, special tests are required. —Toxic air contaminants include not only those recognized by EPA but also those determined to be hazardous to health by California’s Department of Health Services. —Employers owning facilities emitting 10 tons or more of certain designated pollutants must submit an “emission inventory plan” to the local district; those facilities identified as “high priority” must then submit a risk assessment plan to the district. —Employers must prepare and submit risk management plans. —Employers must conduct compliance audits every 3 years. —Employers must report on accidents immediately after occurrence. If an employer’s facilities are considered a “major” source of hazardous emissions, the employer must apply for an EPA permit. —Employers must submit an application to a state agency. (40 C.F.R. 70.5(c)) —Employers must monitor the facility. —Employers must report monitoring results semiannually. Some additional state requirements may apply. The Federal Water Pollution Control Act (FWCPA) and the Safe Drinking Water Act (SDWA) regulate the amount and type of pollutants discharged into U.S. waters. Size limitations: None; the laws apply to all employers that discharge pollutants into U.S. waters. Comparable state law: The Porter-Cologne Water Quality Control Act, California Safe Drinking Water Act, Toxic Injection Well Control Act, and Safe Drinking Water and Toxic Enforcement Act (which applies to employers of 10 or more people) are applied to the extent they are stricter than federal law. —Employers must limit pollutant discharge to the amount specified in the permit; the limitations are based on the employer’s use of the “best” technology. —At periodic intervals, employers must measure and analyze pollutant discharges; records must be kept 3 years. —Employers must report any discharge in excess of permit limits within 24 hours. —Regional Water Quality Control Boards under the California State Water Resources Control Board issue permits and set discharge requirements. —Regional boards have power to compel cleanup to prevent “substantial pollution” of state waters. —Pretreatment requirements are specified for chemicals in operations involving metal-finishing, electroplating, and semiconductors. —Employers must obtain an engineer’s certification that the well is properly closed. —Employers must report any contamination that may endanger the drinking water supply. —Employers must establish a plan for plugging and abandoning the well. —Employers must report any changes made to the well. —Employers must maintain a record of the nature and volume of fluids injected into the well for 3 years after closure. —California has stricter standards for issuing permits for injection wells and prohibits injection “into or above drinking water.” —Employers must also file a detailed statement with the California Department of Toxic Substances Control giving information about the well and the discharged wastes. —Employers of 10 or more people are prohibited from knowingly releasing any chemical known to the state to cause cancer or reproductive toxicity where it may pass into any source of drinking water. Some additional state requirements may apply. The Toxic Substances Control Act (TSCA); Resource Conservation and Recovery Act (RCRA); Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Emergency Planning and Community Right-to-Know Act regulate the production, use, and disposal of certain substances deemed to be hazardous to human health or living organisms. Size limitations: Regulations apply generally to all employers that deal with hazardous substances over certain volumes; however, annual reporting of Toxic Release Inventory is required only for employers of more than 10 employees. Comparable state laws: Hazardous Substances Act; Occupational Carcinogens Control Act; Hazardous Waste Control Law; Hazardous Waste Haulers Act; Storage of Hazardous Substances; Toxic Pits Cleanup Act; Hazardous Waste Reduction; Recycling, and Treatment Research and Demonstration Act; Hazardous Waste Management Plans; Hazardous Waste Source Reduction and Management Review Act; Carpenter-Presley-Tanner Hazardous Substance Act; Hazardous Waste Enforcement Coordinator and Strike Force; Information Reward Program; Hazardous Substance Cleanup Arbitration Panel; Hazardous Substances Information and Training Act (Worker Right-to-Know Law); and Hazardous Materials Release Response Plans and Inventory (Community Right-to-Know Law). Table IV.3: Hazardous Substance Control —Manufacturers or importers of more than 10,000 lbs. of toxic chemicals per year must report their chemical inventory to EPA every 4 years; if less than 10,000 lbs. per year, they must maintain records to verify low volume. —All employers must submit to EPA any health and safety studies they have conducted on the toxic chemicals. —Employers must maintain records of allegations of significant adverse reactions caused by chemicals they use or produce; if an adverse reaction is found to have occurred to an employee, records must be maintained 30 years; otherwise, 5 years. —If an employer is producing a new chemical or using a toxic chemical for a new purpose, the employer must notify EPA at least 90 days before use. —Employers that handle any of EPA’s “extremely hazardous substances” in quantities in excess of state levels must complete a registration form; employers may be required to develop a risk management and prevention program. (continued) Any employer that produces “hazardous waste” as identified by EPA must dispose of it as required by regulation, unless the employer produces less than 100 kilograms of hazardous waste (RCRA). —Employers must obtain an EPA identification number before they transport, store, treat, or dispose of hazardous waste. —Employers must prepare a Uniform Hazardous Waste Manifest to accompany the waste at all times; after final disposal, a copy of the manifest must be returned to the employer and maintained for 3 years. —Unless the employer has a permit for a storage facility, wastes must be removed from the site within 90 days of accumulation. —Waste spills that cause a fire or explosion must be reported immediately to EPA. —Every 2 years, the employer must report to EPA on the volumes of waste generated. —“Infectious” wastes are considered hazardous wastes. —Employers that produce 12,000 kilograms of hazardous waste per year must review their operations every 4 years to develop a plan for how they could reduce wastes exceeding 5 percent of the total yearly volume at the site; failure to act on the plan can lead to monetary penalties. Any employer that treats, stores, or disposes of hazardous waste must obtain proper permits for facility operation (RCRA). —To operate a facility (such as a landfill, container, or surface impoundment) for treatment, storage, or disposal of hazardous waste, the employer must have an EPA identification number, periodically monitor and inspect the facility, and meet the certification requirements for the particular type of facility. —Any employer that owns an underground storage tank containing hazardous wastes must notify the state within 30 days of its use, monitor leaks, notify EPA of a release of hazardous material within 24 hours, and maintain records on monitoring for 1 year. —Employers operating hazardous waste facilities must provide financial assurance adequate to meet damage claims arising from operation of the facility and costs of its closure. —Regional Water Quality Control Boards must inspect all surface impoundments and require all businesses discharging liquid hazardous wastes into them to provide hydrogeological assessment reports. —Owners of underground storage tanks must obtain a permit to operate from local authorities. —In the event that an employer’s releases exceed the reportable quantities in a 24-hour period, the employer must immediately notify EPA’s National Response Center. —Employers using an extremely hazardous substance in quantities above the threshold amounts must establish an emergency plan. —Employers must file “material safety data sheets” with local authorities for chemicals used in operations. —If an employer releases an “extremely hazardous substance” in quantities above specified amounts, the employer must report the release to local authorities. —Notification of a release must include information on the nature and risks attributed to the substance. —Employers with more than 10 employees must report annually to EPA on their Toxic Release Inventory identifying chemical releases, transfers, and treatment recycling. —Employers dealing with chemicals known to the state to cause cancer or reproductive toxicity cannot expose any individual to such chemicals without giving “clear and reasonable” warning to that individual. Some additional state requirements may apply. In addition to those named above, the following individuals made important contributions to this report: J. William Hansbury, Senior Evaluator, who performed case study work at companies and analyzed agencies’ efforts to inform companies of their legal requirements; Nancy M. Peters, Senior Evaluator, who identified, analyzed, and summarized the laws that affect firms and participated in case study visits; and Mary W. Reich, Senior Attorney, Office of General Counsel, who reviewed the study’s legal analysis. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO compiled a list of the federal and state laws that apply to California businesses of different sizes, and selected two industries within that state to illustrate compliance with selected laws, focusing on the: (1) requirements of federal and state laws affecting the workplace, tax-related, and environmental practices of California manufacturing firms of different sizes; (2) assistance available to firms to help identify applicable laws and understand their implications on operations; and (3) impact workplace and tax laws have had on the human resource operations at firms in the high-tech electronics and aerospace industries. GAO noted that: (1) both federal and state laws impose a number of requirements affecting the workplace, tax-related, and environmental practices of California manufacturing firms; (2) as employers, firms must comply with federal and state laws; (3) firms also must report income resulting from their operations and pay taxes to the federal and California state governments; (4) in addition, as firms manufacture goods and dispose of their waste, they must comply with state and federal environmental laws regulating use, storage, and disposal of hazardous substances and releases into the air; (5) although a number of laws take effect as firms hire more employees, particularly those laws that are workplace-related, most laws have at least some requirements for all firms, regardless of the number of employees; (6) the interrelationships between federal and state laws in the different areas of regulation vary; (7) in many cases, California law sets more comprehensive standards with which businesses must comply than federal law does; (8) many sources of information are available to help firms identify and meet the legal requirements imposed on them; (9) although no one public agency--either federal or state--coordinates or produces a complete resource guide identifying all legal requirements that apply to California manufacturers, many California and federal agencies have individually sponsored activities to assist firms in complying with legal requirements; (10) however, company managers GAO spoke with seemed unwilling to rely on information provided by state or federal agency staff or to invest the time required to access, research, and understand the available information; (11) instead, these managers rely on trade or business organizations and outside experts to help them understand and remain abreast of new developments in federal and state laws and regulations; (12) managers overseeing human resource operations at the seven California manufacturing firms GAO visited have implemented a variety of approaches to meet their regulatory obligations; (13) while each of the firms had developed strategies to comply with the laws, each was concerned that certain requirements involved excessive complexity, paperwork, or cost, although there was little pattern in the firms' areas of complaint; (14) in general, managers expressed frustration with never being sure they were in complete compliance with all applicable requirements; and (15) notwithstanding these concerns, managers also cited areas in which they believed regulations helped to improve the workplace. |
As a result of their historical development, four distinct land management agencies, each operating under unique authorities, today oversee more than 630 million acres of federal land. Established in 1849, Interior was given authority for managing public lands, including those acquired by the federal government during the nation’s westward expansion. While the government disposed of many of its lands to new states, the railroads, homesteaders, and miners, in the late nineteenth century it also began setting aside some lands under Interior’s jurisdiction for parks and forest reserves. Then in 1905 Congress transferred control of the forest reserves from Interior to USDA, consolidating USDA’s forestry research program and the forest reserves into one agency, which became known as the Forest Service. In creating the Forest Service in USDA, where it remains today, Congress was responding in part to scientists and policymakers who believed the nation’s forests and timber supply would be better managed under USDA’s agriculture and conservation mission. Between 1916 and 1956, Congress created the three other land management agencies within Interior, in part to manage its parks, wildlife refuges, and rangelands. Over the past several decades, both the Forest Service and Interior’s bureaus—particularly BLM—have experienced increased economic, ecological, and legal transformations, such as shrinking supplies of natural resources, passage of key environmental legislation in the 1960s and 1970s, and shifting public expectations for land management. Changes like these have made managing federal lands more complex, with managers needing to reconcile differences among growing demands for often conflicting land uses. Most recently, all the land management agencies, but particularly the Forest Service, have faced unprecedented challenges in the form of large- scale problems that cross agency and ownership boundaries such as wildland fire, invasive species, and development of private lands along their borders. A move of the Forest Service into Interior could improve federal land management by aligning the federal land management mission under one department and increasing program effectiveness. It may also yield long- term, but few short-term, efficiencies. One result of moving the Forest Service into Interior would be an alignment of the federal land management mission in one department by bringing the Forest Service together with the other three federal agencies having major land management missions. The Forest Service and BLM both manage their lands for multiple uses, including timber, grazing, oil and gas, recreation, wilderness, and fish and wildlife, although they emphasize different uses depending on their specific authorities and public demands. As shown in figure 1, Forest Service and Interior lands often abut each other and are sometimes intermingled. As a result, particularly in the western states, land managers often cross each other’s lands to work on their own lands and work with members of the same communities. Several experts and officials pointed to the amount and proximity of Forest Service’s and Interior’s lands as a reason for moving the Forest Service into Interior. According to many of the experts and officials we interviewed, however, a move of the Forest Service into Interior could diminish the role that the agency plays in managing state and private forestlands—a mission focus the Forest Service shares with USDA but does not have in common with Interior. The Forest Service’s state and private forestry arm provides technical and financial assistance to state and private landowners to sustain and conserve forests and protect them from wildland fires. Such outreach, or extension service, is not a function of Interior agencies. According to many officials and others we interviewed, moving the Forest Service into Interior could diminish this role by directing the agency’s attention to its federal lands and away from the nation’s nearly 750 million acres of forested lands (shown in fig. 2), including almost 430 million acres of private forested lands across the nation. According to some officials and state foresters, USDA has developed a closer relationship with state and private entities and has a better perspective on what private landowners need to conserve their resources. Other officials said, however, that Interior could work more with state and local entities if the authorities to do so were transferred with the Forest Service to Interior and extended to Interior’s other agencies. Improvements in the effectiveness of federal land management programs could result from a move of the Forest Service into Interior, according to several officials, if the four agencies took the opportunity to coordinate programs they have in common. For example, a possible outcome of having the land management agencies together in one department could be the improvement of land management across jurisdictional boundaries. Program areas that offer opportunities for improved coordination include law enforcement, recreation, and wilderness management. The optimal approach for improving the effectiveness of federal land management programs, according to many officials and experts, could be to align the Forest Service’s and BLM’s statutes, regulations, policies, and programs in such areas as timber, grazing, oil and gas, appeals, and mapping. Many of these officials and experts, however, said an alignment would not automatically occur if the Forest Service were moved into Interior, and further action—legislative or executive—would need to be taken to improve effectiveness. While many of the officials and experts we interviewed believed a move would improve effectiveness, many did not believe that many efficiencies would be achieved in the short term if the Forest Service were moved into Interior as a separate bureau, with its own authorities and programs. Still, a number of them believed that efficiencies might be gained in the long term if the department took certain actions to convert the Forest Service to Interior’s information technology and other business systems. According to several officials and experts, existing efforts to integrate programs demonstrate improved program effectiveness and public service but few efficiencies in the short term. For example, parts of the Forest Service, BLM, Fish and Wildlife Service, National Park Service, and Interior’s Bureau of Indian Affairs have been colocated at the National Interagency Fire Center in Boise, Idaho, since 1965 and, through the center, coordinate their mobilization of supplies, equipment, and personnel to suppress wildland fires quickly and more effectively. Despite this coordination, the agencies still have key differences that hinder management effectiveness and efficiency; such differences include incompatible information technology and other business operations and systems. Service First offices have also integrated a number of programs that have helped improve the effectiveness, and perhaps efficiency, of land management and public service. Under the Service First program begun in 1996, the Forest Service, BLM, Fish and Wildlife Service, and National Park Service can use one another’s authorities, duties, and responsibilities to conduct joint or integrated programs or business operations to improve the agencies’ customer service, operational efficiency, and land management. For example, a Service First office in Durango, Colorado, has both Forest Service and BLM staff working jointly to manage recreation activities, grazing allotments, oil and gas exploration and production, and other resources to increase the effectiveness of land management. The Service First efforts also demonstrate some of the difficulties that the Forest Service and BLM have working together because of different systems and the resulting inefficiencies. For example, although the Colorado Service First offices have integrated aspects of their programs, the offices have to maintain two separate computer systems, one for the Forest Service and the second for BLM. Many agency officials and experts we interviewed suggested that if the objective of a move is to improve federal land management or increase the efficiency and effectiveness of the agencies’ diverse programs, other organizational options may achieve better results than moving the Forest Service into Interior. These officials and experts raised a range of other options, such as increasing collaboration and coordination, moving BLM to USDA, and creating a new department of natural resources. In addition to these options, a number of officials and experts believed the Forest Service should remain separate from Interior and its agencies because it provides an alternative model of land management. A few officials said that the Forest Service and BLM serve to check and balance each other, in that no one Secretary manages all public lands, thereby diminishing the influence one person can have on these lands. Other officials and experts pointed out that the two agencies manage different lands and therefore have different management purposes: the Forest Service manages higher, wetter, mountainous lands, while BLM manages lower-elevation rangelands. Moving the Forest Service into Interior would raise a number of cultural, organizational, and legal factors and related transition costs for Interior and USDA to consider. Nevertheless, Interior and USDA could implement some key merger and transformation practices to help manage any resulting disruptions and other transition costs. Differences between the Forest Service’s culture and those of Interior’s land management agencies may produce clashes resulting in decreased morale and productivity if the Forest Service is moved into Interior. The agencies’ cultures stem in large part from their histories and have also developed as a result of each agency’s level of autonomy within USDA or Interior. A number of officials said that the Forest Service has a fair degree of independence within USDA. For example, some agency officials said that the Forest Service budget does not receive as much attention or scrutiny as other USDA agency budgets. Because of cultural differences, many officials and experts believed that moving the Forest Service into Interior could lead to decreased morale and productivity. Some experts and officials indicated that Forest Service employees may feel a loss of identity and independence in leaving USDA and would fear and resist a move, while a move may leave Interior employees feeling threatened, worrying that because of its size, the Forest Service would dominate Interior; they too may resist a move. According to many officials and experts, the agencies may also see an increase in the number of retirements and resignations after a move, which may facilitate cultural change but also decrease productivity because of the loss of experienced staff. The consolidation of Interior’s National Biological Service into the United States Geological Survey (USGS) offers one illustration of possible cultural implications of moving the Forest Service into Interior. The National Biological Service was created in 1993 to gather, analyze, and disseminate biological information necessary for the sound stewardship of the nation’s natural resources. In 1996, the agency was merged into USGS. According to an Interior official, the cultural and emotional aspects of the move caused a lot of hardship and mistrust among employees within both the former National Biological Service and USGS. According to this official, the transition into USGS took 4 to 5 years, and more than a decade afterward, some employees still question the move. We previously reported that it can take at least 5 to 7 years to fully implement initiatives to merge or transform organizations and sustainably transform their organizational cultures. Organizational factors could also complicate a transition, including the organizational structures of the agencies; effects on Interior functions, such as its Office of Inspector General; the need to integrate the Forest Service into Interior’s information technology and other business systems; effects on USDA functions, such as its relationship with other USDA agencies; and human capital practices. USDA and Interior are both cabinet-level departments organized under politically appointed Secretaries and Deputy Secretaries, but the organizational structures of the departments differ at the next levels. At the agency level, the directors of Interior’s land management agencies are politically appointed, unlike the Chief of the Forest Service. According to some agency officials and experts, if the Forest Service were moved, Interior would need to consider how the Forest Service would be placed in the department, unless this organization were legislated. In particular, agency officials questioned which of Interior’s Assistant Secretaries the Forest Service would fall under or if a new Assistant Secretary position would be created. Further, some questioned whether the Forest Service would retain its career Chief or if the Chief would be replaced with a politically appointed director, consistent with Interior’s other bureaus. Effects on Interior functions and the need to integrate systems would also complicate a move. Adding about 29,000 Forest Service employees to Interior would likely increase the workload at the departmental level and strain shared departmental resources. Furthermore, integrating the Forest Service’s reporting, budgeting, acquisition, and other processes and systems into Interior’s would be difficult, time-consuming, and costly, according to many experts and officials. One official estimated that costs to integrate systems could be on the order of tens of millions of dollars, while others estimated costs on the order of hundreds of millions of dollars. Some officials believed, however, that the timing is opportune to move the Forest Service because Interior and USDA are both moving to new financial management systems and the agency could be merged into Interior’s new financial system without further investment in USDA’s system. In contrast, other officials said that now is not a good time to move the Forest Service, because the agency has recently gone through many difficult changes and may not be able to handle additional change without detracting from its service to the public. The Forest Service is the largest agency in USDA in terms of employees, and many agency officials and experts noted that moving would affect not only Interior but USDA and its other agencies. For example, the Forest Service pays a large share of USDA’s overhead charges; therefore, a move would affect these expenses and economies of scale within the department. Further, moving the Forest Service out of USDA could affect its relationship with the Natural Resources Conservation Service (NRCS) and other agencies in the department. The Forest Service and NRCS coordinate providing technical assistance to private foresters and other land conservation activities. The Forest Service also works with other agencies in USDA, including the Animal and Plant Health Inspection Service. Legal issues would also need to be resolved if a move were to take place. The Forest Service and Interior operate under differing statutory authorities and legal precedents. While moving the Forest Service into Interior as a separate bureau would not necessarily entail changing the laws governing the agencies, many officials and experts said these laws should be examined and may need to be reconciled if a move took place. Even in areas in which the Forest Service and Interior agencies operate under the same laws, they have sometimes received different legal opinions from USDA’s Office of General Counsel and Interior’s Office of the Solicitor. In addition, legislation authorizing a move would need careful crafting. For example, such legislation could transfer the proper authorities from the Secretary of Agriculture to the Secretary of the Interior, as well as give the Secretary of the Interior broad reorganization authority to bring the agencies’ programs into alignment and to manage and modify processes, some officials said. The authorizing legislation would need to allow Interior flexibility and time to change and deal with these details, one expert said. Additional legal factors needing consideration include tribal issues, congressional committee jurisdiction, and interest groups. In some cases, treaties with Native American tribes have assured tribal governments certain “reserved rights”—such as rights for grazing, hunting, fishing, trapping, and water—on former tribal land now part of present-day national forests and grasslands. According to one official, tribes would be concerned about how moving the Forest Service might affect these rights and tribal access to national forests and grasslands and would need to be consulted about a move. According to some experts, aligning congressional committee structure to match a departmental reorganization would be critical to the success of a move of the Forest Service into Interior. While our interviews revealed no consensus among outside groups with an interest in the agencies about a move of the Forest Service into Interior, some groups, such as recreation or state forestry organizations, worried about jeopardizing established relationships with the Forest Service, while others were unsure of the effects of a move on their organization. To help plan for and manage a move and possible disruptions, our previous work on transforming organizations has identified some key practices at the center of successful mergers and organizational transformations, and the experts and officials we interviewed mentioned several of them. For example, one key practice is to ensure that top leadership drives the transformation. Remarking that strong leadership can ease cultural transitions and minimize disruption, several officials told us that agency leaders would need to clearly explain the reason for a move so that employees understood the rationale and logic behind it and had incentives to support it. We also reported in the past that a move must be closely managed with implementation goals and a timeline and that creating an effective strategy for continual communication is essential. Some officials said that agency leaders would need to communicate extensively with stakeholders and agency employees if the Forest Service is to be moved, which could put some employees at ease and mitigate disruptions from decreased morale and productivity. A move of the Forest Service into Interior would be no small undertaking. Organizational transformations are inevitably complex, involving many factors and often creating unintended consequences. Further, these transformations can take many years to achieve. In considering a move of the Forest Service into Interior, policymakers will need to carefully weigh long-term mission and management gains against potential short-term disruption and operational costs. Significant large-scale challenges to federal land management, such as climate change, energy production, dwindling water supplies, wildland fire, and constrained budgets, suggest the need to approach these problems innovatively. If a move were undertaken, adequate time and attention would need to be devoted to planning for and implementing key merger and transformation practices to manage potential disruption and other transition costs. In particular, any legislation authorizing a move would need to provide the departments ample time to plan the move—in light of cultural, organizational, and legal factors—and incorporate these key practices. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-3841 or at nazzaror@gao.gov. Contact points for our Offices of Public Affairs and Congressional Relations may be found on the last page of this report. Ulana Bihun, David P. Bixler, Ellen W. Chu, Susan Iott, Richard P. Johnson, Mehrzad Nadji, Susan Offutt, Angela Pleasants, Anne Rhodes- Kline; Lesley Rinner, Dawn Shorey, and Sarah Veale made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The Department of Agriculture's (USDA) Forest Service, which manages almost a quarter of the nation's lands, is the only major land management agency outside the Department of the Interior (Interior). Four federal land management agencies--the Forest Service and the Bureau of Land Management (BLM), Fish and Wildlife Service, and National Park Service in Interior--manage most of the 680 million acres of federal land across the country. Growing ecological challenges, ranging from wildland fires to climate change, have revived interest in moving the Forest Service into Interior. GAO was asked to report on the potential effects of moving the Forest Service into Interior and creating a new bureau equal to Interior's other bureaus, such as BLM. GAO was also asked to identify factors that should be considered if such a move were legislated, as well as management practices that could facilitate a move. Moving the Forest Service into Interior could potentially improve federal land management by consolidating into one department key agencies with land management missions and increasing the effectiveness of their programs. At the same time, a move would provide few efficiencies in the short term and could diminish the role the Forest Service plays in state and private land management. According to many agency officials and experts, where the Forest Service mission is aligned with Interior's--in particular, the multiple-use mission comparable to BLM's--a move could increase the overall effectiveness of some of the agencies' programs and policies. Conversely, most agency officials and experts GAO interviewed believed that few short-term efficiencies would be realized from a move, although a number said opportunities would be created for potential long-term efficiencies. Many officials and experts suggested that if the objective of a move is to improve land management and increase the effectiveness and efficiency of the agencies' diverse programs, other options might achieve better results. If the Forest Service were moved into Interior, USDA and Interior would need to consider a number of cultural, organizational, and legal factors and related transition costs, some of which could be managed by certain practices successfully used in the past to merge and transform organizations. For example, integrating the Forest Service's reporting, budgeting, and human capital processes and systems into Interior's could be time-consuming, costly, and disruptive. Nevertheless, Interior and USDA could implement some key merger and transformation practices to help manage any resulting disruptions and other transition costs. In considering a move of the Forest Service into Interior, policymakers will need to carefully weigh mission and management gains against potential short-term disruption and operational costs. |
NIST serves as the focal point for conducting scientific research and developing measurements, standards, and related technologies in the federal government. NIST carries out its mission through 12 research and development laboratories (also known as Operating Units). See figure 1 for NIST’s organizational chart. In 1950, Congress established NIST’s working capital fund, giving it broad statutory authority to use the fund to support any activities NIST is authorized to undertake as an agency. NIST’s working capital fund is a type of intragovernmental revolving fund. These funds—which include franchise, supply, and working capital funds—finance business-like operations. An intragovernmental revolving fund charges for the sale of products or services it provides and uses the proceeds to finance its operations. See table 1 for the NIST working capital fund’s four purposes and the funding sources that support those uses. In fiscal year 2009, nearly 70 percent of NIST’s working capital fund was related to interagency agreements (see fig. 2). Almost all of NIST’s federal clients advanced funds to NIST for those agreements. Client agency advances to the working capital fund cannot be earned until NIST begins work on the agreement and retain the period of availability from the original appropriation. Once NIST earns those amounts, receipts and collections are available to NIST without fiscal year limitation. NIST’s interagency agreements with federal clients originate in many ways, including through congressional mandates and client requests. NIST has established criteria for accepting requests for work from client agencies, which include: (1) the need for traceability of measurements to national standards; (2) the need for work that cannot or will not be addressed by the private sector; (3) work supported by legislation that authorizes or mandates certain services; and (4) work that would result in an unavoidable conflict of interest if carried out by the private sector or regulatory agencies. Operating Unit Directors commit NIST to providing services to client agencies, while the Deputy Chief Finance Officer accepts the order. Upon acceptance, the finance division and NIST’s Office of General Counsel takes steps to process, monitor, and close-out each agreement. The carryover balance in NIST’s working capital fund is largely driven by pending and ongoing work associated with interagency agreements as well as work for which NIST has accepted advanced funds but not yet started. In fiscal year 2009, NIST carried forward $120 million to fiscal year 2010. This amounts to 41 percent of the working capital fund’s total resources, down from a high of 51 percent (see table 2). However, because NIST does not monitor its interagency agreement workload it was unsure what factors have led to a decline in the last two years. Specifically, funds from interagency agreements constituted between 71 to 89 percent of the working capital fund’s carryover balance from fiscal years 2004 to 2009; in fiscal year 2009, it was 71 percent—the lowest over the 6-year period (see table 3). Again, NIST officials were unsure about the reasons for the decline in this balance. NIST’s budget documents refer to the interagency agreement carryover balance as unobligated because it is for unfinished work that NIST has not yet earned. However, client agencies are to record an obligation against their own appropriation when they entered into the agreement with NIST. Therefore, that balance is only available to NIST for work on that agreement. See figure 3 for an illustration of how unfinished work on interagency agreements contributes to the working capital fund carryover balance. Some carryover in the working capital fund can be expected given the basic characteristics of NIST’s interagency agreements. Ninety-three percent of all NIST agreements had a period of performance of more than 1 fiscal year between fiscal years 2004 to 2009. Accordingly, work associated with those agreements will not be completed within a single fiscal year. By definition, unearned amounts associated with these agreements would be carried over to the next fiscal year. As such, 82 percent of the active agreements in fiscal year 2009 generated carryover balances. The timing of when NIST accepts new work also affects the carryover balances in the working capital fund. NIST accepts most of its agreements in the second half of the fiscal year. Further, since most agreements cross fiscal years, many are also likely to extend into the next fiscal year. Table 4 shows that 63 percent of all new agreements between fiscal years 2004 to 2009 were accepted during the second half of the fiscal year. Our previous work has established that a high carryover in working capital funds may indicate poor workload planning, which could lead to inefficient use of agency resources and missed opportunities to use those funds for other needs. Significant carryover balances may also reflect a situation in which the performing agency is using appropriations advanced in prior years to support an interagency agreement when the funds are no longer legally available. NIST does not monitor the period of availability of appropriations advanced from client agencies; therefore, it cannot ensure that funds are legally available for obligation when it bills against them. Client advances to the working capital fund that have not yet been earned retain the period of availability from the original appropriation. Those advances are available to NIST for covering costs of performance under the agreement during the appropriation’s period of availability plus 5 fiscal years, regardless of the specified period of performance for an agreement. After this time, those amounts are cancelled by operation of law and are no longer available to cover NIST’s costs. In other words, NIST cannot liquidate, or bill against, these funds after the account closes. If NIST were to use funds after the account closes, the client agency would be required to transfer currently available funds to NIST. If the client does not have such funds available, they could be exposed to possible Antideficiency Act violations. In our case-file review of 11 agreements, we found instances where NIST could potentially be billing against closed accounts because it does not monitor the dates that funds expire and become cancelled. Ten of these agreements remain open and active in NIST’s financial system. NIST officials told us that the system prevents an agreement from being closed and deemed inactive if there are any outstanding transactions. Further, they said that some of those agreements may have outstanding undelivered orders that need to be resolved. However, if the funds advanced in support of these agreements are time-limited, it is possible that they are legally unavailable to NIST for further billing. We found the expiration date of funds advanced to NIST in the paper files of 3 agreements and were therefore able to determine their legal availability. For the other 8 agreements, however, NIST lacked the necessary information to allow it to determine the legal availability of funds without requesting specific appropriation information from NIST’s client agencies—agencies that were not included in the scope of our review. NIST shares responsibility with its client agencies to ensure the proper use of federal funds when entering into interagency agreements. NIST finance officials told us that expiration and account closing dates of appropriations were not available to them. However, NIST’s policies require that all interagency agreements state the Treasury Account Symbol (TAS), from which the period of availability of appropriated funds could be determined. We found that most of the hard-copy agreement files we reviewed included such an appropriation code. We found three reasons why NIST does not electronically record or monitor the period of availability of appropriations advanced from client agencies. First, NIST treats all client advances as if they are free from the original appropriation’s period of availability. Second, NIST manages agreements by period of performance, which can be different from the client appropriation’s period of availability. Third, NIST does not manage at the agreement level—the legal level of control. Rather, it manages at the project level, which can include multiple agreements. NIST officials treat funds advanced for agreements accepted under NIST’s statutory authority as no-year funds; that is, free from the time period of availability associated with the original appropriation. This policy is contained in NIST’s Administrative Manual and is based on an interpretation of Commerce policy described in a 1983 legal memo. When we sought clarification on this policy in January 2010, Commerce’s Office of General Counsel clarified the interpretation of the legal memo and responded that it is revising its policy and working with NIST to revise the Administrative Manual in response to our inquiry. As we will discuss, NIST officials provided additional details on these efforts in August 2010. Further, NIST manages agreements by period of performance, which can be different from the client appropriation’s period of availability. The period of performance is defined by the start and end dates of the agreement. However, appropriations acts determine the period of availability of appropriations. Lastly, NIST manages the technical work it performs for client agencies and bills and records transactions through projects. NIST officials explained that they manage by project because it allows them to track and monitor related agreements together. However, client agencies advance funds to NIST based on the terms and amounts specified in interagency agreements, which is the legal level of control. Although most projects relate to a single agreement, some projects comprise multiple agreements (see fig. 4). For example, related agreements from a client agency are sometimes grouped together under an umbrella project. Occasionally, NIST combines several related agreements from different clients under a consortium project. As a result of our review, Commerce is working with NIST to review and revise policies described in the Administrative Manual and processes related to interagency agreements. In August 2010, NIST officials told us that they have begun to identify and resolve issues related to the interagency agreement process, including drafting templates and checklists for interagency agreements. The Commerce Office of General Counsel has begun communicating these changes to NIST staff through training sessions and town hall meetings. However, because we did not receive this information until after we completed our review, we were unable to determine what effect the changes may have on NIST’s interagency agreement process. See appendix I for more information about these changes. NIST does not record or monitor whether it begins working on agreements within a reasonable amount of time after it received funds advanced by client agencies. Performing agencies should begin work within a reasonable period of time to ensure that the use of a client agency’s funds fulfill a bona fide need of the client arising during the fund’s period of availability. That is, appropriations may be obligated only to meet a legitimate need, arising in—or in some cases, arising prior to but continuing to exist in—the fiscal years for which the appropriation was made. Long delays between when an agency accepts funds advanced from clients and when it begins work on its agreements may lead to the improper use of appropriated funds. Although client agencies bear ultimate responsibility for proper use of their funds, performing agencies share responsibility as well. Because NIST, as the performing agency, does not record or monitor when work begins on its agreements, it would be difficult for it to carry out this responsibility. There is no governmentwide standard for a reasonable time period for performing work under an interagency agreement as it relates to a client agency’s bona fide need. A reasonable time frame depends on the nature of the work to be performed and any associated requirements such as hiring a subcontractor or developing a specialized tool or machinery. Although neither Commerce nor NIST has established such a standard, other federal agencies have done so. For example, both the General Services Administration and the Department of Defense consider 90 days as a reasonable period of time for starting work. Because NIST has not considered what a reasonable standard for starting its work might be, we use 90 days as a point of reference for the purposes of this report. We recognize that if NIST were to consider a standard time frame for starting work, it may not necessarily select 90 days. We estimate that NIST took, on average, 125 days to begin work on its interagency agreements in fiscal years 2004 through 2009. We also estimate that work began for almost half of all agreements at least 90 days after NIST received funds advanced from client agencies. For these agreements, NIST waited an average of 226 days—or over 7 months— before beginning work (see table 5). We also found some agreements that were delayed for as long as 301, 464, 669, and 707 days. Failure to begin work in a reasonable period of time raises legitimate questions about whether the client’s order fulfills a bona fide need of the client agency. Long gaps between when NIST accepts advanced funds and when it begins work on agreements may lead to NIST using funds that are no longer legally available. Further, client agencies may incur opportunity costs associated with funds advanced to NIST that remain untapped for a prolonged period of time. Because determining whether work began within a reasonable period of time depends on specific facts, we reviewed 11 agreements in more depth to better understand why work was delayed in some instances. In one case, NIST did not begin work on an agreement it entered into in December 2006 until October 2007—over 300 days later. NIST officials explained that staff who could perform the work could not start earlier because they were working on other projects. This suggests that NIST did not assess whether it had appropriate resources available before accepting the agreement. In another case, NIST said that it took over 260 days to establish a relationship with the National Cancer Institute and coordinate work plans with nine NIST divisions before work could begin for an agreement. Assessing whether it has appropriate resources available before accepting an agreement is critical, because long gaps between when NIST accepts advanced funds from clients and when it begins work raises concerns about whether an agreement reflects a bona fide need of the client agency, and may lead to an improper use of appropriated funds and, as such, noncompliance with fiscal law. We found two reasons why NIST does not know whether it begins work within a reasonable period of time. First, the start date in NIST’s financial system—the system NIST uses to track its interagency agreements—does not reflect when work actually begins on an agreement. According to finance division officials, NIST tracks the date that it enters into an agreement with a client agency; however, we found that this is usually not the date that work actually begins. NIST also does not electronically track or monitor the date it received funds advanced from client agencies. Without monitoring the amount of time that elapsed between when funds were advanced and when work actually began, NIST cannot know whether it is starting work within a reasonable period of time. Second, because NIST manages by project instead of by agreement, it does not record information about agreements that is important for knowing whether work begins within a reasonable period of time. For example, billing information is only tracked at the project level and cumulatively by fiscal year. When we requested the individual charges for each agreement to analyze when work began, NIST said it does not manage or review billing information that way and had to create a special report. Accordingly, NIST could not provide any billing data for umbrella projects (see fig. 4 above). Each agreement is funded by different appropriations and may be conducted under unique authorities and circumstances. Absent information on billed costs at the agreement level, NIST cannot determine whether it is starting work within a reasonable period of time given the facts of each particular agreement. In our case file review, we found that some of NIST’s interagency agreements were incomplete or included incorrect information. Federal internal control standards require that transactions be properly authorized and executed, recorded timely, and documented appropriately. Absent these types of robust internal controls, NIST cannot provide reasonable assurance that it is efficiently using its resources and complying with applicable fiscal laws. Some agreement files we reviewed lacked documentation of information needed to provide a complete and accurate record of the agreement as well as transactions between NIST and client agencies. For example, we found instances where required documents were not included in the agreement files. One agreement file we reviewed did not include a statement of work. At the time NIST and the client agency enter into an interagency agreement, the client incurs an obligation for the costs of the work to be performed. However, to properly record an obligation, the client must have documentary evidence of a binding agreement between the 2 agencies for specific goods and services. In another example, only one of the agreements we reviewed documented how NIST handled unused funds that had been advanced in support of an agreement. Federal internal control standards require clear documentation of all transactions and significant events. Moreover, NIST’s processes for closing out completed agreements require it to return unused funds if they are greater than $1,000 to the client. Absent clear authority, NIST may not write off any amount of unearned funds to the working capital fund. We also found agreement files that incorrectly recorded the dates of when funds were advanced to NIST from client agencies. One file showed that NIST accepted advanced funds before a formal interagency agreement with the agency was in place. Federal agencies are prohibited from transferring funds for an interagency transaction like orders placed with NIST without a binding legal agreement. When we asked NIST finance officials to explain this, they said that the date was recorded in error and should be 1 year after the date indicated in the file. The corrected date would indicate that NIST accepted advanced funds after a binding agreement was in place; however, the error reflects an inaccurate record of this transaction. Federal internal control standards require an accurate recording of transactions to maintain their relevance to managers in controlling operations and making decisions. In another example, the file incorrectly recorded an advance as having been made 10 months later than the actual transaction date. NIST’s Deputy Chief Financial Officer told us that NIST does not maintain a single consolidated file of all pertinent documents related to each agreement, and that such information is generally spread among files maintained by other Operating Units across the agency. Finance division officials explained that legal and financial documents are kept separately from program files, which are managed by scientists in the Operating Unit that accepted the agreement. While we recognize that program managers may also have a need to maintain separate files for their own purposes, absent complete, easily accessible agreement files, NIST will have difficulty monitoring and managing agreements in a manner consistent with applicable fiscal laws and federal internal control standards. NIST lacks a high-level, senior management focus on managing its interagency agreement workload. Effective workforce planning strategies help address an agency’s mission and goals by making the best use of the government’s most important resource—its people. A key principle of strategic workforce planning is the effective deployment of staff to achieve the agency’s mission and goals. NIST places a high priority on its interagency agreements. However, NIST senior managers play no role in determining whether the appropriate resources are available agencywide to support its interagency agreement workload. NIST’s decentralized workload acceptance process may contribute to NIST’s having more work than it has the resources to handle. Division Chiefs—the officials generally responsible for accepting new work—do not fully consider resource constraints agencywide or include an assessment of whether NIST has the resources available to begin work within a reasonable period of time. Even though more than one division contributes staff or resources to over half of all agreements, Division Chiefs do not consult with other parts of NIST before accepting work. Therefore, even if the accepting division or Operating Unit has adequate resources to begin work within a reasonable time frame, NIST lacks assurance that the necessary resources are available agencywide. As previously mentioned, we found several instances where NIST delayed starting work on agreements because it did not have the available staff or resources to do the work. Poor use of NIST’s staff and resources may also have potential legal implications for NIST and its clients, as previously discussed. Without strategically managing its workload, NIST cannot be sure that it is effectively managing this high-priority area. Although NIST shares responsibility with its federal clients for ensuring the proper use of appropriated funds, it does not sufficiently communicate to clients important information about the status of work and the use of these funds—information that would help its clients know whether their funds are being properly used. For example, it does not provide its clients with estimated work start dates for each agreement. Agencies strive to become high-performing service organizations by focusing on client satisfaction through sustaining high-quality and timely service. Although NIST’s Administrative Manual discusses the need for a coordinator to serve as the principal contact with each client agency, officials told us this position does not exist nor does anyone currently perform those duties. Such a coordinator could communicate important information—including when NIST expects to begin work on agreements—that would better inform client decisions about how best to use their appropriated funds. Funds advanced in support of interagency agreements are the biggest driver of the carryover balance in NIST’s working capital fund. Although some carryover is to be expected, insufficient management of interagency agreements can lead to inefficient use of federal resources. NIST does not monitor the period of availability of appropriations advanced from client agencies and therefore cannot ensure that funds are legally available when it bills against them. If NIST were to use funds after the account closes, the client agency would be required to transfer currently available funds to NIST. Additionally, NIST does not track or monitor when it actually begins work on agreements, nor does it have a standard for what it considers a reasonable time frame for starting work. NIST’s decentralized approach to accepting agreements results in no consideration given to whether the necessary resources exist agencywide to start work within a reasonable time frame. Further, our case-file review found agreements that were incomplete or included incorrect information. As such, NIST will have difficulty ensuring that it has entered into binding legal agreements and is managing them in a manner consistent with applicable fiscal laws and federal internal control standards. NIST and its client agencies have joint responsibility for ensuring that amounts advanced to NIST in support of NIST’s technical service to federal clients are used in accordance with fiscal requirements; however, we found weaknesses in NIST’s processes in these areas. For example, NIST lacks an identified legal basis for NIST’s policy of writing off unearned funds less than $1,000. Absent improvements in how NIST tracks and monitors its interagency agreements, client agencies and the Congress will lack assurance that these requirements are being met. Although NIST designates interagency agreements as an agency priority, it lacks a strategic focus and oversight for how its resources are deployed in support of this important work. Further, NIST shares responsibility with its client agencies for ensuring the proper use of federal funds advanced to it. Because NIST does not monitor and communicate clearly and consistently the status and progress of its interagency agreements, both parties lack important information that would help ensure compliance with applicable fiscal requirements. To improve the management of NIST interagency agreements and provide reasonable assurance that NIST is efficiently using its resources and complying with applicable fiscal laws, we recommend that the Secretary of Commerce direct the NIST Director to take the following five actions: (1) To help ensure efficient, effective deployment of NIST’s workforce and be a responsible steward of federal resources, hold senior management accountable for strategically managing its interagency agreements. This includes periodic senior management involvement in reviewing whether NIST has the appropriate resources to begin and perform new and existing work. (2) To meet its responsibilities in ensuring the proper use of federal funds, (a) develop, implement, and communicate to its clients policies regarding reasonable time frames for beginning work on interagency agreements; (b) track and monitor the work start date for each agreement; and (c) monitor and report internally, and periodically inform federal clients about, the amount of time elapsed between when funds were advanced to it from client agencies and when it actually began billing against an agreement. For example, NIST could provide estimated work start dates for each agreement based on agencywide resource considerations; devise a notification system that would indicate when work has not begun within a certain time frame and provide the date work actually began; or periodically provide clients with a report detailing the balance of unbilled funds as the account closing date approaches. (3) To help guard against the use of cancelled appropriations, electronically record and monitor key information about the period of availability of appropriations advanced to NIST from client agencies. (4) To provide reasonable assurance that its interagency agreements are complete, accurate, and constitute a binding legal agreement, create, document, and implement a robust fiscal and legal review process for interagency agreements. This could include (a) developing and delivering periodic training to staff involved in accepting, processing, managing, and overseeing interagency agreements on how to appropriately accept, process, review, and monitor its interagency agreements and (b) maintaining complete, accurate, and easily accessible files for all agreements. (5) To comply with fiscal law, NIST should review its close-out policies regarding returning unearned funds to client agencies and adjust its accounts accordingly. We provided a draft of this report to the Director of NIST. The agency provided us with written comments which are summarized below and reprinted in appendix III. NIST concurred with our findings and all five of our recommendations. For each recommendation NIST described corrective actions it is taking. NIST expects to fully implement these actions by September 30, 2011. NIST also provided technical comments which we incorporated in the report as appropriate. In its comments, NIST stated that it immediately began revising its interagency agreement operating procedures and related financial management policies and practices in response to Commerce’s clarification of the policy on which these procedures were based. NIST said that it provided documentation on these policies and procedures for our review but that we did not examine them as a part of our audit. We note that Commerce clarified its policy in February 2010 and that NIST provided us with information about its proposed changes in August 2010 at the exit conference for this engagement. We responded that we would include the existence of the new policies in our report (see appendix I for a summary of these changes) but since NIST chose not to provide this information until the end of our review, we would be unable to determine what effect the new policies may have. NIST also stated that the 1983 legal opinion upon which the operating and financial policies of its interagency agreement were based has not been disputed until recently and that the propriety of its treatment of interagency agreement funding has never been in question. We note that a 2004 Commerce Office of Inspector General review of NIST questioned the 1983 Commerce opinion and raised numerous concerns regarding the agency’s management of interagency agreements. We are sending copies of this report to the Secretary of Commerce, the NIST Director, and other interested parties. The report is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-6806 or by e-mail at fantoned@gao.gov. Contact points for our Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix IV. In August 2010, the National Institute of Standards and Technology (NIST) provided information about the steps it is taking to improve the overall internal control of interagency agreements and funding it receives, as a result of our review. From March to May 2010, the Department of Commerce’s (Commerce) Office of General Counsel, General Law Division, and NIST’s Office of General Counsel reviewed all of NIST’s interagency agreements. They conducted a legal review of all agreements, evaluated existing processes, and created new procedures through the development of checklists and interagency agreement templates. Further, NIST began to communicate these changes through town hall meetings and trainings with Operating Unit staff. NIST officials told us that Commerce is still reviewing these changes and they have not yet approved or finalized these processes. Nevertheless, our review of the interim trainings and draft documents indicate that NIST is taking steps to help ensure its interagency agreements comply with fiscal laws. Some changes include the following: Documenting time limitations on the use of federal funds. NIST agreements are required to include the Treasury Account Symbol (TAS) code, which indicates the period of availability of appropriations. Draft agreement templates include a placeholder for both the TAS code and the date of expiration. Additionally, the review checklists specifically ask for the inclusion of this information. The expiration date should also be included in NIST’s financial management system for tracking purposes. Documenting NIST criteria for accepting work. NIST agreements are required to cite the specific authorization or criteria for entering into interagency agreements, as required by the agency’s Administrative Manual. The draft review checklist also requires the inclusion of this justification in agreement files. Clarifying the bona fide needs rule and its accounting implications. Commerce’s trainings discuss the bona fide needs rule and how it applies to the different types of services that NIST provides. The training also provides information about the accounting implications of the bona fide needs rule as well as obligation requirements as it relates to this rule. Clarifying the legal review process. The training materials preview a legal review process as well as specific roles and responsibilities for administering interagency agreements. Commerce’s General Law Division is to document legal clearance for certain agreements through a concurrence memo that includes such information as the period of availability of funds advanced to NIST and programmatic authorities. Finance division and Operating Unit staff are also involved in the legal review process. Because the National Institute of Standards and Technology (NIST) does not record when it began work on its interagency agreements, we determined the start date for a sample of its agreements. We drew an initial simple random sample of 80 agreements from NIST’s 354 interagency agreements with federal clients spanning more than 1 fiscal year that began after October 1, 2003, and were completed by September 30, 2009. From this initial sample, cost information was not available for 16 records. We drew an additional sample of 15 agreements and achieved a target sample of 76 agreements. Three of the additional 15 records did not have cost information associated with them and therefore we did not include them in our analysis. We assessed the reliability of NIST’s interagency agreement data by performing electronic testing of the data for missing data, outliers, and obvious errors; reviewing documentation from the system, such as screen shots and training materials; and interviewing knowledgeable agency officials about how primary users enter data into the system and the internal control steps taken by NIST to ensure data reliability. Given this information, we determined that the data were sufficiently reliable for the purposes of this report. For in-depth case-file reviews, we selected 11 agreements that did not begin in the fiscal year in which the agreement was accepted and work that (1) began more than 268 days after the agreement was signed (which represents the average time it took for NIST to begin work on agreements that did not begin in the fiscal year during which NIST accepted them); or (2) had a carryover balance greater than $1. In addition to the contact named above, Jacqueline M. Nowicki, Assistant Director, and Shirley Hwang, Analyst-in-Charge, managed this assignment. Jeffrey Heit, Travis Hill, Felicia Lopez, Julia Matta, Leah Q. Nash, Rebecca Rose, and Kan Wang made major contributions. Sheila Rajabiun provided legal assistance. Susan Baker, Jean McSween, and Dae Park provided sample design and methodological assistance. | GAO previously found that a significant portion of the National Institute of Standards and Technology's (NIST) working capital fund contained a growing carryover balance. Almost all of the fund's resources come from appropriations advanced from federal clients for NIST's technical services through interagency agreements. Monitoring and tracking key information about agreements and the funds advanced for them is critical for both NIST and its clients to make well-informed budget decisions, comply with applicable fiscal laws and internal controls, and ensure the proper use of federal funds. GAO was asked to review (1) the factors contributing to the working capital fund's carryover balance and (2) NIST's processes for managing its interagency agreements and workload. To do so, GAO reviewed laws and fiscal requirements, analyzed NIST budget data and policies related to its interagency agreements, analyzed a random sample of agreements, and interviewed NIST officials. NIST's working capital fund carryover balance is largely driven by appropriations advanced from federal clients to support interagency agreements. Most agreements cross fiscal years and because more than half were accepted in the second half of the fiscal year, some carryover of funds and work is expected. NIST's processes for managing agreements are insufficient to help ensure compliance with applicable fiscal laws. 1) NIST does not monitor the period of availability of appropriations advanced from client agencies and therefore cannot be sure that funds are legally available when it bills against them. If NIST were to use funds after an account closes, its clients could be exposed to possible Antideficiency Act violations. GAO found two reasons for this. First, NIST treats these funds as being available without fiscal year limitation. Second, NIST does not manage agreements in a way that would allow it to monitor the availability of client advances. 2) NIST does not ensure that it starts work on its agreements within a reasonable amount of time after client agencies advance funds to NIST. Long delays in starting work may lead to the improper use of appropriated funds. There is no governmentwide standard for a reasonable time in which to begin work. NIST has not considered such a standard for itself, but some agencies use 90 days as a general guide. NIST took, on average, an estimated 125 days to start work. Further, GAO estimates that NIST began work about 7 months after receiving funds advanced from clients for about half of its agreements. In some cases the delay was 1-2 years. There were several reasons for this, including that NIST does not record or monitor the date it begins work on agreements, and does not consider whether it has the appropriate resources agencywide before accepting new work. NIST lacks a high-level, senior management focus on managing its interagency agreement workload. Strategic workforce planning requires the effective deployment of staff to achieve agency goals. NIST places a high priority on its interagency agreements; however, senior managers play no role in determining whether appropriate resources are available agencywide to support its workload. Further, although NIST shares responsibility with its federal clients for ensuring the proper use of appropriated funds, it does not sufficiently communicate important information to clients--such as when work is expected to begin on agreements--that would better inform client decisions about how to best use their funds. Absent strategic workload management and improved client communications, NIST cannot meet the needs of this high-priority area. As a result of our review, NIST began revising its interagency agreement process. Because NIST did not provide this information to GAO until after the review was complete, GAO was unable to determine the effect of those changes. GAO is making 5 recommendations to improve NIST's management of its interagency agreements, including holding senior managers responsible for strategic workload management, improving internal monitoring and reporting, ensuring compliance with applicable fiscal laws, and communicating key information to clients on its agreement status. NIST agreed with all 5 recommendations and is taking action to implement them by the end of this fiscal year. |
The DTV transition will require citizens to understand the transition and the actions that some might have to take to maintain television service. For those households with subscription video service on all televisions or with all televisions capable of processing a digital signal, no action is required. However, households with analog televisions that rely solely on over-the-air television signals received through rooftop or indoor antennas must take action to be able to view digital broadcast signals after analog broadcasting ceases. The Digital Television Transition and Public Safety Act of 2005 addresses the responsibilities of two federal agencies—FCC and NTIA—related to the DTV transition. The act directs FCC to require full-power television stations to cease analog broadcasting by February 17, 2009. The act also directed NTIA to establish a $1.5 billion subsidy program through which households can obtain coupons toward the purchase of digital-to-analog converter boxes. In August 2007, NTIA selected the International Business Machines Corporation (IBM) as the contractor to provide certain services for the program. On January 1, 2008, NTIA, in conjunction with IBM and in accordance with the act, began accepting applications for up to two $40 coupons per household that can be applied toward the purchase of eligible digital-to-analog converter boxes and, in mid-February 2008, began mailing the coupons. Initially, during the first phase of the program, any household is eligible to request and receive the coupons, but once $890 million worth of coupons has been redeemed, and issued but not expired, NTIA must certify to Congress that the program’s initial allocation of funds is insufficient to fulfill coupon requests. NTIA will then receive $510 million in additional program funds, but households requesting coupons during this second phase must certify that they do not receive cable, satellite, or any other pay television service. As of June 24, 2008, in response to NTIA’s statement certifying that the initial allocation of funds would be insufficient, all appropriated coupon funds were made available to the program. Consumers can request coupons up to March 31, 2009, and coupons can be redeemed through July 9, 2009. As required by law, all coupons expire 90 days after issuance. As unredeemed coupons expire, the funds obligated for those coupons will be returned to the subsidy program. Retailer participation in the converter box subsidy program is voluntary; however, participating retailers are required to follow specific program rules to ensure the proper use and processing of converter box coupons. Retailers are obligated to, among other things, establish systems capable of electronically processing coupons for redemption and payment and tracking transactions. Retailers must also train their employees on the purpose and operation of the subsidy program. According to NTIA officials, NTIA initially explored the idea of setting requirements for training content, but decided to allow retailers the flexibility of developing their own training programs and provided retailers with sample training materials. Certification requires retailers to have completed an application form by March 31, 2008, and to attest that they have been engaged in the consumer electronics retail business for at least 1 year. Retailers must also register in the government’s Central Contractor Registration database, have systems or procedures that can be easily audited and that can provide adequate data to minimize fraud and abuse, agree to be audited at any time, and provide data tracking each coupon with a corresponding converter box purchase. NTIA may revoke retailers’ certification if they fail to comply with these regulations or if any of their actions are deemed inconsistent with the subsidy program. Converter boxes can also be purchased by telephone or online and be shipped directly to a customer’s home from participating retailers. At the time of our review, 29 online retailers were participating in the converter box subsidy program. As of July 23, 2008, there were three instances of retailers previously listed as participating in the program that were no longer identified as participating online retailers. Additionally, 13 telephone retailers were listed as participating in the program, 2 of which are associated with national retailers. Private sector stakeholders from the broadcast, cable, retail, and consumer electronics industries have committed over $1 billion to voluntary and required consumer education efforts to inform the public of the DTV transition. Also, FCC and NTIA have ongoing consumer education efforts targeting households that rely on over-the-air broadcasts and targeting hard-to-reach populations, such as minority and non-English speakers, seniors, and rural households. The government consumer education plans generally follow key practices for consumer education planning. Private sector stakeholders, such as broadcasters, cable providers, and the Consumer Electronics Association, have undertaken various education efforts to increase public awareness about the DTV transition. NAB and the National Cable and Telecommunications Association initiated DTV transition consumer education campaigns in late 2007 at an estimated value of $1.4 billion combined. NAB has produced six versions of a public service announcement, including 15-second and 30-second versions in both English and Spanish and close-captioned versions. Private sector stakeholders have also produced DTV transition educational programs for broadcast and distribution, developed Web sites that provide information on the transition, and engaged in various other forms of outreach to raise awareness. Examples of outreach by some private stakeholders include attending and distributing information at industry events and conferences, such as speakers’ bureaus and road shows, and initiating an educational contest to find the oldest working television that receives over-the-air broadcasts. Additionally, most of the national retailers participating in the NTIA converter box subsidy program are providing materials to help inform their customers of the DTV transition and the subsidy program. Examples of these materials include informational brochures in English and Spanish, educational videos and in-store displays in English and Spanish, informational content on retailer Web sites, and information provided in retailer advertising in Sunday circulars. Some of the national retailers with whom we spoke are also engaging in partnerships with other organizations. For example, one national retailer is partnering with local broadcasters to run DTV television spots and with print media outlets and magazines to help inform the public about the transition. The private sector has also conducted surveys to gauge consumer awareness. For example, NAB, the Consumer Electronics Association, Consumers Union, and Best Buy Company, Inc., have all surveyed consumers nationwide regarding their level of understanding and awareness of the DTV transition. FCC and NTIA also have ongoing DTV consumer education efforts, which target populations most likely to be affected by the DTV transition. Specifically, they focused their efforts on 45 areas of the country that have at least 1 of the following population groups: (1) more than 150,000 over- the-air households, (2) more than 20 percent of all households relying on over-the-air broadcasts, or (3) a top 10 city of residence for the largest target demographic groups. The target demographic groups include seniors, low-income, minority and non-English speaking, rural households, and persons with disabilities. According to NTIA, its consumer education efforts will specifically target these 45 areas by leveraging partnerships and earned media spots (such as news stories or opinion editorials) to better reach the targeted populations. FCC indicated that while its outreach efforts focus on the targeted hard-to-reach populations, the only effort specifically targeting the 45 locations has been to place billboards in these communities. According to FCC, contracts exist for billboards in 26 of the 45 markets, and it is working to place billboards in the other 19 markets. Furthermore, FCC and NTIA have developed partnerships with some federal, state, and local organizations that serve the targeted hard-to- reach populations. FCC and NTIA believe the partners can serve as trusted voices to inform the targeted populations about the DTV transition. As shown in table 1, there have been outreach efforts to all targeted populations. A few of the partners we contacted indicated that while they agreed to help inform the populations they serve, they had very little funding to support widespread dissemination of this information, and that they would like monetary support from the government to do so. We also found one instance of an organization listed as a partner by NTIA that had not agreed to disseminate DTV information because it could only focus on its primary mission. We previously reported on nine key practices for consumer education planning: defining goals and objectives, analyzing the situation, identifying stakeholders, identifying resources, researching target audiences, developing consistent and clear messages, identifying credible messenger(s), designing the media mix, and establishing metrics to measure success. We analyzed FCC’s and NTIA’s consumer education plans and found that they reflect almost all of the key practices that we previously identified for overcoming potential challenges in such planning. For example, NTIA has defined four primary objectives, including (1) increasing awareness of the converter box subsidy program, (2) generating requests for coupons, (3) engaging partners to disseminate information about the subsidy program, and (4) providing media information and tools needed to report on the program. FCC has made consumer outreach one of its primary goals for the DTV transition and has set goals for distributing publications; participating in events and conferences; and coordinating with federal, state, and local entities. Furthermore, NTIA and FCC conducted audience research on targeted populations and identified geographic areas most likely to be affected. The NTIA contractor for the subsidy program completed a study of both general consumers and those who fall into the target audiences to help develop the message and materials for the program. This process included developing, testing, and refining the message, with the goal of exploring the target audiences’ reactions to the message. For additional information on the key practices and the FCC and NTIA consumer education plans, see appendix II. NTIA has processed and issued coupons to millions of consumers, but a sharp increase in demand might affect NTIA’s ability to respond to coupon requests in a timely manner. With relatively low participation rates to date, a spike in demand leading up to the transition is likely and, given the processing time required in issuing coupons, NTIA’s preparedness to handle volatility in coupon demand is uncertain. Coupon requests and redemptions by the targeted hard-to-reach populations have varied compared with participation in the rest of the country, with some populations having higher request rates but redeeming the coupons at a lower rate. Retailers play a crucial role in the converter box subsidy program, and the national retailers we contacted have taken steps to inform their consumers and train their employees about the subsidy program. NTIA and its contractors have implemented comprehensive systems to administer the converter box subsidy program. The contractors working with NTIA—IBM and its subcontractors—have implemented systems (1) to process coupon applications, (2) to produce and distribute coupons to consumers, and (3) for retailers to process coupons and receive reimbursement for the coupons from the government. Millions of consumers have requested converter box coupons, and most of the requested coupons have been issued. Through June 2008, households had requested almost 19 million coupons. NTIA had issued over 92 percent of all coupon requests, for more than 17 million coupons. Of those coupons issued, about 4.9 million (28 percent) had been redeemed and 13 percent had expired. At the time of our review, consumers were not eligible to reapply for coupons that expired before they were used. Rather, funds obligated for expired coupons were to be returned to the subsidy program. According to NTIA, it had anticipated and budgeted for the distribution of additional coupons as funds from expired coupons are returned to the program, and it is working closely with its contractor to ensure that as many coupons as possible can be distributed. After an initial spike at the beginning of the program, coupon requests have remained steady and have averaged over 103,000 requests per day. Coupon redemptions, since coupons were first issued in February 2008, have averaged over 36,000 per day. Figure 1 illustrates the cumulative requests, issuances, redemptions, and expirations of coupons, from the inception of the subsidy program (January 2008) through June 2008. In our recent consumer survey, we found that 35 percent of U.S. households are at risk of losing some television service because they have at least one television not connected to a subscription service, such as cable or satellite. However, through June 2008, only 9 percent of U.S. households had requested converter box coupons, and less than 3 percent had redeemed these coupons. As the transition date nears, there is the potential that many affected households that have not taken action might begin requesting coupons. Our consumer survey found that of those at risk of losing some television service and intending to purchase a converter box, most will likely request a coupon. In fact, in households relying solely on over-the-air broadcasts (approximately 15 percent), of those who intend to purchase a converter box, 100 percent of survey respondents said they were likely to request a coupon. Consumers have incurred significant wait times in the processing of their coupon requests, but NTIA’s processing time from receiving requests to issuing coupons is improving, as shown in figure 2. NTIA requires that 98 percent of all coupon requests be issued within 10 days, and the remainder be issued within 15 days from the date the coupon applications are approved. From February 17 through June 30, 2008, our analysis shows that the average duration between coupon request and issuance is over 19 days. In aggregate, 36 percent of all coupon requests have been issued within 10 days, and 54 percent of all coupon requests have been issued more than 15 days after being requested. From May 1 through June 30, 2008, the average processing time from coupon request to issuance was 9 days. Throughout the course of the subsidy program, NTIA has increased its capacity to issue coupons, at times issuing as many as 500,000 coupons per day. However, the number of coupons issued per day varies greatly and, as shown in figure 3, has declined since peaking in early May 2008. Given the processing time required in issuing coupons, NTIA’s preparedness to handle volatility in coupon demand is unclear. Fluctuation in coupon requests, including the potential for a spike in requests as the transition date approaches, could adversely affect consumers. When NTIA faced a deluge of coupon requests in the early days of the converter box subsidy program, it took weeks to bring down the deficit of coupons requested to coupons issued. According to NTIA, it expects a similar increase in requests around the transition date, and such an increase may cause a delay in issuing coupons. As a result, consumers might incur significant wait time before they receive their coupons and might lose television service during the time they are waiting for the coupons. NTIA told us it has discussed options to address the increase in requests, such as downloadable coupons. NTIA interprets the statute, however, as requiring it deliver all coupons using the U.S. Postal Service. While NTIA and its contractors have demonstrated the capacity to process and issue large numbers of coupon requests over short periods, they have yet to establish specific plans to manage a potential spike or a sustained increase in demand leading up to the transition. We analyzed data to compare areas of the country that comprise predominantly minority and elderly populations with the rest of the U.S. population and found some differences in the coupon request, redemption, and expiration rates for Hispanic, black, and senior households compared with the rest of the U.S. population. For example, zip codes with a high concentration of Latino or Hispanic households had noticeably higher request rates (20 percent) compared with non-Latino or non-Hispanic zip codes (8 percent). However, households in predominantly black and Latino or Hispanic zip codes were less likely, compared with households outside these areas, to redeem their coupons once they received them. As shown in table 2, the overall rate of redemption for the converter box subsidy program is 28 percent, but only 19 percent of coupons have been redeemed in predominantly Latino or Hispanic areas. In predominantly black areas, 22 percent of coupons have been redeemed. Furthermore, we found that in areas of the country with a high concentration of seniors, fewer coupons were requested (7 percent) compared with areas of the country that did not have a high concentration of seniors (9 percent). Redemption rates for the senior population were similar to the redemption rates in the rest of the country. Regarding coupon expirations, we found a wide variance between minority and senior populations compared with the population as a whole. For example, the areas comprising Latino or Hispanic households only allowed 4 percent of their coupons to expire, while areas with predominantly senior populations allowed 21 percent of their coupons to expire. The higher coupon request rates for Latino or Hispanic households compared with the non-Latino or non-Hispanic areas might be due to the consumer education efforts of the Spanish speaking broadcasters. An advocacy group representing Hispanics told us that the outreach efforts of Spanish speaking broadcasters, such as Univision, Telemundo, and Azteca America, have been effective in educating their viewers on the DTV transition. While the advocacy group had high praise for these broadcasters, it and another advocacy group representing minority populations that we contacted expressed concerns about certain aspects of the consumer education and outreach efforts by federal and private sector stakeholders. Specifically, these groups expressed concerns about the lack of funding for outreach to targeted vulnerable populations, the possibility of misinformation being provided by retailers to consumers, a lack of technical assistance to the targeted populations (such as assisting the elderly with connecting the converter boxes to their televisions), and the absence of rapid response planning to assist the targeted populations if funds for the converter box subsidy run out. Furthermore, these advocacy groups stated they believe the current transition messaging is very general and not targeted toward at-risk populations. As such, one group believes current messaging does not lead the at-risk populations to being fully aware of what they may need to do to prepare for the transition. Another group stated that targeted outreach efforts to its member organizations and populations are very general, and that outreach efforts on the transition and converter box subsidy program have not resonated with their communities. To determine participation in the converter box subsidy program in the 45 areas of the country receiving targeted outreach by NTIA and FCC, we analyzed NTIA coupon data (including requests, redemptions, and expirations) in the 45 areas compared with the rest of the country not targeted by NTIA and FCC. We found participation levels were about the same in the targeted areas compared with the rest of the country. As we have previously mentioned, the 45 areas were targeted for the level of at- risk households, including households relying on over-the-air television. Therefore, the portion of the population in those 45 areas requiring action to continue viewing television broadcasts should be higher than in other areas of the country. However, we found that in the 45 targeted areas, 8.8 percent of households have requested coupons compared with 9.4 percent for the rest of the country not targeted by NTIA and FCC. We also found similarities between the 45 targeted areas and the rest of the country when looking at the coupon redemption and expiration rates. According to NTIA, similarities in request, redemption, and expiration rates between the 45 targeted areas and the rest of the country is viewed as a success. As the sellers of the converter boxes, retailers play a crucial role in the converter box subsidy program and are counted on to inform consumers about it. To do so, many national retailers are using in-store video programming, signage, and brochures to inform consumers. At the time of our review, seven national retailers were participating in the subsidy program. Three national retailers participating in the program told us they display programming about the transition on televisions at their store locations. One of these stores said it developed two consumer education videos, which run along with other programming on in-store displays. These videos provide information in both English and Spanish on the DTV transition, consumers’ options for maintaining television service after the transition, and information about how to set up digital-to-analog converter boxes on analog televisions. Additionally, all of the retailers we spoke with indicated that signs and informational pamphlets about the DTV transition would be part of their in-store education campaigns. Retailers wanting to participate in the converter box subsidy program must become certified and are obligated to, among other things, train employees on the purpose and operation of the subsidy program. All of the retailers with whom we spoke told us they were training employees on the DTV transition and the subsidy program, although the retailers varied in which staff must complete training. For example, one retailer told us that all employees working in sales, customer service, call centers, and facilities handling warranties and service must complete DTV transition-related training. Another retailer told us that although it provides some training to its sales staff, most of the training is focused on employees working at cash registers. As part of our work, we conducted a “mystery shopper” study by visiting 132 randomly selected retail locations in 12 cities across the United States that were listed as participating in the converter box subsidy program. We did not alert retailers that we were visiting their stores or identify ourselves as government employees. During our visits, we engaged the retailers in conversation about the DTV transition and the subsidy program to determine whether the information they were providing to customers was accurate, and whether individual stores had coupon- eligible converter boxes available. While not required to do so, some stores we visited had informational material available and others had signs describing the DTV transition and the subsidy program. The informational materials included retailer-produced brochures and fliers, NTIA-produced fliers, and converter box subsidy applications. We also determined whether the information that retailers were providing to customers was accurate, and whether individual stores had coupon-eligible converter boxes available. At most retailers (118) we visited, a representative was able to correctly identify that the DTV transition would occur in February 2009. Additionally, nearly all (126) retailers identified a coupon-eligible converter box as an option available to consumers to continue watching television after the transition. Besides coupon-eligible converter boxes, representatives identified other options to continue viewing television after the transition, including purchasing a digital television (67) or subscribing to cable or satellite service (77). However, in rare instances, we heard erroneous information from the retailers, including one representative who told us that an option for continuing to watch television after the transition was to obtain a “cable converter box” from a cable company and another representative who recommended that we buy an “HD tuner.” Since participating retailers are obligated to train their employees on the purpose and operation of the subsidy program, we observed whether the representative was able to explain various aspects about the program. As table 3 shows, a vast majority of the representatives were able to explain how to receive or apply for a coupon and the value of the coupon, while a similar number were able to explain the converter boxes eligible for the subsidy program and who needs a converter box. Although we could obtain information from the majority of the stores that we visited and that were listed as participating in the subsidy program, in a few instances, we were not able to ask questions and observe whether the information provided was accurate. In two instances, there was no retailer at the store location listed as a participating retailer on NTIA’s Web site (https://www.dtv2009.gov/VendorSearch.aspx). In another instance, the location listed was under construction and had not yet opened. In two additional instances, the locations listed were private residences—one was an in-home electronics store, and the other was a satellite television installer working from a house. We asked NTIA how it ensured the accuracy of the list of participating retailers on its Web site, and according to NTIA, ensuring the accuracy of the list is the responsibility of the retailers. NTIA said it provides a list of locations to each retailer prior to placing the list on the Web site, and retailers can update addresses or add new listings as warranted. At the time of our review, retailers told us that it would be useful to have guidance from NTIA on how to handle the refunds of converter boxes purchased with a government coupon. Some retailers said that they were tracking returns in their own systems and awaiting guidance from NTIA on how to return funds to the government from returned boxes. As part of NTIA’s final rule on the converter box subsidy program, consumers may not return a coupon-eligible converter box to a retailer for a cash refund for the coupon amount. Therefore, if a customer returns a converter box purchased with a coupon, the retailer can only refund to the customer the amount paid for the converter box above the value of the coupon, and the retailer must refund the value of the coupon to NTIA. One of the retailers told us that it had developed an in-house accounts payable system to track converter boxes that are returned because it had no guidance from NTIA on how to return funds to the government. In July 2008, NTIA provided guidance to the retailers on how to handle the returns of coupon-eligible converter boxes. According to the guidance, retailers must have agreed to the terms by August 15, 2008, or face deactivation from the subsidy program. NTIA estimates that it will see a large increase in the number of coupon requests in the first quarter of 2009. In addition, our analysis confirms that a spike in coupon requests is likely as the transition nears. However, NTIA has not developed a plan for managing that potential spike or sustained increase in coupon demand. The time required for processing coupons has improved from when consumers incurred significant wait times to receive their coupons at the beginning of the program, but, until recently, NTIA fell short of its requirement for processing coupons within 10 to 15 days from the date the coupon applications were approved. Given the relatively low participation rates to date and the amount of time it took to process the spike in coupon requests in the early days of the program, NTIA’s ability to handle volatility in coupon demand without a plan is unclear. Consequently, consumers face potential risks that they might not receive their coupons before the transition and might lose their television service after February 17, 2009. To help NTIA prepare for a potential increase in demand for converter box coupons and so that consumers are not left waiting a lengthy amount of time for requested coupons, we recommend that the Secretary of Commerce direct the Administrator of NTIA to develop a plan to manage volatility in coupon requests so that coupons can be processed and mailed within 10 to 15 days from the day the coupon applications are approved, per NTIA’s stated requirement. We provided a draft of this report to the Department of Commerce (which contains NTIA) and FCC for their review and comment. In response, Commerce did not state whether it agreed or disagreed with our recommendation, but the department did say that it shares our concern about an increase in coupon demand as the transition nears. Commerce believes that NTIA has monitored coupon demand throughout the program, has effectively responded to those demands, and will adjust the program’s operation as necessary to address consumer demand as the transition date approaches. Furthermore, Commerce’s letter stated it is committed to doing all that it can within its statutory authority and existing resources to ensure that all Americans are ready for the DTV transition. In its letter, FCC noted consumer outreach efforts it has taken related to the DTV transition, some of which were announced after we concluded our audit work at the commission. For example, FCC stated that in 81 markets, the Chairman, a commissioner, or FCC senior staff would hold a public event, such as a town-hall meeting, workshop, or roundtable discussion, to highlight the steps consumers need to take to be prepared for the DTV transition. See appendixes IV and V for written comments from Commerce and FCC, respectively. We are sending copies of this report to interested congressional committees, the Secretary of Commerce, and the Chairman of FCC. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions concerning this report, please contact me on (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI. The objectives of this report are to provide information on issues surrounding the digital television (DTV) transition, specifically, (1) what consumer education efforts have been undertaken by private and federal stakeholders and (2) how effective the National Telecommunications and Information Administration (NTIA) has been in implementing the converter box subsidy program, and to what extent consumers are participating in the program. To obtain information on consumer education efforts, we reviewed federal agency consumer education planning documents, agency orders, rules, proposed rules, and testimony statements from the Federal Communications Commission (FCC) and NTIA. We analyzed and compared federal consumer education plans with key practices for consumer education planning that were developed by an expert panel in our previous work on the DTV transition. This analysis was used to determine the extent that federal consumer education plans incorporated the key practices for effective consumer education planning. We also reviewed publicly available information on private sector consumer education planning and consumer awareness surveys conducted by industry groups, such as the Consumer Electronics Association (CEA), the National Association of Broadcasters (NAB), and Consumers Union. In addition, we spoke with government and private sector stakeholders involved in the transition, including FCC and NTIA officials. We also spoke with representatives from the broadcasting, retailer, manufacturing, and cable industries, including NAB, the Community Broadcasters Association, the Consumer Electronics Retailers Coalition, the North American Retailer Dealers Association, CEA, and the National Cable and Telecommunications Association. Lastly, we contacted all national retailers participating in the NTIA converter box subsidy program and spoke with six of the seven national retailers, including Best Buy Company, Inc.; Circuit City Stores, Inc.; Kmart (a subsidiary of Sears Holdings Corporation); Radio Shack Corporation; Sears Holdings Corporation; and Target Corporation about their consumer education efforts. Only one national retailer, Wal-Mart Stores, Inc., declined the opportunity to speak with us about its DTV consumer education efforts. To determine how effective NTIA and its partners have been in implementing the converter box subsidy program, we analyzed coupon data on request, redemption, and expiration rates. To examine NTIA’s timeliness in issuing coupons, we analyzed data for each day of the subsidy program, beginning on January 1, 2008, through June 30, 2008. Operating under the assumption that all coupons were issued in the order the requests were received, we calculated the average daily processing time for applications received. Furthermore, we analyzed date-specific data from NTIA on coupon applications, requests, issuance, redemptions, and expirations. To determine participation by the targeted hard-to-reach populations, NTIA provided us with a list of zip codes for the 45 areas of the country identified in FCC and NTIA consumer education plans. We analyzed the NTIA data by zip codes to draw comparisons across demographic differences. To do so, we merged the NTIA zip code data with data from the 2000 Census SF-3 summary file Zip Code Tabulation Areas. From the census data, we grouped zip codes into urban and rural categories and looked at coupon requests, redemptions, and expirations for zip codes that were over 50 percent black or Hispanic/Latino. Furthermore, we discussed the effectiveness of the consumer education with advocacy groups representing hard-to-reach populations, including AARP, the National Hispanic Media Coalition, Leadership Conference on Civil Rights, the American Association of People with Disabilities, and National 4-H Headquarters. To assess the reliability of these data, we reviewed related documentation and conducted manual testing of certain source databases. We also interviewed knowledgeable agency officials about the quality of these data. As a result, we determined that these data were sufficiently reliable for the purposes of this report. We also conducted a “mystery shopper” study to determine the extent of retailer preparedness for the converter box subsidy program, including (1) retailer knowledge about the subsidy program, (2) the availability of converter boxes, and (3) whether retailers were attempting to up-sell to consumers who were interested in the program. We conducted the mystery shopper study from April 14, 2008, to May 2, 2008. The sample of retail stores that we visited was generated and randomly selected on April 11, 2008, from the list of participating retail stores identified on the NTIA Web site (https://www.dtv2009.gov/VendorSearch.aspx). Our sample was limited to store locations within a 15-mile radius of each GAO field office’s and GAO headquarters’ 5-digit zip code. For the study, we visited 132 store locations in 12 cities—Atlanta; Boston; Chicago; Dallas; Dayton; Denver; Huntsville; Los Angeles; Norfolk; San Francisco; Seattle; and Washington, D.C. The results of this study are not representative of retailer preparedness across the nation and are only applicable to the locations that we visited. However, our sample was sufficient to make basic statistical generalities and collect anecdotal evidence on the general level of retailer preparedness at that point in time. Additionally, the time frame in which the study was conducted limited our sample to retailers that were participating in the converter box subsidy program at that time (which included national retailers Best Buy Company, Inc.; Circuit City Stores, Inc.; Radio Shack Corporation; and Wal-Mart Stores, Inc.). We conducted this review from February 2008 to September 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and conclusions based on our review objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In our previous work on the DTV transition, we convened an expert panel to discuss consumer education issues applicable to the transition. These issues included potential challenges that may obstruct efforts and the key planning components of a consumer education campaign that will help overcome some of those challenges. As shown in table 4, we analyzed FCC and NTIA consumer education plans and compared them with the key practices for consumer education planning. We found that the federal plans address nearly all of the key practices. (See detailed discussions of these practices following the table.) Key Practice 1: Define goals and objectives. Both FCC and NTIA defined the goals and objectives of their consumer education plans. The FCC plan’s stated goal is to identify channels and outreach activities not yet utilized to ensure that the American public is made aware of the DTV transition so they can benefit from it and, if necessary, take action to be prepared for the transition. The NTIA plan’s stated goal is to educate U.S. residents who receive over-the-air broadcasts on analog television about the DTV transition and the converter box subsidy program. The objectives of the NTIA plan are to (1) increase awareness of the subsidy program as one option available to consumers; (2) generate requests for coupons through various request methods, such as toll-free numbers, Web site visits, or written or faxed correspondence; (3) engage program partners to disseminate information about the subsidy program; and (4) provide media information and the tools needed to report on the program. Key Practice 2: Analyze the situation. Both FCC and NTIA analyzed the situation related to market conditions, including competing voices or messages, and constraints on timing. For example, FCC’s plan provides an analysis that determined the segments of the population most vulnerable to the transition (i.e., over-the-air viewers). Included in this analysis is the general resistance and skepticism to change beyond the public’s control; the challenge to ensure accurate, consistent, and coordinated information between public and private sector stakeholders; and the potential for the news media to pursue new angles and issues related to the DTV transition. The NTIA plan addressed situation analysis in two primary ways, including (1) media environment and (2) partner environment. The media environment analysis assessed keeping the media interested and engaged at critical times, recognizing that the consumer education campaign would be in operation in a “crowded media environment” competing with the 2008 presidential elections and the holiday season for public attention. Additionally, NTIA assessed that different organizations would be engaged in its transition outreach activities, and that NTIA would be challenged with engaging partners that are in a position to carry messages most effectively and efficiently to target audiences, and ensuring they deliver accurate information about the subsidy program. Key Practice 3: Identify stakeholders. Both FCC and NTIA identified and engaged stakeholders that would be involved with communication efforts, including the roles and responsibilities of each stakeholder. For example, the FCC plan emphasizes and recommends the use of various stakeholders to be involved in consumer outreach, such as broadcast outlets; media services, such as radio, print, and online news services; and other direct- to-consumer methods of outreach, including outdoor and transit public service advertising and outreach through grocery store chains. The NTIA plan also identifies various organizations as partners, such as the major broadcast networks and other federal agencies. In addition to identification, NTIA has developed a tiered approach to partnerships with other organizations. The tiered partner system identifies the level of impact and communication capability a partner may have on outreach based on the organization’s ability to reach the program’s target populations. The NTIA plan also outlines the minimum level of commitment from the tiered partner and the amount of support the partner would receive from NTIA. Key Practice 4: Identify resources. Short-term and long-term budgetary resources and other resources were not identified or available in the planning documents used for our comparison of FCC and NTIA consumer education plans to the key practices for consumer education planning. However, FCC had $14.5 million in allocated and reprogrammed funds for consumer education in fiscal year 2008, and also requested an additional $20 million for fiscal year 2009. NTIA was allocated $5 million for consumer education. Key Practice 5: Research target audiences. Both FCC and NTIA conducted audience research to determine needs, preferences, and characteristics as well as possible audience-specific obstacles, such as access to information. FCC and NTIA identified the target audiences who would be hard to reach, most unaware of the transition, and most reliant on over-the-air broadcasts (i.e., minorities, rural residents, persons with disabilities, seniors, and low-income individuals). NTIA prioritized its outreach efforts to 45 market areas that have high concentrations of households most likely to be reliant on over-the-air broadcasts. FCC also used NTIA’s geographic prioritization data to focus its outreach efforts. Key Practice 6: Develop consistent, clear messages. FCC and NTIA developed clear and consistent messages based on audience research and goals. For example, FCC’s consumer education plan messaging is divided into three timeline phases that determine the type of information outreach efforts emphasized and is focused on providing clear and simple information to consumers that is accessible to all target populations through a variety of formats and languages. The phases described in the FCC plan are (1) transition basics (February to April 2008)—consumers need to know the transition is happening and may need to take action; (2) transition detail (May to October 2008)—consumers receive more specific information, such as how to choose a DTV, the need for an antenna, how to get a coupon and converter box, and how to hook up a converter box; and (3) transition urgency (September 2008 to February 2009)—consumers need to act now and take action to avoid losing their television viewing signal if they are affected. NTIA has also developed and tested campaign messaging that resonates with target audiences and changes over time to suit the needs of the converter box subsidy program. The NTIA plan divides messaging into two phases: (1) awareness/educate and (2) action/participate. During the first phase, campaign messaging focused on the digital transition, what the converter box subsidy program is, why it exists, the benefits of the transition and the converter box, options for consumers to navigate the transition, and how to participate in the program. Phase two provides the same information, but the emphasis shifts to taking action to avoid the loss of television signals and taking advantage of the subsidy program. Key Practice 7: Identify credible messenger(s). FCC and NTIA identified in their consumer education plans partners who would be delivering the messages and ensuring they are credible with audiences. Specifically, the FCC plan identifies (1) the national media, such as the broadcast networks, national radio, cable networks, online outlets, magazines, and industry trade publications; (2) over-the-air markets, including local television and radio stations and major daily newspapers; and (3) target population media services and sources, which are based on the media habits and preferences of the vulnerable populations, as credible messengers. NTIA identified two broad groups of credible messengers, including earned media and partners. Earned media messengers fall into three categories, which consist of (1) the national media, including the major broadcast networks, cable networks, online outlets, magazines, and industry trade publications; (2) geographically targeted media consisting of local television and radio stations and major daily newspapers; and (3) demographically targeted media based on the media habits and preferences of the target populations. Key Practice 8: Design media mix. Both FCC and NTIA identified in their consumer education plans methods and frequency of messaging to reach target audiences. The FCC and NTIA plans present various types of media services, such as satellite and radio media tours, background briefings, editorial meetings, online chats, over-the-air market outreach, and radio advertisements that will be used to generate media coverage and as methods of outreach to inform target groups. In addition, the FCC plan recommends direct-to-consumer initiatives, such as outdoor and transit public service announcements and outreach through grocery store chains. FCC also includes a timeline that denotes by month when it will engage in outreach by messaging phases. Key Practice 9: Establish metrics to measure success. FCC and NTIA have established process metrics to measure the success of their consumer outreach, but only NTIA has created outcome metrics. Process metrics track the quantity, quality, and timeliness of work and have been established by both FCC and NTIA. For example, FCC and NTIA have measures tracking the distribution of materials, which enables them to report on the quantity of materials mailed and the audience receiving the materials. In addition, both FCC and NTIA will track media coverage, including earned media and media coverage, of other DTV transition stakeholders. NTIA has also implemented outcome metrics—which evaluate how well a consumer education campaign influenced attitudes or behaviors to determine if the target populations were adequately receiving the message. For example, according to NTIA, it tracks coupon requests and redemptions of over-the-air households for the purpose of measuring the impact of its consumer education. NTIA said it reviews coupon request data every 2 weeks and compares the coupon requests by over-the-air households with the estimated number of over-the-air households in major geographic areas of the country. According to NTIA, if an area exists where less than 20 percent of the over-the-air households in a market have ordered coupons, NTIA will increase its outreach efforts in that area. NTIA also indicated that it uses coupon request data to monitor the 45 targeted areas and uses these data to determine if it is reaching the hard-to-reach populations. Furthermore, NTIA indicated that it would use publicly reported consumer awareness survey information from industry participants and others to track progress in consumer awareness for other populations. NTIA states in its plan that these measures will indicate the success of its education efforts and highlight areas that need additional focus. The use of monthly coupon application and redemption data in comparison to over-the-air households measures the effect of consumer education efforts on the population as a whole, but does not determine whether the targeted hard-to-reach populations have been influenced and have applied for and redeemed converter box coupons. FCC adopted a final DTV consumer education order in February 2008, which requires broadcasters, cable and satellite providers, certain telephone service providers, and certain consumer electronics manufacturers to provide a minimum level of DTV transition consumer education. For example, commercial broadcasters are required to choose one of two education options, and noncommercial broadcasters must select one of three education options. These options determine the number of public service announcements, crawls, or other on-air consumer education programming they must air and report to FCC per quarter. FCC officials told us that FCC has collected the required report filings for broadcasters for the first two quarters since the FCC order took effect. Cable and satellite providers are required under the order to provide information on the DTV transition in billing notices to their customers. Consumer electronics manufacturers are required to include information with certain television-related devices that explain what effect, if any, the DTV transition will have on the devices’ use. FCC also requires telephone companies that participate in the Low Income Federal Universal Service program to provide information on the transition to their Life-line and Link-up customers, either as part of the billing notice or in a stand-alone mailer, such as a postcard. According to FCC, it has sent compliance surveys to the nine largest cable and satellite providers and the nine largest telephone companies, and it intends to send compliance letters to the nine largest electronics manufacturers to assess their consumer education efforts. Furthermore, FCC stated that its Enforcement Bureau is working with NTIA to spot-inspect retailers that are participating in the converter box subsidy program. The purpose of the spot inspections is to detail and assess retailer employee training and consumer education plans and efforts. FCC Enforcement Bureau personnel, as of July 31, 2008, have visited 1,335 stores and conducted 1,291 interviews in 49 states and in Puerto Rico. According to FCC testimony, it has found that the majority of store managers are well- informed about the DTV transition and the converter box subsidy program. In addition to the individual named above, other key contributors to this report were Sally Moino, Assistant Director; Colin Fallon; Simon Galed; Eric Hudson; Bert Japikse; Aaron Kaminsky; Michael Pose; and Andrew Stavisky. Digital Television Transition: Broadcasters’ Transition Status, Low- Power Station Issues, and Information on Consumer Awareness of the DTV Transition. GAO-08-881T. Washington, D.C.: June 10, 2008. Digital Television Transition: Majority of Broadcasters Are Prepared for the DTV Transition, but Some Technical and Coordination Issues Remain. GAO-08-510. Washington, D.C.: April 30, 2008. Digital Television Transition: Increased Federal Planning and Risk Management Could Further Facilitate the DTV Transition. GAO-08-43. Washington, D.C.: November 19, 2007. Digital Television Transition: Preliminary Information on Progress of the DTV Transition. GAO-08-191T. Washington, D.C.: October 17, 2007. Digital Television Transition: Preliminary Information on Initial Consumer Education Efforts. GAO-07-1248T. Washington, D.C.: September 19, 2007. Digital Television Transition: Issues Related to an Information Campaign Regarding the Transition. GAO-05-940R. Washington, D.C.: September 6, 2005. Digital Television Transition: Questions on Administrative Costs of an Equipment Subsidy Program. GAO-05-837R. Washington, D.C.: June 20, 2005. Digital Broadcast Television Transition: Several Challenges Could Arise in Administering a Subsidy Program for DTV Equipment. GAO-05-623T. Washington, D.C.: May 26, 2005. Digital Broadcast Television Transition: Estimated Cost of Supporting Set-Top Boxes to Help Advance the DTV Transition. GAO-05-258T. Washington, D.C.: February 17, 2005. Telecommunications: German DTV Transition Differs from U.S. Transition in Many Respects, but Certain Key Challenges Are Similar. GAO-04-926T. Washington, D.C.: July 21, 2004. Telecommunications: Additional Federal Efforts Could Help Advance Digital Television Transition. GAO-03-7. Washington, D.C.: November 8, 2002. Telecommunications: Many Broadcasters Will Not Meet May 2002 Digital Television Deadline. GAO-02-466. Washington, D.C.: April 23, 2002. | The Digital Television Transition and Public Safety Act of 2005 requires all full-power television stations in the United States to cease analog broadcasting after February 17, 2009, known as the digital television (DTV) transition. The National Telecommunications and Information Administration (NTIA) is responsible for implementing a subsidy program to provide households with up to two $40 coupons toward the purchase of converter boxes. In this requested report, GAO examines (1) what consumer education efforts have been undertaken by private and federal stakeholders and (2) how effective NTIA has been in implementing the converter box subsidy program, and to what extent consumers are participating in the program. To address these issues, GAO analyzed data from NTIA and reviewed legal, agency, and industry documents. Also, GAO interviewed a variety of stakeholders involved with the DTV transition. Private sector and federal stakeholders have undertaken various consumer education efforts to raise awareness about the DTV transition. For example, the National Association of Broadcasters and the National Cable and Telecommunications Association have committed over $1.4 billion to educate consumers about the transition. This funding has supported the development of public service announcements, education programs for broadcast, Web sites, and other activities. The Federal Communications Commission (FCC) and NTIA have consumer education plans that target those populations most likely to be affected by the DTV transition. Specifically, they identified 45 areas of the country as high risk that included areas with at least 1 of the following population groups: (1) more than 150,000 over-the-air households, (2) more than 20 percent of all households relying on over-the-air broadcasts, or (3) a top 10 city of residence for the largest target demographic groups. The target demographic groups include seniors, low-income, minority and non-English speaking, rural households, and persons with disabilities. In addition to targeting these 45 areas of the country, FCC and NTIA developed partnerships with organizations that serve these hard-to-reach populations. NTIA is effectively implementing the converter box subsidy program, but its plans to address the likely increase in coupon demand as the transition nears remain unclear. Almost 19 million coupons have been issued by NTIA, but as of June 2008, only 9 percent of U.S. households had requested coupons. As found in GAO's recent consumer survey, up to 35 percent of U.S. households could be affected by the transition because they have at least one television not connected to a subscription service, such as cable or satellite. With a spike in demand likely as the transition date nears, NTIA has no specific plans to address an increase in demand; therefore, consumers might incur significant wait time before they receive coupons as the transition nears and might lose television service during the time they are waiting for the coupons. In terms of participation in the converter box subsidy program, GAO analyzed coupon data in areas of the country comprising predominantly minority and senior populations and found that households in both predominantly black and Hispanic or Latino areas were much less likely to redeem their coupons compared with households outside these areas. Additionally, GAO analyzed participation in the subsidy program in the 45 areas of the country on which NTIA and FCC focused their consumer education efforts and found coupon requests to be about the same for zip codes within the 45 targeted areas compared with areas that were not targeted. Retailers play an integral role in the subsidy program by selling the converter boxes and helping to inform their customers about the DTV transition and the program. GAO visited 132 randomly selected retail stores in 12 cities. Store representatives at a majority of the retail locations GAO visited were able to correctly state that the DTV transition would occur in February 2009 and explain how to apply for a converter box coupon. |
We have identified three fundamental principles that can serve as a framework for considering large-scale federal assistance efforts. These principles are (1) identifying and defining the problem, (2) determining the national interests and setting clear goals and objectives that address the problem, and (3) protecting the government’s interests. Identify and define the problem: The government should clearly identify and define the specific problems confronting the industry— separating out those that require an immediate response from those structural challenges that will take more time to resolve. According to the auto manufacturers, the most immediate threat to the industry comes from inadequate cash reserves and negative projected cash flows combined with a tightening or denial of credit by commercial lending institutions. General Motors and Ford have not been profitable since at least 2006, and sales have decreased substantially for the Big 3 in 2008. In this regard, deteriorating financial and real estate markets, weakening labor markets, and high fuel prices have contributed to reductions in consumers’ demand for new vehicles, particularly less fuel-efficient vehicles. In addition, tightening consumer credit has made it difficult for some consumers to obtain auto loans. The industry, however, also faces structural challenges that will need to be dealt with, including higher labor and pension costs than competitors, dealership relationships and structure, and fleet characteristics—especially in the area of fuel efficiency. Determine national interests and set clear goals and objectives that address the problem: After defining the problem, Congress must determine whether a legislative solution best serves the national interest. If Congress determines that the benefits of federal intervention exceed those of bankruptcy reorganization for one or more of the domestic manufacturers, Congress could draft legislation to guide the availability and use of federal assistance. It is important that the legislation include a clear and concise statement of the objectives and goals of the assistance program. A statement of the objectives and goals of the program would help Congress and program administrators determine which financial tools are needed and most appropriate for the industry and for company- specific circumstances; provide criteria for program decisions; and serve as a basis for monitoring progress. Finally, although Congress may decide that there is a compelling national interest in providing financial assistance to help ensure the long-term viability of the Big 3, companies receiving assistance should not remain under federal protection indefinitely. Identifying the conditions that will signal an end to that protection would serve as congressional guidance on when the industry should emerge from the assistance program. Protecting the government’s interest: Because these assistance programs pose significant financial risk to the federal government, appropriate mechanisms should be included to protect taxpayers from excessive or unnecessary risks. Mechanisms, structures, and protections should be implemented to ensure prudent use of taxpayer resources and manage the government’s risk consistent with a good faith attempt to achieve the congressional goals and objectives of any federal financial assistance program. This can be achieved through the following four actions—all of which have been used in the past. 1. Concessions from others: Congress should require concessions from others with a stake in the outcome—including management, labor, suppliers, dealers, and creditors. The concessions are not meant to extract penalties for past actions, but to ensure cooperation and flexibility in securing a successful future outcome. 2. Controls over management: The government must have the authority to approve an aid recipient’s financial and operating plans and new major contracts. The authority is meant to ensure a restructuring plan with realistic objectives and to hold management accountable for achieving results. 3. Collateral: To the extent feasible, the government should require that the recipient provide adequate collateral, and that the government be in a first lien position. 4. Compensation for risk: The government should receive compensation through fees and/or equity participation in return for providing federal aid. The government’s participation in any upside gains is particularly important if the program succeeds in restoring the recipient’s financial operational health. Congress could apply these principles if it decides to offer financial assistance to the domestic auto manufacturers. If Congress determines that the systemic, economic consequences of risking the immediate failure of any or all of these companies are too great, a two-pronged approach in applying the principles could be appropriate. Specifically, Congress could 1) authorize immediate, but temporary, financial assistance to the auto manufacturing industry and 2) concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. Among other responsibilities, Congress could give the board authority to establish and implement eligibility criteria for potential borrowers and to implement procedures and controls in order to protect the government’s interests. The federal government has a range of tools it could use to provide such bridge assistance, including loans and loan guarantees. Historically, the federal government has used loans and loan guarantees in its financial assistance to specific companies. In providing such credit assistance, the government has assumed that the federal role is to help the industry overcome a cyclical or event-specific crisis by gaining access to cash in the short term that it otherwise cannot obtain through the markets. Credit assistance assumes that the aided companies will eventually return to financial health and have the capacity to pay back the loans. The government has offered such assistance in return for companies providing various forms of collateral and/or equity to protect taxpayer interests, as well as for various concessions by interested parties to share the risk and promote shared responsibility. For example, any federal assistance to an auto manufacturer might seek to ensure that all parties, including labor and management, share responsibility for bringing the company back to profitability, and that no party makes excessive concessions relative to the other parties. Finally, accountability should be built in so that Congress and the public can have confidence that the assistance was prudent and consistent with the identified objectives. For example, as a condition for receiving federal assistance, the auto manufacturers should be required to provide program administrators and appropriate oversight bodies with access to their financial records and submit detailed operating and financial plans indicating how the funds and other sources of financing will be used to successfully return the companies to profitability. Such information would allow program administrators to oversee the use of funds and to hold the companies accountable for results. Congress should concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. The federal government has established boards to implement past financial assistance efforts, including when providing assistance to Lockheed in 1971 and Chrysler in 1980. More recently, in the aftermath of the 2001 terrorist attacks on the United States, Congress created the Air Transportation Stabilization Board (ATSB) to provide loan guarantees to the airline industry. The voting members of ATSB included a member of the Board of Governors of the Federal Reserve System and representatives from the Departments of the Treasury and Transportation. While the exact membership of a board to provide financial assistance to the Big 3 auto manufacturers could differ, past federal financial assistance efforts suggest that it would be prudent to include representatives from agencies knowledgeable about the auto manufacturing industry as well as from those agencies skilled in financial and economic analysis and assistance. In creating such a board, it will be crucial for Congress to ensure that the board, similar to boards created to implement past federal financial assistance efforts, has access to all financial or operational records for any recipients of federal assistance so that informed judgments and reviews can occur. It would also be important to ensure that the board has the authority and resources to hire or contract for necessary legal, financial, and other expertise. For example, ATSB hired an executive director, financial analyst, and legal counsel to help the board carry out its duties. Beyond access to records and expertise, however, to succeed in achieving the goal of a restructured industry, the board is likely to need the authority to implement procedures and controls to protect the government’s interests. This would include bringing the parties with a stake in a successful outcome to the table. Our review of past large-scale financial assistance efforts leads us to conclude that all of these parties must make concessions—not as penalties for past actions but rather to ensure cooperation in securing a successful future. The board would also need authority to approve the borrower’s operating and financial plans and major new contracts to ensure the plans are realistic and to assess management’s efforts in achieving results. In addition, the federal government should be the first creditor to be repaid in the event of a bankruptcy or when the company returns to profitability. In 1980, when providing assistance to Chrysler, Congress mandated that Chrysler meet additional policy-oriented requirements such as achieving certain energy efficiency goals and placed limits on executive compensation. More recently, as a condition of receiving federal assistance in the wake of the September 11 terrorist attacks, the Air Transportation Safety and System Stabilization Act required that airlines limit executive compensation. In addition, the board, consistent with congressional direction, could require that manufacturers, with the cooperation of labor unions, take steps to help control costs. Such steps could include reducing excess capacity by closing or downsizing manufacturing facilities, reducing work- rule restrictions that limit flexibility in terms of which workers can do what types of jobs, and ending contracts with dealerships that require the manufacturer to pay a large buyout to a dealer if a product line is eliminated. Some of these steps should be specifically addressed in the legislation. It will be important to keep in mind, however, that the affected parties will cooperate only if the assistance program offers a better alternative than bankruptcy. The government should not expect creditors, for example, to make concessions that will cost them more than they would expect to lose in a bankruptcy proceeding. Finally, Congress should provide the board with enough flexibility to balance requirements in each recipient’s business plan to achieve and maintain profitability. The board could be the logical entity to establish and implement clearly defined eligibility criteria for potential borrowers, consistent with statutory direction provided by Congress, and establish other safeguards to help protect the government’s interests and limit the government’s exposure to loss. The safeguards could vary, depending on the nature of the financial assistance tools used. Examples of safeguards over loans and loan guarantees that have been used in the past include the following: Potential borrowers have been required to demonstrate that they meet specific eligibility criteria, consistent with congressional direction as to the problems to be addressed and the objectives and goals of the assistance. Potential borrowers have been required to demonstrate that their prospective earning power, together with the character and value of any security pledged, provided reasonable assurance of repayment of the loan in accordance with its terms. Potential borrowers have been required to clearly indicate the planned use of the loans so that the board could make appropriate decisions about the borrower’s financial plan and terms and conditions, as well as collateral. The government has charged fees to help offset the risks it assumed in providing such assistance. For loan guarantees, the level of guarantee has been limited to a given percentage of the total amount of the loan outstanding. To further enhance accountability and promote transparency, the board should monitor the status of federal assistance on a regular basis and require regular reporting from companies receiving assistance. This reporting should, at a minimum, include information on cash flow, financial position, and results of independent audits. In addition, the board should be required to provide periodic reports to Congress. This reporting should include status reports on the amount and types of assistance provided to the auto manufacturing industry, periodic assessments of the effectiveness of the assistance, and status of any repayments of loans that the federal government has provided to the industry. In addition to providing oversight and accountability of the federal funds, the board could be charged with overseeing efforts of the assisted companies to implement required changes and reform. The board would likely need to consider industry-specific issues in implementing financial assistance and industry reform. Employee compensation would be one of those issues, and a very complex one. Benefits for auto industry workers represent a significant long-term financial commitment of the companies seeking assistance, much of it to retirees and their families. Although success in a company’s future will depend in part on sacrifice from all stakeholders, most of the changes in this area will necessarily take effect over the long term. The complexities of these arrangements and their interface with active workers and with existing government programs will make implementing federal assistance particularly challenging. For example, the board would need to consider the impact that a possible bankruptcy filing by an auto manufacturer would have on the Pension Benefit Guaranty Corporation, the federal agency that insures private employers’ defined benefit pensions, and whose cumulative balance is already negative. In conclusion, Congress is faced with a complex and consequential decision regarding the auto manufacturers’ request for financial assistance. The collapse or partial collapse of the domestic auto manufacturing industry would have a significant ripple effect throughout other sectors of the economy and serve as a drag on an already weakened economy. However, providing federal financial assistance to the auto manufacturing industry raises concerns about protecting the government’s interests and the precedent such assistance could set for other industries seeking relief from the current economic downturn. My remarks today have focused on principles Congress may wish to consider as it contemplates possible financial assistance for the auto manufacturing industry. These principles are drawn directly from GAO’s support of congressional efforts over several decades to assist segments of industries, firms, the savings and loan industry, and municipalities. Although the principles do not provide operational rules outlining exactly what should be done, they do provide a framework for considering federal financial assistance. By defining the problem, determining whether a legislative solution to that problem best serves the national interest, and— assuming that such a solution is appropriate—establishing an appropriate governance structure, Congress might better assure itself and the American people that the federal assistance will achieve its intended purpose. Thank you Mr. Chairman, Ranking Member Shelby, and members of the committee for having me here today. We at GAO, of course, stand ready to assist you and your colleagues as you tackle these important challenges. For further information on this testimony, please contact Katherine A. Siggerud on (202) 512-2834 (auto industry issues), J. Christopher Mihm on (202) 512-3236 (GAO’s principles), and Gary L. Kepplinger on (202) 512- 5400 (legal issues). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The current economic downturn has brought significant financial stress to the auto manufacturing industry. Recent deteriorating financial, real estate, and labor markets have reduced consumer confidence and available credit, and automobile purchases have declined. While auto manufacturers broadly have experienced declining sales in 2008 as the economy has worsened, sales of the "Big 3" (General Motors, Chrysler, and Ford) have also declined relative to those of some other auto manufacturers in recent years because higher gasoline prices have particularly hurt sales of sport utility vehicles. In addition to causing potential job losses at auto manufacturers, failure of the domestic auto industry would likely adversely affect other sectors. Officials from the Big 3 have requested, and Congress is considering, immediate federal financial assistance. This testimony discusses principles that can serve as a framework for considering the desirability, nature, scope, and conditions of federal financial assistance. Should Congress decide to provide financial assistance, we also discuss how these principles could be applied in these circumstances. The testimony is based on GAO's extensive body of work on previous federal rescue efforts that dates back to the 1970s. From our previous work on federal financial assistance to large firms and municipalities, we have identified three fundamental principles that can serve as a framework for considering future assistance. These principles are (1) identifying and defining the problem, (2) determining the national interests and setting clear goals and objectives that address the problem, and (3) protecting the government's interests. First, problems confronting the industry must be clearly defined--separating out those that require an immediate response from those structural challenges that will take more time to resolve. Second, Congress should determine whether the national interest will be best served through a legislative solution, or whether market forces and established legal procedures, such as bankruptcy, should be allowed to take their course. Should Congress decide that federal financial assistance is warranted, it is important that Congress establish clear objectives and goals for this assistance. Third, given the significant financial risk the federal government may assume, the structure Congress sets up to administer any assistance should provide for appropriate mechanisms, such as concessions by all parties, controls over management, compensation for risk, and a strong independent board, to protect taxpayers from excessive or unnecessary risks. These principles could help the Congress in deciding whether to offer financial assistance to the domestic auto manufacturers. If Congress determines that a legislative solution is in the national interest, a two-pronged approach could be appropriate in these circumstances. Specifically, Congress could 1) authorize immediate, but temporary, financial assistance to the auto manufacturing industry and 2) concurrently establish a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight. This board could also oversee any structural reforms of the companies. Among other responsibilities, Congress could give the board authority to establish and implement eligibility criteria for potential borrowers and to implement procedures and controls in order to protect the government's interests. |
In our 2010 assessment of weapon programs, we made several observations concerning DOD’s management of its major defense acquisition portfolio. First, in DOD’s fiscal year 2010 budget, the Secretary of Defense proposed canceling or significantly curtailing programs with projected total costs of at least $126 billion that he characterized as too costly or no longer relevant for current operations, while increasing funding for others that he assessed as higher priorities. Congress supported several of the recommended terminations (see table 1). Second, DOD plans to replace several of the canceled programs in fiscal years 2010 and 2011, hopefully with new, knowledge-based acquisition strategies, because the warfighter need remains. The most significant of these new programs will be the effort to restructure the Army’s Future Combat System program into several smaller, integrated programs. Third, DOD’s portfolio of major defense acquisition programs grew to 102 programs in 2009—a net increase of 6 since December 2007. Eighteen programs with an estimated cost of over $72 billion entered the portfolio. Not all of these programs entering the portfolio are new starts. For instance, the Airborne Signals Intelligence Payload, and the Reaper Unmanned Aircraft System are two programs that began as acquisition category II programs, but their total research and development or procurement costs now exceed the threshold for major defense acquisition programs. Twelve programs with an estimated cost of $48 billion, including over $7 billion in cost growth, left the portfolio. These programs left the portfolio for a variety of reasons, including program restructure, termination, or completion. When the Future Combat System is added to the programs leaving the portfolio, the total cost of these programs increases to $179 billion, including over $47 billion in cost growth. Our 2010 assessment did not include an analysis of the cost and schedule performance of DOD’s major defense acquisition program portfolio as a whole. In recent years, this analysis showed that the cumulative cost growth on DOD programs had reached $300 billion (in fiscal year 2010 dollars) and the average delay in delivering initial capabilities was 22 months. DOD did not issue timely or complete Selected Acquisition Reports for its major defense acquisition programs in fiscal year 2009 for the second consecutive presidential transition, which precluded an analysis of the performance of DOD’s portfolio. We will resume our portfolio analysis in next year’s assessment. At the program level, our recent observations present a mixed picture of DOD’s adherence to a knowledge-based acquisition approach, which is key for improving acquisition outcomes. In our 2010 assessment of weapon programs, we assessed the knowledge attained by key junctures in the acquisition process for 42 individual weapon programs in DOD’s 2009 portfolio. While program knowledge is increasing, as in the past, none of the 42 programs we assessed have attained or are on track to attain all of the requisite amounts of technology, design, and production knowledge by each of the key junctures in the acquisition process. However, if DOD consistently implements its December 2008 policy revisions on new and ongoing programs, then DOD’s performance in these areas, as well as its cost and schedule outcomes, should improve. Our analysis allows us to make five observations about DOD’s management of technology, design, and manufacturing risks and its use of testing and early systems engineering to reduce these risks. Newer programs are beginning with higher levels of technology maturity, but they are not taking other steps, such as holding early systems engineering reviews, to ensure there is a match between requirements and resources. Achieving a high level of technology maturity by the start of system development is an important indicator of whether a match between the warfighter’s requirements and the available resources—knowledge, time, and money—has been made. Since 2006, there has been a significant increase in the percentage of technologies demonstrated in a relevant or realistic environment by the start of system development. This increase coincided with a change in statute. In 2006, the National Defense Authorization Act included a provision requiring all major defense acquisition programs seeking milestone B approval—entry into system development—to get a certification stating the program’s technologies have been demonstrated in a relevant environment. While only one of the six programs that entered system development since 2006 and provided data had fully mature critical technologies—that is, demonstrated in a realistic environment, according to our criteria—all the programs had critical technologies that had been at least demonstrated in a relevant environment. Overall, only 4 of the 29 programs in our assessment that provided data on technical maturity at development start did so with fully mature critical technologies. While the technology levels of DOD programs entering system development have increased, these programs are still not regularly conducting early systems engineering reviews, which help ensure there is a match between requirements and resources. We have previously reported that before starting development, programs should hold systems engineering events, such as the preliminary design review, to ensure that requirements are defined and feasible and that the proposed design can meet those requirements within cost, schedule, and other system constraints. We have also found that programs conducting these events prior to development start experienced less research and development cost growth and shorter delays in the delivery of initial operational capabilities than programs that conducted these reviews after development start. Almost all nonship programs (37 of 40 that provided data) in our latest assessment have held at least one of three key systems engineering reviews (system requirements review, system functional review, and preliminary design review). However, only 1 of 37 programs that held a preliminary design review did so before the start of system development. The remaining programs held the review, on average, 30 months after development start. The Weapon Systems Acquisition Reform Act of 2009 established a statutory requirement for programs to conduct a preliminary design review before milestone B, so we expect improvements in this area. Programs that have held critical design reviews in recent years reported higher levels of design knowledge; however, few programs are demonstrating that the design is capable of meeting performance requirements by testing an integrated prototype. Knowing a product’s design is stable before system demonstration reduces the risk of costly design changes occurring during the manufacturing of production-representative prototypes— when investments in acquisitions become more significant. The overall design knowledge that programs have demonstrated at their critical design reviews has increased since 2003. Programs in our assessment that held a critical design review between 2006 and 2009 had, on average, almost 70 percent of their design drawings releasable at the time of the review, which is a consistent upward trend since 2003. However, most designs are still not stable at this point. Of the 28 programs in our latest assessment that have held a system-level critical design review, only 8 reported having a stable design. Only 2 of the 5 programs that held a critical design review in 2009 had a stable design at that point. The 5 programs reported that, on average, 83 percent of the total expected drawings were releasable. While the design knowledge of DOD programs at the system-level critical design review has increased since 2003, these programs are still not regularly demonstrating that these designs can meet performance requirements by testing integrated prototypes before the critical design review—a best practice. None of the 5 programs in our latest assessment that held their critical design review in 2009 and planned to test a prototype did so before the review. Of the 33 programs that reported that they either had tested or were going to test an early system prototype and provided a critical design review date, only 4 did so before their critical design review. The Weapon Systems Acquisition Reform Act of 2009 requires that DOD policy ensure that the acquisition strategy for each major defense acquisition program provides for competitive prototypes before milestone B approval, unless a waiver is properly granted. This requirement should increase the percentage of programs demonstrating that the system’s design works as intended before the critical design review. Some programs are taking steps to bring critical manufacturing processes into control, however many programs still rely on “after the fact” metrics. Capturing critical manufacturing knowledge before entering production helps ensure that a weapon system will work as intended and can be manufactured efficiently to meet cost, schedule, and quality targets. Identifying key product characteristics and the associated critical manufacturing processes is a key initial step to ensuring production elements are stable and in control. Seven programs in our latest assessment have identified their critical manufacturing processes, including four of the programs that entered production in 2009. Three of those seven programs reported that their critical manufacturing processes were in control. It is generally less costly—in terms of time and money—to eliminate product variation by controlling manufacturing processes than to perform extensive inspection after a product is built. However, many DOD programs rely on inspecting produced components instead of using statistical process control data in order to assess the maturity of their production processes. For example, 12 programs in our assessment reported tracking defects in delivered units, nonconformances, or scrap/rework as a way to measure production process maturity. The use of “after the fact” metrics is a reactive approach towards managing manufacturing quality as opposed to a prevention-based approach. Programs are still not regularly testing production representative prototypes before committing to production. We have previously reported that in addition to demonstrating that the system can be built efficiently, production and postproduction costs are minimized when a fully integrated, capable prototype is demonstrated to show that the system will work as intended and in a reliable manner. The benefits of testing are maximized when the tests are completed prior to a production decision because making design changes after production begins can be both costly and inefficient. However, of the 32 programs in our assessment that could have tested a prototype before production, only 17 either tested or expect to test a fully configured, integrated, production-representative prototype before holding their production decision. In December 2008, DOD changed its policy to require programs to test production- representative articles before entering production. More programs are using reliability growth curves before beginning production. Reliability growth testing provides visibility over how reliability is improving and uncovers design problems so fixes can be incorporated before production begins. According to DOD’s acquisition policy, a major defense acquisition program may not proceed beyond low-rate initial production until it has demonstrated acceptable reliability. Over half—22 of 40 programs that responded to our questionnaire—reported that they use a reliability growth curve, with 18 of these programs reporting they are currently meeting their established goals. In addition, 12 of 19 programs that expect to hold their production decision in 2010 and beyond reported using reliability growth curves and most stated they are currently meeting their goals. This practice should help these programs begin production with a reliable product design. Our 2010 assessment of weapon programs also included three observations on other areas related to DOD’s management of its weapons programs, including requirements, software management, and program office staffing. We have previously identified requirements changes and increases in software lines of code as sources of program instability that can contribute to cost growth and schedule delays. We have also reported that workforce challenges can hinder program execution and negatively affect program management and oversight. A majority of programs changed key systems requirements after development start. Of the 42 programs in our 2010 assessment that reported tracking requirements changes, 23 programs reported having had at least one change (addition, reduction, enhancement, or deferment) to a key performance parameter—a top-level requirement—since development start. Further, nine programs experienced at least one change to a key system attribute—a lower level, but still a crucial requirement of the system. Eight programs reported major effects on the program as a result of these requirements changes, such as not meeting acquisition program baseline cost, schedule, and performance thresholds. DOD’s revised December 2008 acquisition policy attempts to reduce potentially disruptive requirements changes by requiring programs to hold annual configuration steering board meetings to ensure that significant technical changes are not approved without considering their effect on cost and schedule. Many programs are at risk for cost growth and schedule delays because of software development issues. Seventeen of the 28 programs in our 2010 assessment that reported data on software lines of code estimated that the number of lines of code required for the system to function has grown or will grow by 25 percent or more—a predictor of future cost and schedule growth. Overall, the average growth or expected growth in lines of code for the 28 programs was about 92 percent. In addition to measuring growth in software lines of code, we have previously reported that collecting earned value management data for software development and tracking and containing software defects in phase are good management practices. Overall, 30 programs in our assessment reported collecting earned value management data to help manage software development. Thirty- two programs in our latest assessment also reported collecting some type of software defect data. For the 22 programs that responded a more specific question about defect correction, on average, only 69 percent of the defects were corrected in the phase of software development in which they occurred. Capturing software defects in phase is important because discovering defects out of phase can cause expensive rework later in programs. Programs’ reliance on nongovernment personnel continues to increase in order to make up for shortfalls in government personnel and capabilities. In recent years, Congress and DOD have taken steps to ensure the acquisition workforce has the capacity, personnel, and skills needed to properly perform its mission; however, programs continue to struggle to fill all staff positions authorized. Only 19 of the 50 programs in our 2010 assessment that responded to our questions on staffing were able to fill all the positions they had been authorized. A commonly cited reason for not being able to fill positions was difficulty finding qualified candidates. As a result of staff shortfalls, program offices reported that program management and oversight has been degraded, contracting activities have been delayed, and program management costs have increased as contractors are used to fill the gap. Overall, 43 programs or 86 percent of those providing data reported utilizing support contractors to make up for shortfalls in government personnel and capabilities. In addition, for the first time since we began reporting on program office staffing in 2008, programs reported having more nongovernment than government staff working in program offices (see table 2). The greatest numbers of support contractors are in engineering and technical positions, but their participation has increased in all areas, from program management and contracting to administrative support and other business functions. DOD has begun to incorporate acquisition reforms into the acquisition strategies for new programs. Both DOD’s December 2008 acquisition policy revisions and the Weapon Systems Acquisition Reform Act of 2009 require programs to invest more time and resources in the front end of the acquisition process—refining concepts through early systems engineering, developing technologies, and building prototypes before starting system development. In addition, DOD policy requires establishment of configuration steering boards that meet annually to review all program requirements changes as well as to make recommendations on proposed descoping options that could help keep a program within its established cost and schedule targets. These steps could provide a foundation for establishing sound, knowledge-based business cases for individual weapon programs and are consistent with many of our past recommendations; however, if reform is to succeed and weapon program outcomes are to improve, they must continue to be reinforced in practice through decisions on individual programs. Our analysis of the programs in our 2010 assessment allowed us to make two observations about the extent to which DOD is implementing recent acquisition reforms: Most of the ten programs in our 2010 assessment that had not yet entered system development reported having acquisitions strategies consistent with both DOD’s revised acquisition policy and the provisions of the Weapon Systems Acquisition Reform Act of 2009. Specifically, 8 programs in our assessment planned to develop competitive prototypes before milestone B. In addition, 7 programs have already scheduled a preliminary design review before milestone B. Only a few programs reported holding configuration steering boards to review requirements changes, significant technical changes, or de-scoping options in 2009. Seven programs in our assessment reported holding configuration steering boards in 2009. Under DOD’s revised acquisition policy, ongoing acquisition category I and IA programs in development are required to conduct annual configuration steering boards to review requirements changes and significant technical configuration changes that have the potential to result in cost and schedule effects on the program. In addition, the program manager is expected to present de-scoping options to the board that could reduce program costs or moderate requirements. None of the programs reported that the boards that were held approved requirements changes or significant technical changes. One program—the P-8A Poseidon—reported that it presented de-scoping options to decrease cost and schedule risk on the program and had those options approved. I would like to offer a few thoughts about other factors that should be considered so that we make the most out of today’s opportunity for meaningful change. First, I think it is useful to think of the processes that affect weapon system outcomes (requirements, funding, and acquisition) as being in a state of equilibrium. Poor outcomes—delays, cost growth, and reduced quantities—have been persistent for decades. If we think of these processes as merely “broken”, then some targeted repairs should fix them. I think the challenge is greater than that. If we think of these processes as being in equilibrium, where their inefficiencies are implicitly accepted as the cost of doing business, then the challenge for getting better outcomes is greater. Seen in this light, it will take considerable and sustained effort to change the incentives and inertia that reinforce the status quo. Second, while actions taken and proposed by DOD and Congress are constructive and will serve to improve acquisition outcomes, one has to ask the question why extraordinary actions are needed to force practices that should occur normally. The answer to this question will shed light on the cultural or environmental forces that operate against sound management practices. For reforms to work, they will have to address these forces as well. For example, there have been a number of changes to make cost estimates more rigorous and realistic, but do these address all of the reasons why estimates are not already realistic? Clearly, more independence, methodological rigor, and better information about risk areas like technology will make estimates more realistic. On the other hand, realism is compromised as the competition for funding encourages programs to appear affordable. Also, when program sponsors present a program as more than a weapon system, but rather as essential to new fighting concepts, pressures exist to accept less than rigorous cost estimates. Reform must recognize and counteract these pressures as well. Third, decisions on individual systems must reinforce good practices. Programs that have pursued risky and unexecutable acquisition strategies have succeeded in winning approval and funding. If reform is to succeed, then programs that present realistic strategies and resource estimates must succeed in winning approval and funding. Those programs that continue past practices of pushing unexecutable strategies must be denied funding before they begin. This will require sustained leadership from the Secretary of Defense, the Under Secretary of Defense for Acquisition, Technology and Logistics, and the military services, and the cooperation and support of Congress. Fourth, consideration should be given to setting some limits on what is a reasonable length of time for developing a system. For example, if a program has to complete development within 5 or 6 years, this could serve as a basis to constrain requirements and exotic programs. It would also serve to get capability in the hands of the warfighter sooner. Fifth, the institutional resources we have must match the outcomes we desire. For example, if more work must be done to reduce technical risk before development start—milestone B—DOD needs to have the organizational, people, and financial resources to do so. Once a program is approved for development, program offices and testing organizations must have the workforce with the requisite skills to manage and oversee the effort. Contracting instruments must be used that match the needs of the acquisition and protect the government’s interests. Finally, DOD must be judicious and consistent in how it relies on contractors. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. For further information about this statement, please contact Michael J. Sullivan (202) 512-4841 or sullivanm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Ronald E. Schwenn, Assistant Director, Kristine R. Hassinger, Carol T. Mebane, and Kenneth E. Patton. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | The past two years have seen the Congress and DOD take meaningful steps towards addressing long-standing weapon acquisition issues--an area that has been on GAO's high risk list since 1990. This testimony focuses on the progress DOD has made in improving the planning and execution of its weapon acquisition programs and the potential for recent acquisition reforms to improve program outcomes. The testimony includes observations about (1) DOD's efforts to manage its portfolio of major defense acquisition programs, (2) the knowledge attained at key junctures of a subset of 42 weapon programs from the 2009 portfolio, (3) other factors that can affect program execution, and (4) DOD's implementation of recent acquisition reforms. The testimony is based on the results of our annual assessment of weapon programs. To conduct the assessment, GAO analyzed data on the composition of DOD's portfolio of major defense acquisition programs. GAO also collected data from program offices on technology, design, and manufacturing knowledge, as well as on other factors that can affect program execution. GAO has made numerous recommendations on weapon system acquisition in prior work but is not making any new recommendations in this testimony. While DOD still faces significant challenges in managing its weapon system programs, the current acquisition reform environment provides an opportunity to leverage the lessons of the past and manage risks differently. This environment is shaped by significant acquisition reform legislation, constructive changes in DOD's acquisition policy, and initiatives by the administration, including making difficult decisions to terminate or trim numerous weapon systems. To sustain momentum and make the most of this opportunity, it will be essential that decisions to approve and fund acquisitions be consistent with the reforms and policies aimed at getting better outcomes. DOD has started to reprioritize and rebalance its weapon system investments. In 2009, the Secretary of Defense proposed canceling or significantly curtailing weapon programs with a projected cost of at least $126 billion that he characterized as too costly or no longer relevant for current operations, while increasing funding for others that he assessed as higher priorities. Congress supported several of the recommended terminations. DOD plans to replace several of the canceled programs in fiscal years 2010 and 2011, hopefully with new, knowledge-based acquisition strategies, because the warfighter need remains. The most significant of these will be the effort to restructure the Army's terminated Future Combat System program. At the same time, however, DOD's portfolio of major defense acquisition programs continues to grow. Between December 2007 and July 2009, the number of major defense acquisition programs grew from 96 to 102 programs. GAO has previously reported that DOD should continue to work to balance its weapon system portfolio with available funding, which includes reducing the number or size of weapon system programs, or both, and assessing the affordability of new programs and capabilities in the context of overall defense spending. At the program level, our recent observations present a mixed picture of DOD's adherence to a knowledge-based acquisition approach, which is a key for improving acquisition outcomes. For 42 programs GAO assessed in depth in 2010, there has been continued improvement in the technology, design, and manufacturing knowledge programs had at key points in the acquisition process. However, most programs are still proceeding with less knowledge than best practices suggest, putting them at higher risk for cost growth and schedule delays. A majority of programs have also experienced requirements changes, software development challenges, or workforce issues, or a combination, which can affect program stability and execution. DOD has begun to implement a revised acquisition policy and congressional reforms that address many of these areas. For example, eight programs we examined in the technology development phase plan to test competitive prototypes before starting system development and seven programs plan to hold early systems engineering reviews. If DOD consistently applies this policy, the number of programs adhering to a knowledge-based acquisition should increase and the outcomes for DOD programs should improve. |
Mercury enters the environment in various ways, such as through volcanic activity, coal combustion, and chemical manufacturing. As a toxic element, mercury poses ecological threats when it enters water bodies, where small aquatic organisms convert it into its highly toxic form— methylmercury. This form of mercury may then migrate up the food chain as predator species consume the smaller organisms. Fish contaminated with methylmercury may pose health threats to people who rely on fish as part of their diet. Mercury can harm fetuses and cause neurological disorders in children, resulting in, among other things, impaired cognitive abilities. The Food and Drug Administration and EPA recommend that expectant or nursing mothers and young children avoid eating swordfish, king mackerel, shark, and tilefish and limit consumption of other potentially contaminated fish. These agencies also recommend checking local advisories about recreationally caught freshwater and saltwater fish. In recent years, most states have issued advisories informing the public that concentrations of mercury have been found in local fish at levels of public health concern. Coal-fired power plants burn at least one of three primary coal types— bituminous, subbituminous, and lignite—and some plants burn a blend of these coals. Of all coal burned by power plants in the United States in 2004, DOE estimates that about 46 percent was bituminous, 46 percent was subbituminous, and 8 percent was lignite. The amount of mercury in coal and the relative ease of its removal depend on a number of factors, including the geographic location where it was mined and the chemical variation within and among coal types. In addition to mercury, coal combustion releases other harmful air pollutants, including sulfur dioxide and nitrogen oxides. EPA regulates these pollutants under its program intended to control acid rain and its new source performance standards program. Figure 1 shows various pollution controls that may be used at coal-fired power plants: selective catalytic reduction to control nitrogen oxides, wet or dry scrubbers to reduce sulfur dioxide, fabric filters and hot-side or cold-side electrostatic precipitators to control particulate ecipitators to control particulate matter, and sorbent injection to reduce mercury emissions. matter, and sorbent injection to reduce mercury emissions. From 2000 to 2009, DOE’s National Energy Technology Lab conducted field tests at operating power plants with different boiler configurations to develop mercury-specific control technologies capable of achieving high mercury emission reductions at the diverse fleet of U.S. coal-fired power plants. As a result, DOE now has comprehensive information on the effectiveness of sorbent injection systems using all coal types at a wide variety of boiler configurations. Most of these tests were designed to achieve mercury reductions of 50 to 70 percent while decreasing costs— which consist primarily of the cost of the sorbent. Thus, the results from the DOE test program may understate the mercury reductions that can be achieved by sorbent injection systems to some extent. For example, while a number of short-term tests achieved mercury reductions in excess of 90 percent, the amount of sorbent injection that achieved the reductions was often decreased during long-term tests to determine the minimum cost of achieving, on average, 70 percent mercury emissions reductions. Beginning in 2007—near the end of the research program—DOE field tests aimed to achieve reductions of 90 percent or greater mercury at low costs. However, DOE reported that federal funding for the DOE tests was eliminated before the final phase of planned tests was completed. Under its mercury testing program, DOE initially tested the effectiveness of untreated carbon sorbents, and then DOE tested the effectiveness of chemically treated sorbents. In addition, DOE assessed solutions to impacts on plant devices, structures, or operations that may result from operating these systems—called “balance-of-plant impacts.” We note that DOE, EPRI, and others have also helped develop and test other technologies, including oxidation catalysts and precombustion mercury removal, to reduce mercury emissions that may become commercially available in the future. We provide information on some of these emerging technologies in appendix II. Power plants using sorbent injection systems—either commercially deployed or tested by DOE and industry—have achieved substantial mercury reductions with the three main types of coal and on boiler configurations that exist at nearly three-fourths of U.S. coal-fired power plants. Some plants, however, may require alternative strategies to achieve significant mercury emissions reductions. Nonetheless, some plants already achieve substantial mercury emissions reductions with existing control devices for other pollutants. The managers of 14 coal-fired power plants reported to us they currently operate sorbent injection systems on 25 boilers to meet the mercury emissions reduction requirements of five states and several consent decrees and construction permits. Data from power plants show that these boilers have achieved, on average, reductions in mercury emissions of about 90 percent. Of note, all 25 boilers currently operating sorbent injection systems nationwide have met or surpassed their relevant regulatory mercury requirements, according to plant managers. Following are a few examples: A 164 megawatt bituminous-fired boiler, built in the 1960s and operating a cold-side electrostatic precipitator and wet scrubber, was reported as exceeding its 90 percent reduction requirement—achieving more than a 95 percent mercury emission reduction using chemically treated carbon sorbent. A 400 megawatt subbituminous-fired boiler, built in the 1960s and operating a cold-side electrostatic precipitator and a fabric filter, was reported as achieving a 99 percent mercury reduction using untreated carbon sorbent, exceeding its 90 percent reduction regulatory requirement. A recently constructed 600 megawatt subbituminous-fired boiler operating a fabric filter, dry scrubber, and selective catalytic reduction system was reported as achieving an 85 percent mercury emission reduction using chemically treated carbon sorbent, exceeding its 83 percent reduction regulatory requirement. While mercury emissions reductions achieved with sorbent injection on a particular boiler configuration do not guarantee similar results at other boilers with the same configuration, the reductions achieved in deployments and tests provide important information for plant managers who must make decisions about pollution controls to reduce mercury emissions as more states’ mercury regulations become effective and as EPA develops a national mercury regulation. Further, in 2008, DOE reported that the high performance observed during many of its field tests at power plants with a variety of boiler configurations has given coal-fired power plant operators the confidence to begin deploying these technologies. The sorbent injection systems currently used at power plants to reduce mercury emissions are operating on boiler configurations that are used at 57 percent of U.S. coal-fired power boilers. Further, when the results of 50 tests of sorbent injection systems at power plants conducted primarily as part of DOE’s or EPRI’s mercury control research and development programs are factored in, mercury reductions of at least 90 percent have been achieved at boiler configurations used at nearly three- fourths of coal-fired power boilers nationally. Some boiler configurations tested in the DOE program that are not yet included in commercial deployments follow: A 360 megawatt subbituminous-fired boiler with a fabric filter and a dry scrubber using a chemically treated carbon sorbent achieved a 93 percent mercury reduction. A 220 megawatt boiler burning lignite, equipped with a cold-side electrostatic precipitator, increased mercury reduction from 58 percent to 90 percent by changing from a combination of untreated carbon sorbent and a boiler additive to a chemically treated carbon sorbent. A 565 megawatt subbituminous-fired boiler with a fabric filter achieved mercury reductions ranging from 95 percent to 98 percent by varying the amount of chemically treated carbon sorbent injected into the system. As these examples of commercially deployed and tested injection systems show, power plants are using chemically treated sorbents and sorbent enhancement additives, as well as untreated sorbents. Chemically treated sorbents and additives can help convert the more difficult-to-capture mercury common in lignite and subbituminous coals to a more easily captured form, which helped DOE and industry achieve high mercury reduction across all coal types. The DOE test program initially used untreated sorbents. On the basis of these initial tests, we reported in 2005 that sorbent injection systems showed promising results but that they were not effective when used at boilers burning lignite and subbituminous coals. Since then, DOE’s shift to testing chemically treated sorbents and enhancement additives showed that using chemically treated sorbents and enhancement additives could achieve substantial mercury reductions for coal types that had not achieved these results in earlier tests with untreated sorbents. For example, injecting untreated sorbents reduced mercury emissions by an average of 55 percent during a 2003 DOE test at a subbituminous-fired boiler. Recent DOE tests using chemically treated sorbents and enhancement additives, however, have resulted in average mercury reductions of 90 percent for boilers using subbituminous coals. Similarly, recent tests on boilers using lignite reduced mercury emissions by about 80 percent, on average. The examples of substantial mercury reductions highlighted above also show that sorbent injection can be successful with both types of air pollution control devices that power plants use to reduce emissions of particulate matter—electrostatic precipitators and fabric filters. In some commercial deployments, fabric filters were installed to assist with mercury control. Plant officials told us, for example, that they chose to install fabric filters to assist with mercury control for 10 of the sorbent injection systems currently deployed—but that some of the devices were installed primarily to comply with other air pollution control requirements. One plant manager, for example, said that the fabric filter installed at his plant has helped the sorbent injection system achieve higher levels of mercury emission reductions but that the driving force behind the fabric filter installation was compliance with particulate matter emission limits. Further, as another plant manager noted, fabric filters may provide additional benefits by limiting emissions of acid gases and trace metals, as well as by preserving fly ash—fine powder resulting from coal combustion—for sale for reuse. Fabric filters, which are more effective at mercury emission reduction than electrostatic precipitators, are increasingly being installed to reduce emissions of particulate matter and other pollutants, but currently less than 20 percent of boilers have them. The successful deployments of sorbent injection technologies at power plants occurred around the time DOE concluded, on the basis of its tests, that these technologies were ready for commercial deployment. As a result, funding for the DOE testing program has been eliminated. As many states’ compliance dates for mercury emission reduction near, the Institute of Clean Air Companies reported that power plants had 121 sorbent injection systems on order as of February 2009. (App. III provides data on state regulations requiring mercury emission reductions.) While sorbent injection technology has been shown to be effective with all coal types and on boiler configurations that currently exist at more than three-fourths of U.S. coal-fired power plants, DOE tests show that some plants may not be able to achieve mercury reductions of 90 percent or more with sorbent injection systems alone. Following are a few reasons why: Sulfur trioxide—which can form under certain operating conditions or from using high sulfur bituminous coal—may limit mercury reduction because it interferes with the process of mercury binding to carbon sorbents. Hot-side electrostatic precipitators reduce the effectiveness of sorbent injection systems. Installed on 6 percent of boilers nationwide, these particulate matter control devices operate at very high temperatures, which reduces the ability of mercury to bind to sorbents and be collected in the devices. Lignite, used by roughly 3 percent of boilers nationwide, has relatively high levels of elemental mercury—the most difficult form to capture. Lignite is found primarily in North Dakota and the Gulf Coast (the latter is called Texas lignite). Mercury reduction using chemically treated sorbents and sorbent enhancement additives on North Dakota lignite has averaged about 75 percent—less than reductions using bituminous and subbituminous coals. Less is known about Texas lignite because few tests have been performed using it. However, a recent test at a plant burning Texas lignite achieved an 82 percent mercury reduction. Boilers that may not be able to achieve 90 percent emissions reductions with sorbent injection alone, and some promising solutions to the challenges they pose, are discussed in appendix IV. Further, EPRI is continuing research on mercury controls at power plants that should help to address these challenges. In some cases, however, plants may need to pursue a strategy other than sorbent injection to achieve high mercury reductions. For example, officials at one plant decided to install a sulfur dioxide scrubber—designed to reduce both mercury and sulfur dioxide— after sorbent injection was found to be ineffective. This approach may become more typical as power plants comply with the Clean Air Interstate Rule and court-ordered revisions to it, which EPA is currently developing, and as some plants add air pollution control technologies required under consent decrees. Along these lines, EPA air strategies group officials told us that many power plants will be installing devices—fabric filters, scrubbers, and selective catalytic reduction systems—that are typically associated with high levels of mercury reduction, which will likely reduce the number of plants requiring alternative strategies for mercury control. Finally, mercury controls have been tested on about 90 percent of the boiler configurations at coal-fired power plants. The remaining 10 percent include several with devices that are often associated with high levels of mercury emission reductions, such as selective catalytic reduction devices for nitrogen oxides control and wet scrubbers for sulfur dioxide control. Importantly, mercury control technologies will not have to be installed on a number of coal-fired boilers to meet mercury emission reduction requirements because these boilers already achieve high mercury reductions from their existing pollution control devices. EPA 1999 data, the most recent available, indicated that about one-fourth of the industry achieved mercury reductions of 90 percent or more as a co-benefit of other pollution control devices. We found that of the 36 boilers currently subject to mercury regulation, 11 are relying on existing pollution controls to meet their mercury reduction requirements. One plant manager told us his plant achieves 95 percent mercury reduction as a result of existing devices, specifically with a fabric filter for particulate matter control, a scrubber for sulfur dioxide control, and a selective catalytic reduction system for nitrogen oxides control. Other plants may also be able to achieve high mercury reduction with their existing pollution control devices. For example, according to EPA data, a bituminous-fired boiler with a fabric filter may reduce mercury emissions by more than 90 percent. As discussed above, it is likely that many power plants will be installing devices that are typically associated with high levels of mercury reduction; thus the number of plants that may not require sorbent injection systems to meet regulatory requirements is likely to increase. The cost to meet current regulatory requirements for mercury reductions has varied depending in large part on decisions regarding compliance with other pollution reduction requirements. For example, while sorbent injection systems alone have been installed on most boilers that must meet mercury reduction requirements—at a fraction of the cost of other pollution control devices—fabric filters have also been installed on some boilers to assist in mercury capture or to comply with particulate matter requirements, according to plant officials we interviewed. The costs of purchasing and installing sorbent injection systems and monitoring equipment have averaged about $3.6 million for the 14 coal- fired boilers that use sorbent injection systems alone to reduce mercury emissions. For these boilers, the cost ranged from $1.2 million to $6.2 million. By comparison, on the basis of EPA estimates, the average cost to purchase and install a wet scrubber for sulfur dioxide control, absent monitoring system costs, is $86.4 million per boiler, ranging from $32.6 million to $137.1 million. EPA’s estimate of the cost to purchase and install a selective catalytic reduction device to control nitrogen oxides ranges from $12.7 million to $127.1 million, or an average of $66.1 million. Capital costs can increase significantly if fabric filters are also purchased to assist in mercury emission reductions or as part of broader emission reduction requirements. For example, plants installed fabric filters at another 10 boilers for these purposes. On the five boilers where plant officials reported also installing a fabric filter specifically designed to assist the sorbent injection system in mercury emission reductions, the average reported capital cost for both the sorbent injection system and fabric filter was $15.8 million per boiler—the costs ranged from $12.7 million to $24.5 million. Importantly, some of these boilers have uncommon configurations—ones that, as discussed earlier, DOE tests showed would need additional control devices to achieve high mercury reductions. For the five boilers where plant officials reported installing fabric filters along with sorbent injection systems largely to comply with requirements to control other forms of air pollution, the average reported capital cost for the two technologies was $105.9 million per boiler, ranging from $38.2 million to $156.2 million per boiler. For these boilers, the capital costs result from requirements to control other pollutants, and we did not determine what portion of these costs would appropriately be allocated to the cost of reducing mercury emissions. Decisions to purchase such fabric filters will likely be driven by the broader regulatory landscape affecting plants in the near future, such as requirements for particulate matter and sulfur dioxide reductions, as well as EPA’s upcoming MACT standard to regulate mercury emissions from coal-fired power plants. Information on detailed average costs to purchase and install sorbent injection systems and monitoring equipment, with and without fabric filters, is provided in appendix V. Regarding operating costs, plant managers said that annual operating costs associated with sorbent injection systems consist almost entirely of the cost of the sorbent itself. In operating sorbent injection systems, sorbent is injected continuously into the boiler exhaust gas to bind to mercury passing through the gas. The rate of injection is related to, among other things, the level of mercury emissions reduction required to meet regulatory requirements and the amount of mercury in the coal used. For the 18 boilers with sorbent injection systems for which power plants provided sorbent cost data, the average annualized cost of sorbent was $674,000—ranging from $76,500 to $2.4 million. Plant engineers often adjust the injection rate of the sorbent to capture more or less mercury—the more sorbent in the exhaust gas, the higher the likelihood that more mercury will bind to it. Some plant managers told us that they have recently been able to decrease their sorbent injection rates, thereby reducing costs, while still complying with relevant requirements. Specifically, a recently constructed plant burning subbituminous coal successfully used sorbent enhancement additives to considerably reduce its rate of sorbent injection—resulting in significant savings in operating costs when compared with its original expectations. Plant managers at other plants reported that they have injected sorbent at relatively higher rates because of regulatory requirements that mandate a specific injection rate. In one state, for example, plants are required to operate their sorbent injection systems at an injection rate of 5 pounds per million actual cubic feet. Among the 19 boilers for which plant managers provided operating cost data, the average injection rate was 4 pounds per million actual cubic feet; rates ranged from 0.5 to 11.0 pounds per million actual cubic feet. For those plants that installed a sorbent injection system alone to meet mercury emissions requirements—at an average cost of $3.6 million—the cost to purchase, install, and operate sorbent injection and monitoring systems represents 0.12 cents per kilowatt hour, or a potential 97 cent increase in the average residential consumer’s monthly electricity bill. How, when, and to what extent consumers’ electric bills will reflect the capital and operating costs power companies incur for mercury controls depends in large measure on market conditions and the regulatory framework in which the plants operate. Power companies in the United States are generally divided into two broad categories: (1) those that operate in traditionally regulated jurisdictions where cost-based rate setting still applies (rate-regulated) and (2) those that operate in jurisdictions where companies compete to sell electricity at prices that are largely determined by supply and demand (deregulated). Rate-regulated power companies are generally allowed by regulators to set rates that will recover allowable costs, including a return on invested capital. Minnesota, for example, passed a law in 2006 allowing power companies to seek regulatory approval for recovering the costs of state-required reductions in mercury emissions in advance of the regulatory schedule for rate increase requests. One power company in the state submitted a plan for the installation of sorbent injection systems to reduce mercury emissions at two of its plants at a cost of $4.4 million and $4.5 million, respectively, estimating a rate increase of 6 to 10 cents per month for customers of both plants. For power companies operating in competitive markets where wholesale electricity prices are not regulated, prices are largely determined by supply and demand. Generally speaking, market pricing does not guarantee full cost recovery to suppliers, especially in the short run. Of the 25 boilers using sorbent injection systems to comply with a requirement to control mercury emissions, 21 are in jurisdictions where full cost recovery is not guaranteed through regulated rates. In addition to the costs discussed above, some plant managers told us they have incurred costs associated with balance-of-plant impacts. The issue of particular concern relates to fly ash—fine particulate ash resulting from coal combustion that some power plants sell for commercial uses, including concrete production, or donate for such uses as backfill. According to DOE, about 30 percent of the fly ash generated by coal-fired power plants was sold in 2005; 216 plants sold some portion of their fly ash. Most sorbents increase the carbon content of fly ash, which may render it unsuitable for some commercial uses. Specifically, some plant managers told us that they have lost income because of lost fly ash sales due to its carbon content and incurred additional costs to store fly ash that was previously either sold or donated for re-use. For the eight boilers with installed sorbent injection systems to meet mercury emissions requirements for which plants reported actual or estimated fly-ash-related costs, the average net cost reported by plants was $1.1 million per year. Advances in sorbent technologies that have reduced costs at some plants also offer the potential to preserve the market value of fly ash. For example, at least one manufacturer offers a concrete-friendly sorbent to help preserve fly ash sales—thus reducing potential fly ash storage and disposal costs. Additionally, a recently constructed plant burning subbituminous coal reported that it had successfully used sorbent enhancement additives to reduce its rate of sorbent injection from 2 pounds to less than one-half pound per million actual cubic feet—resulting in significant savings in operating costs and enabling it to preserve the quality of its fly ash for reuse. Other potential advances include refining sorbents through milling and changing the sorbent injection sites. Specifically, in testing, milling sorbents has, for some configurations, improved their efficiency in reducing mercury emissions—that is, reduced the amount of sorbent needed—and also helped minimize negative impact on fly ash re-use. Also, in testing, some vendors have found that injecting sorbents on the hot side of air preheaters can decrease the amount of sorbent needed to achieve desired levels of mercury control. In addition, some plant managers reported balance-of-plant impacts associated with sorbent injection systems, such as ductwork corrosion and small fires in the particulate matter control devices. The managers told us these issues were generally minor and have been resolved. For example, two plants experienced corrosion in the ductwork following the installation of their sorbent injection systems. One plant manager resolved the problem by purchasing replacement parts at a cost of $4,500. The other plant manager told us that the corrosion problem remains unresolved but that it is primarily a minor engineering challenge that does not impact plant operations. Four plant managers reported fires in the particulate matter control devices; plant engineers have generally solved this problem by emptying the ash from the collection devices more frequently. Overall, despite minor balance-of-plant impacts, most plant managers said that the sorbent injection systems at their plants are more effective than they had originally expected. EPA’s decisions on key regulatory issues will impact the overall stringency of its MACT standard regulating mercury emissions. Specifically, the data EPA decides to use will affect (1) the mercury emission reductions calculated for “best performers,” from which a proposed emission limit is derived; (2) whether EPA will establish varying standards for the three coal types; and (3) how EPA’s standard will take into account varying operating conditions. Each of these issues will affect the stringency of the MACT standard the agency proposes. In addition, the format of the standard—whether it limits the mercury emissions as a function of the amount of mercury per trillion British thermal units (BTU) of heat input (an input standard) or on the basis of the amount of mercury per megawatt hour of electricity produced (an output standard)—may affect the stringency of the MACT standard the agency proposes. Finally, the court’s decision to vacate the Clean Air Mercury Rule, which required most coal-fired power plants to conduct continuous emissions monitoring for mercury beginning in 2009, has delayed for a number of years the continuous emissions monitoring that would have started in 2009 at most coal-fired power plants. Obtaining data on mercury emissions and identifying the “best performers”—defined as the 12 percent of coal-fired power plant boilers with the lowest mercury emissions—is a critical initial step in the development of a MACT standard regulating mercury emissions. EPA may set one standard for all power plants, or it may establish subcategories to distinguish among classes, types, and sizes of plants. For example, in its 2004 proposed mercury MACT standard, EPA established subcategories for the types of coal most commonly used by power plants. Once the average mercury emissions of the best performers are established for power plants—or for subcategories of power plants—EPA accounts for variability in the emissions of the best performers in its MACT standards. EPA’s method for accounting for variability has generally resulted in MACT standards that are less stringent than the average emission reductions achieved by the best performers. To identify the best performers, EPA typically collects emissions data from a sample of plants representative of the U.S. coal-fired power industry through a process known as an information collection request. Before a federal agency can collect data from 10 or more nongovernmental parties, such as power plants, it must obtain approval from the Office of Management and Budget (OMB) for the information collection request. According to EPA officials, this data collection process typically takes from 8 months to 1 year. Although EPA has discretion in choosing the data it will use to identify best performers, on July 2, 2009, EPA published a draft information collection request in the Federal Register providing a 60- day public comment period on the draft questionnaire to industry prior to submitting this information collection request to OMB for review and approval. EPA’s schedule for issuing a proposed rule and a final rule has not yet been established; the agency is currently defending a lawsuit that may establish such a schedule. Our analysis of EPA’s 1999 data, as well as more current data from deployments and DOE tests, shows that newer data may have several implications for the stringency of the standard. First, the average emissions reductions of the best performers, from which the standard is derived, may be greater using more current data than the reductions derived from EPA’s 1999 data. Our analysis of EPA’s 1999 data shows an average mercury emission reduction of nearly 91 percent for the best performers. In contrast, using more current commercial deployment and DOE test data, as well as data on co-benefit mercury reductions collected in 1999, an average mercury emission reduction of nearly 96 percent for best performers is demonstrated. The 1999 data do not reflect the significant and widespread mercury reductions achieved by sorbent injection systems. Further, EPA’s 2004 proposed MACT standards for mercury were substantially less stringent than the 1999 average emission reduction of the best performers because of variability in mercury emissions among the top performers, as discussed later in more detail. Second, more current information that reflects mercury control deployments and DOE tests may make the rationale EPA used in the past to create MACT standards for different subcategories less compelling to the agency now. In 2004, using 1999 data, EPA proposed separate MACT standards for each type of coal used at power plants. The agency explained that mercury emissions reductions from boilers using lignite and subbituminous coal was substantially less than from those using bituminous coal. Specifically, the 1999 data EPA used for its 2004 proposed MACT standards showed that best performers achieved average emission reductions of 97 percent for bituminous, 71 percent for subbituminous, and 45 percent for lignite. In contrast, more current data show that sorbent injection systems have achieved average mercury emissions reductions of more than 90 percent with bituminous and subbituminous coal types and nearly this amount with lignite. Finally, using more current emissions data in setting the MACT standard for regulating mercury may mean that accounting for variability in emissions will not have as significant an effect as it did in the 2004 proposed MACT—when it led to a less stringent MACT standard—because more current data may already reflect variability. In its 2004 proposed MACT, EPA explained that its 1999 data, obtained from the average of short-term tests (three samples taken over a 1- to 2-day period), did not necessarily reveal the range of emissions that would be found over extended periods of time or under a full range of operating conditions they could reasonably anticipate. EPA thus extrapolated longer-term variability data from the short-term data, and on the basis of these calculations, proposed MACT standards equivalent to a 76 percent reduction in mercury emissions for bituminous coal, a 25 percent reduction for lignite, and a 5 percent reduction for subbituminous coal—20 to 66 percentage points lower than the average of what the best performers achieved for each coal type. However, current data may eliminate the need for such extrapolation. Data from commercial applications of sorbent injection systems, DOE field tests, and co-benefit mercury reductions show that mercury emissions reductions well in excess of 90 percent have been achieved over periods ranging from more than 30 days in field tests to more than a year in commercial applications. Mercury emissions measured over these periods may more accurately reflect the variability in mercury emissions that plants would encounter over the range of operating conditions. Along these lines, at least 15 states with mercury emission limits require long- term averaging—ranging from 1 month to 1 year—to account for variability. According to the manager of a power plant operating a sorbent injection system, long-term averaging of mercury emissions takes into account the “dramatic swings” in mercury emissions from coal that may occur. He told us that while mercury emissions can vary on a day-to-day basis, this plant has achieved 94 percent mercury reduction, on average, over the last year. Similarly, another manager of a power plant operating a sorbent injection system told us the amount of mercury in the coal used at the plant “varies widely, even from the same mine.” Nonetheless, the plant manager reported that this plant achieves its required 85 percent mercury reduction because the state allows averaging mercury emissions on a monthly basis to take into account the natural variability of mercury in the coal. In 2004, EPA’s proposed mercury MACT included two types of standards to limit mercury emissions: (1) an output-based standard for new coal- fired power plants and (2) a choice between an input- or output-based standard for existing plants. Input-based standards establish emission limits on the basis of pounds of mercury per trillion BTUs of heat input; output-based standards, on the other hand, often establish emission limits on the basis of pounds of mercury per megawatt hour of electricity produced. These standards are referred to as emission limits. Input-based limits can have some advantages for coal-fired power plants. For example, input-based limits can provide more flexibility to older, less efficient plants because they allow boilers to burn as much coal as needed to produce a given amount of electricity, as long as the amount of mercury per trillion BTUs does not exceed the level specified by the standard. However, input-based limits may allow some power plants to emit more mercury per megawatt hour than output-based limits. Under an output- based standard, mercury emissions cannot exceed a specific level per megawatt-hour of electricity produced—efficient boilers that use less coal will be able to produce more electricity than inefficient boilers under an output-based standard. Moreover, under an output-based limit, less efficient boilers may have to, for example, increase boiler efficiency or switch to a lower mercury coal. Thus, output-based limits provide a regulatory incentive to enhance both operating efficiency and mercury emission reductions. If all else was held equal, less mercury would be emitted nationwide under an output-based standard. We found that at least 16 states have established a format for regulating mercury emissions from coal-fired power plants. Eight states allow plants to meet either an emission limit or a percent reduction, three require an emission limit, four require percent reductions, and one state requires plants to achieve whatever mercury emissions reductions—percent reduction or emission limit—are greater. On the basis of our review of these varying regulatory formats, we conclude that to be meaningful, a standard specifying a percent reduction should be correlated to an emission limit. When used alone, percent reduction standards may reduce the actual mercury emissions reductions achieved. For example, in one state, mercury reductions are measured against the “historical” amount of mercury in coal, rather than the amount of mercury in coal being currently used by power plants in the state. If plants are required to reduce mercury by, for example, 90 percent compared to historical coal data, but coal used in the past had higher levels of mercury than the plants have been using more recently, then actual mercury emission reductions would be less than 90 percent. In addition, percent reduction requirements do not provide an incentive for plants burning high mercury coal to switch coals or pursue more effective mercury control strategies because it is easier to achieve a percent reduction requirement with higher mercury coal than with lower mercury coals. Similarly, a combination standard that gives regulated entities the option to choose either a specified emission limit or a percent reduction might reduce the actual mercury emission reductions achieved. For example, a plant burning coal with a mercury content of 15 pounds per trillion BTUs that may choose between meeting an emission limit of 0.7 pounds of mercury per trillion BTUs or a 90 percent reduction could achieve the percent reduction while emitting twice the mercury that would be allowed under the specified emission limit. As discussed earlier, for the purposes of setting a standard, a required emission limit that provides a consistent benchmark for plants to meet can be correlated to a percent reduction. For example, according to EPA’s Utility Air Toxic MACT working group, a 90 percent mercury reduction based on national averages of mercury in coal generally equates to a national average emission limit of approximately 0.7 pounds per trillion BTUs. For bituminous coal, a 90 percent reduction equates to a limit of 0.8 pounds per trillion BTUs; for subbituminous coal, a 90 percent reduction equates to a limit of 0.6 pounds per trillion BTUs; and for lignite, a 90 percent reduction equates to a limit of 1.2 pounds per trillion BTUs. EPA’s now-vacated Clean Air Mercury Rule required most coal-fired power plants to conduct continuous emissions monitoring for mercury—and a small percentage of plants with low mercury emissions to conduct periodic testing—beginning in 2009. State and federal government and nongovernmental organization stakeholders told us they support reinstating the monitoring requirements of the Clean Air Mercury Rule. In fact, in a June 2, 2008, letter to EPA, the National Association of Clean Air Agencies requested that EPA reinstate the mercury monitoring provisions that were vacated in February 2008 because, among other things, they are important to state agencies with mercury reduction requirements and power plants complying with them. This association also said the need for federal continuous emissions monitoring requirements is especially important in states that cannot adopt air quality regulations more stringent than those of the federal government. However, EPA officials told us the agency has not determined how to reinstate continuous emissions monitoring requirements for mercury at coal-fired power plants outside of the MACT rulemaking process. Under the Clean Air Mercury Rule, the selected monitoring methodology for each power plant was to be approved by EPA through a certification process. For its part, EPA was to develop performance specifications— protocols for quality control and assurance—for continuous emissions monitoring systems (CEMS). However, when the Clean Air Mercury Rule was vacated in February 2008, EPA delayed development of these performance specifications. EPA has taken steps recently to develop performance specifications for mercury CEMS under a May 6, 2009, proposed rule limiting mercury emissions from facilities that produce Portland cement. As part of this proposed rule, EPA also proposed performance specifications that describe performance evaluations that must be conducted to ensure the continued accuracy of the CEMS emissions data. In the proposed rule, EPA stated that the performance specifications for mercury CEMS used to monitor emissions from Portland cement facilities could also apply to other sources. Further, an EPA Sector Policies and Programs Division official told us that if EPA chooses—as it did in its 2004 proposed MACT—to require continuous monitoring for mercury emissions in its final rule regulating hazardous air pollutants from coal-fired power plants, the performance specifications will already be in place for continuous emissions monitoring systems’ use when the Portland cement MACT is finalized. Effective continuous emissions monitoring can assist facilities and regulators ensure compliance with regulations and can also help facilities identify ways to better understand the efficiency of their processes and operations. For example, using CEMS, plant managers told us they can routinely make adjustments in the amount of sorbent needed to meet regulatory requirements, potentially reducing costs. Nevertheless, monitoring mercury emissions is more complex than monitoring other pollutants, such as nitrogen oxides and sulfur dioxide, which are measured in parts per million—mercury is emitted at lower levels of concentration than other pollutants and is measured in parts per billion. Consequently, mercury CEMS may require more time to install than CEMS for other pollutants, and according to plant engineers using them, getting these relatively complex monitoring systems up and running properly involves a steeper learning curve. In our work, we found that mercury CEMS were installed on 16 boilers at power plants and used for monitoring operations and compliance reporting. Plant managers reported that their mercury CEMS were online from 62 percent to 99 percent of the time. The system that was online 62 percent of the time was not used for compliance purposes but rather to monitor the effectiveness of different sorbent injection rates on mercury emissions. Excluding this case, CEMS were online about 90 percent of the time, on average. When these systems were offline, it was mainly because of failed system integrity checks or for routine parts replacement. Some plant engineers told us that they believed CEMS were several years away from commercial readiness to accurately measure mercury emissions but that they had purchased and installed the CEMS in anticipation of the requirement that was part of the now-vacated Clean Air Mercury Rule. Others using CEMS said that these systems are accurate at measuring mercury emissions and can be used to determine compliance with a stringent regulation. EPA, EPRI, the National Institute of Standards and Technology, and others are working collaboratively to approve protocols for quality assurance and control for mercury CEMS that will ensure the continued accuracy of the emissions data at the precise levels of many state rules. These organizations are in the final phase of their collaborative effort, and in July 2009 they provided interim procedures to states that require use of mercury CEMS and other groups that use these systems. Data from commercially deployed sorbent injection systems show that substantial mercury emissions reductions have been achieved at a relatively low cost. Importantly, these results, along with test results from DOE’s comprehensive research and development program, suggest that similar reductions can likely be achieved at most coal-fired power plants in the United States. Other strategies, including blending coal and using other technologies, exist for the small number of plants with configuration types that were not able to achieve significant mercury emissions reductions with sorbent injection alone. Whether power plants will install sorbent injection systems or pursue multipollutant control strategies will likely be driven by the broader regulatory context in which they operate, such as requirements for sulfur dioxide and nitrogen oxides reductions in addition to mercury, and the associated costs to comply with all pollution reduction requirements. Nonetheless, for many plants, sorbent injection systems appear to be a cost-effective technology for reducing mercury emissions. For other plants, sorbent injection may represent a relatively inexpensive bridging technology—that is, one that is available for immediate use to reduce only mercury emissions but that may be phased out—over time—with the addition of multipollutant controls, which are more costly. Moreover, some plants achieve substantial mercury emissions reductions without mercury-specific controls because their existing controls for other air pollutants also effectively reduce mercury emissions. In fact, while many power plants currently subject to mercury regulation have installed sorbent injection systems to achieve required reductions, about one-third of them are relying on existing pollution control devices to meet the requirements. As EPA proceeds with its rulemaking process to regulate hazardous air pollutants from coal-fired power plants, including mercury, it may find that current data from commercially deployed sorbent injection systems and plants that achieve high co-benefit mercury reductions would support a more stringent mercury emission standard than was last proposed in 2004. More significant mercury emissions reductions are actually being achieved by the current best performers than was the case in 1999 when such information was last collected—and similar results can likely be achieved by most plants across the country at relatively low cost. We provided a draft of this report to the Administrator, EPA, and the Secretary, DOE, for review and comment. EPA and DOE provided technical comments, which we incorporated as appropriate. We are sending copies of this report to interested congressional committees; the Administrator, the Environmental Protection Agency; the Secretary, Department of Energy; and other interested parties. The report is also available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or stephensonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. This appendix details the methods we used to examine (1) the mercury reductions that have been achieved by existing mercury control technologies and the extent to which they are being used at coal-fired power plants, (2) the costs associated with mercury control technologies currently in use, and (3) key issues the Environmental Protection Agency (EPA) faces in developing a new regulation for mercury emissions from coal-fired power plants. For the first two objectives, we identified coal-fired power plants subject to regulatory requirements to reduce mercury emissions by contacting clean air agencies in all 50 states. In so doing, we identified those states that had established laws or regulations—or had coal-fired power plants subject to consent decrees or construction permits—requiring reductions in mercury emissions. In states where laws or regulations are in effect, we asked clean air agency officials to identify which coal-fired power plants are meeting the requirements—either through “co-benefit” mercury removal achieved by plants’ existing air pollution control equipment or by operating sorbent injection systems. State clean air agency officials identified 14 coal-fired power plants that are currently operating sorbent injection systems to meet regulatory requirements to reduce mercury emissions. For these plants, we developed a structured interview instrument to obtain information on the effectiveness of sorbent injection systems in reducing mercury emissions and the associated costs of the systems and the monitoring equipment. We designed the instrument to also obtain information on the engineering challenges, if any, that plant officials experienced when operating the systems and the steps taken to mitigate such challenges. Staff involved in the evaluation and development of mercury control technologies within EPA’s Office of Research and Development and DOE’s Office of Fossil Energy reviewed and commented on the instrument. We conducted the structured interview with representatives of 13 of the 14 coal-fired power plants and conducted site visits at 6 of them. We conducted structured interviews with officials at the following plants: B.L. England, New Jersey Indian River Generating Station, Delaware Mercer Generating Station, New Jersey TS Power Plant, Nevada Vermillion Power Station, Illinois Walter Scott Jr. Energy Center, Iowa Furthermore, state clean air agency officials identified six coal-fired power plants that are aiming to meet mercury emission reduction requirements through operation of existing air pollution control equipment. From officials with these six plants, we obtained information on the effectiveness of the existing controls in reducing mercury emissions, as well as the reliability and costs of mercury emissions monitoring equipment. We spoke with officials at the following plants: Carney’s Point, New Jersey Deepwater, New Jersey In addition to examining the effectiveness of commercially deployed sorbent injection systems, we examined field test results of sorbent injection systems—installed at operating power plants—conducted by DOE and the Electric Power Research Institute (EPRI) over the past 10 years as part of DOE’s comprehensive mercury control technology test program. We relied primarily on data from the second and third phases of the DOE field testing program. The second phase of the DOE program focused heavily on chemically treated sorbents, which helped many boiler configurations achieve much higher mercury emission reductions than the same boiler configurations achieved under phase one tests, when untreated sorbents were used. The third phase of the DOE program focused on finding solutions to “balance-of-plant” impacts. To determine the percentage of coal-fired boilers nationwide that have air pollution control device configurations that are the same as those at power plants with commercially deployed sorbent injection systems or where field tests occurred, we used a draft version of EPA’s National Electricity and Energy Data System database that contains boiler level data, as of 2006, on coal type used, pollution control devices installed, and generating capacity. We conducted a reliability review of the data we received from coal-fired power plants, EPA, and DOE. Through our review, we determined that the data were sufficiently reliable for our purposes. Our assessment consisted of interviews with officials about the data systems and elements of data. We also corroborated the data with other sources, where possible. For example, we verified the information in structured interviews by obtaining compliance reports from state clean air agencies, where possible. Finally, we reviewed literature presented at the 2008 MEGA Symposium and the 2009 Energy and Environment Conference on (1) strategies to overcome challenges that some plants have experienced with sorbent injection systems, such as sulfur trioxide interference, and (2) on emerging mercury control technologies, such as oxidation catalysts. For the third objective, we examined EPA’s requirements for establishing MACT standards under the Clean Air Act and recent court cases with implications for how EPA establishes such standards. We interviewed EPA officials in the Clean Air Markets Division and Sector Policies and Programs Division regarding the agency’s plans for regulating mercury at power plants. To examine EPA’s process for identifying best performers, we obtained and analyzed EPA data on mercury emissions reductions from the agency’s 1999 information collection request. Using these data, we followed the steps EPA described in its proposed 2004 MACT rulemaking to calculate the average mercury emissions reductions achieved by the best performing 12 percent of boilers—the threshold for calculating a minimum MACT emissions standard under the Clean Air Act. We then used newer data—the data we obtained from commercially deployed sorbent injection systems and DOE and industry tests—and followed the same steps to calculate the average mercury emissions reductions achieved by the best performing 12 percent of these boilers. In addition, we examined EPA’s steps to resolve technical monitoring challenges, including how the agency develops quality control and assurance procedures for continuous emissions monitoring systems. We also obtained data from coal-fired power plants—operating 16 continuous emissions monitoring systems—on the reliability of the systems, including data on the number of times the systems were offline, the outcome of periodic system integrity checks, and the extent to which plant engineers believed the systems to accurately measure mercury emissions. We interviewed EPA’s technical experts in the Clean Air Markets Division. We conducted this performance audit from November 2008 through September 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to sorbent injection systems, DOE, EPRI, and others have developed and tested other technologies to reduce mercury emissions that show promise and may become commercially available in the future. These technologies are being developed to potentially lower the cost of mercury removal for some plants and enable others—those for which sorbent injection may be ineffective—to achieve significant mercury emission reductions. Such technologies include oxidation catalysts, which help convert elemental mercury into oxidized mercury that can be captured in particulate control devices; the MerCAP™ process, which involves installing metal plates with sorbents on them in the exhaust gas (instead of injecting sorbents); and low-temperature mercury capture, which involves lowering the temperature of the exhaust gas to enable mercury to bind more effectively to the unburned carbon in fly ash. Finally, novel technologies are being developed by entities such as the Western Research Institute. The technologies the Western Research Institute is working on include those designed to remove mercury directly from coal before it is burned. Innovative techniques for mercury control could eventually replace or augment the more mature technologies discussed in this report, according to DOE. Oxidation catalysts. Oxidation catalysts are powdered chemicals injected into either the boiler or the boiler’s exhaust gas to help change elemental mercury into oxidized mercury—a form that is easier to capture in pollution control devices for sulfur dioxide and particulate matter. According to recent research, oxidation of elemental mercury, which is then collected in particulate matter control devices or absorbed across a wet scrubber system, has the potential to be a reliable and cost-effective mercury control strategy for some coal-fired power plants, especially those that must comply with sulfur dioxide emission requirements. According to DOE, examples of oxidation catalysts tested at operating power plants include the following: URS Corporation tested oxidation catalysts at a plant that fires a blend of Texas lignite and subbituminous coals. Tests completed in April 2005 showed that oxidation catalysts enabled the wet scrubber to achieve mercury reductions ranging from 76 percent to 87 percent, compared with only 36 percent reduction under baseline conditions. URS has also begun testing oxidation catalysts at a boiler firing low-sulfur eastern bituminous coal that is equipped with a cold-side electrostatic precipitator. According to DOE, the project represents the next logical advancement of the catalytic oxidation technology, and it will answer technical questions such how much catalyst is required to achieve high mercury oxidation percentages, what is the catalyst life, and what is the efficiency of mercury capture in wet scrubber systems using oxidation catalysts. MerCAP™: Developed by EPRI, MerCAP is a process in which metal plates laced with carbon sorbents are positioned in a boiler’s exhaust gas stream to adsorb mercury. During two 6-month tests, MerCAP was used at a boiler equipped with a dry scrubber and a fabric filter and at another boiler equipped with a wet scrubber. After more than 250 days of continuous operation at one plant, mercury reduction averaged 30 percent to 35 percent across acid-treated MerCAP plates and 10 to 30 percent across the untreated plates. At the other plant, MerCAP achieved 15 percent mercury reduction when a water wash system for the plates was installed, which helped prevent limestone slurry from the wet scrubber system from inhibiting mercury reduction. MerCAP™ is still in the research and development phase, and although these mercury reduction amounts appear relatively low, when engineers altered the spacing between the metal plates, mercury emission reductions increased to about 60 percent in some cases. Low-temperature mercury capture process: The low temperature mercury capture process helps reduce mercury emissions by cooling the exhaust gas temperature to about 220° Fahrenheit, which promotes mercury adsorption to the unburned carbon inherent in fly ash. This process may have the ability to reduce mercury emissions by over 90 percent, as was recently shown by one company performing a limited scale test. Pilot testing of novel mercury control technology: The Western Research Institute is developing and evaluating the removal of mercury from coal prior to combustion. The institute developed a two-step process that involves first evaporating moisture in the coal and then heating the coal with inert gas. Pre-combustion mercury removal technology has been successful in removing 75 percent of mercury from subbituminous coal and 60 percent of mercury from lignite coal, but the technology has encountered difficulty when used with bituminous coal. By removing up to 75 percent of mercury before combustion, less mercury remains in the exhaust gas for removal by pollution control devices. In addition, pre- combustion technology has other benefits: (1) removing the moisture from the coal increases the heat content of the coal for combustion purposes, which may reduce the amount of coal burned by the plant and increase efficiency by about 3 percent; (2) this process also helps to remove other trace metals; (3) the water that is removed from the coal during pre- combustion treatment can be recovered and re-used in plant operations. According to DOE, Western Research Institute testing has also shown that, for some coals, the amount of time the coal is exposed to heat affects the amount of mercury removed. For example, an increase of 8 minutes of “residence time” resulted in the removal of nearly 80 percent of mercury before combustion. DOE in-house development of novel control technologies: DOE recently patented three techniques that are now licensed and in commercial demonstration. First, the thief carbon process—which involves extracting carbon from the boiler and using it as sorbent to inject into the exhaust gas for mercury capture—may be a cost-effective alternative to sorbent injection systems for mercury removal from boilers’ exhaust gas. Thief carbon sorbents, for instance, range from $90 to $200 per ton according to DOE—less than 10 percent of the typical cost of sorbents used in sorbent injection systems. According to the Western Research Institute, which tested the thief carbon process at an operating power plant, mercury emission reductions were comparable to those achieved by commercially available sorbents. Second, DOE patented the photochemical oxidation process. This process introduces an ultraviolet light into the exhaust gas to help convert mercury to an oxidized form for collection in other pollution control devices. Finally, DOE researchers have invented a new sorbent that works at elevated temperatures. The new sorbent, which is palladium- based, removes mercury at temperatures above 500° Fahrenheit and, according to DOE, may improve the overall energy efficiency of the combustion process. Table 1 summarizes data about state regulations that require reductions in mercury emissions from coal-fired power plants, including compliance date, percent reduction required, and emission limit. This table represents the best available data on state regulations, which appear to be independent of rules that were adopted in accordance with the vacated Clean Air Mercury Rule as of August 2009. For states with percent reduction and emission limit provisions, plants generally may choose the format with which they will comply. DOE tests show that some plants may not be able to achieve mercury emissions reductions of 90 percent or more with sorbent injections alone. Specifically, the tests identified three factors that can impact the effectiveness of sorbent injection systems: sulfur trioxide interference, using hot-side precipitators, and using lignite. These factors are discussed below, along with some promising solutions to the challenges they pose. Sulfur trioxide interference. High levels of sulfur trioxide gas may limit mercury emission reductions by preventing some mercury from binding to carbon sorbents. Using an alkali injection system in conjunction with sorbent injection can effectively lessen sulfur trioxide interference. Depending on the cause of the sulfur trioxide interference—which can stem from using a flue gas conditioning system, a selective catalytic reduction system, or high-sulfur bituminous coal—additional strategies may be available to ensure high mercury reductions: Flue gas conditioning systems, used on 13 percent of boilers nationwide, improve the performance of electrostatic precipitators by injecting a conditioning agent, typically sulfur trioxide, into the flue gas to make the gas more conducive to capture in electrostatic precipitators. Mercury control technology vendors are working to develop alternative conditioning agents to improve the performance of electrostatic precipitators without jeopardizing mercury emission reductions using sorbent injection. Selective catalytic reduction systems, common control devices for nitrogen oxides, are used by about 20 percent of boilers nationwide. Although selective catalytic reduction systems often improve mercury capture, in some instances these devices may lead to sulfur trioxide interference when sulfur in the coal is converted to sulfur trioxide gas. Newer selective catalytic reduction systems often have improved catalytic controls, which can minimize the conversion of sulfur to sulfur trioxide gas. High-sulfur bituminous coal—defined as having a sulfur content of at least 1.7 percent sulfur by weight—may also lead to sulfur trioxide interference in some cases. As many as 20 percent of boilers nationwide may use high- sulfur coal, according to 2005 DOE data; however, the number of coal boilers using high-sulfur bituminous coal is likely to decline as more stringent sulfur dioxide regulations take effect. Plants can consider using alkali-based sorbents, such as Trona, which adsorb sulfur trioxide gas before it can interfere with the performance of sorbent injection systems. Plants that burn high-sulfur coal can also consider blending their fuel to include some portion of low-sulfur coal. In addition, according to EPA, power companies are likely to install scrubbers for controlling sulfur dioxide at plants burning high-sulfur coal (for those boilers that do not already have them). Scrubbers also reduce mercury emissions as a co- benefit, so many such plants may use them instead of sorbent injection systems to achieve mercury emissions reductions. Hot-side electrostatic precipitators. Installed on 6 percent of boilers nationwide, these particulate matter control devices operate at very high temperatures, which reduces the amount of mercury binding to sorbents for collection in particulate matter control devices. However, at least two promising techniques for increasing mercury capture have been identified in tests and commercial deployments at configuration types with hot-side electrostatic precipitators. First, during DOE testing 70 percent mercury emission reductions were achieved with specialized heat-resistant sorbents. Moreover, one of the 25 boilers currently using a sorbent injection system has a hot-side electrostatic precipitator and uses a heat- resistant sorbent. Although plant officials are not currently measuring mercury emissions for this boiler, the plant will soon be required to achieve mercury emission reductions equivalent to 90 percent. Second, in another DOE test, three 90 megawatt boilers—each with a hot-side electrostatic precipitator—achieved more than 90 percent mercury emission reductions by installing a shared fabric filter in addition to a sorbent injection system, a system called TOXECONTM. According to plant officials, these three units, which are using this system to comply with a consent decree, achieved 94 percent mercury emission reductions during the third quarter of 2008, the most recent compliance reporting period during which the boiler was operating under normal conditions. Lignite. North Dakota and Texas lignite, the fuel source for roughly 3 percent of boilers nationwide, have relatively high levels of elemental mercury—the most difficult form to capture. Four long-term DOE tests were conducted at coal units burning North Dakota lignite using chemically treated sorbents. Mercury emission reductions averaged 75 percent across the tests. The best result was achieved at a 450 megawatt boiler with a fabric filter and a dry scrubber—mercury reductions of 92 percent were achieved when chemically treated sorbents were used. In addition, two long-term tests were conducted at plants burning Texas lignite with a 30 percent blend of subbituminous coal. With coal blending, these boilers achieved average mercury emission reductions of 82 percent. Specifically, one boiler, with an electrostatic precipitator and a wet scrubber, achieved mercury reductions in excess of 90 percent when burning the blended fuel. The second boiler achieved 74 percent reductions in long-term testing. However, 90 percent was achieved in short-term tests using a higher sorbent injection rate. Although DOE conducted no tests on plants burning purely Texas lignite, one power company is currently conducting sorbent injection tests at a plant burning 100 percent Texas lignite and is achieving promising results. In the most recent round of testing, this boiler achieved mercury emission reduction of 82 percent using untreated carbon and a boiler additive in conjunction with the existing electrostatic precipitator and wet scrubber. Table 2 summarizes information on average costs to purchase and install sorbent injection systems and monitoring equipment, with and without fabric filters. This table includes cost data for boilers with sorbent injection systems and fabric filters installed specifically for mercury emissions control. This table does not include cost data for the 5 boilers with sorbent injection systems and fabric filters that were installed largely to comply with requirements to control other forms of air pollution. In addition to the contact named above, Christine Fishkin, Assistant Director; Nathan Anderson; Mark Braza; Antoinette Capaccio; Nancy Crothers; Michael Derr; Philip Farah; Mick Ray; and Katy Trenholme made key contributions to this report. | The 491 U.S. coal-fired power plants are the largest unregulated industrial source of mercury emissions nationwide, annually emitting about 48 tons of mercury--a toxic element that poses health threats, including neurological disorders in children. In 2000, the Environmental Protection Agency (EPA) determined that mercury emissions from these sources should be regulated, but the agency has not set a maximum achievable control technology (MACT) standard, as the Clean Air Act requires. Some power plants, however, must reduce mercury emissions to comply with state regulations or consent decrees. After managing a long-term mercury control research and development program, the Department of Energy (DOE) reported in 2008 that systems that inject sorbents--powdery substances to which mercury binds--into the exhaust from boilers of coal-fired power plants were ready for commercial deployment. Tests of sorbent injection systems, the most mature mercury control technology, were conducted on a variety of coal types and boiler configurations--that is, on boilers using different air pollution control devices. In this context, GAO was asked to examine (1) reductions achieved by mercury control technologies and the extent of their use at power plants, (2) the cost of mercury control technologies, and (3) key issues EPA faces in regulating mercury emissions from power plants. GAO obtained data from power plants operating sorbent injection systems. EPA and DOE provided technical comments, which we incorporated as appropriate. Commercial deployments and 50 DOE and industry tests of sorbent injection systems have achieved, on average, 90 percent reductions in mercury emissions. These systems are being used on 25 boilers at 14 coal-fired plants, enabling them to meet state or other mercury emission requirements--generally 80 percent to 90 percent reductions. The effectiveness of sorbent injection is largely affected by coal type and boiler configuration. Importantly, the substantial mercury reductions using these systems commercially and in tests were achieved with all three main types of coal and on boiler configurations that exist at nearly three-fourths of U.S. coal-fired power plants. While sorbent injection has been shown to be widely effective, DOE tests suggest that other strategies, such as blending coals or using other technologies, may be needed to achieve substantial reductions at some plants. Finally, some plants already achieve substantial mercury reductions with existing controls designed for other pollutants. The cost of the mercury control technologies in use at power plants has varied, depending in large part on decisions regarding compliance with other pollution reduction requirements. The costs of purchasing and installing sorbent injection systems and monitoring equipment have averaged about $3.6 million for the 14 coal-fired boilers operating sorbent systems alone to meet state requirements. This cost is a fraction of the cost of other pollution control devices. When plants also installed a fabric filter device primarily to assist the sorbent injection system in mercury reduction, the average cost of $16 million is still relatively low compared with that of other air pollution control devices. Annual operating costs of sorbent injection systems, which often consist almost entirely of the cost of the sorbent itself, have been, on average, about $675,000. In addition, some plants have incurred other costs, primarily due to lost sales of a coal combustion byproduct--fly ash--that plants have sold for commercial use. The carbon in sorbents can render fly ash unusable for certain purposes. Advances in sorbent technologies that have reduced sorbent costs at some plants offer the potential to preserve the market value of fly ash. EPA's decisions on key regulatory issues will have implications for the effectiveness of its mercury emissions standard. In particular, the data EPA decides to use will impact (1) the emissions reductions it starts with in developing its regulation, (2) whether it will establish varying standards for the three main coal types, and (3) how the standard will take into account a full range of operating conditions at the plants. These issues can affect the stringency of the MACT standard EPA proposes. For example, if EPA uses data from its 1999 power plant survey as the basis for its mercury standard, the standard could be less stringent than what has been broadly demonstrated in recent commercial deployments and DOE tests of sorbent injection systems at power plants. On July 2, 2009, EPA announced that it would seek approval from the Office of Management and Budget to conduct an information collection request to update existing emissions data, among other things, from power plants. |
SSA funds a DDS in each state to determine whether disability applicants meet DI and/or SSI disability criteria. For both DI and SSI, the law defines disability in adults as the inability to engage in substantial gainful activity because of a severe physical or mental impairment that is medically determinable and has lasted or is expected to last at least 1 year or result in death. For children under age 18 seeking SSI disability benefits, their impairments must meet the duration requirement and result in “marked and severe” functional limitations. The DI program provides monthly cash benefits and Medicare eligibility to severely disabled workers. The SSI program provides income assistance and access to Medicaid for blind, disabled, or aged people whose income and resources fall below a certain financial threshold. DI cash benefits are paid from the Federal Disability Insurance Trust Fund. SSI cash benefits are paid from general tax revenues. SSA personnel in one of SSA’s 1,300 field offices conduct the initial interview with disability applicants to determine their nonmedical eligibility on the basis of income, resources, and work history. SSA personnel also record information on each applicant’s disability; medical treatments; and names, addresses, and telephone numbers of the individual’s doctors and other providers of medical services. Similarly, when SSA identifies which current disability beneficiaries must undergo full medical CDRs, field office personnel contact the beneficiaries to obtain current information on their financial status, work activity, disability, medical treatments, doctors, and other medical service providers. SSA field offices also process other types of cases, such as applications for Social Security retirement benefits and SSI old-age benefits. If field offices find that applicants, or beneficiaries undergoing CDRs, do not meet the nonmedical eligibility requirements, the field offices deny the applications or, in the case of CDRs, terminate benefits. However, when such individuals do meet the nonmedical eligibility requirements, the field offices forward their cases to state DDSs for medical disability determinations. For initial applications, DDSs either deny or award benefits to the applicant. For CDRs, DDSs either terminate or continue the beneficiary’s benefits. To make these determinations, DDSs request medical records from the individual’s treating physicians and other medical treating sources. If treating sources do not provide sufficient evidence to make a decision, DDSs may schedule the individual for medical and/or psychological examinations with consulting physicians. If a DDS denies an initial disability application or terminates the benefits of a current beneficiary, the individual may ask the DDS to reconsider the initial decision and, if denied again, appeal to an administrative law judge and ultimately to a federal court. In 1980, because of concerns about the effectiveness of the CDR process and growing disability rolls, the Congress enacted a law requiring CDRs at least once every 3 years for all DI beneficiaries whose disabilities are not considered permanent and at intervals determined appropriate by SSA for DI beneficiaries whose impairments are considered permanent (see app. I for a detailed history of laws requiring CDRs and SSA’s difficulties conducting these CDRs). Fourteen years later, in 1994, the Congress established the first statutory requirement for SSI CDRs, requiring CDRs for a relatively small proportion of SSI beneficiaries. Welfare reform legislation enacted in August 1996 focused on CDRs for SSI children. This legislation required that SSA (1) conduct CDRs at least once every 3 years for SSI children under age 18 if their impairments are not considered permanent and for infants during their first year of life if they are receiving SSI benefits due to low birth weight and (2) review the cases of all SSI children beginning on their 18th birthdays to determine whether they are eligible for disability benefits under adult disability criteria. The redeterminations for 18-year-olds are considered part of the CDR workload. Under regulations issued by SSA in 1986, when DDSs award or continue DI or SSI disability benefits, the DDSs must set dates (called “diary” dates) at which CDRs are due to start. To set these CDR start dates, DDSs assess the beneficiary’s potential for medical improvement on the basis of impairment and age. Beneficiaries whose impairments are not considered permanent are classified as either “medical-improvement-expected” or “medical-improvement-possible,” and those whose impairments are considered permanent are classified as “medical-improvement-not- expected.” When benefits are awarded or continued, those beneficiaries classified as medical-improvement-expected are scheduled to have a CDR started within 6 to 18 months; those classified as medical-improvement- possible, within 3 years; and those classified as medical-improvement-not- expected, within 5 to 7 years. Although the regulations require DDSs to set CDR due dates, budget reductions in the late 1980s led to DDS staff reductions that hampered efforts to conduct CDRs in accordance with these due dates. DDS staffing levels began to increase in 1991; however, DDS resources were diverted away from CDRs to process large increases in initial disability claims. By fiscal year 1996, SSA had about 4.3 million DI and SSI CDRs due or overdue according to the diary dates set by DDSs. In 1996, SSA developed its original 7-year plan to conduct 8.2 million CDRs during fiscal years 1996 through 2002, and the Congress authorized a total of about $4.1 billion to fund the plan. With this funding commitment, SSA negotiated with DDSs to increase their efforts to hire and assimilate additional staff who, after 12 to 18 months of training and mentoring, are expected to be ready to process initial disability determinations, freeing more senior disability examiners to process CDRs. From fiscal years 1996 to 1997, DDS workyears expended nationwide increased from 12,936 to 14,118. The budgeted DDS workyears for fiscal years 1998 and 1999 are 14,778 and 14,384, respectively. In March 1998, SSA issued a new plan for fiscal years 1998 to 2002 that increased the CDR workload goal from 7.1 million to 8.1 million CDRs for the last 5 years of the CDR initiative. SSA prepared the new plan because, among other reasons, the original plan did not include DI CDRs for disabled workers over age 58 or for the disabled surviving spouses or disabled adult children of insured workers. Also, SSA had to revise the plan to include SSI CDRs for certain disabled children and SSI eligibility redeterminations for 18-year-olds as required by the 1996 welfare reform law. The new plan also took into account DDSs’ higher completion rate for CDR full medical reviews than SSA had estimated could be completed during the first 2 fiscal years (1996-1997) of the CDR initiative. Not only did DDSs surpass their 1996 and 1997 CDR goals by over 77,000 (13 percent), they also completed over 224,000 of the SSI childhood eligibility redeterminations that the 1996 welfare reform law had added to their fiscal year 1997 workload. CDR full medical reviews are costly (about $800 each in fiscal year 1996) because they involve a labor-intensive process: (1) SSA headquarters personnel determine that a CDR is due and notify the SSA processing center; (2) personnel at the processing center locate the beneficiary’s file and send it to the appropriate SSA field office; (3) field office personnel contact the beneficiary, conduct a lengthy interview, and send the file to the appropriate DDS; (4) the DDS requests medical records from the beneficiary’s treating physicians and other medical treating sources and, if these sources cannot provide sufficient evidence, schedules medical and/or psychological examinations with consulting physicians outside the DDS; and (5) a DDS team, consisting of a disability examiner and a physician or psychologist, determines whether the beneficiary continues to meet SSA disability criteria. To improve the overall cost effectiveness of the CDR process, SSA developed an alternative (referred to as a “mailer”) to process selected CDRs at a cost of about $50 each (see app. II for a detailed description of the development of the mailer process and fig. II.1 for an example of the mailer). SSA uses this alternative method only for beneficiaries whose impairments are estimated to have a low likelihood of medical improvement. Because it is unlikely that their impairments have improved medically, there is a low likelihood that their benefits would be terminated if they were to undergo an in-depth DDS full medical review. Therefore, since fiscal year 1993, SSA has been mailing to such beneficiaries a brief questionnaire, asking them to report information on their medical conditions, treatments received, and work activities. In most cases, the beneficiaries’ responses to the mailers provide SSA with a basis to continue benefits without further review; however, in some cases, SSA refers the beneficiaries to DDSs for full medical reviews because their responses, along with other information in SSA’s records, indicate that more comprehensive reviews are warranted. According to SSA, about 3 percent of the beneficiaries who responded to mailers in fiscal year 1997 were referred to DDSs for full medical reviews. Since fiscal year 1993, SSA has significantly increased its use of mailers and plans further significant increases. By the end of fiscal year 2002, if SSA’s new CDR plan is completed as envisioned, all the CDRs required by law will be complete or under way, including those that are overdue and those due to begin by the end of 2002 (see app. III for numbers of required and elective CDRs that SSA plans to process for various beneficiary groups). When DDSs award disability benefits, they set dates for starting CDRs, and every month these prescheduled CDR start dates come due for many beneficiaries. Once CDRs are initiated, however, the time required to complete them can be lengthy. SSA estimates that DDS full medical reviews require about 1 year to complete from the time cases are identified and selected. SSA’s more cursory mailer questionnaires require about 6 months. Thus, many CDRs cannot be completed by the end of the year in which they come due. SSA estimates that about 835,000 required CDRs that are due to start in fiscal year 2002 will not be completed by year-end; according to SSA, these CDRs will be completed in fiscal year 2003. After fiscal year 2002, SSA intends to identify and select new CDR cases about 3 months before their prescheduled start dates so that case files can be pulled and actual CDR case processing can begin about the time of the prescheduled start date. Doing so should reduce, but cannot eliminate, the need to complete some of these CDRs the following year. As SSA acknowledges, it does not plan to conduct any CDRs for certain beneficiary groups (see table 1). SSA has “deferred” CDRs for these groups because doing CDRs for them is not considered sufficiently cost effective because of such factors as age, nature of impairment, and basis for entitlement. According to SSA, CDRs for the deferred groups are known to be much less productive or unproductive under the existing CDR processes, or are under study to determine how they should be reviewed in order to be productive. Deferred cases include those in which the cessation of disability benefits would result in entitlement to another benefit administered by SSA, often with minimal or no reduction in benefit amount. Deferred cases also include those in which the beneficiaries are of advanced age, which markedly decreases the likelihood of medical improvement. During fiscal years 1998 through 2002, SSA expects a relatively small number of beneficiaries will become old enough to move into these deferred groups before being selected for CDRs. However, after fiscal year 2002, SSA expects that all beneficiaries due for required CDRs will undergo CDRs before they become old enough to move into any of the deferred groups. According to SSA, in formulating its CDR plan, SSA consulted with DDSs to plan caseloads for fiscal years 1998 through 2002 that will not exceed the DDSs’ case processing capacity. However, DDSs could potentially encounter additional caseloads not envisioned in SSA’s plan. For example, SSA may be unable to use CDR mailers to the full extent planned. To meet the goal of conducting 8.1 million CDRs by the end of fiscal year 2002, SSA may then have to ask DDSs to do additional full medical reviews. Even if DDS capacity is adequate to process larger-than-expected workloads of full medical reviews, the currently authorized CDR funding may not be sufficient to fund such increases. Furthermore, if the volume of initial disability applications or requests for reconsideration of denied applications is larger than assumed by SSA, DDSs may have to accumulate larger backlogs of these cases in order to complete CDR full medical reviews. Such events, if they occur, could lead SSA to decide to increase DDS capacity; but timely expansion of DDS capacity faces potential barriers. Also, if DDS workloads are larger than expected, the workloads of SSA field offices will necessarily be larger than expected because they initially receive these cases and then transfer them to DDSs. Larger-than-expected workloads of any type could potentially result in larger field office backlogs of non-CDR cases to permit timely processing of CDRs. Of the 8.1 million CDRs planned for fiscal years 1998 through 2002, SSA plans to conduct 4.3 million (53 percent) through the use of mailers and 3.8 million (47 percent) through DDS full medical reviews (see table 2). However, for several beneficiary groups, SSA is still developing statistical formulas for selecting appropriate beneficiaries to receive mailers. The number of mailers planned for these beneficiary groups is substantial, ranging from a high of 472,000 in fiscal year 2000 to a low of 323,000 in fiscal year 2002. Until the mailer selection formulas for these beneficiary groups are developed, tested, and found to be reliable, SSA faces the risk of having to reduce the number of planned mailers and ask DDSs to do more full medical reviews than currently planned in order to meet the overall goal of 8.1 million CDRs by the end of fiscal year 2002. Within a given level of resources, the mailer process enables SSA to increase the number of CDRs and to do them more cost effectively than if all CDRs were DDS full medical reviews. For example, in fiscal year 1996, SSA conducted 498,400 CDRs (250,400 full medical reviews and 248,000 mailers). SSA estimates that, after all appeals, these CDRs ultimately will result in 26,500 terminations and that each termination will yield lifetime savings of about $120,000 in the DI program and $50,000 in the SSI program. SSA estimates the total savings from these terminations will result in about $11 in savings for every $1 spent on CDRs in fiscal year 1996. However, this savings-to-cost ratio would have been significantly lower if the 248,000 CDRs processed as mailers (at a cost of $50 each) had been processed instead as DDS full medical reviews (at a cost of $800 each). This would have added about $186 million to the total cost of conducting CDRs in fiscal year 1996 and would have reduced the savings-to-cost ratio from $11 in savings to about $6 in savings for every $1 spent on CDRs. SSA currently uses mailers to conduct CDRs for two primary beneficiary groups: (1) DI disabled workers under age 62 and (2) SSI disabled and blind adults under age 65 and not considered permanently impaired. To identify the beneficiaries who are appropriate candidates to receive mailers, SSA uses statistical formulas to estimate the likelihood that beneficiaries’ impairments have improved medically since the time benefits were awarded initially or since the last CDR. If a beneficiary has a low likelihood of medical improvement, there is a low likelihood that his or her benefits would be terminated if he or she underwent a DDS full medical review. Conversely, if a beneficiary has a high likelihood of medical improvement, there is a high likelihood that his or her benefits will be terminated after undergoing a DDS full medical review. According to SSA, using the more cursory and less costly mailer process is warranted when a beneficiary has a low likelihood of medical improvement (and therefore a low likelihood of benefit termination); using the more costly full medical review is warranted when a beneficiary has a high likelihood of benefit termination. (See app. II for a description of how SSA developed the statistical formulas used to estimate the likelihood of medical improvement.) In recent years, for example, SSA’s statistical formulas have shown that about 30 percent of DI disabled workers under age 62 not permanently impaired had a low likelihood of benefit termination. Therefore, SSA used mailers to process CDRs for this “low profile” group. Another 30 percent of these beneficiaries were shown to have a high likelihood of benefit termination; therefore, SSA referred this “high profile” group to DDSs for full medical reviews. However, for the remaining 40 percent of the beneficiaries—those in the “mid-range profile” group—the statistical formulas could not provide a clear indication as to whether a beneficiary would be an appropriate candidate for a mailer or a full medical review. As a result, in developing the original 7-year plan in 1996, SSA deferred doing any CDRs for the mid-range-profile group until the statistical formulas could be developed sufficiently to identify the appropriate candidates for mailers. However, because SSA has not yet succeeded in developing the formulas, the new CDR plan assumes that DDSs will do full medical reviews for every beneficiary in the mid-range-profile group during fiscal years 1998 through 2002. According to SSA, doing full medical reviews for the entire mid-range-profile group will be cost effective. However, because cost effectiveness can be improved if mailers can be used for some beneficiaries in the mid-range-profile group, SSA is still exploring ways to reliably identify beneficiaries in the mid-range-profile group who are appropriate candidates for mailers (see groups A and E in table 3). For five other beneficiary groups, however, SSA’s ability to use mailers to the full extent assumed in the new CDR plan depends on whether SSA can successfully develop statistical formulas for selecting appropriate mailer recipients. These five groups are (1) SSI children under age 18 not permanently impaired, (2) permanently impaired DI disabled workers under age 62, (3) permanently impaired SSI disabled adults under age 65, (4) disabled surviving spouses under age 60, and (5) disabled adult children under age 65 (see table 3). For SSI children, SSA is still in the early stages of developing statistical selection formulas. Even so, SSA’s new CDR plan assumes it will start using mailers for SSI children in fiscal year 2000. For the four adult beneficiary groups in question, SSA recently began efforts to refine existing adult selection formulas. SSA stated that its ability to use a large (but unquantified) proportion of the mailers included in the new plan for these adult groups depends on current efforts to refine the selection formulas. For example, during fiscal years 2000 through 2002, SSA plans to use mailers to process a total of about 1.1 million CDRs for SSI children and the four adult groups in question (195,000 for SSI children and 943,000 for the adults). For these five groups combined, SSA plans to use mailers to process a total of 472,000, 343,000, and 323,000 CDRs during fiscal years 2000, 2001, and 2002, respectively (see table 4). Consequently, if SSA’s efforts to develop statistical selection formulas for these children and adult groups prove unsuccessful, SSA will not have an adequate basis for identifying appropriate mailer recipients; in that case, SSA would have to substantially increase the number of DDS full medical reviews in order to meet the goal of completing 8.1 million CDRs by the end of fiscal year 2002. Although SSA stated that it foresees no difficulties in developing selection formulas sufficiently to meet the new CDR plan’s goals for mailers, SSA acknowledged that it will need to monitor its progress in developing the selection formulas in order to make timely changes in its CDR plan, if necessary. According to SSA staff, if it becomes necessary to increase DDS CDR full medical review workloads significantly because mailers cannot be used to the full extent planned, an increase in the capacity of many DDSs might be needed. However, increasing capacity could be difficult to accomplish in some DDSs for varying reasons, such as shortages of qualified applicants for disability examiner positions, difficulties acquiring adequate space on a timely basis to house additional staff and equipment, and state government restrictions on hiring. Even in the absence of any hindrances, SSA would have to begin negotiating with DDSs relatively soon to increase staff because it takes 12 to 18 months of training and mentoring before new hires can process initial disability claims independently, freeing more senior disability examiners to process full medical reviews. Furthermore, increasing DDS capacity for a short-term need might not be the optimal course of action because it would require great effort to gear up, only to have to downsize shortly thereafter when the workload subsides; however, not increasing capacity could potentially necessitate extending the time frame beyond fiscal year 2002 for becoming current on required CDRs. According to SSA staff, other alternatives might be available if DDSs need to process significantly more CDR full medical reviews to meet the goal of 8.1 million CDRs during fiscal years 1998 through 2002. For example, state DDSs could request that SSA use its federal DDS in Baltimore, Md., to process CDRs or to process initial disability applications, thus freeing up state DDS staff to process CDRs. In some cases, state DDSs with available capacity have already been assisting other DDSs on a limited basis by processing CDRs or initial applications. Under the assumptions in the new CDR plan, the CDR funding authorized by the Congress should be sufficient to process the 8.1 million CDRs planned for fiscal years 1998 through 2002. The appropriated funds available for the current fiscal year (1998) can fully fund SSA’s projected obligations for the year, and the annual amounts authorized for CDRs during fiscal years 1999 to 2002 exceed SSA’s projected CDR obligations by $165 million in fiscal year 1999 and $115 million annually during fiscal years 2000 to 2002 (see table 5). As discussed, for five beneficiary groups, SSA faces the risk of being unable to sufficiently develop the statistical formulas for selecting appropriate CDR mailer recipients. If SSA is unable to develop these formulas, SSA will be unable to use mailers to the full extent planned and will have to replace these mailers with larger numbers of full medical reviews in order to meet the goal of 8.1 million CDRs by the end of fiscal year 2002. SSA stated that, if this occurs, it may decide to expand DDS capacity to do more full medical reviews, and this capacity expansion could be funded out of the authorized funds that exceed projected CDR obligations under the current plan. However, because DDS full medical reviews are 16 times more costly than mailers, the authorized funds could potentially be inadequate to fund enough additional DDS full medical reviews to meet SSA’s goal of 8.1 million CDRs by year-end fiscal year 2002. Every 100,000 full medical reviews added to DDSs’ annual workloads would increase annual funding requirements by about $75 million. Thus, we estimate that the current projection of $115 million of unobligated authorized funding annually during fiscal years 2000 through 2002 would be sufficient to increase the number of DDS full medical reviews by about 153,000 annually. As discussed, however, the potential increases in full medical reviews could be significantly larger. If so, the authorized funding would be inadequate. CDR cases selected for DDS medical reviews are only part of the overall workload of DDSs. In addition to CDRs, DDSs process two other primary disability caseloads—initial disability applications and requests for reconsideration when initial applications are denied. SSA’s new CDR plan made important assumptions about the size of these non-CDR disability workloads. If SSA’s assumptions do not hold, unexpected increases in these other disability workloads could result. To remain on target to process 8.1 million CDRs by the close of fiscal year 2002, SSA would then have to accept larger backlogs in the non-CDR workloads, unless it could increase the capacity of the DDSs to process the additional non-CDR workloads, or find other options for helping DDSs complete these workloads. In the early 1990s, SSA experienced significantly higher levels of initial disability applications than are currently being experienced. Although DDS staffing levels were increasing during that time, DDS resources were diverted away from CDRs to process the large number of initial disability applications (see table 6). In fiscal year 1995, however, initial disability applications began to decline, primarily because of the strength of the economy and low unemployment, according to experts. Largely because of the decline in initial disability applications, DDSs were able to process more CDRs than planned during fiscal years 1996 and 1997. The new CDR plan assumes that the current pattern of economic strength and low unemployment will continue during fiscal years 1998 to 2002 and that initial disability applications will remain at the lower levels experienced in recent years. If these assumptions do not hold, however, initial disability applications could return to the higher levels experienced in the early 1990s. Another non-CDR workload uncertainty involves a current step in the disability process that permits denied disability applicants to ask DDSs to reconsider their claims. From 1990 to 1997, the number of reconsideration requests ranged from a low of about 509,500 to a high of about 882,700 (see table 6). SSA’s new CDR plan, however, assumes there will be no reconsideration request workload during fiscal years 2000 to 2002 because SSA’s plan for redesigning the disability process calls for eliminating the reconsideration step after fiscal year 1999. The new CDR plan assumes the absence of this previously significant workload will make additional DDS staff available to work on CDRs. For example, assuming that the potential reconsideration workload reduction will be about 700,000 cases annually, SSA estimates that about 2,600 DDS workyears will be available to do other work. Whether the reconsideration step actually will be eliminated, however, is not certain because the testing of SSA’s plan for redesigning the disability process is not yet completed. If the reconsideration step is not eliminated as planned in fiscal year 1999, overall DDS workloads will be substantially larger than assumed in the new CDR workplan. SSA told us that it plans to monitor the volume of initial disability applications and progress in the testing of the redesign plan on which the elimination of reconsideration requests depends. If initial disability applications increase unexpectedly or if reconsideration requests are not eliminated as planned, SSA stated that DDS resources paid for from CDR funding will not be diverted away from CDRs to process initial applications or reconsideration requests. Under this scenario, according to SSA, DDSs will have to accumulate larger backlogs of initial applications and reconsideration requests unless SSA can obtain other funding to expand DDS capacity or find other options to assist DDSs in processing cases. SSA field offices perform the initial processing of disability applications, reconsideration requests, and CDRs to determine if the individuals meet nonmedical requirements. They then transfer the cases to DDSs for medical determinations. In discussions with SSA regional and field office staff, some expressed serious concerns about the field offices’ future capacity to achieve timely processing of their overall caseloads. Some regional and field office staff told us that, at present staffing levels, they are already struggling to maintain timely processing of current caseloads and that the substantial increases in CDR medical reviews planned for the next several years will reduce their ability to keep pace even more. Any additional unexpected increases in CDR medical reviews or non-CDR workloads, if they occur, would further exacerbate the situation. As with the DDSs, however, SSA stated that no field office resources paid for from CDR funding will be diverted away from CDRs to process unexpected increases in non-CDR caseloads. Although SSA could, if needed, request additional funding to increase field offices’ processing capacity, SSA’s strategic plan for fiscal years 1997 through 2002 brings into question whether field office staffing can be expected to grow. SSA stated in its strategic plan that expected budgetary constraints have resulted in a forecast of no growth in the number of workyears available to SSA. Consistent with this forecast, SSA has committed to reducing its overall staffing levels from approximately 65,000 to 62,000 as part of the governmentwide staff reduction plan. For fiscal year 1999, SSA has planned an overall staff decrease of 1,700. Furthermore, SSA stated in its strategic plan that it could be facing a critical loss of knowledge and experience over the next 5 years because nearly 20 percent of its employees will be eligible for regular retirement between fiscal years 1997 and 2002. More than 57 percent of SSA employees are over age 45 and, therefore, will be reaching retirement age over the next 10 years. With such a large number of employees becoming eligible for retirement, SSA stated in the strategic plan that it could face a challenge if these employees choose to retire even at the historical rate of retirement for eligible employees. SSA is conducting a detailed analysis of retirement patterns in order to predict when staff will retire and which offices or geographic areas will be most affected. SSA plans to publish the results of this study during fiscal year 1998. In response to field offices’ concerns about their ability to keep pace with increasing CDR workloads, SSA is taking several actions to help field offices process, manage, and track their CDR workloads. SSA’s first action is designed to achieve an even flow of CDR cases from SSA case file repositories to field offices and subsequently to DDSs. To do this, beginning in July 1998, SSA planned to release blocks of CDR cases to the field offices every month, alternating between DI and SSI, which results in six releases of DI cases and six releases of SSI cases each year. SSA took this action to deal with concerns that CDR cases were released too infrequently to ensure an even and steady workload of CDR cases flowing through field offices to DDSs. SSA is also working to implement in its field offices an automated case management system for DI CDRs similar to the system that is already available to field offices for managing and tracking the SSI CDR caseload. SSA projects that the DI automated case management system will be implemented in fiscal year 1999. In commenting on a draft of this report, the Commissioner of Social Security stated that the report accurately reflects SSA’s commitment to eliminating the CDR backlog by the end of fiscal year 2002, and he further stated that SSA is making good progress toward this goal. The Commissioner also stated that SSA recognizes there may be some potential workload increases that could affect DDSs. However, SSA believes that no reduced ability to do CDRs will occur because the funding approved for CDRs is dedicated to CDRs and any needed adjustments will be made in other workloads. SSA also made some technical comments which we incorporated where appropriate. We are sending copies of this report to the Commissioner of Social Security and other interested parties. Copies will also be made available to others on request. If you or your staff have any questions concerning this report, please call me at (202) 512-7215. Other major contributors include Cynthia A. Bascetta, Associate Director; Ira B. Spears, Senior Evaluator; and Kenneth F. Daniell, Evaluator. During the 2 decades preceding SSA’s CDR initiative that began in fiscal year 1996, the number of CDRs conducted from year to year varied widely—from as few as 35,900 to as many as 544,200 (see table I.1). In 1978, we reported on serious program administration weaknesses that allowed many medically ineligible recipients to go undetected. In 1980, due to concerns about the effectiveness of the CDR process and growing disability rolls, the Congress enacted a law requiring periodic CDRs at least once every 3 years for all DI beneficiaries whose disabilities are not considered permanent and at intervals determined appropriate by SSA for beneficiaries whose impairments are considered permanent. As a result of the 1980 law, SSA began increasing the number of CDRs in fiscal year 1981, using age, benefit amount, and medical characteristics as selection criteria. According to SSA, its method resulted in selecting a disproportionate number of young people with mental impairments to undergo CDRs, and benefits for many of them were terminated because they did not meet new mental disability criteria that had been implemented after SSA had placed these individuals on the rolls. In response to this situation, the Congress enacted a law in 1984 establishing the medical improvement review standard, prohibiting benefit termination unless SSA can show that a beneficiary’s medical condition has improved since the last medical decision and that this improvement relates to the individual’s ability to work. As a result, SSA declared a moratorium on conducting CDRs until the new medical improvement review standard was implemented by regulation in late 1985. Under this new standard, the proportion of CDRs resulting in cessation of benefits has declined. Benefit cessation rate (percent) 64,800 (34,600 mailers) 118,400 (31,000 mailers) 217,000 (76,500 mailers) 498,400 (248,000 mailers) 690,500 (270,000 mailers) Fourteen years after enacting the 1980 law requiring CDRs for all DI beneficiaries, the Congress established the first statutory requirement for SSI CDRs in 1994. This 1994 law mandated that SSA review one-third of the SSI beneficiaries who reach age 18 and at least 100,000 additional SSI beneficiaries annually in fiscal years 1996 through 1998. In August 1996, the Congress enacted a welfare reform law. This law requires that SSA conduct CDRs at least once every 3 years for SSI children under age 18 if they are considered likely to improve and for infants during their first year of life if they receive SSI benefits due to low birth weight. The welfare reform law also requires that SSA redetermine the eligibility of all SSI children beginning on their 18th birthdays using adult disability criteria.Such redeterminations for 18-year-olds are considered part of the CDR workload. Under SSA regulations, when DDSs award or continue DI or SSI disability benefits, the DDSs must set dates (called “diary” dates) for starting CDRs. To set these CDR start dates, DDSs assess the beneficiary’s potential for medical improvement on the basis of impairment and age. Beneficiaries whose impairments are not considered permanent are classified as either “medical-improvement-expected” or “medical-improvement-possible,” and those whose impairments are considered permanent are classified as “medical-improvement-not-expected.” When benefits are awarded or continued, those beneficiaries classified as medical-improvement- expected are scheduled to have a CDR started within 6 to 18 months; those classified as medical-improvement-possible, within 3 years; and those classified as medical-improvement-not-expected, within 5 to 7 years. Although the regulations require the setting of CDR due dates, budget reductions in the late 1980s led to DDS staff reductions that hampered efforts to conduct CDRs in accordance with the required due dates. Although DDS staffing levels began to increase in 1991, DDS resources were diverted away from CDRs to process large increases in initial disability claims (see table I.2). As a result, backlogs of CDRs accumulated, and by fiscal year 1996, SSA had about 4.3 million DI and SSI CDRs that were due or overdue. Initial disability application receipts (in thousands) In 1996, SSA developed the original 7-year plan to conduct 8.2 million CDRs during fiscal years 1996 to 2002, and the Congress authorized a total of about $4.1 billion to fund SSA’s plan. In 1996, the Congress enacted laws that authorized $670 million for processing CDRs in fiscal year 1998 and $720 million annually for processing CDRs in fiscal years 1999 to 2002. The Contract With America Advancement Act of 1996 (P.L. 104-121) authorized about $4.1 billion to be paid from the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund to process DI and SSI CDRs during fiscal years 1996 to 2002. The Personal Responsibility and Work Opportunity Act of 1996 (P.L. 104-193) added a total of $250 million to the authorized amounts for fiscal years 1997 and 1998. SSA began development of the CDR mailer process in 1991. To do this, SSA used the outcomes of previous full medical reviews to create formulas for statistically estimating the likelihood that a DDS full medical review would find that a beneficiary’s medical condition had improved. Assuming that a beneficiary continues to meet the nonmedical criteria for DI and/or SSI, SSA cannot terminate benefits unless the beneficiary’s impairment improves medically; therefore, the higher the likelihood of medical improvement, the higher the likelihood of benefit termination. SSA based the statistical formulas on results from full medical review CDRs processed during fiscal years 1988 and 1989 for DI disabled workers in the medical-improvement- expected and medical-improvement-possible categories because these cases offered more potential for savings than those in the medical- improvement-not-expected category. The statistical formulas developed by SSA take into account many characteristics contained in SSA’s computerized records, such as age, impairment type, length of time on disability rolls, previous CDR activity, and reported earnings. Such factors may predict the likelihood of medical improvement and, therefore, of benefit termination if a full medical review is conducted. For example, SSA found that the longer an individual is on the disability rolls, the less likely is benefit termination; and if an individual previously underwent a CDR, the chance that a new CDR will result in benefit termination is reduced substantially. Reported earnings, on the other hand, greatly increase the likelihood of termination. In 1992, SSA conducted a study to validate the statistical formulas it had developed. SSA asked its field offices to obtain responses to a brief questionnaire (seven questions) while interviewing the first 10,000 beneficiaries contacted under the routine CDR selection process. The DDSs then conducted full medical reviews of all 10,000 cases. SSA applied the statistical formulas and rated the beneficiaries’ predicted likelihood of medical improvement. SSA then compared the results of the full medical reviews with the beneficiaries’ responses to the questionnaires and the profile formula results. From this effort, SSA validated the factors used in the statistical selection formulas and concluded that responses to the mailer questionnaires, combined with profiles, were effective predictors of medical improvement—and therefore disability benefit termination—when full medical reviews are done for DI beneficiaries in the medical-improvement- expected and medical-improvement-possible categories. Although the statistical formulas were developed using results from CDRs for DI disabled workers, SSA did a similar study in fiscal year 1995 that showed that the formulas also work effectively for SSI disabled adults in the medical- improvement-expected and medical-improvement-possible categories. Each year, SSA selects samples of beneficiaries to whom mailers were sent and sends these cases to DDSs for full medical reviews. The results of the full medical reviews provide a basis for assessing the reliability of using results from the statistical selection formulas to identify appropriate mailer recipients. When SSA first implemented the mailer process in fiscal year 1993, it sent mailers to all of the 92,000 DI worker beneficiaries selected for CDRs that year. According to the results of SSA’s statistical selection formulas, the profile distribution of the 92,000 cases was 54,000 high-profile cases, 10,000 mid-range-profile cases, and 28,000 low-profile cases. To assess the integrity of the profile results, SSA selected 10 percent of the high-profile cases, 100 percent of the mid-range-profile cases, and 1 percent of the low-profile cases for full medical reviews. SSA found the low-profile cases had an ultimate cessation rate of only 1.2 percent—sufficiently low, according to SSA, to confirm that doing full medical reviews for all persons in the low-profile category is not justified. From the low cessation rate for the low-profile category, SSA concluded it should send mailers to all low-profile beneficiaries and then refer to DDSs for full medical reviews only those beneficiaries whose responses indicate further review is warranted. Conversely, SSA found that the high-profile cases had an ultimate cessation rate of 11.2 percent. This cessation rate, according to SSA, was sufficiently high to confirm that all high-profile beneficiaries should be referred to DDSs for full medical reviews without first sending them a mailer. For the mid-range-profile cases, SSA found an ultimate cessation rate of 3.1 percent. SSA decided that, while some mid-range beneficiaries probably are appropriate mailer recipients, the statistical formulas could not yet be used with confidence to determine which beneficiaries are the appropriate recipients. SSA decided additional analysis would be necessary to identify the portion of the mid-range group that could be considered appropriate mailer recipients. In fiscal year 1994, SSA conducted a study of high-profile DI workers, all of whom had been sent mailers. The study found that the ultimate cessation rate for high-profile cases was 12.4 percent, confirming SSA’s conclusion from the prior year’s study that the cessation rate for high-profile beneficiaries is sufficiently high to justify conducting full medical reviews without first sending mailers to them. Accordingly, beginning in fiscal year 1995, high-profile cases were excluded from the mailer process and routed directly to DDSs for full medical reviews; the mailer procedure was limited to low-profile DI worker cases, from which SSA selected a 1 percent integrity sample (850 cases). The DDS full medical reviews for the integrity sample resulted in an ultimate cessation rate of 2 percent, which, according to SSA, confirmed the validity of using mailers to process CDRs for low-profile cases. In fiscal year 1996, SSA began using machine scannable mailers. SSA selected a 0.05 percent integrity sample (about 400 cases) of low-profile DI workers. With the advent of the scannable mailer, SSA for the first time was able to capture the answers to the mailers electronically. In addition to the integrity sample, SSA took this opportunity to initiate other studies based on the mailer answers (for example, if the beneficiary failed to answer a question or had not been receiving treatment). SSA has not yet completed the analysis of the results because of the level of staff resources that has been devoted to maintaining the increased flow of CDR cases to DDSs since the 7-year CDR initiative began. In fiscal year 1997, SSA selected a 0.05 percent integrity sample of low-profile DI workers (300 cases) and SSI adults (400 cases). The results from this review should be available in early fiscal year 1999. In fiscal year 1998, SSA selected larger integrity samples of approximately 1,500 low-profile DI workers and 800 low-profile SSA adults to compensate for any shortfall in the fiscal year 1997 sample. SSA selected these cases in February 1998 and does not expect any results to be available until at least January 1999. (See fig. II.1 for an example of the CDR mailer.) For certain “deferred” beneficiary groups, SSA does not plan to do any CDRs (see table 1). For all nondeferred beneficiary groups, however, SSA plans to complete all required CDRs that are due or overdue during fiscal years 1998 to 2002 except those for (1) beneficiaries whose CDRs are due to start too close to the end of fiscal year 2002 to be completed by year-end, (2) beneficiaries who become old enough to move into the deferred age groups before being selected for CDRs, (3) beneficiaries who die before CDRs are completed, and (4) SSI beneficiaries whose benefits are terminated, due to income and resources, before CDRs are completed. For the nondeferred groups, SSA estimates the total number of due or overdue CDRs during fiscal years 1998 through 2002 will be about 10.3 million, of which 7.5 million are required by law, primarily for DI worker beneficiaries and SSI children (see table III.1.) Social Security Disability: SSA Is Making Progress Toward Eliminating Continuing Disability Review Backlogs (GAO/T-HEHS-97-222, Sept. 25, 1997). Social Security Disability: SSA Must Hold Itself Accountable for Continued Improvement in Decision-Making (GAO/HEHS-97-102, Aug. 12, 1997). Social Security: Disability Programs Lag in Promoting Return to Work (GAO/HEHS-97-46, Mar. 17, 1997). SSA Disability Redesign: Focus Needed on Initiatives Most Crucial to Reducing Costs and Time (GAO/HEHS-97-20, Dec. 20, 1996). Supplemental Security Income: SSA Is Taking Steps to Review Recipients’ Disability Status (GAO/HEHS-97-17, Oct. 30, 1996). Social Security Disability: Alternatives Would Boost Cost-Effectiveness of Continuing Disability Reviews (GAO/HEHS-97-2, Oct. 16, 1996). Social Security Disability: Improvements Needed in Continuing Disability Review Process (GAO/HEHS-97-1, Oct. 16, 1996). Social Security: New Continuing Disability Review Process Could Be Enhanced (GAO/HEHS-94-118, June 27, 1994). Social Security: Continuing Disability Review Process Improved, but More Targeted Reviews Needed (GAO/T-HEHS-94-121, Mar. 10, 1994). Social Security: Increasing Number of Disability Claims and Deteriorating Service (GAO/HRD-94-11, Nov. 10, 1993). Social Security Disability: SSA Needs to Improve Continuing Disability Review Program (GAO/HRD-93-109, July 8, 1993). Social Security: Effects of Budget Constraints on Disability Program (GAO/HRD-88-2, Oct. 28, 1987). Social Security Disability: Implementation of the Medical Improvement Review Standard (GAO/HRD-87-3BR, Dec. 16, 1986). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO provided information on whether: (1) the Social Security Administration's (SSA) plan to process 8.1 million continuing disability reviews (CDR) during fiscal years 1998 through 2002 will result in CDRs being done for all beneficiaries for whom CDRs are required by law; and (2) disability determination services' (DDS) CDR processing capacity and the CDR funding authorized by Congress for fiscal years 1998 through 2002 will be sufficient to process the CDRs required by law. GAO noted that: (1) by the end of fiscal year (FY) 2002, if SSA completes its new CDR plan as envisioned, all CDRs required by law will be complete or under way, including those that are overdue and those due to be started by the end of FY 2002; (2) when DDSs award disability benefits, they set due dates for starting CDRs, and every month these prescheduled CDR start dates come due for many beneficiaries; (3) because CDRs can require up to 1 year to complete from the time beneficiaries are selected for CDRs, many CDRs cannot be completed by the end of the fiscal year in which they become due; (4) SSA estimates that about 835,000 of the required CDRs due to be started in FY 2002 will not be completed by yearend; (5) these CDRs will be completed in FY 2003, according to SSA; (6) of the 8.1 million CDRs planned for fiscal years 1998 to 2002, SSA plans to complete 53 percent through brief questionnaires mailed to selected beneficiaries and 47 percent through full medical reviews conducted by DDSs; (7) according to SSA, in formulating its plan, SSA consulted with DDSs to plan caseloads that will not exceed the DDSs' case processing capacity; (8) however, DDSs could potentially encounter additional caseloads not envisioned in SSA's plan; (9) for several beneficiary groups, SSA is still working to develop statistical formulas for selecting appropriate mailer recipients; (10) if DDSs have to conduct more full medical reviews to replace CDR mailers, the authorized funds could prove inadequate because full medical reviews cost significantly more than mailers; (11) if SSA's assumptions about economic growth and unemployment do not prove accurate or if the test results for SSA's disability process redesign plan are not positive, the volume of initial disability applications and requests for reconsideration of denied applications could potentially be larger than assumed by SSA; (12) if so DDSs could face even larger backlogs of these non-CDR cases in order to complete CDR full medical reviews in a timely manner; (13) recognizing the potential uncertainty of the CDR and non-CDR workloads, SSA plans to monitor them closely; (14) SSA acknowledged that its CDR plan may require revisions and that unexpected workload increases, if they occur, could lead SSA to decide to increase the case processing capacity of state DDSs; and (15) potential barriers to the timely expansion of DDS capacity exist as well, such as shortages of qualified applicants and office space, state hiring freezes, and the time required to train and mentor new staff. |
Experts believe that the deliberate introduction of animal and plant diseases at the farm level would cause severe economic disruption given that agriculture accounts for 13 percent of the U.S. gross domestic product and 18 percent of domestic employment. In the event of agroterrorism, losses to farmers could result from decreases in the price of livestock, poultry, and crops; reductions in sales due to a decline or halt in productivity; inability to move animals to the market; and costs associated with disease control, including disposal of contaminated animals or plants. Losses could be particularly severe in states where animal and crop production is concentrated. For example, three states produce 53 percent of the total U.S. hog production and three states produce 39 percent of the total U.S. soybean production. (See figs. 1 and 2.) Substantial losses could also arise from halting exports; the value of U.S. agricultural exports in fiscal year 2003 exceeded $56 billion. Livestock production generated $106 billion in farm revenue, or more than one-half of all farm revenue in 2001. Intensive livestock production in which large numbers of poultry, swine, and dairy and beef cattle are held in confinement facilities accounted for about $80 billion of this revenue. As a result, a few areas contain a very large population of animals that are at risk. Following the terrorist attacks of 2001, Congress and the President modified the roles and responsibilities of federal agencies to better protect against agroterrorism. Congress passed the Homeland Security Act of 2002,establishing the Department of Homeland Security as the chief coordinating agency for efforts to protect the United States from terrorist acts, including agroterrorism. To outline agency goals and tasks for protecting against agroterrorism, the President issued four Homeland Security Presidential Directives. Congress also passed legislation that clarifies USDA’s responsibilities over agriculture and food security. The Homeland Security Act of 2002 created the Department of Homeland Security and assigned the new agency lead coordinating responsibility for protecting the nation against terrorist acts, including agroterrorism. The act transferred functions and personnel from other agencies to DHS, which allowed it to accomplish this role. For example, the Homeland Security Act of 2002 transferred the functions and personnel of FEMA, which had been responsible for mitigating, planning for, and responding to natural emergencies and major disasters, into DHS to support the new agency’s responsibility for protecting the United States from terrorist attacks. In addition, DHS is responsible for consolidating federal response plans for various emergencies, including agroterrorism, into a single coordinated plan, which is called the National Response Plan. DHS is also responsible, through FEMA, for providing emergency response to terrorist attacks, including managing the response, coordinating federal response resources, and aiding recovery. Under federal law, once the President makes an official declaration of an emergency or a major disaster, DHS is authorized to direct federal agencies to support state and local efforts; coordinate relief assistance; provide technical and advisory assistance to state and local governments for management, control, and reduction of immediate threats to public health and safety; and provide financial assistance. The Homeland Security Act of 2002 transferred most of USDA’s responsibility for conducting agricultural import inspections to DHS, which provided DHS with the capability to recognize and prevent the entry of organisms that may be used for agroterrorism. The act also authorized the transfer of no more than 3,200 inspector positions from USDA’s Plant Protection and Quarantine Unit to DHS. DHS and USDA signed an interagency Memorandum of Agreement that, among other things, further clarified the responsibilities of both agencies at the border. Pursuant to this agreement, USDA may request the use of DHS inspectors during a major animal or plant health incident of national significance—whether intentional or natural. DHS acquired USDA’s authority to inspect passenger declarations and cargo manifests, international passengers, baggage, cargo, and conveyances, and hold suspect articles for quarantine to prevent the introduction of plant or animal diseases. (See fig. 3.) USDA retained its traditional authorities to conduct veterinary inspections of live, imported animals; establish policy for inspections and quarantine functions; provide risk analysis; develop and supervise training on agriculture for DHS and USDA inspectors; conduct specialized inspections of plant or pest material; and identify agricultural pests. Under DHS' usual practices, a DHS inspector who comes across a questionable agricultural product should hold it and turn the item over to USDA inspectors for a more thorough analysis of its potential threat to U.S. agriculture. The Homeland Security Act of 2002 also consolidated research efforts in chemical, biological, and nuclear defense by transferring a number of research facilities to DHS, including USDA’s Plum Island Animal Disease Center. The center is the only place in the United States where certain highly infectious foreign animal diseases are studied, including FMD. Since the transfer, DHS has assumed responsibility for the security and management of the facility. Although USDA still administers its own research and diagnostic programs on the island, DHS and USDA have established a Senior Leadership group at the center to integrate research efforts in general and to coordinate the management for joint research projects. For example, this group integrates USDA and DHS research efforts on FMD. The Homeland Security Act of 2002 transferred the Office for Domestic Preparedness and its grant-making functions from the Department of Justice’s Office of Justice Programs to DHS. This transfer established DHS as the primary source of much federal homeland security funding to state and local governments. In fiscal year 2005, DHS will distribute formula and discretionary grants to the states through the Homeland Security Grant Program. These grants have 2-year performance periods and support expenditures, which include planning, organizing, equipment, training, test exercises, and management and administration. DHS gives states the flexibility to choose which emergency “disciplines”—such as law enforcement, hazardous material response, and public works—to fund, using the grants. Most DHS grant programs require states to obligate not less than 80 percent of the total grant award to local units of government. In the program application kit, DHS provides guidance on the types of expenditures that are allowable. Beginning in fiscal year 2004, DHS provided states with examples of resources, which could be acquired with grant funds for prevention, response, and recovery efforts related to agricultural and/or food security preparedness. These resources include agricultural response equipment, and agriculture-related test exercises and training. Finally, the Homeland Security Act of 2002 created the Information Analysis and Infrastructure Protection Directorate in DHS and transferred intelligence, law enforcement, and vulnerability assessment functions from other agencies into the directorate. Congress and the President have tasked DHS, through this directorate, with developing a comprehensive national plan to secure critical infrastructure sectors of the United States. Accordingly, DHS has developed its interim National Infrastructure Protection Plan, which includes strategies for securing the agriculture sector. In addition to developing the plan, DHS is responsible for assessing and identifying the nature and scope of terrorist threats to the homeland based on information received and analyzed by other government agencies. To do so, DHS receives information from the Federal Bureau of Investigations, the Central Intelligence Agency, and other intelligence agencies and assesses whether the combined information indicates a threat to critical infrastructures. Following the creation of DHS, the President issued four directives that further define agencies’ roles and responsibilities for protecting against terrorism. The most important of these directives in relation to agriculture is HSPD-9, which was released in January 2004. The directive establishes a national policy to defend the agriculture and food system against terrorist attacks, major disasters, and other emergencies. Specifically, HSPD-9 outlines goals and assigns lead and supporting roles to agencies to achieve these goals. (See fig. 4.) There are seven categories outlined in HSPD-9: awareness and warning; vulnerability assessments; mitigation strategies; response planning and recovery; outreach and professional development; research and development; and budget. Federal agencies, especially DHS, USDA, and HHS, are assigned lead responsibilities to achieve the stated goals. To accomplish the tasks outlined in the seven categories, lead agencies often must coordinate with secondary or supporting agencies and, in some instances, with states and private industry as well. For example, HSPD-9 directs DHS to improve awareness and warning capabilities by coordinating with other agencies to develop a biological threat awareness capacity that will enhance detection and characterization of agroterrorism. The directive also designates DHS as the lead agency in ensuring that the combined federal, state, and local response capabilities are adequate to respond quickly to a terrorist attack or other emergencies affecting agriculture or food. HSPD-9 also directs DHS to oversee a national biological surveillance system that will combine surveillance information collected from several agencies with threat and intelligence information to allow DHS to characterize threats more quickly. According to DHS officials, this interagency effort will help them differentiate between natural and intentional outbreaks. Likewise, HSPD-9 assigns lead tasks to USDA and HHS for agriculture and food matters, respectively. Specific tasks for USDA and HHS include developing safe, secure, and state-of-the-art agriculture laboratories that research and develop diagnostic capabilities for foreign animal and zoonotic diseases. Also under HSPD-9, USDA and HHS, in coordination with EPA and DHS, are the lead agencies responsible for improving existing recovery systems that will stabilize agriculture production and rapidly remove and dispose of contaminated animals, plants, and food products, and decontaminate premises following an agroterrorism attack. HSPD-9 builds upon and augments tasks outlined in prior Homeland Security Presidential Directives. HSPD-5 directs DHS to coordinate development of the new National Response Plan that incorporates national prevention, preparedness, response, and recovery plans into a single, all- hazard plan. USDA, in collaboration with other agencies including DHS, were tasked with writing the sections of the National Response Plan guiding U.S. efforts to respond to an attack on U.S. agriculture. HSPD-5 also directs DHS to consult with other federal agencies, state, and local governments to implement a common National Incident Management System, which standardizes planning, communications, and public information during an incident in which multiple federal and state agencies are involved. A key component of the National Incident Management System is the Incident Command System, which is designed to allow multiple agencies to coordinate the command, operations, planning, logistics, finances, and administration during an incident. HSPD-5 further directs agencies to require the adoption of the National Incident Management System as a condition for states to receive federal preparedness assistance. HSPD-7 defines USDA and HHS as “sector-specific agencies” with responsibilities for securing the agriculture and food sectors. These agencies, in coordination with DHS, are tasked with collaborating with federal, local, and state governments, as well as private industry and other stakeholders to help protect their respective critical infrastructure sectors, including agriculture. Among other things, HSPD-7 directs DHS to establish systems, mechanisms, and procedures to share homeland security information relevant to threats and vulnerabilities in critical infrastructures with other federal departments and agencies, state and local governments, and private industry in a timely manner. Finally, HSPD-8 sets out a national preparedness goal for all hazards, including agriculture. The directive calls on federal agencies to establish readiness priorities, to deliver federal assistance to state and local governments effectively and expeditiously, and to ensure that first responders are prepared to respond to major events. The directive outlines criteria for federal preparedness assistance to the states based on assessments of population concentrations, critical infrastructure, and other risk factors such as terrorism threats. The traditional responsibilities of USDA and HHS have been augmented through Congress’ passage of the Bioterrorism Act of 2002. This act made USDA and HHS responsible for requiring companies, laboratories, and other entities to register materials that could be dangerous to agriculture production and human health. It also required USDA and HHS to develop an inventory of potentially dangerous agents and toxins that cause animal, plant, or human diseases. Furthermore, individuals who possess or use such materials must register with the Secretary of Agriculture or HHS and submit to a background check by the U.S. Attorney General. Also, the act directed USDA and HHS to take a number of steps to improve surveillance for such materials. Specifically, the act directed USDA and HHS to coordinate surveillance activities to detect zoonotic diseases. The act also authorized USDA to conduct and support research into the development of an agricultural bioterrorism early warning system. The system would enhance the capacity of and coordination between state veterinary diagnostic laboratories, federal and state agricultural research facilities, and public health agencies. The act also gave USDA the authority to coordinate with the intelligence community to better identify research needs and evaluate materials or information acquired by the intelligence community relating to potential threats to U.S. agriculture. In carrying out their new roles and responsibilities, federal agencies have taken steps to manage the risks of agroterrorism, including the development of a comprehensive national strategy that did not exist before September 11, 2001. As part of this strategy, DHS has overseen the development of national plans and the adoption of standard protocols that will help agencies coordinate in protecting against and responding to agroterrorism. Federal and state officials are also conducting joint exercises to test the new plans and protocols. In addition, federal agencies are taking a number of specific actions to protect against agroterrorism, including those summarized as follows. DHS coordinated with other agencies to create an interim “National Infrastructure Protection Plan” to guide the efforts of federal, state, and local governments and private industry to protect critical infrastructure sectors, including agriculture, against terrorist attacks. The overall plan incorporates sector-specific plans that include processes, guidance, and mitigation strategies that address how DHS and other agencies will work with state and local governments, private industry, and foreign governments to safeguard the sectors. Additionally, the plan includes initiatives for sharing warning data with state and local governments and the private sector. (See app. V for more details about these plans.) To outline how the nation will respond in the aftermath of an emergency or major disaster such as a terrorist attack, DHS released a “National Response Plan” in January 2005. The National Response Plan differs from earlier federal emergency plans in that it describes the roles and outlines the responsibilities for federal, state, and local responders in addressing the national response to outbreaks or other emergencies in the food and agriculture sector. DHS coordinated with USDA, HHS, and EPA to develop the appendixes contained in the plan that pertain to protecting agriculture and the food supply in emergencies, from first detection to the response and recovery phase. To further improve the response to emergencies such as agroterrorism, DHS established the “National Incident Management System” in March 2004. A key component of the National Incident Management System is the “Incident Command System,” which is designed to coordinate the communication, personnel, and procedures of different agencies and levels of government within a common organizational structure during an emergency that requires the resources of multiple federal, state, and local responders. HSPD-5 directs federal agencies to require that states become compliant with the National Incident Management System in fiscal year 2005 as a condition for receiving federal grant aid for emergency preparedness. To support this directive, DHS has established a number of minimum requirements for states to implement during fiscal year 2005. A DHS official noted that as of December 2004, most states had already implemented the Incident Command System and other components of the National Incident Management System. (See app. V for more information on the National Incident Management System.) Soybean rust is a serious disease, causing crop losses. Wind-borne spores contaminate plants, causing infected tan and reddish brown lesions and yellowing of leaves. Fungicides can be used to control the spread of the disease. However, if left untreated or treated too late, a soybean field's yield losses can surpass 80 percent. Since November 10, 2004, when soybean rust was first discovered in Louisiana, the disease has been discovered in Alabama, Arkansas, Florida, Georgia, Mississippi, Missouri, and South Carolina. The United States produced about 70 billion acres of soybeans in 2002. To test response capability, including aspects of the National Incident Management System, federal and state agencies have collaborated in conducting test exercises to simulate outbreaks of foreign animal and plant diseases. For example, USDA, along with numerous other agencies, conducted a 1-day exercise in September 2002 called “Crimson Sky,” which simulated the intentional introduction of the FMD virus in five different locations across the United States. Exercises have also been conducted to test response capability to address plant diseases. For example, USDA and Minnesota, with the assistance of Iowa, simulated an outbreak of soybean rust using the Incident Command System in September 2004. Two months later, there was an apparently natural outbreak of soybean rust in Louisiana and other southern states, and USDA officials told us that the lessons learned from the test exercise in coordinating their communications were incorporated in response to the real outbreak. Federal, state, and industry officials whom we interviewed said that these test exercises in general have been useful in allowing players to better understand their roles and responsibilities in a real-life event, to uncover shortfalls they had not necessarily foreseen in planning, and to test solutions. For instance, exercises have shown that some areas of agencies’ jurisdiction needed to be better defined. Many participants have written unclassified “after- action” reports incorporating the lessons they learned and raising key issues to be resolved. (See app. V for more information on test exercises.) In addition to the broad national planning efforts discussed, other specific actions that federal agencies responsible for protecting against agroterrorism have taken since 2001 include the following: FDA and USDA are in various stages of developing vulnerability assessments of the agriculture and food sectors, as called for in HSPD-9. As part of a continuing effort to anticipate threats to farm products, FDA has conducted vulnerability assessments of different categories of food for which FDA has statutory responsibility, to identify those products most vulnerable to deliberate contamination. Similarly, USDA is assessing vulnerabilities in USDA-regulated products but had not completed its preliminary assessments at the time of our review. Such assessments are generally not consistent across program areas because different maximum values for the impact of terrorist events are sometimes used. (See app. V for more details about FDA and USDA vulnerability assessments.) To increase early warning and monitoring capabilities, USDA and HHS have created laboratory networks to integrate existing federal, state, and university laboratory resources. These networks are intended to link laboratories that screen for animal, plant, and human health diseases across the nation and help to provide diagnostic surge capacity in the event of a disease outbreak. Within each network, the laboratories use standardized diagnostic protocols and procedures to ensure consistent results. For example, USDA provided funding and leadership for two networks that serve the nation: the National Animal Health Laboratory Network, which originally consisted of 12 state and university veterinary laboratories nationwide, and the National Plant Diagnostic Laboratory Network, which consists of 5 laboratories located at land grant universities. By December 2004, the National Animal Health Laboratory Network had expanded to 47 laboratories in 39 states surveying domestic and foreign animal diseases. When these network laboratories find positive test results for foreign diseases, USDA’s own federal laboratories in Ames, Iowa; Plum Island, New York; and Beltsville, Maryland, still conduct their own diagnostic tests to confirm results before USDA announces the outbreak of a disease. Meanwhile, FDA, in conjunction with other agencies including USDA’s Food Safety and Inspection Service, developed and have continuously expanded, the Food Emergency Response Network to integrate 93 local, state, and federal laboratories for the detection of biological, chemical, and radiological agents in food. Likewise, the CDC has expanded its Laboratory Response Network to address public health emergencies. This network now enlists the technology and capacity of 138 laboratories across the United States and abroad in the event of a suspected or known release of biological or chemical agents. These federal laboratory networks have operated during animal, plant, and human health emergencies in the past few years. For example, USDA’s animal and plant laboratory networks tested samples in the 2002-2003 exotic Newcastle disease outbreak in poultry and in the sudden oak death outbreak in California in 2004. Agencies are also working to enhance coordination and communication among multiple stakeholders. In particular, DHS, USDA, and other agencies have established numerous interagency working groups to coordinate their efforts to protect against agroterrorism. These working groups are, in turn, coordinated through a Government Coordinating Council, which DHS finalized in the fall of 2004. DHS, USDA, and HHS alternately chair the Government Coordinating Council on a rotating basis. DHS also helped the food and agriculture industry to establish the Food and Agriculture Sector Coordinating Council to facilitate the flow of alerts, plans, and other information between the federal and state governments and industry groups. Through the Food and Agriculture Sector Coordinating Council, DHS has been seeking the expertise of the industry groups to develop national guidance, such as the interim National Infrastructure Protection Plan. In turn, this plan is intended to provide industry with a blueprint to develop strategies to protect their assets. (See app. V for more details about interagency working groups.) USDA has established a steering committee, which includes representatives from FDA and CDC, to guide efforts to develop a National Veterinary Stockpile that, among other things, is intended to address vaccines needed to respond to animal diseases most damaging to human health and the economy. The steering committee will also identify such things as reagents, personal protection equipment that would be needed, how to obtain vaccines, as well as prioritizing a stocking schedule for the National Veterinary Stockpile. This stockpile is being developed for foreign animal diseases other than FMD, since there is already a North American FMD Vaccine Bank. USDA is also creating a separate vaccine bank for certain strains of avian influenza that will be completed by May 2005. DHS, USDA, and HHS are funding research to enhance the nation’s protection against agroterrorism. Of note, DHS is providing $33 million over 3 years to establish two university-based Centers of Excellence to oversee research into post-harvest food protection and diseases that affect livestock and poultry. In addition, as of 2004, USDA is supporting homeland security research, including university-based efforts to evaluate contaminated carcass disposal efforts, assess animal and plant disease test exercises, and analyze pathways by which foreign animal and plant diseases can enter the United States. CDC has also provided $1 million in annual funding to a university for developing a center for food security and public health that will support efforts such as online programs to educate veterinarians in foreign animal diseases. (See app. V for more details about research efforts.) USDA’s Veterinary Services has developed a National Animal Health Emergency Management System that provides comprehensive guidance on mitigating, preparing for, responding to, and recovering from an animal health emergency, including a terrorist attack. USDA officials believe the system’s guidance is more efficient than that provided by previous animal health manuals. For example, rather than changing with each disease, the roles of various emergency response personnel change to fit only three scenarios: an outbreak of a highly contagious disease (e.g., FMD); an outbreak of a disease spread by “vectors” such as mosquitoes (e.g., Venezuelan equine encephalomyelitis); or an outbreak of a disease that is not highly contagious (e.g., bovine spongiform encephalopathy). USDA officials believe that this approach will speed response times and be more effective in containing any outbreaks, whether natural or intentional. (See app. V for more details about USDA’s National Animal Health Emergency Management System.) Since 2002, USDA has created 14 Area Emergency Coordinator positions across the nation for animal health, and 2 Regional Emergency Coordinator positions for plant health, to coordinate federal and state efforts in the event of an emergency, including agroterrorism. Among other duties, these coordinators have assisted states in developing emergency response plans in keeping with federal guidelines, and helped organize test exercises. For example, an Area Emergency Coordinator was involved in developing Wisconsin’s Animal Health Emergency Management System, the nation’s first statewide plan that parallels the National Animal Health Emergency Management System and outlines tasks and responsibilities of agencies and organizations in an animal health emergency. The USDA emergency coordinators have also responded to recent natural outbreaks of plant and animal diseases, acting in key roles under the Incident Command System. For example, an Area Emergency Coordinator served as the liaison officer to the command staff for the widely reported bovine spongiform encephalopathy case in Washington state in January 2004. The Western Regional Emergency Coordinator helped respond to the soybean rust outbreak in Louisiana in November 2004 and acted as a coach for the incident management team. Although many important steps have been taken to prevent or reduce the impact of agroterrorism, the United States still faces complex challenges that limit the nation’s ability to quickly and effectively respond to a widespread attack on animal agriculture. There are also some less complex management problems that impair the effectiveness of federal agencies’ efforts to protect against agroterrorism. Experts we spoke with told us that to effectively control the spread of highly contagious foreign animal diseases, such as FMD, it is critical to quickly identify animals that may have the disease, promptly confirm the presence of the disease with diagnostic tools, and rapidly vaccinate animals in the surrounding area. However, the United States faces a shortage of veterinarians trained in foreign animal diseases, does not use rapid diagnostic tools at the site of an outbreak, and has insufficient vaccine stockpiles. These complex challenges impair the nation’s ability to contain the spread of animal diseases that are of potential use in agroterrorism. Many U.S. veterinarians lack training to recognize the signs of foreign animal diseases, according to a 2004 report produced for USDA. The report notes that while all U.S. veterinary schools offer information about foreign animal diseases, only about 26 percent of the nation’s veterinary graduates have taken a course specifically dedicated to foreign animal diseases. According to the report, only 12 of the 28 veterinary schools in the United States offer courses dedicated to foreign animal diseases. Further, among the 12 veterinary schools that offer such courses, 5 offer them as electives rather than as core courses. As a result, when federal or state veterinarians are called to determine whether symptoms suggest the presence of a foreign animal disease, they may not have the training or expertise needed to identify it, and the disease could go undetected. According to USDA officials, however, all veterinary students must take instruction in infectious diseases and pathology which, according to these officials, includes foreign animal diseases. USDA officials also told us they have worked to develop Web and CD-Rom-based training to strengthen veterinary student training in foreign animal diseases. Another reason for this lack of expertise in foreign animal diseases is that such training is not required to obtain USDA accreditation. More than 80 percent of veterinarians in the United States are USDA-accredited and are intended to be instrumental in maintaining effective disease surveillance and monitoring by accurately diagnosing and reporting animal diseases. To be accredited, an individual must have graduated from an accredited school of veterinary medicine, submitted an application certifying the ability to complete 16 tasks such as recognizing common breeds of livestock, completed a core orientation session, and be licensed or legally able to practice without supervision. USDA officials believe that because an accredited veterinarian must be licensed, this is an indication that they have received basic training in foreign animal diseases. However, this accreditation process does not require veterinarians to demonstrate their ability to recognize or diagnose basic clinical signs of foreign animal diseases. Furthermore, once granted, accreditation is valid for life and no continuing education is required. The Association of American Veterinary Medical Colleges believes that this process could be more rigorous if, as a condition of accreditation, veterinarians were required to demonstrate an ability to recognize clinical signs of foreign animal diseases at the time of accreditation and also periodically throughout their careers. USDA recognizes the need to modernize its accreditation process and agrees that continuing education is needed. APHIS drafted a rule to modify its current program by developing a two-tiered National Veterinary Accreditation program, which would have requirements for supplemental training in such areas as emergency management and foreign animal diseases; however, after more than 2 years, it is still not in effect. According to the Chief of Staff of Emergency Management and Diagnostics at APHIS, the draft rule has been undergoing revisions but had to be set aside several times in an effort to pursue the development of other more important draft regulations and emergency regulations. According to this official, the draft rule is now being reviewed by USDA’s Office of General Counsel. This official told us that this review can take several months, but if no problems are encountered, it is anticipated that the draft rule will be published as a proposed rule in the Federal Register during the first or second quarter of calendar year 2005. USDA officials told us that new efforts are also being made to strengthen APHIS’ role in colleges of veterinary medicine to provide information on various aspects of regulatory medicine. Finally, expertise in foreign animal diseases is lacking because most veterinarians work in private practice where this skill is not required. According to the American Veterinary Medical Association, approximately 74 percent of practicing veterinarians in the United States work in private practice. Similarly, the Association of American Veterinary Medicine reports that only about 5,000 veterinarians work in public service, some of whom play an essential role in the detection, prevention, and control of foreign animal diseases. USDA officials told us they intend to increase the number of veterinarians entering public service by making new efforts to increase veterinary students’ awareness of potential careers in public service. Foot and mouth disease (FMD) is a highly contagious viral disease of cloven-hoofed animals such as cattle, swine, and sheep. Infected animals develop a fever and blisters on their tongue, lips, and between their hooves. Many animals recover from an FMD infection, but the disease leaves them debilitated and causes losses in meat and milk production. FMD does not have human health implications. In 2001, an FMD outbreak occurred in the United Kingdom, resulting in mass slaughtering and burial of animals and a loss of about $4 billion. Similarly, if an outbreak were to occur in the United States, the current U.S. policy requires all infected and exposed animals to be immediately slaughtered and disposed of by incineration, burial, or rendering, a process that subjects animal tissue to heat and chemicals to separate the fat from the protein and mineral components. Another complex challenge impairing the ability of the United States to quickly contain an outbreak and limit the loss of animals is the inability to rapidly diagnose diseases at the site of an outbreak. Currently, if an animal is suspected of having a foreign disease, a sample would be collected from the sick animal and a federal official would send it by Express Mail to one of USDA’s reference laboratories--either the NVSL in Ames, Iowa, or the Foreign Animal Disease Diagnostic Laboratory located on Plum Island, New York. Using traditional techniques, USDA technicians would generally diagnose the disease in 3 to 4 days. During this time, the affected animals and other animals within the vicinity, or those that had recent contact with the sick animal, would be quarantined. Should USDA officially confirm the presence of a disease, such as FMD, the affected herd and all cattle, sheep, goats, swine, and susceptible wildlife—infected or not— within a minimum 10-kilometer zone around the infected farm would be killed. USDA would wait for confirmation before slaughtering animals to avoid causing unnecessary panic among producers and severe market fluctuations. If the disease were to spread beyond the initial zone, authorities would continue to quarantine and kill animals until the disease was “stamped out.” USDA’s “Crimson Sky” test exercise in 2002, estimated that, under the current “stamping out” approach, FMD would spread rapidly, necessitating the slaughter of millions of animals and cause staggering financial losses—precisely the type of high-visibility destruction that some experts told us terrorists seek. According to the former Associate Administrator for Special Research Programs at USDA’s Agricultural Research Service, the impact of a disease such as FMD can be mitigated if rapid diagnostic tools are used on site to speed diagnosis. In 2000, under the direction of this official, USDA developed state-of-the-art, rapid diagnostic tools to detect FMD, classical swine fever, African swine fever, Rinderpest, avian influenza, and Newcastle disease. According to this official, the rapid diagnostic tools are designed to yield results in less than an hour and are intended to be used outside of specialized laboratories, at the site of an outbreak. Importantly, the tools can detect disease before the animal shows clinical signs of infection. According to USDA, symptoms of FMD may take up to 14 days to appear, or even longer in sheep and goats. In fact, animals may show no symptoms at all. USDA’s draft guidance for controlling FMD warns that if the first animal infected with FMD does not outwardly show clinical signs, detection may be delayed. The guidance further states that potential delays and difficulty in detection may complicate the decision-making process regarding appropriate disease control measures. According to the former Associate Administrator, rapid diagnostic tools would not only allow for a rapid diagnosis but would also permit the monitoring of nearby herds before symptoms appeared so that only infected herds would have to be killed. Slaughter would, therefore, be based not on proximity but on actual infection, thereby reducing the number of animals lost and lessening the impact of the attack. Overall, rapid diagnostic tools would be helpful because FMD would be detected in less than an hour, informed control measures could be implemented, and herds in the area would be under regular surveillance. Traditional methods of diagnosing exotic Newcastle disease involve isolating the virus and can take 6-12 days to obtain results (pictured on top). Rapid diagnostic tools involve a polymerase chain reaction (PCR) process that identifies a piece of a virus’ genetic material that acts as a signature and can be identified in a test. The PCR distinguishes the pathogen from near or distant relatives and can find the pathogen in clinical samples. The PCR technology used in California during the 2002-2003 outbreak produced results in 4-6 hours. According to state officials, the use of these rapid tools on site would also help prevent laboratories from becoming overwhelmed with test samples, which would be an advantage if a terrorist attack involved the introduction of disease at multiple locations. In 2003, California state officials used rapid diagnostic tools to test animals for exotic Newcastle disease—a contagious and fatal viral disease affecting birds of all species. (See fig. 5.) These state officials told us that the tools used at the time allowed diagnostic results within 6 hours and enabled them to test up to 1,500 samples per day, many more samples than traditional testing methods. State officials also told us that rapid diagnostic tools would be useful during a widespread outbreak so that individual animals or herds could be tested in a temporary laboratory at the site of an outbreak, rather than waiting for results while samples were sent to laboratories distant from the outbreak. USDA officials believe that rapid diagnostic tools can be useful, but they told us most such technologies are not yet ready to be used at the site of an outbreak. While USDA has employed some of its rapid diagnostic tools for exotic Newcastle disease and avian influenza, it has done so only in select laboratories within the National Animal Health Laboratory Network. There are several reasons why USDA is reluctant to use the tools outside of a laboratory setting. One reason is that samples put into the rapid diagnostic tests may contain a live virus. For highly contagious diseases such as FMD and classical swine fever, USDA believes that rapid diagnostic testing must be conducted in a specialized laboratory setting where certain procedures are taken to prevent the virus from escaping and infecting livestock and wildlife. According to the former Associate Administrator for Special Research Programs at ARS, this precaution is unnecessary. Once a sample is taken, it is inserted into a tube containing reagents that inactivate the virus if it is present. The tube, as well as the person who collected the sample, can then be decontaminated using a common solution, such as acetic acid in the case of FMD, and the sample can be tested using the rapid diagnostic tool in a mobile unit at, for example, the entrance to the farm. USDA officials agree that samples can be taken in this manner but told us that their current technique for collecting samples for the rapid diagnostic tools that USDA uses in its laboratories does not inactivate the sample. For that reason, samples of highly contagious diseases must be processed under special laboratory conditions. USDA uses this sampling technique in order to preserve the “live virus” sample necessary for the traditional method of diagnosing diseases. USDA officials told us they have initiated discussions about sampling using an “inactivation model” such as discussed above, but the sample would still be diagnosed using a rapid diagnostic tool located in a laboratory. Unlike USDA, agencies within DOD are using rapid diagnostic tools in the field to obtain quick results during emergency situations or when a laboratory setting is not possible, such as in combat zones. For example, the Army is using various types of rapid diagnostic tools in Iraq to detect pathogens used in biological warfare, such as anthrax. DOD officials told us that for samples that are a “true unknown,” such as chemical substances they encounter in combat, they utilize many safety procedures, such as wearing protective clothing and opening samples in safety cabinets. The officials also told us that the reagents they use to detect agents used in biological warfare will inactivate viruses, allowing the test to be safely conducted without contaminating the surrounding area. A DOD official noted that with animal diseases, if samples are positive for a disease, then contaminating other animals within that herd is not a concern since these animals would have to be destroyed anyway. Another reason USDA is reluctant to use rapid diagnostic tools at the site of an outbreak is that personnel need training to use the tools. According to the former ARS Associate Administrator, however, the tests are designed to be performed by persons with limited training, using quality-controlled standardized reagents and protocols that are consistent with international standards. DOD concurs that the tools are not difficult to use, but to ensure that samples are not contaminated and results are rigorous, the U.S. Army Medical Research Institute of Infectious Diseases requires personnel to undergo a 4-week training program and follow strict procedures, such as loading and capping pathogen samples before adding the control samples to help eliminate cross-contamination. To help increase confidence in the accuracy of the results, DOD also uses more than one type of rapid diagnostic tool to test a sample if it comes back positive. USDA officials told us that although the rapid diagnostic tools have been developed, these tools still need to be validated before they can be used in order to rule out diseases with similar clinical signs or protein sequences that might result in a false positive result. Therefore, USDA would still make an initial diagnosis using traditional test procedures and confirmatory testing would still be done at NVSL in Ames, Iowa, or at the Foreign Animal Disease Diagnostic laboratory on Plum Island in New York. Once the initial diagnosis is confirmed, USDA believes there may be opportunities to use validated rapid diagnostic tools to evaluate herd health either on site or at a nearby laboratory. USDA further agrees that it is important to evaluate the costs and benefits of developing and validating these tools for use outside of a laboratory setting. For several reasons, USDA would not be able to deploy vaccines rapidly enough to contain a widespread animal disease outbreak caused by a deliberate attack. First, USDA has very few supplies of vaccines. The only vaccines currently stored in the United States against foreign animal diseases are for various strains of FMD because this disease is so highly contagious. In place of vaccination, USDA generally prefers to immediately slaughter diseased animals because international rules that the United States and other countries have agreed to abide by are designed to prevent trade in infected or vaccinated animals. As a result, vaccine stockpiles have traditionally not been needed to control natural outbreaks. Also, vaccines have not yet been developed for all foreign animal diseases that USDA considers to be of primary concern. For example, worldwide, there is no vaccine currently available for African swine fever. USDA’s ARS is researching new vaccines, but it is unlikely that vaccines will ever be developed for all strains of these diseases because of the vast number of strains and subtypes for each disease. For example, there are 7 different types of FMD with more than 60 different subtypes. According to an expert we consulted, it is not realistic to develop vaccines for all of these subtypes. It is also conceivable that a terrorist could genetically engineer a new strain. Second, the only vaccines that are stockpiled in the United States— vaccines for FMD—cannot be rapidly deployed because they are not stored in a “ready-to-use” state. Although HSPD-9 states that vaccines should be capable of deployment within 24 hours, USDA’s stockpiles are concentrates that require additives to become a vaccine. Because the additive for the FMD vaccine is manufactured in the United Kingdom, USDA must first ship the stock there for bottling and subsequent testing. It can take up to 3 weeks to transform the stock into a vaccine once the concentrate arrives in the United Kingdom. Vaccines are not stockpiled in a ready-to-use state because vaccines generally have a shelf life of only 1 or 2 years before they must be used or destroyed, and replacing stocks on a regular basis would be expensive. Yet until animals are vaccinated, USDA will have no recourse but to slaughter animals in a systematic manner to contain the spread of the disease. While this approach may be adequate for containing a limited outbreak, the recent USDA test exercise of an intentional introduction of FMD in multiple locations suggests that this approach would have catastrophic results. Although USDA officials raise concerns about the use of vaccination to control an outbreak, such as the limited number of fully trained personnel to administer the vaccine, it is now acknowledged that the ability to vaccinate, in conjunction with culling, may be a necessary measure to contain an FMD outbreak. A recent evaluation by the National Audit Office in the United Kingdom reports that the government has substantially increased stocks of vaccines for FMD to better contain the spread of FMD should another outbreak occur. Furthermore, USDA’s draft response plan for an outbreak of FMD disease or other highly contagious animal disease notes that vaccines may be used strategically to create barriers between infected zones and disease-free zones. The Centers for Disease Control and Prevention faces similar challenges in stocking vaccines used to protect humans. Because many animal diseases can affect humans, CDC is participating in the steering committee to help USDA create its National Veterinary Stockpile. An expert suggests, and CDC officials agree, that USDA could contract with pharmaceutical companies to supply a stockpile of ready-to-use vaccines. Once the shelf life for those vaccines neared expiration, the contractor could replenish the stock and then sell the supply of vaccines nearing expiration in the commercial marketplace to countries that routinely vaccinate livestock. Where the market would not support such sales, USDA could donate the old, yet still effective, vaccines to other countries where the disease is endemic and there is still a demand. USDA officials agree that it would be useful to have the FMD virus vaccine available within 24 hours. They also told us they have plans to consider options to cut some of the time delay for obtaining finished, ready-to-use vaccines. One option could be storing the frozen bulk antigen concentrate needed to produce the vaccine at the site of the foreign manufacturer. While it is the responsibility of the steering committee to consider options and recommend specific processes for each of the foreign animal diseases of concern to the United States, it is not clear if the steering committee will address the costs and benefits of developing ready-to-use vaccines that can be quickly deployed against diseases of primary concern. Finally, even if USDA were to overcome the difficulties discussed above and develop adequate stockpiles of ready-to-use vaccines, current USDA policy would require a complex decision-making process to determine if vaccines would be deployed in an outbreak. In 2000, USDA decided to use a decision tree flowchart combined with decision matrices that evaluate multiple factors to determine when and if to use vaccines to control an outbreak. Because the use of vaccines would affect trade and have major consequences for both USDA and producers, the decision tree is complex and may not be designed for rapid decision-making, such as would be needed during a terrorist attack. For example, it requires information on the availability of human resources, public opinion and perception of government, industry acceptance, and vaccination costs, as well as slaughter and disposal capacity. USDA officials agree that this process is lengthy, but this is because of the many variables, including the location of the outbreak in relation to susceptible animal populations as well as trade concerns and restrictions that impact this decision-making process. As previously noted, HSPD-9 requires that vaccines be deployed within 24 hours of an outbreak, but such rapid deployment may not be achievable under the current, complex decision-making process. USDA officials told us they can explore the possibility of designing a more rapid decision- making process; however, they noted that it would take additional time to select, deploy, equip, and direct vaccination crews in a manner that would be advantageous to disease eradication and not cause the virus to spread from farm to farm due to the vaccination process. Hastily applied vaccination programs could prove detrimental. A USDA official also told us that it is not possible to estimate how long it would take to determine whether to use FMD vaccines based on the decision tree flow chart, due to the many variables involved in the process. In addition to the complex challenges discussed above, federal agencies are encountering management problems that further impair the effectiveness of their efforts to protect against agroterrorism. First, since the transfer of agricultural inspectors to DHS, inspections and interceptions of prohibited agricultural products and pests have declined nationally, and inspectors are less available to respond to agricultural emergencies. Second, there are weaknesses regarding the flow of critical information among key stakeholders. Third, USDA has not hired a sufficient number of Area and Regional Emergency Coordinators to help states prepare for an agricultural emergency. Fourth, DHS has not developed controls to avoid duplication of effort among agencies. Finally, federal agencies’ diagnostic laboratory networks are not yet integrated for diseases of common concern. Since the transfer of most USDA Plant Protection and Quarantine (PPQ) inspectors to DHS in March 2003, government officials, reports, and data indicate that the nation may be more vulnerable to the introduction of foreign animal and plant diseases through ports of entry into the United States. In addition, the transfer of inspectors has reduced USDA’s ability to respond to agricultural emergencies. Inspectors Have Performed Fewer Agricultural Inspections and Made Fewer Interceptions of Prohibited Plant and Animal Products and Pests USDA officials, as well as agricultural inspectors who now work at DHS, told us that inspections of agricultural products have decreased at some land border crossings, airports, and maritime ports—including three major ports that receive a high percentage of the nation’s agricultural imports and international flights. USDA provided us with data showing an overall decline in the number of inspections nationwide since 2002—the last year when USDA had sole responsibility of agricultural inspections. This decrease occurred at a time when imports and international air traffic have increased. In fiscal year 2002, there were 40.9 million agricultural inspections at ports of entry; in fiscal year 2003, the year when USDA inspectors transferred to DHS, 35.0 million inspections were conducted; and in fiscal year 2004, there were 37.5 million agricultural inspections. USDA data also show that inspections have decreased at certain types of ports and by certain modes of entry nationwide, such as passenger baggage and cargo. In particular, USDA officials and DHS inspectors told us that the number of agricultural inspections has declined at three specific air and sea ports that receive a large proportion of international cargo and passenger baggage. For example, at one of these ports, former and current DHS agricultural inspectors told us they had cut their inspections in late 2004 by more than 50 percent, from an average of about 1,200 cargo containers per week to 500 per week. These inspectors said they reduced inspections, in part, because of an instruction by the DHS port director to cut their “holds” of agricultural cargo and conduct fewer inspections of tile, which are often packed in a regulated material that can contain pests such as snails and beetles. In August 2004, this port intercepted a species of live, wood-boring beetles as a result of holding and inspecting cargo tile shipments. However, another shipment at this port that was not inspected was later found to contain the same beetles, which belong to the Asian longhorned beetle family and are costly to treat. These inspectors were concerned that if DHS continued to decrease agricultural inspections at that port, importers would direct more illegal shipments there. DHS officials acknowledged that, since the transfer of inspectors, inspections have declined overall. However, they also pointed out that some ports have increased their inspections in the past 2 years. For example, USDA data show that inspections at land border crossings increased from 21.2 million agricultural inspections in fiscal year 2002 to 22.5 million such inspections in fiscal year 2004. USDA data also indicate a decline in the number of agricultural interceptions—seizures of prohibited plant and animal products, and agricultural pests—at ports of entry nationwide since the transfer of inspectors to DHS. Interceptions dropped from 1.8 million in fiscal year 2002, when USDA had sole responsibility for inspections, to 1.6 million in 2004, when DHS had primary responsibility for agriculture inspections. However, in 2003, a transitional year, interceptions totaled 1.8 million. Interceptions of reportable pests in particular have declined each fiscal year—from 77,886 in 2002, to 72,988 in 2003, and to 54,109 in 2004. USDA officials told us that interceptions are a meaningful indicator of effective inspections because the purpose of inspecting agricultural products is to intercept prohibited items and pests. USDA is concerned that the decrease in interceptions may indicate a decline in the quality of inspections or a switch to less effective methods. For example, USDA and DHS officials told us that while agricultural inspectors rove several ports of entry with sniffing dogs—an effective method for detecting and therefore intercepting prohibited items—they are now used less frequently. DHS and USDA officials also noted that the number of interceptions can vary based on a number of factors aside from inspection quality, including changes in the amount or type of agricultural products entering the country and in international passenger travel patterns. However, we found that both agricultural imports and international air passengers entering the United States had increased over the past 2 fiscal years. USDA officials told us that the number of interceptions should generally increase accordingly. At the time of our report, DHS officials told us they were not aware of changes in inspection methods or the risk management approach used at ports that could account for the decline in agricultural inspections and interceptions. According to agency officials, neither USDA nor DHS has analyzed the inspections and interceptions data to identify trends and potential areas for improvement, but headquarters officials at both agencies told us they would analyze the data in early 2005. Although USDA and DHS officials have not begun an analysis to determine the reasons for declining agricultural inspections, they believe that several factors are responsible for the decline in agricultural inspections and interceptions. First, there is a shortage of agricultural inspectors nationwide. In March 2003, USDA transferred 1,517 full-time inspectors, according to DHS officials. Recently, DHS has been able to hire new agricultural inspectors, but numerous departures left DHS with 1,446 agricultural inspectors and 426 vacancies as of mid-October 2004. DHS told us that the agency intends to hire more than 500 additional agricultural inspectors by February 2006. However, DHS officials said the agency’s ability to quickly hire new inspectors is impeded by the length of time needed for conducting security background checks. These background checks, which are required before a newly hired inspector can report for duty, can take more than a year to process, by which time applicants might find other work. Agricultural inspectors working at the ports suggested to us that DHS could allow new inspectors to perform nonsensitive procedures while background checks are pending. According to a DHS headquarters official, the agency is allowing some new inspectors with modified background checks to start work under certain circumstances while their full background investigations are pending. Second, DHS agricultural inspectors are sometimes used for other purposes, such as helping reduce immigration lines at airports. For example, a DHS supervisor of agricultural inspectors at a capital city airport told us that his inspectors are regularly pulled from their agricultural duties to inspect other types of cargo or to assist in clearing passengers though immigration. DHS officials told us that they need the flexibility to occasionally shift inspectors’ duties to respond to different priorities and needs, such as searching for drugs rather than inspecting agricultural products for diseases or pests. For this reason, all customs, immigration, and agricultural inspectors are cross-trained to perform aspects of each other’s work. Third, DHS agricultural inspectors do not always receive timely information about high-risk cargo that should be held for inspection. For example, after Canada confirmed a case of bovine spongiform encephalopathy in 2003, inspectors at one border crossing did not receive a warning from USDA to hold shipments of Canadian beef in time to intercept it, and let the shipment through. In another instance, DHS inspectors at a sea port in a major agricultural state told us they did not receive an alert in late 2004 about an outbreak of a strain of avian influenza that can cause death in humans, until a week after the warning was released. DHS headquarters officials told us that while some cargo alerts issued by USDA do not get to every agricultural specialist in a timely manner, these instances represent a small fraction of inspections. However, these officials agreed that improvements can be made to improve the flow of information. Agricultural inspectors and other port officials attributed the delay in receiving information to the transfer of some inspection roles and responsibilities from USDA to DHS. This transfer has created additional layers of communication that have impeded the rapid delivery of critical information to port inspectors. Whereas USDA used to communicate critical information directly to its agricultural inspectors, DHS inspectors told us that now they receive information indirectly through DHS headquarters. While DHS officials told us this practice is not the agency’s policy, they acknowledged that some ports follow a hierarchical chain of command. The memorandum of agreement between the two agencies, which is designed to delineate new roles and responsibilities, does not detail how DHS should convey alerts, warnings, directives, or guidelines that come from USDA. Finally, DHS and USDA have different databases and information technology systems, including email, which has further hindered their ability to share information. For example, agricultural inspectors who transferred to DHS have experienced difficulty in accessing USDA’s intranet site, where the Work Accomplishment Data System, the primary agricultural inspections database, can be viewed. DHS agricultural inspectors told us they still cannot enter USDA’s electronic Emergency Action Notification System, which was created after September 11, 2001, to track problematic or prohibited imported goods at ports of entry. DHS officials acknowledged technical problems in the integration of the two agencies’ systems, but said that they are working with USDA to address these problems. As a related matter, some DHS inspectors we spoke with expressed concern that the cross-training for “legacy” customs and immigration inspectors on agricultural laws, policies, and inspection procedures is insufficient—and that these legacy inspectors are thus not able to increase the number of items they refer to agricultural inspectors for further examination. For example, while legacy customs inspectors receive weeks of cross-training on immigration functions, they receive only 3 hours of computer-based training on agriculture. Inspectors told us that while the computer-based training raises awareness of the importance of agriculture, it has not enabled legacy customs and immigration inspectors to increase the amount of prohibited items they refer to agricultural inspectors. Furthermore, the training is not always supervised by an agricultural inspector who could answer questions. DHS officials agree that training for legacy customs and immigration inspectors should be enhanced, and told us that much training enabling legacy officers to make referrals to agriculture specialists has been accomplished. These officials also told us that all inspectors will be required to take a new course on agriculture procedures that will be launched in fiscal year 2005. This course, which will combine 16 to 24 hours of classroom and on-the-job training, is intended to help customs and immigration inspectors better screen and refer suspicious items to agricultural inspectors. Fewer Inspectors Are Available to Help USDA Manage Agricultural Emergencies In addition to the decline in inspections and interceptions, DHS has not been able to loan sufficient numbers of inspectors to respond to agricultural emergencies managed by USDA, according to USDA officials. Since the transfer of agricultural inspectors to DHS, the memorandum of agreement between the two agencies implementing the transfer provisions of the Homeland Security Act of 2002 states that DHS and USDA agreed to develop procedures for USDA use of DHS employees, but it does not detail how many employees DHS must loan, or for what time period. While DHS has dispatched some agricultural inspectors on temporary duty, USDA officials said that compared to the assistance available prior to the transfer to DHS, the number of such personnel and the length of time they were available have been inadequate. For example, USDA’s Western Regional Office requested 83 agricultural inspectors from DHS to help control and contain the exotic Newcastle disease outbreak in California over 2 months in 2003. DHS provided 26 employees, but declined USDA’s requests for further assistance. As a result, USDA officials are concerned that DHS will not loan a sufficient number of specialists to help treat and contain future agricultural emergencies, including the likely infection of the 2005 soybean crop with soybean rust—a plant disease identified by USDA pursuant to the Bioterrorism Act of 2002 as having the potential to pose a severe threat. DHS officials told us they have not been able to loan greater numbers of inspectors to USDA to respond to agricultural emergencies because of the staff shortage. DHS officials also said their policy is to loan agricultural inspectors with specific expertise, but the agency’s first priority is to clear ports of entry. Once DHS feels the ports are adequately staffed with agricultural inspectors, the agency will be in a better position to dispatch agricultural inspectors to USDA for emergency purposes. Experts say that routine inspections at ports of entry cannot, by themselves, prevent the accidental or intentional introduction of diseases. However, experience has shown that inspections can be successful in intercepting harmful diseases. In 2004, for example, DHS and USDA agricultural inspectors at a California mail facility prevented an outbreak of citrus canker when they successfully intercepted an illegal package of branch cuttings from Japan that were intended to start a new variety of citrus groves. An outbreak of citrus canker—a highly contagious bacterial disease—would threaten the state’s crop and billion-dollar citrus industry, the second-largest in the nation. The state of Florida, for example, has lost 2.1 million citrus trees due to the spread of the disease since 1995. Federal agencies face barriers to promptly and effectively sharing critical guidance that is important to state and industry stakeholders to better protect the agriculture sector. State and industry officials told us they did not receive draft national guidance in a timely fashion; DHS may not be providing states sufficient guidance to allocate homeland security grant funding for agriculture; and after-action reports on test exercises and real outbreaks are not routinely shared with many stakeholders who could benefit from the lessons learned. While efforts have been made to include agricultural stakeholders in the development of national guidance through various working groups, state and industry officials told us they were not given sufficient time to review and comment on key draft national guidance from DHS pertaining to protecting infrastructure and preparing for emergencies. Specifically, officials said that they had as little as 3 days to review and submit comments on both the draft National Response Plan and the draft National Infrastructure Protection Plan, even though they will be expected to implement critical sections of these plans. As a result, state and industry officials we spoke with are concerned that these plans may set unrealistic expectations. Although we asked, DHS officials did not explain to us how they distributed the National Response Plan to stakeholders. When distributing the National Infrastructure Protection Plan, DHS officials sent the plan to the offices of State Homeland Security Advisors, which had the responsibility to solicit comments from appropriate stakeholders within a 2-week period. DHS officials told us that they had no input over which state agencies received the draft plan, and they believe that in some instances state officials may have delayed distribution to state departments of agriculture. DHS also distributed the draft plan for review through the Government Coordinating Council and the Food and Agriculture Sector Coordinating Council. DHS officials told us that limiting the comment period to 2 weeks was necessary in order to meet the timelines set by HSPD-7. DHS officials further noted that because of the limited time allowed for initial review of the National Infrastructure Protection Plan, they released the plan as an interim document, allowing public and private stakeholders to have more input in the final plan. DHS officials acknowledged that in the future, they will use different procedures to distribute drafts for state and industry comments. Furthermore, DHS may not be providing sufficient guidance to the states on how to use the Homeland Security Grant Program to obtain federal emergency preparedness assistance to support the agricultural sector. Although states must fulfill a number of requirements to receive DHS emergency preparedness grants, DHS gives leeway regarding which disciplines—such as fire, law enforcement, or agriculture—states choose to fund with DHS grants. However, according to federal and state officials, in the past, states used grant funding mainly for “traditional” emergency disciplines such as law enforcement. Prior to 2004, DHS grant application kits did not refer to agriculture as a sector eligible for emergency assistance. DHS grant program officials told us that, based on feedback from the states, in 2004 they included agriculture as an emergency discipline toward which states can apply DHS funding. However, despite the inclusion of agriculture in the application guidance, state officials told us that they have received limited funding from DHS relative to other emergency disciplines. For example, one official from a major agriculture state told us that in fiscal year 2004 the state had set aside less than $600,000 for agroterrorism projects out of a total of over $20 million that DHS had allocated to the state. The same state had received a $2-million grant to head a multistate partnership to protect against agroterrorism in fiscal year 2003, but because this amount was in the form of a directed grant, it could not be used to purchase equipment or training for state or local responders. Federal officials believe that agriculture continues to receive limited emphasis in the fiscal year 2005 grant kit relative to other funding priorities. For example, in several instances throughout the fiscal year 2005 grant kit, agriculture does not appear in lists of other disciplines that are eligible for funding. Federal officials told us that without additional guidance or emphasis, state governments would continue to fund traditional emergency preparedness disciplines without considering agriculture. Finally, state and industry officials told us that there is no mechanism to share lessons learned from federal and other state or industry test exercises or from real-life animal and plant disease outbreaks—such as the exotic Newcastle disease outbreak in California or from the karnal bunt outbreak in Texas. Several state and industry representatives expressed interest in receiving after-action reports so they could benefit from lessons learned. They also believe that lessons learned do not have to be industry- specific. For example, one crop industry group official told us it would be helpful to learn from FMD exercises, as well as the real-life bovine spongiform encephalopathy outbreak, about ways to better communicate during an outbreak. DHS officials told us that they will soon deploy a secure Web site for the food and agriculture sector as a component of DHS’ Homeland Security Information Network. According to these officials, this new Web site, now in development, will provide government and industry the capability for information sharing; disseminating alerts and warnings; sharing best practices; and coordinating efforts between the states, industry, and federal agencies in a protected environment. However, this effort is still in its early stages, and to date the proposed Web site does not include after-action reports. In addition, federal, state, and industry officials we spoke with were apparently unaware of the Web site’s development. USDA faces another management challenge in helping states prepare for animal and plant emergencies because of an insufficient number of Area and Regional Emergency Coordinators. As a result, states are not receiving sufficient federal assistance in developing emergency response plans and other activities. In 2002, USDA created 14 Area Emergency Coordinator positions for animal health issues, and 1 Regional Emergency Coordinator position for each of the eastern and western regions for plant disease outbreaks. By the time of our report, USDA had filled 13 of the 14 coordinator positions on the animal side, and both of the plant health positions. However, 2 of the animal health emergency coordinator positions—which together span six states, including the two biggest agricultural states—were vacant until late 2004. Federal officials also told us that the current number of emergency coordinator positions is insufficient to cover their areas or regions, even if all the positions were filled. This is because the emergency coordinators are responsible for large geographic areas. On average, Area Emergency Coordinators cover 3 states, while Regional Emergency Coordinators are responsible for up to 27 states, plus territories. As a result of this heavy workload, USDA officials said, states are not receiving the maximum benefit of a coordinator’s guidance and assistance in preparing state emergency response plans and other preparedness activities. For example, 10 states had not completed their required planning documents to identify resources needed in a plant health emergency, by the September 30, 2004, deadline. And of those plans submitted, USDA found some to be of unsatisfactory quality. USDA officials attributed these delays and deficiencies, in part, to the fact that the Regional Emergency Coordinators cannot spend adequate time with state and federal agricultural officials in each state. They added that if there were a greater number of emergency coordinators, each coordinator would have fewer states to cover and thus more time to devote to their advisory responsibilities. USDA is also struggling to attract an adequate number of qualified applicants due to the heavy travel involved to cover their areas or regions. In addition, the job requires traveling to animal or plant health emergency locations anywhere in the United States with as little as 24 hours notice, and for several weeks or more at a time. For example, one animal health emergency coordinator made 29 trips away from his duty station in 14 months on the job, not including other meetings in his three-state area. These trips were necessary for test exercises, conferences, regional FEMA meetings, USDA meetings, and the exotic Newcastle disease outbreak, which occurred in a state outside his area. USDA officials say that APHIS’ goal is to put an Area Emergency Coordinator in each of the 43 states where there is an Area Veterinarian in Charge, and to increase the Regional Emergency Coordinators for plant disease outbreaks. Government and industry officials have expressed concern about shortcomings in DHS’ coordination of national efforts to protect against agroterrorism. Since the issuance of HSPD-9 in January 2004, DHS and other federal agencies established several interagency working groups to address the tasks set out in the directive. To oversee these working groups, DHS recently established a Government Coordinating Council for agriculture. According to DHS officials, the council’s charter outlines the specific tasks for federal agencies and the numerous working groups that have been established to address HSPD-9. However, other federal officials have expressed concern that because the working groups were established prior to the development of the council, activities under way are not well coordinated. For example, according to agency officials, the task list developed by the Government Coordinating Council Charter does not correspond to the tasks outlined in other important national guidance documents, such as the National Response Plan. This discrepancy could lead to confusing implementation of national guidance. Furthermore, state and industry officials we interviewed said they did not understand the roles and responsibilities of these various groups and that no one seemed to be tracking the specific purpose of various efforts. In addition, DHS lacks controls to coordinate research efforts with other agencies, even though HSPD-9 specifically designates DHS as the agency responsible for coordinating research efforts to protect against agroterrorism. For example, some of the DHS-supported activities at the Centers of Excellence appear to duplicate research conducted by USDA’s Agricultural Research Service and the Cooperative State Research, Education, and Extension Service. Specifically, one center is developing rapid diagnostic tools for FMD and other foreign animal disease research that is apparently already under way at USDA. DHS officials told us that while program staff at DHS, HHS, USDA, and other agencies have engaged in some preliminary discussions, there is no overall departmental coordination of policy and budget issues concerning agriculture and food security within DHS and with other departments and agencies. USDA officials stated that while they are not aware of any overlap in the programs supported by USDA and DHS, they are also not aware of the full scope of the activities of the Centers of Excellence. USDA officials agree that more coordination and cooperation is needed between USDA and DHS regarding research activities. While the development of USDA and HHS national diagnostic laboratory networks is a positive step, their effectiveness in sharing diagnostic information about diseases is compromised because their databases are not yet integrated. At the time of our review, USDA had not integrated the databases of its own national laboratory networks due to compatibility and confidentiality issues. Because the USDA-affiliated laboratories operated independently prior to the creation in 2002 of the National Animal Health Laboratory Network and the National Plant Diagnostic Network, the member laboratories are still using their individual databases. USDA officials say these individual databases use different codes and messaging systems and thus do not communicate well with each other. For example, each National Animal Health Laboratory Network facility enters animal disease diagnostic information into its own database, but neither of the other laboratories in the network nor USDA’s NVSL—which is responsible for officially testing foreign animal diseases—can read that information. Instead, USDA relies on traditional communication channels, such as emails and phone calls, to relay test results and the recipients do not have electronic access to the detailed data. This approach limits USDA’s ability to look at diagnostic data from across the country, detect trends, and implement a response as quickly as it could with an integrated, real-time system. USDA officials told us that if their laboratories’ diagnostic databases were linked to each other nationally, the agency would be able to better monitor and respond more quickly to disease outbreaks. USDA stresses that the ability to share diagnostic information quickly is particularly important for diseases that spread rapidly, such as FMD, because response time is critical in controlling the spread of the disease and reducing the economic impact. In addition, the Food Emergency Response Network, CDC’s Laboratory Response Network, and USDA’s National Animal Health Laboratory Network and National Plant Diagnostic Network have not yet linked their databases to each other for diseases of common concern. USDA and HHS officials say it is important for their agencies to rapidly share complete diagnostic test results with each other regarding diseases of concern to all of the agencies involved. For example, if USDA found a chicken with a strain of avian influenza that is transferable to humans, it would be important for CDC to immediately become aware of this information so that it could take appropriate measures to protect human health. Similarly, if USDA confirmed a cow with bovine spongiform encephalopathy, it would be important for FDA to know quickly so that it could investigate whether the infected products had entered the food chain and take any necessary action. In addition, USDA officials say that an integrated diagnostic information system would aid federal agencies’ ability to gather evidence in investigations, including criminal ones, of disease outbreaks. Federal agencies are aware of the importance of integrating databases and are taking steps to link their networks. As authorized by the Bioterrorism Act of 2002, USDA is currently working on integrating all of the National Animal Health Laboratory Network facilities so that they are able to send diagnostic information in real-time to a national, electronic database. This new database will allow diagnostic information to be sorted and analyzed by USDA’s Centers for Epidemiology and Animal Health to track animal diseases across the United States and detect any trends. If a positive test result from any of the laboratories enters this new database, it will automatically trigger a series of events to notify relevant parties. USDA officials say that while they will still rely on phone calls and other communication channels, this integrated, real-time database will improve accuracy and speed in the event of an emergency. So far, USDA has piloted the integration of some of the National Animal Health Laboratory Network facilities’ databases for two foreign animal diseases, and it plans to launch the national database for one of those diseases in February 2005. By the end of 2005, USDA plans to integrate information from 12 pilot National Animal Health Laboratory Network laboratories into the database for the eight diseases of highest concern if this project is fully funded. In addition, USDA is planning to integrate its plant disease and pest databases for use in the National Plant Diagnostic Network to monitor outbreaks nationwide. USDA officials told us that integrating the different laboratories’ databases is a challenge because of the concern for the leak of information. This concern arises because in the event of an outbreak, there would be international trade repercussions, and USDA would be responsible for reimbursing producers for animals that would have to be destroyed. Other laboratories face similar security concerns. However, the member laboratories within CDC’s Laboratory Response Network, which has been in place since 1999, are able to securely share diagnostic results with each other, and officials told us it is important for USDA to overcome this problem. Similarly, FDA uses a secure data exchange vehicle to share information across its diagnostic laboratory network. In an effort to address security concerns, USDA has begun building firewalls and developing a set of protocols to protect data and ensure confidentiality in such an environment. As called for in HSPD-9, USDA and HHS created an interagency working group in late 2004 to begin the process of coordinating their networks for zoonotic disease surveillance. For example, USDA and FDA are looking at how they can share animal disease and food pathogen test results through a secure data exchange. However, the agencies must also work out common testing benchmarks and protocols in order to interpret each other’s diagnostic information accurately. For instance, if CDC was aware of the type of diagnostic tools that USDA was using, the agency would be better able to interpret results and take appropriate action. Agency officials added that DHS’ planned National Biosurveillance Integration System intends to use information from the various federal laboratory networks and combine this with threat and intelligence data to further improve surveillance efforts for potential terrorist activity. DHS officials indicated that the National Biosurveillance Integration System would have an initial capability for integrating data from these laboratories by spring 2005. Prior to the terrorist attacks of 2001, relatively little attention had been focused on agroterrorism. Recently, however, agriculture is receiving more attention as experts and government officials increasingly recognize the need to reduce the vulnerability of this sector to the deliberate introduction of animal or plant diseases. Federal and state agencies are investing considerable resources to better identify and manage the risks of agroterrorism and have ramped up planning and coordination efforts to respond to such an event. There are still, however, several important challenges that should be addressed to better equip our nation to manage agroterrorism. First, the United States must enhance its ability to quickly identify and control diseases. Until USDA requires accredited veterinarians to be trained to recognize the clinical signs of foreign animal diseases, such diseases may not be detected and confirmed as early as possible, wasting valuable time that could be spent containing them. Similarly, until USDA evaluates the costs and benefits of using rapid diagnostic tools at the site of an outbreak, the agency may be missing an opportunity to reduce the impact of agroterrorism. Without on-site diagnosis to help monitor neighboring herds, animals would likely be slaughtered based on proximity rather than confirmed infection, unnecessarily magnifying the impact of an attack. Once diseases have been accurately diagnosed, the United States needs to quickly decide whether vaccines should be used to control an outbreak and have the ability to deploy ready-to-use vaccines within 24 hours. Otherwise, during an emergency, valuable time could be lost while deliberating whether to use vaccines and waiting for vaccines to be transformed into a ready-to-use state. Several less complex managerial problems should also be addressed in the short term to improve the nation’s ability to protect against agroterrorism. Our nation’s ports could be unnecessarily vulnerable to the intentional introduction of a disease or pest, unless agencies analyze the reasons for declining agricultural inspections and streamline the flow of information between USDA and DHS inspectors at ports of entry. Furthermore, states and industry may not have the ability and information to fulfill their assigned roles in protecting agriculture unless DHS provides them with meaningful opportunities to comment on national guidance; agencies share after-action reports of test exercises and real-life emergencies with these stakeholders; and USDA identifies ways to fill and expand Area and Regional Emergency Coordinator positions. Finally, until DHS ensures that tasks outlining agency responsibilities are consistent with national plans and guidelines and DHS develops a method to adequately track federally funded research efforts, the United States will lack a coordinated national approach to protect against agroterrorism, possibly resulting in gaps or needless duplication of effort. By overcoming these challenges, the United States will be in a better position to protect against and respond to a disease outbreak, whether natural or intentional. To address significant and complex challenges that limit the United States' ability to quickly and effectively respond to a widespread attack on animal agriculture, we recommend that the Secretary of Agriculture address the following four challenges in the context of the agency's overall risk management efforts: expedite the review and issuance of the draft rule on USDA’s accreditation process for veterinarians, which would require training in recognizing foreign animal diseases; evaluate the costs and benefits of using rapid diagnostic tools at the site examine the costs and benefits of developing stockpiles of ready-to-use vaccines that can be quickly deployed against animal diseases of primary concern; and simplify the decision-making process for determining if and/or when to use vaccines to control an outbreak to ensure that rapid decisions can be made in the event of a terrorist attack. To address management problems that reduce the effectiveness of agencies’ routine efforts to protect against agroterrorism, we recommend the following seven actions: the Secretaries of Homeland Security and Agriculture work together to identify the reasons for declining agricultural inspections and to identify potential areas for improvement; the Secretaries of Homeland Security and Agriculture streamline the flow of information between USDA and DHS agricultural inspectors, and expedite the integration of the two agencies’ databases and information technology systems at the port level; the Secretary of Homeland Security develop a mechanism to promptly and effectively seek input from key stakeholders on national guidance that affects their roles in protecting agriculture and responding to an emergency; the Secretaries of Homeland Security, Agriculture, and Health and Human Services, and the Acting Administrator of the Environmental Protection Agency compile relevant after-action reports from test exercises and real-life emergencies and disseminate the reports through the Homeland Security Information Network that DHS is developing; the Secretary of Agriculture develop a strategy to increase the number of Area and Regional Emergency Coordinator positions so that the agency faces less difficulty filling these positions and is better able to assist states in preparing for an agriculture emergency, including a terrorist attack; the Secretary of Homeland Security work to ensure that task lists for the various agencies and working groups engaged in securing agriculture are consistent with national plans and guidelines; and the Secretary of Homeland Security develop controls to better coordinate and track federally funded research efforts with other agencies to protect against agroterrorism. We provided USDA, DHS, HHS, EPA, and DOD with a draft of this report for their review and comment. We received written comments on the report and its recommendations from USDA, DHS, and HHS. EPA and DOD provided minor technical clarifications. USDA commented that the report provided a number of appropriate and insightful recommendations. In several instances, USDA said it could take actions that relate to our recommendations. For example, USDA said that the department could explore the possibility of speeding up its process for deciding when to use vaccines and that it will consider options to cut some of the delay in obtaining ready-to-use vaccines. The department also raised some concerns regarding various aspects of our report. For example, as we recommend, USDA noted that there may be opportunities to use rapid diagnostic tools to help with diagnosis of animal diseases, but said that the tools need to be validated. Further, USDA commented that the agency would in all cases still require confirmation that relies on traditional testing procedures. As stated in our report, we continue to believe that use of these tools at the site of an outbreak would help reduce the impact of a terrorist attack because, among other things, these tools would help prevent laboratories from becoming overwhelmed with test samples. USDA’s written comments and our detailed responses to their concerns appear in appendix VI. USDA also provided technical comments that we incorporated, as appropriate, throughout the report. DHS generally concurred with the report’s recommendations and indicated that the agency is in the process of taking several corrective actions addressing two of our recommendations. For example, as we recommend, DHS is working with USDA to identify the reasons for declining agriculture inspections and to identify potential areas for improvement. Regarding our recommendation that DHS and USDA streamline the flow of information between the two agencies’ agricultural inspectors, DHS stated that it is already working with USDA to enhance communication; that is, the two agencies are working to finalize the section in the Memorandum of Agreement governing the sharing of information. DHS also provided technical comments that we incorporated as appropriate. DHS’s written comments and our detailed responses appear in appendix VII. Overall, HHS agreed with the report’s recommendations. In commenting on our recommendation that the agencies compile relevant after-action reports from test exercises and real-life emergencies and disseminate the reports through the Homeland Security Information Network that DHS is developing, HHS officials noted that CDC already has standardized after- action reporting procedures in place. HHS officials also noted that another challenge in protecting the nation against agroterrorism is the shortage of laboratory space to conduct trials for vaccine development. HHS’s written comments appear in appendix VIII. HHS also provided technical comments that we incorporated, as appropriate, throughout the report. We are sending copies of this report to the Secretaries of Agriculture, Homeland Security, Health and Human Services, and Defense; the Acting Administrator of the Environmental Protection Agency; and interested congressional committees. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, I can be reached at (202) 512-3841 or robinsonr@gao.gov. Major contributors to this report are included in appendix IX. To determine what changes have taken place since September 11, 2001, in federal agencies’ roles and responsibilities to protect against agroterrorism, we reviewed the relevant laws and presidential directives in force before and after September 11, 2001. Specifically, our Office of General Counsel reviewed the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1974, the Agriculture Risk Protection Act of 2000, the Farm Security and Rural Investment Act of 2002, the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, and the Homeland Security Act of 2002. We also reviewed presidential directives that define agency roles in emergencies such as acts of agroterrorism, including Homeland Security Presidential Directives 5, 7, 8, and 9. Finally, we interviewed numerous agency officials from the U.S. Department of Agriculture (USDA), the Department of Homeland Security (DHS), the Department of Health and Human Services (HHS), the Environmental Protection Agency (EPA), the Department of Defense (DOD), and the Department of Justice. To determine what steps the federal government has taken to protect against agroterrorism, we examined (1) steps taken at the federal level, (2) federal action to prepare the states, and (3) coordination with industry. To determine what steps have been taken at the federal level, we reviewed classified and unclassified agency documents, including vulnerability assessments conducted by USDA and HHS for agricultural and food products; the draft of the interim National Infrastructure Protection Plan and the final version of the National Response Plan; and lists of interagency working groups and coordinating committees. We also interviewed agency officials involved in creating and enforcing U.S. policy concerning agroterrorism, including officials from USDA’s Office of Homeland Security, Animal and Plant Health Inspection Service (APHIS), Agricultural Research Service, and the Cooperative State Research Education and Extension Service; DHS’ Information Analysis and Infrastructure Protection directorate, Emergency Planning and Response directorate, Border and Transportation Security directorate, Science and Technology directorate, and Office for Domestic Preparedness; HHS’ Food and Drug Administration and Centers for Disease Control and Prevention; and EPA. In addition, we contacted USDA’s Inspector General and state governments to determine what prior work had been done in this area. To identify federal actions to strengthen surveillance at the borders we visited or spoke with officials at three maritime ports, three airports, one border- crossing, and one international mail facility, where we interviewed inspectors in DHS’ Customs and Border Protection, USDA’s Plant Protection and Quarantine, and USDA’s Veterinary Services. We also reviewed documents obtained from officials and inspectors, including samples of inspection records, training schedules, as well as interagency agreements that clarify agency roles and responsibilities, such as the Memorandum of Agreement between DHS and USDA. Finally, we spoke with officials at DHS’ Customs and Border Protection headquarters in Washington, D.C. To assess the federal government’s coordination of its efforts to protect against agroterrorism, we considered the Office of Management and Budget Circular A-123, Management Accountability and Control, and the standards in GAO’s Internal Control: Standards for Internal Control in the Federal Government. To determine how the federal government is helping states to protect against agroterrorism, we used structured interviews of state and federal officials in three major agriculture states we visited between July and October 2004. We selected these states in part because of their status as the top three producers of agricultural commodities sold before processing, according to data that we obtained from USDA’s Economic Research Service. Additionally, prior to our visit to the major agricultural states, we visited officials in another state to test our structured interview methodology. In these four states, we interviewed officials from state agencies overseeing agriculture, homeland security, and emergency services; personnel from federal and state diagnostic laboratory networks and research centers; and officials from the regional or state offices of USDA and the Food and Drug Administration. In addition to the three top producing agriculture states, we had selected a fourth state to visit to get a wider geographic distribution, but due to severe weather during the fall of 2004, we were only able to interview officials from the state department of agriculture by phone. We also reviewed documentation from state and federal officials, including state agricultural emergency response plans, after-action reports from disease outbreaks and test exercises, and federal guidance to the states. To determine how the federal government is coordinating with industry to protect against agroterrorism, we reviewed federal guidance to industry. We also interviewed officials from organizations representing agriculture interests in Washington D.C., and officials from DHS, USDA, and HHS who are involved in coordinating with industry. Finally, we attended coordinating meetings in Washington, D.C., involving representatives from the food and agriculture sector and federal agencies. To determine what challenges remain to protect against agroterrorism, we used knowledge gained in addressing our other objectives. Using structured interviews, we consulted with nongovernment experts in the fields of agricultural security and counterterrorism. We selected our experts based on their professional and research qualifications and experience in the field of agroterrorism. We then analyzed the content of the experts’ responses to identify common themes. Finally, we analyzed the content of relevant peer-reviewed journal articles to identify common themes. We conducted our work from February 2004 through January 2005 in accordance with generally accepted government auditing standards. This appendix provides the names and affiliations of nongovernment experts from academia and other research organizations that we interviewed during our work and summarizes key observations they made. The information presented in this appendix does not reflect absolute consensus of opinion among the experts on each topic; however, it summarizes their observations on issues where many of the experts held similar views. The information contained in this appendix should not be considered to be the views of GAO. Roger Breeze, B.V.M.S., Ph.D., M.R.C.V.S., CEO, Centaur Science Group, Former Director, Plum Island Animal Disease Center; Corrie Brown, D.V.M., Ph.D., Professor and Coordinator of International Activities, Department of Veterinary Medicine, University of Georgia; Rocco Casagrande, Ph.D. in Biology, Director, The Center for Homeland Security, Abt Associates; Peter Chalk, Ph.D. in Political Science, Security and Political Analyst, the Rand Corporation, Santa Monica, California; R. James Cook, Ph.D., Interim Dean, College of Agricultural, Human, and Natural Resource Sciences, Washington State University, Pullman, Washington; Radford Davis, D.V.M., M.P.H., Assistant Professor of Public Health, College of Veterinary Medicine, Department of Veterinary Microbiology and Preventive Medicine, Iowa State University; Jacqueline Fletcher, Ph.D., Past President of the America Phytopathological Society, Currently Sarkeys Distinguished Professor, Department of Entomology and Plant Pathology, Oklahoma State University; David R. Franz, D.V.M., Ph.D., Director, National Agricultural Biosecurity Center, Kansas State University; Brian Jenkins, Senior Advisor to the President of the Rand Corporation, Member of the Comptroller General of the United States’ Advisory Board; Harley Moon, D.V.M., Ph.D., Chair, National Research Council Committee on Biological Threats to Agricultural Plants and Animals, Veterinary Medical Research Institute, Iowa State University; James A. Roth, D.V.M., Ph.D., Distinguished Professor of Immunology, Assistant Dean, International Programs and Public Policy; Director, Center for Food Security and Public Health, College of Veterinary Medicine, Iowa State University; John L. Sherwood, Ph.D., Chair, American Phytopathological Society Public Policy Board, Professor and Department Head, Department of Plant Pathology, University of Georgia; Mark C. Thurmond, D.V.M., Ph.D., Professor, Department of Medicine and Epidemiology, University of California, Davis; Alfonso Torres, D.V.M., MS, Ph.D, Executive Director, New York State Animal Health Diagnostic Laboratory, and Associate Dean for Veterinary Public Policy, College of Veterinary Medicine, Cornell University; and Mark Wheelis, Senior Lecturer in Microbiology, University of California. We conducted structured interviews with nongovernment experts in the fields of animal and plant diseases, terrorism, bioterrorism, and agroterrorism. Before conducting our interviews, we reviewed the experts’ relevant studies and publications and provided them with a list of questions. We sought their views on a range of topics, including the vulnerability of U.S. agriculture, government agencies’ roles and responsibilities, and agencies’ efforts to protect against agroterrorism. In general, experts agree that U.S. agriculture is vulnerable to agroterrorism because of the relative ease with which highly contagious diseases can be introduced in livestock and crops. An agroterrorism event could not only cause severe economic losses to farmers and rural communities, it could also halt or slow down international trade, and negatively impact consumer confidence in the government’s ability to ensure the safety of our food supply. For these reasons, many experts believe that agriculture is an attractive target for terrorists. Some experts note that the methods for containing the spread of highly infectious animal diseases—the highly visible and costly slaughter, incineration, and/or burial of large numbers of animals—creates the incentive for terrorists to attack. Most experts note that livestock presents a more attractive target for terrorists than crops, although both are vulnerable. The biggest threat at the farm level would be the deliberate introduction of FMD, a highly contagious animal disease that has been eradicated in the United States. Highly contagious animal diseases can spread more quickly than plant diseases, and the concentration of animals in feedlots and livestock markets would contribute to the rapid spread of infection. Experts remarked that an attack of this sort would be cheap, requires no technical expertise, and would not harm the perpetrator. Some experts remark that transportation of live cattle, hogs, and poultry, across the country further enables diseases to spread quickly and easily over large areas. On the other hand, some of the experts state that plant diseases often need particular weather and environmental conditions for them to take hold and flourish, making them a less attractive target. Most experts identify the same group of animal diseases as the most likely to be used against agriculture—those include FMD, avian influenza, classical and African swine fevers, and exotic Newcastle disease. However, there is wide consensus among experts that FMD poses the highest risk because it is highly contagious, it results in the need to destroy large numbers of animals which, in turn, generates a great deal of media attention, and can inflict severe economic losses. Some of the experts also raise concerns about zoonotic diseases such as Rift Valley fever, Nipah Virus, and highly pathogenic avian influenza, but not all experts agree that zoonotic diseases pose a significant threat. On the plant side, some experts identify soybean rust as the disease of most concern because it is easy to introduce and can spread by wind-borne spores. Another expert raises concerns about the threat of contamination with genetically engineered seeds and observes that it would only take one or two seeds to contaminate an entire cargo of product. Some experts we interviewed agree that the federal government is undertaking significant initiatives to protect against agroterrorism. They have generally favorable comments regarding the role that DHS plays in protecting against agroterrorism. Some see the emergence of DHS as a coordinator for agroterrorism activities within the federal government as a major change that signals the importance of the agriculture sector. Some experts also indicate that there was initial confusion about DHS’ role and that, because the agency is still very new, their role is still evolving. Many experts identify the lack of communication at the federal level as their biggest concern and observe that within the federal government there is no clear understanding of the initiatives that are in place to protect against an attack and that there appears to be a duplication of efforts. Some experts believe that there is little coordination between federal and state agencies, or between states, and that federal agencies are not sufficiently sharing information with state and local officials. Also, there is insufficient coordination and communication with industry groups. In terms of planning efforts, several experts indicated that the development of a National Response Plan and associated Emergency Support Functions is exactly what was needed. They believe that it is important to include the states’ input in the preparation of those documents since the states will be the first responders. Several experts state that preparing a response plan for dealing with an unintentional outbreak would also be useful in preparing for an agroterrorism event. Many experts note that test exercises can help identify potential problems in response plans that may arise in application. Many experts agree that focusing the majority of efforts on preventing agroterrorism is not the answer because it is impossible to prevent all disease introductions, whether accidental or intentional. Instead, several experts note that agencies need to focus more on rapid detection and identification of diseases and in establishing quick response mechanisms. Most experts agree that USDA’s creation of the National Animal Health Laboratory Network and the National Plant Diagnostic Network is a positive development. However, some experts disagree as to whether the networks can provide sufficient surge capacity or if they need to be expanded. Some experts recommend additional research and development to create FMD vaccines that contain markers to differentiate animals that are merely vaccinated from those that are infected. While some experts agree that training of veterinarians in foreign animal diseases is inadequate, others note that actual training and awareness of the importance of such training has improved. Some experts explain that foreign animal disease training is not required in all veterinary schools. This training is also not a prerequisite to become a USDA- accredited veterinarian. On the plant side, some experts note that the United States does not have an adequate number of people trained in plant pathology. Many experts agree that more federal funding should be dedicated to plant pathology research and job creation. Some experts recommend using rapid diagnostic tools at the site of an outbreak, rather than shipping samples to USDA reference laboratories. They state that this would save valuable time in containing diseases, whether naturally occurring or resulting from agroterrorism. The use of these rapid tools on site would also help prevent laboratories from becoming overwhelmed with samples, particularly if a terrorist attack involved the multi-focal introduction of a disease or if diseases were repeatedly introduced over long periods of time. DHS worked jointly with other federal agencies to develop the interim National Infrastructure Protection Plan, a standardized plan to safeguard the nation’s critical infrastructure, including agriculture, before a terrorist attack occurs. USDA and HHS, in consultation with DHS, developed sector- specific plans for agriculture and food, which were incorporated into the interim National Infrastructure Protection Plan. These sector-specific plans outline activities including: Identifying the sector’s assets; Identifying and assessing the vulnerabilities and interdependencies among assets, and analyzing potential risks based on threats and consequences; Prioritizing assets based on an analysis and normalization of Developing sustainable programs to protect assets and implementing these programs when necessary; and Using metrics to measure and communicate the effectiveness of the sector-specific plans. The National Infrastructure Protection Plan outlines roles and responsibilities for federal, state, and local governments to safeguard agriculture. The plan includes a description of coordination activities to reduce the vulnerability of critical infrastructures. According to DHS officials, the department—along with other federal departments and agencies—will work with state and local governments and the private sector to further refine stakeholder roles and responsibilities in order to implement the National Infrastructure Protection Plan. In addition, these entities will work together to implement sector-specific plans that will support the National Infrastructure Protection Plan. The results of these implementation efforts will be reflected in the next version of the National Infrastructure Protection Plan, which according to DHS officials, will be issued within 270 days of issuance of the current interim plan. In addition to the National Infrastructure Protection Plan, DHS coordinated the integration of various interagency and agency-specific incident management plans into a single all-hazard National Response Plan that would be used in the event of a terrorist attack. The National Response Plan includes appendixes, known as Emergency Support Functions, that detail the responsibilities of federal agencies for coordinating resources during national emergencies. One of the these appendixes, Emergency Support Function-11, outlines the roles and responsibilities of local, state, and federal responders in addressing the national response to outbreaks or other emergencies in the food and agriculture sector. For example, Emergency Support Function-11: Assigns USDA, through APHIS, as the lead agency for responding to a disease outbreak, and outlines USDA’s role in supporting such activities as detection, control, and eradication; Assigns state agencies, along with USDA’s Area Veterinarian-in-Charge, the task of establishing a Joint Operations Center, which will serve as the focal point for coordinating the disease management and decision- making process; and Assigns local or county governments with the task of activating an Emergency Operations Center to provide a local base of operations. As directed by HSPD-5, DHS is overseeing the adoption of a National Incident Management System by federal and state agencies that will be used in an agroterrorism event. According to HSPD-5, the National Incident Management System, released in March 2004, is intended to provide a consistent nationwide approach for federal, state, and local governments to work effectively and efficiently together to prepare for, respond to, and recover from domestic incidents, regardless of cause, size, and complexity. The National Incident Management System is a management framework rather than a plan. It is intended to ensure coordinated responses to disasters and terrorist attacks by outlining common standards for preparedness training, exercises, and certification. A key component of the National Incident Management System is the Incident Command System, which is designed to coordinate the communications, personnel, and procedures of different agencies and levels of government within a common organizational structure during an emergency. The Incident Command System, which was initially developed by the USDA Forest Service and the state of California to help fight forest fires, has already been adopted by a number of agencies and state governments. According to USDA and state officials, the Incident Command System has already been used in two natural animal disease outbreaks—an outbreak of low- pathogenic avian influenza among turkeys in Virginia and an exotic Newcastle disease outbreak among chickens in California. Since 2001, exercises have simulated animal and plant disease outbreaks and have tested aspects of the new National Incident Management System protocols and the latest federal and state emergency response plans. These exercises are in line with HSPD-9’s goal of ensuring that the combined federal, state, and local response capabilities are adequate to respond quickly and effectively to a terrorist attack. For example, in July 2004, Kansas State University sponsored “Exercise High Plains Guardian,” a 2- day exercise to test the ability of federal and state military and civilian first responders to cooperate in responding to an outbreak of FMD. The scenario addressed quarantines, highway closings, elapsed time waiting for federal lab results to confirm the suspicions of state veterinarians, and, after positive confirmation, massive euthanizing and carcass disposal efforts. As a result of these exercises, federal, state, and industry officials told us that in general, the exercises have been useful in allowing players to better understand their roles and responsibilities in a real-life event, uncover shortfalls they had not necessarily foreseen in planning, and test solutions. For example, the 2002 FMD exercise “Crimson Sky” made it clear that USDA would be the lead federal department in providing policy and direction for detecting, controlling, and eradicating an animal disease outbreak. At the same time, the exercise indicated the importance of interdependence between federal, state, and industry stakeholders in carrying out emergency management and logistical response functions. Furthermore, the exercise raised key issues concerning information- sharing between these players and the public, stopping and resuming movement of animals, mobilizing federal resources, indemnity, vaccination of herds, and decontamination policy. FDA’s initial vulnerability assessment utilized an analytical framework called Operational Risk Management that considered both the severity of the public health impact and the likelihood of such an event taking place. FDA incorporated threat information received from the intelligence community. To validate the findings, FDA contracted with the Institute of Food Technologists to conduct a review of the initial assessment and provide a critique of its application to food security. This review validated FDA’s vulnerability assessment and provided additional information on the public health consequences of a range of scenarios involving various products, agents, and processes. FDA also contracted with Battelle Memorial Institute to conduct a “Food and Cosmetics, Chemical, Biological, and Radiological Threat Assessment.” This assessment provided another decision-making tool and validated previous findings. FDA updated and refined these assessments using a process developed by DOD for use in assessing the vulnerabilities of military targets. This assessment tool is known as “CARVER + Shock” and takes into consideration information such as accessibility, vulnerability, and shock (the shock value of an attack on a target due to the heinous nature of terrorist events). FDA plans to use the results of these updated assessments to develop technology interventions and countermeasures, identify research needs, and provide guidance to the private sector. Similarly, USDA is using the CARVER + Shock tool for assessing vulnerabilities in USDA-regulated products, based on subject matter experts and intelligence information. USDA was still developing the assessment at the time of our review. In addition to the Government Coordinating Council and the Food and Agriculture Sector Council, federal agencies have established a number of interagency working groups. One such interagency working group composed of DHS, USDA, and CDC, is overseeing the development of a national disease surveillance system. This system, when established, will allow DHS to incorporate information on disease outbreaks from other agencies to determine whether an outbreak is natural or intentional. USDA, with support from DHS and EPA, is leading another working group that is preparing a plant disease recovery system that is intended to allow U.S. crop production to quickly recover from an attack. A final example of one of the interagency working groups is one led by EPA and supported by USDA, HHS, DHS, and DOD that has laid out interagency roles in supporting state and local governments in decontamination and disposal of infected plants and diseased animals following a major disease outbreak. DHS, USDA, and other agencies are funding research to protect agriculture. Of note, DHS has established two Centers of Excellence that, along with partner institutions, will oversee research to protect agriculture and the food supply. DHS is providing $15 million in funding to the University of Minnesota to oversee research into post-harvest food protection and $18 million to Texas A&M University to oversee research into diseases that affect food animals. This funding is for a 3-year period of time. For example, the Center of Excellence at Texas A&M will support efforts to model the outbreak of FMD, which will allow responders to develop accurate plans to counter an outbreak. The center will also support research into the development of real-time diagnostic equipment and vaccines against foreign animal and zoonotic diseases. Furthermore, the center will develop training curricula for first responders, industry officials, and production workers to increase response capability and awareness of possible threats. USDA is also funding efforts to increase agricultural security through the ARS, the research arm of USDA, and the Cooperative State Research Education and Extension Service, which supports research at universities and other institutions. USDA funding supported research at facilities such as the National Agricultural Biosecurity Center at Kansas State University, which will conduct projects including the evaluation of contaminated carcass disposal efforts, assessments of animal and plant disease test exercises, and the analysis of pathways by which foreign animal and plant disease can enter the United States. Finally, other agencies are supporting research into agricultural security. For example, CDC provided $1 million per year to Iowa State University to fund a center for food security and public health. This center will support efforts such as “train the trainer” programs to educate veterinarians in foreign animal diseases. USDA’s National Animal Health Emergency Management System incorporates a nationwide network of state and federal personnel in each state, a National Animal Health Laboratory Network, and Area Emergency Coordinators operating within the National Response Plan and the National Incident Management System. The system also includes a steering committee consisting of representatives of the animal health community and other stakeholders that provides a means of communication and coordination on issues of emergency management and response. The central principles of the National Animal Health Emergency Management System are provided in a single set of written guidelines that consolidate strategy, operations, facility management, and administrative procedures. The following are GAO’s comments on the U.S. Department of Agriculture’s letter dated February 23, 2005. 1. Regarding USDA’s comments about the use of rapid diagnostic tools at the site of an outbreak, our report acknowledges that USDA has already utilized these tools for the control of exotic Newcastle disease and avian influenza, but notes that USDA has only done so in a laboratory setting. The report also acknowledged USDA’s concern for using this technology at the site of an outbreak. For example, we noted that rapid diagnostic tools still need to be validated for many diseases, including FMD. Furthermore, the report acknowledges USDA’s concern that samples need to be sent to USDA’s reference laboratories for final confirmation to determine the disease subtype, which must be known to deploy the correct type of vaccine. However, we continue to believe that use of these tools at the site of an outbreak would help reduce the impact of a terrorist attack because the tools would allow for a more rapid diagnosis so that informed control measures could be implemented as quickly as possible, and they would also permit the monitoring of nearby herds before symptoms appeared so that only infected herds would have to be killed. We understand that it would not be appropriate or cost-effective to test all animals within a herd for any highly infectious foreign animal disease because in all likelihood, if one tests positive, the other animals in that herd would already be infected. Also, as noted by state officials, the use of these tools would help prevent laboratories from becoming overwhelmed with test samples in the event of a terrorist attack involving the introduction of diseases at multiple locations. 2. Regarding USDA’s comments about the use of vaccines to control an outbreak, we acknowledge that using vaccines to control an outbreak has some limitations; however, as our report states, a recent USDA test exercise of an intentional introduction of FMD in multiple locations suggests that the current “stamping out approach” would have catastrophic results. Also, in February 2005, the National Audit Office in the United Kingdom reported that based on experience from the 2001 FMD outbreak in the United Kingdom, the ability to vaccinate, in conjunction with culling, may be necessary to contain an FMD outbreak. The report further states that the government in the United Kingdom has substantially increased stocks of vaccines for FMD in order to better contain the spread of FMD should another outbreak occur. Furthermore, USDA’s draft response plan for an outbreak of foot and mouth disease or other highly contagious animal disease notes that vaccines may be used strategically to create barriers between infected zones and disease-free zones. We have added this information to the report. Furthermore, our report does not imply that it is cost effective to maintain a supply of vaccines for every possible permutation of each disease of concern. In fact, the report clearly states that it is unlikely that vaccines will ever be developed for all strains of diseases and the report also notes that vaccines should be developed for those of primary concern to USDA. We do not state that vaccines are necessary for all foreign animal diseases. We acknowledge, however, that our report did not address the need to develop marker vaccines, and we have modified the report to reflect this need. Finally, in response to USDA’s comment about simplifying the decision-making process on vaccine use, we have added language to the report to clarify USDA’s position. 3. We modified our report to state that while all U.S. veterinary schools offer information about foreign animal diseases, only about 26 percent of the nation’s veterinary graduates have taken a course specifically dedicated to foreign animal diseases. We also revised the report to note that, according to USDA officials, all veterinary students must take instruction in infectious diseases and pathology which, according to these officials, includes foreign animal diseases. In addition, we modified the report to state that USDA officials believe that requiring accredited veterinarians to be licensed ensures that they receive basic training in foreign animal diseases. Furthermore, we note that there are a small number of personnel trained specifically in the diagnosis of foreign animal diseases. Finally, we modified the report to state that USDA officials told us that new efforts are being made to strengthen APHIS’ role in colleges of veterinary medicine to provide information on various aspects of regulatory medicine and that USDA intends to increase the number of veterinarians entering public service by working to increase the veterinary student awareness of potential careers in public service. 4. We modified our report to include a statement about USDA’s Memorandum of Agreement. The following are GAO’s comments on the Department of Homeland Security’s letter dated February 14, 2005. 1. DHS provided minor modifications to the total number of agricultural inspectors transferred from USDA as well as the number of inspectors remaining as of October 2004. We have added a footnote to our report to address this change. DHS commented that following the transition of inspectors from USDA to DHS in mid-2003, the number of agricultural inspections increased. We agree, and our report clearly identifies this increase, but also states that between 2002 and 2004, the overall number of inspections declined. 2. At the time of our draft report, USDA noted that they were unaware of the full scope of research efforts supported by DHS, and DHS officials told us that there was no overall departmental coordination of policy and budget issues concerning agriculture security research. DHS now states that since the summer of 2003, the agency has been working with USDA’s Agricultural Research Service and with the Animal and Plant Health Inspection Service to develop a joint strategy for foreign animal disease research and diagnostic programs, and that a report summarizing this strategy was submitted to the House of Representatives Appropriations Subcommittee for Homeland Security in January 2005. We have modified our report to reflect this comment. Regarding DHS’s other comments about research at the Plum Island Animal Disease Center and at the National Center for Foreign Animal and Zoonotic Diseases at Texas A&M University, our report acknowledges these efforts so we made no further modifications. 3. We agree that, as DHS states, the fiscal year 2004 and 2005 grant program guidance notes that states may expend funds towards the prevention, response, and mitigation of agroterrorism incidents through the purchase of equipment, training, exercises or planning. However, as our report states, we believe that the guidance continues to provide limited emphasis on agriculture relative to other funding priorities. As a result, state governments, which have been accustomed to seek funding for traditional emergency disciplines such as law enforcement, may not be sufficiently informed about the availability of DHS grant funds to protect their agriculture industries. In addition to the persons named above, Josey Ballenger, Jill Ann Roth Edelson, and Steve Rossman made key contributions to this report. Other contributors included Kevin Bray, Karen Keegan, Amanda Kutz, Lynn Musser, Omari Norman, Cynthia Norris, and Claire van der Lee. Drinking Water: Experts’ Views on How Federal Funding Can Best Be Spent to Improve Security. GAO-04-1098T. Washington, D.C.: September 30, 2004. Emerging Infectious Diseases: Review of State and Federal Disease Surveillance Efforts. GAO-04-877. Washington, D.C.: September 30, 2004. Homeland Security: Observations on the National Strategies Related to Terrorism. GAO-04-1075T. Washington, D.C.: September 22, 2004. 9/11 Commission Report: Reorganization, Transformation, and Information Sharing. GAO-04-1033T. Washington, D.C: August 3, 2004. Status of Key Recommendations GAO Has Made to DHS and Its Legacy Agencies. GAO-04-865R. Washington, D.C.: July 2, 2004. Coast Guard: Key Management and Budget Challenges for Fiscal Year 2005 and Beyond. GAO-04-636T. Washington, D.C.: April 7, 2004. Homeland Security: Summary of Challenges Faced in Targeting Oceangoing Cargo Containers for Inspection. GAO-04-557T. Washington, D.C.: March 31, 2004. Homeland Security: Risk Communication Principles May Assist in Refinement of the Homeland Security Advisory System. GAO-04-538T. Washington, D.C.: March 16, 2004. Homeland Security: Preliminary Observations on Efforts to Target Security Inspections of Cargo Containers. GAO-04-325T. Washington, D.C.: December 16, 2003. Bioterrorism: A Threat to Agriculture and the Food Supply. GAO-04-259T. Washington, D.C.: November 19, 2003. Combating Bioterrorism: Actions Needed to Improve Security at Plum Island Animal Disease Center. GAO-03-847. Washington, D.C.: September 19, 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. Homeland Security: CDC’s Oversight of the Select Agent Program. GAO-03-315R. Washington, D.C.: November 22, 2002. | U.S. agriculture generates more than $1 trillion per year in economic activity and provides an abundant food supply for Americans and others. Since the September 11, 2001, attacks, there are new concerns about the vulnerability of U.S. agriculture to the deliberate introduction of animal and plant diseases (agroterrorism). Several agencies, including the U.S. Department of Agriculture (USDA), the Department of Homeland Security (DHS), the Department of Health and Human Services (HHS), the Environmental Protection Agency (EPA), and the Department of Defense (DOD), play a role in protecting the nation against agroterrorism. GAO examined (1) the federal agencies' roles and responsibilities to protect against agroterrorism, (2) the steps that the agencies have taken to manage the risks of agroterrorism, and (3) the challenges and problems that remain. After the terrorist attacks of September 11, 2001, federal agencies' roles and responsibilities were modified in several ways to help protect agriculture from an attack. First, the Homeland Security Act of 2002 established DHS and, among other things, charged it with coordinating U.S. efforts to protect against agroterrorism. The act also transferred a number of agency personnel and functions into DHS to conduct planning, response, and recovery efforts. Second, the President signed a number of presidential directives that further define agencies' specific roles in protecting agriculture. Finally, Congress passed legislation that expanded the responsibilities of USDA and HHS in relation to agriculture security. In carrying out these new responsibilities, USDA and other federal agencies have taken a number of actions. The agencies are coordinating development of plans and protocols to better manage the national response to terrorism, including agroterrorism, and, along with several states, have conducted exercises to test these new protocols and their response capabilities. Federal agencies also have been conducting vulnerability assessments of the agriculture infrastructure; have created networks of laboratories capable of diagnosing animal, plant, and human diseases; have begun efforts to develop a national veterinary stockpile that intends to include vaccines against foreign animal diseases; and have created new federal emergency coordinator positions to help states develop emergency response plans for the agriculture sector. However, the United States still faces complex challenges that limit the nation's ability to respond effectively to an attack against livestock. For example, USDA would not be able to deploy animal vaccines within 24 hours of an outbreak as called for in a presidential directive, in part because the only vaccines currently stored in the United States are for strains of foot and mouth disease, and these vaccines need to be sent to the United Kingdom (U.K.) to be activated for use. There are also management problems that inhibit the effectiveness of agencies' efforts to protect against agroterrorism. For instance, since the transfer of agricultural inspectors from USDA to DHS in 2003, there have been fewer inspections of agricultural products at the nation's ports of entry. |
During this time, we reported preliminary observations on opportunities to reduce the costs to the federal government related to major disaster declarations. See GAO-12-342SP. 321-328. governments, tribes, and certain nonprofit organizations and individuals. In addition to its central role in recommending to the President whether to declare a disaster, FEMA has primary responsibility for coordinating the federal response when a disaster is declared as well as recovery, which typically consists of providing grants to assist state and local governments and certain private nonprofit organizations to alleviate the damage resulting from such disasters. FEMA’s disaster declarations process is implemented by FEMA headquarters as well as its 10 regional offices. FEMA’s Administrator, in accordance with the Post-Katrina Emergency Management Reform Act of 2006 (Post-Katrina Act), appoints a Regional Administrator to head each regional office. and tribal governments, and other nongovernmental organizations— oversee emergency management activities within their respective geographical area. Joint Field Offices (JFO) are temporary FEMA offices established to respond to declared disasters and are headed by Federal Coordinating Officers (FCO) who, among other things, coordinate the activities of the disaster reserve workforce deployed for a particular disaster. Once a disaster is declared, FEMA deploys Disaster Assistance Employees and any other employees needed to the affected jurisdiction(s). FEMA provides assistance through the PA, IA, and Hazard Mitigation programs as well as through Mission Assignments. For instance, some declarations may provide grants only for IA and others only for PA. Hazard Mitigation grants, on the other hand, are available for all declarations if the affected area has a FEMA-approved Hazard Mitigation plan. 6 U.S.C. § 317. According to FEMA, the agency is evolving from originally focusing on grants management to being an organization implementing increasingly more complex programs, with an increasingly sophisticated and specialized workforce and procedures in response to changing circumstances and expectations. As illustrated by figure 1, the number of disaster declarations has significantly increased since 1953, when the first presidential disaster declaration was issued. See appendix I for more information about the number of disaster declarations. Various factors have contributed to the increase in disaster declarations. Population growth has occurred in U.S. geographic areas that are vulnerable when a disaster hits, such as those near coastlines. FEMA officials also cited more active weather patterns as a factor. FEMA guidance to states and localities and the enhanced capabilities and professionalization of state and local emergency management personnel have also been factors. For example, in 1999, FEMA published a list of factors that it considers when evaluating disaster declaration requests. According to FEMA and state emergency management officials from two states, the guidance, along with state and local emergency management officials’ additional knowledge about the process and the enhanced transparency of the process for federal disaster declarations, has helped state and local officials better justify a request for federal disaster assistance. Increased media attention on disasters, especially those in which there have been casualties or deaths, has also been a factor, according to FEMA and state emergency management officials for two states. The disaster assistance process generally starts at the local level, proceeds to the county and state levels, and then to the federal level. The Stafford Act states that the governor of the affected state shall request a declaration by the President that a disaster exists. FEMA is the primary federal disaster assistance agency, but others can have major roles, such as the U.S. Army Corps of Engineers, which can provide engineering and contracting support to FEMA. As part of the request to the President, a governor must affirm that the state’s emergency plan has been implemented and the situation is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments and that federal assistance is necessary, among other things. Before a governor asks for federal disaster assistance, state and local officials typically conduct an initial PDA to identify the amount of damage and determine if the damage exceeds their capability to respond and recover without federal assistance. Based on the initial PDA findings, a joint PDA, in which FEMA participates, may be requested by the governor. FEMA uses the joint PDA in its evaluation of the state’s need for federal assistance and makes a recommendation to the President as to whether the request for a disaster declaration should be approved or denied. Later in this report, we discuss in more detail how FEMA evaluates the need for PA. To evaluate the need for IA, FEMA considers various factors, including insurance coverage; the extent to which volunteer agencies and state or local programs can meet the needs of disaster victims; concentration of damages due to the disaster; number of deaths and injuries; amount of disruption to normal community services; amount of emergency needs, such as extended or widespread loss of power or water; and special populations, such as elderly or low-income people. Figure 2 shows the basic process that is followed from the time a disaster occurs until the President approves or denies a governor’s disaster declaration request. During this period, FEMA received 629 disaster declaration requests and approved 539 of them. Most disaster declarations were for severe storms. FEMA anticipates that when all disasters declared during fiscal years 2004 through 2011 are closed, its total obligations for these disasters will exceed $90 billion. The President received requests from governors during fiscal years 2004 through 2011 for 629 disaster declarations and approved 539 of them, or 86 percent, as shown in table 1. Governors can appeal a decision when the President initially denies a disaster declaration request. During fiscal years 2004 through 2011, governors made 629 requests for disaster declarations, and the President ultimately denied 90 of them, or 14 percent. FEMA has 10 regions throughout the United States that, among other things, provide technical assistance to state and local officials and make recommendations to FEMA headquarters as to whether a disaster declaration is warranted. Individual FEMA regions had varying numbers of disaster declarations during fiscal years 2004 through 2011. The two FEMA regions that had the most disaster declarations were Region IV in the Southeast and Region VII in the central Midwest, which together accounted for 163, or 30 percent, of the 539 declarations. The two FEMA regions that had the fewest declarations were Regions IX and X along the west coast, including Alaska, which together accounted for 71 declarations, or 13 percent. See appendix I, figure 10, for a map that shows the number of declarations by FEMA region. During fiscal years 2004 through 2011, the average number of disaster declarations was 9.3 for each of the 58 jurisdictions—that is, the 50 states, the District of Columbia, 5 territories, and 2 Freely Associated States. However, our analysis shows that some jurisdictions had over 20 disaster declarations, while other jurisdictions had 3 or fewer disaster declarations during this period. For example, Oklahoma had the most disaster declarations at 25, while Colorado and Guam had 1 each and the Marshall Islands did not have any. In addition, the 5 jurisdictions with the highest number of disaster declarations accounted for 105, or 19 percent, of the 539 declarations during fiscal years 2004 through 2011, whereas the 4 jurisdictions with the lowest number of disaster declarations accounted for 4, or less than 1 percent. See figure 3 for the number of disaster declarations for each jurisdiction. As reported by FEMA, severe storms accounted for 71 percent of declarations during fiscal years 2004 through 2011. According to FEMA officials, a disaster is classified as a severe storm when multiple storm- related incidents (for example, floods or heavy rains) affect a jurisdiction, but no single incident type is responsible for the majority of the damage. See appendix I, table 11, for the number and percentage for each of the incident types that occurred during fiscal years 2004 through 2011. For each disaster declaration, various types of assistance can be approved. For example, the President can approve PA only, IA only, or PA and IA for each declaration. As shown in figure 4, during fiscal years 2004 through 2011, 6 percent of the declarations were awarded for IA only, while a total of 94 percent of declarations were awarded for either PA only or IA and PA. Through January 31, 2012, FEMA obligated $80.3 billion, or an average of about $10 billion a year, from the DRF for 539 disasters declared during fiscal years 2004 through 2011; and FEMA anticipates that when all 539 declarations are closed, obligations will be about $91.5 billion. Thirteen of these declarations had incurred obligations of over $1 billion each. Almost half of the $80.3 billion in obligations was for Hurricane Katrina. Excluding obligations of $39.7 billion for Hurricane Katrina, FEMA obligated $40.6 billion for the other disaster declarations during fiscal years 2004 through 2011, or an average of about $5 billion a year. Total obligations are higher for fiscal years 2004, 2005, and 2008 than for the remaining 5 years primarily because of hurricanes that occurred with more frequency or force during those years. For example, over half of the $8.8 billion for disasters declared in fiscal year 2004 was due to four hurricanes, over half of the $44.9 billion for disasters declared in fiscal year 2005 was for Hurricane Katrina, and about half of the $10.3 billion for disasters declared in fiscal year 2008 was for Hurricanes Ike and Gustav. Table 2 shows the obligations by fiscal year. Obligations for disaster declarations during fiscal years 2004 through 2011 varied greatly by FEMA region and jurisdiction. FEMA Region VI had the highest obligations at $40.0 billion. However, when excluding obligations from all FEMA regions due to Hurricane Katrina, FEMA Region IV had the highest obligations at $13.2 billion. FEMA Region X had the lowest obligations at $0.6 billion. As shown in figure 5, the amount of obligations also varied greatly by jurisdiction for disasters declared during fiscal years 2004 through 2011. For example, Louisiana had the highest obligations, at $32.3 billion, but after excluding obligations for Hurricane Katrina, Florida had the highest obligations, at $9.3 billion, while for the jurisdictions with the lowest obligations, Guam had $1.9 million and the Marshall Islands did not have any. As a comparison, the nationwide average obligations per jurisdiction were $1.38 billion, and decreased to $700 million when obligations for Hurricane Katrina were excluded. Appendix I, figure 10, shows the obligations by FEMA region for fiscal years 2004 through 2011. Furthermore, obligations for individual disaster declarations declared during fiscal years 2004 through 2011 varied greatly. For example, as of January 31, 2012, FEMA had obligated $28.5 billion for Louisiana’s fiscal year 2005 Hurricane Katrina disaster declaration compared with about $803,000 for a South Dakota disaster declaration during that same fiscal year. Disaster declarations can take over a decade to close; therefore, to obtain a more comprehensive and longer-term perspective, we analyzed obligations for 811 disaster declarations during fiscal years 1989 through 2011 that had been closed as of January 31, 2012. Of the 811 closed declarations, we found that 440, or 54 percent, had obligations of less than $10 million (see table 3). For those disaster declarations approved during fiscal years 2004 through 2011, we analyzed the total obligations as of April 30, 2012, for closed disasters, and the total projected obligations—actual to date and estimated—for those declarations that remained open as of April 30, 2012. Specifically, for open declarations as of April 30, 2012, instead of analyzing how much FEMA had obligated as of that date, we analyzed the amount FEMA had obligated plus the amount FEMA anticipated it would obligate from the time a declaration was approved through its closure. On the basis of our analysis, when all 539 declarations that were declared during fiscal years 2004 through 2011 are eventually closed, FEMA anticipates that 193, or 36 percent, will have total obligations of less than $10 million, thus signifying that these were relatively small disasters (see table 4). The per capita damage indicator FEMA uses to assess a jurisdiction’s eligibility for PA is the primary factor on which disaster declaration decisions are based. However, the per capita damage indicator is artificially low. In addition, FEMA’s process to determine eligibility for federal assistance does not comprehensively assess a jurisdiction’s capability to respond to and recover from a disaster on its own. According to FEMA and state emergency management officials, FEMA has primarily relied on a single indicator, the statewide per capita damage indicator, to determine whether to recommend that a jurisdiction receive PA funding. In fiscal year 2012, the per capita indicator is $1.35. Thus, a state with 10 million people would generally have to incur $13.5 million in estimated eligible disaster damages to public structures for FEMA to recommend that a disaster declaration for PA is warranted. However, other factors could also influence the recommendation, such as whether a jurisdiction has incurred multiple disasters within a short period of time. Of the 58 jurisdictions for fiscal year 2012, based on population, California has the highest statewide indicator total, at $50.3 million, while Wyoming has the lowest amount at $760,895.total PA per capita indicator amounts for each of the 58 jurisdictions. See appendix III, table 15, for the FEMA’s method to determine the affected jurisdictions’ capabilities to respond without federal assistance relies on a governor’s certification and damage estimates. The Stafford Act requires that a governor’s request for a disaster declaration be based on a finding that the disaster is of such severity and magnitude that an effective response is beyond the capabilities of the jurisdiction and that federal assistance is necessary. FEMA officials stated that governors must certify in their letter to the President requesting a disaster declaration that the disaster is beyond the capabilities of the jurisdiction. FEMA regulations list quantitative and qualitative factors, such as recent disasters within the same jurisdiction that the agency considers when determining whether a disaster declaration is warranted. However, in describing the declarations process, FEMA and emergency management officials in two states said that FEMA uses the statewide per capita indicator as the primary determining factor for PA funding. This damage indicator, which FEMA has used since 1986, is essentially a proxy fiscal measure of a state’s capacity to respond to and recover from a disaster, rather than a more comprehensive assessment of a state’s fiscal capacity. According to our analysis of readily available indicator data, as well as officials in two FEMA regions and state emergency management officials in two states, the principal factor used to determine eligibility for a disaster declaration was whether the damage estimate exceeded the PA per capita indicator. Our analysis of 246 disaster declarations during fiscal years 2008 through 2011 identified the PA per capita indicator as having been the primary determining factor—essentially being used as an eligibility threshold. Specifically, 244 of the 246 approved disaster declarations that we reviewed, or 99 percent, had PA damage estimates that met or exceeded the PA per capita indicator in effect in the year in which the disaster was declared. Seven gubernatorial requests for a disaster declaration during fiscal years 2008 through 2011 had a damage estimate higher than the PA per capita indicator yet were denied for various reasons, such as the damage being a result of multiple storms or the normal depreciation of structures rather than a single disaster. Because FEMA’s current per capita indicator does not reflect the rise in (1) per capita personal income since it was created in 1986 or (2) inflation from 1986 to 1999, the indicator is artificially low. In 1986, FEMA proposed a $1.00 per capita indicator for PA as a means of gauging a jurisdiction’s fiscal capacity. The indicator was based on the 1983 per capita personal income nationwide, then estimated at $11,667. Current FEMA officials were unable to explain how per capita personal income was used to establish the indicator level at $1.00. However, FEMA documentation noted that the agency thought it reasonable that a state would be capable of providing $1.00 for each resident of that state to cover the damage from a disaster. While the proposed rule was not codified in 1986, FEMA began to use the $1.00 per capita indicator informally as part of its preliminary damage assessment efforts and did not adjust the indicator annually for either inflation or increases in national per capita income. In 1998, FEMA considered adjusting the PA indicator to $1.51 to account for inflation since 1986, but because of input from state emergency management officials, FEMA decided not to do so. In 1999, FEMA issued a rule codifying the per capita indicator at $1.00, which was stipulated to include an annual adjustment for inflation, but the rule was silent on whether the indicator would continue to be based on nationwide per capita personal income. As a result, the indicator has risen 35 percent from $1.00 to $1.35 in the 13 years since FEMA began its annual inflationary adjustments. Figure 6 shows the actual increases in the per capita indicator for PA from 1986 to 2010 compared with the increases that would have occurred if FEMA had adjusted the indicator for inflation or the increase in per capita personal income during this period. FEMA officials stated that the rise in construction and other costs to respond to and recover from disasters have outpaced the rise in the per capita indicator. In jurisdictions with smaller populations, damage to a single building or facility, such as a water treatment facility, could result in a damage estimate sufficient to meet the per capita damage threshold and warrant a disaster declaration. For example, the damage from Hurricane Katrina to a single water treatment facility in Carrollton, Louisiana, exceeded Louisiana’s 2005 per capita threshold. In addition, the Washington National Cathedral incurred approximately $15 million of damage during the August 23, 2011, earthquake in Washington, D.C., which has a per capita damage indicator threshold of less than $1 million. The Stafford Act requires that conditions due to a disaster be beyond a jurisdiction’s (state and local) capability to respond effectively before disaster assistance from the federal government is warranted. however, prohibits FEMA from denying federal assistance solely by virtue of an arithmetic formula or sliding scale based on income or population. According to Standards for Internal Control in the Federal Government, activities should be established to monitor indicators and controls should be aimed at validating the propriety and integrity of such indicators. Had the indicator been adjusted for inflation beginning when FEMA started using it in 1986, the indicator would have risen more than 100 percent, from $1.00 to $2.07 in 2012. Had the indicator been adjusted for increases in per capita personal income since 1986, the indicator would have risen over 250 percent, from $1.00 to $3.57 in 2011, based on 2011 national per capita personal income of $41,663. 42 U.S.C. § 5170. Our analysis included FEMA’s projected obligations as of April 30, 2012, for only those 508 disaster declarations that had received PA and had been declared during fiscal years 2004 through 2011. We did not analyze the 31 disaster declarations that received IA only. We analyzed obligations instead of PDA damage estimates for PA because FEMA officials stated that estimating the damage from a disaster is sometimes stopped when the estimate equals or exceeds the PA per capita indicator. Therefore, we concluded that conducting the analysis using projected obligations would be more accurate than using incomplete PDA damage estimates for PA. of the 508 disaster declarations would not have met the PA per capita indicator if adjusted for inflation since 1986. Thus, had the indicator been adjusted annually since 1986 for personal income or inflation, fewer jurisdictions would have met the eligibility criteria that FEMA primarily used to determine whether federal assistance should be provided, which would have likely resulted in fewer disaster declarations. In discussions with FEMA officials about raising the per capita damage indicator, they noted that updating the indicator completely in a single year could create problems for jurisdictions, which, in response, may need to increase their rainy day fund or take other actions to adjust to the change. However, FEMA officials stated that adjusting the indicator in a phased approach over several years would be more feasible for jurisdictions. The current annual inflation adjustment generally increases the damage indicator incrementally. However, were the “catch-up” inflation adjustment (from $1.35 to $2.07) implemented in a single year, the increase would be considerably more than the annual inflation adjustments since 1999. For example, for a jurisdiction with a population of 5 million, fully implementing the catch-up adjustment for inflation would raise the damage indicator from $6.75 million to $10.35 million. Adjusting the indicator in phases over several years could help FEMA examine future requests for disaster declarations in a manner that reflects changes in per capita income or inflation since 1986 and provide jurisdictions more time to plan for and adjust to the change. Reliance on the PA per capita indicator to determine a jurisdiction’s eligibility for federal assistance—whether the indicator is artificially low or adjusted for increases in personal income or inflation—does not provide an accurate measure of a jurisdiction’s capability to respond to or recover from a disaster without federal assistance. Determining a jurisdiction’s fiscal capacity is important because a jurisdiction with greater resources should be able to more easily recover in the aftermath of a disaster than a jurisdiction with fewer resources. Further, a jurisdiction’s fiscal capacity is an important component of the jurisdiction’s overall response and recovery capability. In 1999, when the rule was codified to set the per capita indicator at $1.00, FEMA stated that it recognized that a straight per capita figure may not be the best measurement of a state’s capability, but that it provided a simple, clear, consistent, and long-standing means of measuring the severity, magnitude, and impact of a disaster while at the same time ensuring that the President can respond quickly and effectively to a governor’s request for assistance. As we reported in 2001, per capita personal income is a relatively poor indicator of a jurisdiction’s fiscal capacity because it does not comprehensively measure all income potentially subject to jurisdiction taxation and is not necessarily indicative of jurisdiction or local capability to respond effectively without federal assistance. For example, it does not include income produced in a jurisdiction unless it is received as income by a jurisdiction resident. Thus, profits retained by corporations for business investment, though potentially subject to jurisdiction taxation, are not included in a jurisdiction per capita income measure because they do not represent income received by jurisdiction residents. In 2001, we recommended that FEMA consider alternative criteria. FEMA’s response noted that we provided valuable input for the FEMA team that was reviewing the disaster declaration process and the criteria used to assess jurisdiction damages. According to FEMA, in 2001, the President’s budget for fiscal year 2002 included a provision for the development of improved guidelines for disaster assistance that provided jurisdictions with meaningful criteria that must be met to become eligible for federal disaster assistance. FEMA undertook a review of disaster declaration guidelines; however, no changes to the established declaration guidelines were adopted, and ultimately, FEMA did not change its reliance on the per capita indicator. The Post-Katrina Act required FEMA to develop a set of preparedness metrics that could be used to assess operational preparedness capability. Also, Presidential Policy Directive-8 (PPD-8), issued in March 2011, required the Secretary of Homeland Security to develop a national preparedness system to, in part, define existing capabilities and capability gaps, and drive investments to close those gaps across the nation’s federal, state, local, tribal, and territorial governments. Much of the growth in disaster declarations has occurred at the same time (that is, since the terrorist attacks of September 11, 2001) that the federal government has provided more than $37 billion to state and local governments to enhance their preparedness to protect against, respond to, and recover from disasters of all types. However, FEMA has not yet finished developing metrics to assess state preparedness capability, a fact that limits its ability to comprehensively assess jurisdictions’ disaster preparedness and capabilities. GAO, Federal Emergency Management Agency: Continuing Challenges Impede Progress in Managing Preparedness Grants and Assessing National Capabilities, GAO-12-526T (Washington, D.C.: Mar. 20, 2012). FEMA officials, FEMA does not have any plans or policies in place to use preparedness data to inform its recommendations regarding presidential disaster declarations. Metrics to assess a jurisdiction’s disaster preparedness and capabilities could augment the PA per capita indicator, and other relevant information, to provide a more comprehensive understanding of a jurisdiction’s capacity to respond to and recover from a disaster without federal assistance. The 2011 state preparedness reports provide some potentially useful information to understand a state’s response capabilities. However, FEMA does not use these reports or an assessment of a jurisdiction’s response capabilities to determine eligibility for disaster assistance, and the FEMA Administrator stated that state and local governments are capable of handling much of the workload related to responding to a declared disaster, which has allowed FEMA to mostly focus on recovery efforts. Recovery refers to efforts aimed at restoring an area to its prior status, including the reconstruction of damaged structures, including its housing stock, business establishments, public facilities, and the environment. The availability of funds is critical to these efforts; however, FEMA does not conduct an assessment of a jurisdiction’s fiscal capacity to fund a recovery effort without federal assistance before determining whether to award federal assistance. GAO-01-837. jurisdiction’s fiscal capacity, adjustments for TTR growth would vary by jurisdiction. FEMA could also use other measures of fiscal capacity, such as state personal income or gross state product, to more accurately determine a jurisdiction’s ability to pay for damages to public structures without federal assistance. Table 5 describes three potential approaches to measure a jurisdiction’s fiscal capacity. Federal departments and agencies have used some of these approaches to help determine a jurisdiction’s fiscal capacity and the extent to which a jurisdiction should be eligible for federal assistance. For example, the Department of Health and Human Services’ Substance Abuse and Mental Health Services Administration’s block grant program and Community Mental Health Service use TTR. Also, personal income is used by many federal grant programs. Without an accurate assessment of a jurisdiction’s capabilities to respond to and recover from a disaster without federal assistance, including a jurisdiction’s preparedness capabilities and fiscal capacity, FEMA runs the risk of recommending that the President award federal assistance to jurisdictions that have the capability to respond and recover on their own. Reexamining the basis for the PA indicator and the usefulness of preparedness metrics and jurisdiction fiscal capacity could help FEMA more accurately determine whether a jurisdiction should be eligible for federal assistance. In appendix IV, we provide additional information about the three approaches to measure a jurisdiction’s fiscal capacity as well as examples of how these fiscal measures could assist FEMA in more accurately determining whether the magnitude of damage is beyond the capacity of the jurisdiction. According to the Stafford Act, the usual cost share arrangement for disaster declarations calls for the federal government to pay not less than 75 percent of the eligible PA costs of a disaster and nonfederal entities (that is, state and local governments) to pay the remaining 25 percent; at a governor’s request, the President can adjust this cost share. FEMA has specific criteria to evaluate a request to adjust the federal share from 75 percent to 90 percent, but does not have specific criteria to evaluate a request to adjust the federal share to 100 percent. Adjusting the federal share to 100 percent is typically done for emergency work such as life- saving activities and debris removal projects through FEMA’s PA program. In addition, FEMA does not know the additional costs (that is, the costs of paying an additional 15 or 25 percent) associated with either type of cost share adjustment because the agency does not track these costs. Governors can request that the President reduce the 25 percent cost share for nonfederal governments to 10 percent or 0 percent. FEMA generally follows the same process to evaluate a request from a governor for a cost share adjustment as it follows to evaluate a request for a disaster declaration, according to FEMA officials. FEMA makes a recommendation to the President as to whether the request for a cost share adjustment should be approved or denied and the President makes the decision. For the 539 disaster declarations during fiscal years 2004 through 2011, governors requested that the President adjust the usual federal/nonfederal (that is, state and local government) cost share 150 times. As shown in table 6, 109 of the 150 requests, or 73 percent, were approved during this period. However, 23 of the 109 cost share adjustments were required by provisions in law; therefore, FEMA’s recommendation was not a factor in whether these cost share adjustment requests were approved or denied. For example, 10 of the 23 cost share adjustments required by law were for Hurricanes Katrina, Wilma, Dennis, and Rita. Our analysis shows that 64 of the 109 cost share adjustments during fiscal years 2004 through 2011 were for the following six disasters: 23 for Hurricane Katrina, 11 for Hurricane Rita, 9 for Hurricane Ike, 8 for Hurricane Ivan, 7 for midwest flooding in fiscal year 2008, and 6 for Hurricane Dennis. Furthermore, 34 of the 109 cost share adjustments involved a single adjustment, whereas 23 cost share adjustments involved multiple adjustments. FEMA officials explained this by stating that a 100 percent cost share adjustment could be approved for a 72-hour period and the governor could subsequently request another 100 percent cost share adjustment for another 72-hour period, which the President could approve. For example, the disaster declaration in Louisiana in fiscal year 2005 for Hurricane Katrina had 8 cost share adjustments and the disaster declaration in Mississippi in fiscal year 2005 for Hurricane Katrina had 9 cost share adjustments. According to FEMA officials, although the process is similar, the agency uses different criteria to evaluate a request from a governor to increase the federal government share for PA up to 90 percent than it does for requests up to 100 percent. Specifically, FEMA may recommend to the President that the federal cost share be increased up to 90 percent when a disaster is so extraordinary that actual federal obligations, excluding FEMA administrative costs, meet or exceed a qualifying threshold. To determine the threshold, the jurisdiction population is multiplied by a per capita amount, which is $135 for calendar year 2012 (or 100 times the 2012 per capita damage indicator of $1.35). Forty-one of the 109 cost share adjustments increased the federal cost share to 90 percent and reduced the nonfederal share to 10 percent. According to FEMA’s regulations, if warranted by the needs of the disaster, FEMA may recommend up to 100 percent federal funding for emergency work, such as debris removal and emergency protective measures, for a limited period in the initial days of the disaster irrespective of the per capita amount.federal cost share to 100 percent. Sixty-eight of the 109 cost share adjustments increased the Unlike its evaluation of a request that the federal share be increased from 75 percent up to 90 percent, FEMA does not use specific criteria to evaluate requests to adjust the federal cost share up to 100 percent. FEMA officials stated that a recommendation to the President for up to a 100 percent cost share adjustment is based on a subjective assessment of the jurisdiction’s needs and that it is usually pretty obvious when a jurisdiction needs debris removal and emergency protective measures, although the officials acknowledged that FEMA’s recommendation is a judgment call. According to FEMA, it does not use the same criteria to evaluate a request for a 100 percent cost share adjustment as it uses for a 90 percent cost share adjustment because the criteria for the 90 percent adjustment are based on actual federal obligations. FEMA officials explained that they would not be able to apply those criteria for the 100 percent adjustment in the initial days of a disaster because there would not be much, if any, funding obligated at that point. However, criteria for assessing a request for a 100 percent cost share adjustment for PA (that is, emergency work) do not have to be the same criteria FEMA uses to assess requests for 90 percent cost share adjustments. For example, FEMA’s IA grant program uses multiple factors to determine whether to recommend to the President that a jurisdiction be granted IA. We have previously reported that clear criteria are important for controlling federal costs and helping to ensure consistent and equitable eligibility determinations. For example, if a 100 percent cost share adjustment is approved, the federal government could pay millions of dollars more than it ordinarily would for a single disaster declaration. Furthermore, Standards for Internal Control in the Federal Government state that internal control activities help ensure that management’s directives are carried out and that actions are taken to address risks. Moreover, internal control standards state that control activities should be an integral part of an entity’s accountability for stewardship of government resources. Without such activities, FEMA is at risk that its recommendations related to 100 percent cost share adjustments may not be justified. Further, relying on professional judgment only, FEMA is at risk of making inconsistent, and potentially inequitable, recommendations to the President about whether to grant 100 percent cost share adjustments. In addition, FEMA officials stated that they do not know the costs associated with the 109 cost share adjustments because the agency does not track the costs for all cost share adjustments, although on rare occasions, at the request of congressional staff, FEMA officials have identified the costs associated with cost share adjustments, such as those for Hurricane Katrina. The officials stated that they have not routinely tracked the additional costs associated with cost share adjustments because they did not see a need for this information. According to Standards for Internal Control in the Federal Government, program managers need financial data to determine whether they are meeting their goals for accountability for effective and efficient use of resources. Financial information is needed for both external and internal uses, and on a day-to-day basis to make operating decisions, monitor performance, and allocate resources. Pertinent information should be identified, captured, and distributed in a form and time frame that permits people to perform their duties efficiently. Because FEMA does not track the costs associated with cost share adjustments, FEMA does not know the financial impact of its recommendations to the President on whether to increase the federal cost share for PA. Understanding the financial impact of FEMA’s recommendations to the President for cost share adjustments would enable FEMA to make more informed recommendations and estimate the impact of the adjustments on available DRF balances. FEMA’s administrative cost percentages have often surpassed its targets for all sizes of disasters and have doubled in size since fiscal year 1989. FEMA provided guidance for administrative cost targets but does not assess how well the targets were achieved. The agency is working on three short- and long-term initiatives to deliver disaster assistance in a more efficient manner. Our analysis of the 539 disaster declarations during fiscal years 2004 through 2011 shows that 37 percent of the declarations exceeded administrative cost percentage targets established in guidance prepared by FEMA in 2010. Administrative cost percentages varied widely among disaster declarations that required a similar amount of federal financial assistance, suggesting that certain declarations may have been administered more efficiently than others. In addition, FEMA’s average administrative cost percentage for disaster declarations has doubled since fiscal year 1989. FEMA’s administrative costs relate to the delivery of disaster assistance programs, such as the PA or IA programs, and are primarily obligated from the DRF. Examples of administrative costs include the salary and travel costs for the disaster reserve workforce, rent and security expenses associated with JFO facilities, and supplies and information technology support for JFO staff. According to FEMA officials, the agency’s administrative costs are primarily due to activities at JFOs; however, administrative costs can also be incurred at FEMA regional offices, headquarters, and other locations. We analyzed actual administrative costs for disaster declarations that were closed as of April 30, 2012, and, for declarations that were still open as of April 30, 2012, we analyzed actual obligations as of April 30, 2012, plus the amount that FEMA projected to obligate in the future until the declarations are eventually closed. FEMA categorizes disaster declarations using three event levels, essentially small, medium, or large based on the amount of federal funding obligated for the disaster, and has established target ranges for administrative cost percentages for each. Our analysis shows that FEMA frequently exceeded the administrative cost percentage targets established by FEMA guidance for all three sizes of disaster declarations during fiscal years 2004 through 2011. Specifically: For small disaster declarations (total obligations of less than $50 million), the target range for administrative costs is 12 percent to 20 percent; for the 409 small declarations that we analyzed, 4 out of every 10 had administrative costs that exceeded 20 percent. For medium disaster declarations (total obligations of $50 million to $500 million), the target range for administrative costs is 9 percent to 15 percent; for the 111 declarations that we analyzed, almost 3 out of every 10 had administrative costs that exceeded 15 percent. For large disaster declarations (total obligations greater than $500 million to $5 billion), the target range for administrative costs is 8 percent to 12 percent; for the 19 large declarations that we analyzed, over 4 out of every 10 had administrative costs that exceeded 12 percent. For small declarations that we analyzed, administrative cost percentages averaged 20 percent and ranged from less than 1 percent to 73 percent. Thus, on average, small disaster declarations were within the upper limit of FEMA’s target range. However, 12 small declarations had administrative cost percentages greater than 50 percent, which means that FEMA obligated more for administrative costs than for disaster assistance. For example, if FEMA required $6 million to deliver $4 million in disaster assistance to a jurisdiction, then the related administrative cost percentage would be 60 percent of the total DRF obligations of $10 million. For medium declarations that we analyzed, administrative cost percentages averaged 12 percent and were, therefore, in the middle of the target range. However, administrative cost percentages for medium declarations ranged from less than 1 percent to 55 percent and, for 1 medium declaration, FEMA obligated more for administrative costs than for disaster assistance. For large declarations that we analyzed, administrative cost percentages averaged 13 percent—slightly above the upper limit of the target range— and ranged from 3 percent to 25 percent; therefore, none of the large declarations we analyzed had obligations for administrative costs higher than disaster assistance. FEMA’s administrative cost percentages also differed significantly depending on the type of assistance delivered to a jurisdiction. For example, for disaster declarations during fiscal years 2004 through 2011, the average administrative cost percentage for disaster declarations that involved only IA was 34 percent, while the average was less than half of that, at 16 percent, for declarations with only PA. Disaster declarations that included both IA and PA had an average administrative cost percentage of 18 percent. According to FEMA, incidents of similar size and type have witnessed growing administrative costs since 1989. medium, and large disaster declarations during fiscal years 1989 through 2011 confirms this increase. As discussed in more detail later in this report, administrative costs have increased dramatically because of a number of factors, including the number of staff deployed to a disaster, which tripled during fiscal years 1989 through 2009. Since fiscal year 1989, the average administrative cost percentage for the 1,221 disaster declarations doubled from 9 percent in the 1989-to-1995 period to 18 percent in the 2004-to-2011 period as shown in table 7. Disaster declarations have increased over recent decades, and FEMA has obligated over $80 billion in federal assistance for disasters declared during fiscal years 2004 through 2011, highlighting the importance of FEMA’s assessment of jurisdictions’ capabilities to respond and recover without federal assistance. The PA per capita indicator is artificially low because it does not reflect the rise in per capita personal income since 1986 or 13 years of inflation from 1986, when the indicator was set at $1.00 and adopted for use, to 1999. By primarily relying on an artificially low indicator, FEMA’s recommendations to the President are based on damage estimates and do not comprehensively assess a jurisdiction’s capability to respond to and recover from a disaster on its own. For example, on the basis of FEMA’s actual and estimated disaster assistance obligations, more than one-third of the 539 major disasters declared during fiscal years 2004 through 2011 are expected to have total DRF obligations of less than $10 million, and more than 60 percent are expected to have total obligations of less than $25 million. Therefore, many of these declarations were for relatively small disasters. At a minimum, adjusting the existing PA per capita indicator fully for changes in per capita income or inflation could ensure that the per capita indicator more accurately reflects changes in U.S. economic conditions since 1986, when the indicator was adopted. Making the appropriate inflation adjustment to the indicator would raise it from $1.35 to $2.07. A change of this size in 1 year could present challenges for jurisdictions, which could find that disasters with PA damage estimates that would now qualify for PA would no longer qualify. Thus, phasing in the adjustment over several years could provide jurisdictions time to take actions, such as increasing any rainy day funds, to adjust to the effects of higher qualifying indicators. A more comprehensive approach to determine a jurisdiction’s capabilities to respond to a disaster would be to replace or supplement the current indicator with more complete data on a jurisdiction’s fiscal resources, such as TTR, and would be informed by data on a jurisdiction’s response and recovery assets and capabilities. Because FEMA’s current approach of comparing the amount of disaster damage with the PA per capita indicator does not accurately reflect whether a jurisdiction has the capabilities to respond to and recover from a disaster without federal assistance, developing a methodology that provides a more comprehensive assessment of jurisdictions’ response and recovery capabilities, including a jurisdiction’s fiscal capacity, could provide FEMA with data that are more specific to the jurisdiction requesting assistance. For example, developing preparedness metrics in response to the Post- Katrina Act and Presidential Policy Directive-8 could provide FEMA with readily available information on jurisdictions’ response and recovery capabilities. Without an accurate assessment of jurisdictions’ capabilities to respond to and recover from a disaster, FEMA runs the risk of recommending to the President that federal disaster assistance be awarded without considering a jurisdiction’s response and recovery capabilities or its fiscal capacity. As we recommended in 2001, we continue to believe that FEMA should develop more objective and specific criteria to assess the capabilities of jurisdictions to respond to a disaster. Given the legislative and policy changes over the past decade, we believe that including fiscal and nonfiscal capabilities, including available preparedness metrics in its assessment, would allow FEMA to make more informed recommendations to the President when determining a jurisdiction’s capacity to respond without federal assistance. Making informed recommendations to the President about whether cost share adjustments should be granted is important for FEMA and the requesting jurisdictions because every cost share adjustment has financial implications for both entities. A specific set of criteria or factors to use when considering requests for 100 percent cost share adjustments would provide FEMA a decision-making framework and enable more consistent and objectively based recommendations to the President. Also, when FEMA recommends that a cost share adjustment be approved and the President approves it, the federal government assumes the financial burden of paying 15 percent or 25 percent more in PA, which could total millions of dollars. Tracking the additional costs to the federal government because of cost share adjustments would allow FEMA to better understand the financial implications of its recommendations to the President. FEMA’s average administrative costs as a percentage of total DRF disaster assistance obligations have risen for disasters of all sizes. The agency recognized that delivering assistance in an efficient manner is important and published guidance to be used throughout the agency to help rein in administrative costs. However, FEMA has not implemented the goals and does not track performance against them. Over time, reducing administrative costs could save billions of dollars—dollars that could be used to fund temporary housing, infrastructure repairs, and other disaster assistance. Therefore, incentivizing good management over administrative costs by adopting administrative cost percentage goals and measuring performance against these goals would help provide FEMA with additional assurance that it is doing its utmost to deliver disaster assistance in an efficient manner. To increase the efficiency and effectiveness of the process for disaster declarations, we recommend that the FEMA Administrator take the following four actions: 1. Develop and implement a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond to and recover from a disaster without federal assistance. This should include one or more measures of a jurisdiction’s fiscal capacity, such as TTR, and consideration of the jurisdiction’s response and recovery capabilities. If FEMA continues to use the PA per capita indicator to assist in identifying a jurisdiction’s capabilities to respond to and recover from a disaster, it should adjust the indicator to accurately reflect the annual changes in the U.S. economy since 1986, when the current indicator was first adopted for use. In addition, implementing the adjustment by raising the indicator in steps over several years would give jurisdictions more time to plan for and adjust to the change. 2. Develop and implement specific criteria or factors to use when evaluating requests for cost share adjustments that would result in the federal government paying up to 100 percent of disaster declaration costs. 3. Annually track and monitor the additional costs borne by the federal government for the cost share adjustments. 4. Implement goals for administrative cost percentages and monitor performance to achieve these goals. We provided a draft of this report to DHS for comment. We received written comments from DHS on the draft report, which are summarized below and reproduced in full in appendix V. DHS concurred with three recommendations and partially concurred with the fourth recommendation. Regarding the first recommendation, that FEMA develop and implement a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond to and recover from a disaster without federal assistance, DHS concurred. DHS stated that a review of the criteria used to determine a state’s response, recovery, and fiscal capabilities is warranted and that such a review would include the need to update the per capita indicator as well as a review of alternative metrics. DHS stated that any changes would need to be made through the notice and comment rulemaking process and that, if changes are made to the per capita indicator, FEMA’s Office of Response and Recovery will review the feasibility of phasing them in over time. However, the extent to which the planned actions will fully address the intent of this recommendation will not be known until the agency completes its review and implements a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond and, if the per capita indicator continues to be used, adjusts the per capita indicator to accurately reflect annual changes in the U.S. economy since 1986. We will continue to monitor DHS’s efforts. Regarding the second recommendation, that FEMA develop and implement specific criteria or factors to use when evaluating requests for cost share adjustments that would result in the federal government paying up to 100 percent of disaster declaration costs, DHS concurred with the recommendation and stated that FEMA’s Office of Response and Recovery will review specific cost share factors or criteria and develop guidelines to support decision making. These actions, if implemented effectively, should address the intent of the recommendation. DHS concurred with the third recommendation, to track and monitor the additional costs associated with cost share adjustments, and stated that FEMA’s Office of Response and Recovery will be responsible for tracking these costs on an annual basis. DHS stated that such actions would provide valuable information for budgetary purposes and for decision makers who consider requests for cost share adjustments. We agree. Thus, these actions, if implemented effectively, should address the intent of the recommendation. DHS partially concurred with the fourth recommendation, to implement goals for administrative cost percentages and monitor performance to achieve these goals. Specifically, DHS stated that it agrees that setting goals and monitoring performance for achieving these goals is a good practice in any program and can help ensure more effective and efficient operations. However, DHS stated that it plans to conduct a review to better understand and describe its current measures. DHS stated that a number of factors affect administrative costs, which can present difficulties when trying to implement a simple measure of percentage of administrative costs to total costs. For example, DHS noted that the types of assistance provided and the location of the JFO would affect the percentage of administrative costs. DHS also stated that establishing meaningful administrative cost percentage goals will be challenging because of the many factors involved and that a suite of measures to track administrative cost percentages could help ensure more effective and efficient operations. Thus, DHS is pursuing development of such a suite of measures. We agree that a number of factors affect the percentage of administrative costs and that establishing meaningful administrative cost percentage goals can be challenging. In developing a suite of measures, it is important that FEMA’s leadership be able to use them to effectively monitor a disaster declaration’s overall administrative costs in addition to the factors that affect administrative costs. If these measures allow FEMA to monitor overall administrative costs as well as the factors that affect such costs, then development and implementation of such measures should meet the intent of the recommendation. DHS also provided technical comments, which we incorporated, as appropriate. We will send copies of this report to the Secretary of Homeland Security, the FEMA Administrator, and appropriate congressional committees. If you or your staffs have any questions about this report, please contact me at (202) 512-8777 or JenkinsWO@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other key contributors to this report are listed in appendix VI. Disaster declarations can take a decade or more to close because of a number of factors, including the Federal Emergency Management Agency’s (FEMA) reimbursement process for Public Assistance (PA) infrastructure projects, which can take a long time to finish. In addition, some projects are delayed because of disagreements, and sometimes litigation, over the appropriate amount that should be obligated, according to FEMA officials. As shown below in table 9, the oldest open disaster dates back to 1992, making it 20 years old, and only 54 percent of disaster declarations from fiscal year 2001 were closed as of January 31, 2012. All disaster declarations prior to fiscal year 1992 are closed. Table 9 shows the number of major disaster declarations by fiscal year that were open as of January 31, 2012, and the percentage of declarations that have been closed for each year since fiscal year 1992. Fifty-nine jurisdictions received major disaster declarations during fiscal years 1953 through 2011. Texas had the most, with 86 declarations, while Palau had 1. Wyoming, Utah, and Rhode Island had the fewest declarations for a state, each with 9 declarations. Table 10 identifies the number of disaster declarations for all jurisdictions during fiscal years 1953 through 2011. The number of major disaster declarations and total obligations varied among FEMA regions during fiscal years 2004 through 2011. For example, FEMA Region X had 32 declarations, while FEMA Region IV had 87. In addition, obligations for FEMA Region VI during this time, which was affected by Hurricane Katrina, reached nearly $40 billion, while FEMA Region X had obligations of $647 million. See figure 10 for more information. FEMA classifies major disaster declarations by incident type, and these types include floods, tornadoes, and hurricanes, among other types of disasters—both natural and man-made. As shown in table 11, the most frequent type of incident was, according to FEMA data, severe storms, which accounted for 71 percent of the declarations during fiscal years 2004 through 2011. FEMA obligates funds from the Disaster Relief Fund (DRF) to help jurisdictions respond to and recover from declared disasters. FEMA classifies these funds into five categories: PA, Individual Assistance, Hazard Mitigation, Mission Assignments, and Administration. Table 12 shows the obligations for each category by jurisdiction. Obligations on a per person basis varied for disasters declared during fiscal years 2004 through 2011. For example, including Hurricane Katrina, Louisiana had the highest per capita obligations at $7,236, but excluding obligations for Hurricane Katrina, American Samoa had the highest obligations at $3,795 per person. For the lowest obligations per person, Colorado had 81 cents and the Marshall Islands had zero. See tables 13 and 14 for obligations on a per person basis for all 58 jurisdictions when including and excluding obligations for Hurricane Katrina, respectively. This report addresses the following questions: (1) For each fiscal year from 2004 through 2011, how many disaster declaration requests did FEMA receive, how many were approved, for which types of disasters, and how much were the associated obligations from the DRF? (2) What criteria has FEMA used to recommend to the President that a disaster declaration is warranted for PA, and to what extent does FEMA assess whether an effective response to a disaster is beyond the capabilities of state and local governments? (3) How does FEMA determine whether a cost share adjustment recommendation for PA is warranted and how much additional federal assistance did jurisdictions receive during fiscal years 2004 through 2011 because of cost share adjustments? (4) What were FEMA’s administrative cost percentages for disaster declarations during fiscal years 2004 through 2011, how have they changed over time, and what actions is FEMA taking, if any, to reduce the costs of delivering disaster assistance funds? To determine how many disaster declaration requests FEMA received, how many were approved, for which types of disasters, and how much the associated obligations were from the DRF, we obtained data for each disaster declaration approved during fiscal years 2004 through 2011. We focused on this time frame because it contains the most current data for disaster declarations. It also comprises the time period after FEMA was merged into the newly created DHS, on March 1, 2003, and predates Hurricane Katrina in 2005. We focused primarily on fiscal years 2004 through 2011; however, to provide historical context and to compare results across similar periods, we also reviewed obligations data from fiscal years 1989 through 2011. In addition, to provide further historical perspective, we include information on the number of disaster declarations by jurisdiction from the first presidential disaster declaration in fiscal year 1953 through fiscal year 2011 in appendix I. FEMA provided data to us from its National Emergency Management Information System (NEMIS) and Integrated Financial Management Information System (IFMIS). To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the data we used from these systems were sufficiently reliable for the purposes of this report. To determine the criteria that FEMA used to recommend to the President that a disaster declaration was warranted for PA, and to what extent FEMA assessed whether an effective response to a disaster was beyond the capabilities of jurisdictions, such as state and local governments, we examined FEMA policies, regulations, and other documents related to the disaster declarations process. To determine the probability of a disaster declaration request being approved for PA if the Preliminary Damage Assessments (PDA) met or exceeded the PA per capita indicator, we obtained and analyzed data on FEMA’s PDAs from fiscal years 2008 through 2011. For this analysis, we used 4 years of data (fiscal years 2008 through 2011) instead of 8 years of data (fiscal years 2004 through 2011) that we used for other analyses because FEMA did not have data for fiscal years 2004 through 2007 in an electronic format. We believe that our analysis of 4 years of data is sufficient for purposes of this report. Specifically, we analyzed 246 disaster declarations during fiscal years 2008 through 2011, and excluded 293 declarations during fiscal years 2004 through 2007 because FEMA had readily available data only for PDAs for fiscal years 2008 through 2011. For each of the 246 disaster declarations, we reviewed the PDAs to determine whether a state requested PA, whether the President approved it, and the extent to which the PA damage estimate exceeded the PA per capita indicator. In addition, we conducted an analysis to determine whether disaster declarations from 2004 through 2011 would have met the PA per capita indicator if adjusted for the change in per capita personal income since 1986. Our analysis included FEMA’s projected obligations as of April 30, 2012, for only those 508 disaster declarations that had received PA and had been declared during fiscal years 2004 through 2011. We did not analyze the 31 disaster declarations that only received IA. We analyzed obligations instead of PDA damage estimates for PA because FEMA officials stated that estimating the damage from a disaster is sometimes stopped when the estimate equals or exceeds the PA per capita indicator. Therefore, we concluded that conducting the analysis using projected obligations would be more accurate than using incomplete PDA damage estimates for PA. In addition, we separately analyzed actual obligations for 144 closed disaster declarations because closed declarations would be either complete or very close to being complete. To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the data we used from PDAs were sufficiently reliable for the purposes of this report. To determine how FEMA evaluated whether a cost share adjustment recommendation was warranted and how much additional federal assistance states received during fiscal years 2004 through 2011 because of the adjustments, we obtained and reviewed relevant laws, regulations, and policies. We also obtained and analyzed the cost share adjustments and types requested, approved, and denied during fiscal years 2004 through 2011. In addition, we interviewed FEMA officials who process cost share adjustment requests and participate in making recommendations to the President as to whether the requests should be approved or denied. We also reviewed internal control standards for the federal government related to ensuring management directives are carried out and that actions are taken to address risks. To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the cost share adjustment data were sufficiently reliable for the purposes of this report. To determine FEMA’s administrative cost percentages for disaster declarations, we obtained DRF actual obligations, projected obligations, and related data for all 1,221 disaster declarations from fiscal years 1989 through 2011. While the focus of our objective was fiscal years 2004 through 2011, we obtained obligations data back to fiscal year 1989 to assess potential trends over time because FEMA only maintains obligations data since then. To assess FEMA’s current practices, we compared FEMA’s administrative cost percentages for disaster declarations during fiscal years 2004 through 2011 with FEMA’s target ranges for administrative cost percentages. To identify potential trends over time, we compared FEMA’s administrative cost percentages during fiscal years 1989 through 2003 with FEMA’s administrative cost percentages during fiscal years 2004 through 2011 and with FEMA’s target ranges. According to FEMA officials, administrative costs are typically higher in the early months of a declaration, typically decreasing as the declaration matures (that is, as labor-intensive response activities decline). In order to ensure the results of both analyses were not skewed by declarations that had not yet matured and whose administrative costs were high, we analyzed actual administrative costs for disaster declarations that were closed as of April 30, 2012. For declarations that were still open as of April 30, 2012, we analyzed actual obligations as of April 30, 2012, plus the amount that FEMA projected to obligate in the future until the declarations are eventually closed. To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the DRF data were sufficiently reliable for the purposes of this report. To determine what actions FEMA is taking, if any, to reduce the costs of delivering disaster assistance, we interviewed FEMA officials and reviewed relevant policies, documents, and briefings. In addition to conducting interviews with officials in FEMA headquarters for all four objectives, we conducted site visits to two FEMA regions— Regions IV and VI, which had the highest total obligations during fiscal years 2004 through 2011. The regional administrative offices were located in Atlanta, Georgia, and Denton, Texas, respectively. At each region, we interviewed the Regional or Deputy Administrator and various other personnel. In addition, we visited the emergency management agencies for Georgia and Oklahoma—one state within each of the two FEMA regions. We selected the two state emergency management agencies—Georgia and Oklahoma—based on their respective proximity to FEMA’s regional offices, their high level of experience with disasters, and their availability for a visit during September 2011. We wanted to avoid states that were actively responding to a disaster during that time. While the information we obtained on these site visits is not generalizable, the visits provided important insights into the disaster declaration process. We conducted this performance audit from July 2011 through September 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. FEMA uses a PA per capita indicator to help determine a jurisdiction’s need for federal assistance in the wake of a disaster. Table 15 shows how the indicator is calculated for each jurisdiction. FEMA multiplies the 2010 population for each jurisdiction by the PA per capita indicator for the fiscal year in which the disaster occurs. In fiscal year 2012, the PA per capita indicator is $1.35. The results of these calculations are the total indicator amounts in table 15. If the PA damage estimate exceeds the total indicator amount, a jurisdiction is likely to receive a major disaster declaration. The Stafford Act requires that a governor’s request for a major disaster declaration be based on a finding that the disaster is of such severity and magnitude that an effective response is beyond the capabilities of the jurisdiction and that federal assistance is necessary. In the wake of a disaster, FEMA prepares dollar estimates of the damage to public infrastructure incurred in an area that would be eligible for federal assistance under a federal major disaster declaration. Currently the key metric for determining eligibility for federal disaster assistance is a “per capita indicator,” which, since 1999, has been adjusted annually for inflation. For 2012, the indicator is $1.35 per capita (that is, total estimated damages eligible for federal PA divided by the jurisdiction’s population equals $1.35 or more). Damage estimates in excess of this number typically result in FEMA recommending that the President issue a major disaster declaration, which makes jurisdictions eligible for federal reimbursement of at least 75 percent of certain repair and replacement costs. The per capita indicator FEMA currently uses is not a measure of a jurisdiction’s fiscal capacity to address the damages caused by a disaster. Rather, there is an assumption that generally jurisdictions are unable without federal major disaster assistance to rectify damages that equal or exceed $1.35 per capita. Jurisdictions’ abilities to finance their own disaster relief and recovery vary with their fiscal capacity, among other factors. A jurisdiction’s fiscal capacity is defined as the ability of a government to raise revenue from its own sources, by taxes, license fees, user charges, and public enterprises, among other devices. Fiscal capacity is usually expressed as a percentage of the national average for the 50 states plus the District of Columbia, in the form of an index number. For example, if a jurisdiction’s capacity is equal to 100 percent or 90 percent of the national average, its index number would be 100 or 90, respectively. In general, the ability of jurisdictions to pay for public services increases with the size of their economies. The simplest application of fiscal capacity criteria to disaster assistance is an adjustment of the per capita indicator for every jurisdiction. “Richer” jurisdictions—those above the national average— would have a higher level, reflecting their greater ability to pay, while “poorer” jurisdictions would have a lower level. The fiscal capacity index could be converted into a percentage (for instance, 110 = 110 percent or 90 = 90 percent) and applied to each jurisdiction’s per capita indicator ($1.35 times the population) to get an adjusted indicator. For example, a jurisdiction with a population of 10 million would have a per capita indicator of $13.5 million dollars ($1.35 times its 10 million population). If the jurisdiction’s capacity index was 100 percent, its capacity threshold would be the same as the current indicator—$13.5 million. However, if the jurisdiction’s fiscal capacity index was 110 (indicating a fiscal capacity index 10 percent above the national average), its damage threshold would be $14.85 million—$13.5 million plus 10 percent of $13.5 million. The variation in the results could be narrowed, if desired, by setting upper and lower limits to the adjustments, among other possible methods. However, adjusting the per capita indicator according to a jurisdiction’s fiscal capacity would not necessarily reduce total federal spending. It is possible that disaster assistance adjusted by fiscal capacity, and focused on jurisdictions with below-average fiscal capacity, could increase total federal spending. How total annual spending is affected would depend on the specific disasters taking place for that year, as well as the affected jurisdictions. In addition to the theoretical aspects of comparing and contrasting various measurements of fiscal capacity, there are other matters to consider. Specifically, there are certain attributes that are desirable in a fiscal capacity measure. These attributes could help FEMA determine the extent to which the agency could use measurements of jurisdiction fiscal capacity when determining a jurisdiction’s eligibility for federal assistance. These attributes include the following: Simple and easy to calculate: For political acceptance and analytical ease, the methodology of measurement should be as simple as possible. For practicality and transparency, a measure should be easy and inexpensive to calculate. Convenient, available, and timely: Ideally the data for a measure would be routinely collected, checked, and published by a government agency on a timely basis. For example, the measurement should be possible on an annual basis with as little a time lag as possible, in order to provide the most timely indicator of jurisdictions’ capacities. Comprehensive: A measure should be comprehensive with respect to the implementation of its approach. Incompleteness could bias results. Analytically sound: The principal analytical choice in capacity measurement is between economic measures that aim for comprehensive measurement free of double-counting, and tax base measures that in some way take account of governments’ choices in how to tax. There is debate among economists as to which type of measurement (economic or tax base) is more analytically sound. Does not affect or is not affected by any individual jurisdiction’s fiscal choices: Capacity measures should not be affected by or affect a jurisdiction’s actual fiscal choices, in terms of what to tax, how to tax, or how much to tax. In principle a government’s fiscal behavior could affect its own tax bases. No capacity measure makes any adjustments based on the impact of taxes on a state’s economy because of the extreme difficulty of arriving at a simple method of making such adjustment that would earn political consensus. The three fiscal capacity measures discussed below provide various methods that can be used to determine a jurisdiction’s fiscal capacity. Each of these measures has benefits and potential shortcomings regarding the extent to which they measure a jurisdiction’s fiscal capacity. State personal income (PCI): As a measurement of a jurisdiction’s fiscal capacity, state personal income is simple, available, and timely. The personal income of all residents of a jurisdiction consists of labor earnings, proprietors’ and partnership income, rent, interest, dividends, and transfers (public cash benefits). It is the most commonly used measure in the United States for federal grants. PCI is simple and familiar to most people, and it is routinely calculated and published by the federal government on a jurisdiction-by-jurisdiction basis. More local measures of personal income are less comprehensive, for lack of data. Some jurisdictions may choose to tax only part of income, or not to tax it at all. PCI aims to be a comprehensive measure of residents’ personal income, without regard to how they are taxed. PCI is not a comprehensive measure of a jurisdiction’s fiscal capacity and is affected by a jurisdiction’s fiscal choices. The principal shortcoming of PCI is its failure to reflect a jurisdiction’s ability to raise tax revenue from nonresidents, also known as tax exporting. For example, a jurisdiction government may tax nonresident commuters, property owners, shoppers, and tourists. The ability to export taxes varies sharply across jurisdictions. Also, data on one component of personal income, accrued capital gains, is not available. More generally, changes in asset values are not captured in any fiscal capacity measures, because of lack of data. Another missing element in PCI is the net income of a jurisdiction’s government enterprises. An example is state-owned liquor stores, whose profits never pass through private hands. Another example is royalties paid to governments by extractive industries, such as oil, gas, and uranium. These scenarios amount to income received by a jurisdiction’s residents, through their government. In one state (Alaska), a share of such revenue—a “bonus” payment—is paid directly to state residents, which would appear as part of PCI. To a limited extent, PCI is biased to the extent to which a jurisdiction government finances transfer payments with taxes on income, since this income is counted twice, once by source and the second time by receipt. Gross state product (GSP): As a measure of a jurisdiction’s fiscal capacity, GSP is simple, available, timely, and not affected by a jurisdiction’s fiscal choices. Also called gross domestic product by state, GSP consists of all income “produced” in a state. It includes labor earnings of those who work in a jurisdiction, irrespective of their residence, the net income of business firms operating in a jurisdiction, indirect business taxes paid to the governments of the jurisdiction, and the output of the public sector (in national income accounting, government output is valued at cost). GSP partially captures the ability of a jurisdiction to export taxes, since it includes income received by nonresidents and by the residents’ own governments directly. As with PCI, with the benefit of government publication, the data are available on a timely basis and are easily converted into a fiscal capacity index. It is less affected by a jurisdiction’s fiscal choices than PCI because it does not double-count income. Similar to PCI, GSP is not a comprehensive measure of a jurisdiction’s fiscal capacity. More specifically, PCI includes income received by a jurisdiction’s residents, but not income generated in a jurisdiction but received by nonresidents. GSP does not include income received by a jurisdiction’s residents that originates elsewhere. Total taxable resources (TTR): As a measure of a jurisdiction’s fiscal capacity, TTR is comprehensive, available, and not affected by jurisdictions’ fiscal choices. According to the Department of the Treasury (Treasury), the object of TTR is to capture the unduplicated sum of PCI and GSP that is susceptible to taxation by a jurisdiction’s government. By this means the entirety of income potentially exposed to taxation is measured. In practice the calculation is relatively simple. A jurisdiction’s GSP is supplemented with income received by jurisdiction residents that originated in other jurisdictions. This would include the labor earnings of residents who commute to jobs in other jurisdictions, and the capital income (mainly interest, dividends, rent, and capital gains) of all jurisdiction residents due to asset holdings in other jurisdictions. It excludes indirect business taxes paid to the federal government (such as the payroll tax and federal excises). TTR is used in two grant programs— the Department of Health and Human Services’ Substance Abuse and Mental Health Services Administration’s block grant program and Community Mental Health Service—and is calculated by Treasury. TTR is a complex measure of a jurisdiction’s fiscal capacity and is not as timely as other measures. A crude measure of TTR is obtained by simply averaging a jurisdiction’s PCI and GSP. This was done for official TTR estimates between 1992 and 1997. Subsequently the calculations were based more closely on the original conceptual framework for TTR. At present there is a 2-year lag in the publication of TTR estimates by Treasury. As of May of 2012, the most recent year available is 2009. The primary reason for the delay in publishing TTR estimates is the need to wait for federal excise tax revenues and nontax liabilities, and federal civilian enterprise surpluses, to become available. These data are provided to Treasury in August or September for the year ending 20 months prior. According to the Chief of the Regional Product Branch, Regional Product Division, at the Bureau of Economic Analysis, it could be possible to speed up the availability of TTR by 2 or 3 months. In addition, TTR is less transparent than PCI or GSP. It relies on approximations of capital income (dividends, interest, and rent), since such quantities are not reported by place of origination. It does not discriminate among income flows according to the degree of susceptibility to taxation. Each of these three measures of a jurisdiction’s fiscal capacity to respond to and recover from a disaster without federal assistance has its limitations and can affect each jurisdiction somewhat differently, compared with using the current $1.35 per capita damage estimate indicator. FEMA’s current per capita indicator is simple and easy to understand, but it is not a measure of a jurisdiction’s fiscal capacity. Nor does FEMA have a useful measure of a jurisdiction’s response capabilities. All current measures of those capabilities are jurisdictions’ self-reported data without reference to common metrics for assessing capability. Because FEMA’s per capita indicator does not comprehensively assess a jurisdiction’s response and recovery capabilities, including a jurisdiction’s fiscal capacity, some combination of these measures could provide a more robust and useful assessment of a jurisdiction’s capability to respond to and recover from a disaster without federal assistance, or with minimal federal assistance. This could include exploring the usefulness of supplementing the current damage indicator (which does not fully reflect changes in inflation since its adoption in 1986) with other measures of a jurisdiction’s fiscal capacity and response capability. For example, one potential alternative methodology could involve adjusting the per capita indicator for each jurisdiction based on a measure of jurisdiction fiscal capacity. If FEMA were to adjust the PA indicator for inflation, the adjusted PA indicator for fiscal year 2011 would be $2.07. Beginning with the adjusted PA indicator of $2.07, each jurisdiction’s PA indicator could then be adjusted based on that jurisdiction’s fiscal capacity. For example, if the $2.07 base were adjusted for “jurisdiction A,” which has a 2009 TTR index of 71.8, jurisdiction A’s PA indicator would be $1.49. If the $2.07 base were adjusted for “jurisdiction B’s” 2009 TTR index of 149, jurisdiction B’s PA indicator would be $3.08 (see table16). The variation in jurisdiction A’s $1.49 indicator and jurisdiction B’s $3.08 indicator represents the difference in the two jurisdiction’s fiscal capacities in accordance with each jurisdiction’s TTR. In making any changes or enhancements to the methods used to assess a jurisdiction’s fiscal capacity, policymakers would need to consider the relative priority of key attributes, as previously discussed, and the benefits and costs of developing and implementing such changes. In addition to the contact named above, Leyla Kazaz (Assistant Director), David Alexander, Lydia Araya, Peter DelToro, Joseph E. Dewechter, Jeffrey Fiore, Carol Henn, R. Denton Herring, Tracey King, Linda Miller, Max Sawicky, and Jim Ungvarsky made key contributions to this report. | The growing number of disaster declarations--a record 98 in fiscal year 2011 compared with 65 in 2004--has contributed to increased federal disaster costs. FEMA leads federal efforts to respond to and recover from disasters and makes recommendations to the President, who decides whether to declare a disaster and increase the usual federal cost share of 75 percent. This report addresses (1) the number of declarations requested and approved from fiscal years 2004-2011 and associated DRF obligations; (2) the criteria FEMA used to recommend a declaration for PA, and the extent that FEMA assessed whether an effective response to a disaster was beyond the capabilities of state and local governments; (3) how FEMA determined whether to recommend cost share adjustments, and their costs; and (4) FEMA's administrative cost percentages for declarations. GAO reviewed declaration data for fiscal years 2004-2011 and conducted site visits in 2011 to the two FEMA regions with the highest DRF obligations. The results are not generalizable, but provide insights. During fiscal years 2004-2011, the President received governors' requests for 629 disaster declarations and approved 539, or 86 percent, of which the Federal Emergency Management Agency (FEMA) reported 71 percent were for severe storms. For these 539 declarations, FEMA obligated $80.3 billion, or an average of about $10 billion a year, from the Disaster Relief Fund (DRF), as of January 31, 2012. Almost half of the obligations were for Hurricane Katrina; excluding obligations for Hurricane Katrina, FEMA obligated $40.6 billion, or an average of about $5 billion a year. As of January 31, 2012, FEMA anticipated that when all 539 declarations are closed, total DRF obligations will be about $91.5 billion. GAO's analysis shows that FEMA primarily relied on a single criterion, the per capita damage indicator, to determine whether to recommend to the President that a jurisdiction receive public assistance (PA) funding. However, because FEMA's current per capita indicator, set at $1 in 1986, does not reflect the rise in (1) per capita personal income since it was created in 1986 or (2) inflation from 1986 to 1999, the indicator is artificially low. The indicator would be $3.57 in 2011 had it been adjusted for increases in per capita income and $2.07 in 2012 had it been adjusted for inflation from 1986 to 1999, rather than its current $1.35. GAO's analysis of FEMA's anticipated obligations for 508 declarations with PA during fiscal years 2004-2011 shows that 44 percent and 25 percent would not have met the indicator if it had been adjusted for increases in personal income and inflation, respectively, since 1986. Further, the per capita indicator does not accurately reflect a jurisdiction's capability to respond to or recover from a disaster without federal assistance. GAO identified other measures of fiscal capacity, such as total taxable resources, that could be more useful in determining a jurisdiction's ability to pay for damages to public structures. Developing a methodology to more comprehensively assess state capabilities and reexamining the basis for the indicator could help FEMA more accurately determine a jurisdiction's capacity to respond without federal assistance. FEMA recommends raising the usual 75 percent federal share for PA to 90 percent when federal obligations, excluding FEMA administrative costs, meet a qualifying threshold. However, FEMA has no specific criteria for assessing requests to raise the federal share for emergency work to 100 percent, but relies on its professional judgment. For the 539 disaster declarations during fiscal years 2004-2011, governors made 150 requests to adjust the federal cost share to 90 or 100 percent; 109, or 73 percent, were approved or statutorily mandated, mostly for hurricanes. Without specific criteria for 100 percent cost share, FEMA risks making inconsistent or inequitable recommendations to the President. GAO's analysis of administrative costs for 539 disaster declarations during fiscal years 2004-2011 shows that administrative cost percentages frequently exceeded FEMA's targets, although FEMA does not require that they be met. GAO's analysis of 1,221 disaster declarations shows that average administrative costs doubled from 9 to 18 percent during fiscal years 1989-2011, the time period for which FEMA has data available. FEMA is working on short- and long-term actions to improve efficiencies in delivering disaster assistance, but the agency does not plan to set goals or track performance for administrative costs. Until this happens, it will be difficult for FEMA to ensure assistance is being delivered in an efficient manner. GAO recommends, among other things, that FEMA develop a methodology to more accurately assess a jurisdiction's capability to respond to and recover from a disaster without federal assistance, develop criteria for 100 percent cost adjustments, and implement goals for and track administrative costs. FEMA concurred with the first two, but partially concurred with the third, saying it would conduct a review before taking additional action. |
The DRC’s size, location, and wealth of natural resources contribute to its importance to U.S. interests in the region. With an area of more than 900,000 square miles, the DRC is roughly the size of the United States east of the Mississippi River. Located in the center of Africa, the DRC borders nine nations. Its abundant natural resources, which constitute its primary export products, include 34 percent of the world’s cobalt reserves, 10 percent of the world’s copper reserves, and 64 percent of the world’s coltan reserves, as well as diamonds, gold, cassiterite, and other minerals. Moreover, the DRC’s rain forests provide 8 percent of the world’s carbon. The DRC has had a turbulent history. In 1965, fewer than 5 years after the nation achieved independence from Belgium, a military regime seized control of the DRC and ruled, often brutally, for more than 3 decades. It was toppled in 1997 by a coalition of internal groups and neighboring countries to the east, including Rwanda and Uganda, after dissident Rwandan groups began operating in the DRC. Subsequent efforts by a new DRC government to secure the withdrawal of Rwandan and Ugandan troops prompted a second war in 1998 that eventually drew the armies of three more African nations into the DRC. Beginning in 1999, a United Nations (UN) peacekeeping force was deployed to the DRC. After a series of U.S.-supported peace talks that began in 2001, the other nations withdrew all or most of their troops and an interim government was established. Elections held in 2006 with logistical support provided by UN peacekeepers culminated in the December 6, 2006, inauguration of the DRC’s first democratically elected president in more than 40 years. However, conflict in the DRC has continued. According to the International Rescue Committee, from 1998 through 2007, 5.4 million Congolese died as the direct or indirect consequence of conflict in the country, with an estimated 2.1 million of those deaths since 2002. The DRC suffers from a wide range of problems, including acute poverty and limited economic prospects. It is one of the poorest and least developed countries in the world: the current life expectancy is 43 years, in part because the DRC suffers from high rates of tuberculosis, HIV/AIDS, and malaria. USAID reports that 2 of every 10 children born in the DRC die before their fifth birthday and that the maternal death rate is the world’s highest. An international group of donor nations recently concluded that the DRC’s educational system is failing and that most rural children do not attend school. In addition, wars and turmoil have reduced its economy to dependence on subsistence agriculture and informal activities. The DRC’s prospects are also encumbered by an external debt load of around $8 billion, which is three times greater than the level of debt that the World Bank and the IMF consider sustainable. Moreover, the DRC has not fully qualified for debt relief under the enhanced Heavily Indebted Poor Country (HIPC) initiative. The DRC receives assistance from a number of donor nations and organizations. During 2004 and 2005, the 10 largest donors to the DRC were the World Bank’s International Development Association, the European Commission, Japan, Belgium, the United Kingdom, the United States, France, Germany, the IMF, and the Netherlands. The United States’ goal for its assistance to the DRC, as characterized by State, is to strengthen the process of internal reconciliation and democratization to promote a stable, developing, and democratic DRC. As described by the Assistant Secretary of State for African Affairs, U.S. policy is to support, but not lead, the efforts of the DRC to address its problems. Table 1 shows the Act’s 15 U.S. policy objectives for the DRC, linked to the five categories of assistance—humanitarian, social development, economic and natural resource management, governance, and security. U.S. agencies have implemented a number of programs and activities that support the Act’s policy objectives. In fiscal years 2006 and 2007, about 70 percent of U.S. funding for the DRC was allocated for programs that would support the Act’s emergency humanitarian and social development objectives and about 30 percent was allocated for programs and activities that would support the Act’s economic, governance, and security objectives (see fig. 1). Seven U.S. agencies—USDA, DOD, HHS, DOL, State, Treasury, and USAID—allocated about $217.9 million and $181.5 million for aid to the DRC in fiscal years 2006 and 2007, respectively, with State and USAID providing the majority of these funds (see fig. 2). Examples of U.S. agencies’ programs and activities in each category include the following (see app. II for more information). Humanitarian. USAID and State have provided humanitarian assistance to help the DRC meet its citizens’ and vulnerable populations’ basic needs. USAID has provided emergency assistance to vulnerable populations in the DRC. Working primarily through the UN World Food Program and an NGO, USAID has supported distribution of food to internally displaced persons; people infected with, and orphans affected by, HIV/AIDS; and victims of sexual abuse by soldiers. Working primarily through NGOs, USAID has provided emergency supplies, health care, nutrition programs, water and sanitation improvements, food, and agricultural assistance to other vulnerable populations, such as malnourished children and war- affected populations. USAID has provided emergency assistance to support road rehabilitation and bridge reconstruction projects; schools; and the socioeconomic reintegration of ex–child soldiers, adult combatants, and their families. State has provided humanitarian assistance to help repatriate, integrate, and resettle refugees in the DRC. In fiscal year 2007, this assistance was implemented primarily by the UN High Commissioner on Refugees, other international organizations, and NGOs. Social development. USAID, HHS, and DOL have provided assistance to support the Act’s social development and rehabilitation objectives. USAID has worked through NGOs to improve education, health care, and family planning. For instance, USAID has funded efforts to reduce abandonment of children; provide psychosocial support, medical assistance, and reintegration support to survivors of sexual and gender- based violence in the eastern DRC; train teachers; and increase access to education for vulnerable children. USAID has funded efforts to train medical staff and nurses in the management of primary health care, distribute bed nets to prevent the spread of malaria and polio, provide family planning services, and support voluntary counseling and testing centers for HIV/AIDS. HHS has allocated funds for immunization against, and the surveillance and control of, infectious diseases such as polio, measles, and HIV/AIDS. DOL has allocated funds to address children’s involvement in mining and related services, small-scale commerce, child soldiering, and other forms of child labor in the DRC. Economic and natural resource management. Treasury, USAID, State, and USDA have provided support for the Act’s economic objectives. Treasury has worked with the World Bank and the IMF to relieve the DRC of some of its foreign debt. The United States provided the DRC interim debt relief (primarily through reduced interest payments) in fiscal years 2005 through 2007, following the DRC’s admittance into the HIPC debt relief program. Once the DRC qualifies for the completion of its HIPC debt relief, Treasury plans to pay the budgetary costs of fully relieving the DRC’s $1.3 billion debt to the United States. USAID has allocated funds to support sustainable natural resource management, forest protection, and biodiversity in the DRC through the Central African Regional Program for the Environment. State has supported efforts to promote transparency in the DRC’s natural resource sector by serving as the U.S. representative to the Kimberley Process Certification Scheme, which deals with rough diamond trade, and to the Extractive Industries Transparency Initiative (EITI). USDA has allocated funds to improve agricultural productivity, increase rural market development, provide credit for agribusiness and rural infrastructure, and increase access to potable water and water for irrigation in the DRC. Governance. USAID and State have allocated funds for programs that support the Act’s governance objectives. USAID has allocated funds to organize itinerant court sessions intended to bring justice institutions closer to citizens, facilitate greater access to justice for vulnerable people, and provide quality legal assistance to the population in relatively inaccessible parts of the DRC. USAID has supported an NGO’s establishment of democracy resource centers to assist political party leaders, civic activists, elected local and national officials, and government institutions in promoting good governance and democracy. USAID, to promote judicial independence, supported an NGO’s efforts by fostering improvements to the DRC’s legal framework, such as laws on sexual violence and the rights of women, and providing legal assistance activities for victims of sexual and gender-based violence. State allocated funds in 2006 for more than 30 programs by the National Endowment for Democracy, including programs aimed at informing women of their rights, addressing issues of abuse and corruption, and promoting political participation. Security. State, USAID, and DOD have provided security-related assistance in the DRC. State has facilitated a multinational forum, the Tripartite Plus Commission, for the DRC and nations on its troubled eastern border— Uganda, Rwanda, and Burundi—to discuss regional security issues, including militias operating illegally in the eastern DRC. USAID has launched programs to promote the reintegration of some former fighters into Congolese society. State is refurbishing the DRC’s military officer training school and training multiple levels of the military, including brigade- and battalion-staff level officers, on military justice reform, civil-military relations, and other issues of concern. U.S., NGO, and other officials and experts identified several major challenges that are impeding U.S. efforts to achieve the Act’s policy objectives. These challenges include (1) an unstable security environment, (2) weak governance and widespread corruption, (3) mismanagement of natural resources, and (4) lack of basic infrastructure. Because these challenges are interrelated, they negatively impact progress in multiple areas. Unstable security environment. The DRC’s weak and abusive security forces have been unable to quell continuing militia activities in the DRC’s eastern regions, where security worsened during 2007. For example, the UN reported that the DRC army is responsible for 40 percent of recently reported human rights violations—including rapes, mass killings of civilians, and summary executions—and DRC police and other security forces have killed and tortured civilians with total impunity. State reported that government and other armed forces in the DRC have committed a wide range of human rights abuses, including forcing children into the security forces. Further, the DRC’s unstable security situation has worsened the DRC’s humanitarian and social problems and impeded efforts to address these problems. For instance, U.S. agency officials reported that the conflict has forced them to curtail some emergency assistance programs, and NGOs implementing development and humanitarian assistance activities in the DRC reported that the lack of security has resulted in attacks on their staff or led them to suspend site visits and cancel and reschedule work. In addition, the DRC’s unstable security situation has negatively affected the country’s economic potential by discouraging investment, which in turn could worsen security through renewed conflict. Weak governance and corruption. By many accounts, corruption in the DRC is widespread. For example, Transparency International’s 2007 Corruption Perceptions Index identifies the DRC as one of the 10th most corrupt countries in the world. Further, weak governance and corruption in the DRC have hindered efforts to reform the security sector and hold human rights violators accountable. For instance, according to U.S. officials, the DRC lacks a government office with clear authority on security issues, and efforts to reform the DRC’s police may be impeded by lack of support from corrupt DRC institutions. According to NGO representatives, the lack of an effective judiciary impedes efforts to hold human rights violators accountable for their actions, which in turn promotes a “culture of impunity.” Moreover, governance problems have hindered efforts to implement economic reforms required for debt relief and promote economic growth. For example, according to Treasury officials and IMF documents, the government’s lack of commitment to meet certain requirements has jeopardized the DRC’s ability to receive some interim debt relief, qualify for full debt relief, and improve the country’s overall economic prospects. Finally, the judiciary’s ineffective enforcement of commercial contracts in the DRC has likely discouraged private sector investment and hence economic growth. The World Bank rated the DRC’s enforcement of contracts as among the weakest in the world, such that a company might need to expend roughly 150 percent of a typical contract’s value to ensure enforcement through court proceedings. Mismanagement of natural resources. Governance and capacity challenges in the DRC have limited the ability of international donors, NGOs, and the DRC government to improve natural resource management. For example, the Kimberley Process Certification Scheme has criticized the DRC for weak internal controls, customs capacity, and ability to track diamonds extracted by large number of self-employed miners. According to U.S. and NGO officials, the DRC also conducted a national mining contract review without publishing its terms of reference or all of the contracts or clearly defining the role of civil society representatives. Further, mismanagement of the DRC’s natural resources has fueled continued conflict and corruption. According to U.S. officials, international donors, and NGOs, the DRC’s abundant natural resources fuel conflict between neighboring countries’ militias and armed domestic factions and foster corruption among government officials. Lack of basic infrastructure. The DRC lacks many key elements of basic infrastructure, such as buildings, equipment, and transportation. For example, according to a recent study by 17 donor nations, no roads link 9 of the DRC’s 10 provincial capitals to the national capital and no roads link the DRC’s northern and southern regions or its eastern and western regions. International observers have reported that the DRC’s educational and penal infrastructures are dilapidated, and an international group of donor nations stated that the DRC’s electrification, communications, and supplies of clean water have major deficiencies. Moreover, the DRC’s lack of basic infrastructure has hindered progress in humanitarian, developmental, and governance programs. According to U.S. officials, the lack of an adequate in- country transportation system increases the time required to get supplies to those in need and, according to U.S. and NGO officials, increases the expense or difficulty associated with their programs. International donors and organizations said that the lack of infrastructure has made economic development impossible in many areas and may stifle the potential for economic growth and private sector activity in most DRC provinces. Although U.S. agencies monitor their efforts in the DRC, the U.S. government has not established a process to assess overall progress toward achieving the Act’s policy objectives in the DRC. Further, although State and NSC have developed mechanisms to coordinate some of the agencies’ activities in the DRC, neither mechanism systematically assesses overall progress. Some of the key agencies involved in the DRC monitor their respective programs. For example, USAID’s Office of Foreign Disaster Assistance (OFDA) has two program officers in the DRC who regularly visit project sites and publish quarterly reports on OFDA activities. Their partner organizations, or implementers, also provide reports and updates on their projects. However, the executive branch has not established a governmentwide process to use such information for an assessment of overall U.S. progress in the DRC. Although State and NSC have developed mechanisms aimed at providing some degree of coordination among executive branch agencies active in the DRC, neither mechanism currently provides for the systematic assessment of overall U.S. progress toward its goals. In 2006, to ensure that foreign assistance, including assistance provided to the DRC, is used as effectively as possible to meet broad foreign policy objectives, the Secretary of State appointed a Director of Foreign Assistance (DFA), who also serves as the Administrator of USAID. Under DFA’s guidance, State and USAID have begun to develop a joint planning and budgeting process that, according to State officials, may eventually assess all U.S. foreign assistance. However, as of February 2008, the Office of the DFA had not completed its DRC operations plan for fiscal year 2007, which ended on September 30, 2007. To focus attention on issues affecting the Great Lakes region of central Africa, which encompasses the DRC, the National Security Council established an interagency working group, comprising officials from DOD, State, and USAID. The group’s mission is to establish a coordinated approach, policies, and actions to address issues, such as security, in the DRC and other countries in the region. However, according to NSC and State officials, the group has not developed systematic tools for assessing the impact of all U.S. agencies’ efforts to achieve the Act’s objectives. Also, the group does not include several agencies providing assistance to the DRC, such as DOL, HHS, and USDA. The lack of a governmentwide process for assessing its overall progress in the DRC limits the U.S. government’s ability to ensure that it has allocated its resources in the most effective manner. At the same time, given the DRC’s significance to Africa’s stability, the scope, complexity, and urgency of the challenges to achieving U.S. policy objectives in the DRC warrant a governmentwide response. To ensure a basis for informed decisions regarding U.S. allocations for assistance in the DRC as well as any needed bilateral or multilateral actions, we recommended in December 2007 that the Secretary of State, through the Director of Foreign Assistance, work with the heads of the other U.S. agencies implementing programs and activities in the DRC to develop a plan for systematically assessing the extent to which the U.S. government as a whole is making progress in achieving the Act’s policy objectives. Commenting on a draft of our 2007 report, State endorsed our recommendation, noting that it would likely be met as DFA’s joint planning and budgeting processes are extended to include all U.S. agencies engaged in the DRC. This completes my prepared statement. I would be happy to respond to any questions that Members of the Caucus may have at this time. For our December 2007 report, we identified (1) U.S. programs and activities that support the objectives of the DRC Relief, Security, and Democracy Promotion Act of 2006 (the Act), (2) major challenges hindering accomplishment of these objectives, and (3) U.S. efforts to assess progress toward accomplishing these objectives. To identify U.S. programs and activities that support the Act’s objectives, we analyzed policy, planning, budget, and programming documents describing U.S. policies and programs in the DRC provided by key U.S. agencies—the Departments of Agriculture (USDA), Defense (DOD), Labor (DOL), Health and Human Services (HHS), State, and the Treasury; the Overseas Private Investment Corporation (OPIC); and the U.S. Agency for International Development (USAID). We identified the amount of funding each agency allocated for its DRC programs in fiscal years 2006 and 2007; we did not determine the extent to which each agency obligated or expended its allocated funds. We also met with representatives from each of these agencies, the National Security Council (NSC), nongovernmental organizations (NGO), and other organizations with expertise on DRC- related issues. To identify key impediments hindering accomplishment of the Act’s policy objectives, we analyzed relevant policy and program documents; interviewed U.S. agency officials; conducted a round-table session with a nonprobability sample of 11 NGOs with a broad range of experience and expertise implementing programs and projects in the DRC; and interviewed representatives from other organizations with experience in the DRC. To identify U.S. efforts to assess progress toward accomplishing the Act’s policy objectives, we reviewed U.S. agency assessments and implementation documents. Although we did not travel to the DRC, we conducted several telephone interviews with U.S. embassy and USAID mission staff in the DRC. We conducted this performance audit from May 2007 to December 2007, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Zina Merritt (Assistant Director), Pierre Toureille, Kristy Kennedy, Kendall Schaefer, Martin De Alteriis, Michael Hoffman, Reid Lowe, and Farhanaz Kermalli made key contributions to this report. Grace Lui provided technical assistance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | During the last decade, conflict in the Democratic Republic of the Congo (DRC)--one of the world's poorest countries--led directly or indirectly to the deaths of an estimated 5.4 million Congolese. A U.S.-supported peace process began in 2001, and the country's first democratically elected president in 40 years was inaugurated in 2006. However, conflict in the country has continued. In enacting the Democratic Republic of the Congo Relief, Security, and Democracy Promotion Act of 2006 (the Act), Congress established 15 U.S. policy objectives that address humanitarian, social development, economic and natural resource management, governance, and security concerns in the DRC. The Act mandated that GAO review U.S. programs in the DRC that support these policy objectives. In this testimony, based on its December 2007 report, GAO identifies (1) U.S. programs and activities that support the Act's objectives, (2) major challenges hindering the accomplishment of the objectives. For its report, GAO obtained and analyzed program documents for seven U.S. agencies--the Departments of Agriculture (USDA), Defense (DOD), Health and Human Services (HHS), Labor (DOL), State, and the Treasury and the U.S. Agency for International Development (USAID). GAO also met with officials of these agencies and nongovernmental organizations (NGO) active in the DRC. In fiscal years 2006 and 2007, respectively, seven agencies allocated a total of about $217.9 million and $181.5 million for the DRC. About 70 percent of these funds supported the Act's humanitarian and social development objectives and about 30 percent supported its economic and natural resource management, governance, and security objectives. Agencies' programs and activities included, for example, USAID's provision of emergency supplies, food, and water and sanitation improvements to vulnerable populations; Treasury's provision of interim debt relief; and State's provision of training and other assistance for professionalizing members of the DRC's military. Several major, interrelated challenges--an unstable security environment, weak governance, mismanagement of natural resources, and lack of basic infrastructure--have impeded efforts to achieve the Act's policy objectives. For instance, weak and abusive DRC security forces have worsened humanitarian and social problems, forcing U.S. and NGO staff to curtail some efforts. At the same time, corruption and other governance problems have impeded efforts to reform the security sector and hold human rights violators accountable. Meanwhile, mismanagement of natural resources has fueled continued conflict and corruption, and a lack of basic infrastructure has hindered progress in humanitarian, developmental, and governance programs. The U.S. government has not established a process to assess overall progress toward the Act's policy objectives. As a result, it cannot be assured that it has allocated U.S. resources in the most effective manner. In its December 2007 report, GAO recommended that the Secretary of State work with the heads of the other agencies implementing programs in the DRC to develop a plan for systematically assessing the U.S. government's overall progress in achieving the Act's policy objectives. State agreed with GAO's recommendation. |
Each year, State issues A-3 and G-5 visas to individuals whose employers are foreign diplomats on official purposes in the United States. Most of these individuals are hired to work for foreign diplomats in the District of Columbia, Maryland, New York, or Virginia. For fiscal years 2000 through 2007, 207 U.S. embassies and consular posts overseas issued 10,386 A-3 visas and 7,522 G-5 visas. The number of A-3 visas decreased during this period by about 56 percent—from 1,780 in fiscal year 2000 to 999 in fiscal year 2007—and the number of G-5 visas issued increased by 21 percent— from 877 in fiscal year 2000 to 1,057 in fiscal year 2007 (see fig. 1). Figure 2 shows the 10 posts that issued the most A-3 and G-5 visas, combined, for fiscal years 2000 through 2007. These 10 posts issued 40 percent of the total number of A-3 and G-5 visas issued during this period. Manila issued the most A-3 and G-5 visas, accounting for almost 10 percent of the total number of these visas issued overseas during this period. U.S. laws provide certain protections for household workers, including individuals brought to the United States on A-3 or G-5 visas, and State, Justice, Homeland Security, and Labor work to respond to allegations of abuse, exploitation, or trafficking of household workers by foreign diplomats. (App. II lists the relevant offices within these departments and their respective responsibilities.) The U.S. government considers involuntary servitude of household workers, as defined under the Trafficking Victims Protection Act of 2000, to be a severe form of trafficking in persons and a serious criminal offense. Specifically, the act defines severe forms of trafficking in persons, in part, as the recruitment, harboring, transportation, provision, or maintaining of a person for labor or services through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery. Victims of severe forms of trafficking are offered certain accommodations under the act. Household workers also are subject to U.S. laws and covered by the Fair Labor Standards Act, which is the law governing minimum wages and overtime pay. Homeland Security can provide special accommodations to individuals who show that their employers have abused, exploited, or trafficked them, allowing the workers to legally remain in the United States. These accommodations are continued presence—which permits an alien to be present legally in the United States and to seek work during the investigation—and T nonimmigrant status—which permits a visa holder to remain in the United States for up to 4 years, file for adjustment of status to lawful permanent residence, and apply for benefits from the U.S. government such as food stamps and medical assistance. If they leave their employment situation without either of these accommodations, A-3 and G-5 visa holders lose their legal immigration status and could be deported. Under international and domestic law, the U.S. government, including its law enforcement authorities, extends privileges and immunities to certain foreign diplomats. Employers of A-3 and G-5 visa holders may be entitled to some degree of immunity (full or partial) or may have no immunity at all. An employer with full diplomatic immunity is generally immune from civil or criminal jurisdiction of U.S. courts. Certain employers with partial or “official acts” immunity, such as most individuals employed by international organizations, are immune from civil or criminal jurisdiction of U.S. courts for conduct performed under their official duties or functions. State and the United Nations publish lists of current foreign diplomats who hold diplomatic rank on their Web sites. Appendix III identifies the respective privileges and immunities to which various categories of foreign diplomats are entitled. We identified 42 individual A-3 and G-5 visa holders who have alleged abuse by foreign diplomats with some level of immunity in the United States from 2000 through June 2008. However, the total number of alleged incidents is likely to be higher for four reasons: household workers’ fear of contacting law enforcement authorities, NGOs’ protection of victim confidentiality, limited information on some allegations handled by the U.S. government, and federal departments’ difficulties in tracking household worker abuse allegations and investigations involving foreign diplomats. We identified 42 distinct A-3 or G-5 visa holders who, since 2000, have alleged that foreign diplomats with some level of immunity abused them. We confirmed that 17 of the incidents alleged by these A-3 or G-5 visa holders were handled by federal agencies. These 17 incidents can be categorized as follows: 10 alleged incidents of human trafficking, which resulted in eight human one investigation of alleged visa fraud; one investigation of an alleged wage and hour violation; and five alleged incidents identified by State, some of which may have resulted in investigations, including one human trafficking allegation; two allegations of physical or verbal abuse; and two alleged wage and hour violations. Most of the human trafficking investigations remain open. However, in one of the human trafficking investigations, Justice determined that, absent immunity, it would indict the foreign diplomat’s wife. State requested that the diplomat’s home government waive immunity, which would allow Justice to indict her. However, the diplomat’s home government declined to waive immunity; thus, Justice could not indict. The diplomat and his wife subsequently left the United States, and Justice has since closed this case. We identified the remaining 25 distinct alleged incidents through legal sources, such as Westlaw, and interviews with NGOs who provided services to the alleged victims, such as assistance in applying for T visas and filing lawsuits against their employers. According to NGOs, 4 of these 25 alleged victims applied for and received T visas. In addition, we determined that civil suits were filed in 9 of these 25 alleged incidents. In most of these lawsuits, household workers sought, in part, to recoup unpaid wages. According to NGOs, the courts dismissed three of the nine lawsuits on the basis that the foreign diplomats had immunity. Of the remaining six lawsuits, NGOs indicated that five were settled out of court, and one resulted in a default judgment because the defendants failed to respond. Although we could not confirm that any of these 25 alleged incidents were investigated or handled by the U.S. government, NGOs told us that they reported 12 of them to federal agencies. They did not report the other 13 alleged incidents. The total number of alleged incidents of household employee abuse by foreign diplomats with some level of immunity is likely to exceed the total we have identified for four reasons. First, as we have previously reported, trafficking victims are a hidden population because trafficking is a clandestine activity. Trafficking victims often are in a precarious position and may be unwilling or unable to report to, or seek help from, relevant authorities. Moreover, the Department of Health and Human Services reported that victims live daily with inhumane treatment, physical and mental abuse, and threats to themselves or their families back home. Victims of human trafficking may fear or distrust the government and police because they are afraid of being deported or because they come from countries where law enforcement is corrupt and feared. In such circumstances, reporting to the police or seeking help elsewhere requires courage and knowledge of local conditions, which the victims might not have. In addition, some victims may not be permitted to leave their employers’ residences, which makes it much more difficult to report their abuse to authorities. Second, NGOs have provided services to alleged victims who did not want to be identified or who did not want to identify their employers. NGOs we contacted told us that, since 2000, they have received allegations from 66 A-3 or G-5 visa holders stating that they were abused by their employers. However, in 31 of these alleged incidents, the worker and the diplomat involved were not identified either because the worker was too afraid to reveal his or her identity or because the organization agreed to protect the client’s confidentiality. Third, because of federal agencies’ need to protect sensitive information, we received limited data on some alleged incidents handled by the U.S. government, and thus did not include those incidents in our total count. In most instances, federal agencies did not reveal the names or countries of origin of the worker and foreign diplomat involved in alleged incidents they had investigated or otherwise handled. It is law enforcement policy not to disclose details of ongoing criminal investigations. Without this information, however, we could not fully reflect federal agencies’ data in our overall count of alleged incidents without potentially double counting ones that had already been reported to us by NGOs. For example, although Justice told us of 19 human trafficking investigations involving foreign diplomats with immunity, we could only confirm that 8 of them were included in our count of 42 distinct alleged incidents. Justice officials also told us that there are likely multiple victims in some of the 19 trafficking investigations they reported to us. Furthermore, while Homeland Security identified nine A-3 and G-5 visa holders who received T visas from Homeland Security’s Citizenship and Immigration Services, we did not learn the names of their employers, and therefore could not confirm if they held immunity. Fourth, federal officials said they could not determine definitively the total number of alleged incidents they had handled and could only estimate that number by reviewing specific case files and consulting with knowledgeable staff. Officials had difficulty identifying all alleged incidents or investigations in their records or databases for several reasons as explained below: Justice, Immigration and Customs Enforcement, and Diplomatic Security officials could not identify all investigations because their databases are not designed or meant to facilitate searches based on characteristics of the alleged perpetrators, such as whether they are foreign diplomats. Justice officials told us that the ongoing investigations they identified, primarily by canvassing knowledgeable staff, only went back as far as May 2005. In addition, Immigration and Customs Enforcement could not identify investigations before 2003, because it had difficulties capturing trafficking- in-persons data prior to its creation as part of Homeland Security in that year. State has several offices that receive allegations of abuse by foreign diplomats, but no single office maintains information on all allegations. According to the Foreign Affairs Manual, the Office of Protocol establishes and maintains complete records of each reported case that comes to its attention in which a foreign diplomat with immunity from criminal jurisdiction has been accused of a crime in the United States. State defines “accused of a crime” to mean cases in which Justice has determined that, absent immunity, it would seek to indict. Therefore, although the Office of Protocol receives reports of allegations from other federal agencies, other State bureaus and offices, and some NGOs, it does not systematically maintain records on other ongoing criminal investigations, civil lawsuits that have been filed, or any other allegations. Moreover, the Foreign Affairs Manual indicates that State’s Bureau of International Organizations, the U.S. Mission to the United Nations (USUN), each regional bureau, and Diplomatic Security will provide the Office of Protocol and the Office of the Legal Adviser with reports on all cases that come to their attention. However, there is no mechanism to ensure that these reports are referred to and recorded by the Office of Protocol and the Office of the Legal Adviser. We found that the Office of Protocol was unaware of cases that USUN had handled, and the Office of Protocol and the Office of the Legal Adviser were unaware of all cases that Diplomatic Security had handled. While Labor’s system tracks the 30,000 to 40,000 investigations of alleged wage and hour violations it conducts each year, it does not specifically identify those involving foreign diplomats. In addition, although Justice and Homeland Security officials told us they have referred allegations of wage and hour violations to Labor, they could not identify the specific allegations. Labor officials told us that they were aware only of one investigation of an alleged wage and hour violation, but that policy is for field offices to inform headquarters of any allegations of wage and hour violations received involving foreign diplomats. The U.S. government’s process of investigating foreign diplomats for alleged abuse is complicated by three factors—(1) constraints posed by immunity, (2) household workers’ heightened vulnerabilities due to their employers’ status, and (3) the length of time it takes for Justice to obtain State’s opinion on the use of specific investigative techniques in trafficking investigations. When investigating foreign diplomats with immunity, law enforcement agents face constraints that become particularly pronounced when the alleged crime has taken place in the diplomat’s residence. Investigators’ options are most limited when a diplomat has full immunity and is considered to have personal inviolability or when the diplomat’s residence is considered inviolable. Diplomats who are personally inviolable cannot be detained, and property that is considered inviolable (including vehicles and residences) cannot be entered or searched without the diplomats’ consent. Although the residences of foreign diplomats with partial immunity may be searched, these diplomats cannot be obliged to give evidence concerning matters related to their official duties. Officials at Justice, Homeland Security, and the Federal Bureau of Investigation (FBI) told us that these limitations pose particular problems when the allegation involves abuse of a household employee because the worker’s mistreatment often occurs in the employer’s residence and is not witnessed by individuals outside the employer’s family. For example, a Justice official told us that these allegations can be among the most difficult to investigate and prosecute because it is hard for investigators to gather enough corroborating evidence. Investigators are prohibited from observing working and living conditions in the home absent the diplomat’s consent, and possible witnesses often include the diplomat’s family, who also may have immunity. Instead, investigators often have to rely primarily on interviewing the victim and talking to neighbors who may have observed interactions between the diplomat and the household employee. In some instances, the evidence collected through these methods is considered insufficient to pursue prosecution. These constraints resulted in at least one instance in which law enforcement officials closed an investigation for lack of sufficient evidence after they determined that constraints posed by immunity prevented investigators from talking to witnesses inside a foreign diplomat’s home. The status of foreign diplomats under investigation can heighten their household workers’ sense of vulnerability. For example, household workers may be intimidated by their employers’ wealth, political connections, or prominent positions in society. One Justice official told us that abusive situations involving foreign diplomats’ household workers have a striking power imbalance because workers often are poor, uneducated, and fear retaliation, not only against themselves but also against family members in their home country. This fear can inhibit household workers from cooperating with investigations, further limiting the investigators’ options for collecting evidence. NGOs told us that foreign diplomats have used immunity as a weapon to frighten their household workers and discourage them from escaping or taking actions to improve their situation. Workers have alleged that their employers threatened their family members back home, told them they would be deported if they did not do as they were instructed, and stated they could treat them as they chose because immunity allows them to do so with impunity. As reported above, we also learned from some NGOs of a number of allegations of household worker abuse by foreign diplomats that were not reported to the U.S. government because the workers were too afraid of potential consequences. In these instances, an investigation could not even be initiated. Justice requests State’s advice on how diplomatic immunity impacts the legal permissibility of using certain investigative techniques, but the time- consuming process of obtaining State’s opinion can hamper investigations. When Justice receives an allegation that a foreign diplomat has abused a household worker, it reviews the facts and determines if they merit opening a trafficking investigation. If Justice decides to open an investigation (or learns that Immigration and Customs Enforcement or the FBI has opened a new investigation), it contacts State to (1) confirm the diplomat’s identity and level of immunity; (2) determine how State wants to be kept informed of the investigation; and (3) obtain State’s opinion, if necessary, on the use of certain investigative techniques. State officials said that there is no formal requirement for Justice to consult with them on whether certain investigative techniques are permissible, but that it is appropriate and they welcome Justice to do so. According to Justice, because U.S. courts take into account State’s interpretation of international treaties and conventions, Justice requests State’s legal interpretation on these matters. Although certain techniques, such as searching the residence of a diplomat who has full immunity and inviolability without the diplomat’s consent, are clearly prohibited, other techniques may touch the diplomat’s “sphere of privacy.” According to State officials, the permissibility of these techniques under international law is less clear. While State can readily confirm a diplomat’s identity, State’s process of advising on which investigative techniques are legally permissible has, in some instances involving unprecedented circumstances, taken several months. In one instance, a victim agreed to a specific investigative technique that could have allowed Justice to collect important evidence. The victim’s lawyers postponed filing a civil suit on her behalf to avoid alerting the diplomat involved that he was under investigation. State spent 6 months deliberating the issue, but did not advise Justice on whether use of this technique was legally permissible. Justice did not use the technique, the victim’s lawyers eventually filed suit, and the criminal investigation remains open. In other instances, State has asked Justice to provide specific information that it believes could help it formulate an opinion on whether use of the technique is legally permissible. According to a Justice official, obtaining some of this information can be difficult and time- consuming. Both Justice and State officials agreed that when the issue at hand is relatively straightforward, they reach agreement quickly. According to State, its internal process of reaching an opinion on the legal advisability of investigative techniques can be time-consuming because State takes both legal and policy considerations into account when considering the advisability of using investigative techniques that fall into the “gray area.” For example, the involvement of foreign diplomats can raise sensitivities for the U.S. government. State may need to consider reciprocity, such as how use of a specific technique might affect treatment of U.S. diplomats abroad. Similarly, if the foreign diplomat’s country is a close ally of the United States, State also will assess how relations with that country might be affected by use of the investigative technique. The process of addressing these questions through State’s supervisory chain of command, which can go above the Assistant Secretary level, if necessary, is lengthy, according to State officials. Once State makes a final determination, a State official conveys to a Justice official the department’s opinion on use of the investigative technique in the specific case. This opinion covers both State’s legal determination and any policy concerns the department may have. For example, a State official might say that the department could probably defend the use of a technique legally, but it would raise serious reciprocity concerns. According to Justice, State’s policy considerations do not affect its trafficking investigations, but the length of State’s deliberative process in determining what is legally permissible can hamper them. The investigative techniques in question are, according to Justice officials, among the most useful for gathering corroborating evidence, but they are unlikely to succeed unless they are implemented quickly. As one Justice official explained, “time is the enemy of successful investigations,” meaning that the longer it takes to get approval from State, the greater the likelihood that the investigation will be compromised. For example, the subjects might learn that they are under investigation or they might leave the United States for their next assignment, further limiting the opportunity to collect evidence. Homeland Security officials also told us that any delays are detrimental to the preservation and collection of physical and testimonial evidence. To expedite the investigative process, Justice officials said that it would be helpful for State to provide them with a list of investigative techniques that, in State’s view, are not legally permissible when the subject of the investigation has full or partial immunity. However, State prefers to continue handling these investigations on a case-by-case basis. State officials explained that, while they could make a list of techniques that are clearly acceptable (such as asking the diplomat to agree to an interview) or prohibited (such as searching the residence of a diplomat with full immunity and inviolability), they would rather not indicate the legal permissibility of other, less clear-cut techniques because they want to be able to consider both the legal and policy implications of each case. However, these officials added that they are aware of the need to provide a more timely response to Justice. Officials from both agencies told us they are considering developing an interagency process that would outline time frames for discussing the use of investigative techniques, but they have, thus far, not taken any formal actions toward creating one. At the four consular posts we visited, we found weaknesses in State’s process for ensuring that its policies for issuing A-3 and G-5 visas are implemented correctly and consistently, and some consular officers were unfamiliar with or unclear about aspects of guidance relating to these visas. Although State headquarters issues A-3 and G-5 policies and procedures, it relies on individual posts to ensure they are implemented correctly and consistently and has not instituted a process to spot-check compliance. Through our fieldwork, we identified instances in which A-3 and G-5 policies were not implemented correctly and consistently. State requires that A-3 and G-5 visa applicants submit employment contracts signed by both the employer and employee that include a guarantee that the employee will be compensated at the state or federal minimum wage or prevailing wage, whichever is greater; a statement by the employee that he or she will not accept any other employment while working for the employer; a statement by the employer that he or she will not withhold the passport of the employee; and a statement indicating that both parties understand that the employee cannot be required to remain on the premises after working hours without compensation. However, the contracts we reviewed did not include at least one of State’s requirements 71 percent of the time at one post, 35 percent at the second, 23 percent at the third, and 6 percent at the fourth. In some cases, the contracts were clearly deficient in one or more areas. For example, one contract we reviewed showed that the employee would receive $5 per hour (below the minimum wage) and that the employee would reimburse her employer for items received. This particular contract also did not include a statement that the employee could not be required to remain on the premises after working hours without compensation. In other cases, the contracts included statements that appeared to comply with State’s requirements, but also contained information that contradicted these statements. For example, some contracts stated that “the normal working hours of the second party shall be at the prevailing wage for a 40 hours week.” However, these contracts also showed that the employees would be paid well below the prevailing wage for their occupation and intended destination. Our review of employment contracts revealed other shortcomings and raised questions about whether the employee would be paid fairly. A-3 and G-5 visa applicants must submit contracts in English and a language understood by the applicants to demonstrate they understand their duties and rights regarding salary and working conditions. However, at one post where consular officers told us that A-3 and G-5 visa applicants rarely speak or read English, none of the contracts we reviewed was in a language other than English. We identified some contracts where the employee would be paid overtime “in accordance with embassy regulations.” In another contract, the employee’s overtime hourly rate was lower than her wage for normal working hours. At the four posts we visited, we also found that some consular officers were unfamiliar with or unclear about certain aspects of State’s guidance on A-3 and G-5 visas. According to State’s guidance, A-3 and G-5 visa applications must be accompanied by a diplomatic note from the appropriate foreign mission or international organization that identifies the applicant’s employer and confirms the employer’s official A or G status. Some consular officers overseas told us that they believed a note was not required if they could identify the employer and confirm his or her status through The Office of Foreign Missions Information System (TOMIS), a database of foreign diplomats posted to the United States, which, according to the Foreign Affairs Manual, can be a useful tool for consular officers to confirm a diplomat’s status. However, senior consular officials at State headquarters told us that TOMIS may contain inaccurate or outdated information and confirmed that a diplomatic note was in fact required. State’s guidance also includes provisions encouraging consular officers to help educate A-3 and G-5 visa applicants about their rights under U.S. laws, but some officers we spoke with were unaware of these provisions. Consular officers are required to interview all A-3 and G-5 visa applicants. State recommends that officers use the interview to advise applicants in a language they understand that the U.S. government considers involuntary servitude of household workers to be a severe form of trafficking in persons and a serious criminal offense and that victims of involuntary servitude are offered protection under the Trafficking Victims Protection Act. Officers are encouraged to make A-3 and G-5 applicants aware that the telephone number for police and emergency services is 911, and that there is a telephone hotline for reporting abuse of household workers and other trafficking-related crimes. State also reminds consular posts that an antitrafficking brochure titled “Be Smart, Be Safe” is available as a handout to household worker applicants. However, while several officers said they try to explain to A-3 and G-5 visa applicants that they have rights under U.S. laws, the officers also were unaware of the telephone hotline, State’s advice to refer workers to 911, or the brochure. None of the posts we visited made copies of the “Be Smart, Be Safe” brochure available to visa applicants, although two of them had created one-page informational handouts for A-3 and G-5 visa applicants. At one of these posts, officers generally did not speak with applicants about their rights but instead relied on giving them the one-page handout. NGOs and alleged victims we spoke with told us that measures to educate A-3 and G-5 visa applicants are important. For example, one alleged victim said that U.S. embassies abroad should tell domestic workers coming to the United States that they have rights because, in her experience, one of the ways that employers abuse their workers is to tell them that they are still under the laws of their home country. She added that, specifically, embassies should give A-3 and G-5 visa applicants information about whom to contact if they experience physical or psychological abuse. Another worker, whose employer was investigated and sent home for allegedly trafficking household workers, told her attorneys that she knew to seek help because a consular officer had told her about her rights under U.S. law when she applied for her A-3 visa. Another area of the guidance that posts we visited were largely unaware of was the March 2007 direction from State headquarters to electronically scan copies of A-3 and G-5 employment contracts into the Consular Consolidated Database, which contains information on visa applicants. Two of the posts we visited had not scanned any of their contracts into the database, one had scanned about half of the contracts we reviewed, and the remaining one had only scanned a few. A State official in Washington explained that scanning documents is useful because, in cases of alleged abuse, accessing a copy of the contract provides evidence that the diplomat had agreed to provide better working conditions. NGOs also emphasized the importance of being able to access employment contracts. For example, an NGO told us that in one case, a foreign diplomat gave his worker a contract to present when applying for a G-5 visa that said that she would receive $1,200 per month, but gave her a different contract when she arrived in the United States that said she would receive only $425 per month. The organization is now trying to locate a copy of the original contract. Finally, consular officers at the posts we visited were uncertain about the reasons for which they could refuse A-3 and G-5 visas. State’s guidance directs consular officers to determine that A-3 and G-5 visa applicants are entering into true employer-employee relationships, in accordance with required terms of their personal employment contracts. However, it does not explicitly state if concerns about abuse or mistreatment are sufficient grounds on which to refuse an A-3 or G-5 visa. At one post we visited, consular officers told us they were comfortable refusing these visas, particularly if there were indications that the worker might not be treated well. They might refuse the visa if the applicant was under age 18 or if the employer resisted requests by the consular officers to interview the applicant alone. In an attempt to ensure better treatment of household workers, that post instituted a policy of preferring individuals to have worked for the sponsoring diplomat for 1 year before applying for an A-3 visa. While the consular officers at this post said they believed they had considerable latitude to refuse A-3 or G-5 visas, other officers we spoke with said that they did not. For example, the Deputy Chief of Mission at one post told us that he “wished he could refuse more A-3 and G-5 visas,” but that he was unsure of consular officers’ ability to deny A-3 and G-5 visa applicants. Several consular officers echoed these comments, noting that, without hard evidence that an applicant has been or could be mistreated, it is difficult to deny an A-3 or G-5 visa. For example, a consular officer at one post we visited told us that, in one case, she was concerned that the applicant had never met her employer, but her supervisors told her that as long as the applicant had a valid employment contract, she had to issue the visa. State is considering steps to address confusion about refusing A-3 and G-5 visas, but has not taken actions to implement them. Consular officials in Washington told us that, while it is appropriate and even expected for consular officers to refuse A-3 and G-5 visas if they believe that visa applicants may be abused by their prospective employers, the officers have “little to go on beyond the contract” and it is impossible to refuse a visa based on something that has not happened or will not happen for another 6 months. State is considering adding specific provisions to the Foreign Affairs Manual outlining certain circumstances in which these visas should be denied. These provisions might place a heavier burden on lower-ranking foreign diplomats to document sufficient means to employ household staff under the contractual requirements stipulated for A-3 and G-5 visas. The provisions also might result in refusal of an A-3 or G-5 visa if a particular diplomat is linked to a pattern of employee disappearance, abuse allegations, or other irregularities. A State official told us the department is drafting possible language for these additional provisions to the Foreign Affairs Manual, but officials have not reached internal agreement on final language and have no timetable for doing so. In addition, officials in State headquarters do not currently alert consular officers if they have information that could help in the adjudication of an A-3 or G-5 visa based on a pattern of employee disappearance, abuse allegations, or other irregularities because that information is not included in State’s databases. For example, headquarters does not alert consular officers to seek guidance if a foreign diplomat is under investigation for trafficking or if a foreign diplomat has employed anyone who subsequently received a T visa. Consular officials in Washington told us they rely on individual posts to ensure correct and consistent implementation of A-3 and G-5 policies and procedures and do not independently monitor compliance on a routine basis. Supervisory officials at consular posts abroad review a selection of visas that were issued or refused at that post each day. The reviews these officials conduct may cover some of the A-3 and G-5 visas that were adjudicated, but not all of them. Furthermore, officials conduct these reviews through the Consular Consolidated Database, so they are unlikely to review supporting documents for A-3 and G-5 visas, such as employment contracts and diplomatic notes, which we found were usually not scanned into the database. Consular officials at State headquarters told us they provide advice to individual posts on an as-needed basis, but generally rely on supervisory reviews to ensure compliance with State policies and procedures because it is not their role or responsibility to oversee the consular posts in this regard. As such, they do not routinely and independently monitor compliance with A-3 and G-5 policies and procedures. The people who come to the United States on A-3 and G-5 visas are among the most vulnerable who enter our borders legally. They are often poor, uneducated, and unfamiliar with their rights under U.S. law. If they find themselves in an abusive situation, their ability to hold their employers accountable can be limited, particularly if their employers hold full diplomatic immunity and inviolability. Although State has expressed concerns that some foreign diplomats may be abusing their household workers, it has not systematically collected and maintained information on cases of alleged abuse that have come to its attention. In addition, State has not always ensured that the visa policies and procedures in place to provide protections for these most vulnerable individuals have been correctly and consistently implemented, such as the policy requiring certain elements within these workers’ employment contracts. Furthermore, if officials at State headquarters have information linking a particular diplomat to a pattern of employee disappearance, abuse allegations, or other irregularities, they do not routinely alert consular officers to seek guidance. Finally, the U.S. government’s process for investigating trafficking of household workers by foreign diplomats has, in some instances, been hampered by delays in coordination between State and Justice on the use of investigative techniques. In addressing these problems, the U.S. government can strengthen its commitment to combating human trafficking within the United States. To improve the U.S. government’s process for preventing and responding to allegations of household employee abuse by foreign diplomats, we are making four recommendations. 1. To ensure that the Office of Protocol and the Office of the Legal Adviser are aware of all cases involving alleged abuse of household workers by foreign diplomats that have come to the attention of the department, we recommend that the Secretary of State (1) emphasize to the relevant bureaus and offices the importance of the Foreign Affairs Manual requirement to report all cases that come to their attention and (2) direct the Office of Protocol and the Office of the Legal Adviser to create a system for collecting and maintaining records on these cases. 2. To assist in timely handling of future investigations, we recommend that the Secretary of State, the Attorney General, and the Secretary of Homeland Security establish an interagency process outlining agreed- upon policies and time frames for determining which investigative techniques can be used in trafficking investigations involving foreign diplomats. 3. We recommend that the Secretary of State direct the Bureau of Consular Affairs, in coordination with the Office of Protocol and the Office of the Legal Adviser, to establish a system alerting consular officers to seek guidance from State headquarters before issuing A-3 or G-5 visas to applicants whose prospective employers may have abused their household workers in the past. For example, if State headquarters is aware that a foreign diplomat is under investigation for alleged human trafficking, it could place an alert in the system advising consular officers to request guidance should an individual apply for an A-3 or G-5 visa to work for that diplomat. 4. To better ensure correct and consistent implementation of A-3 and G-5 visa policies and procedures, particularly those that outline requirements for employment contracts, we recommend that the Secretary of State enhance oversight by establishing a system to spot- check compliance with these policies and procedures. This spot-check system would allow headquarters to assess compliance without dedicating the resources needed to review all A-3 and G-5 visas issued in a given year and could be targeted at posts that issue high numbers of A-3 or G-5 visas or that have identified difficulties interpreting guidance on these visas classes. We provided a draft of this report to the Departments of State, Justice, Homeland Security, Labor, and Health and Human Services for their comments. State and Justice provided written comments on the draft, which we have reprinted in appendixes IV and V, respectively. State agreed with all four of our recommendations. Regarding the first recommendation, State indicated that it will emphasize to the relevant bureaus and offices the importance of reporting promptly and fully all cases of alleged abuse of household workers by foreign diplomats. State also noted that the Office of Protocol is now creating a system for collecting and maintaining centralized records on these cases that would allow for ready access to records of cases that involve individuals with immunity. Regarding our second recommendation, State said that, while most investigations go forward without consultations on investigative techniques, it will be useful to establish a process to address novel and difficult questions regarding investigative techniques. In response to our third recommendation, State said that it will place known abusers of household workers in the Consular Lookout and Support System, a database designed to screen visa applicants and maintain watch lists. State will also upgrade consular officers’ access to TOMIS to provide improved information regarding A-3 and G-5 cases. State responded to our last recommendation by acknowledging the need for better compliance with policies and procedures to ensure that A-3 and G-5 employment contracts contain all required elements and are electronically scanned for future reference in case of alleged abuse. State reiterated that it is primarily the responsibility of senior consular managers at posts to ensure compliance with visa adjudication procedures and practices in their consular sections, but added that it will consider and review whether spot-checking compliance from headquarters is appropriate and consistent with judicious use of limited resources. As indicated in our fourth recommendation, we believe that spot-checking is important for enhancing oversight and could be targeted in such a way as to minimize use of resources. Justice generally agreed with our findings, particularly our finding that obstacles to investigating allegations of household worker abuse are compounded when employers have diplomatic immunity. Justice also concurred with our second recommendation, highlighting the importance of agreeing upon time frames for determining which investigative techniques can be used, so that criminal investigations are not compromised. State, Justice, and Homeland Security provided technical comments, which we incorporated as appropriate. For example, Homeland Security asked to be included in the second recommendation, which was initially directed to the Secretary of State and the Attorney General. Specifically, Homeland Security officials stated that Immigration and Customs Enforcement should participate in the recommended interagency process because the introduction of persons into the United States for the purpose of exploitation is a primary law enforcement responsibility and area of expertise of Immigration and Customs Enforcement. We agreed to include the Secretary of Homeland Security in the second recommendation. The Departments of Labor and Health and Human Services did not provide comments on the draft report. We are sending copies of this report to other interested Members of Congress. We are also sending copies to the Secretary of State, the Attorney General, the Secretary of Homeland Security, the Secretary of Labor, and the Secretary of Health and Human Services. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix VI. Our objectives were to (1) seek to determine how many A-3 and G-5 visa holders have alleged abuse by foreign diplomats with immunity since 2000, (2) review the U.S. government’s process for investigating abuse allegations involving foreign diplomats with immunity, and (3) describe and assess how State ensures correct and consistent implementation of A-3 and G-5 visa polices and procedures. In this report, we define abuse to include illegal activities ranging from wage and hour violations to human trafficking. To determine how many A-3 and G-5 visa holders have alleged abuse by foreign diplomats from 2000 (when the U.S. government enacted the Trafficking Victims Protection Act) through June 2008, we collected data, interviewed officials from four U.S. government agencies and 10 nongovernmental organizations (NGO), and searched legal databases, such as Westlaw, to identify civil lawsuits. At the Department of State (State), we met with officials from the Office of the Legal Adviser, Office of the Chief of Protocol, Diplomatic Security Service, Office of Foreign Missions, Bureau of International Organizations Affairs, United States Mission to the United Nations (USUN), Office to Monitor and Combat Trafficking in Persons, and Bureau of African Affairs. At the Department of Justice (Justice), we met with officials from the Human Smuggling and Trafficking Prosecution Unit within the Civil Rights Division/Criminal Section (CRT/CS), Executive Office for United States Attorneys, headquarters and field offices of the Federal Bureau of Investigation (FBI), and one local Assistant United States Attorney’s (AUSA) Office. At the Department of Homeland Security (Homeland Security), we met with officials from Immigration and Customs Enforcement’s (ICE) Human Smuggling and Trafficking Unit and Citizenship and Immigration Services (CIS). At the Department of Labor (Labor) we met with officials from the Employment Standard Administration’s Wage and Hour Division headquarters office and its New York City district office. We identified and met with 10 NGOs that have provided legal services to A-3 and G-5 visa holders through analysis of civil lawsuits filed on behalf of A-3 and G-5 visa holders, referrals from NGOs, and a review of past and recent media reports. These 10 NGOs have a broad range of experience and expertise on cases involving victims of household worker abuse and are all located in the Washington, D.C., and New York regions. State, Justice, Homeland Security, and Labor provided data on the number of incidents they have handled by canvassing current staff and reviewing specific case files. To avoid double-counting the number of these alleged incidents, we asked the departments to verify with each other the number of investigations in which they had participated. Homeland Security also provided us with the number of individuals who had received T visas and identified themselves as A-3 or G-5 visa holders on their T visa applications. We counted NGO-alleged incidents if we could determine the name of the diplomat involved and confirm that he or she held immunity or if we received enough information from a law enforcement source to ensure that a diplomat with immunity was involved and that the alleged incident was not duplicative with any other incident. Therefore, we believe that the data we obtained from federal agencies and the NGOs are sufficiently reliable for reporting the minimum number of incidents of alleged abuse of A-3 and G-5 visa holders by their employers since 2000. To review the U.S. government’s process for investigating abuse allegations involving foreign diplomats with immunity, we reviewed State documents including the Foreign Affairs Manual, cables sent to consular officers on A-3 and G-5 visas, “Diplomatic and Consular Immunity Guidance for Law Enforcement and Judicial Authorities,” diplomatic notes to Chiefs of Diplomatic Missions in the United States regarding conduct of diplomatic agents in the United States, USUN’s diplomatic notes to Permanent Missions and Permanent Observer Offices, and State’s 2007 document to the Senate Committee on Foreign Relations entitled “State’s Initiatives to Promote Fair Treatment of Domestic Workers by Diplomatic Personnel.” We also interviewed officials from State’s Office of the Chief of Protocol, Office of the Legal Adviser, Diplomatic Security Service, USUN, and Office to Monitor and Combat Trafficking in Persons. Because federal law enforcement agencies have no written policies or procedures specifically regarding abuse of household workers by foreign diplomats, we relied on testimonial evidence to determine their processes for handling alleged abuse of household workers by foreign diplomats. We interviewed law enforcement officials from Justice including the FBI, the Human Smuggling and Trafficking Prosecution Unit within CRT/CS, and one AUSA Office. We also met with officials at the Human Smuggling and Trafficking Unit within ICE. We interviewed one of the two U.S. Attorneys assigned to prosecute two relevant cases. The second prosecutor did not comment about the case, given the early stage of the review. At Labor we reviewed a document describing the agency’s policy regarding household workers employed by foreign nationals titled “Domestic Service Workers Employed by Foreign Nationals,” and interviewed officials at the Wage and Hour Division headquarters office and the Office of Enforcement Policy and the New York City District Office. We also analyzed key sections of international conventions, acts, and agreements on immunity to describe in general terms the different levels of immunity and the protections accorded under each one, specifically with regard to investigations of alleged abuse or trafficking of household workers by foreign diplomats. Finally, we interviewed NGOs and three alleged victims of abuse by foreign diplomats. To describe and assess how State ensures correct and consistent implementation of A-3 and G-5 visa polices and procedures, we reviewed documents, analyzed data provided to us by State, and interviewed State officials in Washington, D.C.; New York; Lima, Peru; Manila, Philippines; Doha, Qatar; and Riyadh, Saudi Arabia. We reviewed the Foreign Affairs Manual, State’s circular notes, training and guidance materials for consular officers, and guidance for visa applicants on State’s public Web site and consular posts’ Web sites. We interviewed officials from State’s headquarters, including Consular Affairs and the Office of the Chief of Protocol. We also interviewed consular officers and reviewed A-3 and G-5 applications at four consular posts: Lima, Peru; Manila, Philippines; Doha, Qatar; and Riyadh, Saudi Arabia. In selecting these four consular posts, we analyzed data provided to us by Consular Affairs on A-3 and G-5 visas issued for fiscal years 2000 through 2007. Each of the 4 posts is among the 10 that issued the most A-3 and G-5 visas, combined, during this time period. Together these four posts account for about 22 percent of all A-3 and G-5 visas issued abroad since 2000. The U.S. embassy in Manila issued more A-3 and G-5 visas from fiscal year 2000 through 2007 than any other overseas post. The total number of A-3 and G-5 visas issued in Manila accounts for almost 10 percent of all A-3 and G-5 visas issued during this period. The U.S. embassy in Lima issued the second highest number of A-3 and G-5 visas, about 5 percent of the total, and the U.S. embassies in Riyadh and Qatar followed closely behind Lima, with about 4 percent and 3 percent, respectively, of all A-3 and G-5 visas issued during this period. As part of our site visits or through telephone interviews, we interviewed consular officers to determine the steps State’s Bureau of Consular Affairs has taken to ensure that State’s policies and procedures for issuing A-3 and G-5 visas are implemented correctly and consistently. To examine the procedures for issuing A-3 and G-5 visas, we reviewed documents describing the requirements that household workers and U.S. consular officers should meet during the visa application process. We did not review or evaluate consular officers’ decisions to refuse or issue visas. We worked with State officials to identify documentation that we could review both at consular posts and in Washington, D.C. To determine the extent to which A-3 and G-5 applications met documentation requirements, we developed a checklist of State’s requirements for A-3 and G-5 visa applicants and then assessed applications at each post against this checklist, reconciling any differences in our assessments. For one of the four posts, we were able to review all available documentation for A-3 and G-5 visas adjudicated since March 1, 2007. (We selected this date because State issued updated guidance to posts on the A-3 and G-5 visa class in March 2007.) For the other three posts, we were able to review only a sample of available files and documentation. Although the cases we reviewed from these posts are not generalizable, we reviewed a randomly selected set of cases to minimize any selection bias. Below is a more detailed explanation of our methodology for selecting and reviewing files from each post: In Lima, Peru, we reviewed 87 A-3 and G-5 visa files that had been adjudicated between March 1, 2007, and February 26, 2008, and that had a paper copy of the employment contract, the diplomatic note, or both. While 53 additional A-3 and G-5 application files were not available for our review in Lima, Consular Affairs in Washington, D.C., later agreed to search the Consular Consolidated Database to determine whether any documents for these 53 files had been scanned into it. These officials also searched the database for scans of accompanying documents for any of the 87 files in Lima for which we had seen only one of the required documents. (For example, if we saw only a diplomatic note in a given file, we asked if the related employment contract had been scanned into the database.) The officials determined that documents that we had not reviewed, related to 2 of the 87 files in Lima, had been scanned into the database. They also determined that one or both of the required documents for 5 of the 53 files that were not available for review at post had been scanned into the database. We did not review these seven files. In Manila, Philippines, we reviewed 61 A-3 and G-5 visa application files from December 1, 2007, to March 15, 2008, including all available documentation. Due to physical space constraints, this post only maintains 3 months of visa applications on file. In addition, the post had not been scanning employment contracts or diplomatic notes into the Consular Consolidated Database, so we were unable to review any files earlier than December 2007. For Riyadh, Saudi Arabia, we reviewed a total of 25 A-3 or G-5 visa files. At post, we reviewed two application files, including all documentation available for these A-3 or G-5 visa applications. Although we had requested to review all files available since March 1, 2007, consular officials in Washington, D.C., instructed the post to allow us to review files only if the particular case was mentioned in the course of interviews at posts. These officials later agreed to provide us redacted copies of 25 percent (or 23) of the A-3 and G-5 visa files from the U.S. Embassy in Riyadh between March 1, 2007 and February 29, 2008. We randomly selected these 23 files and reviewed them in Washington. In Doha, Qatar, we reviewed all 56 A-3 and G-5 visa application files that were adjudicated between March 1, 2007, and February 28, 2008, including all documentation available. Although we were unable to review all requested A-3 and G-5 visa files at the posts we visited, the information we obtained was sufficient for addressing our third objective. We conducted this performance audit between October 2007 and July 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We analyzed State’s roles and responsibilities related to A-3 and G-5 visa holders, as well as foreign diplomats, and identified key State offices and bureaus involved in these matters. Table 1 summarizes our analysis. We also analyzed various federal agencies’ role in investigating and prosecuting federal law violations related to abuse of household workers by foreign diplomats with some level of immunity. Table 2 summarizes our analysis. We analyzed key sections of international conventions, acts, and agreements on immunity to describe in general terms the different levels of immunity and the protections accorded under each one, specifically as they relate to investigations of alleged abuse of household workers by foreign diplomats. We also consulted with the Department of State on our analysis, which is summarized in table 3. This table represents only a general description of these privileges and immunities and, as indicated in the notes following the table, exceptions may apply for each general category. In addition to the individual named above, Cheryl Goodman, Assistant Director; Elizabeth Singer; Sylvia Bascopé; Mary Moutsos; Debbie Chung; Terry Richardson; Ray Rodriguez; Jim Strus; and Mattias Fenton made key contributions to this report. | In 2007, the Department of State (State) reported that some foreign diplomats may be abusing the household workers they brought to the United States on A-3 or G-5 visas. GAO was asked to (1) determine the number of A-3 or G-5 visa holders who have alleged abuse by foreign diplomats with immunity since 2000, (2) review the U.S. government's process for investigating these allegations, and (3) assess how State ensures that its policies for issuing A-3 and G-5 visas are implemented correctly and consistently. GAO analyzed documents, interviewed officials, and conducted fieldwork at four consular posts that issue large numbers of A-3 or G-5 visas. GAO identified 42 household workers with A-3 or G-5 visas who alleged that they were abused by foreign diplomats with immunity from 2000 through 2008, but the total number is likely higher. The total number of alleged incidents since 2000 is likely higher for four reasons: household workers' fear of contacting law enforcement, nongovernmental organizations' protection of victim confidentiality, limited information on some cases handled by the U.S. government, and federal agencies' challenges identifying cases. For example, State has several offices that receive allegations of abuse by foreign diplomats, but no single office maintains information on all allegations. The U.S. government's process for investigating alleged abuse of household workers by foreign diplomats is complicated by three factors. First, immunity can pose constraints for law enforcement in collecting evidence. Second, the status of foreign diplomats can heighten their workers' sense of vulnerability, causing the workers to fear cooperating with investigators. Third, the length of time it takes to obtain a legal opinion from State on the permissibility of using certain investigative techniques can hamper investigations. According to State, although some techniques are clearly prohibited by international law (such as searching certain diplomats' residences), the permissibility of others under international law is less clear. In advising on the use of investigative techniques, State considers legal and policy issues, such as reciprocity--assessing how U.S. diplomats abroad might be affected by actions taken toward a foreign diplomat on U.S. soil. State may ask Justice to provide information to help determine the permissibility of certain techniques, but the process of obtaining this information can be difficult and time consuming for Justice. Although both State and Justice have discussed creating a process to avoid delays, no formal actions have, thus far, been taken to establish one. Weaknesses exist in State's process for ensuring correct and consistent implementation of policies and procedures for issuing A-3 and G-5 visas. GAO's review of employment contracts submitted at four consular posts by A-3 and G-5 visa applicants showed that they often did not include State's required components, such as a guarantee of the minimum or prevailing wage. GAO also found that officers at the four posts were unclear about or unfamiliar with certain aspects of State's guidance. Few of the officers were aware that they should inform A-3 and G-5 visa applicants of their rights under U.S. law during their interview. Some officers at the four posts also were uncertain about the reasons for refusing A-3 or G-5 visas. State is considering adding provisions to its guidance that would more clearly stipulate reasons for refusing these visas, such as if an A-3 or G-5 applicant seeks to work for a foreign diplomat who is linked to a pattern of employee disappearance, abuse allegations, or other irregularities. However, State has not reached internal agreement on these provisions and has set no timetable for doing so. State headquarters officials said they rely on individual posts to monitor implementation of A-3 and G-5 visa policies and procedures and do not routinely assess posts' compliance |
The United States highlights the denial of safe haven to terrorists as a key national security concern in several U.S. government strategic documents. For example, National Security Strategies released in 2002, 2006, and 2010 emphasize the importance of denying safe haven to terrorists. The current National Strategy for Combating Terrorism, which was last updated September 2006, also stresses the importance of eliminating terrorist safe havens. The document identifies eliminating terrorist safe havens as a priority action against which all elements of national power—including military, diplomatic, financial, intelligence, and law enforcement—should be applied. According to National Security Staff officials, an updated National Strategy for Combating Terrorism is currently being drafted and its release is expected in the coming months. However, these officials stated that denying safe haven to terrorists will remain an important element of U.S. counterterrorism strategy. In addition to national strategies, plans issued by various U.S. agencies, such as the Departments of Defense (DOD), Justice (DOJ), and State/U.S. Agency for International Development (USAID), as well as the National Intelligence Strategy issued by the Office of the Director of National Intelligence, include language emphasizing the importance of addressing safe havens. Figure 1 shows excerpts from these documents, which discuss terrorist safe havens. However, other agencies that are involved in U.S. efforts to address terrorist safe havens do not include specific language on safe havens in their strategic plans. For example, the Department of Homeland Security (DHS)—which contributes to the law enforcement element of U.S. national power—does not specifically address safe havens in its strategic plan but does have a goal to “protect the homeland from dangerous people,” which includes objectives related to effective border control. “Wherever al-Qa’ida or its terrorist affiliates attempt to establish a safe haven … we will meet them with growing pressure … These efforts will focus on information-sharing, law enforcement cooperation, and establishing new practices to counter evolving adversaries. We will also help states … build their capacity for responsible governance and security through development and security sector assistance.” “The War on Terror … involves the application of all instruments of national power and influence to kill or capture the terrorists; deny them safehaven and control of any nation; prevent them from gaining access to WMD; render potential terrorist targets less attractive by strengthening security; and cut off their sources of funding and other resources they need to operate and survive.” “One of the most important resources to extremists is safe haven. Safe havens provide the enemy with relative freedom to plan, organize, train, rest, and conduct operations.” “The most intractable safe havens exist astride international borders and in regions where ineffective governance allows their presence; we must develop the means to deny these havens to terrorists.” “Failed states and ungoverned spaces offer terrorist and criminal organizations safe haven and possible access to weapons of mass destruction (WMD).” “Deny safe havens to criminal organizations involved in drug-related terrorist activities.” State’s Office of the Coordinator for Counterterrorism coordinates policies and programs of U.S. agencies to counter terrorism overseas. According to State, the Office of the Coordinator for Counterterrorism works with all appropriate elements of the U.S. government to ensure integrated and effective counterterrorism efforts that utilize diplomacy, economic power, intelligence, law enforcement, and military power. These elements include those in the White House, DOD, DHS, DOJ, State, the Department of the Treasury (Treasury), USAID, and the intelligence community. For instance, State funds programs to build the capacity of U.S. foreign partners to counter terrorism financing implemented by agencies such as DHS, Treasury, and DOJ. The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) requires State to include a detailed assessment in its annual Country Reports on Terrorism with respect to each foreign country whose territory is being used as a terrorist sanctuary, also known as a terrorist safe haven. State defines terrorist safe havens as “ungoverned, under- governed, or ill-governed areas of a country and non-physical areas where terrorists that constitute a threat to U.S. national security interests are able to organize, plan, raise funds, communicate, recruit, train, and operate in relative security because of inadequate governance capacity, political will, or both.” Since 2006, State has identified existing terrorist safe havens in a dedicated chapter of its Country Reports on Terrorism. As shown in figure 2, State identified 13 terrorist safe havens in its August 2010 report. Terrorist safe havens pose a threat to U.S. national security. The National Commission on Terrorist Attacks Upon the United States (9/11 Commission) noted that safe haven in Afghanistan allowed al Qaeda the operational space to gather recruits and build logistical networks to undertake planning for the attacks on September 11, 2001. State reports that denying safe haven is central to combating terrorism, which it cited as the United States’ top security threat. According to U.S. agencies, a variety of groups that pose threats to the United States operate in countries identified by State as terrorist safe havens. For example: Pakistan: Various terrorist organizations operate in Pakistan. First, al Qaeda leader Osama Bin Laden was located in a compound in Pakistan from which U.S. officials have stated he was actively involved in planning attacks against the United States. Additionally, according to State, al Qaeda also uses the Federally Administered Tribal Areas (FATA) to launch attacks in Afghanistan, train and recruit terrorists, and plan global operations. State also reports that the Pakistani Taliban has used the FATA to plan attacks against civilian and military targets across Pakistan. The Pakistani Taliban have claimed responsibility for several attacks against U.S. interests, including an attack on the U.S. Consulate in Peshawar in April 2010. Moreover, according to the National Counterterrorism Center (NCTC), the Pakistani Taliban has repeatedly threatened to attack the U.S. homeland and claimed responsibility for the failed vehicle bombing in New York City’s Times Square in May 2010. In addition, according to State, Lashkar-e-Tayyiba—the group responsible for attacks in Mumbai, India, in November 2008, which killed at least 183 people—continues to plan operations from Pakistan and views American interests as legitimate targets. Yemen: The foreign terrorist organization al Qaeda in the Arabian Peninsula (AQAP) is based in Yemen. According to the NCTC, AQAP is pursuing a global agenda. For example, the group attempted to bomb a plane headed to the United States on December 25, 2009. AQAP also claimed responsibility for the attempted package bombings of cargo planes in October 2010. More recently, in response to the killing of Osama Bin Laden, AQAP issued a press release vowing revenge against the United States. In addition, members of AQAP have been named Specially Designated Nationals by the United States government. In July 2010, the United States designated Anwar al-Aulaqi, a U.S. citizen and key leader for AQAP, for supporting acts of terrorism and for acting for or on behalf of AQAP. Somalia: Al-Shabaab is a foreign terrorist organization active in Somalia. Al-Shabaab has claimed responsibility for several bombings and shootings throughout Somalia, as well as the July 2010 suicide bomb attacks in Kampala, Uganda, which killed more than 70 people. State reports that rank-and-file members of al-Shabaab are predominantly interested in issues within Somalia, rather than pursuing a global agenda. However, NCTC and State note that al-Shabaab’s core leadership is linked ideologically to al Qaeda and that some members of the group previously trained and fought with al Qaeda in Afghanistan. In 2009, the Deputy Director of Intelligence at the NCTC testified that a number of young Somali-American men traveled to Somalia, possibly to train and fight with al-Shabaab, including one who conducted a suicide bombing attack. While noting there is no specific evidence that the Americans previously trained in Somalia planned to conduct attacks inside the United States, the Federal Bureau of Investigation (FBI) has expressed concern that this threat remains a possibility. In August 2010, the FBI arrested two U.S. citizens and indicted 12 others, including five U.S. citizens, on charges of providing support to al-Shabaab. The U.S. government has not fully addressed reporting requirements to identify U.S. efforts to deny safe haven to terrorists. Congress required the President to submit reports outlining U.S. government efforts to deny or disrupt terrorist safe havens in two laws—the IRTPA and the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2010. The IRTPA required the President to submit a report to Congress that includes an outline of the strategies, tactics, and tools the U.S. government uses to disrupt or eliminate the security provided to terrorists by terrorist safe havens, and recommended that State update the report annually, to the extent feasible, in its Country Reports on Terrorism. In response to these provisions, State submitted a report to Congress in April 2006, which it has updated annually as part of its Country Reports on Terrorism. These reports include a section on U.S. strategies, tactics, and tools that identifies several U.S. efforts to address terrorist safe havens. In the Country Reports on Terrorism released in August 2010, State identified several U.S. efforts for addressing terrorist safe havens, including programs such as State’s Regional Strategic Initiative and Antiterrorism Assistance programs. However, State’s August 2010 Country Reports on Terrorism does not fully identify U.S. efforts to deny terrorists safe haven. For example: Some State-funded efforts are not included: Selected State strategic documents identify efforts funded by State that may contribute to denying terrorists safe haven—such as Foreign Military Financing activities and USAID development assistance—that were not included in the August 2010 Country Reports on Terrorism. In addition, agency officials identified additional State-funded efforts that may contribute to addressing terrorist safe havens—such as activities funded through State’s Peacekeeping Operations and State-funded DHS training to combat money laundering and bulk cash smuggling—but were not included in the report. Efforts funded by other U.S. agencies are not included: For example, according to DOD officials, the Department’s Afghanistan and Iraq Security Forces Funds and Section 1206 program efforts to train and equip the security forces abroad address terrorist safe havens but are not included in State’s report. Additionally, according to DOJ and Treasury, their training programs to build the capacity of foreign partners to counter terrorism financing address terrorist safe havens, but they are also not included in State’s report. In the IRTPA, Congress noted that it should be the policy of the United States to implement a coordinated strategy to prevent terrorists from using safe havens and to assess the tools used to assist foreign governments in denying terrorists safe haven. State’s report is incomplete without a comprehensive overview of its own contributions and those of its various interagency partners to address terrorist safe havens. To enhance the comprehensiveness of State’s reporting on U.S. efforts to deny safe haven to terrorists, we recommended that State include a governmentwide list of U.S. efforts to address terrorist safe havens when it updates the report requested under the IRTPA. In response, State concurred that reporting on U.S. efforts to deny terrorist safe havens should be more comprehensive. However, State did not agree that such a list should be part of its annual Country Reports on Terrorism, citing the fact that they have completed other reporting requirements related to counterterrorism. We maintain that the provisions in the IRTPA recommend annual updates related to U.S. efforts to address terrorist safe havens be included in the Country Reports on Terrorism. Moreover, while it is possible that other reports produced by State address IRTPA provisions, the antiterrorism report cited by State in its comments does not constitute a governmentwide list of U.S. efforts to address terrorist safe havens as the report does not include the contributions of key agencies, such as DOD. In addition to the provisions in the IRTPA, Congress demonstrated an ongoing interest in the identification of U.S. efforts to deny terrorist safe havens in the NDAA for FY 2010. The conference report accompanying the act noted that existing executive branch reporting on counterterrorism does not address the full scope of U.S. activities or assess overall effectiveness. The NDAA for FY 2010 requires the President to submit to Congress a report on U.S. counterterrorism strategy, including an assessment of the scope, status, and progress of U.S. counterterrorism efforts in fighting al Qaeda and its affiliates and a provision to create a list of U.S. counterterrorism efforts relating to the denial of terrorist safe havens. The required report is intended to help Congress in conducting oversight, enhance the public’s understanding of how well the government is combating terrorism, and assist the administration in identifying and overcoming related challenges. As of March 2011, no report had been submitted to Congress. While National Security Staff officials taking the lead on the report stated they were working on a draft, they were unsure when it would be completed. To address this reporting gap, we recommended that the National Security Council, in collaboration with relevant agencies as appropriate, complete the requirements of the NDAA of FY 2010 to report to Congress on a list of U.S. efforts related to the denial of terrorist safe havens. The National Security Council reviewed our report but provided no comments on the recommendation. Chairman McCaul, Ranking Member Keating, and members of the Subcommittee, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. This statement is based on our body of work examining U.S. counterterrorism policies and efforts, particularly those regarding terrorist safe havens and reported in GAO-11-561 to be released today. To address our objectives, we reviewed and analyzed relevant national strategies, key congressional legislation, State’s Country Reports on Terrorism, and other documents related to U.S. efforts to address terrorist safe havens. Additionally, we discussed U.S. strategies and efforts related to terrorist safe havens with U.S. officials from DOD, DHS, DOJ, State, Treasury, USAID, the National Security Staff, and the intelligence community. We also spoke to subject matter experts from academia, government, and nongovernmental organizations. We performed our work in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence we obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. For questions regarding this statement, please contact Jacquelyn Williams- Bridgers at (202) 512-3101 or williamsbridgersj@gao.gov or Charles Michael Johnson, Jr. at (202) 512-7331 or johnsoncm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Jason Bair, Assistant Director; Christy Bilardo, Kathryn Bolduc, Lynn Cothern, Martin de Alteriis, Eileen Larence, Mary Moutsos, John Pendleton, and Elizabeth Repko made key contributions in preparing this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | This testimony discusses GAO's report on U.S. efforts to address terrorist safe havens. Terrorist safe havens provide security for terrorists, allowing them to train recruits and plan operations. U.S. officials have concluded that various terrorist incidents demonstrate the dangers emanating from terrorist safe havens, such as the November 2008 attacks in Mumbai, India, planned, in part, from safe havens in Pakistan, and the attempted airliner bombing on December 25, 2009, planned from safe havens in Yemen. The discovery of Osama Bin Laden in a compound in Pakistan, from which, according to U.S. officials, he played an active role in al Qaeda focused on attacking the United States, makes this hearing particularly timely. The testimony today focuses on (1) U.S. national strategies related to addressing terrorist safe havens, (2) terrorist safe havens identified by the Department of State (State) and the threats emanating from these havens, and (3) the extent to which the U.S. government has identified efforts to deny terrorists safe havens. We found that U.S. national strategies emphasize the importance of denying safe haven to terrorists and that, since 2006, State has annually identified terrorist safe havens in its "Country Reports on Terrorism." The United States highlights the denial of safe haven to terrorists as a key national security concern in several U.S. government strategic documents. For example, National Security Strategies released in 2002, 2006, and 2010 emphasize the importance of denying safe haven to terrorists. The current "National Strategy for Combating Terrorism," which was last updated September 2006, also stresses the importance of eliminating terrorist safe havens. The document identifies eliminating terrorist safe havens as a priority action against which all elements of national power--including military, diplomatic, financial, intelligence, and law enforcement--should be applied. According to National Security Staff officials, an updated "National Strategy for Combating Terrorism" is currently being drafted and its release is expected in the coming months. However, these officials stated that denying safe haven to terrorists will remain an important element of U.S. counterterrorism strategy. Since 2006, State has identified existing terrorist safe havens in a dedicated chapter of its "Country Reports on Terrorism." According to U.S. agencies, a variety of groups that pose threats to the United States operate in countries identified by State as terrorist safe havens. For example: (1) Pakistan: Various terrorist organizations operate in Pakistan. First, al Qaeda leader Osama Bin Laden was located in a compound in Pakistan from which U.S. officials have stated he was actively involved in planning attacks against the United States. The Pakistani Taliban have claimed responsibility for several attacks against U.S. interests, including an attack on the U.S. Consulate in Peshawar in April 2010. (2) Yemen: The foreign terrorist organization al Qaeda in the Arabian Peninsula (AQAP) is based in Yemen. In response to the killing of Osama Bin Laden, AQAP issued a press release vowing revenge against the United States. (3) Somalia: Al-Shabaab is a foreign terrorist organization active in Somalia. Al-Shabaab has claimed responsibility for several bombings and shootings throughout Somalia, as well as the July 2010 suicide bomb attacks in Kampala, Uganda, which killed more than 70 people. The U.S. government has not fully addressed reporting requirements to identify U.S. efforts to deny safe haven to terrorists. Congress required the President to submit reports outlining U.S. government efforts to deny or disrupt terrorist safe havens in two laws--the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) and the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2010. The IRTPA required the President to submit a report to Congress that includes an outline of the strategies, tactics, and tools the U.S. government uses to disrupt or eliminate the security provided to terrorists by terrorist safe havens, and recommended that State update the report annually, to the extent feasible, in its "Country Reports on Terrorism." In response to these provisions, State submitted a report to Congress in April 2006, which it has updated annually as part of its "Country Reports on Terrorism." These reports include a section on U.S. strategies, tactics, and tools that identifies several U.S. efforts to address terrorist safe havens. In the "Country Reports on Terrorism" released in August 2010, State identified several U.S. efforts for addressing terrorist safe havens, including programs such as State's Regional Strategic Initiative and Antiterrorism Assistance programs. However, State's August 2010 "Country Reports on Terrorism" does not fully identify U.S. efforts to deny terrorists safe haven. |
Congress established FHA in 1934 under the National Housing Act (P.L. 73- 479) to broaden homeownership, protect and sustain lending institutions, and stimulate employment in the building industry. Over time, FHA came to play a major role in extending mortgage credit to first-time homebuyers and historically underserved borrowers such as minority and lower- income families. For example, in 2005, slightly less than 80 percent of FHA borrowers were first-time homebuyers, more than 80 percent had lower incomes, and approximately 30 percent were minorities. (See app. III for additional information on the borrower and loan characteristics of FHA- insured, prime, and subprime mortgages.) FHA currently insures a variety of mortgages for home purchases, construction and rehabilitation, and refinancing, with its most popular program—Section 203(b)—offering 15- and 30-year mortgages for single-family dwellings. Generally, borrowers are required to purchase mortgage insurance when the loan-to-value (LTV) ratio (the amount of the mortgage loan divided by the value of the home) exceeds 80 percent. FHA is a government mortgage insurer in a market that also includes private insurers. Private mortgage insurance policies provide lenders coverage on a portion (generally 20 to 30 percent) of the mortgage balance. However, borrowers who have difficulty meeting down-payment and credit score requirements for conventional loans may find it easier to qualify for a loan with FHA insurance, which covers 100 percent of the value of the loan. FHA-insured borrowers are required to make minimum cash investments of 3 percent, which may come from the borrowers’ own funds or from certain third- party sources. Borrowers are permitted to finance their mortgage insurance premiums and some closing costs, which can create an effective LTV ratio of close to 100 percent for some FHA-insured loans. In fiscal year 2006, the agency insured almost 426,000 mortgages, representing about $55 billion in mortgage insurance. Congress has set limits on the size of the loans that may be insured by FHA. The limit for an FHA-insured mortgage is 95 percent of the local median home price, not to exceed 87 percent or fall below 48 percent of the Freddie Mac conforming loan limit, which was $417,000 in 2006. Therefore, in 2006, FHA loan limits fell between a floor in low-cost areas of $200,160 and a ceiling in high-cost areas of $362,790. Eighty-two percent of counties nationwide had loan limits set at the low-cost floor, while 3 percent had limits set at the high-cost ceiling. The remaining 15 percent of counties had limits set between the floor and ceiling, based on local median house prices. FHA determines the expected cost of its insurance program, known as the credit subsidy cost, by estimating the program’s future performance. FHA’s mortgage insurance program is currently a negative subsidy program, meaning that the present value of estimated cash inflows to FHA’s Mutual Mortgage Insurance Fund (Fund) exceeds the present value of estimated cash outflows. The economic value, or net worth, of the Fund depends on the relative size of cash outflows and inflows over time. Cash flows out of the Fund for payments associated with claims on defaulted loans and refunds of up-front premiums on prepaid mortgages. To cover these outflows, FHA receives cash inflows from borrowers’ insurance premiums and net proceeds from recoveries on defaulted loans. If the Fund were to be exhausted, the U.S. Treasury would have to cover lenders’ claims directly. A number of different private-sector and government institutions participate in the mortgage market. Along with FHA, the Department of Veterans Affairs’ (VA) Loan Guaranty Service and the Department of Agriculture’s Rural Housing Service (RHS) administer federal government programs that insure or guarantee single-family mortgages made by private lenders. Private lenders that loan borrowers funds for home purchase and refinance mortgages often work with mortgage brokers, independent contractors that originate the loan products of multiple lenders. Fannie Mae and Freddie Mac are housing GSEs that purchase primarily prime conventional mortgages from lenders across the country, financing their purchases through borrowing or by issuing securities backed by the mortgages. Since 1994, HUD has set affordable housing goals for the housing GSEs and has adjusted the goals upward every few years. One goal is that at least 55 percent of the mortgages purchased by the GSEs must be made to families whose incomes are no greater than the area median income. The other two major goals concern the percentage of mortgages to borrowers residing in lower-income communities and certain high-minority neighborhoods (38 percent) and the percentage of borrowers with very low incomes and those with low incomes who live in low-income areas (25 percent). FHA’s share of the market for home purchase mortgages in terms of numbers of loans declined 13 percentage points from 1996 through 2005, while the prime share increased slightly and the subprime share grew 13 percentage points. Although the decline in FHA’s market share was broad- based, FHA experienced particularly sharp decreases in submarkets where it traditionally has had a strong presence, such as among minority and lower-income borrowers. Consistent with these trends, in geographic areas with higher concentrations of these borrowers, FHA lost substantial market share while the subprime share grew dramatically. The same pattern held true in areas with relatively low median credit scores and where median home prices rose to at least 75 percent of FHA’s loan limit during the 10-year period. From 1996 through 2005, FHA’s share of the home purchase mortgage market declined while the conventional share increased. As shown in figure 1, FHA’s market share fell from almost 19 percent (about 583,000 loans) in 1996 to about 6 percent (about 295,000 loans) in 2005, with almost all of the decline occurring after 2001. Although FHA’s market share has fluctuated over time, during the past two decades it has generally been over 10 percent. Over the 10-year period, the market share for conventional mortgages rose from almost 75 percent (about 2.3 million loans in 1996) to about 91 percent (about 4.2 million loans in 2005), with much of the increase due to growth in subprime lending. More specifically, prime market share increased from 73 percent to 76 percent overall, falling somewhat from 1996 through 2000 but then increasing about 5 percentage points after 2000. Subprime market share increased substantially over the 10-year period, from 2 percent to 15 percent, with most of the increase occurring after 2001 (growing from 5 percent in 2001 to 15 percent in 2005). From 1996 through 2005, the market share for the GSEs (essentially a subset of the conventional prime market) increased 3 percentage points overall (to roughly 30 percent in 2005), growing about 13 percentage points from 1996 through 2002 but falling 9 percentage points thereafter. From 1996 through 2005, FHA lost market share in certain key submarkets, especially among minority and lower-income borrowers, as well as among borrowers with mortgages within FHA’s loan limits. At the same time, the market share for conventional mortgages, particularly subprime loans, grew in these submarkets. This trend also held true in census tracts with high concentrations of low-income and minority households, relatively low median credit scores, and median home prices within FHA’s loan limits. Mirroring the trend in the overall home purchase mortgage market, FHA’s loss of market share in these submarkets primarily occurred after 2001. (See app. II for details on the trends in specific submarkets for each market segment) FHA traditionally has played a major role among minority borrowers. However, over the 10-year period, FHA’s share of this submarket fell substantially. Specifically, as shown in figure 2, FHA’s market share dropped 25 percentage points (from 32 to 7 percent) among minority borrowers, but declined most sharply among black and Hispanic borrowers (by 27 and 35 percentage points, respectively). FHA’s market share among white borrowers decreased from 16 percent to 7 percent during the 10-year period. In contrast to FHA, prime market share increased about 6 percentage points (from 59 to 65 percent) among minority borrowers and 5 percentage points (from almost 77 to just over 81 percent) among white borrowers from 1996 through 2005. Over the same period, subprime market share increased 24 percentage points (from 2 to 26 percent) among minorities, but especially among black and Hispanic borrowers (29 percentage points for each group). Subprime market share among white borrowers increased from 1 to 9 percent from 1996 through 2005. GSE market share among minority borrowers ultimately did not change substantially, beginning and ending the period at roughly 20 percent. From 1996 through 2002, GSE market share among minority borrowers increased 11 percentage points (to roughly 32 percent), but fell by about the same amount thereafter. GSE market share among white borrowers increased 7 percentage points over the 10-year period, to roughly 35 percent in 2005. Lower-income (i.e., low- and moderate-income) borrowers historically have relied heavily on FHA products, but FHA’s market share dropped in this submarket as well. From 1996 through 2005, FHA’s market share decreased among borrowers of all income levels, but, as shown in figure 3, particularly among lower-income borrowers, where FHA’s share declined 16 percentage points (from 26 percent to 10 percent). From 1996 through 2005, FHA’s market share among upper-income borrowers fell from 9 to 2 percent. Over the 10-year period, prime market share increased from 65 to 72 percent among lower-income borrowers and remained consistently high (above 80 percent) among upper-income borrowers. At the same time, subprime market share increased 14 percentage points (from 1 to 15 percent) among lower-income borrowers and 12 percentage points (from 2 to 14 percent) among upper-income borrowers. GSE market share increased 8 percentage points among lower-income borrowers (to roughly 32 percent in 2005), and remained at approximately 30 percent for upper- income borrowers. As previously noted, Congress has set limits on the size of FHA-insured loans. Although loans that fall within these limits comprise what has been called the FHA-eligible submarket, from 1996 through 2005 FHA’s share in this submarket declined more sharply than in the overall home purchase mortgage market. Specifically, it decreased 16 percentage points (from 25 to 9 percent), with a steep decline occurring after 2001 when its market share was 24 percent. FHA’s market share among minority borrowers in this submarket also fell dramatically (from 39 percent in 1996 to 10 percent in 2005), as did its share of loans to lower-income borrowers (from 28 percent in 1996 to 11 percent in 2005). While FHA’s market share declined in the FHA-eligible submarket, the prime and subprime market shares grew. Overall, the prime share in this submarket increased modestly (from 67 percent to 73 percent) from 1996 to 2005. In contrast, the subprime share increased 14 percentage points (from 1 percent to 15 percent). The GSE share in this submarket increased 15 percentage points from 1996 to 2002 (to roughly 40 percent) but fell to about 33 percent as of 2005. To further analyze mortgage market trends, we examined FHA, prime, and subprime market shares in various census tract groupings. Specifically, we looked at census tracts grouped based on (1) race and income characteristics, (2) median credit score, and (3) median home price in relation to FHA loan limits. For the credit score analysis, we limited our analysis to census tracts where FHA’s market share averaged at least 5 percent from 1996 through 1998 (representing about 75 percent of the census tracts nationwide). From 1996 through 2005, FHA lost market share in approximately 90 percent of the census tracts we included in our analysis. As shown in figure 4, the losses occurred primarily in census tracts with both medium to high concentrations of minorities and low to moderate median incomes. At the same time, the market share for conventional loans increased for this group of census tracts, especially for subprime loans. This was particularly evident in census tracts with both the highest concentrations of minorities and low median incomes, where FHA’s market share fell 31 percentage points and subprime market share increased 28 percentage points. From 1996 through 2005, FHA’s market share declined in all of the census tract groupings we defined based on the median credit score of mortgage borrowers. However, FHA’s share declined most sharply in census tracts with relatively low median credit scores. Specifically, FHA’s market share dropped 26 percentage points (from about 37 percent in 1996 to 11 percent in 2005) in census tracts with median credit scores in the bottom quarter of the credit score distribution for all census tracts included in our analysis, with the steepest decline occurring after 2001 (see fig. 5). At the same time, the prime and subprime market shares in these census tracts increased. More specifically, the prime share increased 12 percentage points (from about 51 percent in 1996 to 63 percent in 2005), and the subprime share increased 21 percentage points (from about 2 percent in 1996 to 23 percent in 2005). In census tracts with median credit scores between the bottom quarter and the top quarter of the distribution, FHA’s market share fell 16 percentage points over the 10-year period, while the prime and subprime shares rose 10 and 12 percentage points, respectively. Finally, in census tracts with median credit scores in the top quarter of the distribution, FHA’s market share decreased 12 percentage points, while the prime and subprime shares increased 9 and 7 percentage points, respectively. From 1996 through 2005, FHA lost market share in census tracts where median home prices were above and below FHA’s loan limits (which FHA adjusts annually within statutory caps), but experienced the greatest losses in census tracts where median home prices appreciated to at least 75 percent of FHA’s loan limit during the 10-year period. In census tracts where the median home price was less than 75 percent of the FHA loan limit each year, FHA’s market share dropped 24 percentage points (from 36 percent in 1996 to 12 percent in 2005). In census tracts where the median home price was at least 75 percent but less than 125 percent of the FHA loan limit each year, FHA’s market share fell more modestly—13 percentage points (from 18 percent in 1996 to 5 percent in 2005). However, FHA lost almost all of its market share in areas where the median home price was less than 75 percent of the FHA loan limit early in the 10-year period but grew to at least 75 percent of the loan limit later in the period. Specifically, FHA’s market share in these areas fell 38 percentage points— from 41 percent in 1996 to 3 percent in 2005. At the same time, conventional market share grew in the census tract groupings we examined. For example, in census tracts where median home prices were less than 75 percent of FHA’s loan limit each year, the prime share increased 11 percentage points (from 53 percent in 1996 to 64 percent in 2005) and the subprime share increased 18 percentage points (from 2 percent in 1996 to 20 percent in 2005). The prime and subprime market shares increased even more in census tracts where median home prices rose from less than 75 percent of the FHA loan limit to at least 75 percent of the limit during the 10-year period. Specifically, prime and subprime shares increased 22 and 25 percentage points, respectively. During the period from 1996 through 2005, a combination of factors created conditions that favored conventional mortgages over FHA products. These factors included (1) FHA’s product restrictions and lack of process improvements relative to the conventional market and (2) product innovations and expanded loan origination and funding channels in the conventional market. Most subprime mortgages, which grew in popularity as FHA’s market share declined, had higher ultimate costs, in part because their initial interest rates could reset to higher rates. In addition, subprime mortgages performed worse than prime and FHA- insured loans. As FHA’s market share fell, certain factors associated with this decline also contributed to a worsening in indicators of credit risk among FHA borrowers. Lenders, mortgage industry groups, and consumer advocacy groups have cited FHA administrative requirements as a factor that contributed to the decline in the agency’s market share over the 10-year period we examined. According to mortgage industry officials we interviewed, processing FHA- insured loans was more time consuming, labor intensive, and costly than processing conventional mortgages. For example, instead of having lenders submit all loan information electronically, FHA required lenders to send loan case files to FHA for review before the loans could be approved for insurance. If the review found a problem with the case file, FHA would mail the file back to the lender, who in turn would make the needed corrections and mail the file back to FHA. Additionally, in contrast to conventional market requirements, FHA’s appraisal process required that minor property repairs, such as cracked window panes, be corrected prior to loan closing. According to the MBA, some FHA lenders have reported substantially higher processing times and origination costs for FHA- insured loans than for conventional loans. In contrast with FHA, conventional loan processing became increasingly streamlined and less costly through the use of information technology and the Internet. According to mortgage industry officials with whom we spoke, FHA’s more cumbersome processes made FHA’s products less attractive than conventional products, particularly in competitive housing markets where it is important to be able to close on a home quickly. However, in 2006, FHA made several administrative changes, such as allowing higher-performing lenders to approve FHA insurance without a prior review by FHA and simplifying its appraisal process. FHA and mortgage industry officials with whom we spoke said that these changes have increased the efficiency of loan and insurance processing, making FHA products more attractive and, therefore, more likely to be used. FHA and mortgage industry officials with whom we spoke also cited FHA’s loan limits as a factor that contributed to the decline in FHA’s market share. In some areas of the country, particularly in parts of California and the Northeast, median home prices have been substantially higher than FHA’s maximum loan limits, reducing the agency’s ability to serve borrowers in those markets. For example, the 2005 loan limit in high-cost areas was $312,895 for one-unit properties, while the median home price was about $399,000 in Boston, Massachusetts; about $432,000 in Newark, New Jersey; $500,000 in Salinas, California; and about $646,000 in San Francisco, California. Some mortgage industry officials also pointed to other product restrictions as a reason why FHA loans have been less competitive than conventional loans. Many borrowers either cannot or do not want to make a down payment, and in recent years members of the conventional mortgage market (such as private mortgage insurers, the housing GSEs, and large private lenders) have been increasingly active in supporting low and no- down-payment mortgages. For example, the GSEs introduced no-down- payment mortgage products in 2000. In contrast, FHA does not offer a zero-down-payment product, which some lenders and industry observers have cited as a major factor underlying the decline in FHA’s market share. (However, as previously noted, FHA allows borrowers to finance their up- front insurance premium and some closing costs; as a result, an FHA- insured loan could equal nearly 100 percent of the property’s value or sales price.) During the 10-year period we examined, several developments associated with FHA’s declining market share occurred in the conventional market. First, the conventional market offered products that increased consumer choices for borrowers, including those who may have previously chosen an FHA-insured loan. These products, in combination with historically low interest rates, made it easier for homebuyers to purchase homes in a period of strong house price appreciation. For example, to serve the lower-income and minority populations targeted by their affordable housing goals, the GSEs developed products featuring underwriting criteria that allowed for higher risks, such as Freddie Mac’s Home Possible® Mortgage, which allows qualified borrowers to make no down payment. As the GSEs worked to meet their goals, their market share among lower-income and minority borrowers grew over much of the 10- year period we examined, while FHA’s fell. More specifically, the GSE market share among lower-income borrowers grew nearly 14 percentage points from 1996 through 2002, while FHA’s share dropped 3 percentage points over that period. During the same time frame, GSE market share among minority borrowers grew 11 percentage points, while FHA’s fell 8 percentage points. Consistent with these observations, research by An and Bostic (2006) found a significant negative relationship between the change in the GSE and FHA shares of the overall mortgage market from 1996 through 2000. However, as previously noted, the market shares for both FHA and the GSEs ultimately declined after 2002. Other products offered by conventional mortgage providers—interest-only loans, no- and low-documentation mortgages, piggyback loans, and hybrid adjustable rate mortgages (ARM)—also became popular, especially during the subprime market’s rapid growth after 2001, because they featured flexible payment and interest options that increased initial affordability. For example, borrowers were attracted to hybrid ARMs because they could qualify on the basis of an interest rate at or near the initial rate rather than the higher reset rate. These nontraditional products came to represent a sizeable part of the subprime market after 2001. For example, according to data reported by an investment bank, from the first quarter of 2002 to the third quarter of 2005, the percentage of subprime mortgages that were interest-only loans increased from zero to 29 percent and the percentage that were no- and low-documentation loans increased from 30 to 41 percent. Over the same period, the proportion of subprime mortgages with piggyback loans, which are often used to avoid the need for mortgage insurance, increased from 2 to 33 percent. Additionally, from 2002 through 2005, the percentage of subprime mortgages that were ARMs grew from 68 to 73 percent, with hybrid ARMs accounting for the majority of these loans. In contrast, FHA (which, as previously discussed, lost substantial market share in submarkets where subprime lending grew dramatically) does not offer interest-only or no- and low-documentation products and did not begin insuring hybrid ARMs until 2004. A second development in the conventional market was advances in underwriting technology that allowed conventional mortgage providers to process loan applications more quickly and consistently than in the past and broaden their customer base. For example, to help assess the default risk of borrowers, the mortgage industry increasingly used mortgage scoring and automated underwriting systems. Mortgage scoring is a technology-based tool that relies on the statistical analysis of millions of previously originated mortgage loans to determine how key attributes such as the borrower’s credit history, property characteristics, and terms of the mortgage affect future loan performance. FHA implemented its own mortgage scoring tool, called the Technology Open to Approved Lenders (TOTAL) scorecard, in 2004. However, in prior work we found that the way FHA developed TOTAL may limit the scorecard’s effectiveness. To the extent that conventional mortgage providers were better able than FHA to use scoring tools, lower-risk borrowers in FHA’s traditional market segment may have migrated toward conventional products, contributing to the decline in FHA’s market share. A third development was an increase in mortgage originations through third parties such as loan correspondents and mortgage brokers, particularly in the subprime market. This trend has been associated with the decline in FHA’s market share because these mortgage originators primarily market non-FHA products. According to data reported by the trade publication Inside B&C Lending, loan correspondents and mortgage brokers increased their share of subprime loan originations from 66 percent in 2003 to 81 percent in 2005. In contrast, just 27 percent of FHA- insured mortgages in 2005 were originated by loan correspondents and mortgage brokers. According to the National Association of Mortgage Brokers, many mortgage brokers do not offer FHA products because they find the financial and audit requirements for participation in FHA programs cost-prohibitive. A fourth development in the conventional market was the growth in private mortgage securitization (the bundling of mortgage loans into bond- like securities that can be bought and sold on the secondary market), particularly for subprime loans. Securitization allowed lenders to sell loans from their portfolios, transferring credit risk to investors, and use the proceeds to make more loans. According to recent testimony by a senior official from the Federal Deposit Insurance Corporation, many lenders would not have found subprime mortgages attractive absent the funding and credit-risk transfer features available through securitization. At the same time, these securities were attractive to different types of investors. The combination of higher interest rates and higher risks for subprime loans facilitated the division of mortgage securities into risk tranches, which offer investors different risk and reward options. According to data reported by Inside B&C Lending, from 1999 through 2005, subprime securitization rates—that is, the dollar amount of securitized loans divided by the dollar amount of loan originations—rose from less than 40 percent to about 80 percent. In addition, the dollar volume of subprime loan securitizations increased from $61 billion in 1999 to nearly $508 billion in 2005. As a result of developments in the conventional market, including lower interest rates, more homebuyers—especially minority and lower-income families—were able to obtain conventional loans, but many of these loans had high ultimate costs. As previously discussed, much of the increase in mortgages to minorities and lower-income borrowers was due to the growth in subprime lending, and many of these loans offered lower initial costs through their interest-only features and low introductory interest rates. However, these mortgages became more costly as the interest rates on many of these loans reset to higher rates, typically 2 to 3 percentage points higher in a relatively short time period. A common subprime mortgage product is a 2/28 hybrid ARM, which features a fixed interest rate for 2 years, followed by a series of resets up to a fully indexed adjustable rate for the remaining 28 years of the loan. Consider the example of a borrower who took out a $166,000 2/28 loan in 2003 with an initial interest rate of 7.5 percent and a first interest rate reset of 2.5 percentage points. During the first 2 years of the loan, the borrower’s monthly payment was $1,161. But after the first interest rate reset, the borrower’s monthly payment grew to $1,446, a $285 or 25 percent increase. Additional resets up to the fully indexed interest rate—which can be as much as 6 percentage points higher than the initial interest rate—would push the borrower’s payments even higher. In contrast to the subprime market, the large majority of FHA-insured loans are fixed-rate mortgages. For example, fixed-rate loans accounted for 92 percent of FHA- insured mortgages made in 2005. Additionally, for FHA-insured hybrid ARMs, the allowable interest rate adjustments after the initial fixed-rate period are comparatively lower—1 percentage point for 3-year ARMs and 2 percentage points for 5-, 7-, and 10-year ARMs. Reflecting in part the generally lower credit scores of subprime borrowers, subprime mortgages are more likely than prime or FHA loans to be what the Federal Reserve has designated “high-priced” loans. HMDA data for the 2 most recent years available (2004 and 2005) include an indicator for such loans. This indicator is based on a loan’s annual percentage rate (APR), which represents the cost of credit to the consumer by capturing the contract interest rate on a loan, the points and fees that a consumer pays, and other finance charges such as mortgage insurance premiums. Loans with APRs at least 3 percentage points higher than the rate on Treasury securities of comparable maturity are considered high-priced. Our analysis of 2005 HMDA data indicates that approximately 90 percent of the loans we had identified as subprime were high-priced. In contrast, less than 2 percent of FHA-insured loans made that year were high-priced. Highly leveraged and weaker credit borrowers—the typical subprime borrowers who have obtained nontraditional mortgage products such as hybrid ARMs—are the most vulnerable to payment shocks. Although borrowers could avoid mortgage resets by refinancing to fixed-rate mortgages, many of these borrowers face challenges to refinancing their subprime loans. For example, about two-thirds of subprime loans originated in 2005 had prepayment penalties—a substantially higher proportion than in other market segments. FHA, for instance, does not permit prepayment penalties on the loans it insures. Prepayment penalties generally last from 2 to 4 years from the mortgage origination date and can amount to 4 to 5 percent of the original loan amount. They can make it expensive to refinance because borrowers must pay the penalty if they wish to pay off the original loan before the prepayment period expires. In addition, subprime borrowers who made little or no down payment and live in areas that experienced home price depreciation may not have sufficient equity to refinance. Borrowers who obtained subprime mortgages have experienced relatively high rates of default (i.e., more than 90 days past due) and foreclosure (i.e., in any stage of the foreclosure process). According to MBA, as of December 31, 2006, the cumulative default and foreclosure rates for all subprime mortgages were 7.78 and 4.53 percent, respectively. For subprime ARMs, the corresponding figures were 9.16 and 5.62 percent. In comparison, as of the same date, the default and foreclosure rates for FHA-insured loans were 5.78 and 2.19 percent, respectively (6.62 and 2.54 percent for ARMs) and for prime loans, were 0.86 and 0.50, respectively (1.45 and 0.92 for ARMs). Some mortgage industry researchers predict that subprime default and foreclosure rates likely will worsen as the loans age; a substantial portion of these loans have yet to reach the age when loans tend to experience the highest rates of default and foreclosure—between 4 and 7 years. Furthermore, because most recent subprime loans have adjustable-rate features, default and foreclosure rates for ARMs are in particular danger of increasing as interest rate resets cause monthly mortgage payments on these loans to rise. A recent study by the director of research and analytics at First American CoreLogic (one of the largest private sector providers of mortgage information) illustrates the potential scope of the problem posed by ARM resets. The study, which examined 8.37 million ARMs originated in 2004 through 2006, estimated that 1.1 million (13 percent) of these loans would go into foreclosure as they reset over the next 6 to 7 years. Although the subprime and FHA market segments both serve higher-risk borrowers, the extent to which subprime borrowers currently at risk of default would have qualified for FHA-insured loans is not known. Such a determination would require analysis of detailed, loan-level data for subprime mortgages. Recently, a number of proposals have been made to help subprime borrowers at risk of foreclosure refinance into lower-cost fixed rate mortgages. For example, in April 2007, Freddie Mac announced plans to purchase $20 billion in mortgages that would refinance troubled subprime loans. Fannie Mae announced a similar initiative that same month. Certain factors associated with FHA’s decline in market share also contributed to a worsening in indicators of credit risk among FHA borrowers. More specifically, as conventional lenders expanded their presence in traditional FHA submarkets through the development of new products and use of automated underwriting tools, FHA experienced adverse selection—that is, conventional providers identified and approved relatively lower-risk borrowers, leaving relatively higher-risk borrowers for FHA. According to analysis by FHA, FHA’s loan portfolio is becoming riskier in terms of the proportions of loans with high LTV, payment-to- income, and debt-to-income ratios. (Lenders use these ratios to assess the creditworthiness of borrowers.) For instance, FHA’s analysis indicated that the proportion of loans with effective LTV ratios over 97 percent rose from about 40 percent in 1999 to almost 60 percent in 2005. The higher the LTV ratio, the less equity borrowers have in their homes and the more likely it is that they may default on mortgage obligations. As we reported in November 2005, the substantial portion of FHA-insured loans with down-payment assistance do not perform as well as loans without such assistance, due partly to homebuyers having less equity in the transaction. The changes in borrower characteristics have contributed to a decline in FHA’s financial performance. In recent years, the credit subsidy rate for FHA’s single-family mortgage insurance program has approached zero (the point at which estimated cash outflows equal estimated cash inflows). Furthermore, FHA has estimated that, absent program changes, the program for the first time would require a positive subsidy (i.e., appropriations) in fiscal year 2008. Therefore, it has been changes in the credit quality, rather than the volume, of loans FHA insures that have had the most significant implications for FHA. Our analysis shows that in 2005 FHA was a much smaller part of the market for home purchase mortgages than it was just a few years earlier. Given FHA’s history of serving minority and lower-income homebuyers, the agency’s sharp drop-off in market share among these populations is particularly notable. Furthermore, the growth in low- and no-down- payment mortgages offered by conventional lenders has made FHA’s product offerings less distinct. These trends raise questions about FHA’s ability to fulfill its traditional role and operate successfully in a changing and competitive mortgage market. However, consistent with FHA’s mission, substantial proportions of recent FHA borrowers are minorities and lower-income families, including many first-time homebuyers. Additionally, in the event of an economic downturn, FHA could help ensure the flow of mortgage credit to areas that private sector market participants may be reluctant to serve. Furthermore, recent developments in the subprime market may result in an increase in FHA’s role in the mortgage market. For example, relatively high default and foreclosure rates for subprime mortgages and a contraction of this market segment could shift market share to FHA. The extent to which this occurs will depend partly on the efforts of conventional mortgage providers, including Freddie Mac and Fannie Mae, to provide alternatives to subprime borrowers. As our report noted, the GSEs have played a larger role among traditional FHA homebuyers and recently have proposed steps that would provide additional mortgage choices to many borrowers who obtained subprime loans. Although further analysis would be required to determine how many subprime borrowers at risk of default would qualify for FHA-insured mortgages, FHA could be a vehicle to provide lower-priced and more sustainable mortgage options for some borrowers who are considering or struggling to maintain higher-priced subprime loans. FHA’s recent efforts to modernize its products and processes might facilitate any expansion of the agency’s role by increasing its operational efficiency and flexibility. However, attracting subprime borrowers to FHA could also have costs, as some of these borrowers may pose relatively high insurance risks. Careful assessment and management of these risks would be necessary to avoid exacerbating problems in the financial performance of FHA’s insurance program. We provided HUD with a draft of this report. HUD provided comments in a letter from the Assistant Secretary for Housing-Federal Housing Commissioner (see app. IV). HUD stated that we produced a straightforward, well-researched report on the reasons for the recent decline in FHA’s market share. HUD also provided observations about the homebuyers FHA serves and the shift of some traditional FHA borrowers to subprime mortgage products that have the potential to become more costly. Additionally, HUD noted that additional flexibility, new mortgage insurance products, and risk-based pricing would help FHA to continue providing lower-income and minority households with homeownership opportunities at lower risk to themselves and with manageable risk to FHA’s insurance fund. We are sending copies of this report to the Chairman, Senate Committee on Banking, Housing, and Urban Affairs; Chairman and Ranking Member, Subcommittee on Housing and Transportation, Senate Committee on Banking, Housing, and Urban Affairs; Chairman and Ranking Member, House Committee on Financial Services; and Chairman and Ranking Member, Subcommittee on Housing and Community Opportunity, House Committee on Financial Services. We will also send copies to the Secretary of Housing and Urban Development and to other interested parties and make copies available to others upon request. In addition, the report will be made available at no charge on the GAO Web site at http://www.gao.gov. Please contact me at (202) 512-8678 or shearw@gao.gov if you or your staff have any questions about this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix V. Our objectives were to determine (1) trends in the Federal Housing Administration’s (FHA) share of the market for home purchase mortgages and selected submarkets from 1996 through 2005, and how they compared with the trends for the prime, subprime, and government-sponsored enterprises (GSE) market segments; and (2) the major factors associated with the trends in FHA’s market share and the potential implications of these trends for homebuyers and FHA. To supplement this analysis, we also developed information on the borrower and loan characteristics of FHA-insured mortgages and mortgages in the prime and subprime market segments from 1996 through 2005 (see app. III). To analyze trends in the overall market for home purchase mortgages, we compiled and analyzed loan data for 1996 through 2005 collected under the Home Mortgage Disclosure Act (HMDA). HMDA data are compiled and published by the Federal Financial Institutions Examination Council (FFIEC). HMDA requires lending institutions to collect and publicly disclose information about housing loans and applications for such loans. This information includes, among other things, the market participant or segment (conventional, FHA, Veterans Administration (VA), Rural Housing Service (RHS), GSE), loan amount, property type, census tract and certain tract characteristics, and loan applicant characteristics such as race, gender, and income. HMDA data capture about 80 percent of the mortgage loans funded each year, according to estimates by the Federal Reserve, and are one of the most comprehensive source of information on mortgage lending. In general, we limited our analysis to home purchase loans originated for owner-occupied, one-to-four family and manufactured homes. To the extent possible, we identified piggyback loans (i.e., the junior lien in a pair of loans used to finance the same property) using a data-matching process based on an algorithm developed by the Federal Reserve and excluded these loans from our analysis. As a result, our analysis focuses on first liens only. Because the HMDA data do not contain an indicator for subprime loans, we identified subprime loans by merging the data with a list—maintained by the Department of Housing and Urban Development (HUD)—of lenders that specialize in subprime lending. HUD’s Office of Policy Development and Research compiles this list annually by analyzing HMDA data (e.g., lenders with lower origination rates and a large share of refinance loans are more likely to be subprime lenders) and contacting lenders directly. We designated conventional loans that were not attributable to subprime lenders as prime loans. However, because subprime specialists may originate some prime loans and nonsubprime specialists may originate some subprime loans, any analysis that uses this list will misclassify mortgages to some extent. Finally, HMDA data do not capture all of the loans purchased by the GSEs. According to GSE and Federal Reserve officials, HMDA data do not capture all of the loans the GSEs purchase, including (1) many loans initially sold to intermediaries (e.g., bank affiliates) and subsequently to the GSEs and (2) loans originated and purchased in different years. While we acknowledge these limitations, we used HMDA data to evaluate long- term market share trends rather than to provide precise annual figures for each market segment, including the GSE segment. According to Freddie Mac, Fannie Mae, and Federal Reserve officials, our use of HMDA data was appropriate for this purpose. Our analysis should be interpreted with these limitations in mind. To analyze trends in various submarkets, we incorporated additional data from FHA, the Census Bureau, the Office of Federal Housing Enterprise Oversight (OFHEO), and TransUnion (one of the three main consumer credit reporting agencies). More specifically, from FHA we obtained annual nationwide data on FHA’s loan limits for single-family properties. From the 2000 Decennial Census, we obtained information on the median house price for each census tract. From OFHEO, we obtained their annual house price appreciation index for all metropolitan statistical areas. Finally, from TransUnion, we obtained median credit scores for mortgage borrowers in each census tract nationwide as of December 31, 2004. We analyzed a number of submarkets defined by borrower race, borrower income, loan amount relative to FHA’s loan limits, income and minority composition of the census tract in which the property was located, and whether the property was owner-occupied. We defined borrower race based on categories in the HMDA data. Prior to 2004, HMDA data included Hispanic as a race category but beginning in 2004 also included Hispanic as an ethnicity variable. For 2004 and 2005, we classified borrowers of Hispanic ethnicity as Hispanic race. We created borrower income categories using median family incomes calculated by HUD each year for metropolitan and nonmetropolitan areas. We defined borrowers with incomes of less than 80 percent of the area median income as low income, those with incomes of at least 80 percent but less than 120 percent of the area median as moderate income, and those with incomes of at least 120 percent of area median as upper income. Finally, we determined the FHA- eligible submarket by identifying loans with dollar amounts that fell within the relevant FHA loan limit. For our analysis of census tract groupings, we limited our examination to census tracts where FHA’s market share averaged at least 5 percent from 1996 through 1998. (We took this approach because our analysis examined changes in FHA’s market share during a 10-year period when the trend in FHA’s share was downward.) Therefore, our analysis excluded census tracts where FHA’s market share started and ended the period at zero and census tracts where FHA’s market share was sporadic and on average very small near the beginning of the period. We used Census Bureau files relating 1990 census tract definitions to 2000 census tract definitions to provide consistent geographic areas over the time period of our analysis. The large majority of the census tracts were the same in both 1990 and 2000. In many cases, however, 1990 census tracts were split into more than one 2000 census tract. In those cases, we aggregated the affected 2000 census tracts to the corresponding 1990 tract definitions and used the 1990 tracts as the unit of analysis for the entire 1996 through 2005 period. In other cases, two or more 1990 census tracts were combined to form one 2000 census tract. In those instances, we aggregated the affected 1990 tracts that corresponded to the 2000 tract definitions and used the 2000 tracts as the unit of analysis over the entire period. We grouped the census tracts according to the percentage of the population that was minority, median income, median credit score, and median home price in relation to FHA loan limits. We defined low-, medium-, and high-minority census tracts as those with minority populations of less than 20 percent, 20 to 49 percent, and more than 50 percent, respectively. We defined low-, moderate-, and upper-income census tracts as those with median incomes that were less than 80 percent, at least 80 percent but less than 120 percent, and 120 percent and above, respectively, of the median income for the associated metropolitan statistical area. We also grouped census tracts based on the TransUnion median credit score for mortgage borrowers as of December 31, 2004. We categorized census tracts into three groups: those with median credit scores in the bottom quarter of the credit score distribution for all census tracts included in our analysis, those with median scores between the bottom and top quarter, and those with median scores in the top quarter. Finally, we created three census tract groupings based on whether the median home price was below 75 percent of the applicable FHA loan limit each year, 75 to 125 percent of the FHA limit each year, or below 75 percent of the loan limit at the beginning of the 10-year period but at or above 75 percent of the limit later in the period. We assessed the reliability of the data we used by reviewing existing information about the quality of the data, performing electronic data testing to detect errors in completeness and reasonableness, and interviewing Freddie Mac, Fannie Mae, FHA, and Federal Reserve officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purposes of this report. To analyze factors associated with the trends in FHA’s market share and the implications of these trends, we used information from: the analysis described in the previous section, HMDA data, HUD’s Single-Family Data Warehouse (SFDW), summary statistics provided by FHA and contained in prior studies from databases maintained by LoanPerformance, the Mortgage Bankers Association’s (MBA) National Delinquency Survey for the fourth quarter of 2006, and other published industry data. In order to assess the reliability of the data we used, we reviewed related documentation and interviewed officials familiar with the data. In addition, for the HMDA and SFDW data, we performed internal checks to determine the extent to which the data fields were populated and the reasonableness of the values contained in the fields. We concluded that the data were sufficiently reliable for the purposes of this report. We also reviewed relevant academic literature and government and industry studies, including internal FHA analysis of SFDW data. In addition to our data analysis, we interviewed representatives of four FHA lenders (Countrywide Financial, Wells Fargo, Bank of America, and Lenders One—a mortgage cooperative representing 87 independent mortgage bankers). We also interviewed officials from Fannie Mae, Freddie Mac, and four private mortgage insurance companies—AIG United Guaranty, Genworth Financial, Mortgage Guaranty Insurance Corporation, and PMI Mortgage Insurance Company. Additionally, we interviewed representatives of six mortgage and real estate industry groups—MBA, National Association of Realtors, Mortgage Insurance Companies of America, National Association of Home Builders, National Association of Mortgage Brokers, and American Financial Services Association. We also spoke with representatives of the following consumer advocacy groups: Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Association of Consumer Advocates, National Community Reinvestment Coalition, National Consumer Law Center, and National Council of La Raza. Finally, we interviewed officials from FHA and HUD’s Office of Policy Development and Research. To determine the percentages of FHA, prime, and subprime home purchase loans with certain borrower and loan characteristics each year from 1996 through 2005, we analyzed information from HMDA data, SFDW, the Federal Housing Finance Board, and summary LoanPerformance data. The borrower and loan characteristics were race, income, loan type (fixed or adjustable rate), and presence of prepayment penalty. We also determined the average interest rate at mortgage origination, loan amount, and median credit score for FHA-insured loans and loans in the other market segments. In order to assess the reliability of the data we used, we reviewed existing information about the data quality and discussed the data with knowledgeable officials to ensure that we interpreted the information correctly. For the HMDA and SFDW data, we also performed electronic testing to assess the reasonableness and completeness of the information. We concluded that the data were sufficiently reliable for the purposes of our report. We conducted this work in Washington, D.C. from September 2006 through May 2007 in accordance with generally accepted government auditing standards. This appendix contains the results of our analysis using Home Mortgage Disclosure Act (HMDA) and Federal Housing Administration (FHA) data for calendar years 1996 through 2005. Tables 1 through 3 provide information on home purchase mortgages. More specifically, table 1 contains market shares for FHA and other market participants and segments over the 10-year period. Table 2 contains FHA market shares and numbers of mortgages in each state. Table 3 contains market shares in selected submarkets for FHA and other market participants and segments. Table 4 provides market shares for home purchase and refinance loans combined. Finally, table 5 provides market shares for refinance loans. This appendix contains the results of our analysis of Home Mortgage Disclosure Act (HMDA) and Single-Family Data Warehouse (SFDW) data, information from the Federal Housing Finance Board, and summary LoanPerformance data. Specifically, tables 6, 7, and 8 contain information on selected borrower and loan characteristics for Federal Housing Administration (FHA)-insured, prime, and subprime loans. For prime and subprime loans, data were not available from the sources we used for the entire period we examined (1996 through 2005). In addition, Steve Westley (Assistant Director), Triana Bash, Steve Brown, John McGrail, Jeff Miller, Marc Molino, Barbara Roesmann, Richard Vagnoni, and Jim Vitarello made key contributions to this report. | The Federal Housing Administration (FHA) historically has been an important participant in the mortgage market, which includes loans that carry government insurance or guarantees (such as FHA-insured mortgages) and those that do not (conventional mortgages). The conventional market comprises prime loans for the most creditworthy borrowers and subprime loans for borrowers with impaired credit. Reduced demand for FHA-insured mortgages--which are used primarily by borrowers who would have difficulty obtaining conventional prime loans--has raised questions about the agency's role in and ability to adapt to the mortgage market. This report discusses (1) trends in FHA's share of the market for home purchase mortgages from 1996 through 2005, and how they compared with the trends for other market segments; and (2) factors associated with the trends in FHA's market share and the implications of these trends for homebuyers and FHA. To address these objectives, GAO analyzed FHA and Home Mortgage Disclosure Act (HMDA) data and interviewed officials from FHA and other mortgage institutions. From 1996 through 2005, FHA's share of the market for home purchase mortgages in terms of numbers of loans declined 13 percentage points (from 19 to 6 percent), while the prime and subprime shares grew 3 and 13 percentage points, respectively. The agency experienced a sharp decrease among populations where it traditionally has had a strong presence. For example, FHA's market share dropped 25 percentage points (from 32 to 7 percent) among minority borrowers and 16 percentage points (from 26 to 10 percent) among low- and moderate-income borrowers. At the same time, subprime market share among these groups rose dramatically. The decline in FHA's market share was associated with a number of factors and has been accompanied by higher ultimate costs for certain conventional borrowers and a worsening in indicators of credit risk among FHA borrowers. More specifically, (1) FHA's product restrictions and lack of process improvements relative to the conventional market and (2) product innovations and expanded loan origination and funding channels in the conventional market--coupled with interest rate and house price changes--provided conditions that favored conventional over FHA-insured mortgages. In contrast to FHA-insured loans, the majority of conventional subprime loans had higher ultimate costs to borrowers, partly because their initial low interest rates could increase substantially in a short period of time. Relatively high default and foreclosure rates for subprime mortgages and a contraction of this market segment could shift market share to FHA. The extent to which this occurs will depend partly on the ability of FHA and other market participants to offer mortgage alternatives to borrowers considering or struggling to maintain higher-priced subprime loans. |
FPS—located within the National Protection and Programs Directorate of DHS—protects the over 9,000 federal facilities that are under the control and custody of GSA, as well as the persons on those properties. FPS headquarters is located in Washington, D.C.; regional offices are located in New York, Boston, Philadelphia, Atlanta, Denver, Chicago, San Francisco, Seattle, Fort Worth, Kansas City, and the District of Columbia. FPS is authorized to enforce federal laws and regulations aimed at protecting GSA buildings and persons on the property and to investigate offenses against these buildings and persons.include buildings of exclusive, concurrent, and proprietary jurisdictions. Exclusive: Under exclusive federal jurisdiction, the federal government—and federal law enforcement entities—have all of the legislative authority within the land area in question, while the state— and its state and local law enforcement entities—have no residual police powers. Concurrent: In concurrent jurisdiction facilities, both federal and state governments—and law enforcement entities—have jurisdiction over the property. Proprietary: Under proprietary jurisdiction, the federal government has rights—similar to a private landowner—but also maintains its authorities and responsibilities as the federal government. Under proprietary jurisdiction, the local government is the principal municipal police authority. To enable FPS to track changes in the inventory of federal buildings that it protects, GSA, through its Public Buildings Service, provides building data in electronic files to FPS weekly from GSA’s building property system. These data include each building number with address; type of jurisdiction; and square footage and number of personnel to assist FPS to bill for its services, among other things. FPS personnel then input this information into its systems electronically. MegaCenters—the four regional dispatch centers within FPS that are the primary focal points for incident notification (see figure 1)—use the data to direct calls concerning building incidents and emergencies to FPS personnel as well as state and local law enforcement agencies. As a general practice, MegaCenters make direct radio calls for incident response to FPS personnel and telephone calls to state and local law enforcement agencies. FPS instructs tenants to contact the MegaCenter by calling 1-877-4FPS-411 and, in areas where FPS responders cannot provide an immediate response; tenants are often directed to also dial 911. (See fig. 2.) In this report, we assess GSA and FPS’s processes against GAO’s collaboration key practices and internal control standards. Our previous work has broadly defined collaboration as any joint activity that is intended to produce more public value than could be produced when organizations act alone. We have found that key practices for collaboration include: identifying and addressing needs by leveraging resources to support the common outcome and, where necessary, identifying opportunities to leverage resources; agreeing upon agency roles and responsibilities; and establishing compatible policies, procedures, and other means to operate across agency boundaries. Additionally, agencies can strengthen their commitment to work collaboratively by articulating their agreements in formal documents, such as an MOU. We have also reported that organizations may face a range of barriers when they attempt to collaborate with other organizations. One such barrier stems from agencies’ concerns about protecting jurisdiction over missions. In addition, interagency collaboration is often hindered by incompatible procedures, processes, data, and computer systems. GAO has identified standards in facility protection that provide a framework for guiding agencies’ efforts in this area, such as establishing a means of coordinating and sharing information with other government entities and the private sector. Finally, standards for controls over information processing come from GAO’s Standards for Internal Control in the Federal Government. According to these standards, internal control is a major part of managing an organization and comprises the plans, methods, and procedures used to meet missions, goals, and objectives. Internal control standards specific for information systems help ensure the completeness and accuracy of data. Some other federal agencies provide their own law enforcement at their facilities. These include the Department of Veterans Affairs (VA) Police, National Park Service (NPS) law enforcement within the Department of the Interior, and Smithsonian Institution (SI) Police. VA Police provide law enforcement duties to the 152 VA Medical Centers (VAMC). U.S. Park Police is a unit of the National Park Service, with jurisdiction in all National Park Service areas and certain other federal and state lands. U.S. Park Police provides law enforcement services to designated areas within the National Park Service (primarily in the District of Columbia, New York City, and San Francisco, California metropolitan areas). Additionally, Law Enforcement Park Rangers, belonging to the “Visitor and Resource Protection Division” within the National Park Service, are authorized to carry firearms, conduct investigations, make arrests, and serve warrants pursuant to law and policy. Protection and security services at Smithsonian Institution facilities are provided by the Smithsonian Police. FPS uses a variety of methods to collaborate with state and local law enforcement, ranging from establishing MOUs to document agreement on roles and responsibilities with some, to relying on long-standing working relationships with others. FPS also has guidance and various other efforts under way related to coordination with state and local law enforcement. More specifically, FPS reported that it had 21 signed MOUs with state and local law enforcement agencies across the United States as of September 2011.usage in Alabama; MOUs for arrest authority on properties adjacent to federal property in California and Florida; and MOUs for mutual aid in the District of Columbia and Georgia, such as FPS’s reciprocal support agreement with Metropolitan Atlanta Rapid Transit Authority. MOUs are mechanisms that can be used to formalize key practices in agency collaboration such as agreeing on roles and responsibilities, including For example, there is an MOU for radio frequency leadership, and to establish compatible policies, procedures, and other means to operate across agency boundaries. While FPS has often found MOUs helpful, the general consensus among FPS officials was that effective coordination did not depend on having MOUs. FPS prefers a flexible approach of pursuing MOUs only when it determines they are needed, as opposed to seeking them in all cases. FPS’s Director stated that FPS has generally not found it necessary to create written documents, requirements, or MOUs because FPS has always received good cooperation from state and local law enforcement agencies when their assistance was needed. For example, in some jurisdictions such as the suburbs surrounding the District of Columbia, FPS has no MOUs with state and local law enforcement agencies but has regular contact and longstanding mutual aid relationships. In addition, several FPS Regional Directors highlighted the importance of local response to incidents in and around federal facilities in rural areas because of the lack of FPS staff at these locations and noted that their informal relationships have worked successfully because state and local law enforcement agencies were consistently reliable in their response to these locations. FPS officials stated that mandating the pursuance of MOUs with all law enforcement entities would not be in the best interest of effectiveness and efficiency and would increase the burden on already task-saturated FPS staff. In addition, it is generally up to state and local law enforcement agencies as to whether they would be willing to enter into an MOU with a federal agency. With regard to long-standing working relationships and regular contact with state and local law enforcement, FPS Inspectors and Regional Directors have developed relationships with state and local law enforcement agencies and collaborate on different levels. Regional Directors in all 11 FPS regions stated that their offices routinely had direct contact with state and local law enforcement agencies at multiple types of security meetings such as the Federal Executive Boards, joint terrorism task forces, and regional fusion center meetings.state and local law enforcement agencies and FPS at these meetings establishes mutually reinforcing or joint strategies designed to help align activities, core processes, and resources to achieve a common outcome. For example, FPS participates in monthly meetings of the Law Enforcement Working Group of the Atlanta Downtown Improvement District. State and local law enforcement chiefs or deputy chiefs from the surrounding area, officials from 15 local colleges, and officials from other federal agencies participate. According to an FPS regional official, the group acts as a “force multiplier” to fight crime within the district, which includes GSA-controlled facilities. FPS officials also have discussions with state and local law enforcement agencies as needed during operational planning associated with special events such as the Olympics, protests, and parades. FPS also has guidance for FPS staff and other efforts under way to collaborate with state and local law enforcement. Regional Directors are responsible for carrying out FPS policy and guidance, and state that many of these written policies contain directives for collaboration with state and local law enforcement. One such directive is FPS Directive 15.1.2.1, Law Enforcement Authority and Powers, which outlines the scope of law enforcement authority on federal property. Other policies that reference state and local law enforcement agencies’ coordination include FPS’s Regional Information Sharing Program, Detention and Arrest, and Joint Terrorism Task Force Policy, among others. Best practices and lessons learned are also communicated throughout FPS regions with weekly regional director conference calls, a regional director’s council that meets monthly, and yearly Regional Director conferences. In addition to guidance, FPS added three new positions in fiscal year 2011 intended to improve communication and standardization across FPS by coordinating with federal, state, and local law enforcement officials to reduce crime at, and potential threats to, federal facilities. These positions are titled Assistant Director for Field Operations (ADFO) for west, central, and east operations. The ADFO will be a spokesman for FPS, representing the Director in his or her designated area. Other initiatives employed by FPS include collaborative operations to avert or obstruct potential threats inside the facility, such as the presence of unauthorized persons, or potentially disruptive or dangerous activities, such as potential terrorist operations and criminal activity in and around federal buildings. Using a combination of law enforcement agencies is consistent with facility protection key practices to establish a means of coordinating and sharing information with other government entities. These operations begin with planning meetings involving FPS and any other federal, state, and local law enforcement agencies that may be called upon to assist. The operations combine physical security expertise and law enforcement authority into an enhanced security team to provide a visual deterrent at FPS-protected facilities. The combined team then selects a federal building for which FPS has security oversight and provides a highly visible presence for a select period of time with patrol operations, explosive detection dog sweeps, and an enhanced security posture. As a means to leverage resources, FPS has collaborated with state and local law enforcement to assist in conducting these operations by enlisting their support in Chicago, Illinois; New York, New York; Newark, New Jersey; and the District of Columbia. Other federal organizations with law enforcement responsibilities similar to FPS also used a variety of methods to collaborate with state and local law enforcement. For example, VA has a policy requiring all locations of VA-controlled property to have formally documented MOUs with state and local law enforcement agencies to ensure timely backup support for VA VA headquarters officials stated that MOUs are useful Police officers.because VA Police typically transport detainees to state and local law enforcement agencies for arrest and processing, while state and local law enforcement agencies typically provide first response to leased property under VA control. However, VA Police reported they cannot provide mutual aid to state and local law enforcement agencies on non-VA controlled property because existing law limits the authority of Department police officers to VA property. According to U.S. Park Police headquarters officials, the Park Police has MOUs with federal, state, and local law enforcement including a longstanding formal relationship with the District of Columbia Metropolitan Police Department (MPD). Some of the MOUs are for events and are short-term, such as the last presidential inauguration in the District of Columbia. The U.S. Park Police also stated they have MOUs that are formal incident response plans, which outline the roles and responsibilities of the various entities. In the District of Columbia, the U.S. Park Police responded to the U.S. Holocaust Museum shooting incident in 2009 and have provided service to the Kennedy Center for the Performing Arts for a fee. Our questionnaire of state and local law enforcement agencies and follow-up discussions showed a general willingness of those that replied to respond to incidents at federal facilities. For example, 48 of 52 agencies that answered the question replied that they would respond to calls that dispatch to a federally occupied (owned and/or leased) building, and 27 of 44 had actually responded to a federally occupied building since 2007. As for MOUs, 11 of 43 agencies that answered the question reported having formal MOUs with FPS and 4 of 40 reported having informal agreements. (See table 1.) Four state and local law enforcement agencies stated that they would decline to respond to an incident at a federal building in their jurisdiction. Three of these four law enforcement agencies were sheriff or highway patrol entities that stated that they are not the first responders to incidents at the facilities in question and that there were local police available for response. A fourth questionnaire responder did not clarify why it answered negatively; however, additional inquiry with the federal property owner in this law enforcement’s jurisdiction stated the particular law enforcement agency did coordinate and respond to calls at the property. Only one state and local law enforcement agency replied that it was denied access to a federal building when responding to an incident within its jurisdiction; however, it declined to clarify the specific instance in which it was denied access. The only law enforcement agency that answered it had declined to respond to a call dispatched at a federally occupied (owned and/or leased) building, later clarified that the answer applied to non-GSA-controlled facilities such as buildings of Department of Defense and other federal agencies. Table 1 shows the specific questions and responses provided by state and local law enforcement. Overall, the variety of efforts FPS has under way reflects a reasonable approach to collaboration, especially when combined with results we found from our questionnaire of state and local law enforcement agencies. The practice of maintaining working relationships and having regular contact with state and local law enforcement officials establishes mutually reinforcing or joint strategies designed to help align activities, core processes, and resources to achieve a common outcome. The MOUs that FPS has in place are mechanisms consistent with facilitating key practices in agency collaboration, such as defining and agreeing to roles and responsibilities. Establishing compatible policies, procedures, and other means to operate across agency boundaries are key practices that can help enhance and sustain collaboration. Pursuing MOUs on an as-needed basis is also consistent with how other federal law enforcement agencies approach collaboration. Performing operations such as extra patrol activities using a combination of law enforcement agencies is consistent with facility protection key practices to establish a means of coordinating and sharing information with other government entities. Although FPS’s approach to collaboration is reasonable, issues related to data quality arose during our review. Specifically, we found that FPS lacked complete data from GSA on the type of jurisdiction (e.g., concurrent or exclusive) for about one-third of the buildings FPS protects, making it difficult to ensure that it is addressing the full scope of issues related to jurisdictional roles and responsibilities. At the end of our review, GSA officials informed us that they had made significant progress addressing this issue. More specifically, when we reviewed the property list that GSA provided to FPS in December 2011—which is provided on a weekly basis—about thirty-four percent of the properties lacked recorded jurisdictions, including blank and pending jurisdiction categories. (See table 2.) GSA officials stated that they were aware of the numerous blank data fields pertaining to jurisdictions and that they were trying to individually assess these fields building by building. They further stated that it was a time-consuming process that included reviewing individual property historical records. GSA officials stated they had made progress and the jurisdictions that have not been identified were down to 2 percent. However, these data had not yet been added to GSA’s building property system or contained in the electronic files GSA sends to FPS weekly. GSA officials also stated the jurisdictional field on the GSA property list was not in the top fifty fields that the agency typically monitors because of the large number of data fields, although the officials recognized the importance of this field to FPS. During our review, we found no instances in which state or local law enforcement exceeded their jurisdictional authority. In some instances, state and local law enforcement responded to the perimeter of buildings with exclusive jurisdiction for matters such as traffic accidents and suspicious packages. FPS officials said that state and local law enforcement may also be granted access if officers are in pursuit of a suspect. Furthermore, FPS officials said that inspectors and GSA staff at the building level generally know the jurisdiction of the individual buildings for which they are responsible. Nonetheless, given that facilities of exclusive jurisdiction are unique because state and local law enforcement agencies generally have no law enforcement authority on these properties, incomplete data leaves FPS less equipped to define and agree to respective roles and responsibilities with regard to state and local law enforcement collaboration. An additional effect of not having these data is that FPS lacks assurance that, in relying on state and local law enforcement to respond to incidents at federal facilities, it is not creating a situation where these entities may be exercising police authority where they lack such authority as in the case of exclusive jurisdiction properties. In addition, having incomplete data is inconsistent with established standards for internal control over data systems, including those standards that relate to accuracy and completeness. While only 4 percent of GSA’s inventory was known to be of exclusive jurisdiction, 34 percent of GSA’s inventory had incomplete data on the type of jurisdiction in GSA’s building property system. In our review, we also found inconsistencies between FPS and GSA data on buildings and their locations—6 of the 11 FPS regions reported that the GSA list does not match the current property inventory. One FPS regional official stated that GSA does not keep the property list as current as FPS needs; changes occur but are not captured by GSA. For example, the official stated that in his region, agencies sign leases about a dozen times a year without FPS’s knowledge or timely notice. FPS officials noted that the overall number could be greater across all FPS regions. The current MOU between GSA and FPS calls for a pre-lease assessment of the building by FPS, but these assessments cannot be completed if FPS is unaware of the new lease. Another FPS regional official stated that the region uses its own building list, which is updated by FPS regularly as information becomes available. A third FPS official stated that the GSA list does not capture changes to buildings with a security risk level of 1 or 2 as quickly as FPS needs. A fourth regional official stated that the region relies on a combination of building lists from GSA, FPS provided lists, and its own regional list. This official stated these lists often do not reconcile because of changes that are not updated in a timely manner. In addition, a majority of state and local law enforcement agencies we sent questions to replied that they did not identify the jurisdiction of the individual federal buildings in their geographic areas, while three entities replied that they only identified some building jurisdictions. GSA officials recognize that the exchange of building data with FPS is an issue. GSA stated that only recently did it have the ability to cross- reference and address these differences, and is working with FPS to correct them. For example, in 2011, GSA and FPS held working groups to begin to improve the building property list, and established a permanent GSA liaison in FPS’s headquarters to improve data coordination. Although this effort is still in progress and data inconsistencies remain, GSA and FPS are addressing concerns about data inconsistencies. Further, GSA and FPS are currently negotiating a new MOU that is expected to be finalized in early 2012. GSA officials told us that the new MOU will include an agreement on sharing information, such as the building data, and specifically sharing information at the regional level. FPS and GSA did not indicate whether the revised MOU would address the aforementioned issue related to incomplete jurisdictional data. However, it would seem that addressing this issue in conjunction with revising the MOU would ensure that data shared were not only consistent, but more complete as well. FPS’s approach to collaborating with state and local law enforcement is reasonable and consistent with key practices in that the approach uses mechanisms such as MOUs to document agreements on roles and responsibilities in some cases, long-standing working relationships, written guidance to FPS staff, joint operations, and other initiatives to promote mutual collaboration. Other federal organizations with law enforcement responsibilities similar to FPS—such as VA, U.S. Park Police, and Smithsonian—also use a variety of methods for collaboration with state and local law enforcement. State and local law enforcement agencies we contacted were generally willing to assist FPS with incidents at federal facilities. Related to the quality of data exchanged between FPS and GSA on buildings and their locations, FPS and GSA had taken action to address data inconsistency issues. However, as of the end of our review, FPS still lacked complete data from GSA on whether the jurisdictions of about one-third of the buildings FPS protects are exclusive, concurrent, or proprietary. Having these data is important because state and local law enforcement generally have no authority to enforce state and local law on properties of exclusive jurisdiction. At the end of our review, GSA informed us that it had made progress with addressing this issue. GSA and FPS are negotiating a revised MOU that will include agreement on sharing information such as the building data. As such, addressing the issue related to incomplete data on jurisdictions, in conjunction with revising the MOU, would ensure that data were not only consistent, but more complete as well. Otherwise, FPS would remain less equipped to define and agree to respective roles and responsibilities as it proceeds with its efforts to rely on state and local law enforcement for assistance in responding to incidents at federal facilities. In conjunction with the revised MOU that is being developed between GSA and FPS, we recommend the Administrator of GSA ensure that efforts to identify the jurisdictions of all GSA buildings are completed and that these data are provided to FPS so that FPS is better equipped to manage jurisdictional roles and responsibilities at GSA buildings. We provided a draft of this report to GSA, DHS, DOI, VA, and Smithsonian Institution for their review and comment. GSA provided written comments, which are reprinted in appendix II. GSA concurred with our recommendation that the Administrator of GSA ensure that efforts to identify the jurisdictions of all GSA buildings are completed, and that these data are provided to FPS so that FPS is better equipped to manage jurisdictional roles and responsibilities at GSA buildings. DHS provided a letter, reprinted in appendix III, describing its efforts to collaborate with state and local law enforcement. DHS also provided technical comments, which we incorporated, as appropriate. DOI, VA, and the Smithsonian Institution provided minor technical comments, via email, which we incorporated, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Homeland Security, the Director of FPS, the Administrator of GSA, the Secretary of the Interior, the Secretary of Veterans Affairs, and Secretary of the Smithsonian Institution. In addition, the report will be available at no charge on the GAO’s Web site at http://www.gao.gov. If you, or your staff, have any questions about this report, please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. To assess the Federal Protective Service’s (FPS) efforts to collaborate with state and local law enforcement for assistance in responding to incidents at federal facilities, we reviewed FPS data on buildings protected, staffing, procedures, and memorandums of understanding (MOUs). We also reviewed relevant federal facility building data from the General Services Administration (GSA) including for example, each building number with address; type of jurisdiction; and square footage and number of personnel, among other things. We interviewed FPS officials throughout the regions, and FPS and GSA officials at their respective agency’s headquarters in Washington, D.C., regarding the processes and procedures for exchanging these data. We reviewed the building data for completeness, but did not verify the accuracy of the information contained for each building. To ensure we were assessing the exact data that FPS uses, we requested data samples for fiscal year 2011 from both GSA and FPS and replicated the jurisdiction category results. We assessed the extent to which there were missing jurisdiction assignments by reviewing pending and blank jurisdiction categories. We then assessed GSA and FPS’s processes for managing these data against GAO’s Standards for Internal Control in the Federal Government, Homeland Security: Further Actions Needed to Coordinate Federal Agencies’ Facility Protection Efforts and Promote Key Practices, and Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. According to GAO’s standards for internal control in the federal government, internal control is a major part of managing an organization and comprises the plans, methods, and procedures used to meet missions, goals, and objectives. Internal control, which is synonymous with management control, helps government program managers achieve desired results through effective stewardship of public resources. Control activities—such as reconciliations performed to verify data completeness; an agency’s data entry design features contribute to data accuracy; data validation and editing performed to identify erroneous data; and erroneous data that is captured, reported, investigated, and promptly corrected—contribute to data accuracy and completeness. We determined that the data were sufficiently reliable for the purposes of this report. For comparison with FPS’s coordination efforts, we contacted three federal agencies that provide law enforcement at their facilities—the Department of Veterans Affairs (VA), the National Park Service (NPS) within the Department of the Interior, and the Smithsonian Institution (SI). To gain insight into FPS, VA, SI, and NPS coordination with state and local law enforcement agencies, we emailed a self-administered set of 22 structured questions to the heads of 73 state and local law enforcement agencies. Our non-random selection of locations included varying population sizes located in a mixture of metro, urban, and rural areas as defined by the United States Department of Agriculture using the most recent Rural-Urban Continuum Codes for jurisdictions that we determined had FPS, and/or VA, NPS, and SI buildings throughout the United States. The state and local law enforcement agencies we chose included a mix of police, sheriff, highway patrol agencies in each of the 11 FPS regions. We also followed up our email with phone calls to these state and local law enforcement agencies. Not every respondent answered every question related to coordination with FPS, VA Police, U.S. Park Police, and SI police. Additionally, the responses had varying levels of staff within the state and local law enforcement organization reply for the organization. Furthermore, the structured questions were related to coordination with the Federal Protective Service, Veterans Affairs Police, Smithsonian police, and the U.S. Park Police. Although the results of our questions cannot be generalized to the universe of jurisdictions that have interaction with FPS, the results provide key insights on how state and local law enforcement collaborates with FPS to assist with federal facility protection. These results illustrate how FPS relies on these organizations to respond to incidents and collectively, how this multi-faceted approach enabled us to make conclusions whether FPS’s approach is reasonable. Further, we interviewed officials at two FPS MegaCenters—the four regional dispatch centers within FPS that are the primary focal points for initial incident notification—and toured the Suitland, Md., MegaCenter facility. We attended an FPS operational exercise in the District of Columbia. We also interviewed each of the 11 FPS Regional Directors to determine how their region coordinates with state and local law enforcement entities for the properties in their jurisdiction. We interviewed GSA officials at GSA headquarters in the District of Columbia. We obtained relevant documents pertaining to VA, NPS, and SI collaboration with state and local law enforcement and interviewed agency officials. Lastly, we reviewed prior GAO work, including reports on key practices in interagency collaboration and facility protection. We conducted this performance audit from February 2011 to March 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, David Sausville (Assistant Director), Maren McAvoy, and George Depaoli made key contributions to this report. Additionally, Colin Fallon, Kathleen Gilhooly, Hannah Laufe, and Andrew Stavisky aided in this assignment. | The Department of Homeland Security's (DHS) Federal Protective Service (FPS) protects over 9,000 federal facilities under the custody and control of the General Services Administration (GSA). In 2007, FPS adopted an inspector-based workforce approach and indicated it would increase its reliance on state and local law enforcement agencies to respond to incidents at these facilities. These facilities range from facilities of proprietary or concurrent jurisdictionwhere authority is shared by federal and state and local policeto facilities of exclusive jurisdiction, where only federal law enforcement has authority. As requested, this report assesses FPSs efforts to collaborate with state and local law enforcement for assistance in responding to incidents at these federal facilities. GAO reviewed documents on collaboration, GSA and FPS facility data, and GAOs work on key collaboration practices and internal control standards. GAO also contacted 73 selected state and local law enforcement agencies from geographic jurisdictions of varying population sizes and FPS buildings throughout the United States and interviewed FPS and GSA officials. To collaborate with state and local law enforcement, the Federal Protective Service (FPS) uses memorandums of understanding (MOU), long-standing working relationships, written guidance to FPS staff, joint operations, and other initiatives. For example, FPS has MOUs ranging from sharing radio frequency usage in Alabama, to a mutual aid agreement with the Metropolitan Atlanta Rapid Transit Authority in Georgia. In some jurisdictions, such as the suburbs of the District of Columbia, FPS has no MOUs but has regular contact and long-standing mutual aid relationships with state and local law enforcement. To collaborate with state and local law enforcement, FPS has guidance that addresses issues such as the scope of law enforcement authorities on federal property and information sharing among jurisdictions. FPS established regional staff positions intended to improve collaboration with other organizations and has engaged in joint operations with state and local law enforcement. By comparison, other federal organizations with law enforcement responsibilities similar to FPS also use a variety of methods, ranging from the Department of Veterans Affairs policy to seek MOUs with state and local law enforcement to the Smithsonian Institutions established relationships with the Metropolitan D.C. Police and others. GAO found that state and local law enforcement organizations it contacted are generally willing to assist with incidents at federal facilities. For example, 48 of 52 respondents from state and local law enforcement agencies GAO contacted about this issue said that they would respond to a call at a federally owned facility; 27 said they had done so since 2007. Overall, the variety of efforts FPS has under way is consistent with the key collaboration practices GAO has previously identified and reflects a reasonable approach to collaboration, especially when combined with the willingness of state and local law enforcement to assist. Although FPS has a reasonable approach to state and local collaboration, GAO found issues related to the quality of data exchanged between GSA and FPS on buildings and their locations. Through working groups, GSA is working with FPS to address these data inconsistency issues and is establishing a permanent GSA liaison at FPSs headquarters to improve data coordination. But as of the end of GAOs review, FPS still lacked complete data from GSA on the jurisdiction of about one third of the buildings it protects. GSA officials informed GAO that they are making progress with identifying building jurisdictions but were not yet in a position to provide complete information to FPS. These data are important because state and local law enforcement generally has no authority to enforce state and local law on properties of exclusive federal jurisdiction. An additional effect of not having these data is that FPS lacks assurance that in relying on state and local law enforcement to respond to incidents at federal facilities, it is not creating a situation where these entities may be exercising police authority where they lack such authority. As a result, incomplete jurisdictional data leaves FPS and state and local law enforcement less equipped to define and agree to respective roles and responsibilities when there are incidents at federal facilities. In conjunction with the revised MOU that is being developed between GSA and FPS, GAO recommends the administrator of GSA ensure that efforts to identify the jurisdictions of all GSA buildings are completed and that these data are provided to FPS. GSA concurred with the recommendation. |
SSA’s mission is to deliver Social Security services that meet the changing needs of the public. The Social Security Act and amendments established the programs that SSA administers. Among these, the Old Age, Survivors, and Disability Insurance program—commonly referred to as Social Security—is one of the nation’s largest federal retirement and disability programs. Financed by two trust funds, the program provides monthly benefits to retired and disabled workers, their spouses, children, and the survivors of insured workers. In addition, Supplemental Security Income is a needs-based program that is financed from general tax revenues. It is designed to provide benefits to aged adults and to blind or disabled adults and children who have limited income and resources. According to SSA, in fiscal year 2013, about 63 million people received Social Security or Supplemental Security Income benefits for a total of about $855 billion in benefits paid. Collectively, about 165 million people work and pay Social Security taxes, and 88 percent of individuals age 65 and over receive Social Security benefits. Organizationally, SSA is very large. It is headed by the Commissioner, who is assisted by the Deputy Commissioner and various other executive officials, including the Chief and Deputy Chief of Staff, Executive Secretary, and eight deputy commissioners who are responsible for the agency’s various business components. The Commissioner is supported by about 75,000 federal and state employees who are located at SSA’s headquarters in Baltimore, Maryland, and throughout a decentralized network of about 1,500 offices that includes 10 regional offices, 6 processing centers, and approximately 1,260 field offices, as well as teleservice centers, hearing offices, and 54 state and territorial Disability Determination Services offices. In support of their operations, the offices perform an assortment of interrelated and interdependent business functions, including operational, policy, financial management, and legislative relations. SSA relies extensively on computer hardware and software to carry out its core mission functions. In fiscal year 2013, the agency reported expenses totaling $11.6 billion to support its mission and programs— approximately $1.5 billion of which was spent for IT. Specifically, computer systems are used to administer programs and support related administrative needs that include, among others, handling millions of transactions via SSA’s toll-free telephone number; maintaining records for the millions of beneficiaries and other recipients of the agency’s programs, including Supplemental Security Income and Old Age, Survivors, and Disability Insurance; evaluating evidence and making determinations of eligibility for processing and posting employer-reported earnings to workers’ benefits on new claims; issuing new and replacement Social Security cards; processing continuing disability reviews; processing non-disability Supplemental Security Income redeterminations. Many of SSA’s existing computer systems were developed in the 1960s and 1970s, and while the agency has performed technical and functional upgrades throughout the years to accommodate legislative and policy changes, these legacy systems have aged. Accordingly, as they have aged, the systems have presented various challenges to the efficiency of SSA’s existing IT environment. SSA conducts periodic reviews to determine if beneficiaries are still eligible to receive Supplemental Security Income payments based on the beneficiary’s income, living arrangement, and other non-medical factors—these reviews are referred to as Supplemental Security Income redeterminations. According to the Deputy Commissioner of the Office of Systems/CIO, these systems largely represent software applications that have been developed; however, the agency has continued to make technical and business enhancements to these applications. Many of its programs are written in Common Business Oriented Language (COBOL), which is one of the oldest computer programming languages. The agency reported that it runs hundreds of COBOL applications and that this language has served the agency for over 40 years. It currently has roughly 60 million lines of COBOL in production that support the agency’s high-transaction volume and enable the agency to meet its regulatory, benefit, and reporting requirements. While SSA officials referenced a study indicating that the benefits of a wholesale replacement of COBOL would not outweigh the risks because of the large size and cost of rewriting their COBOL applications, the Assistant Deputy Commissioner for Systems/Deputy CIO said the agency has a plan to migrate away from this language and that new applications are being developed in more modern programming languages, such as Java. The National Computer Center is SSA’s facility that currently houses its nationwide computer operations. Mainframe systems within this data center maintain critical demographic, wage, and benefit information essential for providing service to millions of individuals, as well as other federal, state, and local agencies, daily. However, the center is over 30 years old and many of its infrastructure systems are well past their designed life cycle. SSA has expressed concerns that the center could deteriorate to the point that a major failure to its systems could jeopardize its ability to handle increasing workloads without interruption. The agency is in the process of developing a new data center to replace its existing center in Baltimore, Maryland. While SSA has efforts under way to convert to a more efficient database system for its critical mission support files and uses more modern databases for its new applications, the agency continues to use its Master Data Access Method database system, which does not support industry standards for automatic data access. Although it has converted several files, such as the Master Earnings Record and Supplemental Security Record, to a more modern database, the agency has not yet completed the conversion for one of its largest files—the Master Beneficiary Record file. SSA stores, processes, and shares increasing amounts of data with public- and private-sector partners, and the agency faces an increasing need to transition to web-based online access for its data and services. The Office of Systems, headed by the Deputy Commissioner for Systems (who also serves as the agency’s CIO), is SSA’s primary organization responsible for overseeing the design, development, and maintenance of the technology resources that support the agency. The Deputy Commissioner for Systems/CIO reports to the Commissioner of Social Security. According to the agency, 3,403 IT positions are assigned to the Office of Systems. In addition, the office relies on contractors to fill certain skill gaps, where necessary. The office reported that in fiscal year 2013 approximately 1,402 contractor work years were used to support IT projects. Staff in the Office of Systems are assigned to eight component offices: Office of Applications and Supplemental Security Income Systems— responsible for most phases in the systems development life cycle for the Supplemental Security Income, Quality Assurance, Customer Help Information, and Representative Payee programs. Office of Disability Systems—develops, implements, and maintains electronic systems to support disability programs. Office of Earnings, Enumeration, and Administrative Systems— designs, develops, and maintains SSA’s earnings, enumeration, and administrative systems. Office of Enterprise Support, Architecture, and Engineering—identifies the strategic IT resources needed to support SSA business processes and operations. Office of Information Security—manages and directs the agency’s overall information systems security program. Office of Retirement and Survivors Insurance Systems—responsible for programmatic and management information systems supporting these programs, as well as for the post-entitlement activities associated with the Disability Insurance program. Office of Systems Electronic Services—directs the development of software that supports electronic service-delivery initiatives. Office of Telecommunications and System Operations—responsible for supporting the computer systems and networks infrastructure. In addition, the Office of Systems is responsible for the IT portion of the human capital planning that supports agency-wide human capital goals. For example, the Office of Systems submits an annual Human Capital Management Report to SSA’s Office of Human Resources. The report provides an assessment, analysis, and the results of human capital strategies, activities, and operations related to IT. Figure 1 provides a simplified organizational chart depicting the agency’s IT organization and component offices. SSA’s governance structure for the review and management of IT investments is documented in its Capital Planning and Investment Control guidance. This guidance assigns responsibility for the investment management process to the agency’s deputy commissioners and other top-level executives. Further, it describes the policies and processes guiding management decisions on the selection, control, and evaluation of all investments. In this regard, the Deputy Commissioner for Systems/CIO is to ensure that IT is acquired in accordance with the Capital Planning and Investment Control procedures. Additionally, this official is responsible for reviewing and obtaining the Commissioner’s approval of the agency’s annual IT budget and investment plan. SSA also has a Strategic Information Technology Assessment and Review (SITAR) board, which is chaired by the Deputy Commissioner for Systems/CIO and includes the Principal Deputy Commissioner, other deputy commissioners, and other senior executives responsible for the business units. These key stakeholders represent the business units that sponsor the investments and work with the Office of Systems to establish project requirements and strategic direction; they also help oversee the investments’ development. SSA uses its Capital Planning and Investment Control process to manage its software development projects. According to the agency, the investment management process is intended to meet the objectives of the Clinger-Cohen Act by providing a framework for selecting, controlling, and evaluating investments to help ensure they meet the strategic and business objectives of the agency. During the investment selection phase, new projects are to be proposed by a sponsor—either from a business unit for mission-related projects or from the Office of Systems—and assigned to a portfolio. Proposals that identify business needs are to be developed based on the Commissioner’s priorities or on gap analyses performed by portfolio teams. The portfolio executives and their teams are to review business- sponsored IT investment proposals and recommend and submit proposals to the Office of Systems to develop resource estimates on the proposals. Portfolio executives develop prioritized lists of proposed projects based on several factors, such as the availability of agency resources, and prepare recommendations on specific proposals for the agency IT plan. Next, the prioritized lists are to be combined into the plan for approval by the SITAR board. The plan is to be comprised of proposed investments for the next 2 fiscal years, and provide information on work year requirements. In addition, expected benefits and returns on investment are to be included for new projects. The SITAR board is responsible for approving the agency IT plan on an annual basis and is to modify the plan as needed based on changing priorities. The plan is then sent to the Commissioner, who provides final approval of the specific project proposals presented in the plan. During the control phase, the Office of Systems is responsible for holding monthly meetings with project managers who are assigned to monitor investment projects. During these meetings, projects that are not meeting cost and schedule expectations are to be identified and corrective actions are to be initiated. One of the objectives of these meetings is to resolve problems related to underperforming projects without elevating them to the level of the SITAR board. During the months in which the board meetings are scheduled, the Deputy Commissioner for Systems/CIO meets with staff to address any concerns about investments that may be raised during the meetings. If concerns are raised at a meeting, the Deputy Commissioner for Systems/CIO is to provide information to the SITAR board about these investments. In addition, the board is to receive profiles on the status of each of the agency’s major IT investments. These profiles should include reports on actual and expended work years, costs, schedules, and any variances. During the evaluation phase, the Capital Planning and Investment Control guide calls for the Deputy Commissioner for Systems/CIO to conduct post-implementation reviews on projects that have been completed and deployed for at least 3 months. The purpose of these reviews is to compare actual project results against planned results in order to assess performance and identify areas where future decision making can be improved. SSA uses two primary oversight systems to monitor the IT projects that are selected and developed, as well as to store information on unique projects that are completed. Specifically, these systems are Electronic General Auditable Documents Store (EGADS) and Prism. EGADS is the agency’s internally developed system for storing and accessing final approved versions of project life-cycle documents, such as IT proposals, among others. Project managers and other officials, such as subject matter experts, are responsible for providing updated documents for storage in the system. Prism is the agency’s web-based project and portfolio management tool that is intended to track the progress of projects.designed to provide senior management and stakeholders with an overview of a project’s key performance indicators, such as project status, schedule, resources, and risks. Project managers are responsible for managing and updating their project information in Prism, which is used for reporting during monthly management meetings. The agency classifies its IT projects according to five major categories: (1) development, (2) maintenance, (3) cyclical, (4) planning and analysis only, and (5) National Computer Center. Development projects are those that involve the creation of a new software application, enhancements to an existing application, or installation of or enhancements to new architecture or hardware. Maintenance projects pertain to activities required to keep a system application running. Once a project is completed, SSA places the system into maintenance mode. Cyclical projects, such as cost-of-living adjustments, are performed on a routine basis each fiscal year, and can be done annually, quarterly, or within some other defined time frame. According to SSA, these types of projects typically do not include a total redesign or large enhancement, although some cyclical projects involve smaller enhancement efforts. Planning and analysis only projects are undertaken for the specific purpose of determining if a potential IT solution would be feasible from a business and technical perspective. National Computer Center projects are undertaken to keep the center running, and involve such matters as help desk activities, monitoring activities, and storage management. Of these five categories, SSA designates certain ones as Executive Oversight projects. These projects are the agency’s highest priority and receive additional senior management oversight. SSA reported that, from fiscal year 2010 to fiscal year 2012, it devoted approximately 10,739 work years to the five categories, representing 1,950 actual projects. The resources consisted of SSA personnel, as well as contractor support that, according to the agency, cost approximately $600 million for fiscal year 2012. SSA’s projects varied in size from large major modernization efforts, representing hundreds of work years annually to small investments of less than 2 work years in effort. In addition, the time frames for completing the projects varied. For example, while certain projects were active and spanned over a decade, others were initiated and completed within a year. For 2010 to 2012, SSA reported that approximately 70 percent of its projects were active; 25 percent were completed; and 5 percent were withdrawn, on hold, or approved, but not yet started. To oversee these projects, SSA managers are to adhere to the Office of Systems’ Project Management Directive, which identifies numerous project management controls that support key areas of the agency’s Capital Planning and Investment Control process and are applicable to a project throughout its life cycle. Specifically, certain control documents call for critical IT investment information to support the select, control, or evaluate phase(s). For example, IT proposals support the select phase, project schedules support the control phase, and lessons learned support the evaluation phase. Yet other controls, such as risk management, support all three phases. The project managers store the control documents in the key management information oversight systems, EGADS and Prism. According to the project management directive, the control document can be required, not required, or conditionally required, depending on the type of project. For example, a project schedule is required for planning and analysis only, development, and cyclical projects, but is conditionally required for a maintenance project and is not required for a National Computer Center project. Additionally, a cost-benefit analysis is required for planning and analysis only, development, and National Computer Center projects, but is not required for cyclical and maintenance projects. In total, the project management directive identified about 46 types of control documents for managing those IT projects selected for our study. Table 1 describes the importance of the 11 types of control documents that we examined and the kinds of projects for which they were either required or conditionally required. The five projects selected for our study included one project from each project type, with the applicable controls depending in part on the type of project. Specifically, Ready Retirement Release 1 was a development project and was required to develop all 11 types of controls included in our review.The project was an approximately 52 work-year Executive Oversight project that was part of a larger, broader initiative referred to as Ready Retirement. The larger initiative is intended to make the retirement application process more efficient by providing a streamlined web interface for the public and SSA employees to process claims, thereby increasing automation and improving service delivery. The Ready Retirement project is ongoing and has had several releases since its initial inception. Internet 3441 was a maintenance project and was required to develop 2 of the 11 control types. The project was an approximately 4.74 work-year effort focused on maintaining a web application used to gather SSA Form 3441 (i.e., disability report appeal) information from the public. The project continued until September 2010 when, according to agency officials, it was combined with another maintenance project. Medicare Annual was a cyclical project, which required 6 of the 11 control types. It was an approximately 0.83 work-year project, and was part of a larger effort to update the Medicare Part D systems. The goal of the Medicare Annual project was to select a portion of all subsidy-eligible individuals for an eligibility redetermination. This redetermination was based on characteristics which were more likely to have a change in the subsidy amount. For example, a change in income, resources, and/or household composition can affect an individual’s eligibility for the subsidy and the amount of the subsidy. Earnings Case Management System (ECMS) Release 3 was a planning and analysis only project and required 6 of the 11 control types. The project was approximately a 0.44 work-year effort that was initiated and withdrawn in fiscal year 2011. ECMS Release 3 was part of a larger project intended to support SSA’s Earnings Redesign initiative and had a goal of transitioning the earnings correction process from using outdated terminal interface “green screens” to a more modern intranet application by fiscal year 2015. This particular project focused on assessing the existing business processes related to updating the master earnings file. Help Desk Activities is a National Computer Center project that required 2 of the 11 control types. The project was initiated in 2002 and from the initiation through fiscal year 2012, it accumulated 800 work years. This project supports SSA’s infrastructure and is within the Office of Telecommunications and Systems Operations. Examples of the project’s major functions include providing a call center to answer users’ questions, providing technology support, ensuring continued operation of the local area network, and providing hardware and software support. The Help Desk Activities also include providing a support team to coordinate and resolve programmatic system software issues, such as slow response times associated with disability claims processing systems. SSA’s Inspector General and we have reported on challenges the agency has faced in the overseeing its IT investments and the significance of implementing controls to effectively manage the agency’s projects. SSA’s Office of the Inspector General reported in September 2006 that, while the agency had generally implemented an earned value management (EVM) system to manage its major IT projects in accordance with Office of Management and Budget guidance, some of the requirements were not based on the agency’s cost-benefit analyses, which limited the effectiveness of the EVM process and the agency’s IT development project management. Accordingly, the Inspector General made recommendations aimed at addressing these limitations. SSA agreed with the Inspectors General’s recommendations and has taken steps to address the weaknesses. We reported on SSA’s IT investment management approach in 2008 and found that it was largely consistent with leading investment management practices, but it was not applying its investment management process to all of its investments. Specifically, we noted the agency was executing a majority of the key practices needed to build the foundation for managing its IT projects as investments, as discussed in our IT investment management framework, and it had made progress in establishing the key practices for managing investments as a portfolio. However, SSA was not applying its investment management process to a major portion of its IT budget. Among other things, we recommended that the CIO develop and implement policies and procedures to manage IT acquisitions as investments and manage them using the investment management framework. SSA disagreed with this recommendation and stated that its process treated these acquisitions as investments and maintained them by using an investment management framework, though not the one described in our framework. However, we noted that these acquisitions were not subject to the agency’s investment management select, control, and evaluate processes and were not managed by its investment board. We further stated that, given that IT products and services made up the majority of SSA’s IT budget, the investment board’s involvement was essential to helping ensure effective management of acquisitions. In April 2012 we also reported that SSA had undertaken numerous modernization efforts, but it lacked effective measurement tools to determine progress. We noted that, since 2001, the agency had reported spending about $5 billion on the modernization of its systems and it had undertaken hundreds of modernization projects each year from 2001 to 2011. Nonetheless, SSA still had major efforts under way to transition from its aging systems to a more modernized IT environment. Further, SSA had not fully established quantifiable performance measures for all its modernization projects or performed post-implementation reviews, which we had previously recommended and which would enable the agency to effectively measure its progress. We also reported that SSA lacked up-to-date and comprehensive plans to guide its modernization efforts. Accordingly, among other things, we recommended that SSA develop comprehensive metrics to effectively gauge modernization progress. SSA neither agreed nor disagreed with the recommendations, but described steps it was taking that would address elements of the recommendations related to IT oversight and updated its comprehensive Information Resources Management (IRM) plan in 2012. Further, in October 2013 SSA’s Office of Inspector General reported that it could not determine whether SSA had realized the planned cost savings for its IT initiatives because the agency had not calculated actual savings after project implementation.that SSA did not have a process to assess the overall effectiveness of its IT capital planning and investment control practices. As a result, the agency did not know whether its IT investments achieved the planned savings or any productivity improvements. The Inspector General recommended that SSA continue implementing a cost- effective post-implementation review process to verify whether its IT investments are meeting planned savings. SSA agreed with the Office of Inspector General’s recommendation and said the agency, in July 2013, had developed the framework for post-implementation reviews to assess IT project performance, and will continue to improve the process to verify that its investments are meeting planned savings. Most recently, in a December 2013 report that discussed agencies’ reporting on the IT Dashboard, we noted that, according to SSA officials, the agency creates new milestones and corresponding baselines for IT investments at the start of every fiscal year that are based on annual funding amounts received from SSA’s SITAR process. This process, known as rebaselining, erases past cost and schedule variances, prevents the agency from monitoring year-to-year investment performance, and makes it difficult to estimate and understand life-cycle costs. We stressed that while this rebaselining only affected one investment in that review, the process had the potential to impact SSA’s entire IT investment portfolio. We recommended that SSA revise its investment management processes to ensure consistency with the baselining practices identified in our guidance on the management of capital investments. SSA agreed with the recommendation and noted that it would take steps to revise its process. The five IT projects that we reviewed did not fully implement project management controls consistent with SSA guidance and industry practices. While SSA had developed the majority of required control documents, only six fully reflected the content identified in SSA guidance as essential to effective project management. Most of the control documents developed had limitations, such as a lack of traceability (which is needed to trace and track the history of projects and demonstrate that the projects met requirements) and inaccurate or incomplete information. The limitations could be attributed, in part, to the use of oversight systems that did not include all needed data or have the capability to fully support traceability and a quality assurance function that was limited in scope and, thus, inadequate to assess control documents effectively. Further, while SSA indicated that its projects have resulted in improvements to services, it was unable to demonstrate how the selected projects had contributed such improvements. As discussed earlier, to manage and oversee its IT projects, SSA managers and project teams are to adhere to the Office of Systems’ Project Management Directive to ensure that quality products that satisfy customer requirements are delivered on time and within budget. In addition, disciplined project management practices call for the development of project details such as objectives, scope of work, schedules, costs, and requirements against which projects can be managed and executed. This can be facilitated by developing work products that document these details to ensure the projects are being managed according to specified practices. Toward this end, the SSA management directive requires project teams to develop essential documentation (depending on project type) to support the execution and management of projects. However, for the five projects in our review, SSA did not consistently apply its project management guidance. Specifically, the five projects developed most of the required control documents. However, while six of these were developed without limitations, the majority had limitations, reducing assurance that the projects were being managed in accordance with disciplined practices. Table 2 shows, for each project, whether required control documents were developed for each project and had limitations. The most common limitations that we noted in the project control documentation were the lack of full traceability or inaccurate or incomplete information. A more detailed discussion of each of the five projects and the extent to which they applied required management controls follows. As directed by SSA’s guidance, 11 specific control documents were required for this project, and the project developed all 11. Of these, 5 were developed without identified limitations, including the IT proposal, cost-benefit analysis, business process description, project scope agreement, and lessons learned. These controls helped guide the project by providing critical information on the project’s strategic objectives, expected benefits and risks supporting the agency’s SITAR process, and helped ensure that the requirements met user needs. Further, lessons learned for Ready Retirement Release 1 identified best practices and areas for improvement which could be used as input for the success of future projects. However, the other six control documents had limitations. Specifically, while project team members produced documentation that identified certain risks to the project, the documentation did not include mitigation plans, which are essential for avoiding, reducing, and controlling the probability of the occurrence of identified risks. Office of Systems officials stated that the mitigation plans were not available because these documents were stored in the agency’s previous oversight system, VISOR, which has been replaced with a more current system, Prism. The officials explained that documents in the previous system are no longer accessible. In addition, the project schedule was not available in the project oversight system, limiting access to critical information, such as milestones, tasks, and progress through the life cycle—information that is needed for project oversight. Further, service requests and system release certifications, which document the software requirements to be developed and identify that they have been fully tested and approved, were not traceable to the project release. According to CMMI, project requirements and related documentation should be traceable to each other; this is essential for tracking project history and demonstrating that projects meet requirements. Thus the project lacked sufficient documentation to allow oversight officials to independently determine that developed functionality met established requirements. Further, the function point estimate, which is used to estimate project size, complexity, and effort, was not used to manage the project. Finally, the project’s quality assurance was not effectively implemented in that it did not evaluate the effectiveness of required management controls, to ensure that all findings and compliance issues were properly recorded for the project. For this project, two control documents were required—service requests and system release certifications—and both were developed. However, both had limitations. Specifically, the service requests were not traceable to project releases and did not account for all project releases, which, as called for by CMMI and internal control standards, is necessary for ensuring that system changes are accurately documented. In addition, while the system release certification noted that defects had been revealed during software testing, the certification did not identify these problems and their resolution, if any, to help demonstrate that the software was acceptable for release into production. Of the six control documents required for this project, four were developed. However, the project could not produce evidence that it had developed a risk management document. According to Office of Systems officials, this documentation was not readily accessible because it was stored in the previous oversight system, VISOR. In addition, the agency could not provide evidence that a project schedule had been developed. While the project manager provided a schedule related to the larger effort this project is associated with, it was at too high a level and not detailed enough to show how it related to the project. Of the documentation that was developed, the project scope agreement did not have limitations. The agreement identified the business goals, user goals, and requirements applicable to the project. By doing so, SSA established defined project boundaries that reflected a mutual agreement between the systems project manager and the business project manager, which is critical to establishing an understanding between all involved parties and providing a shared vision for the completed project. However, three other documents that were developed had deficiencies that limited traceability between requirements and functionality developed, as called for by CMMI and internal control standards. Specifically, the description of the relevant business processes was not traceable to the project or the specific changes to functionality it was to implement, and changes to the business processes were not clearly linked to the scope and objectives of the project. In addition, service requests associated with the project were not accurately linked to work occurring in the relevant year, or were not accurately linked to the project. Finally, the system release certifications lacked traceability to the service requests and were not properly linked to the appropriate year’s work. These inaccuracies and inconsistencies made it unclear what work was actually performed for which project. This project developed only three of the six required control documents. In this regard, it could not demonstrate that it had developed a risk management document, which project officials stated was stored in the previous project management system, VISOR. In addition, project officials said they decided not to pursue the development of the cost-benefit analysis and project scope agreement for ECMS Release 3 because they viewed the project as completed after the delivery of the business process description. However, according to SSA’s project management guidance, the development of these control documents is required, and other documentation for this particular project showed that the project was withdrawn and control documentation that was developed did not substantiate the completion of the project as claimed by the project manager. Without control documents defining the project’s scope or a cost-benefit analyses, it is unclear if the project was cost effective and the status of the project—if the project was withdrawn or completed as originally proposed—is uncertain. In addition, limitations were apparent in the three control documents that did exist. For example, the scope described in the IT proposal, which according to SSA’s guidance is to support management decisions to approve and select a project, was not specific to the outcome of this planning and analysis project. Rather, the scope described in the proposal was for the larger development effort of which this project was a part and which is to be completed by fiscal year 2015. Not defining the specific project scope can hinder the ability to set clear expectations and measure benefits. Further, the project schedule was inaccurate and incomplete in that it was not updated, showed tasks as complete which had not been completed, and was not clearly aligned with the scope of the project described in other documentation. Finally, the business process description, which is to describe changes to a business process required by the new IT investment, was not traceable to other key documentation, such as the project scope description (which had not been developed). In the absence of these critical pieces of information, it was unclear how needed business process changes were related to specific project requirements. This project was required to develop two control documents and included evidence that it had done so. Nonetheless, both had limitations. In particular, the IT proposal did not present the expected performance of the project and, according to the project managers, contained a $2 million error in estimated costs. Thus, the project lacked needed information for making investment decisions. In addition, costs and benefits for this project were included in a higher-level cost-benefit analysis for SSA’s data center investment, instead of being identified separately. This meant that SSA had less assurance that actual costs and benefits for this project were reflected in investment decisions. The inconsistent development of required control documents for the five selected projects can be attributed in part to limitations in the systems SSA uses to oversee and manage its IT projects and to a quality assurance process that was limited in scope. In several cases, certain management control documents were not available and Office of Systems officials said this was because these documents were stored in the agency’s previous oversight system, VISOR, which contains historical project data and is no longer operational. The agency’s replacement system, Prism, contains information only on projects started in fiscal year 2012 or after, and officials stated they did not see the value of transferring historical data to the new system. However, in cases where projects are part of larger, ongoing initiatives, having continuing access to control documents that reflect the history of the investment or related projects can help better inform management and facilitate oversight of these related initiatives. For example, Ready Retirement 1 is part of a broader effort consisting of multiple, interrelated components. Without access to historical status reports and project work products containing information on resources, schedules, and risks, SSA limits its ability to use actual project data to improve project management and increases its need to rely on project managers’ institutional knowledge. In addition, the lack of full traceability among project control documents existed in part because certain oversight systems, such as EGADS and its related system for processing service requests, were not originally designed to distinguish and fully trace project control documents at detail levels. Traceability is part of requirements management that is fundamental to having a controlled and disciplined systems engineering process.Management Analysis Staff within the Office of the Deputy Commissioner for Systems told us that, in August 2013, the agency had begun planning for a redesign of its older applications, including EGADS and its service request processing system, to provide the ability to associate control documents within and among related projects, among other things. Office In discussing this matter, the Director of Planning and of Systems officials said that the projected completion date for this redesign is June 2014. Further, according to the project scope agreement for this effort, the redesign is expected to provide a more structured workflow, eliminate the redundancy of data by leveraging data from other systems such as Prism, and automate several of the manual processes. Redesigning these systems to support full traceability should facilitate a more disciplined system development process. Given that the agency manages hundreds of projects a year and that SSA officials have stated that project managers have the ability to combine, split up, and/or rename projects on a yearly basis, full traceability, supported by readily available and complete project information, is essential. Other weaknesses in the implementation of management controls, such as incomplete and inaccurate information in required documents and work products, can be attributed in part to weaknesses in SSA’s quality assurance process. According to best practices such as SEI’s CMMI, process and product quality assurance should evaluate work products against applicable process descriptions, standards, and procedures. Further, federal internal control standards call for evaluations of management controls, such as quality assurance reviews, to focus on the effectiveness of controls’ implementation, and this monitoring activity should ensure that findings are promptly resolved and reported to management. While the Office of Systems has a quality assurance process to ensure projects are following the procedures defined by the office, the quality assurance reviews that were conducted were limited in their scope and did not evaluate how effectively the controls were implemented. Specifically, reviews did not evaluate all project types and were limited to projects over a certain size. For example, the Office of Systems’ guidance limits reviews to Executive Oversight development projects and Executive Oversight cyclical projects that are 2 work years and over. According to the quality assurance representatives, in fiscal year 2012 these criteria limited the reviews performed to approximately 10 percent of the IT projects that year (approximately 60 out of 600). However, SSA may have been better positioned to identify and address the types of control limitations that we identified if its quality assurance process had been more rigorous and representative of the agency’s investment portfolio, including major product types of varying sizes. SSA quality assurance representatives acknowledged that the reviews need improvement and, in this regard, said that the agency was in the process of improving its quality assurance review process to expand the scope and depth of coverage. Specifically, the officials stated that in September 2012 the agency conducted an internal appraisal of its quality assurance program which found that stakeholders had an inconsistent understanding of quality assurance goals, formal quality assurance training was not available, reviews did not focus enough on issues with process implementation, findings were not recorded using a method that allowed for analysis and identification of needed improvements, and process trends were not communicated to senior management on a recurring basis. The officials said the agency developed and, in October 2013, began implementing a strategy to address these issues, which was to include audits of control documents in the agency’s project oversight systems. The audits also were to include all Executive Oversight projects and up to four random non-Executive Oversight projects representing each Office of Systems component and project type, except National Computer Center projects. Further, the implementation plan called for the findings of the audit to be documented and reported to project managers in a quality assurance tool. In this regard, the Associate Commissioners were to begin receiving quarterly reports on quality assurance beginning in January 2014. However, an Office of Systems official subsequently informed us that this deadline was not met because of the need to address requested changes to the report. According to an Office of Systems official, the first of these reports was presented to the Associate Commissioners in late March 2014, and the agency provided us a copy of this report in early April. According to our review, the report found that each type of review that SSA conducted—process review, product review, and audit of control documents—had identified findings such as limitations in project schedules, the lack of traceability in requirements, risks not being discussed with stakeholders, and control documents not being stored appropriately, which were similar to the limitations that we identified. While the report noted that some of the findings had been closed, others remained open and the report offered recommendations for addressing them. According to the Office of Systems official, findings that were not closed during the first review will be reported in the second quarterly report. These steps, if implemented on an ongoing basis, should lead to improvements in the quality assurance process, and reduce the risk that the agency’s controls will not be effectively implemented. Best practices in IT investment management, such as those described in our investment management framework, emphasize the importance of monitoring the performance of investments by, among other things, collecting information such as costs, benefits, schedule, risk assessments, performance metrics, and system functionality to support executive decision making. In this regard, establishing a baseline and specific performance measures that include how IT contributes to achieving improved program outcomes is essential for periodically evaluating a project as it progresses and further assessing a project after its completion. This assessment allows IT projects to be compared with one another based on selected criteria, such as expected benefits or improvements, among others, to effectively manage and prioritize the portfolio of projects. This critical investment information supports executive decision making that should ensure IT projects are aligned with the agency’s strategic plan and meet business needs in an effective and efficient manner. SSA has stated that its projects have contributed to improved services. SSA, Information Resources Management (IRM) Strategic Plan FY 2012-2016 (May 2012). of improved services,extent to which the projects actually contributed to improved services. This is because the performance measures identified were not specific to the goals of the individual projects, and the projects did not identify measurable baselines against which to gauge progress. the agency was not able to demonstrate the The IT proposal for the Ready Retirement Release 1 project stated that it would be considered successful if it simplified the claims application process and implemented consistent business practices for taking claims. Yet, the proposal did not provide any specific performance measures that described how these success factors could be achieved. In addition, the project did not establish a performance baseline against which to measure improvements. The agency attributed some benefits to the project, such as an increase of 250,000 Medicare-only claims submitted from 2011 to 2012 and in the results of its customer satisfaction survey. However, these benefits do not clearly reflect the stated goals of simplifying the claims application process and implementing consistent business practices for taking claims. In particular, the agency did not provide the measures that were used to determine the scores on the customer satisfaction survey, nor did it provide evidence that it had specifically measured results during the time frame when Ready Release 1 was deployed. As a result, the extent to which this project effectively contributed to improved services is unclear. The Earnings Case Management System Release 3 project established a goal to transition a specific process—the earnings correction process—to a more modern intranet application. However, this goal may have been more appropriate for measuring the overall Earnings Case Management System project development rather than for the planning and analyses only segment of the project. According to the project manager, the intent of the planning and analyses only portion of the project was to review existing earnings business processes to identify information needs that have changed in this area over the years. While the project manager stated that the planning and analysis only project was complete and that this segment of the overall project was successful because a business process description was created, other agency documentation noted that the planning and analysis only project was withdrawn. Thus it is uncertain to what extent this project may have contributed to improved services. For the Help Desk Activities project, specific performance measures were not defined in the project proposal and then mapped to other identified performance goals. SSA did identify other metrics to assess help desk performance, such as stating that its call response time should be less than 90 seconds and its abandoned call rate should be less than 12 percent, and project officials stated that these metrics allow the agency to assess its overall key goals such as systems availability. However, these metrics related to overall customer service-level agreements and systems availability. Further, project officials noted that other documentation related to Help Desk Activities included performance measures, such as systems’ availability being expected at 99 percent for online applications, but these measures applied to its overall data center investment, and the documentation did not describe how previously identified Help Desk Activities metrics contributed or were related to these higher-level benefits. While the agency’s most recent Information Resources Management plan does include performance measures for various high-level IT-related “domains,” without project-specific performance measures linked to expected benefits, SSA is not positioned to demonstrate the extent to which projects are contributing to the agency’s business goals, such as a specific amount a project is expected to increase service performance. Consequently, SSA is not sufficiently positioned to justify IT investments that are intended to improve its services to the public. Moreover, without documented and approved baselines of proposed benefits to effectively measure against, it is unclear which projects are more efficient in meeting business needs. Key to an agency’s success in modernizing its IT systems is sustaining a workforce with the necessary knowledge, skills, and abilities to execute a range of management functions that support the agency’s mission and goals. Achieving such a workforce is dependent on having effective human capital management, which includes assessing current and future agency skill needs by, for example, analyzing the gaps between current skills and future needs and developing strategies for filling the gaps, as well as planning for succession. Taking such steps would be consistent with activities outlined in human capital management models that we and the Office of Personnel Management have developed. In addition, GAO’s Standards for Internal Control in the federal government stresses that management should consider how best to retain valuable employees, plan for their eventual succession, and ensure continuity of needed skills and abilities. In addressing its IT human capital, the Office of Systems identified certain critical skills and competencies supporting its workforce needs in its Information Resources Management (IRM) Strategic Plan for fiscal years 2014 through 2017, and in a series of gap reports that it developed in 2008, 2010, and 2012. For example, the IRM plan provided the approximate number of IT specialists in the agency’s workforce, and described the agency’s use of contractors. Further, the agency’s IT human capital needs were reflected in the 2-year skills inventory gap reports that the Office of Systems had developed. The most recent such report was developed in 2012 and covered fiscal years 2013 and 2014. An executive officer in the Office of Systems stated that the agency prepares gap reports every 2 years and that, during the fiscal year in which the report is being prepared, supervisors identify the current skills of staff, including their levels of ability—beginner, intermediate, and advanced—and project what will be needed in the following 2 years. For example, each of the reports identified a number of general and specific skill sets needed, such as COBOL and Java. In addition, to help address any identified skill gaps, the Office of Systems prepares a training plan explaining how it intends to fill the gaps. The plan includes information identifying courses that are to be offered to staff to develop the needed skills. Beyond providing training, the office also pointed to its reliance on contractors to fill skill gaps. Nonetheless, while SSA had addressed its IT human resources in this manner, it had not taken steps that identified the agency’s needs beyond fiscal year 2014. While identifying skills and competencies that are clearly linked to the agency’s mission and longer-term IT goals is essential, neither of SSA’s key human capital planning documents—the IRM plan and the agency-wide Strategic Human Capital Plan—provided information about future IT human resources needs. The IRM plan for fiscal years 2014 to 2017 identified strategic goals such as “deliver innovative quality services” and “build a model workforce to deliver high quality service.” Further, the plan stated that the agency intends to use knowledge management initiatives, technology training programs, and recruitment and retention strategies to mitigate any potential loss of institutional knowledge and to maintain its IT workforce. It also described several IT “domains,” their current states, and high-level 2-year and “out-year” plans for each domain. However, the plan did not identify how human resource levels and staff development strategies link to and support longer-term plans such as how many staff will be needed to execute the future plans identified in its IT domains. SSA’s most recent agency-wide strategic human capital plan, for fiscal years 2009 through 2012, also did not identify future needs for IT resources. Although this plan identified general agency goals, such as to develop leaders at all levels through comprehensive succession management and improve employee performance by fostering better management, it did not specifically address what IT human capital resources would be needed to support these goals. In addition, SSA does not have a current succession plan for the replacement of experienced staff supporting its IT efforts. The agency’s most recent succession plan was issued in 2006, and we recently recommended that it take steps to update the plan. This is particularly important given previous experiences that have impacted the agency’s workforce since 2006, including a hiring freeze and greater movement toward online services. For example, the Office of Systems has reported experiencing significant decreases over recent years in its entry-level staff. Specifically, from fiscal year 2010 to fiscal year 2013, the number of staff in lower pay grades (i.e., with less seniority) dropped from 318 to 62. In contrast, the number of staff in the higher grades steadily increased from fiscal year 2008 to fiscal year 2013. In addition, since 2008, about 20 percent of the Office of Systems’ IT staff have been eligible to retire annually, which is a significant portion of the workforce. According to officials in the Office of Earnings, Enumeration, and Administrative Systems, retirements and the loss of experienced staff have made it difficult to allocate needed skills to projects. Without planning for the replacement of experienced staff with critical skills, the Office of Systems may lack the resources needed to respond to requests for IT support in an effective manner. According to an official in the Office of Human Resources, multiple human capital plans, including an IT human capital plan, are to be folded into a single, updated plan—referred to as the Human Capital Operating Plan. The agency had expected to have this plan by February 2014. However, an Office of Systems official subsequently stated that the agency’s deadline for developing the revised, consolidated Human Capital Operating Plan had changed to June 2014. According to this official, the new estimated completion date for the Human Capital Operating Plan should allow more time for appropriate stakeholder input. Nonetheless, the officials could not provide specific information on how future IT human capital needs are expected to be identified or addressed in these revised plans, beyond stating that they would include the agency’s updated succession plan. Until SSA ensures that its human capital planning and analysis addresses the specific competencies and skills critical to meeting its future IT needs, the agency jeopardizes its ability to deliver IT support that effectively contributes to its systems modernization efforts and improved services. Although SSA had applied management controls to the selected IT projects in our review, limitations raise concerns about their effectiveness. Specifically, while the five projects developed most of the project documentation needed to show adherence to management controls, the majority had limitations. In particular, missing and inaccurate control documents call into question whether projects are efficiently and effectively achieving their objectives and whether investment decisions are well supported. These limitations can be attributed to key oversight systems lacking accurate and complete project information, as well as their systems’ inability to support full traceability, and to limited and inadequate quality assurance reviews of project documents, although the agency has recently taken steps to improve its quality assurance process. In addition, the absence of specific performance measures and baselines makes it difficult to fully substantiate how effectively and efficiently IT investments have improved the agency’s services. Given the hundreds of IT projects SSA manages each year, ensuring that management controls are consistently and effectively implemented is critical to the efficient use of agency resources. Regarding human capital, SSA has identified certain critical skills and competencies; however, an absence of planning beyond 2014 may jeopardize the agency’s ability to carry out its modernization efforts. In particular, the agency has not identified IT-specific human capital needs to support its future goals and it does not have a current IT succession plan for replacing experienced staff. While agency officials stated that they expect to develop a revised plan for addressing IT human capital needs, milestones for this have recently been pushed back, calling into question the agency’s ability to effectively plan for the resources needed to support its IT modernization efforts. The importance of addressing these issues is highlighted by the agency recognizing the significant decreases in entry-level staff and its hiring freeze as challenges to effectively staffing certain investments. Without having human capital plans and analyses that identify and address the agency’s needs for critical IT skills and competencies, SSA risks not having the resources and skills sets necessary to carry out its future IT plans in support of the agency’s mission and goals. To address SSA’s project management and human capital deficiencies for its IT modernization efforts, we recommend that the Commissioner of Social Security direct the Deputy Commissioner for Systems/Chief Information Officer to take the following three actions: Perform effective oversight to ensure that key management control documents for ongoing and future projects are developed, complete, accurate, and readily accessible in oversight systems to better support management, traceability, and project analysis of IT investments. Assess control documents supporting the selection of investments, such as IT proposals, to ensure that they fully identify specific performance measures and baselines to gauge project success. Identify future IT needs, including skills needed to support long-term goals and priorities, in the agency’s updated human capital operating plan and associated analysis. We received written comments on a draft of this report from SSA, which are reprinted in appendix III. In its comments, SSA stated that it agreed with our three recommendations and described steps it plans to address them. For example, the agency stated that it will continue to improve its governance process by requiring both process and product reviews of selected IT projects, improve its work to identify performance measures, and include a comprehensive assessment of IT human capital needs in its updated IT Human Capital Plan. In addition, regarding our first recommendation, SSA agreed that our findings were accurate; however, it noted that our review covered a small, non-generalizable sample of IT projects. While we acknowledge that the results of our review cannot be generalized to the entire set of SSA’s IT projects, the projects we reviewed did represent the major categories of the agency’s investments. Further, several of the issues we identified were attributable to weaknesses in oversight systems, which could affect multiple projects. Therefore, it is important for SSA to continue to strengthen the oversight of its IT management and governance process. SSA also provided technical comments, which we have incorporated as appropriate. We are sending copies of this report to the Chairman of the Committee on Ways and Means, House of Representatives, the Commissioner of the Social Security Administration, appropriate congressional committees, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions on matters discussed in this report, please contact me at (202) 512-6304 or melvinv@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Our objectives were to (1) assess selected information technology (IT) investments to determine the extent to which they adhere to the Social Security Administration’s (SSA) investment management controls and are improving services; and (2) determine how SSA’s IT human capital program, including the identification and implementation of critical skills and competencies, is supporting its current and future modernization efforts. To address the first objective, we selected a non-generalizable sample of five IT projects, which were based on analyses of data files provided by SSA and selection criteria designed to include a variety of the agency’s IT investment categories and sizes. The review was designed to include one of each of the five project types—development, maintenance, cyclical, planning and analysis only, and National Computer Center—defined by the agency. Specifically, after the data files were determined to be sufficiently reliable for selecting projects, we judgmentally selected Ready Retirement Release 1 because it was the largest development project in the core services portfolio from fiscal years 2010 to 2012 and was related to SSA’s major investment, Ready Retirement. The remaining four projects, Earnings Case Management System (ECMS) Release 3, Medicare Annual, Internet 3441, and Help Desk Activities were chosen randomly from the planning and analysis, cyclical, maintenance, and National Computer Center categories, respectively. We analyzed industry best practices and guidance used to effectively control, oversee, and manage IT projects. We also analyzed SSA policies and guidance to determine key documents associated with the agency’s IT project management directive and quality assurance processes to identify the types of management control documents, such as project proposals, cost-benefit analyses, and project schedules, that SSA relies on for managing its investments. Among those identified, we chose 11 types of management controls for our evaluation. The 11 types of documents we selected support key management activities at different points throughout a project’s life cycles. Further, they were called for in the agency’s IT project management directive and quality assurance processes, as well as other external best practices; spanned each phase of the agency’s project life-cycle process; and were represented in each randomly selected project. The 11 control types also were intended to cover key management processes that are undertaken during the select, control, and evaluative phase(s) and provide critical information regarding the resources and costs committed as well as the potential benefits or improvements to service. For each of the five projects, we obtained the associated control documents from SSA, where available. We then assessed each of the five projects to determine the controls that were applicable, based on the project type, and whether they were developed for the selected projects. We analyzed the documents against the agency’s guidance and other best practices. Specifically, we compared the control documents to the agency’s IT project management guidance, as well as best practices in the Software Engineering Institute’s (SEI) Capability Maturity Model for Integration (CMMI) for Development (version 1.3), our IT investment management framework, and our standards for internal control. The best practices and standards call for control documentation to, among other things, be traceable, accurate, consistent, and effectively implemented. We assessed the control documentation and determined if any limitations, such as inaccuracies or inconsistencies, in these areas existed. To determine whether SSA had improved services, we analyzed information that was identified in project documentation for measuring the performance of each investment, where available. Specifically, we analyzed the agency’s project proposals and supporting documentation to determine if quantifiable performance measures and baselines, called for in best practices such as our IT investment management framework, were identified and measureable for each project. We also interviewed project managers, project team members, as well as other agency officials, including the Deputy Commissioner for Systems/Chief Information Officer, to understand the agency’s processes and control documents. To address the second objective, we obtained and analyzed SSA human capital plans and data, including its Information Resources Management (IRM) Strategic Plan for fiscal years 2012 through 2016 and the most recent updated plan for fiscal years 2014 through 2017, 2-year IT skills inventory gap reports, IT staffing data for fiscal years 2008-2014, agency- wide succession plan, and its agency-wide human capital plan. We compared the agency’s plans and documents to best practices we have identified in strategic human capital management. We also noted any human capital issues that were identified in interviews with agency officials or documentation for the selected investments above. We assessed the reliability of the data that we used to support the findings in this report by reviewing relevant IT investment files and program documentation to substantiate evidence obtained from agency databases. We analyzed agency database instructions and replicated the system processes with SSA data files and compared the results with agency-provided data. We also corroborated documentation on program processes and projects obtained from SSA through interviews with agency officials to clarify program processes and documentation. We determined that the data used in this report are sufficiently reliable. We have also made appropriate attribution indicating the sources of the data. We conducted this performance audit from November 2012 to May 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The following provides a description of each project and our evaluation of control documents called for by SSA’s Office of Systems Project Management Directive and other guidance: Ready Retirement Release 1. Ready Retirement Release 1, which was to provide online services for Medicare Only and Month of Election, was an approximately a 52 work-year Executive Oversight development project completed in 2010. This project was part of a larger, broader initiative referred to as Ready Retirement. The larger initiative was intended to make SSA’s retirement application process more efficient by bypassing the manual claims processes and providing a streamlined web interface for the public and SSA employees to process retirement claims, thereby increasing automation and improving service delivery. For this project, all 11 of the control documents we selected from SSA’s Office of Systems’ Project Management Directive were relevant, with 9 being required and 2 being conditionally required. SSA developed all 11 documents; however, 6 had limitations. Table 3 describes the 11 control documents, whether or not they were developed, and any limitations with the documents. Internet 3441. The Internet 3441 project is a maintenance type project. The project was focused on maintaining a web application that electronically gathered SSA form 3441public, and was a 4.74 work-year project that was completed in fiscal year 2010. The system development for this project was intended to, in part, provide the form’s information electronically and online and was started in October 2002. The maintenance efforts began in October 2003 and continued until September 2010, when agency information from the documentationproject manager, this effort was combined with another similar maintenance project. noted it as completed. However, according to the For this project, two control documents were required by SSA’s Project Management Directive and three were conditionally required. SSA developed the two required documents, and both had limitations. Table 4 describes the two required documents, whether or not they were developed, and any limitations that we identified. Medicare Annual project. The Medicare Annual project was a cyclical project that identified up to 400,000 Medicare beneficiaries to request information to verify continued eligibility or any changes in benefits. The project was part of a larger effort to update the Medicare Part D systems. The Medicare Annual project was a 0.83 work-year project completed in fiscal year 2010. Six control documents were relevant for the Medicare Annual project—five required and one conditionally required. SSA developed four of the six documents but did not develop two. Moreover, three of the four control documents that were developed had limitations. Table 5 describes the six documents, and whether or not they were developed and any limitations with the documents. ECMS Release 3. ECMS Release 3 is a planning and analysis only project that was performed by SSA in fiscal year 2011. Planning and analysis only projects are defined by the agency as projects that entail planning and analysis activities to determine the feasibility of the project, from both a business and technical perspective. As such, according to project officials, this particular release focused on assessing the existing SSA business processes related to updating the master earnings file. ECMS Release 3 was a part of a larger Earnings Redesign initiative intended to improve data integrity by reconciling earnings posted to SSA’s master earnings file with earnings reported to the Internal Revenue Service by fiscal year 2015. For this project, five control documents were required by SSA’s Project Management Directive, and one was conditionally required. SSA developed three of the control documents but did not develop the other three. Further, the three control documents that were developed had limitations. Table 6 describes the control documents, whether or not they were developed, and any limitations. Help Desk Activities. The Help Desk Activities is an active, ongoing National Computer Center project. As discussed earlier, this type of project is one of five major SSA categories for IT Investments. In fiscal year 2012, approximately 100 work years were devoted to the project. This project supports SSA’s infrastructure and is within SSA’s Office of Telecommunications and Systems Operations. Among other things, the project provides a call center to answer users’ questions, ensures continued operation of the local area network, and provides hardware and software support. The Help Desk Activities also provide a support team that coordinates and resolves programmatic software system issues, such as slow response times associated with systems. Of the 11 types of control documents we reviewed for this project, SSA’s Office of Systems’ Project Management Directive identified 3 that were applicable—2 required and 1 conditionally required. Of the 2 required controls, both were developed and had limitations. Table 7 describes the 2 required control documents, whether or not they were developed, and any limitations they had. In addition to the contact named above, Christie Motley, Assistant Director; Michael Alexander; Neil Doherty; Rebecca Eyler; Torrey Hardee; David Hong; Lee McCracken; Christy Tyson; and Charles Youman made key contributions to this report. | SSA relies on IT for delivering Social Security services to virtually every American. The agency reportedly spent about $1.5 billion for IT in fiscal year 2013, and it plans to continue modernizing its aging systems. Management controls and human capital are critical in helping ensure effective and efficient IT project implementation. GAO was asked to examine SSA's IT modernization efforts. The study (1) assessed selected IT investments to determine the extent to which they adhere to SSA's investment management controls and are improving services and (2) determined how SSA's IT human capital program, including the identification and implementation of critical skills and competencies, is supporting its current and future modernization efforts. To do so, GAO reviewed key management controls for one project from each of five SSA-defined project types, including one project with the highest resources for its type and four randomly selected projects; compared human capital planning documents with relevant guidance; and interviewed relevant SSA officials. The Social Security Administration’s (SSA) selected information technology (IT) projects did not fully adhere to management controls called for by its IT project management guidance, which are essential to effectively oversee and monitor IT investments. Such controls include, among others, a cost-benefit analysis, risk mitigation plan, and project schedule. For the five projects selected, SSA developed the majority of the documents required to demonstrate adherence to management controls; however, most had limitations. One project that was required to complete 11 control documents had developed 5 without limitations, but the remaining 6 had limitations. For example, while certain risks to the project were identified, the documentation did not include risk mitigation plans, which are essential for avoiding, reducing, and controlling the probability of the occurrence of identified risks. Across the five projects, the most common limitations included a lack of traceability (which is needed to track project history and demonstrate that requirements are met) and inaccurate or incomplete information, such as project schedules that had inaccuracies in key milestone dates. The limitations could be attributed to, among other things, IT oversight systems that did not include all needed data or fully support traceability, and a quality assurance process that was not effectively implemented. The agency recently took steps that should help improve its quality assurance process. Further, while SSA stated that its projects have resulted in improved services, it was not able to demonstrate this. In particular, while three of the five projects identified performance measures, these measures generally were not specific enough to determine projects’ contributions to improved services, and baselines against which to measure improvement were not established. Ensuring that management controls are consistently and effectively implemented would help ensure the efficient use of agency resources. SSA’s IT human capital program has identified skills and competencies to support certain workforce needs, but lacks adequate planning for the future. The agency has developed IT human capital planning documents, such as its recent Information Resources Management plan and skills inventory gap reports, which identified near-term needs, such as skill sets for the following 2 years. Nevertheless, SSA has not adequately planned for longer-term needs because its human capital planning and analysis are not aligned with long-term goals and objectives and the agency does not have a current succession plan for its IT efforts. The agency has recognized challenges with regard to employee retirements and a recent hiring freeze, which have put constraints on resources for certain investments. While SSA officials stated that an updated human capital operating plan will be completed in June 2014, they could not specify how it would address future IT human capital needs. Until these needs are identified, SSA may lack critical plans for addressing IT resources and skills to support agency-wide IT investment goals. GAO is recommending that SSA (1) perform effective oversight to ensure control documents are developed, complete, and accurate and that oversight systems include needed data and support traceability; (2) ensure project control documents identify specific performance measures and baselines; and (3) identify long-term IT needs in its updated human capital operating plan. SSA agreed with GAO's recommendations. |
Investment banks play an important role in maintaining the smooth functioning of the U.S. economy. In that role, they provide many different services to their clients. In addition to more traditional services such as securities underwriting, investment banks provide advice on and assistance in creating different types of structured finance transactions, including SPE and prepay transactions that are designed to meet the needs of specific corporate clients. Investment banks’ duties to their clients depend on the activities in which the investment banks engage. In part because of the complexity of the transactions investment banks engage in, transparency in financial reporting is essential if stakeholders (such as investors) and others are to understand these transactions. Investment banks are an important means of allocating capital in the U.S. economy. In their traditional function of underwriting securities offerings, according to securities industry data, investment banks arranged over half of the total financing provided to U.S. nonfinancial businesses in 2001. The wide variety of services today’s investment banks provide to their corporate clients fall into two major categories—-securities/capital markets and advisory services. Table 1 provides a description of services investment banks provide their corporate clients. The three investment banks highlighted in this report, like other large investment banks providing services to large companies, had various relationships with Enron or Enron-related entities. The investment banks provided an array of services and products to Enron, including acting as advisors on mergers and acquisitions, lending money for loan syndications, underwriting bond and stock offerings, providing research on Enron securities, providing complex structured finance transactions, acting as trading counterparties to derivatives transactions, participating as passive investors (limited partners) in an SPE, and others. Structured finance is designed by investment bankers and others to help clients obtain funding on desirable terms and in some cases with favorable economic, accounting, and tax characteristics. It includes many variants, including transactions that use SPEs and prepay transactions. An SEC official has stated that structured finance plays an important role in the modern business environment and, when used properly, can provide needed liquidity, funding sources, and investment opportunities and facilitate risk dispersion. The official also noted that structured finance transactions have at times been used inappropriately to achieve a specific accounting or tax result. Sometimes this inappropriate use has been achieved by violating existing regulations or accounting standards. In the ordinary course of business, many companies use a variety of structured financings that involve SPEs to access capital or hedge risk. An SPE is a legal entity created by another entity (a sponsor) to carry out a specified purpose or activity, such as to consummate a specific transaction or series of transactions with a narrowly defined purpose. SPEs are often used as a financing vehicle that allows a sponsor entity to transfer assets to the SPE in exchange for cash or other assets the SPE obtains by issuing debt, equity, or both, to third-party lenders or investors. Originators of financial assets such as mortgages and consumer credit have used SPEs extensively; at the end of 2001, such SPEs held over $2 trillion in assets. For example, a sponsor entity could transfer accounts receivable from credit-card holders into an SPE in exchange for cash. In this example, the SPE would obtain the cash by issuing securities backed by the accounts receivable. SPEs may also be established to acquire, construct, or manufacture assets the sponsor entity uses through leases, management contracts, or other arrangements. For example, a sponsor entity could establish an SPE to construct a power plant that was financed through debt issued by the SPE. An SPE may take many different forms, including a corporation, partnership, limited liability company, or trust. When the entity is properly structured, an SPE’s assets may be legally separate from those of its sponsor, protecting the SPE’s assets from the risk of the sponsor’s bankruptcy. This arrangement often reduces credit or other risks for lenders and investors and thus lowers financing costs for the sponsor. SPEs may also create certain tax advantages for the participating parties. Under generally accepted accounting principles and Financial Accounting Standards Board guidance, SPEs meeting certain criteria do not appear on the balance sheet of the sponsoring entity. Thus, transactions that provide financing involving SPEs can be structured so that the assets and liabilities transferred to an unconsolidated SPE can be removed from the sponsor’s financial statements. Whether an SPE is consolidated with another entity is a matter of judgment that involves an assessment of the risks and rewards of ownership, as well as control over the SPE’s activities. This is important, because an entity could materially misstate its own financial statements by, for example, understating its debt or overstating its sales if it does not properly account for ownership in an SPE. Even though a sponsor of an SPE might not be required to consolidate the assets and liabilities of an SPE in its financial statements, the sponsor is required to either recognize in its financial statements or disclose in the footnotes to its financial statements the nature of its involvement with the SPE; the purpose, size, and activities of the SPE; and the maximum exposure to loss as a result of its involvement with the SPE. Ownership interests in an entity, including an SPE, are considered financial assets. When assets of this type are sold or transferred to another entity, Financial Accounting Standards (FAS) 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, provides the accounting guidance related to the transaction. In general, when an entity surrenders control of a transferred financial asset, a sale can be recognized. For a sale to occur, the transferred asset should be isolated from the transferring entity and its creditors, and the entity receiving the asset has the right to pledge the asset as collateral or to sell it. Further, the entity transferring the asset is not allowed to maintain control of the asset through any agreement that entitles and obligates it to repurchase the asset. If a transfer of financial assets in exchange for cash or other consideration does not meet the criteria for a sale, then the entity transferring the asset must account for the transaction as a secured borrowing with a pledge of collateral, and the resulting liability and the asset are reflected on the entity’s balance sheet. A prepay transaction involves a contractual agreement between two parties that combines the economics of a debt obligation with those of a forward contract, which is a contract for a service or product to be delivered at a later date. Forward contracts, whether prepaid or not, can be used to hedge against adverse price moves. For example, if two parties enter into a forward contract to exchange 100 gallons of gas for $180 ($1.80 per gallon) in a month, the buyer of the gas is protected against a price higher than $1.80 while the seller is protected against a price lower than $1.80. In a prepaid forward contract, the payment for the gas is made at the time of the contract but the gas is delivered in a month; this provides immediate cash flow to the seller. If this prepay transaction is a loan in substance and intent, its accounting treatment should be that of a loan. In the energy business, entities commonly enter into forward contracts for the purchase or sale of a commodity. Such activities are generally settled by the physical delivery of the commodity. The contracts are often entered into based on an entity’s assessment of market movements either to hedge its position or to speculate on price. Some entities enter into energy contracts for trading purposes and often settle them with cash rather than a commodity. In accounting guidance, “energy trading activities” refers to energy contracts entered into with the objective of generating profits from changes in market prices. The guidance states that determining whether an entity is involved in energy trading activities is a matter of judgment that depends not solely on the terms on the contracts, but also on an assessment of relevant facts and circumstances related to the entity’s activities. However, inherent in that assessment is an evaluation of the entity’s intent in entering into an energy contract. Investment bankers are often retained to advise on a course of action that a board of directors has already determined to pursue. The banker’s role in helping the board achieve those objectives is set forth in an agreement known as an engagement letter, and the banker’s duties to the client are limited to the terms of that letter. Moreover, the advice that investment banks provide is largely subjective. However, in some cases courts have found that an investment banker owes a fiduciary duty to a company if the investment banker evaluated and considered the appropriateness of unsuccessful financial transactions that caused the company’s bankruptcy. Enron engaged investment bankers to provide advice on and at times to participate in the creation of SPEs. The duties of the investment bankers in such transactions depends on the role the investment bankers played. If the SPE issues securities through a public offering that it sells to investors in order to raise capital, and the investment bank acquires the securities from the SPE with the intent to subsequently distribute them, then the investment bank is acting as an underwriter. As an underwriter, the investment banker would have duties of due diligence and disclosure. If investment bankers knowingly or substantially assisted a company—in this case, Enron—in violating the securities laws, SEC has the authority to bring an action for aiding and abetting a securities violation. The action depends on the involvement of the investment banker in the alleged conduct. SEC must prove three elements in an aiding and abetting a securities law violation: (1) that a principal committed a primary violation, (2) that the aider and abettor rendered such assistance knowingly or recklessly, and (3) that the aider and abettor provided substantial assistance to the primary violator. In other words: The first legal element of aiding and abetting is the requirement that an independent, illegal act exists to which the aider and abettor can be attached. This independent illegal act or primary violation may be a misrepresentation, omission, scheme to defraud, or fraudulent course of business. The second element of aider and abettor liability is either actual knowledge of the primary violation on the part of the aider and abettor or recklessness. However, the law is ambiguous with regard to the level of knowledge needed to prove aiding and abetting liability. Some courts have required SEC to prove that the entity aiding the primary violation had actual knowledge of the violation. However, other courts have found that recklessness is sufficient. In SEC administrative proceedings, liability may be based on less than actual knowledge of the violation. The third element of aiding and abetting, “substantial assistance by the aider and abettor in the achievement of the primary violation” has been interpreted as meaning significant assistance to the representations of others or to the fraud of others. Persons may assist primary violators in many ways—for example by repeating their misrepresentations, aiding in the preparation of misstatements, acting as conduits to accumulate or distribute securities, executing transactions, or financing transactions. Thus, if SEC determines that there is evidence to allege that investment bankers provided substantial assistance to Enron in violating the securities laws and that the investment bankers rendered such assistance knowingly, SEC could bring a civil action against the investment bankers that engaged in such conduct. Depending on the forum where the action is brought, reckless conduct on behalf of the investment banker may be sufficient. However, we have observed that some conflict exists among the courts regarding the level of knowledge required for SEC to bring a claim in court for aiding and abetting liability. Clearly, actual knowledge of the fraud is a more difficult standard to prove. If this standard were to be the requirement, SEC might not be able to successfully pursue all court cases that could involve actions for aiding and abetting a securities law violation. In part because of the complexity of many structured finance transactions, transparency in financial reporting is essential to maintaining confidence in capital markets. Off-balance sheet transactions and other relationships with off-balance sheet entities or other persons may have a significant effect on a company’s financial condition, revenue or expenses, results of operations, and liquidity. Financial reporting should provide the information that is useful to current and potential investors, creditors, and others in making rational investment, credit, and similar decisions. The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. Financial reporting should also provide the information necessary to assess the financial condition of an entity, including (1) the amount, timing, and certainty of cash flows; (2) the assets, obligations, and equity; and (3) the financial performance during a specified period. Transparent financial reporting depends on reliable information, sufficient disclosures, and fundamental assertions about the information presented. For example, assets are owned and are expected to provide future benefits to an entity; all known obligations of an entity, as a result of prior events, are recorded; an entity’s revenues are reported during the period earned; and an entity’s sources and uses of cash flows are properly classified. If investors and creditors lose confidence in the financial reporting of an entity, the consequences to the entity and the marketplace can be significant. Both accounting and auditing standards recognize that an entity’s management is responsible for an entity’s financial reporting, including the fairness of its presentation in conformity with generally accepted accounting principles. During an audit, audit standards require an auditor to obtain written representations from management indicating, among other things, management’s responsibility for the entity’s financial reporting. The Sarbanes-Oxley Act reemphasized management’s responsibility by requiring that an entity’s principal executive and financial officers certify that the financial statements and other financial information included in the report fairly present in all material respects the financial condition and results of operations. The act also imposed possible disgorgement of any ill-gotten gains on the part of principal executive and financial officers when an entity is required to restate its financial statements owing to noncompliance—that is, as a result of misconduct with any financial reporting requirements under securities laws. Investment banks allegedly actively and substantially helped Enron deceive its investors and creditors by facilitating complex structured finance transactions designed to result in misleading accounting and tax outcomes that benefited the company. Enron used structured finance to generate recorded sales, decrease taxes, and facilitate prepay transactions that bolstered operating results and cash flows. Investment banks played key roles in each of the transactions discussed in this report. (See appendix II for a detailed description of these transactions and the roles played by investment banks.) It is alleged that these transactions enabled Enron to manipulate and obscure its reported results or to avoid tax obligations in various ways. If so, SEC can bring action against these investment banks for aiding and abetting securities fraud. SPEs are often used for legitimate purposes as a financing vehicle, but they have also been used to inappropriately overstate net income and understate total debt. For example, an entity that transfers control of an asset, including the risks and rewards of ownership, to a properly structured, unconsolidated SPE for cash is generally expected to report the transfer as a sale and record the gain or loss on the transaction. If an entity transfers an asset but not all the risks of ownership to an SPE for cash, then the cash received is generally accounted for as a secured borrowing (i.e., a loan). It has been alleged that Merrill Lynch knew that its participation in Enron’s Nigerian barge transaction aided deceptive accounting by Enron. The form of Merrill Lynch’s involvement was an equity investment that would validate a sale by Enron, but it was reported that oral commitments by Enron minimized Merrill Lynch’s risks and ensured a specified return, meaning that Merrill Lynch’s investment was in substance a loan and that therefore there was no valid sale. Publicly available reports describe a transaction in which Enron reported a gain from selling an interest in three power barges located in Nigeria to Ebarge, LLC (Ebarge), an SPE Merrill Lynch created for this transaction. This transaction occurred 2 days before the year-end closing date for Enron’s 1999 financial statements. It was asserted that Merrill Lynch was not at risk for the equity investment in Enron’s barges because Enron officials made oral guarantees to arrange for the resale of Merrill Lynch’s interest in the barges within 6 months, with a specified return to Merrill Lynch for its involvement in the transaction. A publicly available Merrill Lynch document related to this transaction indicates that prior to entering into the transaction, Merrill Lynch received assurance from Enron that Merrill Lynch’s investment would be liquidated within 6 months. After attempts by Enron to sell Merrill Lynch’s interest in the barges to an independent third party failed, an Enron-related party purchased Ebarge from Merrill Lynch. Based on the sale price and fees received for the transaction, Merrill Lynch received the allegedly promised return on its equity investment. If, as asserted, Merrill Lynch did not have an equity risk in the barges through Ebarge but instead had a credit exposure to Enron, then Enron should have reported this transaction as a secured borrowing instead of a gain on the sale of an asset, reducing the company’s net income and increasing its debt. If, as alleged, Merrill Lynch knowingly and substantially assisted Enron in violating the securities laws by improperly reporting its debt as net income, and if such reporting is a violation of the securities laws, SEC has the authority to bring an action against Merrill Lynch for aiding and abetting a securities law violation. Merrill Lynch officials contended that Enron proposed and structured the transaction and that Enron also assured Merrill Lynch that its outside auditors had vetted and approved its accounting for the transaction. Merrill Lynch officials also contended that the firm provided no accounting advice to Enron and that Merrill Lynch in fact was at risk in the transaction because, while Enron orally agreed to make a “best effort” to find another buyer for the asset, this promise was not a legally binding guarantee. Officials told us they undertook the transaction as an accommodation to Enron in the hopes of receiving increased Enron business in the future. In February 2003, Merrill Lynch said that it had agreed in principle with SEC, without admitting or denying any wrongdoing, to pay a fine to resolve civil charges that it aided Enron in fraudulently overstating Enron’s earnings in 1999. One of the transactions reportedly included in the settlement was this Nigerian barge transaction. It has also been alleged that Citigroup Inc. (Citigroup) assisted Enron in executing transactions, despite knowing that the transactions used deceptive accounting strategies, in return for substantial fees or favorable consideration in other business dealings. Publicly available documents describe transactions referred to as Bacchus and Sundance that involved Enron, Citigroup, and several SPEs and took place over a 6-month period beginning in December 2000. PSI and the bankruptcy examiner concluded that the substance of the transactions for Enron was borrowing, which instead of being reported as debt was recorded as a sale with a gain that increased Enron’s net income through deceptive accounting. In these transactions, Enron sold its ownership in a pulp and paper trading business to an Enron-created SPE, the Caymus Trust, a transaction for which Enron recorded a gain. Through a variety of agreements, Citigroup was to be at risk for $6 million of equity in the Caymus Trust. However, it has been asserted that Citigroup did not have equity risk because Enron verbally guaranteed that the $6 million equity investment would be repaid. A publicly available Citigroup document indicates that “Bacchus is a part of a program designed to ensure that Enron will meet its year-end .” Approximately 6 months after the Bacchus transaction, the Sundance transaction returned Citigroup’s investment in the Caymus Trust by redeeming its investment. The Sundance transactions involved the creation of an Enron-Citigroup joint venture that was allegedly designed to ensure that Citigroup had no equity at risk. If Citigroup never had equity at risk in these transactions, then the substance of the transactions was secured borrowing that Enron should have reported as debt rather than as a sale. A publicly available document prepared by Citigroup’s Risk Management Group indicates that the group initially did not approve the Sundance transaction because, among other things, “the GAAP accounting is aggressive and a franchise risk to if there is publicity (a la Xerox).” If Citigroup knew that Enron had improperly recorded these transactions and that the reporting by Enron was a violation of the securities laws, and Citigroup’s conduct substantially assisted Enron’s violations, SEC would have the authority to bring an action against Citigroup for aiding and abetting Enron’s securities law violations. In response to these allegations, Citigroup officials testified at a December 11, 2002 congressional hearing that Citigroup employees had acted in good faith and had understood that these transactions complied with existing law and the prevailing standards at the time. Although Citigroup’s internal review committee had reviewed the transactions, Citigroup officials said that Citigroup had viewed the accounting decisions as decisions that would be made by Enron and its accountants. Citigroup noted that Enron was a Fortune 10 company and that Enron’s auditors from Arthur Andersen LLP were presumed to know about the transactions and to have approved their accounting treatment. Companies such as Enron can use properly structured SPEs to minimize taxes, but SPEs have also been used to create complex transactions designed to evade taxes. J.P. Morgan Chase & Co. (Chase) facilitated a transaction for Enron (referred to as Slapshot), despite allegedly knowing that the transaction used deceptive tax strategies. Chase designed the Slapshot transaction, provided the funding, minimized its own risks, and received substantial fees for facilitating the transaction. The Slapshot transaction involved Enron, Chase, other lenders, a Chase SPE, and several Enron affiliates and SPEs in order to refinance an Enron pulp and paper mill and allegedly to evade Canadian taxes. Publicly available reports describe Slapshot as a complex series of structured finance arrangements that all took place during the same day and included a $1.039 billion loan due later the same day and a $375 million loan due in 5 years and one day. In a publicly available Chase document related to the design of the Slapshot transaction, Chase indicated that an advantage of one aspect of the structure of the transaction was that it provided “no road map for Revenue Canada.” If Chase knowingly and substantially assisted Enron in evading taxes, resulting in the reporting of incorrect information in Enron’s financial statements, and such reporting was a violation of the securities laws, SEC would have the authority to bring an enforcement action against Chase for aiding and abetting Enron’s securities fraud. A Chase official testified at a congressional hearing that Chase’s Structured Finance Group had developed the generic form of this transaction and had received opinions from two leading Canadian law firms that the structure and the Canadian tax benefits the transaction provided were legal and valid. It has been alleged that Chase and Citigroup assisted Enron in its deceptive accounting over a period of years by facilitating several billion dollars in loans disguised as energy trades and allowing Enron to use offshore entities that the investment banks controlled as trading partners. Although prepay transactions are common in the energy industry in general, the Enron prepay transactions were allegedly unique because they involved a circular cash flow arrangement among the three parties involved in the transactions. Publicly available reports describe several prepay transactions among Enron, various investment banks, and usually a third-party SPE affiliated with the investment bank. In these transactions, Enron received cash in advance and promised to deliver a specific volume of oil or gas in the future (or the cash value of the commodity). Enron accounted for these transactions as energy trading activities and reported the prepay transactions as liabilities from price risk management on its balance sheet and as cash flows from operations on the statement of cash flows. However, PSI and the bankruptcy examiner concluded that Enron’s accounting for the transactions was inappropriate because the prepay transactions were in substance and intent loans, not trading activities, and should have been recorded by Enron as debt. Reporting them as debt, however, would have weakened some of Enron’s key financial ratios, such as its debt-to-equity ratio. Further, the cash Enron received would have properly been reported as cash flows from financing activities on the statement of cash flows and not as cash flows from operations. If it is proven that the prepays were effectively loans, Enron’s accounting for the prepay transactions as trading activities could have misled investors and analysts about the scope of Enron’s trading activities and the nature of its incoming cash flows. Publicly available Chase and Citigroup documents indicate that the firms participated with other companies in prepay transactions that, like Enron’s prepay transactions, often involved an SPE and no price risk. However, we were not able to determine if these transactions involved circular cash flows like Enron’s prepay transactions. If the allegations that (1) the firms knowingly assisted Enron in engaging in materially fraudulent transactions and (2) the firms’ conduct provided substantial assistance to the fraud are proven true, SEC would have the authority to bring an action against them for aiding and abetting securities laws violations. Publicly available reports describe prepay transactions among Enron, Chase, and an SPE (Mahonia, Ltd.) that was created to undertake transactions for Chase. In these transactions, Enron’s accounting treatment of the prepay transactions as trading activities was allegedly improper because in substance and intent the transactions were actually loans. One publicly available Chase document indicated that “Enron loves these deals as they are able to hide funded debt from their equity analysts because they (at the very least) book it as deferred revenue or (better yet) bury it in their trading activities.” Between 1992 and 2001, Enron and Chase entered into 12 prepay transactions with a combined value of over $3.7 billion. In testimony given at a congressional hearing, in an interview with us, and in documents supplied to us, Chase officials said that they understood that Enron, with Enron’s auditor’s approval, had treated the prepay transactions as trading activities. The officials contended that Chase mitigated risk, as required by banking law, and that the risks of the different transactions and hedges involved in prepays were different from those of a loan. Chase provided us with excerpts from other companies’ financial statements that described their prepays as a means of financing, recorded as liabilities for price risk management. However, we have not reviewed these transactions and cannot determine if they were similar to Enron’s prepay transactions. Another example of an Enron prepay transaction involved Enron, Citigroup, and a Citigroup-created SPE, Delta Energy, that served as a third party. The first of these Citigroup prepay transactions in 1993 was similar in structure to the Chase prepay transactions. However, some of the later Citigroup prepay transactions involving Delta Energy were funded by bond offerings to qualified institutional buyers instead of by Citigroup. By raising funds for the prepay transactions in this fashion, the institutional investors rather than Citigroup were at risk if Enron should go bankrupt or default. PSI and the bankruptcy examiner concluded that Enron’s accounting for these prepay transactions as trading activities was improper, because in substance and intent the transactions were actually loans. One publicly available Citigroup document discussing the approval of an Enron prepay transaction indicated that Citigroup’s “internal approval for the transaction will acknowledge that was basically making a loan.” PSI reported that between 1993 and 2001, Enron and Citigroup entered into 14 prepay transactions with a combined value of over $4.8 billion. Citigroup officials contended the transactions were done in good faith, complied with existing law and prevailing standards of the time, and had been reviewed and approved by their internal review committee. Citigroup officials contended that Enron assured them that its outside auditor had fully vetted and approved its accounting treatment of prepays. The three investment banks highlighted in this report also participated as passive investors in other transactions involving SPEs with Enron. However, we did not confirm or refute whether, as passive investors, these financial institutions participated in the management of the SPE. For example, Chase, Merrill Lynch, and Citigroup were investors as limited partners in the SPE LJM2 Co-Investment, L.P. (LJM2), contributing a total of about $40 million. Merrill Lynch also acted as the private placement agent for LJM2 and in this capacity helped introduce sophisticated (wealthy) investors to the LJM2 partnership. For its work, Merrill Lynch testified that it received about $3 million in fees. Also, the investment bank invested $5 million itself and permitted 96 of its executives to invest about $16.6 million of their own money in LJM2. Section 705 of the Sarbanes-Oxley Act mandates that we review investment bank involvement in the failure of Global Crossing, “including with respect to transactions involving swaps of fiber optic cable capacity.” It has been reported in the press, and plaintiffs have alleged in civil actions, that Global Crossing improperly reported as revenue the proceeds it received from sales of fiber optic capacity and services in transactions with counterparties; however, to our knowledge, no investment banks were involved in these transactions. In these transactions, Global Crossing and its counterparties entered into simultaneous agreements to purchase and sell fiber optic capacity and services. In many of these transactions, the aggregate purchase and sales prices were similar or the same. It also has been alleged by plaintiffs that these transactions lacked a legitimate business justification and that, as a result, Global Crossing’s financial statements were materially misleading to the investing public. In October 2002, Global Crossing announced that it would restate its financial statements for prior periods based on advice from SEC staff that Global Crossing’s previous accounting for these transactions did not comply with generally accepted accounting principles and that the transactions should be recorded on a historical carryover basis. Global Crossing’s announcement stated that the company had relied on advice from its independent advisors and an industry white paper in accounting for these transactions. According to the investment banks we spoke with, the transactions discussed here were vetted through their internal risk management processes. In the aftermath of their experience with Enron, however, these firms have become more concerned about possible reputation risk and thus have reported taking steps to strengthen their risk management processes. Federal financial regulators saw these steps as positive but noted that it was too soon to evaluate how well the new policies and procedures would work. Federal financial regulators also responded to the issues raised by the Enron collapse. These regulators use a risk-focused approach to oversight, identifying the most significant risks to a financial institution and then determining whether appropriate risk management systems and internal controls are in place. Federal financial regulators noted that before Enron’s collapse, structured transactions did not pose significant risks in traditional risk management areas. Since then the regulators have been considering additional legal and reputation risk reviews and are looking at ways to further enhance examination scopes and procedures in this area. In addition, they have confirmed that they will more extensively sample transactions in examinations that raise issues of concern. In our market-based economy, market discipline and proper disclosure of risks are the primary means of controlling risk-taking behavior. When investors respond to negative information about a company by selling (or not buying) its securities, the company’s access to capital may be limited or capital may become more costly to obtain. Investment banks have a similar but more extensive role: they not only make decisions on the provision and terms of capital, but also make decisions in other areas, such as structured finance and whether to participate in and facilitate a client’s activities. Investment banks use a variety of control processes and policies—formal and informal—for reviewing and evaluating whether to enter into a particular transaction, to expand a business line, or enter into a new business or product line. These policies and procedures are also used to establish any conditions, procedures, or parameters applicable to the transactions, new product or business line. The three investment banks involved in the transactions discussed in this report all had internal review and approval processes with independent control processes that were to review transactions for their appropriateness. Control groups and business unit representatives involved in the review process generally operated by consensus. However, in circumstances where the business unit wished to pursue a transaction despite concerns expressed by a control group, senior management (management that is, at a minimum, senior to the business unit directly interested in the transaction) could exercise the discretion to approve the transaction. In speaking for several large investment firms, a representative of the securities industry told us that all investment firms recognized that the various processes and policies they have adopted for transaction review and approval are fallible. However, these processes and policies were designed not to police compliance by clients with accounting or disclosure obligations, but to ensure that the relevant risks and issues presented by a transaction or new product or business line are identified and evaluated by the appropriate control functions. In their view, an investment-banking firm generally is not in a position to perform an effective policing function vis-à-vis its client for a number of reasons. First, investment banks generally (underwritings present a partial exception to this general principle) will not have access to financial or transactional information that, although unrelated to the specific transaction under consideration, is relevant to determining whether the client’s disclosure for a transaction is appropriate. Moreover, investment-banking firms are frequently not in a position to make the relevant materiality determinations or to exercise control over disclosure determinations. Indeed, these determinations are made in many cases subsequent to the execution of the transactions. The investment banks expressed the view that it is a client’s senior management, audit committee, and independent auditors who are in possession of the information and decisionmaking authority necessary to exercise an effective gatekeeping role. Therefore, according to these investment banks, as a policy matter, these are the groups who should be viewed, and who should view themselves, as responsible for performing that role. The transactions that are the focus of this report were reportedly vetted through the risk management processes of the investment banks involved. For example, one investment bank told us that it had been engaging in prepay transactions with Enron for about a decade and that it had closely reviewed the initial transactions but not subsequent prepays, which were not seen as a new type of transaction. The investment bank maintained that because it had not reviewed the later transactions, it had not realized the extent to which Enron had changed from an energy company to a financial company over the years. Another investment bank told us that its risk management reviews of the Enron transactions relied heavily on Enron’s assurances that the outside auditor for Enron had reviewed the transactions and considered them appropriate. Representatives of the investment bank also said that, in their view, the decision to approve the transactions was appropriate given the information they had at the time. But they added that if they had known then what they know now about Enron, they would not have done business with the company. A securities industry official told us that risk management decisions regarding the Enron transactions failed not because investment banks did not have internal control processes but because Enron did not provide these firms with the whole picture. Representatives of some investment banks told us that after Enron’s collapse, their firms became more sensitive to risk management issues, such as the possibility that some transactions could involve fraudulent or questionable financial reporting on a client’s part. Based on this experience, some investment banks told us they had taken steps to strengthen their risk management, although the processes themselves remained essentially the same. For example, one investment bank created a new policy review office to formalize and strengthen the firm’s process for examining transactions and products. According to the investment bank’s chief executive officer, the office is intended to help ensure that the firm does not participate in transactions that its clients do not properly disclose. The investment bank’s management told us that their risk management process would not presume that transactions with highly rated large U.S. corporations were appropriate without asking more detailed questions. Instead, regardless of the corporation’s size and reputation, the investment bank would require a closer look at all complex transactions that could involve fraudulent or questionable financial reporting. Investment bank representatives also said that accounting and tax-driven transactions would now get a more thorough review. Representatives from another investment bank told us that legal and accounting representations on some transactions would now be obtained from outside sources. Representatives from yet another investment bank said that, based on their negative experiences with Enron, they were now willing to ask more questions about specific transactions. In August 2002, this investment bank announced a new initiative as one of a series of enhancements to the controls it imposes on the execution of transactions that raise legal, accounting, or other reputation issues. This new policy states that if the transaction would be materially significant for the client, the investment bank will proceed only if the client commits to disclosing the transaction’s “net effect” on its financial position. Under this policy, the focus will be on the economic reality of the transaction, not just its form. Officials from this firm said that risk management processes do not necessarily discover corporate accounting fraud on the part of clients. According to bank regulators, since Enron’s collapse financial institutions have taken some steps to deal with risk management issues in future transactions. First, the financial institutions have centralized the process for establishing, using, and managing SPEs and conducting separate audits of SPEs’ activities. Second, they have strengthened their review and approval processes for complex structured transactions in several ways. For example, management reviews during the approval process now include a broader range of senior managers from various areas of the financial institution and focus more closely on assessing customer motivation and appropriateness. In order to obtain a structured product, customers are required not only to provide information on disclosures and accounting treatment but also to comply with strict reporting standards. Bank regulators said that these are positive steps toward strengthening internal processes but noted that it is too early to evaluate how well the changes will work. The Federal Reserve, OCC, and SEC share responsibility for overseeing the largest complex financial institutions. Each regulator is responsible for specific activities. The Federal Reserve regulates bank holding companies and state-chartered banks that are members of the Federal Reserve System; OCC regulates the activities of nationally chartered banks; and SEC regulates activities involving securities and firms (broker-dealers) that trade securities. Banking and securities regulators have different regulatory missions and focus on different operational aspects of the entities they oversee. Because commercial banks accept customer deposits and use those funds to lend to borrowers, banking regulators tend to focus on safety and soundness. Securities regulators focus on protecting investors and ensuring that markets are fair. SEC aims to ensure that public companies fully disclose material information, including the risks associated with their transactions and their financial condition, so investors can make informed investment decisions. Because risks can manifest themselves in different parts of a large financial institution, it is important for federal financial regulators to be able to assess the overall risk management activities of the entire organization. Most large financial institutions have a firm-wide risk management framework in place to identify and control risk. These institutions can have complex structures, including parent companies, affiliates, and subsidiaries, all of which can be involved in different aspects of risk assessment. The component entities may have one or more federal financial regulators, or, in some cases, none. Banks and their holding companies are regulated on a consolidated basis, but in the securities sectors, SEC-registered broker-dealers are regulated by SEC, even if these entities are part of a larger holding company. Although those parts of a securities firm that are outside the broker-dealer may not be regulated by SEC, SEC has authority to extend its oversight beyond the broker-dealer to assure that activities in the affiliates do not threaten the soundness of the regulated entity. SEC officials said that, when appropriate, they have used this authority to examine the overall risks of affiliates. The Federal Reserve, OCC, and SEC use a risk-focused exam approach that concentrates on those products, transactions, and services that are considered to pose the greatest risks to an individual firm’s overall financial condition or the financial system as a whole. Risk is the potential that expected or unanticipated events can cause a firm to suffer losses that adversely affect its capital and earnings. Table 2 describes selected types of risk. Under the risk-focused supervision approach, bank and securities examiners identify the most significant risks to a financial institution and then determine whether risk management and internal control systems are in place to identify, measure, monitor, and manage those risks. Because of the complexity of the largest financial institutions and the number of transactions they conduct, bank and securities examiners focus on assessing the integrity and effectiveness of the institutions’ overall risk management and internal control systems. As deemed appropriate, bank examiners also test selected transactions, and SEC reviews the policies and procedures firms have in place. Federal financial regulators have an array of tools at their disposal to ensure that regulated entities take corrective steps when problems are identified. These tools range from informal supervisory actions such as issuing a deficiency letter (SEC) or issuing a memorandum of understanding (bank regulators) that details areas where corrective measures are appropriate to formal enforcement actions such as cease and desist orders and referrals to other regulators or law enforcement agencies for civil or criminal sanctions. According to federal financial regulatory officials, only a few large financial institutions offer complex structured transactions such as those involving Enron, although a variety of other financial institutions may conduct isolated structured finance transactions. Federal financial regulators noted that prior to Enron’s collapse they had not viewed reputation risk from structured transactions as a high-risk area, primarily because (1) the risk focus was on traditional market, credit, and operational risks; (2) the size and volume of transactions were small relative to the total capital of relevant financial institutions; (3) many such transactions are conducted with investment-grade firms; and (4) with respect to securities firms, many of the activities may have taken place in affiliates outside of the SEC-regulated broker-dealer. Banking agency officials told us that they had each reviewed the accounting for prepay transactions conducted with Enron at one bank in their respective jurisdictions and found it consistent with generally accepted accounting principles. SEC officials noted that their focus is on the policies and procedures the investment banks have in place for assessing risk and approving these transactions and only review select transactions to evaluate whether the policies and procedures have been effectively implemented. Federal financial regulators said that since the Enron scandal they have refined their approach to supervising certain operational aspects of the institutions that are involved in complex structured transactions. In a February 10, 2003 response to questions posed to them by PSI, officials of the Federal Reserve, OCC, and SEC said that staff at their agencies were continuing to review investment banks’ participation in the complex financial products, transactions, and practices that have raised significant legal and accounting questions. Further, in carrying out these reviews, the federal financial regulators said that they were collaborating on both specific issues arising from the practices under review and broader issues relating to the internal control and oversight mechanisms investment banks need to oversee structured finance transactions. The agencies were not planning an additional one-time joint review but said they would continue conferring on the investigations and examinations that were already under way. The federal financial regulators said that during 2003 they would review and evaluate the actions individual organizations were taking to strengthen policies and practices in the structured finance business. Based on the results of these reviews, the agencies intend to develop consistent guidance and best practices for the entities within their respective regulatory jurisdictions that they believe are necessary to clarify their expectations for sound control and oversight mechanisms. In addition, some of the federal financial regulators have altered their policies and procedures examination manuals to improve oversight of structured products and the institutions that use them. In the fall of 2002, for example, the Federal Reserve issued additional examination guidance on supervising structured products and SPEs. Further, SEC officials stated that the agency is drafting a new examination module for structured finance transactions to be used in examining the risk management and internal control systems of broker-dealers. SEC has been conducting risk management and internal control system examinations since 1995, but limited resources have kept the agency from doing as many exams as it considers necessary. An SEC official stated that an anticipated budget increase should allow the agency to increase its staffing and conduct additional examinations. In light of Enron’s collapse, legislation and regulations have been adopted that attempt to restore investor confidence by requiring more disclosure and transparency in structured finance transactions. One area that has received particular attention is the disclosure of off-balance sheet transactions in registration statements and periodic filings. In addition, SEC is required to study this issue and to produce a report of its findings. Registration statements and periodic reports contain a “management discussion and analysis” section for management to explain clearly a company’s financial condition. According to SEC, as a response to uncertainty over quality of earnings issues in general, including those raised by the collapse of Enron, SEC issued a release cautioning company management to report in this section full explanations of their “critical accounting policies,” the judgments and uncertainties affecting the application of these policies, and the likelihood that materially different amounts could be reported under different conditions or using different assumptions. Structured finance transactions frequently require the application and selection of critical accounting policies. SEC issued a follow-up release proposing rules to codify and expand upon this guidance in May 2002. According to an SEC official, SEC staff are currently reviewing the comment letters and developing recommendations for future SEC action on this topic. In July 2002, Congress enacted Section 401(a) of the Sarbanes-Oxley Act, which required that by January 2003 SEC issue final rules providing that annual and quarterly financial reports filed with SEC disclose all material off-balance sheet transactions, arrangements, and obligations. On January 22, 2003, SEC adopted rules to implement that section. These rules stipulate that financial reports that public companies are required to file with SEC after June 15, 2003 include an explanation of the company’s financial condition disclosing material off-balance sheet transactions, arrangements, obligations, and any relationships the issuer has with unconsolidated entities. In August 2002, pursuant to Section 302(a) of the Sarbanes-Oxley Act, the SEC adopted rules to require the certification of an issuer’s quarterly and annual reports by its principal executive and financial officers. SEC also adopted rules requiring issuers to maintain and regularly evaluate the effectiveness of disclosure controls and procedures. Among other things, the certifications state that the overall financial disclosure fairly presents, in all material respects, the company’s financial condition, results of operations and cash flows. A “fair representation” of an issuer’s financial condition and results of operations and cash flows encompasses the selection of appropriate accounting policies, proper application of appropriate accounting policies, disclosure of financial information that is informative and reasonably reflects the underlying transactions and events, and any additional disclosure necessary to provide investors with a materially accurate and complete picture of an issuer’s financial condition and results of operations and cash flows. Such certification forces the executive officers to not only certify whether the company’s financial statements are prepared in compliance with generally accepted accounting principles, but also whether the financial statements and other financial information fairly present in all material respects the financial condition and results of operations and cash flows of the company. In addition, Section 402 of the Sarbanes-Oxley Act requires that SEC complete a study by January 2004 to determine not only the extent of off- balance sheet transactions and the use of SPEs but also the degree to which the economics of such transactions are transparently conveyed to investors. The act also requires that SEC report to the President, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives 6 months after the study is completed on the following: public companies’ off-balance sheet transactions and use of SPEs, the extent to which SPEs are used to facilitate off-balance sheet transactions, the extent to which current rules and accounting principles result in financial statements that are transparent with respect to SPEs and off- balance sheet transactions, the extent to which current accounting principles result in the consolidation of issuer-sponsored SPEs when the issuer carries most of the SPEs risks and receives most of its rewards, and recommendations for improving the transparency of reporting off-balance sheet transactions in public companies’ financial statements. In response to controversies related to Enron’s use of SPEs, the accounting guidance related to SPE financial reporting was clarified in January 2003 when the Financial Accounting Standards Board released Interpretation No. 46, Consolidation of Variable Interest Entities. In general, this new guidance requires that an SPE be consolidated with another entity if that entity is the primary beneficiary of the SPE—that is, if it absorbs the majority of the risks and rewards of the SPE’s operations. Specifically, an SPE would be consolidated with its primary beneficiary if the outside equity investment was not at least 10 percent of its total assets and is not greater than its expected losses, or if the outside equity holders in the SPE lack (1) the ability to make decisions about the SPE’s activities (control), (2) the obligation to absorb expected losses of the SPE if they occur (risk), and (3) the right to receive residual returns of the SPE if they occur (reward). Many SPEs that were previously unconsolidated will be consolidated as a result of the interpretation, starting with their first fiscal year or interim period beginning after June 15, 2003. According to some allegations, some research analysts at investment banks recommended Enron and Global Crossing securities to investors in order to get lucrative investment bank deals for their firms. Such analysts are better trained and positioned than the average retail investor to assess the value of a company’s securities. The value and credibility of their recommendations depend on their maintaining unquestioned independence and objectivity in their research and resulting investment recommendations. The issues surrounding research analysts’ actions in recommending Enron raise a number of serious questions, primarily concerning the effectiveness of barriers between the research and investment banking functions of investment banks. In response to this concern, regulators have introduced new rules designed to reduce such conflicts of interest, and a number of other actions have been initiated. Research analysts study publicly traded companies and make recommendations about the securities of those companies, often by issuing research reports. Investors often see research analysts at investment banks as important sources of information about securities. However, many factors can adversely affect these analysts’ independence and objectivity in their research reports, including investment banking relationships and compensation arrangements tied to investment banking revenues. Conflicts of interest reportedly emerged at several investment banks that made stock recommendations about Enron and Global Crossing. For instance, research analysts with Merrill Lynch and Citigroup’s Salomon Smith Barney Inc. (Salomon Smith Barney) who were covering Enron and Global Crossing allegedly were pressured to issue misleading research reports on these companies because the companies were current or prospective investment banking clients. Although PSI did not examine the research analyst issue, certain documents released at a PSI hearing suggest that Merrill Lynch terminated a research analyst because he did not provide a sufficiently favorable rating on Enron that would have improved the investment bank’s chances of being chosen by Enron to participate in lucrative investment banking work. Merrill Lynch officials contended that the analyst was terminated for other reasons and that he actually raised his rating on Enron while working at another firm, one month after he had left Merrill Lynch and before Merrill Lynch did so. A number of class action securities lawsuits allege that a Salomon Smith Barney research analyst covering Global Crossing Ltd. was pressured to issue misleading research reports on this company because the company was a current investment-banking client. The analyst reportedly issued compromised or misleading research reports containing buy ratings for the company that had no basis in fact. The complaints also allege that the analyst provided strategic advice, essentially acting as an investment banker as well as a research analyst. This relationship between Salomon Smith Barney’s analyst and its investment bankers was allegedly not disclosed. Citigroup officials told us that Salomon Smith Barney believed that the analyst did in fact have a reasonable basis for his analysis and that the company and the analyst are defending the lawsuits. The analyst in question resigned in 2002. In addition, Citigroup officials informed us that Salomon Smith Barney has created a new structure under new senior management and implemented a number of other steps to strengthen the independence of its analysts. The role of research analysts and the potential conflicts of interest involving them raise a number of issues. The primary one is the adequacy and effectiveness of barriers between the research and investment banking functions of investment banks. In June 2001, the New York Attorney General opened an investigation into the practices of Merrill Lynch concerning analyst ratings and in May 2002 reached a settlement with the firm. According to the terms of the settlement, Merrill agreed to fines of $100 million and significant reforms, including severing the link between analysts and investment banking. In May 2002, both NYSE and NASD received SEC approval for rules addressing conflicts of interest involving analysts at companies that have an investment banking relationship with firms their analysts cover. The new rules are intended to reestablish the separation between the investment banking and research departments of large multiservice brokerage firms and prevent investment banking personnel from reviewing or approving research reports prior to publication. Similar restrictions apply to communications between the research department and the company being researched, with the additional restriction that the company being researched is not to be provided with a research summary, the research rating, or the price target. Further, the rules state that companies cannot be offered, directly or indirectly, favorable research, a specific rating, or a specific price target, nor can they be threatened with changes to research, a rating, or a price target as consideration or inducement for business or compensation. In addition, both NASD’s and NYSE’s rule changes require disclosure of financial interests held by the brokerage firm, analysts, and analysts’ family members and of any other material conflict of interest associated with recommending a particular security. Analysts are also subject to trading restrictions with respect to securities in the subject company. In addition, the rules prohibit research analysts from receiving compensation in any form—bonus, salary, or otherwise—based on a specific investment banking services transaction. According to NASD officials, NASD and NYSE have incorporated the new rules into their examination programs and have already begun examining firms for compliance with them. Soon after these rules were adopted, NASD and NYSE began conducting joint examinations of multiservice brokerage firms for compliance with the new NYSE and NASD analyst rules on conflicts of interest. NASD and NYSE proposed additional rules in December 2002 that are intended to further manage analyst conflicts. The rules would, among other things, further insolate analyst compensation from investment bank pressures, prevent the issuance of “booster shot” research reports, and require disclosure of a final research report when an analyst terminates coverage of an issuer. We could not evaluate the overall effectiveness of the rules because they are so new. A number of other important steps have been taken to address research analysts’ conflicts of interest. First, in the last year NASD has brought many enforcement actions against broker-dealers that have issued misleading analyst reports without having a reasonable basis for the statements made in the reports. NASD brought most of these actions under NASD Rule 2210, which requires broker-dealers to have a reasonable basis for assertions they make in their research reports. In April 2002, SEC announced that it had begun a formal inquiry into market practices concerning research analysts and the potential conflicts in the relationship between research and investment banking in brokerage firms. According to SEC officials, as part of this inquiry SEC, NYSE, and NASD conducted joint examinations of 12 multiservice brokerage firms. The purpose of the examinations was to ascertain facts, conditions, practices, and other matters relating to conflicts of interest associated with the work of research analysts. In October 2002, SEC, NYSE, and NASD announced that they would work jointly with the New York Attorney General’s office and the North American Securities Administrators Association to bring to a speedy and coordinated conclusion the investigations concerning research analysts. NYSE and NASD conducted joint examinations of the same firms separate from those examinations that they were conducting for compliance with the new NYSE and NASD analyst rules on conflicts of interest. SEC examination staff also participated in these examinations. A settlement in principle to resolve issues of conflict of interest at multiservice brokerage firms was announced in December 2002, with 10 large investment banks agreeing to pay over $1.4 billion in sanctions and agreeing to certain reforms. Among the reforms were an agreement to sever links between research and investment banking, a ban on allocating initial public offering shares to corporate executives and directors, an obligation to contract with at least three independent research firms to provide research to the brokerage firm’s customers for 5 years, and the hiring of an independent consultant (chosen by regulators) for each firm with final authority to procure independent research from independent providers. Additionally, the settlement would require each firm to make its ratings and price target forecasts publicly available. The settlement in principle is subject to approval by the SEC Commissioners. On February 6, 2003, SEC adopted Regulation AC (Analyst Certification), which requires that any research report disseminated by a broker, dealer, or certain associated persons of a broker-dealer include certifications by the research analyst that the views expressed in the research report accurately reflect the analyst’s personal views and disclose whether the analyst received compensation or other payments in connection with his or her specific recommendations or views. The regulation also requires analysts to provide certifications in connection with public appearances. By requiring these certifications and disclosures, according to SEC, the regulation should promote the integrity of research reports and investor confidence in the recommendations they contain. According to SEC officials, SEC examination staff will continue to examine for issues related to conflicts of interest involving research analysts in future examinations. SEC, NASD, and NYSE will examine investment banks for compliance with Regulation AC and self-regulatory organization rules on such conflicts of interest. Today structured finance transactions such as those Enron entered into with various investment banks are very complex arrangements designed to achieve a variety of economic and tax purposes. With such creative financing, two financial transactions can, for example, have identical financial or economic outcomes but substantially different tax and accounting implications. The appropriateness and presentation of such transactions can hinge, among other things, on the actual purpose and intent of the transactions involved. Designing, advising on, or participating in such transactions can be lucrative for investment banks, which compete vigorously for the business. In the case of Enron, the incentives to participate in transactions to accommodate the client were strong: the prospect of handsome revenues and the perceived risk-mitigating factor that Enron was a large, prominent, investment-grade company whose outside auditor had reportedly vetted the appropriateness of the transactions. Given these incentives, the investment banks may have reduced the weight attached to or overridden their risk-management systems. These events illustrate that lapses in market discipline can create significant reputation and legal risks and that adequate due diligence is always necessary, regardless of the sophistication or prominence of the counterparties. Although investment banks have primary responsibility to practice prudent risk management procedures, prudent procedures do not guarantee prudent practices. The events surrounding Enron’s collapse demonstrate the importance of regulatory oversight in identifying and promptly correcting weaknesses in risk management practices. Prior to Enron’s collapse, federal financial regulators had not identified the lapses in investment banks’ risk management practices and the threats reputation and legal risks posed to firms involved in complex structured transactions with Enron. Federal financial regulators placed significantly more emphasis on the regulated firms’ risk of material loss from traditional risks, such as counterparty default, than they did on less quantifiable factors such as reputation or legal risk. We are encouraged that investment banks are beginning to strengthen their risk management practices by, among other things, gaining additional assurances of the underlying intent behind and the anticipated accounting treatment and presentation of complex structured finance transactions they facilitate for their clients. The purpose and intent behind these complex structured transactions must be properly understood and transparent. Now, federal financial regulators need to determine whether these safeguards will be sufficient and develop a means not only to ensure that the safeguards are implemented properly and swiftly but also to take steps to more regularly consider the reputation and legal risks associated with complex structured transactions in future examinations. Accounting and auditing standards and securities laws recognize that an entity’s management is responsible for the fair and accurate presentation of the entity’s financial statements. Investment banks are not typically responsible for their client’s accounting. However, it is a violation of the federal securities laws for investment banks to aid and abet complex structured financial transactions that will materially misstate a public company’s financial statements, thereby deceiving investors and creditors. SEC would have the authority to bring a legal action for aiding and abetting a securities violation against an investment bank if the investment bank knowingly gave substantial assistance to its client in carrying out a violation of the securities laws. However, we have observed that a conflict exists among the courts about the level of knowledge that SEC must prove to successfully bring an aiding and abetting case. As previously discussed, in some courts the level of knowledge must be actual knowledge, a difficult element to prove. In other jurisdictions, the proof of reckless disregard for the truth is sufficient. Depending on where the fraudulent conduct occurred or the location of potential parties to the suit, SEC may not be able to successfully pursue all cases that may involve potential aiding and abetting violations. Since investment banks might be tempted to participate in profitable but questionable transactions when successful SEC prosecution is in doubt, it is especially important that regulators be alert to this possibility and be ready to use the rest of their enforcement tools to deter such actions. Another ongoing issue is the potential conflict of interest between investment bankers and research analysts. The value and credibility of research analysts’ recommendations depend on the analysts’ unquestioned independence and objectivity in their research and resulting recommendations. However, many factors can put pressure on an analyst’s independence and objectivity, including investment banking relationships and compensation arrangements tied to investment banking revenues. SEC, NYSE, NASD, the New York Attorney General, and other states have taken actions to promote the integrity of research reports and investor confidence in the recommendations contained in those reports, but it is too soon to assess the overall effectiveness of these steps. In addition, SEC, NYSE, and NASD are required to take further actions to promote the integrity of research reports in compliance with the directives of The Sarbanes-Oxley Act. This issue will need to be monitored to ensure that regulatory actions achieve the desired results. We provided copies of a draft of this report to the Federal Reserve, OCC, SEC, and the Department of Justice for their comment. The Federal Reserve, OCC, and SEC provided technical comments, which we have incorporated where appropriate. The Department of Justice had no comment. We are sending copies of this report to the Chairman and Ranking Minority Member of the Permanent Subcommittee on Investigations, Senate Committee on Governmental Affairs; the Chairman and Ranking Minority Member of the Senate Committee on Governmental Affairs; and the Chairman and Ranking Minority Member of the House Committee on Energy and Commerce. We are also sending copies of this report to the Chairman of the Federal Reserve, the Chairman of the SEC, the U.S. Attorney General, the Comptroller of the Currency, and other interested parties. This report will also be available at no cost on GAO’s Internet homepage at http://www.gao.gov. This report was prepared under the direction of Barbara I. Keller, Assistant Director. Please contact her or us at (202) 512-8678 if you or your staff have any questions concerning this work. Key contributors are acknowledged in appendix III. To determine the role investment banks played with Enron Corporation (Enron) in designing and executing structured finance transactions, we reviewed public reports and congressional testimony, interviewed private and public sector officials, and searched the Internet for relevant information. We selected five transactions involving primarily three investment banks for our analysis. The transactions do not cover all of the transactions these investment banks participated in with Enron, nor do they represent transactions with all of the investment banks with which Enron had relationships. They do, however, exemplify a variety of relationships Enron had with a number of different investment banks. The five transactions were discussed at hearings held by the Senate Committee on Governmental Affairs, Permanent Subcommittee on Investigations (PSI),in July and December 2002. These transactions are among those involving allegations that investment bankers assisted Enron in manipulating its earnings but are not those included in Enron’s restatement of its financials for the period 1997 through the second quarter of 2001. We did not have sufficient public information to determine the extent of investment bank involvement in the latter transactions. Given the short time frame and the ongoing agency investigations, we did not do an independent investigation into the involvement of these investment banks in possibly aiding and abetting Enron’s alleged securities fraud arising from these latter transactions. Moreover, the investment banks described themselves as passive investors, and we did not confirm or refute their assertions. We interviewed investment bank and federal financial regulatory officials to obtain their views on information (facts and issues) presented at congressional hearings regarding some of the above-mentioned transactions. We also spoke with PSI staff and compared PSI’s disclosures, such as descriptions of transactions, with information presented in other publicly available documentation, including the Powers Report, the bankruptcy court examiner reports, Securities and Exchange Commission (SEC) complaints, and complaints in private lawsuits. To determine regulatory oversight of structured financial products, we interviewed relevant officials at the federal financial regulatory agencies (SEC, Office of the Comptroller of the Currency , and the Federal Reserve) about their oversight and examination processes for structured finance transactions. We also reviewed examination guidance and relevant GAO reports. To determine investment banks’ risk management and internal controls processes, we interviewed members of the Securities Industry Association as well as representatives of the investment banks whose transactions we analyzed. We also reviewed companies’ annual reports and literature on financial risk management. To understand the role investment banks’ research analysts played with Enron and Global Crossing Ltd. (Global Crossing), we focused on the alleged conflicts of interest that affected the objectivity and independence of Merrill Lynch & Co., Inc (Merrill Lynch) and Citigroup Inc.’s Salomon Smith Barney Inc. research analysts. We relied on congressional testimony, legal cases, law review articles, settlement agreements, press releases, and bankruptcy filings for most of our information. To determine the issues raised and responses taken, we reviewed SEC, New York Stock Exchange, and NASD rules, proposals, releases, and documents about their new policies and rules. To determine the standards for aiding and abetting liability, we relied on case law, statutes, and law review articles. We found no publicly available documents or references to investment bank involvement with Global Crossing in its design or implementation of structured transactions. We discuss other client relationships, primarily those involving research analysts, that investment banks had with Global Crossing. For this discussion, we relied on public documents, including those obtained by the House Committee on Financial Services. Investigations and litigation are under way in connection with both Enron and Global Crossing, and it was not our objective to assess, nor should this report be construed as assessing, the potential culpability of the parties involved in the transactions discussed in the report. In instances such as these, if we have good cause to believe that any potential violations of applicable laws or regulations have occurred, we refer such matters to the appropriate governmental authorities for their consideration and possible action. As noted, there are currently ongoing and extensive litigation and investigations involving Enron and Global Crossing generally. We conducted our work between September 2002 and March 2003 in Washington, D.C. and New York, N.Y. in accordance with generally accepted government auditing standards. This appendix describes five transactions involving investment banks that assisted Enron Corporation (Enron) in its use of structured finance to generate recorded sales, decrease taxes, and facilitate prepay transactions that resulted in beneficial operating results. It has been alleged that Enron’s accounting for these transactions was deceptive and that investment banks in various ways knowingly enabled Enron to manipulate and obscure its reported results or to evade taxes. Congressional hearing documents and an SEC complaint describe a transaction in which Enron reported a $12 million gain from selling interest in three power barges located in Nigeria to Ebarge, LLC (Ebarge), a special purpose entity (SPE) created for this transaction by Merrill Lynch. This transaction occurred on December 29, 1999, 2 days before the year-end closing date of Enron’s 1999 financial statements, reportedly to allow Enron’s African Division to make its earnings target for the year. See figure 1 for a diagram of this transaction. Merrill Lynch, through its SPE Ebarge, purchased an interest in the barges for $28 million from a Nigerian Enron subsidiary. Merrill Lynch provided $7 million in cash to Ebarge for equity ownership. The remaining $21 million was obtained as a loan from another Enron entity that received no interest payments from Ebarge. It has been asserted that Merrill Lynch, through its SPE, Ebarge, did not have equity from the purchase at risk because Enron officials made oral guarantees to arrange for the resale of Merrill Lynch’s interest in the barges by June 30, 2000, with a specified return for Merrill Lynch for its involvement in the transaction. A publicly available Merrill Lynch document related to this transaction indicates that prior to entering into the transaction, Merrill Lynch received assurance from Enron that its investment would be liquidated within 6 months. On June 29, 2000, after Enron’s efforts failed to sell Merrill Lynch’s interest to an independent third party, LJM2 Co-Investments, L.P., an Enron-related party, purchased Ebarge from Merrill Lynch, which ended Merrill Lynch’s ownership interest in the barges. Merrill Lynch received fees and a return on its investment that totaled $775,000, equaling the allegedly promised return to Merrill Lynch for its involvement in the transaction. If, as asserted, Merrill Lynch through its SPE, Ebarge, did not have an equity risk in the barges but instead had a credit exposure to Enron, then Enron should have reported this transaction as a secured borrowing instead of a $12 million gain on the $28 million sale of an asset. This accounting would have reduced Enron’s net income and increased Enron’s debt. Merrill Lynch officials contended that Enron proposed and structured the transaction and also assured Merrill Lynch that its outside auditors had vetted and approved its accounting for the transaction. Merrill Lynch officials also contended that Merrill Lynch provided no accounting advice to Enron and that Merrill Lynch in fact was at risk in the transaction because, while Enron orally agreed to make a “best effort” to find another buyer for the asset, this promise was not a legally binding guarantee and there was no guarantee that Merrill Lynch would receive a certain rate of return. Merrill Lynch officials told us they undertook the transaction to accommodate Enron in the hope of receiving increased investment banking business from Enron at a later time. In February 2003, Merrill Lynch said that it had agreed in principle to pay a fine to resolve SEC civil charges that it aided Enron in fraudulently overstating Enron’s earnings in 1999. The settlement in principle is subject to approval by the SEC. One of the transactions reported to be included in the settlement was this Nigerian barge transaction. Publicly available documents describe another series of transactions, which Enron recorded as a sale, that involved Enron, Citigroup Inc. (Citigroup), and several SPEs. These transactions, referred to as Bacchus and Sundance, took place over a 6-month period beginning in December 2000. PSI and the bankruptcy examiner concluded that the substance of the transactions was borrowing (i.e., a loan), which instead of being reported as debt was recorded as a sale with a gain that increased Enron’s net income. See figure 2 for a diagram of these transactions. The initial Bacchus transaction took place late in December 2000, just prior to the year’s end. In this transaction, Enron sold ownership interest in a pulp and paper trading business to an Enron-created SPE, the Caymus Trust, for $200 million. The Caymus Trust purchase was funded by a $6 million cash equity investment by FleetBoston and a loan from Citigroup for $194 million. Enron recorded a $112 million gain from the $200 million sale of its ownership interest. It was reported that Citigroup assumed the risks of FleetBoston’s ownership through a total return swap and that Enron assumed Citigroup’s risk associated with the $194 million loan, also through a total return swap. The effect of these agreements would indicate that Citigroup held equity risk of $6 million, or 3 percent, of the $200 million purchase and that Enron retained the remaining risk associated with the asset. However, it has been alleged that Citigroup, despite its swap contract with FleetBoston, did not have equity risk for the $6 million cash investment because Enron officials provided verbal guarantees to Citigroup to ensure the repayment related to the $6 million investment. If Enron was in fact the only entity with equity risk, the prescribed accounting treatment would have been to consolidate the SPE into Enron’s financial statements and to report the $200 million received as debt, not a sale. This accounting treatment would not have allowed the gain of $112 million that Enron recorded in its financial statements and would have increased Enron’s reported debt by $200 million. The gain recorded as a result of this transaction represented about 11 percent of Enron’s total net income in 2000. A publicly available Citigroup document indicates that “Bacchus is a part of a program designed to ensure that Enron will meet its year-end .” Another Citigroup document indicates that technical issues “may make Bacchus unworkable—Enron continues to try to resolve these unnamed issues.” In this event, a Citigroup official noted that Enron would likely request a prepay transaction, which is discussed later in this appendix, for $200 million instead. It was reported that Citigroup received $500,000 in fees for its participation in Bacchus, earned about $5 million in interest payments on the loan, and obtained a $450,000 yield related to the $6 million equity investment. The Sundance transaction, which took place about 6 months after the Bacchus transaction, eliminated Citigroup’s risk from the Bacchus transaction by redeeming Citigroup’s investment. The Sundance transaction was initiated by the creation of an Enron and Citigroup joint venture, referred to as Sundance. Enron reportedly contributed approximately $750 million to Sundance in various financial assets, future commitments, and $208 million in cash. Citigroup reportedly contributed $188.5 million to Sundance, comprising $8.5 million in cash, $20 million of shares in an Enron SPE, and $160 million in an “unfunded capital commitment.” It was reported that Sundance immediately used the $208 million in cash to purchase the pulp and paper trading business interest from the Caymus Trust. The Caymus Trust then paid off the $194 million loan from Citigroup and returned the $6 million equity investment to FleetBoston. This activity reportedly eliminated any possible risk to Citigroup from the Bacchus transaction. Citigroup agreed to participate in Sundance only after Enron had structured the joint venture to ensure that Citigroup’s funds were virtually not at risk; moreover, Citigroup’s returns would not depend on the operating results of the joint venture. In addition, Citigroup arranged to receive fees of $725,000 and a specified return of $1.1 million on its investment in Sundance; Citigroup reportedly did not share in any profits or increased value. A publicly available document prepared by Citigroup’s Risk Management Group indicates that the group initially did not approve the Sundance transaction because, among other things, “the GAAP accounting is aggressive and a franchise risk to if there is publicity (a la Xerox).” This document also indicated the “mismanagement of the process raises real questions about the discipline and adherence to policies in the fixed income division .” At a congressional hearing that examined these transactions, Citigroup officials testified that Citigroup employees acted in good faith and understood these transactions to comply with existing law and the prevailing standards of the time. These officials also testified that their internal review committee at the time, the Capital Markets Approval Committee, had reviewed and approved the transactions and that the Risk Management Group had ultimately approved it as well. Citigroup said it viewed the accounting decisions as decisions to be made by Enron and its accountants. Citigroup noted that Enron was a Fortune 10 company and that Enron’s auditors from Arthur Andersen were presumed to know about the transactions and to have approved their accounting treatment. Publicly available reports describe a complex series of structured finance arrangements, referred to as the Slapshot transaction, which took place during the same day and included a $1.039 billion loan due later that day. These transactions involved Enron, J.P. Morgan Chase & Co. (Chase), a Chase SPE, and several Enron affiliates and SPEs and were designed to refinance an Enron paper mill and at the same time decrease Canadian taxes. Since these transactions were so complicated, we have provided a simplified diagram of the Slapshot transaction (fig. 3) and a more detailed diagram (fig. 4). Chase established a key entity in the transaction, Flagstaff Capital Corporation (Flagstaff), as a wholly owned SPE and organized a bank consortium that included three other large banks to issue a $375 million loan (due in 5 years and 1 day) that would refinance an Enron paper mill. The $375 million loan and a second loan for $1.039 billion from Chase were provided to Flagstaff. Prior to Chase’s issuing the $1.039 billion loan to Flagstaff, it was reported that Chase required Enron to provide $1.039 billion in an escrow account in order to ensure the repayment of the $1.039 billion later the same day. After Flagstaff received the two loans totaling about $1.4 billion, it reportedly then loaned the same amount to an Enron affiliate. Subsequently, multiple loans and other contracts in the amounts of $375 million, $1.039 billion, and $1.4 billion reportedly were exchanged by various Enron-related entities. All of these transactions took place during the same day. A publicly available Chase document indicated that “only a $375 million net loan from Flagstaff was outstanding at the end of day one.” The amounts involved in this transaction are key to understanding how Enron could reduce its Canadian taxes, which like U.S. taxes may be reduced by interest payments but not by loan principal repayments. It was reported that the parties involved in the transactions calculated that $1.039 billion was the net present value of the $1.4 billion due in 5 years and 1 day. The difference between these two amounts equaled approximately the $375 million loan. Thus, it was reported that Enron would treat the principal and interest payments on the 5-year and 1 day $375 million net economic obligation as interest payments on the $1.4 billion loan, reducing Canadian taxes by about $60 million and providing Enron with additional financial statement benefits totaling about $65 million over 5 years. In a publicly available Chase document related to the design of the Slapshot transaction, Chase indicated that an advantage of one aspect of the structure was that it provided “no road map for Revenue Canada.” It was reported that Chase was paid more than $5 million for designing and orchestrating the Slapshot transaction. At a congressional hearing that examined these transactions, a Chase official testified that Chase believed that its participation in the transactions was legal and followed established rules. He contended that Chase’s Structured Finance Group had developed the generic form of this transaction and had received opinions from two leading Canadian law firms that the structure and the Canadian tax benefits the transaction provided were legal and valid. Copies of these opinions were provided to PSI. He went on to say that, with respect to the specific application of the transaction structure, each party involved in the transactions is responsible for ensuring that it correctly accounts for the transactions to which it is a party. At the time, Chase had no reason to believe that Enron and its external auditors were not doing so. Although prepay transactions are common in the energy industry in general, Enron’s prepay transactions were allegedly unique in that they involved a circular cash flow arrangement among the three parties involved. Enron entered into prepay transactions with various investment banks, including Chase and Citigroup. Enron accounted for these prepay transactions as trading activities, which were reported as liabilities from price risk management on its balance sheet and as cash flows received from operating activities on the statement of cash flows. However, PSI and the bankruptcy examiner concluded that Enron’s accounting for the transactions was inappropriate because the prepay transactions were in substance and intent loans, not trading activities, and Enron should have recorded them as debt and cash flows from financing activities. Distinctions such as these are important to investors and creditors that rely on financial reporting in deciding whether to invest in or lend to an entity. Publicly available reports describe prepay transactions among Enron, Chase, and an SPE, Mahonia, Ltd. (Mahonia), that was created to undertake transactions for Chase (fig. 5). In these transactions, Mahonia received cash from Chase in exchange for a commitment to deliver a fixed volume of gas at a specified future date. The purchase price was reportedly based on the estimated future market price of gas on the expected delivery date. At the same time, Mahonia and Enron entered into an identical contract, with Enron receiving from Mahonia funds that had originated with Chase. These two contracts resulted in cash for Enron and a commitment for Chase for the future delivery of a fixed volume of gas. Enron and Chase would both be at risk for changes in the price of gas. However, at the same time the two prepay contracts were executed, Enron and Chase entered into a commodity swap that essentially eliminated the price risk from the transaction and ensured Chase a specified rate of return. When Chase received the delivery of gas from Mahonia (which Mahonia received from Enron) it sold the gas to the market, in some cases back to another Enron entity. One publicly available Chase document indicated that “Enron loves these deals as they are able to hide funded debt from their equity analysts because they (at the very least) book it as deferred revenue or (better yet) bury it in their trading activities.” Between 1992 and 2001, Enron and Chase entered into 12 prepay transactions with a combined value of over $3.7 billion. According to testimony given at a congressional hearing, an interview with us, and documents supplied to us, Chase officials said that they had understood that Enron, with its auditor’s approval, had treated the prepay transactions as trading activities. After discussion with its auditor, Chase treated the prepays similarly and recorded them as trading assets on its balance sheet. Chase officials said that the firm entered into swaps to mitigate risk, as required by banking law, and that the risks of the different transactions and hedges involved in the prepays differed from those of a loan. In addition, the different components of the transaction received separate credit approvals, and each transaction stood on its own—there were no cross-default provisions and no netting of amounts, as alleged. Chase officials also maintained that each of the entities involved in the transaction was legally independent of the others. Chase provided us with excerpts from other companies’ financial statements describing those companies' prepays as a means of financing, recorded as liabilities for price risk management. Chase officials said that they believed Enron officials’ assertion that Enron’s prepay transactions were being properly accounted for as liabilities from price risk management in their financial statements. Another example of an Enron prepay transaction involved Enron, Citigroup, and a Citigroup-created SPE, Delta Energy (Delta), which served as a third party. It was reported that the earliest of these Citigroup prepay transactions, beginning in 1993, were similar in structure to the Chase prepay transactions. However, some of the later Citigroup prepay transactions involving Delta were funded by bond offerings to qualified institutional buyers instead of by Citigroup (fig. 6). By raising funds for the prepay transactions in this fashion, the institutional investors, rather than Citigroup, were at risk in case of Enron’s bankruptcy or credit default. A total of six Enron bond offerings were issued through trusts, raising $2.4 billion for the prepay transactions. The first such trust, Yosemite, loaned the bond proceeds to Delta so Delta could initiate the prepay transactions involving Enron and Citigroup. The series of transactions that followed removed price risk, allegedly ensured a rate of return to Delta, and left Delta with the same risk it would have had if it had loaned money to Enron. One publicly available Citigroup document discussing the approval of an Enron prepay transaction indicated that Citigroup’s “internal approval for the transaction will acknowledge that was basically making a loan.” Between 1993 and 2001, Enron and Citigroup reportedly entered into 14 prepay transactions with a combined value of over $4.8 billion. At a congressional hearing that examined these transactions and in an interview with us, Citigroup officials said that they had entered into the transactions in good faith and that their employees had understood that the transactions complied with existing law. The officials contended that Citigroup’s internal review committee had reviewed and approved the prepaid swaps and the Yosemite transactions. The officials also said no inherent connection existed between the notes from the Yosemite transactions, in which the risk to investors was Enron credit risk, and the prepays. The proceeds of the notes were used for the prepays, the officials noted, but could have been used for other transactions, and investors were not misled about the nature of the transactions. The ultimate problem that affected the notes, in the officials’ view, was that Enron had declared bankruptcy for reasons entirely unrelated to the prepaid transactions. In addition to those named above, Marcia Carlsen, Emily Chalmers, Orlando Copeland, Julia Duquette, Patrick Dynes, Joe Hunter, Barbara Keller, Christine Kuduk, Marc Molino, John Treanor, and Sindy Udell made key contributions to this report. | In the wake of a series of recent corporate scandals and bankruptcies, the Sarbanes-Oxley Act mandated that GAO study the involvement of investment banks with two companies, Enron and Global Crossing. In this report, the term "investment bank" includes not only securities firms but also those bank holding companies with securities affiliated or business divisions that assist clients in obtaining funds to finance investment projects. Since the activities identified in this report are the subject of ongoing and extensive investigations and litigation by competent authorities, it is not our role to determine the propriety of any of the parties' activities. To help the Congress better understand the activities of investment banks with respect to these companies we agreed to provide publicly available information on the roles investment banks played in designing, executing, and participating in certain structured finance transactions, investment banks' and federal regulators' oversight of these transactions, and the role that the banks' research analysts played with Enron and Global Crossing. Certain investment banks facilitated and participated in complex financial transactios with Enron despite allegedly knowing that the intent of the transactions was to manipulate and obscure Enron's true financial condition. The investment banks involved in the transactions we reviewed contended that their actions were appropriate and that Enron had not revealed its true purpose in obtaining their assistance. While investment banks are not responsible for the financial reporting of their clients, if it is proven that the investment banks knowingly assisted Enron in engaging in securities law violations, SEC has the authority to take legal action against them. Oversight responsibility for the investment banks' part in these transactions lay with both the banks themselves and the federal regulators. Investment banks told us that they had vetted transactions involving Enron through their risk management and internal control systems. Since Enron's collapse, these firms reportedly have been taking some steps to strengthen their internal controls, in part because they are now more sensitive to reputation risk. Federal financial regulators noted that before Enron's collapse they had not viewed structured transactions with investment-grade counterparties as particularly high risk in their exams. They subsequently are refining their approach to supervising structured transactions, and bank regulators now plan to include more transactions in their exams. Regulators are currently conducting targeted reviews of structured finance transactions at large firms and plan to develop guidance or best practices that clarify their expectations for sound control and oversight mechanisms. In the wake of the scandals, research analysts at investment banks who made favorable recommendations for failed firms have also come under public scrutiny. Investment banks allegedly pressured analysts covering Enron and Global Crossing to give investors favorable or misleading investment recommendations in order to keep or win lucrative work from the companies, creating serious conflicts of interest. Although the investment banks denied the allegations, several have been investigated by regulators and involved in litigation about conflicts of interest between their research and investment banking departments. Certain federal regulators and self-regulatory organizations have all adopted additional regulations addressing such conflicts. Although investment banks are not typically responsible for their client's accounting, it is a violation of law to facilitate transactions that an investment bank knows will materially misstate the client's financial statements. Since investment banks may be tempted to participate in profitable but questionable transactions, it is especially important that regulators be alert to this and be ready to use their enforcement tools to deter such actions. We are encouraged that investment banks and regulators are strengthening their oversight of the appropriateness of transactions, but it is too soon to evaluate the effectiveness of reforms. |
Tracing its inception to 1828, the U.S. Capitol Police is responsible for protecting the Congress, its members, Capitol buildings and grounds, staff, and visitors from threats of disruption and crime. The Capitol Police carries out its responsibilities to protect what has been referred to as the Capitol complex by, among other activities, policing the Capitol buildings and grounds and protecting members of Congress. For fiscal year 2016, the Capitol Police had an enacted budget of $375 million with over 2,100 sworn officers and civilian personnel. The Capitol Police Board is charged with overseeing and supporting the Capitol Police. The origins of the Board trace back to 1867 when responsibility for the Capitol Police force was transferred by statute from the Commissioner of Public Buildings to the Sergeants-at-Arms of the House and the Senate. The 1867 statute also required the two Sergeants-at-Arms to “appoint the members of the Capitol Police.” Several years later, in 1873, the Architect of the Capitol was added to the Board; however, it was not until 1882 that federal law first referred, formally, to the “Capitol Police Board.” The composition of the Board remained unchanged until 2003 when the Chief of the Capitol Police was added as a non-voting, ex-officio member of the Board. Over time, laws have changed the roles of the Board and the Chief of the Capitol Police with respect to their authority to appoint members of the police force. In addition, various Congressional acts have sought to strengthen the qualifications for officers’ appointment. For example, in the early days of the Capitol Police, the Sergeants-at-Arms appointed force members. In 2003 however, an appropriations act delegated appointment and hiring authority to the Chief, who currently has the authority to set the terms, conditions, and privileges of employment with the Capitol Police. Further, beginning in the early 1900s, federal law began requiring more stringent hiring standards, resulting in a police force with an increasing amount of law enforcement expertise. Specifically, in 1919, an appropriations act provided that any appointments to the Capitol Police be based “solely on account of efficiency and special qualifications.” Later, in 1935, an appropriations act specified that all appointees to the Capitol Police were required to meet hiring standards that the Board prescribed. The Board is comprised of the Senate and House Sergeants-at-Arms, the Architect of the Capitol, and the Chief of the Capitol Police. The chairman is the presiding officer of the Board and this position alternates annually between the two Sergeants-at-Arms. The Capitol Police Board also has one staff member assigned—the executive assistant, who is to serve as a central point for communication and to enhance the overall effectiveness and efficiency of the Board’s administration activities. In addition, the Board’s counsel consists of the general counsels for the Senate and House Sergeants-at-Arms, the Architect of the Capitol, and the Chief. As figure 1 illustrates, the Board members come into their positions in different ways and the Board and the Capitol Police have different reporting relationships to the congressional committees of jurisdiction. As table 1 below shows, each of the committees of jurisdiction also has unique yet related responsibilities for helping to maintain and secure the Capitol grounds and Capitol complex operations. Recognizing the importance of these committees, the Board considers all of these committees to be stakeholders for engagement. The Consolidated Appropriations Resolution, 2003, directed the Board to examine its mission and assess the effectiveness and usefulness of its statutory functions. In response, the Board issued a report to the Congress in 2003 that analyzed corporate governance standards, such as Standards for Internal Control in the Federal Government and the Business Roundtable’s Principles of Corporate Governance, and the applicability of those standards to the Board. The Board’s report also detailed the Board’s roles and responsibilities, including the statutory authorities to address such responsibilities, and its administrative structure and reporting requirements. The Board also made recommendations in that report concerning its mission, administration, processes, alternative operating structures, and the elements for necessary legislative adjustments that the Board believed would help it more effectively carry out its mission. For example, the Board recommended that: “… should serve as the board of directors for the Capitol Police in accordance with current corporate governance principles to include incorporation of articulated processes and procedures, defined roles and responsibilities, established structures for information flow and formalized mechanisms for independent self-management.” –The Board in its 2003 report to Congress. The Board also stated in that report that corporate governance theory would provide an effective model for the Board to follow in terms of roles, functions and processes for the future. In addition, the Board’s report stated that the Board intended to develop and maintain a procedures manual that would formalize existing operating procedures and, at a minimum, include new procedures for: (1) documentation of functions and processes; (2) meetings; (3) internal and external communication; and (4) periodic review and evaluation of the Board’s mission and processes. The Board’s report outlined the importance of these areas to its successful operation. The Consolidated Appropriations Resolution, 2003, also directed the Board to document its functions and processes. While in its 2003 report to Congress the Board spoke of its plans to develop such a document, it was not until 2013 that the Board adopted its official Manual of Procedures. The Manual serves as a reference tool to assist Board members in their oversight and support of the Capitol Police and helps ensure continuity when membership and chairmanship of the Board change. It describes the Board’s purpose, mission statement, internal procedures, authorities relating to its oversight roles and responsibilities over the Capitol Police, and authorities relating to the security of the Capitol complex. The Manual also identifies areas where the Board has statutory authority to issue regulations regarding the Capitol Police and the security of Congress. Further, the Manual identifies instances where the Board is required to obtain approval from, consult, or provide documentation to congressional leadership or committees. In statute and as outlined in its Manual, the Capitol Police Board has varied and wide-ranging roles and responsibilities. Its purpose is to oversee and support the Capitol Police in its mission and to advance coordination between the Capitol Police and the Sergeants-at-Arms, in their law enforcement capacities, and the Congress. With respect to oversight, in general, the Capitol Police is to police the U.S. Capitol buildings and grounds, under the direction of the Board, and is authorized to protect, in any area of the United States, members of Congress, under the direction of the Board. The Board appoints the Chief of the Capitol Police, who serves at the pleasure of the Board, and the Board meets at least once annually to review the Capitol Police’s annual budget request to Congress. The Board must approve in advance any deployment of Capitol Police officers by the Chief outside the jurisdiction of the Capitol Police, and in an emergency situation, as determined by the Board, the Chief must obtain Board approval before appointing special officers. The Board also has authority to issue regulations that govern the law enforcement authority of the Capitol Police. The Board has several oversight responsibilities related to human capital. For example, the Board is to establish and maintain unified schedules of rates of pay for the Capitol Police, with the approval of the Committee on House Administration and Senate Committee on Rules and Administration, and the Board and the Chief have authority to determine rates and amounts of basic pay, among other things. Further, the Chief may terminate an officer, member, or employee of the Capitol Police only after notifying and receiving the Board’s approval. Although some human capital responsibilities are shared with the Board, the Chief has certain separate responsibilities in this area as well. For example, the Chief may appoint, hire, suspend with or without pay, discipline, discharge, and set the terms, conditions, and privileges of employment of Capitol Police employees. The Chief may also establish regulations to provide for training of employees and may establish an educational assistance program for employees to recruit or retain qualified personnel. In addition to its oversight responsibilities, the Board also has separate security responsibilities. For example, the Board has responsibility for maintaining the security systems for the Capitol buildings and grounds, under the direction of the Committee on House Administration and Senate Committee on Rules and Administration. The Board also has exclusive charge and control of the regulation and movement of all vehicular and other traffic, including parking, within the U.S. Capitol grounds. Figure 2 provides additional details on the specific roles and responsibilities of the Board and the Chief and highlights areas where there are joint responsibilities. As depicted in Figure 2, the Board’s current scope is wide, ranging from making security decisions and establishing unified schedules of rates of pay, to approving terminations. According to officials representing two of the four law enforcement expert groups with whom we spoke, such a wide ranging scope for an oversight body is atypical. Two of the four groups we spoke with indicated that typically, law enforcement oversight bodies focus exclusively on a narrow range of issues. For example, according to two of the law enforcement expert groups we spoke with, many of these bodies are responsible for setting the strategic and policy direction of the law enforcement agency, which the Chief of Police is then responsible for implementing, but they do not have day to day input or authority over matters such as the termination of officers. Further, an official from one of the law enforcement expert groups told us that other oversight entities, such as law enforcement civilian oversight boards, may direct their attention on the appropriateness of the law enforcement agency’s policies and training but do not have a more expansive purview. Officials from three of these four law enforcement groups emphasized that a police chief generally has, or should have, the leeway to execute the decisions of the oversight body as he or she sees fit and some groups saw the scope of the Board as an anomaly among the other law enforcement entities with which they are familiar. An official from one of these groups added that putting management decisions, such as approving terminations, up to a vote as is done by the current Board, may hinder a chief’s ability to effectively lead the agency. We discuss possible adjustments to the Board’s scope later in this report. Regardless of what the specific roles and responsibilities of an oversight body are, officials from all four of these expert groups emphasized the importance of having clearly defined roles and responsibilities between the oversight body and the police chief. The Board’s Manual of Procedures fully incorporated one of the six leading practices and partially incorporated the other five to facilitate accountability, transparency, and effective external communication. We identified these six leading practices—broad areas that represent a summary of the activities that effective governing bodies should adopt— from established internal control and corporate governance standards. These six practices are: (1) defining roles, responsibilities, and areas of authority; (2) overseeing functions of the corporation—or in the Board’s case, the Capitol Police; (3) conducting performance evaluations and reviews; (4) developing processes for internal functions of the board; (5) disclosing information to stakeholders; and (6) developing processes for communication with stakeholders. As noted earlier, the Board stated in its 2003 report to Congress that it found significant value in adopting corporate governance principles, at least as a standard of guidance given the unique characteristics of the Board and Congress. Further, according to the Board, in developing its mission-related processes, the Board was guided by corporate governance standards and best practices, federal standards for internal controls, and other related sources. Fully incorporating these leading practices into its Manual would better position the Board to have reasonable assurance that its approaches facilitate accountability, transparency, and effective external communication. Table 2 illustrates each of the six leading practices; the implications for accountability, transparency, and effective external communication; and the extent to which the Board’s Manual incorporates them. In the following sections, we describe the six practices and the activities associated with each. We also assess the Board’s incorporation of these practices into its Manual as well as its implementation. The Manual partially incorporated this leading practice, as Table 3 illustrates. The following sections outline the extent to which the Board incorporated each of the four activities within this practice area into its Manual and discusses how it implemented them. Clearly define key areas of authority and responsibility and establish appropriate lines of reporting. The Manual fully incorporated this activity. For example, it presents areas where the Board has statutory authority and responsibilities regarding the Capitol Police and the security of the Capitol complex. The Manual also sets out the various reporting requirements of the Chief and Inspector General of the Capitol Police to the Board. In practice, the Chief reports routinely to the Board on Capitol Police initiatives such as security projects and the Inspector General reports quarterly on audit findings. In addition, the Manual, based on statutory provisions, identifies areas where the Board is to obtain approval from, consult with, or provide documentation to its stakeholders. As appendix II, table 9 illustrates, federal law establishes these lines of reporting, and each provision makes varying distinctions between congressional stakeholders, including leadership offices and committees, when determining to whom the Board is accountable in specific instances. In practice, the Board has followed the Manual’s directives, though as we later show, stakeholders continue to express concerns that the Board’s roles and responsibilities remain, in some cases, unclear to them. Clearly understand decisions that require specific board approval. The Manual fully incorporated this activity. In particular, the Manual presents areas where the Chief is to obtain the Board’s approval on Capitol Police matters. In practice, the Board has implemented this provision, such as when it directs the Chief to submit formal notice to the Board so that it can review a potential officer termination. Limit access to records to authorized individuals and assigning and maintaining accountability of records. The Manual fully incorporated this activity. For example, it sets out the review process for the release of security information by the Capitol Police. In addition, the Manual includes the Board’s policy for retaining official records and sets out the responsibilities of the executive assistant in supporting this policy. In practice, Board officials explained that the Board assigns records retention responsibilities to its executive assistant and this individual maintains records and keeps a log to track any incoming or outgoing Board documents. As a part of the security review, Board officials review outgoing documents for possible redactions of security information. Educate stakeholders about the board’s role and its oversight responsibilities. The Manual partially incorporated this activity. It establishes materials that the Board develops, such as the Manual, minutes of Board meetings, and year-end reports, which provide summary information to a prescribed list of stakeholders regarding its operations. However, the Manual does not address how the Board should educate stakeholders who do not have access to these materials about its roles and responsibilities. For example, the Manual establishes that the Board is to distribute its year-end report to the leadership offices, as well as to the Senate Committee on Rules and Administration, the Committee on House Administration, and the Senate and House Legislative Branch Appropriations Subcommittees. While the Board provides the committees with the year-end report, with regard to the Manual and meeting minutes, the Board largely follows statute which directs the Board to make the Manual and meeting minutes available to certain leadership offices and does not list the committees. In practice, Board officials told us that they used the statute as the baseline when creating the Manual, but they did not reconcile inconsistencies in access to materials that could inform and educate stakeholders in instances where the statute was silent. According to the Board, it prepared a high- level briefing that was delivered to stakeholders in the House with an overview of Board operations but it has not developed any other related briefings for stakeholders. As we will later describe, some stakeholders expressed a concern that the roles of the Board and the Chief are not clear to them and they wished for more information about the breadth of the Board’s oversight. Providing briefings or taking other efforts to educate stakeholders on its role—and formalizing such activities with references in the Manual—could help the Board fully incorporate this leading practice. The Manual partially incorporated this leading practice, as Table 4 illustrates. The following sections outline the extent to which the Board incorporated each of the six activities within this practice area into its Manual and discusses how it implemented them. Select and oversee the chief executive officer and senior management. The Manual fully incorporated this activity. For example, it sets out the Board’s procedures for selecting, reviewing, and removing the Chief. In addition, the Manual states that the Board is to review the Chief’s leadership, management, and administration of the police department every three years. In practice, Board officials explained that the Board has not yet overseen a Chief for longer than three years since the Board adopted the Manual, and therefore has not completed a review of the Chief’s performance. Oversee the corporation’s legal and ethical compliance. The Manual fully incorporated this activity. For example, the Manual states that the Chief is to report to the Board about ongoing and pending legal issues and the Inspector General is to report to the Board on any of the police department’s violations of laws and other serious problems, abuses, or deficiencies. In practice, the Chief and the Inspector General report to the Board as these matters arise. Oversee the corporation’s internal audit function. The Manual partially incorporated this activity. It states that the Inspector General reports to the Board, but it does not address any Board responsibilities in ensuring that the inspector’s audit findings and recommendations are promptly resolved as internal control standards suggest. In practice, Board members and staff explained that they do work with the Capitol Police to ensure recommendations from the Inspector General’s reports are implemented, but these efforts are not codified in the Manual to help ensure accountability. Ensuring the Manual reflects the Board’s oversight has been consistent with leading practices would help ensure that the accountability provisions are preserved when Board members transition. Oversee the corporation’s strategic plans. The Manual partially incorporated this activity. For example, the Manual states that the Chief’s semi-annual report is to include a status report on the goals, objectives, and strategic plan of the Capitol Police; however, it does not address any Board responsibilities in monitoring implementation of the plan by the Capitol Police to facilitate accountability, as governance principles suggest. In practice, Board officials explained that the extent of the Board’s monitoring is limited to when Capitol Police officials bring up matters related to the strategic plan to the Board. Including a provision in the Manual to direct the Board to monitor implementation would help the Board hold the Chief accountable to the department’s goals and strategies. Oversee the corporation’s annual operating plans and budgets. The Manual partially incorporated this activity. The Manual states that the Board will meet at least once a year to review the Capitol Police’s annual request for funding and accompanying budget justification before submitting it to the appropriations committees but it does not detail the Board’s responsibilities for providing input to the request for funding or approving the request in areas where it has statutory responsibility, such as determining Capitol Police amounts and rates of pay. In practice, Board members and staff explained that the Board reviews and approves the Capitol Police’s budget justification in its entirety before it is submitted to the appropriations committees. In our discussions with the Board, officials explained that the Board and the Chief may discuss the manpower needed to support an initiative or project included in the justification and as needed, they may also discuss projects that leadership offices would like to include in the department’s justification. After the Board approves the justification, Capitol Police management works with the appropriations committees, and the Board members may reach out to the committees if additional communication is necessary. In addition, the Manual states that the Chief’s semi-annual report is to include a status report on the Capitol Police’s spend plan. However, it does not address any Board responsibilities in monitoring budget execution by the Capitol Police, which may include activities such as assessing whether the budget is appropriately responsive to changing security conditions, as governance principles suggest. In our discussions with the Board, officials explained that the Board proactively monitors the police department’s execution of the budget but these efforts are not codified in the Manual. Codifying them as such could help the Board ensure the police department’s accountability for sound fiscal stewardship. Oversee the corporation’s risk assessment and management processes. The Manual partially incorporated this activity. As discussed above, the Manual states that the Chief reports to the Board on the Capitol Police’s strategic planning and the Inspector General reports to the Chief and the Board on findings or operational deficiencies from audits. Internal control standards consider strategic planning and consideration of audit findings, among others, to be methods for identifying internal or external risks to an organization for achieving its objectives. However, beyond addressing these actions that can help identify risk, the Manual does not address any Board mechanism for overseeing the Capitol Police’s analysis and management of such risks, as governance principles suggest. Such responsibilities could include estimating the significance of the risk, assessing the likelihood of its occurrence, and deciding how to manage the risk and what actions should be taken. In practice, the Chief explained that he monitors the impact of a risk, such as workforce gaps, and reports this to the Board; however, Board officials did not specify their level of engagement in risk assessment and management and the Manual is silent on the issue. Determining how the Board could enhance the Chief’s accountability for department-wide risk assessment and management could enhance the Board’s oversight. Further, documenting this effort in the Manual would codify the procedures once implemented. The Manual partially incorporated this leading practice, as Table 5 illustrates. The following sections outline the extent to which the Board incorporated each of the three activities within this practice area into its Manual and discusses how it implemented them. Continuously review the internal structure of the corporation to ensure clear lines of accountability. The Manual partially incorporated this activity. For example, it states that the Chief is to report any proposed changes to the Capitol Police including employment and personnel procedures, organizational restructuring and security procedures. However, the Manual does not address any Board responsibilities related to monitoring the internal structure of the police department to ensure there are clear lines of accountability for management. In practice, Board officials explained that the Board monitors specific mission or operational areas of the Capitol Police through the Inspector General’s work. However, these efforts are not codified in the Manual. Codifying them as such would help the Board ensure that the department has a sound internal management structure in place, thereby helping the Board to enhance its overall oversight. Set performance objectives for the corporation and monitor implementation and performance. The Manual has not incorporated this activity. In the Board’s year-end reports, the Board includes highlights of the Capitol Police’s performance, such as the number of vulnerability assessments conducted by the Capitol Police and the number of individuals screened at the U.S. Capitol Visitor Center and congressional office buildings, among other areas of performance. However, the Manual does not address any Board responsibilities in setting objectives or monitoring performance in these areas as governance principles suggest. In practice, Board officials told us that the Board and the Chief are engaging in these activities. The Chief develops any metrics that may be needed and the Board measures the police department’s performance and gauges effectiveness or areas where the department may need to be improved. Codifying these practices would formalize performance monitoring and help ensure the department is accountable to the Board for the metrics it has established. Evaluate board performance on a continuing basis. The Manual has not incorporated this activity. In the Board’s 2003 report to Congress, it stated that a forthcoming procedures manual would include a directive for the Board to evaluate its mission, structure, and functions at the beginning of the second session of each Congress to identify opportunities for improvement. However, the Manual that the Board ultimately approved in 2013 does not include such a directive. In practice, Board officials told us that the Board has not evaluated its performance or its mission, structure, and functions since 2003 when it was directed by law to do so. Determining how the Board could best self-assess on a continuing basis could enhance the Board’s accountability to the police department and to stakeholders. Further, documenting this effort in the Manual would codify the performance self-assessment methods once implemented. The Manual fully incorporates this leading practice, as Table 6 illustrates. The Manual fully incorporated each activity within this practice area. For example, the Manual establishes the frequency of Board meetings, including regular executive sessions, and has a process for developing meeting agendas and describes the contents of its orientation materials for new members. In practice, the Board has implemented all of these provisions to hold itself accountable and to remain accountable to the department and its stakeholders. For example, the Board met regularly in calendar years 2014 and 2015 to discuss security issues, initiatives across the Capitol complex, and Capitol Police matters. The Board also documented these discussions in the meeting minutes. Further, the executive assistant maintains a log to track the status of ongoing projects and the Board member with the responsibility for implementation, and the Board uses this log to ensure progress. The Manual partially incorporates this leading practice, as Table 7 illustrates. The following sections outline the extent to which the Board incorporated each of the three activities within this practice area into its Manual and discusses how it implemented them. Clearly document internal control, transactions, and significant events and make them readily available. The Manual fully incorporated this activity. For example, the Manual includes the Board’s policies and processes for reviewing security information before its release, and preserving documents and materials that may be relevant to lawsuits or investigations. In addition, the Manual sets out the Board’s procedures for significant events such as votes on issues that require a decision by the Board and documenting these decisions in Board meeting minutes. In practice, the executive assistant is responsible for documenting these controls, transactions, and events, and has made decisions and records available when necessary. Oversee the process of disclosure and communication of information for stakeholders to make informed decisions. The Manual partially incorporated this activity. For example, the Manual sets out the types of official records the Board maintains, such as the meeting minutes; however, it does not address stakeholders’ access to information. According to statute and the Manual, the Board is to make the meeting minutes available for distribution to the House Speaker and Minority Leader and the Senate President pro tempore and Minority Leader. In practice and in accordance with the Manual, the executive assistant records the minutes for Board meetings as the Manual dictates. However, although the executive assistant told us that the Board sends a letter to these leadership offices notifying them that the minutes are available, the Board sent these letters for the first time in May 2016. Nevertheless, Board members and staff told us that, in their opinion, stakeholders face no barriers to information. They also asserted that Board members routinely make themselves available for discussion with stakeholders as needed. Further, they told us that if they were to receive requests for written materials they would consider the facts and circumstances of each request and work to ensure that any stakeholder with a need to know would receive a satisfactory response. Governance principles assert that a strong disclosure regime that promotes transparency is central to stakeholders being able to access regular, reliable, and comparable information. The principles also suggest that the information must be in sufficient detail for stakeholders to assess management’s operational stewardship—in the Board’s case, this equates to oversight of the Capitol Police and maintenance of security across the Capitol complex. As we describe later in this report, several stakeholders relayed concerns about the Board’s transparency with respect to disclosure practices. Enhancing the Manual to reflect the Board’s willingness to engage and determining the specific procedures to facilitate disclosure would help the Board improve its transparency and codify the procedures once implemented. Disclose corporate governance structure and policies. The Manual partially incorporated this activity. For example, the Manual presents the Board’s governance structure including the division of authorities between the Board, Capitol Police, and congressional leadership offices and committees. However, as previously described, the Board largely limits the Manual’s availability to select stakeholders identified in statute. Specifically, the Manual states that the Board will make the Manual available to the leadership offices, Chief, and Comptroller General; but this list does not include the committees that the Board considers its stakeholders— Senate Committee on Rules and Administration, Committee on House Administration, and the Senate and House Legislative Branch Appropriations Subcommittees. In practice, the Board sends a letter notifying the parties listed in the Manual that the Manual is available to them. However, the Board notified those parties that the Manual was available approximately a year and a half later than the designated timeframe—at the beginning of the next Congress. In addition, the Board did not notify all of the designated recipients, such as the Comptroller General, that the Manual was available. The Board also did not submit a biannual report to the joint leadership on the status of the legislative branch’s emergency preparedness programs, as the Manual directs. Board officials explained that the Senate and House Sergeants- at-Arms individually report out on such programs. Nevertheless, such a separate reporting structure does not promote transparency and coordination across the two chambers in regards to emergency preparedness. Given that it has limited the availability of the Manual to leadership offices, based largely on statute, the Board could identify other mechanisms to communicate its corporate governance structure and policies to committee stakeholders who do not receive the Manual in order to fully incorporate this practice. Appendix II table 9, to which we have already alluded, outlines the distinct disclosure practices that statute requires. The Manual partially incorporates this leading practice, as Table 8 illustrates. The following sections outline the extent to which the Board incorporated each of the five activities within this practice area into its Manual and discusses how it implemented them. Respond in a timely manner to stakeholder concerns. The Manual fully incorporated this activity. It contains procedures, including timeframes, for responding to written inquiries from congressional leadership offices, committees, and members that require a substantive response from a Board member. In practice, Board officials implemented these provisions as designed and Board members explained that the nature of their informal interactions with members of Congress often does not warrant this formal process. Provide relevant and material information to stakeholders on a timely and regular basis. The Manual partially incorporated this activity. The Manual states that the Board is to make the Manual available to specified recipients at the beginning of each Congress; however, the Manual does not include timeframes for providing stakeholders with access to Board materials aside from the Manual on either a routine or ad hoc basis. In practice, Board officials said that Board members and/or their staff have regular communication with members of Congress and their staff and the Board also conducts meetings as situations dictate. However, these efforts are not codified in the Manual to help ensure effective communication. Codifying existing approaches and expanding the Manual to document procedures for providing relevant and timely information to stakeholders could help address some of the stakeholder concerns we describe in the section that follows. Allow stakeholders to approve and participate in decisions. The Manual partially incorporated this activity. The Manual identifies areas where the Board is required by statute to obtain approval from congressional leadership offices or the committees of jurisdiction before issuing regulations. However, the Manual does not address any Board responsibilities in allowing stakeholders to participate, as appropriate, in other decisions concerning changes across the Capitol—such as certain initiatives for the Capitol Police—that may affect stakeholders and their responsibilities. In practice, Board members and staff explained that they routinely communicate with the committees multiple times a day to ensure effective communication, but these efforts are not codified in the Manual. As we will later describe, some stakeholders also expressed a concern about the timing and nature of their engagement on key decisions. Codifying in the Manual these ongoing engagement efforts and taking time to assess gaps in provided and desired levels of communication could help the Board develop new practices to enhance its outreach. Use appropriate mechanisms to communicate with stakeholders, solicit their views, and obtain feedback. The Manual partially incorporated this activity. For example, as discussed above, the Manual directs Board communication with its stakeholders in a number of ways, such as through written correspondence or by the distribution of materials such as its year-end reports. Governance principles recognize that an organization may use a number of mechanisms—both formal and informal to communicate with its stakeholders, and should consider mechanisms for soliciting feedback from its stakeholders, such as through periodic meetings to provide opportunities for them to ask questions and discuss matters that the Board is considering. In practice, Board officials and congressional stakeholders told us that the full Board has met with stakeholders on an ad hoc basis, but these efforts are not codified in the Manual to help ensure effective communication. As noted below, this area remains a concern to some stakeholders. Codifying existing practices in the Manual, and working to understand and address stakeholder concerns could help the Board more effectively communicate with stakeholders. According to the Board, it limits its activities to areas specifically prescribed in statute. Therefore, the Board has not fully incorporated some leading practices into its Manual because it believes that some of them address areas beyond what is required in statute. However, in developing the Manual, the Board did incorporate some practices that were not set out in statute, as we have shown. For example, the Board included in its Manual a provision that it is to develop a year-end report and distribute it to congressional stakeholders—a practice that is not statutorily prescribed. G20/OECD Principles of Corporate Governance states that: “The rights of stakeholders are often established by law… even in areas where stakeholder interests are not legislated, many firms make additional commitments to stakeholders and concern over corporate reputation and corporate performance often requires the recognition of broader interests.” - G20/OECD Principles of Corporate Governance, 2015 In addition, the Board also explained that challenges to providing more transparency into its operations stem from the sensitivity of the law enforcement information for which it has responsibility. Moving forward, fully incorporating these leading practices into its Manual—or codifying where the Board had been demonstrating such leading practices—would allow the Board reasonable assurance that its approaches facilitate accountability, transparency, and effective external communication with its stakeholders. Our outreach to 11 congressional stakeholders —seven stakeholders from the committees and four stakeholders from the leadership offices— showed differences of opinion between stakeholders in leadership offices and those representing committees regarding the Board’s accountability, transparency, and effective external communications approaches. In addition, some of these stakeholders offered adjustments to the Board’s structure and operations for consideration for addressing the concerns they raised. Three of the four stakeholders from leadership offices generally expressed satisfaction with the level of accountability the Board has demonstrated, while all seven stakeholders from the committees identified factors that limit their ability to hold the Board accountable. One stakeholder from a leadership office noted that the bicameral structure of the Board precludes it from being accountable to any one person or entity in Congress, but this individual did not see this as a challenge. Rather, the individual observed that the Board’s structure serves as an appropriate buffer between political influences and security decisions. In contrast, four of the seven committee stakeholders told us they saw the bicameral structure as a factor limiting accountability and that this, at times, challenges their oversight. For example, a single committee cannot call all of the Board members to a committee hearing because one of the two Sergeants-at-Arms is not under that chamber’s jurisdiction. In addition, one stakeholder told us that that there may be a perception that the Architect of the Capitol as a Board member is not fully accountable to the House committees because the Architect is confirmed by the Senate. Aside from the bicameral structure, another factor that some committee stakeholders noted precluded them from ensuring accountability from the Board was a lack of insight into the Board’s decision-making. For example, one stakeholder pointed to the difficulty in discerning whether the Board or the Chief made a decision regarding the Capitol Police. As a result, the Chief is, at times, held accountable for decisions made by the other Board members. According to several committee staff, this factor hinders their ability to determine who is responsible for Board decisions that have implications for their committees’ work. In its written comments on a draft of this report, the Board indicated that no one outside of the U.S. Capitol Police and the Board should know how the Board reached a decision, as once a decision is reached, it is unanimous (see appendix III). Three of the four leadership stakeholders found the roles, responsibilities, and lines of reporting between the Board and the Chief to be clear enough to promote accountability, unlike six of the seven committee stakeholders who did not. Five of these six committee stakeholders noted that in their view, the Board intervenes in the Chief’s management of the police department. For example, in the view of some committee stakeholders, the Board decides on and directs “a lot” of the Capitol Police department’s spending, which they feel should be left to the discretion of the Chief. Some committee stakeholders also noted that the Sergeants-at-Arms told Capitol Police officers that they may come to the sergeants with any issues they may face within the police department. In the views of these stakeholders, officers should go to the Chief, not the Board, as this is a part of the day-to-day management of the department. Two committee stakeholders added that the Chief does not appear to have a sufficient voice in Board decisions regarding the Capitol Police and added that it appears the Chief does not provide his opinion if it is different from the Board’s. These stakeholders perceived that this was the case because the Board hires the Chief. As committee stakeholders explained, as a result of unclear roles and responsibilities, it is difficult for them to determine what the Capitol Police—the department over which they have oversight authority—needs rather than what the Board needs. Further, across both leadership offices and committees, some stakeholders pointed out that the level of clarity in the roles and responsibilities of the Board and the Chief depends on the personalities or individual expectations of the Board members and the Chief. Stakeholders also provided their perspectives of the Board’s role overall. Some committee stakeholders said the Board did not involve the respective committee in decisions in areas where, in their view, the committee has authority, such as controlling access to the Capitol buildings and grounds, which further limited the Board’s accountability. In addition, one leadership stakeholder noted that the issues encountered with the Board stem from their view that the Board is not proactively identifying issues and taking steps to address them, such as when this stakeholder had to take the initiative to get the Board to address a security issue that had existed for nearly 15 years. This stakeholder said that such issues may be a result of how Board members perceive the Board’s role in security matters. In its written comments on a draft of this report, the Board had indicated that it had brought this security issue to stakeholders’ attention in 2003, but no action had been taken until the leadership stakeholder became aware of the issue and pushed the issue to conclusion (see appendix III). We also found differences of opinion between leadership and committee stakeholders with respect to their views on the Board’s transparency. Three of the four leadership stakeholders told us that the Board operates in a transparent manner. One of these stakeholders noted that more insight into the Board’s plans and progress on security initiatives would help the leadership office ensure that the Board is addressing necessary security issues around the Capitol complex. On the other hand, six of the seven committee stakeholders told us that the Board does not operate in a transparent manner. The six committee stakeholders who felt transparency could be improved said they lacked insight into the Board’s decision-making in areas where the committees have responsibilities, such as Capitol Police matters or campus-wide security. For example, one stakeholder said that committee staff do not know if and when the Chief disagrees with a Board decision. Further, one committee stakeholder underscored a leadership stakeholder’s perspective, noting that the Board is not upfront with congressional staff about the Board’s security projects, so congressional staff have to ask very specific questions to obtain the information they need. Another committee stakeholder told us that the Board decided to close an area of the Capitol for recent events that had typically been open to members of Congress and their guests. In so doing, the Board informed leadership in a letter after rendering the decision, but did not consult with congressional staff from the cognizant committee prior to finalizing this decision. This stakeholder pointed out that the committee, not leadership, has jurisdiction over the chamber’s grounds so the Board should be more transparent with its decisions. According to this stakeholder, the Board also does not trust congressional staff with security related information and the individual attributed this to the fact that congressional staff, for the most part, are not former law enforcement or security officials like the Board members. The one committee stakeholder who was satisfied with the level of the Board’s transparency acknowledged that based on personal opinion, additional transparency is not necessary because the Board deals with sensitive security-related matters better left discussed discreetly. Further, this stakeholder pointed out that the chamber’s Sergeant-at-Arms keeps staff apprised of information that the committee needs and, if questions arise, the stakeholder knows who to contact. Effective external communication is closely related to transparency and similarly, opinions were mixed between leadership and committee offices with respect to how well the Board communicates its decision-making. Specifically, all four leadership stakeholders expressed satisfaction with the Board’s communication practices while five of the seven committee stakeholders stated otherwise. In particular, all four of the leadership stakeholders expressed their satisfaction with the level of communication they had with individual Board members, even though one acknowledged that the Board as a whole could still take steps to improve stakeholder communication. In contrast, five of the seven committee stakeholders stated that the Board does not communicate with them to solicit feedback when making decisions related to their committees’ jurisdiction. For example, some stakeholders on the appropriations committees reported that the Board did not communicate its plans when initiating security projects in the middle of the fiscal year that had not been included in the annual budget request. These stakeholders shared the view that initiating significant security projects without their input limits transparency. One stakeholder found out about changes to security initiatives that have implications for future year appropriations in a widely-distributed notice of the changes, but not directly from the Board. Further, some stakeholders also expressed frustration with “going through” the Board when they have questions or concerns about the Capitol Police’s budget justification. One of these stakeholders said that for other agencies within the committee’s jurisdiction, staff can discuss matters directly with the leader of that agency and they perceived the Board as an unnecessary intermediary. One of the committee stakeholders who felt satisfied with the level of the Board’s communication told us that the congressional staff initiates a lot of the communication with individual Board members, in particular the Sergeant-at-Arms, and that practice met the individual’s needs. The other stakeholder from that committee found that communication between committee staff and the Board depended on the personalities of individual Board members and that was not problematic. For example, the Sergeant-at-Arms from their committee’s chamber discusses items and issues the Board is considering with the congressional staff. Further, when this Sergeant-at-Arms took chairmanship of the Board, he met with committee and leadership stakeholders to discuss and solicit feedback on security issues he envisioned the Board tackling during his chairmanship. Our analyses and discussions with law enforcement expert groups, congressional stakeholders, and others who are familiar with the workings of the Capitol Police Board identified options to enhance the Board’s approaches that fall into two categories: (1) adjustments the Board might consider without any statutory change required, and (2) adjustments that would require statutory change. 1. The provision of regular opportunities for the committees of jurisdiction and the leadership offices to meet with the full Board. Some stakeholders suggested that more routine contact could enhance accountability, transparency, and communication. For example, congressional staff suggested periodic meetings between stakeholders and all four Board members in one setting or the Board could invite staff to scheduled Board meetings. These opportunities could address some stakeholders’ concerns that they do not have insight into the Board’s decision-making on security matters. One stakeholder told us that the existing monthly meetings on the House side between congressional staff from the leadership offices and the appropriations committees, as well as the House Sergeant-at-Arms, the Chief, and the Architect of the Capitol, are helpful tools. These meetings provide a platform for the relevant parties to discuss security issues that need to be addressed and projects that need to be funded. This individual wondered why the Board does not similarly coordinate meetings with all of the appropriate stakeholders from leadership offices or committees when it identifies security issues that require input from these stakeholders. Leadership and committee stakeholders who made these suggestions said that since congressional staff do not meet regularly with the full Board, additional opportunities to meet with all of the Board members at once would enhance transparency by providing insight into the Board’s decision-making and allow stakeholders to be more informed of the Board’s plans for the security of the Capitol complex. In addition, some of the stakeholders asserted that involving congressional staff in these meetings could also address their concerns related to ensuring accountability of the full Board. 2. The development and implementation of a consistent outreach strategy for soliciting stakeholder feedback, as appropriate, when the Board contemplates changing or issuing new security approaches. One stakeholder noted that such a strategy would help ensure consistency in how the Board solicits feedback before finalizing decisions and would improve external communication. From this individual’s perspective, issues between congressional stakeholders and the Board arise from the Board not communicating effectively with stakeholders. Further, a strategy to discuss decisions that the Board is considering could also address other stakeholders’ concerns about the lack of insight into the Board’s decisions in areas where stakeholders have specific responsibilities. For example, one stakeholder noted that the Board could better inform stakeholders on the reasons why the Board wants to pursue one option or initiative over another. 3. The clarification for stakeholders of when a decision is within the authority of the Board or the Chief. Some stakeholders conveyed frustration that they did not always know the impetus for a decision and this affected who they could hold accountable. For example, some stakeholders commented that in their view, the Chief is at times held accountable for decisions made by the other Board members. Other stakeholders commented that the Board is too heavily invested in operational matters such as budget justification review and personnel matters, although the statutory framework supports this role. Thus, if the Board were more transparent about distinguishing between areas within the Board’s domain versus the Chief’s, which some stakeholders noted was unclear to them, it could reduce some degree of confusion. Likewise, if the Board better explained its roles as directed by statute, and how it operationalized those requirements, it could address some stakeholders’ concerns that the Board inappropriately intervenes in the Chief’s management of the department. 1. A change to the scope of the Board’s duties. As mentioned earlier, the scope of the current Board’s duties ranges widely from managing certain human capital and personnel issues to making security decisions. This contrasts from the scope of other law enforcement oversight entities that we noted earlier when recapping the views of the law enforcement expert groups with whom we spoke. In addition, some stakeholders expressed frustration concerning the wide scope of the Board’s duties despite the professionalization of the Capitol Police department over time. For example, they noted that the Board’s involvement in the budget process encroaches on their committees’ ability to interact directly with the Chief on the Capitol Police’s budget justification. Statutory change to reduce the Board’s scope, expand its scope, or eliminate the Board altogether could also have practical implications on the Capitol Police. For example, if the Board’s scope were to be reduced, the Chief may have to assume new responsibilities or adapt to a different level of oversight in the midst of ongoing Capitol Police operations. If the Board’s scope were to expand, it would require the Board to quickly adapt to fulfill its new responsibilities and add competing pressures on their time. If the Board were to be eliminated entirely, some of its responsibilities may be reassigned to various entities, including the Chief, all the while having to maintain some type of congressional oversight structure for the Capitol Police. 2. A change to the composition and size of the Board. As we previously described, the Board is currently comprised of the House and Senate Sergeants-at-Arms, the Architect of the Capitol, and the Chief of the U.S. Capitol Police who serves in a non-voting, ex-officio capacity. In speaking with law enforcement expert groups about the Board, one group specifically mentioned that the current Board is smaller than the size of traditional oversight bodies, which generally include at least seven members. Another law enforcement expert group mentioned that the Board could benefit from expanding its size, and therefore its composition, to include representatives from other law enforcement agencies who could add a broader perspective. For example, one stakeholder suggested adding another Board member with specific expertise on counterterrorism. Further, corporate governance standards encourage the use of independent directors on a Board who do not have a material or financial connection to the corporation they oversee. Including representatives from outside law enforcement agencies could be one way to incorporate the use of independent directors into the Board’s structure. Congressional stakeholders also commented that the Capitol Police Board is smaller in size and composition compared to another body that has some similarities in role. For example, the Joint Congressional Continuity Board shares similar security related responsibilities but is larger than the Capitol Police Board. The Joint Congressional Continuity Board, while not a statutorily created organization like the Capitol Police Board, is comprised of the current Capitol Police Board members with the exception of the Architect of the Capitol, but also includes the Secretary of the Senate, the Clerk of the House, and the Chief Administrative Officer of the House. Changes to the Board’s composition and size could impact how the Board operates. For example, increasing the size of the Board may complicate its decision-making process and the Board’s current practice to operate under consensus. In addition, according to the Board, the small size of the current Board makes it more nimble and adding additional members could negatively impact the accountability of individual members to Congressional stakeholders. Board members added that there may be challenges associated with adding more people to the Board because any new members may become involved in lawsuits that the Board may be involved with at any given time and face liability, which could impact their desire to serve on the Board. In addition, according to the Board, the structure and composition of the Board is its strength because it combines the law enforcement credentials of the Board members with the campus and infrastructure knowledge of the Architect of the Capitol. However, as some stakeholders and law enforcement expert groups have suggested, the Board may benefit from including other perspectives. 3. A change to Board members’ selection processes, voting rights, and leadership assignments. As we previously described, Board members come into their positions in different ways. The Speaker of the House and the Majority Leader in the Senate select the House and Senate Sergeants-at-Arms, respectively, the Architect of the Capitol is selected by the President and confirmed by the Senate, and the Chief of Police is selected by the Board. The mechanisms by which members are placed into their positions may have an impact on the Board’s accountability to Congressional stakeholders. For example, some committee stakeholders noted that in their view, the Board members are accountable to congressional leadership and not the committees. Additionally, one law enforcement expert group we spoke with indicated that police chiefs are often selected by elected officials, rather than the oversight organization, which differs from the Board’s current practice of selecting the Chief. With respect to voting, currently, all Board members vote except for the Chief of Police since one of the voting decisions that is made by the Board involves the hiring and firing of the Chief. The Board also has three voting members so that there is a tie- breaker, which serves a useful function in the event of disagreement and this principle may be valuable to retain if changes to voting are made. Changes to roles of the members, such as the voting status of members, may impact the amount of weight individual perspectives have in the Board’s decision-making process. With respect to how the chairmanship of the Board is determined, the position rotates between the House and Senate Sergeants-at-Arms on a yearly basis but that could change to allow the Architect of the Capitol to serve in that role or to change the timing of the rotation. Changes to the current practice of alternating chairmanship of the Board could impact the continuity of Board initiatives, as individual members of the Board may have different priorities. 4. A change to the oversight of the Board’s activities. As we mentioned earlier, a number of the Board’s activities are subject to the oversight of the Senate Committee on Rules and Administration, the Committee on House Administration, and the Senate and House Legislative Branch Appropriations Subcommittees, but four of the seven Congressional stakeholders we spoke with from the committees stated that they believed that the Board does not sufficiently take into account the role of these committees in making decisions involving the U.S. Capitol Police. Changes to the oversight into the Board’s activities could take many forms. For example, our prior work on the Board found that oversight of the Board and the U.S. Capitol Police could be consolidated into a single joint congressional committee, which could address concerns about holding the entire Board accountable as the joint committee would be bicameral and therefore would have jurisdiction over all the Board members. However, according to the Congressional Research Service, joint committees generally lack legislative authority, so their ability to streamline legislative action would be limited, and as one Congressional stakeholder we spoke with commented, joint committees can be difficult to form. During outreach for our current study, we learned from a National Council on State Legislatures (NCSL) representative that security and law enforcement at many state capitols is managed this way. Oversight of security and law enforcement at other state capitols is conducted by members of the legislature, such as in California—according to the representative from NCSL. Also, as this individual from NSCL described it, in New Mexico, a legislative council comprised of the leaders from the state House and Senate chambers oversees security. Changes to the oversight of the Board’s activities may have practical implications. For example, if oversight were to be consolidated into a joint committee, this would establish a single focal point within the Congress for oversight. Changes to the oversight into the Board’s activities could also include restructuring the way in which the Board’s initiatives are funded. Representatives from another law enforcement expert group we spoke with indicated that law enforcement oversight bodies typically have funding that is separate from the law enforcement entity that they are overseeing, which enhances their independence and adds a layer of accountability to their appropriators. Further, Congressional stakeholders we spoke with indicated that, if the Board had separate funding, it would be required to follow the established budget justification process that requires engagement with the appropriators, which would also enhance the transparency of the Board’s activities. Regardless of what change is made to the oversight of the Board’s activities, it is important that the Board’s relationship to the oversight committees is clear to both sides, given the perception among some Congressional stakeholders that the Board does not always appropriately acknowledge committees’ roles in oversight. The Board has taken action to document its practices into a Manual of Procedures. While the Manual has incorporated some leading practices to facilitate accountability, transparency, and effective external communication, and the Board has taken action to implement many of these provisions, Congressional stakeholders still have reservations about the Board’s effectiveness. As a key governing document, the Manual could thus be strengthened to more fully incorporate the leading practices we identified, such as turning inward to assess its own performance, and thus address the stakeholder concerns we reported. In some instances, the Manual is silent on the effective governance practices that the Board is implementing and it could be strengthened by codifying these activities. In other instances, the Board is not implementing particular practices that the Manual directs. Adherence is thus warranted, and also could positively impact stakeholder relations. Finally, in some cases, the Manual is silent on a practice and the Board has not been addressing it either. In this last case, adjusting the Manual accordingly could help establish and routinize the desired leading practice on a prospective basis and also could alleviate some stakeholder concerns. Revising the Manual to fully incorporate leading practices for internal control and governance standards would provide a sound and robust governing document, inclusive of all the Board currently does while also establishing new processes for the Board to do in the future. Additionally, revising the Manual would help the Board better ensure that its practices are designed to facilitate constructive and productive relationships with stakeholders while maintaining the Board’s critical security focus. As the Board contemplates these revisions to the Manual, it would benefit from working to engage stakeholders in the process. The Board could do this by soliciting stakeholder input as it considers the non-statutory changes that stakeholders suggested to address their concerns, such as developing strategies for obtaining stakeholder feedback when making security decisions. Further, if the Board determines that statutory changes are needed, it should coordinate with stakeholders on such changes. Identifying and communicating potential changes to its congressional stakeholders, and incorporating their views into the revision process, as appropriate, would help the Board ensure that steps to revise its Manual best address both the leading practices and chief stakeholder concerns. Our work indicates that stakeholders hold widely divergent views about the appropriate role of the Board, the level of transparency concerning its operations, and the extent to which it engages stakeholders when making decisions. These divergent views reflect a variety of competing interests and priorities. Our report also outlines a number of options requiring statutory change, which could further address concerns about the Board’s operations, but could also pose new challenges. These options center on changes to the Boards’ scope and duties, its composition and size, and alternatives to congressional oversight of the Board, among other things. Ultimately, the decision of whether to implement these options, and if so, how to implement them, involves fundamental policy choices that only Congress can make taking into account the results of our analyses and discussions with law enforcement groups and stakeholders. To ensure that the Capitol Police Board’s current and any new approaches help enhance accountability, transparency, and effective external communication with its stakeholders, we recommend that the Board revise its Manual of Procedures to fully incorporate each of the leading practices for internal control and governance standards discussed in this report. In so doing, the Board should engage stakeholders in the revision process, such as by soliciting their input on any non-statutory changes that could particularly address the concerns stakeholders have raised, and incorporating their views as appropriate. If, in making revisions to its Manual, the Board determines that statutory changes may be helpful to enhance Board operations, then the Board should also engage with stakeholders on such proposed changes. We provided a draft of this report to the Board for their review and comment. The Board provided written comments, which are summarized below and reproduced in appendix III. The Board also provided technical comments, which we incorporated as appropriate. We also provided a draft of this report to congressional leadership—the Speaker of the House, Senate Majority Leader, and the Senate and House Minority Leaders. In its written comments, the Board did not state whether or not it concurred with the contents of our draft report or our recommendation. However, the Board did present several areas that it wanted emphasized, such as its reporting structures and member credentials, both of which it asserts as strengths. Further, the Board noted that its Manual is an internal reference tool to guide current and prospective Board members and not a governance document. With respect to reporting lines, we revised our figure accordingly. With respect to the Manual, we are not making revisions to our report because the Manual serves as the sole document to guide Board operations. Additionally, the Board expressed concern with the applicability of the corporate governance leading practices we identified. In particular, the Board stated that such practices are geared towards corporations and not Congressional entities, such as the Capitol Police or the Board. We disagree. As we noted in our report, these standards have broad relevance to governing bodies seeking to facilitate accountability, transparency, and effective external communication in a range of contexts. Further, in identifying the leading practices, we were mindful of choosing practices that would be pertinent to the Board, given that it does not operate in a corporate setting. Additionally, the Board utilized an earlier version of these same practices in its 2003 report to Congress, as we cited. Relatedly, in the Board’s 2003 report, it noted that the Board serves as the Board of Directors for the Capitol Police and indicated that following corporate governance standards would provide an effective model for the Board in setting out its roles, functions, and processes for the future. We are sending copies of this report to the appropriate congressional committees and the Board. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-8777 or goodwing@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. In this report, we examine the following objectives: (1) What are the roles and responsibilities of the Capitol Police Board (Board) and the Chief of the Capitol Police (Chief) as set out in statute and in the Board’s Manual of Procedures and how does the Board’s scope compare to other law enforcement oversight entities? (2) To what extent does the Board’s Manual of Procedures incorporate leading practices from internal control and other standardized governance principles to facilitate accountability, transparency, and effective external communication and in what ways is the Board implementing these practices? (3) What are Congressional stakeholder perspectives on the degree to which the Board is accountable, transparent, and effective in its communication approaches and what options exist to enhance the Board’s approaches? To examine the roles and responsibilities of the Board and the Chief of the Capitol Police as set out in statute and in the Board’s Manual of Procedures (Manual) and to determine how the Board’s scope compares to other law enforcement oversight entities, we reviewed the relevant statutes that set out the Board and the Chief’s roles and responsibilities. We also reviewed the Board’s Manual to identify areas where it identifies the Board’s roles and responsibilities, as well as those of the Chief in relation to the Board. We then analyzed the relevant statutory and Manual provisions to inventory the various roles and responsibilities of the Board and the Chief. In addition, we conducted interviews with officials from organizations with expertise in law enforcement oversight and governance issues, such as the Commission on Accreditation for Law Enforcement Agencies (CALEA), Police Executive Research Forum (PERF), International Association of Chiefs of Police (IACP), and National Association for Civilian Oversight of Law Enforcement (NACOLE), to understand how organizations overseeing law enforcement agencies are structured and how they function. We also spoke with the National Council on State Legislatures (NCSL) to understand how law enforcement oversight efforts are structured and function at state capitols and whether any parallels exist to the Capitol Police Board. We selected these organizations because we spoke to many of the same organizations for our prior work on the Board and they have a breadth of knowledge about law enforcement oversight structure and functions in other settings. Further, we interviewed current Board officials—members, such as the House Sergeant-at-Arms, general counsel, and the executive assistant— as well as a former Board member, a former Chief of the Capitol Police, and current Capitol Police union officials. We also conducted semi- structured interviews with congressional staff from the majority and minority sides of the committees that interact with the Board—Senate and House Legislative Branch Appropriations Subcommittees, Senate Committee on Rules and Administration, and Committee on House Administration—as well as leadership offices—Speaker of the House and Senate Majority and Minority Leaders. We spoke with these congressional staff to solicit their views on the roles and responsibilities of the Board and Chief. The information collected from interviews with these staff cannot be projected to all staff from the committees of jurisdiction and leadership offices. However, these interviews provided us with the perspectives of staff who work with the Board in their capacity as committee and leadership staff. To examine the extent to which the Board’s Manual incorporates leading practices from internal control and other standardized governance practices to facilitate accountability, transparency and effective external communication and describe the ways the Board has implemented these practices, we first assessed the Manual using internal control and corporate governance principles. For our purposes, and using these practices as a guide, we used the following definitions for each term: Accountability occurs when an entity acknowledges and assumes responsibility for its actions and is answerable for any resulting consequences. Transparency occurs when an entity records and communicates information on activities to stakeholders who need it in a form and timeframe that allows these stakeholders to carry out their responsibilities. Effective external communication occurs when an entity utilizes various modes of communication, proactively when possible, to convey information to stakeholders. To identify the leading practices that reflect the specific activities that effective governing bodies should engage to facilitate accountability, transparency, and effective external communication, we consulted Standards for Internal Control in the Federal Government, the Business Roundtable’s Principles of Corporate Governance and the G20/Organization for the Economic Cooperation and Development’s Principles of Corporate Governance. We reviewed these sources to identify the standards that pertain to accountability, transparency, and effective external communication and would also be relevant to the Board, given that it does not operate in a corporate setting. Through this process, we identified six leading practices and 24 specific activities, or criteria, they encompass. The six leading practices reflect the specific activities in which effective governing bodies should engage to facilitate accountability, transparency, and effective external communication. These leading practices are: (1) defining roles, responsibilities, and areas of authority; (2) overseeing functions of the corporation; (3) conducting performance evaluations and reviews; (4) developing processes for internal functions of the board; (5) disclosing information to stakeholders; and (6) developing processes for communication with stakeholders. We then assessed procedures in the Manual against the activities associated with each leading practice we identified and determined the extent to which the practices were incorporated. To do this, we used a scale of “fully incorporated,” “partially incorporated,” and “not incorporated.” A determination of “fully incorporated” means that procedures in the Manual align with all activities associated with the leading practice. A determination of “partially incorporated” means that procedures in the Manual align with some activities associated with the leading practice. A determination of “not incorporated” means that no provisions in the Manual align with any activities associated with the leading practice. One analyst independently reviewed the Manual and made the initial determination. A second analyst then verified the decision. We also obtained and analyzed Board documentation illustrative of its practices, including the 2003 Board report to Congress, minutes of Board meetings held in fiscal years 2014 and 2015, orders issued by the Board in calendar years 2014 and 2015, year-end reports for calendar years 2013 through 2015, and a briefing that provides an overview of the Board. We focused on documentation developed in 2014 and 2015 because the Board adopted the Manual in June 2013. In addition, we interviewed Board officials to understand their practices. To identify the Congressional stakeholder perspectives on the degree to which the Board is accountable, transparent, and effective in its communication approaches and options that exist to enhance the Board’s approaches, we sought stakeholder views from the majority and minority staff of the committees who engage with the Board – Senate Committee on Rules and Administration, Committee on House Administration, and the Senate and House Legislative Branch Appropriations Subcommittees – as well as the majority and minority staff representing the leadership from the Senate and the House, to provide insight into how the Board’s practices were meeting their needs for accountability, transparency, and effective communication when interacting with the Board and to solicit feedback on the options to alternative Board structures that we found in our prior work on the Board, options proposed by the Congressional Research Service in 2009, and to identify any other options that may address any concerns they have in interacting with the Board. We also solicited Board and stakeholder input and asked the organizations we had earlier identified as having expertise in law enforcement oversight and governance issues for their perspectives. We then incorporated the information collected from interviews with congressional staff and experts into the alternative structures for the Board we found in our prior work on the Board. In addition, we interviewed a former Chief of the Capitol Police to understand implications that alternative structures may have on the Chief. Further, we solicited the perspectives of the Board on the implications that alternative structures may have on its operations. We conducted this performance audit from January 2016 to February 2017 in accordance with generally accepted government auditing standards. These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, individuals making key contributions to this report were Joy Booth, Assistant Director; Julia Vieweg, Analyst-in-Charge; Ji Byun; Dina Shorafa; Helen Desaulniers, Patrick Dibattista; Kaitlin Farquharson; Tracey King; Thomas Lombardi, Amanda Miller; Jan Montgomery; and Kate Siggerud. Ben Atwater; Seto Bagdoyan; Katherine Davis; Eric Hauswirth; Nima Patel-Edwards, and Adam Vogt also provided valuable assistance. | The Board is charged with overseeing and supporting the Capitol Police. GAO was asked to review the Board's operations, including the Board's accountability and level of communication. This report examines (1) the roles and responsibilities of the Board and the Police Chief and the comparability of the Board's scope to other law enforcement oversight entities; (2) the extent to which the Board's Manual incorporates leading practices for accountability, transparency, and external communication, and how the Board implements these practices; and (3) Congressional stakeholder perspectives on the Board's approaches and adjustments to enhance them. To complete this review, GAO analyzed relevant statutes and Board governing documents and operations. GAO also used internal control and corporate governance standards to articulate the key principles of accountability, transparency, and effective external communication; identified six leading practices that facilitate these principles; and analyzed the Board's Manual against each. GAO also interviewed Board members and staff, Congressional stakeholders, and experts selected for their knowledge of law enforcement oversight. The Capitol Police Board (Board) has wide-ranging responsibilities and according to experts with knowledge of law enforcement oversight bodies, like civilian oversight boards, the Board's scope is unique by comparison. For example, the Board has authority for security decisions, as well as certain human capital and personnel matters, including the approval of officer terminations. In 2013, the Board adopted a Manual of Procedures (Manual) that references its operations and establishes protocols for outreach with the Congressional committees and leadership offices (stakeholders) with whom the Board interacts. This Manual fully incorporated one and partially incorporated five of the six leading practices that facilitate the principles of accountability, transparency, and effective external communication; however, the Board has not always implemented these practices, such as notifying stakeholders that certain information on the Board's decisions and operations is available to them. Some stakeholders raised concerns, such as the Board not adequately soliciting their input, and suggested adjustments to enhance the Board's approaches. Board officials told us that the Manual has not incorporated some leading practices, in part because they address activities beyond statutory requirements. Leading practices note that effective governing bodies make commitments to stakeholders that exceed basic requirements, and GAO found the Manual includes activities that go beyond what is statutorily prescribed. Working to fully incorporate leading practices into its Manual and operations would help the Board enhance its accountability, transparency, and effective external communication with stakeholders. GAO recommends that the Board revise its Manual to fully incorporate leading practices, including evaluating its performance, and engage with stakeholders and incorporate their views, as appropriate, on any changes. The Board did not state whether it concurred with the recommendation. |
OSHA is the federal agency responsible for administering the Occupational Safety and Health Act of 1970, as amended (OSH Act), which was enacted to assure safe and healthful working conditions for the nation’s workers. As authorized by the act, OSHA sets and enforces occupational safety and health standards, which are regulations that set forth specific safety and health requirements with which covered employers must comply. Among its other responsibilities under the OSH Act, OSHA is also required to provide for the establishment and supervision of training programs to help workers and employers recognize, avoid, and prevent workplace safety and health hazards. The Outreach Training Program is the agency’s primary way to offer training for workers in the basics of occupational safety and health, according to OSHA. Outreach Training includes voluntary 10-hour and 30-hour safety courses designed to provide basic hazard awareness training for workers in construction, maritime, and general industry, and a 15-hour course for workers at disaster sites. The training covers how to recognize and prevent hazards on a jobsite, workers’ rights, employers’ responsibilities, and how to file a complaint. The 30-hour courses are intended to provide more in-depth training to workers who have some safety responsibility. Workers that successfully complete an OSHA Outreach Training Program course receive a student course completion card. The student course completion cards in Construction, General Industry, and Disaster Site do not have an expiration date; however, the Maritime Outreach Training student course completion cards expire 5 years after completing the training. While OSHA does not require workers to take its Outreach Training courses, depending on their jobs and where the workers are located, they may be subject to other requirements to show an OSHA course completion card to demonstrate they completed the training. For example, some states, municipalities, unions, and employers may require workers to take an OSHA Outreach Training course as a condition of employment for certain jobs, and OSHA maintains a list of states and municipalities that have such a requirement. According to OSHA’s list, seven states (Connecticut, Massachusetts, Missouri, Nevada, New Hampshire, New York, and Rhode Island), and three municipalities (Miami-Dade County, New York City, and Philadelphia) require certain workers to take some form of OSHA Outreach Training or an equivalent training. For example, all of these states and municipalities require certain workers on public construction projects to take a 10-hour construction safety course. Some, including Nevada and Philadelphia, also require this training for workers on private construction projects. Outreach Training courses are delivered by OSHA-authorized external training providers that receive no funding from OSHA, but instead, rely on tuition and fees from training participants to cover the cost of the training. The types of training providers include Education Centers, which train Outreach trainers to deliver in-person Outreach Training courses to workers, and online training providers. Education Centers: OSHA has nonfinancial cooperative agreements with 27 Education Centers–which are typically universities–to provide occupational safety and health training to workers and employers on behalf of OSHA. The Education Centers have two main roles under the Outreach Training Program: (1) conduct in-person train-the-trainer courses to qualified individuals interested in becoming authorized Outreach trainers; and (2) act as an authorized training organization for the Outreach trainers by monitoring Outreach trainers through records audits and training observations and by processing course completion cards that Outreach trainers request on behalf of the workers who take their courses. OSHA selected the Education Centers through a formal competitive application process. Successful applicants entered into 5-year nonfinancial cooperative agreements with OSHA. Outreach trainers: For in-person training, Education Centers authorize Outreach trainers to provide the training to workers. To become an authorized Outreach trainer, individuals must meet industry safety experience requirements, complete a training course on the applicable OSHA standards, and successfully complete a train- the-trainer course at one of the Education Centers. Outreach trainers are authorized to provide in-person training to workers for 4 years from the date that the trainer course is completed and must successfully complete an update course at an Education Center to maintain authorization. Currently, there are approximately 30,000 authorized Outreach trainers, according to OSHA officials. Online training providers: Online training is provided by nine OSHA- authorized online training providers, including eight companies and one Education Center. OSHA used a multi-phase process to select the current online training providers that is described in OSHA guidance. The guidance provided the requirements for establishing an online Outreach Training course and a process for OSHA authorization. The phases of the process included: (1) submission of a description of the online training program, target audience, and expected impact of the program; (2) submission of a detailed written description of the online training plan; (3) self-verification audit where the online training provider reviews the training against OSHA’s guidance; and (4) OSHA’s review of the completed online training to verify that the program is consistent with OSHA’s guidance. In recent years, OSHA has attempted to change its process for selecting the online training providers, but those attempts have been challenged in court. In 2011 and 2014, the agency issued public solicitations, intending to enter into nonfinancial cooperative agreements or contracts with selected providers. Both solicitations were found to have procedural deficiencies by the U.S. Court of Federal Claims after online training companies challenged them in court. According to OSHA officials, the agency has revised the solicitation to address the court rulings, but no date has been set for issuing the revised solicitation. Currently, the nine online training providers provide OSHA Outreach Training under their 2009 authorization. Participation in the Outreach Training Program has grown substantially over time. The number of workers trained more than quadrupled from 200,522 in fiscal year 2000 to 900,010 in fiscal year 2016. The vast majority of participants take the courses in-person; however, the number of participants taking the courses online has increased in recent years (see fig. 1). In fiscal year 2016, 70 percent of participants took the Outreach Training courses in person, and 30 percent took the courses online. The number of participants taking the courses online increased from 19 percent in fiscal year 2011 to 30 percent in fiscal year 2016. The courses tailored to the construction industry are the most popular. In fiscal year 2016, about 75 percent of the Outreach Training participants took the construction courses, and 24 percent took the general industry courses (see fig. 2). OSHA’s Outreach Training Program reflects attributes of a well-designed training program. GAO’s training guide identifies attributes of a well- designed training program and suggests the kinds of documentation to look for that indicate that a training program has a particular attribute in place. OSHA is not required to follow GAO’s training guide, however, we found that the program’s design reflected at least one indicator for six of the seven attributes of a well-designed training program described in the guide (see table 1). OSHA took steps to design the Outreach Training Program so that workers receive consistent and quality training by using data to identify the content of the training, developing training materials, and issuing detailed requirements for training providers. According to OSHA officials, the content of the training was selected after the agency reviewed data on the leading causes of worker deaths and the most frequently cited OSHA standards. OSHA also developed training materials that training providers can use, including presentations, lesson plans, fact sheets, and tests. In addition, OSHA developed detailed requirements regarding the content and delivery of the training that apply to all Outreach Training providers to improve the quality of the courses and ensure the integrity of its authorized trainers. Specifically, in 2011, OSHA replaced its previous program guidelines with a revised policy document establishing requirements that apply to all Outreach Training providers, including in- person and online training providers. OSHA issued general Outreach Training Program Requirements and separate Industry Procedures for the Construction, General Industry, Maritime, and Disaster Site courses. The requirements and industry-specific procedures identify the learning objectives for the courses, the topics that must be covered, and the amount of time training providers must spend on each topic, among other things. OSHA most recently revised the Outreach Training Program Requirements and industry-specific procedures in January of 2017. OSHA used a combination of centralized and decentralized approaches to design the Outreach Training Program. GAO’s training guide suggests agencies consider the advantages and disadvantages of using centralized and decentralized approaches to designing training programs. Centralizing design can enhance consistency of training content whereas a decentralized approach to training design can enable agencies to tailor training programs to better meet the unique needs of the intended audience. OSHA used a combination of approaches by centrally setting the learning objectives and establishing detailed content requirements, while also allowing training providers to supplement the curriculum to meet the specific needs of their audience. For example, while OSHA requires all Outreach Training courses to include 2 hours of introductory information about OSHA, training providers have some flexibility to develop the rest of the curriculum as long as they cover the required topics and meet the time requirements. Table 2 provides a summary of OSHA’s topic and time requirements for the 10-hour construction Outreach Training course. In addition, although OSHA does not require any accreditation for Outreach Training providers, OSHA’s Directorate of Training and Education, which designed the Outreach Training Program, and several of the online training providers, reported that they are accredited by the International Association for Continuing Education and Training (IACET). IACET accreditation involves an audit of the organization’s training program that benchmarks the organization against a national standard called the IACET Standard for Continuing Education and Training. IACET officials review the training provider’s application and document that the standard is being followed by the organization and that the attestations in the application are accurate by conducting a site visit. IACET-accredited training providers must demonstrate that they have processes in place to ensure that the individuals involved in training design are qualified and that the content and instructional methods used are appropriate for the learning objectives of the training, among other things. According to OSHA officials, having OSHA’s Directorate of Training and Education become IACET-accredited as a continuing education provider demonstrates the agency’s commitment to high standards for the agency’s training programs. The Education Centers we interviewed had a different form of accreditation associated with their universities. To obtain course completion cards, which training providers distribute to workers who complete the training, training providers must submit class documentation through either an automated or paper-based process. Outreach trainers–who deliver in-person training to workers–request cards by submitting class documentation electronically through a web- based system to the Education Center where the trainer was authorized. If approved, the Outreach trainers are sent wallet-sized plastic cards for the workers, each with a Quick Response (QR) code that can be scanned with a smart phone, allowing employers and workers to verify the authenticity of the card. In contrast, online training providers mail class documentation, such as student names, course completion dates, test results, and student evaluations of the courses, to OSHA to obtain cards for the workers who take the training online. If approved, the online training providers are sent wallet-sized paper cards for the workers. The online training provider then prints the student names on the paper cards and distributes them to the workers (see fig.3). OSHA typically processed the course completion cards within 2 weeks of receiving the request from the online training providers, according to our analysis of OSHA data. OSHA has 30 days to process course completion cards after receiving an online training provider’s request for cards, according to an internal deadline set by OSHA. In our analysis of OSHA fiscal year 2012-2016 data, we found that OSHA took 7 days on average to process the cards, and the processing time ranged from processing the cards the day OSHA received the request to 51 days. Two-thirds of the card requests were processed in a week or less, and 91 percent were processed within 2 weeks. However, six of the nine online training providers we interviewed said OSHA’s paper-based system for processing course completion cards contributed to delays in issuing cards to workers. For example, one online training provider said it mails OSHA between 200 and 300 pages of class documentation on a bi-weekly basis and it takes OSHA up to 4 weeks to mail the cards back to them. Three of the nine online training providers we interviewed gave examples of how lengthy processing times can negatively impact workers. One online training provider that serves younger workers said delays can be problematic, especially at the end of the school semester, because if the student does not get the course completion card in time, he or she may not have the required documents needed to start their summer job. Another online training provider said that waiting for OSHA to process the cards causes anxiety for many students, as 3 or 4 weeks is a long time to wait for something required before they can get a job. A third online training provider said there have been instances where their students could not start working on the job site because the student did not have their course completion card and the employer or union refused to accept the online training provider’s certificate of completion. While online training providers have noted these issues, the two national organizations we interviewed that represent employers and unions said that they have not received complaints from workers regarding delays in getting their course completion cards or that delays affected their ability to start working at their job site. Differences in the process for issuing course completion cards stem from the history of the program, according to OSHA officials. When OSHA began partnering with the Education Centers to conduct OSHA Training Institute courses in 1992, the agency required individual Outreach trainers to request course completion cards for workers through the Education Center where they received authorization to serve as trainers. According to OSHA officials, in 2001, when OSHA began allowing the 10- and 30- hour construction and general industry Outreach Training courses to be delivered in an online format, OSHA decided to serve as the authorizer for the online providers. OSHA officials told us that they are planning to allow the online training providers to request cards electronically by having the Education Centers take over processing the course completion cards for the online training providers, but OSHA has not established a timeline for implementing this new process. According to OSHA officials, the agency plans to include a process for electronically requesting course completion cards in conjunction with the revised solicitation for selecting the online training providers that OSHA is finalizing. OSHA also intends to make the plastic cards available to workers who take the courses online. Having the Education Centers issue course completion cards to online providers may help to speed the time for issuing these cards to workers. However, the online training providers we interviewed generally said that they believe that they could issue the cards more quickly if they issued the cards themselves. OSHA officials told us they considered allowing the online training providers to process and print their own OSHA cards but decided not to because they want to limit the number of organizations that have access to the course completion cards. Training providers and OSHA officials reported using automated and manual checks to help ensure that cards are requested only for the students who successfully complete the courses and that the courses meet OSHA’s Outreach Training Program requirements. Both the Education Centers and online training providers reported using information systems that automatically check whether the students have taken courses that met OSHA requirements, such as spending the minimum amount of time on specific topics. Some of the online and in- person training providers reported also using staff to manually verify the information in the class documentation submitted to obtain course completion cards. The online training providers reported using user names and passwords to verify that the person registered for the course is the person completing the course. In addition, some of the online training providers reported that they are capable of using biometric data, such as voice recognition or keystroke analysis, to authenticate students. OSHA manually compares the number of cards requested by the online training providers to the number of student names listed in the class documentation and logs the unique course completion card numbers into a spreadsheet. Use of internal controls in the course completion card process is important to protect the integrity of the program. OSHA works with DOL’s Office of Inspector General to investigate and address fraudulent activity. According to OSHA officials, there have been relatively few cases of fraud in the program. OSHA refers fraudulent activity to DOL’s Office of Inspector General, and trainers caught falsifying information may be subject to criminal prosecution. DOL’s Office of Inspector General investigated four cases of fraud involving OSHA training over the last 3 years, according to Office of Inspector General officials. Examples of fraud cases they identified include an Outreach trainer selling course completion cards to construction workers without providing the training and an individual conspiring with an Outreach trainer to sell fraudulent OSHA course completion cards. OSHA oversees the in-person training providers on an ongoing basis by collecting and assessing data from the Education Centers, including: Course information: OSHA collects data on the train-the-trainer courses the Education Centers deliver to individuals interested in becoming authorized Outreach trainers, including the names of the courses presented each month, training locations and dates, instructor names, total students, total instructional hours, and test results. Course completion card processing: OSHA collects data on the number of course completion cards the Education Centers process each month for their authorized Outreach trainers. Monitoring activities: OSHA collects data on the number of record audits and training observations the Education Centers conduct on their authorized Outreach trainers to check that the in-person training delivered to workers complies with OSHA’s Outreach Training Program requirements and procedures. OSHA assesses the Education Centers’ performance on 11 performance elements (see table 3), which relate to the Education Centers’ Outreach Training Program responsibilities and their other responsibilities outlined in their nonfinancial cooperative agreements with OSHA. OSHA uses the data it collects from the Education Centers to assess the extent to which the Education Centers are meeting their performance goals in an annual appraisal. OSHA rates the Education Centers on a three-point scale of “outstanding,” “satisfactory,” or “area for improvement” for seven performance elements and on a two-point scale of “satisfactory” and “area for improvement” for the remaining four performance elements. For example, in OSHA’s appraisals for fiscal year 2015, OSHA rated 22 of 27 Education Centers an “outstanding” or “satisfactory” rating on their Outreach trainer monitoring and identified this as an “area of improvement” for 5 Education Centers because they did not take certain actions, such as conducting enough records audits and training observations (see fig. 4). OSHA follows up with the Education Centers that have received “area for improvement” ratings to ensure they are taking corrective action. OSHA checks whether corrective actions are implemented by conducting quarterly course documentation audits, annual conference calls, and periodic on-site audits, as well as by developing mid-year status reports. In addition, the program coordinator for the OSHA Training Institute Education Center Program interacts with the Education Centers throughout the year to ensure they are meeting performance goals, according to OSHA officials. OSHA also investigates complaints it receives about Outreach trainers from the general public, referrals from the Education Centers based on their Outreach trainer monitoring, and requests by other OSHA regional offices. OSHA investigates allegations that an Outreach trainer may not be in compliance with OSHA’s Outreach Training Program Requirements and allegations of potential fraud. For example, OSHA may investigate cases where an Outreach trainer fails to respond to audit requests from an Education Center or fails to provide training that meets OSHA’s requirements, such as spending enough time on required topics. OSHA will notify the Outreach trainer of its findings from the investigation and allow the trainer 15 days to address the findings identified in the notification. If the trainer does not respond within this timeframe, OSHA may suspend the trainer indefinitely until a response is received. The trainers can appeal OSHA’s initial decision. If there is an appeal, OSHA will review it and make a final decision, which may result in the Outreach trainer being subjected to disciplinary actions, including probation, suspension, or revocation of the Outreach trainer authorization. As of October 2016, 107 Outreach trainers, which is less than 1 percent of the approximately 30,000 Outreach trainers, have had their status as authorized Outreach trainers suspended or revoked by OSHA as a result of failing to comply with the Outreach Training Program requirements and procedures. OSHA officials said that they oversee the online training providers by collecting updated course information twice per year and investigating any complaints about the training. In 2009, OSHA required that online training providers complete an initial multi-phase process to develop online Outreach Training courses that meet OSHA’s requirements. According to OSHA officials, after they initially approved the online training providers, OSHA monitoring has consisted of responding to complaints about the training, requiring online providers to submit updated information on their courses twice per year, and requiring that providers self-certify twice per year that their training meets OSHA’s requirements. OSHA investigates complaints about the online training providers by first sending them a notification letter describing the issue. Examples of issues OSHA has investigated include cases where an online provider incorrectly advertised the courses or offered the training outside of OSHA’s geographic jurisdiction. The online provider has 15 days to respond to OSHA, and if OSHA determines they have violated applicable requirements, OSHA may suspend, terminate, or put them on probation. Online providers who are placed on probation are required to submit monthly self-certifications to OSHA that their program is in compliance with OSHA’s online training guidance. OSHA did not establish a performance assessment process for online training providers when the current providers were selected in 2009, but according to officials, the agency is in the process of finalizing a public solicitation for a new model for authorizing online providers that they said will include new requirements for the providers. OSHA officials said that having these new requirements in place for the online training providers will improve the providers’ understanding of what is expected of them and help OSHA gather additional information on the providers’ performance. OSHA tracks the number of workers who take the Outreach Training courses to measure the reach of the program. OSHA measures the results of the Outreach Training Program by setting yearly targets for the number of workers trained and uses these data to report its progress in meeting its strategic goal of improving workplace safety and health. While the agency missed its target for fiscal years 2011 and 2012, it exceeded its targets for fiscal years 2013 through 2016 (see fig. 5). OSHA obtains information on the number of workers trained from the Education Centers and online training providers. OSHA also requires some of the Outreach Training providers to evaluate the training they provide using the Kirkpatrick model—a commonly accepted model for evaluating training—which is endorsed by the Office of Personnel Management in its training evaluation guidance and GAO’s training guide. The Kirkpatrick model consists of a four-level approach for soliciting feedback from training course participants and evaluating the impact the training had on individual development, among other things. The Education Centers and the online training providers are required to report on the first two of those levels (see fig. 6) and are encouraged to conduct the other two higher levels of evaluation of the courses they deliver. Individual Outreach trainers, who provide in-person training to workers, are not required to assess the training they deliver. OSHA officials said they decided not to require Outreach trainers conducting in-person training to test student knowledge or use student evaluations—even though this is how the vast majority of training in the program is delivered—because they did not want these activities to take away from instructional time. According to OSHA officials, when delivering 10- and 30-hour Outreach Training courses in the classroom, trainers have the ability to ask questions to encourage student participation and use activities to verify that the transfer of learning has occurred. However, due to the less interactive nature of the online training courses, OSHA determined that the online 10- and 30-hour classes require a testing component to ensure the students understand the material provided. According to OSHA officials, OSHA also requires testing for the Education Centers’ train-the-trainer courses to ensure the trainers have mastered the course content and are able to effectively teach the Outreach Training curriculum to workers. OSHA has taken some steps to assess the results of some of the evaluation information it collects and plans to make greater use of evaluation information it collects from the Education Centers in the future. For the in-person train-the-trainer courses that the Education Centers deliver, OSHA receives test results and copies of student evaluations. The Education Centers use a standard student evaluation form that can be electronically processed by OSHA. OSHA then automatically tabulates the information in the student evaluations and returns them to the Education Centers so that they can use them to make improvements to their courses. According to OSHA officials, OSHA reviewed a sample of the student evaluations and found positive results through these reviews. Beginning in fiscal year 2017, OSHA officials said they plan to begin assessing the student evaluation results from the train- the trainer courses as part of the annual appraisal process for Education Centers by adding a related performance measure to its expectations for the Education Centers. For the online training, OSHA receives test results and copies of student evaluations, which ask the students to identify the extent to which the training will help them better identify hazards and if they had any technical problems accessing the training, among other things. According to OSHA officials, they have not used this information to assess the results of the Outreach Training Program because the agency receives paper copies of the results in different formats, and the agency does not have the resources to analyze the information in its current format. We provided a draft of this report to DOL for its review. DOL did not provide formal comments and did not have any technical comments. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time we will send copies of this report to the appropriate congressional committees, the Acting Secretary of Labor, the Deputy Assistant Secretary for OSHA, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. Please contact me on (202) 512-7215 or at bawdena@gao.gov if you or your staff have any questions about this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix I. In addition to the contact named above, Mary Crenshaw (Assistant Director), Cathy Roark (Analyst-in-Charge), Hiwotte Amare, Deborah Bland, Carol Bray, David Chrisinger, Scott Coleman, Sarah Cornetto, Cliff Douglas, Holly Dye, Sharon Hermes, Sheila McCoy, Jonathan McMurray, Jean McSween, David Moser, Mimi Nguyen, Stacy Spence, and Bill Woods made significant contributions to this report. | In fiscal year 2016, approximately 900,000 workers were trained through OSHA's Outreach Training Program, the agency's primary mechanism for training workers on the basics of occupational safety and health. OSHA offers this training through OSHA-authorized in-person and online training providers. GAO was asked to review OSHA's administration of the program. GAO examined (1) the extent to which the program aligns with leading practices in designing an effective training program, (2) the process for documenting successful completion of the training and whether internal controls are in place to assure completion is accurately documented, and (3) how OSHA oversees training providers and assesses the results of the program. GAO compared OSHA's design and evaluation efforts for its training program with leading practices in GAO's training guide (GAO-04-546G) and federal internal control standards, and analyzed fiscal year 2012-2016 OSHA data (the most recent available) on time frames for processing completion card requests from online training providers. GAO also interviewed all nine online training providers and five in-person training providers, selected for having a high number of participants in fiscal year 2015, as well as OSHA officials. GAO is not making recommendations in this report. The Department of Labor's Occupational Safety and Health Administration's (OSHA) Outreach Training Program–which offers training on job hazard recognition and avoidance–reflects many of the attributes of a well-designed training program identified in GAO's training guide. OSHA is not required to follow GAO's training guide; however, the program's design reflects at least one indicator for six of the seven attributes of a well-designed training program GAO has identified. For example, OSHA used an appropriate mix of centralized and decentralized approaches by developing core learning objectives and content requirements for the courses but allowed training providers to modify the curriculum to meet the specific needs of their audience. In addition, OSHA officials told GAO that they took into account the leading causes of worker deaths and the most common workplace safety and health violations to determine topics to be covered in the training. OSHA documents successful course completion differently depending on whether training was delivered in-person or online, but it uses the same controls to prevent fraudulent completion cards from being issued. OSHA officials and the training providers GAO interviewed reported using several checks to prevent fraudulent completion cards from being issued, such as verifying course completion through automated and manual processes and comparing the number of cards requested to the number of registered students. Although OSHA does not require workers to complete Outreach Training, some workers may need to show proof of completion to satisfy requirements by their states, municipalities, employers, or unions. To obtain completion cards, Outreach trainers who deliver in-person training submit course information through a web-based system, while online training providers mail documentation to OSHA. OSHA processed 91 percent of the card requests from online training providers within 2 weeks, which is within the 30-day deadline OSHA has set for itself, according to GAO's analysis of OSHA data. OSHA officials reported that they plan to allow all training providers to request completion cards electronically, but the agency has not established a timeline for implementing this new process. According to OSHA officials, the agency is taking steps to modify its process for selecting online training providers and plans to incorporate electronic requests for completion cards into the new process. OSHA oversees the performance of training providers by routinely collecting and assessing data and investigating complaints and has taken some steps to assess the results of the program. Specifically, OSHA collects data from the training providers to help ensure that the training meets the program requirements and that the trainers are delivering the Outreach Training courses as intended. OSHA also investigates complaints it receives about training providers, including issues such as the trainer not spending enough time on required safety topics. To assess program results, OSHA tracks the number of workers who take the Outreach Training courses to measure the reach of the program. According to OSHA data, from fiscal year 2000 to fiscal year 2016, the number of workers trained more than quadrupled from 200,522 to 900,010. OSHA also receives test results and student evaluations of the courses from some of the Outreach Training providers. |
NTIA and RUS face scheduling, staffing, and data challenges in evaluating applications and awarding funds. The agencies have taken steps to meet these challenges, such as adopting a two-step evaluation process, utilizing nongovernmental personnel, and publishing information on the applicant’s proposed service area. While these steps address some challenges, the agencies lack the needed time to apply lessons learned from the first funding round and face a compressed schedule to review new applications. As a result, the agencies may risk awarding funds to projects that are not sustainable or do not meet the priorities of the Recovery Act. Scheduling challenges. The agencies have 18 months to establish their respective programs, solicit and evaluate applications, and award all funds. While in some instances a compressed schedule does not pose a challenge, two factors enhance the challenges associated with the 18- month schedule. First, NTIA must establish the BTOP program from scratch, and RUS has existing broadband grant and loan programs, albeit on a much smaller scale than BIP. Second, the agencies face an unprecedented volume of funds and anticipated number of applications compared to their previous experiences. The funding associated with BTOP and BIP exceed NTIA’s and RUS’s prior experience with other grant or loan programs (see fig. 1). In comparison to the $4.7 billion appropriation NTIA received for BTOP, its Public Telecommunications Facilities Program received an average of $23 million annually and its Telecommunications Opportunities Program received $24 million annually. NTIA also administered the one-time Public Safety Interoperable Communications Program (PSIC), with an appropriation of about $1 billion, in close coordination with the Department of Homeland Security (DHS). In comparison to the $2.5 billion appropriation RUS received for BIP, its Community Connect Program’s average annual appropriation was $12 million and its Broadband Access Loan Program’s Program’s average annual appropriation was $15 million. average annual appropriation was $15 million. NTIA and RUS also face an increase in the number of applications that they must review and evaluate in comparison to similar programs (see fig. 2). According to preliminary information from the agencies, they received approximately 2,200 applications requesting $28 billion in grants and loans in the first funding round. Of these 2,200 applications, NTIA received 940 applications exclusively for BTOP and RUS received 400 applications exclusively for BIP and 830 dual applications that both agencies will review. In comparison, NTIA received an average of 838 applications annually for the Telecommunications Opportunities Program; for PSIC, NTIA and DHS received 56 applications from state and territorial governments containing a total of 301 proposed projects. RUS received an average of 35 applications annually for the Broadband Access Loan program and an average of 105 applications annually for the Community Connect Program. Staffing challenges. NTIA and RUS will need additional personnel to administer BTOP and BIP. NTIA’s initial risk assessment indicated that a lack of experienced and knowledgeable staff was a key risk to properly implementing the program in accordance with the priorities of the Recovery Act. In its fiscal year 2010 budget request to Congress, NTIA estimated that it will need 30 full-time-equivalent staff in fiscal year 2009 and 40 more full-time-equivalent staff for fiscal year 2010. While RUS already has broadband loan and grant programs in place and staff to administer them, it also faces a shortage of personnel. RUS’s staffing assessments indicated that the agency will need 47 additional full-time- equivalents to administer BIP. Data challenges. NTIA and RUS lack detailed data on the availability of broadband service throughout the country that may limit their ability to target funds to priority areas. According to the agencies, priority areas include unserved and underserved areas. The agencies require applicants to assemble their proposed service areas from contiguous census blocks and to identify the proposed service area as unserved or underserved. However, the agencies will be awarding loans and grants before the national broadband plan or broadband mapping is complete. FCC must complete the national broadband plan by February 17, 2010, and NTIA does not expect to have complete, national data on broadband service levels at the census block level until at least March 2010. Two-step evaluation process. To address the scheduling and staffing challenges, NTIA and RUS are using a two-step process. In the first step, the agencies will evaluate and score applications based on the criteria in the NOFA, such as project purpose and project viability. During this step, the agencies will select which applications proceed to the second step. After the first step is complete and the pool of potential projects is reduced, the agencies intend to conduct the second step—due diligence, which involves requesting extra documentation to confirm and verify information contained in an application. Since not all applications will proceed to the second step, not all applicants will be required to submit extra documentation which will reduce the amount of information the agencies must review. Use of nongovernmental personnel. Both NTIA and RUS are using nongovernmental personnel to address anticipated staffing needs associated with the evaluation of applications and awarding of funds. To evaluate applications, NTIA is using a volunteer peer review system, in which three unpaid, expert reviewers examine and score applications; these volunteers must have significant expertise and experience in broadband-related activities, such as the construction and operation of a broadband network. In addition, NTIA will use contractors in an administrative role to assist the expert reviewers. RUS will also use contractors to evaluate and score applications. Regardless of who reviews the application, the final selection and funding decisions are to be formally made by a selecting official in each agency. Publish applicant information. To address the challenge of incomplete data on broadband service, NTIA and RUS require applicants to identify and attest to the service availability—either unserved or underserved—in their proposed service area. In order to verify these self-attestations, NTIA and RUS will post a public notice identifying the proposed funded service area of each broadband infrastructure applicant. The agencies intend to allow existing service providers in the proposed service area to question an applicant’s characterization of broadband service in that area. If this information raises eligibility issues, RUS may send field staff to the proposed service area to conduct a market survey. RUS will resolve eligibility issues by determining the actual availability of broadband service in the proposed service area. NTIA has no procedure for resolving these types of issues. During the first funding round, the compressed schedule posed a challenge for both applicants and the agencies. As mentioned previously, NTIA and RUS initially proposed to utilize three separate funding rounds during the 18-month window to award the $7.2 billion. As such, each funding round would operate under a compressed schedule. Eight of the 15 industry stakeholders with whom we spoke expressed concern that a small entity would have difficulties in completing an application in a timely manner. The compressed schedule also posed challenges for the agencies. During the first funding round, the agencies missed several milestones. For example, RUS originally intended to select a contractor on June 12, 2009, and NTIA intended to select a contractor on June 30, 2009; however, both agencies missed their target dates, with RUS selecting its contractor on July 31, 2009, and NTIA selecting its contractor on August 3, 2009. Because of the compressed schedule within the individual funding rounds, NTIA and RUS have less time to review applications than similar grant and loan programs. In the first funding round, the agencies have approximately 2 months to review 2,200 applications. In contrast, from fiscal year 2005 through 2008, RUS took from 4 to 7 months to receive and review an average of 26 applications per year for its Broadband Access Loan Program. NTIA’s Public Telecommunications Facilities Program operated on a year-long grant award cycle. For the PSIC program, NTIA and DHS completed application reviews in roughly 6 months. Based on their experience with the first funding round, NTIA and RUS are considering reducing the number of funding rounds from three to two. In the second and final funding round, the agencies anticipate extending the window for entities to submit applications. This change will help mitigate the challenges the compressed schedule posed for applicants in the first funding round. However, it is unclear whether the agencies will similarly extend the amount of time to review the applications and thereby bring the review time more in line with the experiences of other broadband grant and loan programs. NTIA officials indicated that the agency would like to make all awards by summer 2010, to promote the stimulative effect of the BTOP program. Alternatively, RUS officials indicated that the agency will make all awards by September 30, 2010, as required by the Recovery Act, indicating a potentially longer review process. Depending on the timeframes NTIA and RUS select, the risks for both applicants and the agencies may persist with two funding rounds. In particular, these risks include: Limited opportunity for “lessons learned.” Based on the current schedule, NTIA and RUS will have less than one month between the completion of the first funding round and the beginning of the second funding round. Because of this compressed time frame, applicants might not have sufficient time to analyze their experiences with the first funding round to provide constructive comments to the agencies. Further, the agencies might not have sufficient time to analyze the outcomes of the first round and the comments from potential applicants. As such, a compressed schedule limits the opportunity to apply lessons learned from the first funding round to improve the second round. Compressed schedule to review applications. Due to the complex nature of many projects, NTIA and RUS need adequate time to evaluate the wide range of applications and verify the information contained in the applications. NTIA is soliciting applications for infrastructure, public computer center, and sustainable adoption projects. Therefore, NTIA will receive applications containing information responding to different criteria and it will evaluate the applications with different standards. Even among infrastructure applications, a wide variability exists in the estimates, projections, and performance measures considered reasonable for a project. For example, in RUS’s Broadband Access Loan Program, approved broadband loans for the highest-cost projects, on a cost-per- subscriber basis, ranged as much as 15, 18, and even 70 times as high as the lowest-cost project, even among projects using the same technology to deploy broadband. Continued lack of broadband data and plan. According to NTIA, national broadband data provide critical information for grant making. NTIA does not expect to have complete data for a national broadband map until at least March 2010. Also, as mentioned previously, FCC must deliver to Congress a national broadband plan by February 17, 2010. By operating on a compressed schedule, NTIA and RUS will complete the first funding round before the agencies have the data needed to target funds to unserved and underserved areas and before FCC completes the national broadband plan. Depending on the time frames the agencies select for the second funding round, they may again review applications without the benefit of national broadband data and a national broadband plan. NTIA and RUS will need to oversee a far greater number of projects than in the past, including projects with large budgets and a diversity of purposes and locations. In doing so, the agencies face the challenge of monitoring these projects with far fewer staff per project than were available in similar grant and loan programs they have managed. To address this challenge, NTIA and RUS procured contractors to assist with oversight activities and will require funding recipients to complete quarterly reports and, in some cases, obtain annual audits. Despite the steps taken, several risks remain to adequate oversight. These risks include insufficient resources to actively monitor funded projects beyond fiscal year 2010 and a lack of updated performance measures for NTIA and RUS. In addition, NTIA has yet to define annual audit requirements for commercial entities funded under BTOP. NTIA and RUS will need to oversee a far greater number of projects than in the past. Although the exact number of funded projects is unknown, both agencies have estimated that they could fund as many as 1,000 projects each—or 2,000 projects in total—before September 30, 2010. In comparison, from fiscal year 1994 through fiscal year 2004, NTIA awarded a total of 610 grants through its Technology Opportunities Program—or an average of 55 grants per year. From fiscal year 2005 through fiscal year 2008, RUS awarded a total of 84 Community Connect grants, averaging 21 grants per year; and through its Broadband Access Loan Program, RUS approved 92 loans from fiscal year 2003 through fiscal year 2008, or about 15 loans per year. In addition to overseeing a large number of projects, the scale and diversity of BTOP- and BIP-funded projects are likely to be much greater than projects funded under the agencies’ prior grant programs. Based on NTIA’s estimated funding authority for BTOP grants and RUS’s estimated potential total funding for BIP grants, loans, and loan/grant combinations, if the agencies fund 1,000 projects each, as estimated, the average funded amount for BTOP and BIP projects would be about $4.35 million and $9 million, respectively. In comparison, from fiscal year 1994 to fiscal year 2004, NTIA’s average grant award for its Technology Opportunities Program was about $382,000 and from fiscal year 2005 to fiscal year 2008, RUS awarded, on average, about $521,000 per Community Connect grant award. Further, the agencies expect to fund several different types of projects that will be dispersed nationwide, such as infrastructure and public computer center projects. Because of the volume of expected projects, NTIA and RUS plan to oversee and monitor BTOP- and BIP-funded projects with fewer staff resources per project than the agencies used in similar grant and loan programs (see table 1). NTIA reported that it will need 41 full-time- equivalent staff to manage BTOP; at the time of our review it had filled 33 of these positions. Based on NTIA’s estimate of funding 1,000 projects and its estimated 41 full-time-equivalent staff needed, NTIA will have about 1 full-time-equivalent staff available for every 24 projects. NTIA reported that it is continually assessing its resources and is considering additional staff hires. Similarly, RUS reported that it will need 47 full-time-equivalent staff to administer all aspects of BIP, and the majority of these positions were to be filled by the end of September 2009. These 47 staff members are in addition to the 114 full-time-equivalent staff in the Rural Development Telecommunications program which support four existing loan or grant programs. If RUS funds a total of 1,000 projects, as estimated, based on the 47 staff assigned to BIP, it would have 1 staff of any capacity available for every 21 funded projects. RUS reported that it could use other staff in the Rural Development Telecommunications program to address BIP staffing needs, if necessary. Contractor services. NTIA and RUS will use contractors to help monitor and provide technical assistance for BTOP and BIP projects. On August 3, 2009, NTIA procured contractor services to assist in a range of tasks, including tracking and summarizing grantees’ performance, developing grant-monitoring guidance, and assisting with site visits and responses to audits of BTOP-funded projects. On July 31, 2009, RUS awarded a contract to a separate contractor for a wide range of program management activities for BIP. RUS’s contractor will be responsible for a number of grant-monitoring activities, including developing a workflow system to track grants and loans, assisting RUS in developing project monitoring guidance and policies, and assisting in site visits to monitor projects and guard against waste, fraud, and abuse. In addition to its contractor, RUS intends to use existing field staff for program oversight. RUS reported that it currently has 30 general field representatives in the telecommunications program and 31 field accountants in USDA’s Rural Development mission area that may be available to monitor broadband programs. In addition, RUS officials told us that Rural Development has an estimated 5,000 field staff available across the country that support a variety of Rural Development loan and grant programs. Although these individuals do not have specific experience with telecommunications or broadband projects, according to RUS, this staff has experience supporting RUS’s business and community development loan programs, and this workforce could be used for project monitoring activities if there were an acute need. Unlike RUS, NTIA does not have field staff. According to NTIA, the agency has been in talks with RUS about sharing some of RUS’s field staff to monitor BTOP projects, although no formal agreement is in place. Recipient reports and audits. To help address the challenge of monitoring a large number of diverse projects, NTIA and RUS have developed program-specific reporting requirements that are intended to provide transparency on the progress of funded projects. Based on our review of the requirements, if NTIA and RUS have sufficient capacity to review and verify that information provided by funding recipients is accurate and reliable, these requirements could provide the agencies with useful information to help them monitor projects. The following reporting requirements apply to BTOP and BIP funding recipients: General recovery act reports. Section 1512 of the Recovery Act and related OMB guidance requires all funding recipients to report quarterly to a centralized reporting system on, among other things, the amount of funding received that was expended or obligated, the project completion status, and an estimate of the number of jobs created or retained through the funded project, among other information. Under OMB guidance, awarding agencies are responsible for ensuring that funding recipients submit timely reports, and must perform a data quality review and request further information or corrections by funding recipients, if necessary. BTOP-specific reports. The Recovery Act requires BTOP funding recipients to report quarterly on their use of funds and NTIA to make these reports available to the public. NTIA also requires that funding recipients report quarterly on their broadband equipment purchases and progress made in achieving goals, objectives, and milestones identified in the recipient’s application, including whether the recipient is on schedule to substantially complete its project no later than 2 years after the award and complete its project no later than 3 years after the award. Recipients of funding for infrastructure projects must report on a number of metrics, such as the number of households and businesses receiving new or improved access to broadband as a result of the project, and the advertised and averaged broadband speeds and the price of the broadband services provided. BIP-specific reports. RUS requires BIP funding recipients to submit quarterly balance sheets, income and cash-flow statements, and the number of customers taking broadband service on a per community basis, among other information. BIP funding recipients must also report annually on the number of households; businesses; and educational, library, health care, and public safety providers subscribing to new or improved access to broadband. RUS officials reported that it plans to use quarterly reports to identify specific projects for on-site monitoring and to determine when that monitoring should take place. NTIA and RUS also require some funding recipients to obtain annual, independent audits of their projects; however, NTIA has yet to determine what annual audit requirements, if any, will apply to commercial grantees (see table 2). The primary tool for monitoring federal awards through annual audits is the single audit report required under the Single Audit Act, as amended. We recently reported that the Single Audit is a valuable source of information on internal control and compliance for use in a management’s risk assessment and monitoring processes—and with some adjustments, we said, the Single Audit process could be improved for Recovery Act oversight. The Single Audit report is prepared in accordance with OMB’s implementing guidance in OMB Circular No. A- 133. All states, local governments, and nonprofit organizations that expend over $500,000 in federal awards per year must obtain an annual Single Audit or, in some cases, a program-specific audit. Commercial (for profit) entities awarded federal funding of any amount are not covered by the Single Audit Act, and states, local governments, and nonprofit organizations expending less than $500,000 in federal awards per year are also not required to obtain an annual Single Audit under the Single Audit Act. RUS, however, requires all commercial recipients of BIP funds to obtain an annual, independent audit of their financial statements under requirements that also apply to RUS’s existing broadband grant and loan programs. NTIA has yet to determine what annual audit requirements, if any, will apply to commercial grantees. Lack of sufficient resources beyond fiscal year 2010. Both NTIA and RUS face the risk of having insufficient resources to actively monitor BTOP- and BIP-funded projects after September 30, 2010, which could result in insufficient oversight of projects not yet completed by that date. As required by the Recovery Act, NTIA and RUS must ensure that all awards are made before the end of fiscal year 2010. Under the current timeline, the agencies do not anticipate completing the award of funds until that date. Funded projects must be substantially complete no later than 2 years, and complete no later than 3 years following the date of issuance of the award. Yet, the Recovery Act provides funding through September 30, 2010. The DOC Inspector General has expressed concerns that “without sufficient funding for a BTOP program office, funded projects that are still underway at September 30, 2010, will no longer be actively managed, monitored, and closed.” NTIA officials told us that NTIA has consulted with the OMB about seeking BTOP funding after September 30, 2010, to allow it to close grants. RUS officials reported that given the large increase in its project portfolio from BIP, RUS’s capacity to actively monitor these projects after its BIP funding expires may be stressed. Without sufficient resources to actively monitor and close BTOP grants and BIP grants and loans by the required completion dates, NTIA and RUS may be unable to ensure that all recipients have expended their funding and completed projects as required. Lack of updated performance measures. The Government Performance and Results Act of 1993 (GPRA) directs federal agencies to establish objective, quantifiable, and measurable goals within annual performance plans to improve program effectiveness, accountability, and service delivery. Specifically, performance measures allow an agency to track its progress in achieving intended results and help inform management decisions about such issues as the need to redirect resources or shift priorities. NTIA has established preliminary program performance measures for BTOP, including job creation, increasing broadband access, stimulation of private sector investment, and spurring broadband demand. However, NTIA has not established quantitative, outcome-based goals for those measures. NTIA officials reported that the agency lacks sufficient data to develop such goals and is using applications for the first round of funding to gather data, such as the expected number of households that will receive new or improved broadband service. According to NTIA officials, data collected from applications for the first funding round could be used to develop program goals for future funding rounds. RUS has established quantifiable program goals for its existing broadband grant and loan programs, including a measure for the number of subscribers receiving new or improved broadband service as a result of the programs. However, according to USDA’s fiscal year 2010 annual performance plan, RUS has not updated its measures to reflect the large increase in funding it received for broadband programs under the Recovery Act. In addition, RUS officials told us that the agency’s existing measure for the number of subscribers receiving new or improved broadband access as a result of its programs is based on the estimates provided by RUS borrowers in their applications. Consequently, these program goals do not reflect actual program outcomes, but rather the estimates of applicants prior to the execution of their funded projects. Undefined audit requirements for commercial recipients. At the time of our review, NTIA did not have audit requirements or guidelines in place for annual audits of commercial entities receiving BTOP grants. NTIA officials reported that because BTOP is the first program managed by NTIA to make grants to commercial entities, the agency does not have existing audit guidelines for commercial entities. However, NTIA reported that it intends to develop program-specific audit requirements and guidelines that will apply to commercial recipients that receive broadband grants and it plans to have those guidelines in place by December 2009. In the absence of clear audit requirements and guidelines for commercial recipients of BTOP funding, NTIA will lack an important oversight tool to identify risks and monitor BTOP grant expenditures. Mr. Chairman and Members of the Committee, this concludes my prepared statement. Our future work, which we expect to complete in November, will provide additional information on the implementation and oversight of the broadband programs. We also expect to make recommendations at that time. I would be pleased to respond to any questions that you or other members of the committee might have. For questions regarding this statement, please contact Mark L. Goldstein at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Relations can be found on the last page of this statement. Michael Clements, Assistant Director; Eli Albagli; Matt Barranca; Elizabeth Eisenstadt; Dean Gudicello; Tom James; Kim McGatlin; Sara Ann Moessbauer; Josh Ormond; and Mindi Weisenbloom also made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. | Access to broadband service is seen as vital to economic, social, and educational development, yet many areas of the country lack access to, or their residents do not use, broadband. To expand broadband deployment and adoption, the American Recovery and Reinvestment Act (the Recovery Act) provided $7.2 billion to the Department of Commerce's National Telecommunications and Information Administration (NTIA) and the Department of Agriculture's Rural Utilities Service (RUS) for grants or loans to a variety of program applicants. The agencies must award all funds by September 30, 2010. This testimony provides preliminary information on the challenges NTIA and RUS face; the steps taken to address challenges; and the remaining risks in (1) evaluating applications and awarding funds and (2) overseeing funded projects. This statement is based on related ongoing work that GAO expects to complete in November. To conduct this work, GAO is reviewing relevant laws and program documents and interviewing agency officials and industry stakeholders. While this testimony does not include recommendations, GAO expects to make recommendations in its November report. Application evaluation and awards. NTIA and RUS face scheduling, staffing, and data challenges in evaluating applications and awarding funds. NTIA, through its new Broadband Technology Opportunities Program, and RUS, through its new Broadband Initiatives Program, must review more applications and award far more funds than the agencies formerly handled through their legacy telecommunications grant or loan programs. NTIA and RUS initially proposed distributing these funds in three rounds. To meet these challenges, the agencies have established a two-step application evaluation process that uses contractors or volunteers for application reviews and plan to publish information on applicants' proposed service areas to help ensure the eligibility of proposed projects. While these steps address some challenges, the upcoming deadline for awarding funds may pose risks to the thoroughness of the application evaluation process. In particular, the agencies may lack time to apply lessons learned from the first funding round and to thoroughly evaluate applications for the remaining rounds. Oversight of funded projects. NTIA and RUS will oversee a significant number of projects, including projects with large budgets and diverse purposes and locations. In doing so, the agencies face the challenge of monitoring these projects with far fewer staff per project than were available for their legacy grant and loan programs. To address this challenge, NTIA and RUS have hired contractors to assist with oversight activities and plan to require funding recipients to complete quarterly reports and, in some cases, obtain annual audits. Despite these steps, several risks remain, including a lack of funding for oversight beyond fiscal year 2010 and a lack of updated performance measures to ensure accountability for NTIA and RUS. In addition, NTIA has yet to define annual audit requirements for commercial entities funded under the Broadband Technology Opportunities Program. |
In response to growing concern about the harmful consequences that computerized data systems could have on the privacy of personal information, the Secretary of Health, Education, and Welfare commissioned an advisory committee in 1972 to examine to what extent limitations should be placed on the application of computer technology to record keeping about people. The committee’s final report proposed a set of principles for protecting the privacy and security of personal information, known as the Fair Information Practices. These practices were intended to address what the committee termed a poor level of protection afforded to privacy under existing law, and they underlie the major provisions of the Privacy Act, which was enacted the following year. A revised version of the Fair Information Practices, developed by the Organization for Economic Cooperation and Development (OECD) in 1980, has been widely adopted. This version of the principles was reaffirmed by OECD ministers in a 1998 declaration and further endorsed in a 2006 OECD report. The OECD version of the principles is shown table 1. The Fair Information Practices are, with some variation, the basis of privacy laws and related policies in many countries, including the United States, Germany, Sweden, Australia, and New Zealand, as well as the European Union. They are also reflected in a variety of federal agency policy statements, beginning with an endorsement of the OECD principles by the Department of Commerce in 1981, and including policy statements from DHS, DOJ, and the Department of Housing and Urban Development. In 2004, the Chief Information Officers Council issued a coordinating draft of its Security and Privacy Profile for the Federal Enterprise Architecture that links privacy protection with a set of acceptable privacy principles corresponding to the OECD’s version of the Fair Information Practices. In addition, in a 2007 report on “Engaging Privacy and Information Technology in a Digital Age,” the National Research Council found that the principles of fair information practice for the protection of personal information are as relevant today as they were in 1973. Accordingly, the committee recommended that the fair information practices should be extended as far as reasonably feasible to apply to private-sector organizations that collect and use personal information. The Fair Information Practices are not precise legal requirements. Rather, they provide a framework of principles for balancing the need for privacy with other public policy interests, such as national security, law enforcement, and administrative efficiency. Striking that balance varies among countries and among types of information (e.g., medical, employment information). There is no single federal law that governs all use or disclosure of personal information. Instead, U.S. law includes a number of separate statutes that provide privacy protections for information used for specific purposes or maintained by specific entities. The major requirements for the protection of personal privacy by federal agencies come from two laws, the Privacy Act of 1974 and the privacy provisions of the E-Government Act of 2002. The Privacy Act places limitations on agencies’ collection, disclosure, and use of personal information maintained in systems of records. The act describes a “record” as any item, collection, or grouping of information about an individual that is maintained by an agency and contains his or her name or another personal identifier. It also defines “system of records” as a group of records under the control of any agency from which information is retrieved by the name of the individual or by an individual identifier. The Privacy Act requires that when agencies establish or make changes to a system of records, they must notify the public through a system-of-records notice in the Federal Register that identifies, among other things, the categories of data collected, the categories of individuals about whom information is collected, the intended “routine” uses of data, and procedures that individuals can use to review and correct personally identifiable information. The act’s requirements also apply to government contractors when agencies contract for the operation of a system of records to accomplish an agency function. According to OMB guidance, in these situations the contractual instrument between the agency and the contractor must specify that such records are to be maintained in accordance with the act. As explained by OMB, this requirement was not intended to cover private- sector record-keeping systems, but only those systems actually taking the place of a federal system that, but for the contract, would have been performed by an agency and covered by the Privacy Act. Several provisions of the act require agencies to define and limit collection and use to predefined purposes. For example, the act requires that to the greatest extent practicable, personal information should be collected directly from the subject individual when it may affect an individual’s rights or benefits under a federal program. The act also requires that an agency inform individuals whom it asks to supply information of (1) the authority for soliciting the information and whether disclosure of such information is mandatory or voluntary; (2) the principal purposes for which the information is intended to be used; (3) the routine uses that may be made of the information; and (4) the effects on the individual, if any, of not providing the information. According to OMB, this requirement is based on the assumption that individuals should be provided with sufficient information about the request to make a decision about whether to respond. In handling collected information, agencies are generally required by the Privacy Act to, among other things, allow individuals to (1) review their records (meaning any information pertaining to them that is contained in the system of records), (2) request a copy of their record or information from the system of records, and (3) request corrections to their information. Agencies are allowed to claim exemptions from some of the provisions of the Privacy Act if the records are used for certain purposes. For example, records compiled by criminal law enforcement agencies for criminal law enforcement purposes can be exempt from a number of provisions, including (1) the requirement to notify individuals of the purposes and uses of the information at the time of collection and (2) the requirement to ensure the accuracy, relevance, timeliness, and completeness of records. A broader category of investigative records compiled for criminal or civil law enforcement purposes can also be exempted from a somewhat smaller number of Privacy Act provisions, including the requirement to provide individuals with access to their records and to inform the public of the categories of sources of records. In general, the exemptions for law enforcement purposes are intended to prevent the disclosure of information collected as part of an ongoing investigation that could impair the investigation or allow those under investigation to change their behavior or take other actions to escape prosecution. Statutory exemptions under the Privacy Act are summarized in appendix III. In 1988, Congress passed the Computer Matching and Privacy Protection Act as an amendment to the Privacy Act, to establish procedural safeguards that affect agencies’ use of Privacy Act records from benefit programs in performing certain types of computerized matching programs. For example, the 1988 act requires agencies to create written agreements specifying the terms under which matches are to be done. …information is handled: (i) to ensure handling conforms to applicable legal, regulatory, and policy requirements regarding privacy; (ii) to determine the risks and effects of collecting, maintaining, and disseminating information in identifiable form in an electronic information system; and (iii) to examine and evaluate protections and alternative processes for handling information to mitigate potential privacy risks. Agencies must conduct PIAs (1) before developing or procuring information technology that collects, maintains, or disseminates information that is in identifiable form or (2) before initiating any new data collections of information in an identifiable form that will be collected, maintained, or disseminated using information technology if the same questions are asked of 10 or more people. OMB guidance also requires agencies to conduct PIAs when a system change creates new privacy risks, for example, changing the way in which personal information is being used. According to OMB, no assessment is required when the information relates to internal government operations, the information has been previously assessed under an evaluation similar to a PIA, or when privacy issues are unchanged. The PRA applies to federal information collections and was designed to help ensure that when the government asks the public for information, the burden of providing this information is as small as possible and the information itself is used effectively. Such collections may have a range of purposes, which may or may not involve the collection of personal information, including applications for government benefits, program evaluation, general purpose statistics, research and regulation or compliance; all of these information collections may occur in a variety of forms, including questionnaires and telephone surveys. To achieve the goal of minimizing paperwork burden while maximizing the public benefit and utility of the information collected, the act includes provisions that establish standards and procedures for effective implementation and oversight of information collections. Among these provisions is the requirement that agencies not establish information collections without having them approved by OMB, and that before submitting them for approval, agencies’ chief information officers certify that the collections meet 10 specified standards, including that the collection is necessary for the proper performance of agency functions and avoids unnecessary duplication. The law also requires agencies both to publish notices in the Federal Register and to otherwise consult with the public about their planned collections. Privacy is also addressed in the legal framework for the emerging information sharing environment. As directed by the Intelligence Reform and Terrorism Prevention Act of 2004, the administration has taken steps, beginning in 2005, to establish an information sharing environment to facilitate the sharing of terrorism-related information with protections for privacy and civil liberties. The move was driven by the recognition that before the attacks of September 11, 2001, federal agencies had been unable to effectively share information about suspected terrorists and their activities. In addressing this problem, the National Commission on Terrorist Attacks Upon the United States (9/11 Commission) recommended that the sharing and uses of information be guided by a set of practical policy guidelines that would simultaneously empower and constrain officials, closely circumscribing what types of information they would be permitted to share as well as the types of information they would need to protect. Exchanging terrorism-related information continues to be a significant challenge for federal, state, and local governments—one that we recognize is not easily addressed. Accordingly, since January 2005, we have designated information sharing for homeland security a high-risk area. The Privacy Act gives OMB responsibility for developing guidelines and providing “continuing assistance to and oversight of” agencies’ implementation of the Privacy Act. The E-Government Act of 2002 also assigns OMB responsibility for developing PIA guidance and ensuring agency implementation of the privacy impact assessment requirement. In July 1975, OMB published guidance for implementing the provisions of the Privacy Act. Since then, OMB has periodically issued additional guidance. For example, in 1991, OMB provided guidance to assist agencies in complying with the Computer Matching and Privacy Protection Act. In September 2003, consistent with its responsibility under section 208 of the E-Government Act, OMB issued guidance to agencies on conducting privacy impact assessments. Enacted in 1980, the PRA made virtually all federal agency information collection activities subject to OMB review and established broad objectives for OMB oversight of the management of federal information resources. The act established the Office of Information and Regulatory Affairs within OMB and gave this office a variety of oversight responsibilities over federal information functions, including general information policy, reduction of paperwork burden, and information privacy. To assist agencies in fulfilling their responsibilities under the act, OMB took various steps. It issued a regulation and provided agencies with instructions on filling out a standard form for submissions and providing supporting statements. OMB has also periodically issued guidance on other privacy-related issues, including federal agency Web site privacy policies; interagency sharing of personal information; designation of senior staff responsible for privacy; and data breach notification. A list of privacy guidance from OMB can be found in appendix IV. Concerns about the Privacy Act have arisen periodically since its passage. The Privacy Act established a temporary national study commission to conduct a comprehensive assessment of privacy policy and to make recommendations for better protecting the privacy of individuals. This commission, called the Privacy Protection Study Commission (PPSC), was to study privacy issues and recommend future legislation. In its final report, the PPSC concluded that, as transactions involving personal information have proliferated, there has been no compensating tendency to give the individual the kind of control over the collection, use, and disclosure of personal information that natural, or face-to-face, encounters normally entail. The PPSC found that if informational privacy is to be protected, public policy must focus on certain systemic features such as the proliferating use of information for a different purpose than for what it was originally collected, and the greater use of third-party reporting. The commission concluded that it would be beneficial to create a federal body to oversee, regulate, and enforce compliance with the commission’s recommendations. The PPSC formally recommended that the President and Congress create an independent entity to participate in any federal proceeding that would affect personal privacy, including the issuance of rules that must be followed by federal agencies in interpreting the Privacy Act. As another example, in a 1983 report summarizing 9 years (1975 to1983) of congressional oversight of the Privacy Act, the House Committee on Government Operations concluded that OMB had not pursued its responsibility to revise and update its original guidance from 1975 and had not actively monitored agency compliance with its guidance. It stated “Interest in the Privacy Act at has diminished steadily since 1975. Each successive Administration has shown less concern about Privacy Act oversight.” More recently, in 2002, the Information Security and Privacy Advisory Board (ISPAB), a federal advisory committee originally established by the Computer Security Act of 1987, issued a report on government privacy policy setting and management. In its report, the ISPAB raised a number of concerns about advances in technology and its impact on privacy. Specifically, ISPAB observed that “with the migration toward e- government services, greater demands will be placed on the government’s privacy policies and systems.” ISPAB further observed that the public’s willingness to use such services will depend “in large measure on their confidence that the information that they disclose will be safeguarded.” The ISPAB report further stated that, “changes in technology, the privacy management challenges stemming from expanded e-government services, the accelerated interaction of networked information systems within and across critical infrastructure boundaries, and the extended, routine exchange of data among Federal and non-Federal government and non- government systems - all mandate immediate and serious attention to Federal government’s data privacy policies and operational controls.” Among the issues identified was a need for a review of the sufficiency and relevance of the Privacy Act to determine whether modifications were required, given the numerous changes affecting privacy that had occurred since the act was passed. Following up on its 2002 report, in 2005 ISPAB issued a “Privacy Act White Paper” raising the question of whether the existing legal and policy framework governing the information practices of federal agencies was sufficient to protect the privacy of individuals about whom the federal government maintained or used personal information. The paper postulated that “laws and policies have not kept pace with changes in technology and information and handling processes and suggests the need for an open dialogue on what changes in law and policy are needed and how to best make those changes.” Accordingly, in 2006 ISPAB initiated a partnership with the DHS Data Privacy and Integrity Advisory Committee to develop recommendations on a 21st century framework for revisions to the Privacy Act and other federal privacy statutes. Work on this initiative was ongoing at the time of our review. In 2007, the National Research Council issued a report entitled Engaging Privacy and Information Technology in a Digital Age. The report identified a number of issues related to the implications of advances in technology on privacy. With regard to government use of personal information, the committee found that the government has important roles to play in protecting the privacy of individuals and groups and in ensuring that decisions concerning privacy are made in an informed fashion. However, the report characterized the U.S. legal and regulatory framework as “a patchwork that lacks consistent principles or unifying themes.” The committee concluded that a less decentralized and more integrated approach to privacy policy in the United States could bring a greater degree of coherence to the subject of privacy. The committee recommended that the U.S. government undertake a broad systematic review of national privacy laws and regulations. Further, with regard specifically to government use of personal information, the committee found that “because the benefits of privacy often are less tangible and immediate than the perceived benefits of other interests, such as public security and economic efficiency, privacy is at an inherent disadvantage when decision makers weigh privacy against these other interests.” The committee concluded that, to reduce this inherent disadvantage, governments at federal, state, and local levels should establish mechanisms for the institutional advocacy of privacy within government. Much as the PPSC had recommended in 1977, the NRC recommended that a national privacy commissioner or standing privacy commission be established to provide ongoing and periodic assessments of privacy developments. We have previously reported on a number of agency-specific and governmentwide privacy-related issues at federal agencies. For example, in 2003, we reported that agencies generally did well with certain aspects of the Privacy Act’s requirements—such as issuing systems-of-records notices when required—but did less well at other requirements, such as ensuring that information is complete, accurate, relevant, and timely before it is disclosed to a nonfederal organization. In discussing this uneven compliance agency officials reported the need for additional OMB leadership and guidance to assist in difficult implementation issues in a rapidly changing environment. For example, officials had questions about the act’s applicability to electronic records. We have also reported on key privacy challenges facing federal agencies, federal Web site privacy, notification of individuals in the event of a data breach, and government data-mining initiatives. A list of our privacy-related products can be found in appendix V. Other federal laws address privacy protection for personal information with respect to information security requirements as well as for certain types of information, such as when taxpayer, statistical, or health information is involved. The Federal Information Security Management Act (FISMA) addresses the protection of personal information by defining federal requirements for securing information and information systems that support federal agency operations and assets; it requires agencies to develop agencywide information security programs that extend to contractors and other providers of federal data and systems. Under FISMA, information security means protecting information and information systems from unauthorized access, use, disclosure, disruption, modification, or destruction, including controls necessary to preserve authorized restrictions on access and disclosure to protect personal privacy, among other things. Other laws address protection of personal information by federal agencies in specific circumstances and are described in table 2. The Privacy Act’s controls on the collection, use, and disclosure of personally identifiable information do not consistently protect such information in all circumstances of its collection and use throughout the federal government. Issues have largely centered on the Privacy Act’s definition of a “system of records” (any grouping of records containing personal information retrieved by individual identifier), which triggers the act’s protections. Personal information is not always obtained and processed by federal agencies in ways that conform to the definition of a system of records, and in cases where such information falls outside this definition, it may not receive the full privacy protections established by the act. In contrast, the E-Government Act of 2002 sets broader terms for its requirement to conduct PIAs—namely, (1) before an agency develops or procures information technology that collects, maintains, or disseminates information that is in identifiable form, or (2) before an agency collects information in identifiable form using information technology. Although the E-Government Act’s broader definition is more inclusive than the system-of-records concept, its requirements are more limited because it imposes no restrictions on agency collection and use of personally identifiable information. Alternatives for addressing these issues could include revising the system-of-records definition to cover all personally identifiable information collected, used, and maintained systematically by the federal government, and revising the E-Government Act’s scope to cover federal rulemaking. The Privacy Act’s controls on the collection, use, and disclosure of personally identifiable information only apply when such information is covered by the act’s key terms, especially the “system-of-records” construct. There are several different ways in which federal collection and use of personally identifiable information could be outside of such a construct and thus not receive the Privacy Act’s protections: Personally identifiable information held by the government is not always retrieved by identifier. The Privacy Act defines a system of records as “a group of records under the control of any agency from which information is retrieved by the name of the individual or by some identifying number, symbol, or other identifying particular assigned to the individual.” If personally identifiable information (records) is not retrieved by identifier but instead accessed through some other method or criteria— for example, by searching for all individuals who have a certain medical condition or who applied for benefits on a certain date—the system would not meet the Privacy Act’s system-of-records definition and therefore would not be governed by the act’s protections. OMB’s 1975 Privacy Act implementation guidance reflects an acknowledgement that agencies could potentially evade the act’s requirements by organizing personal information in ways that may not be considered to be retrieved by identifier. This scope of the system-of-records definition has been an issue since the Privacy Act became law in 1974. In its 1977 report, the PPSC pointed out that retrieval by name or identifier reflected a manual rather than a computer-based model of information processing and did not take into account emerging computing technology. As the study explained, while manual record-keeping systems are likely to store and retrieve information by reference to a unique identifier, this is unnecessary in computer-based systems that permit attribute searches. The PPSC noted that retrieval of individually identifiable information by scanning (or searching) large volumes of computer records was not only possible but an ever-increasing agency practice. Our 2003 report concerning compliance with the Privacy Act found that the PPSC’s observations had been borne out across federal agencies. A key characteristic of agencies’ systems of records at the time was that a large proportion of them were electronic, reflecting the government’s significant use of computers and the Internet to collect and share personal information. Based on survey responses from 25 agencies in 2002, we estimated that 70 percent of the agencies’ systems of records contained electronic records and that 11 percent of information systems in use at those agencies contained personal information that was outside a Privacy Act system of records. We also reported that among the agencies we surveyed, the most frequently cited reason for systems not being considered Privacy Act systems of records was that the agency did not use a personal identifier to retrieve the personal information. Recent OMB guidance reflects an acknowledgement that, although personally identifiable information does not always reside in Privacy Act systems of records, it should nevertheless be protected. Following a number of highly publicized data breaches at government agencies, OMB issued guidance instructing agencies to take action to safeguard “personally identifiable information.” Beginning in May 2006, OMB required senior agency privacy officials to “conduct a review of policies and processes and take corrective action as appropriate to ensure adequate safeguards to prevent the intentional or negligent misuse of, or unauthorized access to personally identifiable information.” Most recently, in May 2007, OMB required agencies to review and reduce “all current holding of personally identifiable information.” This guidance is not limited to information that is “retrieved by identifier” or contained within systems of records. The Privacy Act’s protections may not apply to contemporary data processing technologies and applications. In today’s highly interconnected environment, information can be gathered from many different sources, analyzed, and redistributed in very dynamic, unstructured ways that may have little to do with the file-oriented concept of a Privacy Act system of records. For example, data mining, a prevalent technique used by federal agencies for extracting useful information from large volumes of data, may escape the purview of the Privacy Act’s protections. Specifically, a data-mining system that performs analysis by looking for patterns in personal information located in other systems of records or that performs subject-based queries across multiple data sources may not constitute a system of records under the act. In recent years, reports required by law on data mining have described activities that had not been identified as systems of records covered by the Privacy Act. In one example, DHS reported that all the data sources for the planned Analysis Dissemination Visualization Insight and Semantic Enhancement (ADVISE) data mining program were covered by existing system-of-records notices; however, the system itself was not covered, and no system of records notice was created specifically to document protections under the Privacy Act governing the specific activities of the system. ADVISE was a data-mining tool intended to allow an analyst to search for patterns in data—such as relationships among people, organizations, and events—and to produce visual representations of those patterns. This was also the case with other data mining programs reported by DHS and DOJ. For example, DHS reported on a data mining system known as Intelligence and Information Fusion—which provides intelligence analysts with an ability to view, query, and analyze multiple data sources from within the government—that is not considered a Privacy Act system of records. While DHS reported that the system was “covered” by the system- of-records notice for the Homeland Security Operations Center Database, that notice does not specifically describe the uses of the Intelligence and Information Fusion system. Thus, while the underlying data sources are subject to the protections of the act, the uses of the Intelligence and Information Fusion system have not been specifically addressed. Likewise, DOJ reported that its Foreign Terrorist Tracking Task Force was developing a data mining system, known as the System to Assess Risk, to assist analysts in prioritizing persons of possible investigative interest in support of a specified terrorist threat. DOJ reported that the system’s data sources were covered by the system-of-records notice for the Federal Bureau of Investigation’s (FBI) Central Records System. However, the Central Records System notice does not specifically describe the uses of the System to Assess Risk and thus provides no evidence that the Privacy Act’s protections are being applied to the system. The fact that these notices do not specifically describe data-mining systems that they are said to include reflects the limitations of the system-of-records construct as a way to identify, assess, and report on the protections being applied to these types of analytical uses. As a result, personally identifiable information collected and processed by such systems may be less well protected than if it were more specifically addressed by the Privacy Act. Use of personal information from third party sources is not consistently covered by the Privacy Act. The Privacy Act requires agencies to collect information to the greatest extent practicable directly from the subject individual when the information may result in adverse determinations about an individual’s rights, benefits, and privileges under federal programs. Yet agencies have increasingly turned to other sources to collect personal information, particularly third-party sources such as information resellers—companies that amass and sell personal information from many sources. Concerns were raised in our expert forum that government agencies may be using such third-party sources as a way to avoid the constraints of the Privacy Act. In our 2006 report on federal agency use of personal information from information resellers, we noted that agency officials said they generally did not prepare system-of-records notices for the use of information resellers because they were not required to do so by the Privacy Act. The Privacy Act makes its provisions applicable to third-party systems when “an agency provides by a contract for the operation by or on behalf of the agency a system of records to accomplish an agency function.” According to agency officials, information reseller databases were not considered systems of records operated “by or on behalf of a government agency” because resellers develop their databases for multiple customers, not the federal government exclusively. Further, agency officials stated that merely querying information reseller databases did not amount to maintaining the information that was obtained, and thus the provisions of the Privacy Act did not apply. In many cases, agency officials considered their use of reseller data to be of this type—essentially “ad hoc” querying or “pinging” of databases for personal information about specific individuals, which they were not doing in connection with a designated system of records. Thus, these sources, which agencies use for many purposes, have not been considered subject to the provisions of the Privacy Act. As a result, individuals may be limited in their ability to learn that information is being collected about them, because the information is being obtained from other sources and the activity is not publicly described in a system-of-records notice. Further, the Privacy Act’s constraints on collection, use, and disclosure would not apply. In our 2006 report, we made recommendations to OMB to revise its guidance to clarify the applicability of requirements for public notices and privacy impact assessments with respect to agency use of personal information from resellers. We also recommended that OMB direct agencies to review their uses of such information to ensure it is explicitly referenced in privacy notices and assessments. However, OMB has not addressed our recommendations. OMB stated that following the completion of work on the protection of personal information through the Identity Theft Task Force, it would consider issuing appropriate guidance concerning reseller data. OMB issued guidance based on the work of the Identity Theft Task Force in May 2007; however, it did not include clarifying guidance concerning reseller data. Without clarifying guidance, agencies may continue to consider use of reseller data as not covered by the Privacy Act and thus may not apply the Privacy Act’s protections to this use. The E-Government Act’s requirements for the conduct of PIAs apply to a broader range of government activities than are currently covered by the Privacy Act’s definition of a system of records. Specifically, the E- Government Act requires agencies to conduct PIAs before (1) developing or procuring information technology that collects, maintains, or disseminates information that is in individually identifiable form or (2) initiating data collections involving personal information that will be collected, maintained or disseminated using information technology if the same questions are asked of 10 or more people. The PIA requirement has provided a mechanism for agencies to consider privacy protections during the earliest stages of development of their systems, when it may be relatively easy to make critical adjustments. Senior agency privacy officials at several agencies reported that their PIA processes are incorporated into key stages in systems development. For example, senior agency privacy officials at the IRS reported that PIAs are required at every stage of the systems development life cycle for new systems or systems undergoing major modifications. In addition, five of the six agencies we interviewed reported that they use a privacy threshold analysis, a brief assessment that requires system owners to answer basic questions on the nature of their systems and whether the systems contain personally identifiable information, to identify systems that require a PIA; this approach enables agencies to ensure that systems undergo the PIA process at the earliest stages of development. Privacy experts and senior agency privacy officials we interviewed also noted that the E-Government Act provides a mechanism to address certain uses of personal information that might not have been covered by the Privacy Act. According to OMB guidance, PIAs are required to be performed and updated whenever a system change creates new privacy risks. Among the types of changes identified in OMB guidance that might require conducting a PIA are when converting from paper to electronic records, when applying new technologies that significantly change how information in identifiable form is managed in the system, and when merging databases to create one central source of information. Typically, under the Privacy Act changes of this nature could result in limited modifications to a system-of-records notice to reflect additional categories of records and/or routine uses. It would not result in a reassessment of privacy risks, as is required for a PIA. Because the E-Government Act’s PIA requirement applies more broadly than the Privacy Act, it may help in part to address concerns about the narrow definition of terms in the Privacy Act. Specifically, a well-written PIA can inform the public about such things as what information is being collected, why it is being collected, and how it is to be used. However, the E-Government Act does not include the specific constraints on how information is to be collected, maintained, and shared that are included in the Privacy Act—such as restrictions on disclosure of personal information and requirements to allow for access to and correction of records by individuals, among other things. Further, the E-Government Act only applies to information technology systems and therefore does not address personal information contained in paper records. In addition, the E-Government Act may not be broad enough to cover all cases in which the federal government makes determinations about what personal information is to be collected and how it is to be protected. A major function that is not covered is rulemaking that involves the collection of personally identifiable information. Rulemaking is the process by which federal agencies establish regulations that can govern individual behavior as well as commercial and other activities. For example, DHS is required by the Homeland Security Act to conduct PIAs for all of its proposed rules, and, as a result, PIAs have been conducted for major initiatives, including the REAL ID Act, which required DHS to establish minimum standards for state-issued drivers’ licenses and identification cards that federal agencies would accept for official purposes, and the Western Hemisphere Travel Initiative, aimed at strengthening border security and facilitating entry into the United States for U.S. citizens and certain foreign visitors through a standardized identification card. These PIAs have provided for the evaluation of privacy considerations before final decisions are made concerning specific technologies to be used in drivers’ licenses and border-crossing identification cards issued by state governments. However, DHS, DOT, Treasury, and a number of smaller agencies are currently the only agencies required to conduct PIAs on proposed rules. Other agencies may be issuing rules that have privacy implications without conducting privacy assessments of them. A number of alternatives exist to address the issues associated with the coverage of existing privacy laws governing federal use of personal information. These alternatives involve revisions to the Privacy Act and E- Government Act, as follows: Revise the system of records definition to cover all personally identifiable information collected, used, and maintained by the federal government. Like the Privacy Protection Study Commission, which believed in 1977 that the act’s definition of a system of records should be revised, experts at our forum were in agreement that the system-of- records definition is outdated and flawed. The experts agreed that the act’s protections should be applied whenever agencies obtain, process, store, or share personally identifiable information—not just when records are retrieved by personal identifier. Such an approach could address concerns that certain activities, such as data mining or retrieving information from commercial information resellers could avoid the protections of the act. As shown in table 3, several recent OMB memoranda providing direction to federal agencies on privacy protection reflects this approach. The Privacy Act’s narrowly scoped system-of-records definition does not match OMB’s broadened approach to protecting personally identifiable information. Changing the system-of-records definition is an option that could help ensure that the act’s protections are consistently applied to all personally identifiable information. Revise the E-Government Act’s scope to cover federal rulemaking. The E- Government Act’s privacy provisions could be broadened to apply to all federal rulemaking involving the collection of personally identifiable information, as the Homeland Security Act currently requires of DHS and the Transportation, Treasury, Independent Agencies and General Government Appropriations Act of 2005 requires of Transportation, Treasury, and certain other agencies. This change would ensure that privacy concerns are addressed as the federal government proposes and adopts rules that affect how other entities, including state and local government agencies, collect and use personally identifying information. Current laws and guidance impose only modest requirements for describing the purposes for collecting and using personal information and limiting how that information is collected and used. For example, agencies are not required to be specific in formulating purpose descriptions in their public notices. Laws and guidance also may not effectively limit the collection of personal information. For example, the Privacy Act’s requirement that information be “relevant and necessary” gives broad latitude to agencies in determining the amount of information to collect. In addition, mechanisms to limit use to a specified purpose may be weak. For example, the Privacy Act does not limit agency internal use of information, as long as it is needed for an official purpose or include provisions addressing external sharing with other entities to ensure that the information’s new custodians preserve the act’s protections. Examples of alternatives for addressing these issues include setting specific limits on routine uses and use of information within agencies to include more specific limits, requiring agencies to justify how collection has been limited in privacy notices, and requiring agencies to establish formal agreements with external governmental entities before sharing personally identifiable information with them. A key area of concern about personal information maintained by government agencies is to ensure that limits are placed on what the government acquires and how it uses the information—thus giving individuals a measure of control over their own personal information. Two of the fair information practices relate specifically to limiting the way the government collects and uses personal information: collection limitation and use limitation. A third principle—purpose specification—is critical to ensuring that the other two are applied effectively. The purpose specification principle states that the purpose for the collection of personal information should be disclosed before the collection is made and upon any change to that purpose, and its use should be limited to that purpose and compatible purposes. Clearly specifying the purpose of a given activity establishes the measure for determining whether the collection of information has been sufficiently limited to what is relevant for the purpose and whether the ways in which the information is used have also been limited to what is appropriate for the same purpose. The collection limitation principle states that the collection of personal information should be limited, should be obtained by lawful and fair means, and, where appropriate, with the knowledge or consent of the individual. When the collection limitation principle is applied, individuals can gain assurance that the information about them that is being collected is only what is needed to perform a specific, predisclosed function. In the government arena, this mitigates the risk that an over-collection of personal information could facilitate the improper use of that information to make adverse determinations. For example, the Transportation Security Administration (TSA) received criticism about its now-cancelled Computer-Assisted Passenger Pre-screening System II because it proposed to collect information from third-party sources in addition to airline passengers themselves. Concerns were raised that individuals could be delayed or denied boarding their airline flights based on third-party information that was potentially inaccurate. In developing a successor project, called Secure Flight, TSA responded to privacy concerns by planning to collect far less information and to focus on information collected directly from individuals. A closely related principle—the use limitation principle—provides that personal information, once collected, should not be disclosed or used for other than a specified purpose without consent of the individual or legal authority. The use limitation principle is arguably of heightened importance in the government arena because the government has many functions that affect numerous aspects of an individual’s well-being. Hence, it is important to ensure that information the government collects for one function is not used indiscriminately for other unrelated functions. By requiring the government to define a specific purpose for the collection of personal information and limit its use to that specified purpose, individuals gain assurance that their privacy will be protected and their information will not be used in ways that could jeopardize their rights or otherwise unfairly affect them. The Privacy Act includes requirements that agencies (1) inform individuals from whom information is being collected of the principal purpose or purposes for which the information is intended to be used and (2) publish a system-of-records notice in the Federal Register of the existence and character of the system of records, including planned routine uses of the records and the purpose of each of these routine uses. Concerns have been raised that the act’s requirements do not go far enough in ensuring that the government’s planned purposes are sufficiently specified: Statements of overall purpose are not always required. The Privacy Act requires agencies to inform individuals on forms used to collect information from them of the principal purpose or purposes for which the information is intended to be used. This is an important provision that protects individuals when the government is collecting information directly from them. However, in many cases, agencies obtain information about individuals from other sources, such as commercial entities (including information resellers) and other governmental entities. In those cases, no overall declaration of purpose is required in the system-of- records notice. For each of the stated routine uses a description is required of the potential purposes for which the records may be used; however, there is no requirement for a declaration of the purpose or purposes for the system of records as a whole. Given that individuals may be especially concerned about how their information is collected from different government and commercial entities, not having an overall purpose associated with this information raises concerns. Purpose descriptions in public notices are not required to be specific. As mentioned above, while there is no requirement for an overall statement of purpose, Privacy Act notices may contain multiple descriptions of purposes associated with routine uses, and agencies are not required to be specific in formulating these purposes. OMB guidance on the act gives agencies discretion to determine how to define the range of appropriate uses and associated purposes that it intends for a given system of records. For example, purpose statements for certain law enforcement and anti- terrorism systems might need to be phrased broadly enough so as not to reveal investigative techniques or the details of ongoing cases. However, overly broadly-defined purposes could allow for unnecessarily broad collections of information and ranges of subsequent uses, thus calling into question whether meaningful limitations had been imposed. For example, in previous work on international passenger prescreening by DHS’s Customs and Border Protection (CBP), we reported that CBP’s public notices and reports regarding its international prescreening process did not fully or accurately describe CBP’s use of personal data throughout the passenger prescreening process. In that case, CBP relied on a system- of-records notice for the Treasury Enforcement Communications System—one of several data sources used in the prescreening process—to notify the public about the purpose of the international prescreening program. The notice, however, did not mention CBP’s passenger prescreening purpose but simply included a broad statement about its law enforcement purpose, namely that “every possible type of information from a variety of Federal, state and local sources, which contributes to effective law enforcement may be maintained in this system of records.” Use of such a sweeping purpose statement obscured its use in international passenger prescreening and did not establish a basis for limiting use of the information in the system. Its use shows that the act does not require the government to clearly state its purposes for collecting and using personal information. Another example can be found in the system-of-records notice for the FBI’s Central Records System. The FBI relies on this notice to inform the public about a broad range of files it maintains and uses for a variety of different purposes. According to the notice, the Central Records System contains investigative, personnel, applicant, administrative, and “general” files. In addition to information within 281 different categories of legal violations over which the FBI has investigative jurisdiction, the files also include information pertaining to personnel, applicant, and administrative matters. As a result, it is unclear from the notice how any given record in this system is to be used. While law enforcement agencies are often concerned about revealing their methods to criminals, descriptions of the specific purposes of FBI systems could be crafted to avoid revealing what information had been collected about any specific individual or how it was being used by the agency. DOJ officials acknowledged that there has been frequent criticism of the broad scope of the Central Records System notice but said the notice had been structured that way because all the records covered by the notice are organized according to that same indexing hierarchy. More significantly, the Privacy Act does not require that systems of records be defined and described more specifically. Like the CBP notice, the FBI notice demonstrates that the act does not require the government to clearly state its purposes for collecting and using personal information. Regarding collection limitation, the Privacy Act states that each agency should maintain only such information about individuals in its systems of records that is “relevant and necessary” to accomplish a purpose the agency is required to accomplish by statute or executive order of the President. The act further states that agencies generally cannot disclose records about an individual without his or her consent, except under a number of specific conditions. Collection limitation may also be addressed indirectly as part of agency procedures under the E-Government Act for conducting PIAs. Based on OMB guidance, PIAs are required to include explanations regarding what information is being collected, why it is being collected, and what the intended uses are. According to agency privacy officials, they often question agency program officials about whether planned collections are really necessary or could be reduced during the process of reviewing draft PIAs. The Paperwork Reduction Act also addresses collection limitation when information is to be collected individually from 10 or more people. It requires agency chief information officers to determine whether the information has practical utility and is necessary for the proper performance of agency functions. Once a chief information officer has certified that a planned information collection meets 10 standards set forth in the act, the collection is submitted to OMB for review. The agency may not collect the information without OMB’s approval. Finally, OMB also has issued guidance instructing agencies to limit the collection of personally identifiable information. In early 2007, OMB issued Memorandum M-07-16, which required agencies to review and reduce the volume of their holdings of personally identifiable information to the minimum necessary for the proper performance of documented agency functions. The memorandum noted that “by collecting only the information necessary and managing it properly, agencies can often reduce the volume of information they possess, the risk to the information, and the burden of safeguarding it.” The memorandum also required agencies to develop a plan to reduce their use of Social Security numbers and to make public a schedule by which they would periodically update the review of their overall holdings of personally identifiable information. Nothwithstanding these various provisions in law and guidance, the government’s collection of personal information may not be effectively limited: The Privacy Act’s “relevant and necessary” provision gives broad latitude to agencies in determining the amount of information to collect. The Privacy Act states that each agency shall “maintain in its records only such information about an individual as is relevant and necessary to accomplish a purpose of the agency required to be accomplished by statute or by Executive order of the President.” Under these criteria, agency officials do not have specific requirements for justifying how much information to collect; instead, it is a matter of judgment whether any specific piece of information is relevant and necessary. OMB’s implementation guidance advises agencies to identify the specific provisions in law that authorize a collection before it is implemented and provides questions that agencies should consider in determining what information to collect but concludes that a final decision on what is relevant and necessary is a matter of judgment. For certain functions, such as homeland security, new and varied collections of personal information may be relevant and necessary. However, several experts at our forum expressed concern about what they view as an increasing trend in the post-9/11 era for federal agencies to collect as much information as possible in the event that such information might be needed at a future date. Without establishing more specific requirements for justifying information collections, it may be difficult to ensure that agencies collect only relevant and necessary personal information. The Paperwork Reduction Act information collection review process has not always been effective at limiting collection. In addition to provisions in the Privacy Act, the PRA has the potential to serve as a useful control for ensuring that agencies make reasoned judgments about what personal information to collect. However, it has not always achieved this objective. As we reported in 2005, the PRA’s constraints on information collection are not always completely followed. For our previous report, we examined a sample of 12 approved information collections to assess the effectiveness of the PRA review process. We found that while chief information officers reviewed information collections regularly, support for a particular collection was often partial. For example, of the 12 approved data collections we reviewed, 6 provided only partial support for determining whether the collection was necessary for the proper performance of agency functions and 8 had only partial support for determining whether a collection provided the information it was intended to provide. Despite these shortcomings, all 12 data collections were certified by agency chief information officers, and all 12 were also approved by OMB. The fact that agencies are able to have information collections approved despite incomplete justification contributes to concern that the PRA information collection review process may not be effective at limiting collection of personally identifiable information by the government. We recommended that OMB take steps to improve the review process, and OMB responded that it was considering changing its instructions to align them more closely with 10 standards specified in the act. However, OMB has not yet addressed our recommendation. OMB guidance does not provide specific measures for limiting information collections. Although agency privacy officials believe the PIA process gives them the opportunity to address collection limitation, the requirements of the E-Government Act do not specifically address collection limitation, and OMB PIA guidance accordingly does not include requirements for limiting information collection, and the process does not include criteria for making determinations as to whether specific planned data elements are necessary. The lack of specific control mechanisms contributes to concerns by privacy experts that collection of personally identifiable information is not being effectively limited. Similarly, OMB’s recent guidance to limit collection of personally identifiable information did not include plans to monitor agency actions or take other proactive steps to ensure that agencies are effectively limiting their collections of personally identifiable information. OMB has not reported publicly on agencies’ progress in responding to its guidance, and thus it remains unclear what steps agencies have taken. Finally, like previous guidance, M- 07-16 did not provide any criteria for making determinations about whether specific data elements are needed. Without a legal requirement to limit collection of personally identifiable information, it is unclear the extent to which agencies will follow OMB’s guidance. The Privacy Act generally prevents agencies from sharing personal information in systems of records, except pursuant to a written request by, or with prior written consent of, the affected individual. There are, however, a number of specific conditions defined by the Privacy Act under which federal agencies may share information from systems of records with other government agencies without the affected individuals’ consent. For example, agencies may share information with another agency for civil or criminal law enforcement activity. Sharing is also allowed if it is for a purpose that is “compatible” with the purpose for which the information was collected, referred to as a “routine use.” Agencies are required to enumerate these routine uses in their system-of-records notices and publish the notice in the Federal Register for public comment. According to OMB’s 1975 implementation guidance, the routine use provisions were intended to “serve as a caution to agencies to think out in advance what uses it will make of information” and was intended “to discourage the unnecessary exchange of information to other persons or to agencies who may not be as sensitive to the collecting agency’s reasons for using and interpreting the material.” Section 208 of the E-Government Act of 2002 and related OMB guidance also have provisions that implement the use limitation principle, chiefly by requiring that PIAs include the intended uses of the information and with whom the information will be shared. Although the Privacy Act and E-Government Act have provisions for limiting the use of personally identifiable information to a specified purpose, these mechanisms may not always be effective for the following reasons: Unconstrained application of pre-defined “routine” uses may weaken use limitations. A number of concerns have been raised about the impact on privacy of potentially unnecessary routine uses for agency systems of records, particularly through the application of “standard” routine uses that are developed for general use on multiple systems of records. This practice is not prohibited by the Privacy Act. All six agencies we reviewed had lists of standard routine uses for application to their systems of records. However, the language of these standard routine uses varies from agency to agency. For example, as shown in table 4, several agencies have a routine use allowing them to share information about individuals with other governmental entities for purposes of decision-making about hiring or retention of an individual, issuance of a security clearance, license, contract, grant, or other benefit. As shown in the table, one agency (HHS) includes a provision that sharing of this information will occur only after the requesting agency has submitted a request supported by written consent of the affected individual. In contrast, similar routine uses at other agencies (DHS, DOJ, IRS, and DOT) have no requirement for the written consent of the individual. Still another agency (SSA) has no comparable standard routine use at all. Experts expressed concern that “standard” routine uses such as these vary so much from agency to agency, with no specific legal requirement that they be formulated consistently. Further, agencies do not apply these uses consistently. DHS, for example, has a “library” of routine uses that are applied selectively to systems of records on a case-by-case basis. In contrast, DOT applies its list of general routine uses to all of its systems of records, unless explicitly disavowed in the system’s public notice. Similarly, the FBI applies its “blanket” routine uses to “every existing FBI Privacy Act system of records and to all FBI systems of records created or modified in the future.” As a result, use may not always be limited as the Privacy Act intended. The Privacy Act sets only modest limits on the use of personal information for multiple purposes within an agency. Recognizing the need for agency personnel to access records to carry out their duties, the Privacy Act permits disclosures from agency systems of records “to those officers and employees of the agency which maintains the record who have a need for the record in the performance of their duties.” However, without additional limits, internal uses could go beyond uses that are related to the purpose of the original collection. In our interviews with senior agency privacy officials, we asked what, if any, limits were placed on internal agency uses of information. Several agencies responded that, consistent with the Privacy Act and OMB guidance, internal agency usage of personal information was limited to those personnel with a “need to know.” Because the Privacy Act and related guidance do not require it, none of these agencies took steps to determine whether internal uses were consistent with the purposes originally stated for the collection of information. Reliance on the “need to know” criteria for sharing information does not require a determination regarding compatibility with the original collection. The potential that personal information could be used for multiple, unspecified purposes is especially heightened in large agencies with multiple components that may collect personal information in many different ways for disparate purposes. For example, the establishment of DHS in March 2003 brought 22 agencies with varied missions and 180,000 employees into a single agency. These agencies collect personal information for a range of purposes, including administering citizenship, enforcing immigration laws, protecting land and sea ports of entry, and protecting against threats to aviation security. The Privacy Act does not constrain DHS or other agencies from using information obtained for one of these specific missions for another agency mission. As a result, individuals do not have assurance that their information will be used only for the purpose for which it was collected. The Privacy Act’s provisions may not apply when data are shared for use by another agency. In addition to concerns about limiting use to a specified purpose within an agency, more extensive issues have been raised when data are shared outside an agency, even when such sharing is pursuant to a predefined “routine” use. Although the Privacy Act provides assurance that the information in systems of records cannot be disclosed unless it is pursuant to either a routine use or another statutorily allowed condition, the act does not attach its protections to data after they have been disclosed. Despite the lack of requirements, agencies we reviewed reported taking measures to ensure the data are used appropriately by recipients. For example, agencies reported using mechanisms such as computer matching agreements under the matching provisions of the Privacy Act or other types of data-sharing agreements to impose privacy protections on recipients of shared data. However, absent these measures taken by agencies, data shared outside federal agencies would not always have sufficient protections. Data sharing among agencies is central to the emerging information sharing environment intended to facilitate the sharing of terrorism information. If the information sharing environment is to be effective, it will require policies, procedures, and technologies that link people, systems, and information among all appropriate federal, state, local, and tribal entities and the private sector. In the recent development of guidelines for the information-sharing environment, there has been general agreement that privacy considerations must also be addressed alongside measures for enhancing the exchange of information among agencies. The Intelligence Reform and Terrorism Prevention Act of 2004 called for the issuance of guidelines to protect privacy and civil liberties in the development of the information sharing environment, and the President reiterated that requirement in an October 2005 directive to federal departments and agencies. Based on the President’s directive, a committee within the Office of the Director of National Intelligence was established to develop such guidelines, and they were approved by the President in November 2006. However, as we previously testified, the guidelines as issued provide only a high-level framework for addressing privacy protection and do not include all of the Fair Information Practices. More recently, in September 2007, the Program Manager for the Information Sharing Environment released a Privacy and Civil Liberties Implementation Guide for the Information Sharing Environment. The guide describes the processes for information-sharing environment participants to follow when integrating privacy and civil liberties safeguards into their information sharing efforts, including an assessment of whether current activities comply with the privacy guidelines. However, as noted by our expert panel, these guidelines do not address the application of protections to Privacy Act data as they are shared within the information sharing environment, mentioning the act only in passing. In the absence of the adoption of more specific implementation guidelines or more explicit protections in the Privacy Act for data that are disclosed, agency information-sharing activities may not ensure that the use of personal information is sufficiently limited. Require agencies to state the principal purpose for each system of records. Having a specific stated purpose for each system of records would make it easier to determine whether planned uses were consistent with that purpose. Require agencies to limit collection of personally identifiable information and to explain how such collection has been limited in system-of-records notices. This requirement would more directly require agencies to limit their collection of personally identifiable information than the current requirement, which is simply to maintain only such information as is relevant and necessary to accomplish a purpose of the agency. Revise the Paperwork Reduction Act to include specific requirements for limiting the collection of personally identifiable information. The Paperwork Reduction Act currently does not specifically address limiting the collection of personally identifiable information but could serve as an established mechanism for incorporating such limits. Require agencies to justify the use of key elements of personally identifiable information. Agencies could be required to state their reasons for collecting specific personally identifiable information, such as Social Security numbers and dates of birth. The Secure Flight program within DHS, for example, recently went through a process of analyzing specific data elements to be collected from airline passengers for pre- screening purposes and was able as a result to limit its requirements to only a few key elements for most passengers. Given concerns about data collection, it is likely that other government data collections could also be reduced based on such an analysis. Set specific limits on routine uses and internal uses of information within agencies. Sharing of information within an agency could be limited to purposes clearly compatible with the original purpose of a system of records. Agencies could also be required to be specific in describing purposes associated with routine uses. Require agencies to establish formal agreements with external governmental entities before sharing personally identifiable information with them, as is already done at certain agencies. These formal agreements would be a means to carry forward to external entities the privacy controls that applied to the information when it was in an agency system of records. These requirements could be set explicitly in law or a legal requirement could be set for another agency, such as OMB, to develop specific implementation guidelines for agencies. Setting such requirements could help ensure that a proper balance exists in allowing government agencies to collect and use personally identifiable information while also limiting that collection and use to what is necessary and relevant. Transparency about government programs and systems that collect and use personal information is a key element in maintaining public trust and support for programs that use such information. A primary method for providing transparency is through public written notices. A clear and effective notice can provide individuals with critical information about what personal data are to be collected, how they are to be used, and the circumstances under which they may be shared. An effective notice can also provide individuals with information they need to determine whether to provide their personal information (if voluntary), or who to contact to correct any errors that could result in an adverse determination about them. In formal terms, the openness principle states that the public should be informed about privacy policies and practices and that individuals should have a ready means of learning about the use of personal information. The openness principle underlies the public notice provisions of the Privacy Act. Specifically, the Privacy Act requires agencies to publish in the Federal Register, “upon establishment or revision, a notice of the existence and character of a system of records.” This notice is to include, among other things, the categories of records in the system as well as the categories of sources of records. The notice is also required to explain agency procedures whereby an individual can gain access to any record pertaining to him or her contained in the system of records and contest its content. Agencies are further required to publish notice of any new use or intended use of the information in the system and provide an opportunity for interested persons to submit written data, views, or arguments to the agency. In addition, when collection of personal information is received directly from the affected individual, agencies are required to notify the individual of the primary purposes for the collection and the planned routine uses of the information. The act encourages agencies, to the extent practicable, to collect information directly from the subject individual when the information may result in adverse determinations about the individual’s rights, benefits, and privileges under federal programs. It is critical that Privacy Act notices effectively communicate to the public the nature of agency collection and use of personal information because such notices are the fundamental mechanisms by which agencies are held accountable for specifying purpose, limiting collection and use, and providing a means to access and correct records. These notices can be seen as agreements between agencies and the public to provide protections for the data in the custody of the government. System-of-records notices are especially important in cases where information is not obtained directly from individuals because there is no opportunity for them to be informed directly. As experts noted, collection from individuals may be less prevalent in an environment where agencies are encouraged to participate in cross agency e-government initiatives that promote a “collect once, use many” approach. Experts also noted that since the terrorist attacks on 9/11, agencies are charged with sharing information more readily, one of the major goals of the information sharing environment. In situations such as these, the system-of-records notice may be one of the only ways for individuals to learn about the collection of their personal information. However, experts at our forum as well as agency privacy officials questioned the value of system-of-records notices as vehicles for providing information to the general public. Specifically, concerns were raised that the content of these notices and their publication in the Federal Register may not fully inform the public about planned government uses of personal information, for the following reasons: System of record notices may be difficult to understand. As with other legally-required privacy notices, such as the annual privacy notices provided to consumers by banks and other financial institutions, system- of-records notices have been criticized as hard to read and understand. For example, lay readers may have difficulty understanding the extent to which lists of “routine” uses actually explain how the government intends to collect and use personal information. Likewise, for an uninformed reader, a list of exemptions claimed for the system—cited only by the corresponding paragraph number in the Privacy Act—could raise more questions than it answers. Agency senior privacy officials we interviewed frequently cited legal compliance as the primary function of a system-of- records notice, thus leading to legalistic descriptions of the controls on collection and use of personal information. These officials acknowledged that these descriptions of privacy protections may not be very useful to the general public. Privacy experts at our forum likewise viewed system-of- records notices as having limited value as a vehicle for public notification. System-of-records notices do not always contain complete and useful information about privacy protections. As discussed earlier in this report, system-of-records notices can be written to describe purposes and uses of information in such broad terms that it becomes questionable whether those purposes and uses have been significantly limited. Likewise, broad purpose statements contained in system-of-records notices may not contain enough information to usefully inform the public of the government’s intended purposes, and the citation of multiple routine uses does little to aid individuals in learning about how the government is using their personal information. The Privacy Act does not require agencies to be specific in describing the purposes associated with routine uses. Further, individuals are limited in their ability to know how extensively their information may be used within an agency, since there are no requirements to publish all expected internal agency uses of personal information. Several agency privacy officials as well as experts at our forum noted that privacy impact assessments, when properly prepared, can lead to more meaningful discussions about privacy protections and may serve as a better vehicle to convey purposes and uses of information to the public. OMB guidance requires agency PIAs to identify what choices were made regarding an IT system or information collection as a result of performing a PIA, while a system-of-records notice contains no comparable requirement. As a result, a well-crafted PIA may provide more meaningful notice to the public not only about the planned purposes and uses of personal information, but also about how an agency’s assessment was used to drive decisions about the system. Publication in the Federal Register May Reach Only a Limited Audience. Agency privacy officials questioned whether the required publication of system-of-records notices in the Federal Register would be useful to a broader audience than federal agency officials and public interest groups, such as privacy advocacy groups. Notices published in the Federal Register may not be very accessible and readable. The Federal Register Web site does not provide a ready means of determining what system-of- records notices are current, when they were last updated, or which ones apply to any specific governmental function. Officials agreed that it can be difficult to locate a system-of-records notice on the Federal Register Web site, even when the name of the relevant system of records is known in advance. Privacy experts at our forum likewise agreed that the Federal Register is probably not effective with the general public and that a more effective technique for reaching a wide audience in today’s environment is via consolidated publication on a governmentwide Web site devoted to privacy. Both agency officials and privacy experts also agreed, however, that the Federal Register serves a separate but important role as the official public record of federal agencies, and thus it would not be advisable to cease publishing system-of-records notices in the Federal Register. Notice in the Federal Register also serves an important role as the official basis for soliciting comments from the public on proposed systems of records. Based on discussions with privacy experts, agency officials, and analysis of laws and related guidance, a number of options exist for addressing the issues associated with improving public notice regarding federal collection and use of personal information. As with the alternatives previously discussed, these could be addressed explicitly in law or a legal requirement could be set for another agency, such as OMB, to develop specific implementation guidelines for agencies. These alternatives are as follows: Require layered public notices in conjunction with system-of-records notices. Given the difficulty that a lay audience may face in trying to understand the content of notices, experts at our forum agreed that a new approach ought to be taken to designing notices for the public about use of personal information. Specifically, the use of layered notices, an approach that is actively being pursued in the private sector for consumer privacy notices, could also be effective for Privacy Act notices. Layering involves providing only the most important summary facts up front—often in a graphically oriented format—followed by one or more lengthier, more narrative versions. By offering both types of notices, the benefits of each can be realized: long notices have the advantage of being complete, but may not be as easy to understand, while brief notices may be easier to understand but may not capture all the detail that needs to be conveyed. A recent interagency research project on the design of easy-to-understand consumer financial privacy notices found, among other things, that providing context to the notice (explaining to consumers why they are receiving the notice and what to do with it) was key to comprehension, and that comprehension was aided by incorporating key visual design elements, such as use of a tabular format, large and legible fonts, and appropriate use of white space and simple headings. The multilayered approach discussed and lessons learned could be applied to government privacy notices. For example, a multilayered government privacy notice could provide a brief description of the information required, the primary purpose for the collection, and associated uses and sharing of such data at one layer. The notice could also provide additional details about the system or program’s uses and the circumstances under which data could be shared at a second layer. This would accomplish the purpose of communicating the key details in a brief format, while still providing complete information to those who require it. Aiming to improve comprehension of notices by citizens through clearer descriptions could better achieve the Privacy Act’s objective of publishing a public notice of the “existence and character” of systems of records. Set requirements to ensure that purpose, collection limitations, and use limitations are better addressed in the content of privacy notices. Additional requirements could be established for the content and preparation of system-of-records notices, to include a specific description of the planned purpose of a system as well as what data needs to be collected to serve that purpose and how its use will be limited to that purpose, including descriptions of primary and secondary uses of information. Agencies may be able to use material developed for PIAs to help meet these requirements. Setting these requirements could spur agencies to prepare notices that include more meaningful descriptions of the intents and purposes of their systems of records. Make all notices available on a governmentwide privacy Web site. Experts at our forum and agency officials also agreed that the most effective and practical method for sharing information with the public is through the Web. Relevant privacy notices could be published at a central governmentwide location, such as www.privacy.gov, and at corresponding standard locations on agency Web sites, such as www.agency.gov/privacy. Given that adequate attention is paid to making the information searchable as well as easy to locate and peruse, such a Web site has the potential to reach a far broader spectrum of users than the Federal Register. Current laws and guidance governing the federal government’s collection, use, and disclosure of personal information have gaps and other potential shortcomings in three broad categories: (1) the Privacy Act and E-Government Act do not always provide protections for federal uses of personal information, (2) laws and guidance may not effectively limit agency collection and use of personal information to specific purposes, and (3) the Privacy Act may not include effective mechanisms for informing the public. These issues merit congressional attention as well as continued public debate. Some of these issues—particularly those dealing with limitations on collection and use as well as mechanisms for informing the public— could be addressed by OMB through revisions or supplements to guidance. However, unilateral actions by OMB would not have the benefit of public deliberations regarding how best to achieve an appropriate balance between the government’s need to collect, process, and share personally identifiable information and the rights of individuals to know about such collections and be assured that they are only for limited purposes and uses. Striking such a balance is properly the responsibility of Congress. In assessing the appropriate balance between the needs of the federal government to collect personally identifiable information for programmatic purposes and the assurances that individuals should have that their information is being sufficiently protected and properly used, Congress should consider amending applicable laws, such as the Privacy Act and the E-Government Act, according to the alternatives outlined in this report, including: revising the scope of the laws to cover all personally identifiable information collected, used, and maintained by the federal government; setting requirements to ensure that the collection and use of personally identifiable information is limited to a stated purpose; and establishing additional mechanisms for informing the public about privacy protections by revising requirements for the structure and publication of public notices. We received written comments on a draft of this report from the Deputy Administrator of the Office of E-Government and Information Technology and the Deputy Administrator of the Office of Information and Regulatory Affairs of OMB. The letter is reprinted in appendix V. In their comments, the officials noted that they shared our concerns about privacy and listed guidance the agency has issued in the areas of privacy and information security. The officials stated they believe it would be important for Congress to consider potential amendments to the Privacy Act and the E-Government Act in the broader context of the several privacy statutes that Congress has enacted. Though we did not make specific recommendations to OMB, the agency provided comments on the alternatives identified in conjunction with our matter for congressional consideration. Regarding alternatives for revising the scope of laws to cover all personally identifiable information collected, used, and maintained by the federal government, OMB stated that it would be important for Congress to evaluate fully the potential implications of revisions such as amending the Privacy Act’s system-of-records definition. We believe that, given the Privacy Act’s controls on the collection, use, and disclosure of personally identifiable information do not consistently protect such information in all circumstances of its collection and use throughout the federal government, amending the act’s definition of a system of records is an important alternative for Congress to consider. However, we agree with OMB that such consideration should be thorough and include further public debate on all relevant issues. Regarding alternatives for setting requirements to ensure that the collection and use of personally identifiable information is limited to a stated purpose, OMB stated that agencies are working to implement a requirement in a recent OMB memorandum to review and reduce the volume of personally identifiable information they handle “to the minimum necessary.” The draft report notes that this requirement is in place; however, because significant concerns were raised about this issue by our previous work and by experts at our forum, we believe Congress should consider additional alternatives for ensuring that the collection and use of personally identifiable information is limited to a stated purpose. Finally, regarding effective mechanisms for informing the public, OMB stated that it supports ensuring that the public is appropriately informed of how agencies are using their information. OMB stated that they will review agency practices in informing the public and review the alternatives outlined in our report. OMB provided additional technical comments, which are addressed in appendix V. We also received technical comments from DHS, DOJ, DOT, and IRS. We have addressed these comments in the final report as appropriate. Unless you publicly announce the content of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Attorney General, the Secretaries of Homeland Security, Health and Human Services, and Transportation; the Commissioners of the Internal Revenue Service and the Social Security Administration; the Director, Office of Management and Budget; and other interested congressional committees. Copies will be made available at no charge on our Web site, www.gao.gov. If you have any questions concerning this report, please call me at (202) 512-6240 or send e-mail to koontzl@gao.gov. Contact points for our office of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI. Our objective was to identify major issues regarding whether the Privacy Act of 1974, the E-Government Act of 2002, and related guidance consistently cover the federal government’s collection and use of personal information and incorporate key privacy principles, and in doing so, to identify options for addressing these issues. Our objective was not focused on evaluating compliance with these laws; rather, it was to identify major issues concerning their sufficiency in light of current uses of personal information by the federal government. To address our objective, we reviewed and analyzed the Privacy Act, section 208 of the E-Government Act, and related Office of Management and Budget (OMB) guidance to determine the types of activities and information they apply to and to identify federal agency privacy responsibilities. We compared privacy protection requirements of these laws and related OMB guidance with the Fair Information Practices to identify any issues or gaps in privacy protections for personal information controlled by the federal government. In this regard, we also assessed the role of the Paperwork Reduction Act in protecting privacy by limiting collection of information. We also drew upon our prior work to identify examples of potential gaps in addressing the Fair Information Practices. A list of related GAO products can be found at the end of this report. We also obtained an operational perspective on these issues by analyzing agency privacy-related polices and procedures and through discussion sessions on the sufficiency of these laws with senior agency privacy officials at six federal agencies. These agencies were the Departments of Health and Human Services, Homeland Security, Justice, and Transportation; the Internal Revenue Service; and the Social Security Administration. We selected these agencies because they have large inventories of information collections, prominent privacy issues, and varied missions. Additionally, our colleagues at the National Academy of Sciences (NAS) agreed that this selection was appropriate for obtaining an operational perspective on these issues. The perspective obtained from the six agencies is not representative governmentwide. However, because we selected these agencies based on a rigorous set of selection criteria, the information we gathered during this discussion session provided us with an overview and operational perspective of key privacy-related policies and procedures. The design of our discussion session was informed by a small group meeting held with several agency privacy officials in June 2007. To obtain a citizen-centered perspective on the impact of gaps in privacy laws and guidance, we contracted with NAS to convene an expert panel. The panel, which was held in October 2007, consisted of 12 privacy experts, who were selected by NAS and were from varying backgrounds, such as academic, commercial, advocacy, and other private-sector communities. A list of the individuals participating in the expert forum can be found in appendix II. We developed an agenda and facilitated a detailed discussion concerning major issues with the existing framework of privacy laws. In addition, we met separately with Franklin Reeder, an expert involved in development of the Privacy Act and OMB guidance on the act, who was unable to participate in the expert forum. To identify options for addressing major issues identified, we drew from our own analysis, our interviews with senior agency privacy officials, as well as feedback and suggestions brought forth during the expert forum. We conducted this performance audit from March 2007 to May 2008, in Washington, D.C., in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We contracted with NAS to convene a panel of privacy experts outside government to obtain a citizen-centered perspective on the impact of gaps in privacy laws and guidance. Below is a listing of panel participants and their current affiliations: Jennifer Barrett, Privacy Leader, Acxiom Corporation Fred Cate, Distinguished Professor, Indiana University School of Law- Bloomington Daniel Chenok, Senior Vice President, Pragmatics Robert Gellman, Privacy and Information Policy Consultant Jim Harper, Director, Cato Institute, Information Policy Studies Nuala O’Connor Kelly, Chief Privacy Leader, General Electric Company Priscilla M. Regan, Professor of Government and Politics, George Mason University, Department of Public and International Affairs Leslie Ann Reis, Director & Adjunct Professor of Law, The John Marshall Law School Center for Information Technology and Privacy Law David Sobel, Senior Counsel, Electronic Frontier Foundation John T. Sabo, Director, Global Government Relations, Computer Associates, Inc. Barry Steinhardt, American Civil Liberties Union, Technology and Liberty Program Peter Swire, C. William O’Neill Professor of Law, Ohio State University, Moritz College of Law NAS staff assisting in coordinating the selection of experts and organizing the forum included, Joan Winston, Program Officer; Kristen Batch, Associate Program Officer; and Margaret Huynh, Senior Program Assistant. Agencies are allowed to claim exemptions from some of the provisions of the Privacy Act if the records are used for certain purposes such as law enforcement. The Privacy Act also provides that agencies not disclose information from a system of records without prior written consent of the individual to whom the record pertains, unless the disclosure falls under 1 of 12 exceptions defined by the act. Subsections (j) and (k) of the Privacy Act prescribe the circumstances under which exemptions can be claimed and identify the provisions of the act from which agencies can claim exemptions. When an agency uses the authority in the act to exempt a system of records from certain provisions, it is to issue a rule explaining the reasons for the exemption. Subsection (k) of the Privacy Act permits agencies to claim specific exemptions from seven provisions of the act that relate to notice to an individual concerning the use of personal information, requirements that agencies maintain only relevant and necessary information, and procedures for permitting access to and correction of an individual’s records, when the records are 1. subject to the exemption for classified information in b(1) of the Freedom of Information Act; 2. certain investigatory material compiled for law enforcement purposes other than material within the scope of a broader category of investigative records compiled for civil or criminal law enforcement purposes addressed in subsection (j); 3. maintained in connection with providing protective services to the President of the United States; 4. required by statute to be maintained and used solely as statistical 5. certain investigatory material compiled solely for the purpose of determining suitability, eligibility, or qualifications for federal civilian employment, military service, federal contracts, or access to classified information; 6. certain testing or examination material used solely to determine individual qualifications for appointment or promotion in the federal service; and 7. certain evaluation material used to determine potential promotion in Under these circumstances, agencies may claim exemptions from the provisions of the act, described in table 5. Subsection (j) provides a broader set of general exemptions, which permits records maintained by the Central Intelligence Agency or certain records maintained by an agency which has enforcement of criminal laws as its principal function to be exempted from any provision of the act, except those described in table 6. In general, the exemptions for law enforcement purposes are intended to prevent the disclosure of information collected as part of an ongoing investigation that could impair the investigation or allow those under investigation to change their behavior or take other actions to escape prosecution. Subsection (b) of the Privacy Act provides that “No agency shall disclose any record which is contained in a system of records by any means of communication to any person, or to another agency, except pursuant to a written request by, or with the prior written consent of, the individual to whom the record pertains, unless disclosure of the record would be 1. to those officers and employees of the agency which maintains the record who have a need for the record in the performance of their duties; 2. required under the Freedom of Information Act; 3. for a routine use as defined in the act; 4. to the Bureau of the Census for planning or carrying out a census or survey or related activity; 5. for statistical research, provided the information is not individually 6. to the National Archives and Records Administration for historical 7. to any government agency (e.g., federal, state, or local) for a civil or criminal law enforcement activity if the head of the agency has made a written request specifying the information desired and the law enforcement activity for which the record is sought; 8. to a person upon showing compelling circumstances affecting the health or safety of an individual if notice is transmitted to the last known address of such individual; 9. to either House of Congress or any committee or subcommittee with 10. to the Government Accountability Office; 11. pursuant to a court order; or 12. to a consumer reporting agency for the purpose of collecting a claim of the government.” Since its 1975 Privacy Act Implementation Guidelines, OMB has periodically issued guidance related to privacy addressing specific issues as they have arisen. Nearly all of this guidance can be found on the OMB Web site, www.whitehouse.gov/omb, by searching in the “Agency Information” and “Information and Regulatory Affairs” sections of the Web site. Memorandum M-08-09 — New FISMA Privacy Reporting Requirements for FY 2008. January 18, 2008. Top Ten Risks Impeding the Adequate Protection of Government Information. July 2007. Memorandum M-07-19 — FY 2007 Reporting Instructions for the Federal Information Security Management Act and Agency Privacy Management. July 25, 2007. Guidance on Protecting Federal Employee Social Security Numbers and Combating Identity Theft. June 18, 2007. OMB Implementation Guidance for Title V of the E-Government Act of 2002. June 15, 2007. Memorandum M-07-16 — Safeguarding Against and Responding to the Breach of Personally Identifiable Information. May 22, 2007. Use of Commercial Credit Monitoring Services Blanket Purchase Agreements (BPA). December 22, 2006. Recommendations for Identity Theft Related Data Breach Notification. September 20, 2006. Memorandum M-06-20 — FY 2006 Reporting Instructions for FISMA. July 17, 2006. Memorandum M-06-19 — Reporting Incidents Involving Personally Identifiable Information and Incorporating the Cost for Security in Agency Information Technology Investments. July 12, 2006. Memorandum M-06-16 — Protection of Sensitive Agency Information. June 23, 2006. Memorandum M-06-15 — Safeguarding Personally Identifiable Information. May 22, 2006. Memorandum M-06-06 — Sample Privacy Documents for Agency Implementation of HSPD-12 Common Identification Standard. February 17, 2006. Memorandum M-05-15 — FY 2005 Reporting Instructions for the Federal Information Security Management Act and Agency Privacy Management. June 13, 2005. Memorandum M-05-08 — Designation of Senior Agency Officials for Privacy. February 11, 2005. Memorandum M-03-22 — Guidance for Implementing the Privacy Provisions of the E-Government Act. September 26, 2003. Memorandum M-03-18 — Implementation Guidance for the E- Government Act of 2002. August 1, 2003. Guidance on Inter-Agency Sharing of Personal Data—Protection Personal Privacy. December 20, 2000. Baker/Spotila Letters and Memorandum M-00-13 – Privacy Policies and Date Collection on Federal Websites. June 22, July 28, and September 5, 2000. Status of Biennial Reporting Requirements Under the Privacy Act and the Computer Matching and Privacy Protection Act. June 21, 2000. Memorandum M-99-18 — Privacy Policies on Federal Web Sites. June 2, 1999. Memorandum M-99-05 — Instructions on Complying with “Privacy and Personal Information in Federal Records.” January 7, 1999. Biennial Privacy Act and Computer Matching Reports. June 1998. Privacy in Personal Information in Federal Records. May 4, 1998. Privacy Act Responsibilities for Implementing the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996. November 3, 1997. Office of Management and Budget Order Providing for the Confidentiality of Statistical Information and Extending the Coverage of Energy Statistical Programs Under the Federal Statistical Confidentiality Order. June 27, 1997. Report of the Privacy Working Group: Principles for Providing and Using Personal Information. June 1995. OMB Guidance on Computer Matching and Privacy Protection Amendments of 1990 and Privacy Act of 1974. April 23, 1991. Office of Management and Budget Final Guidance Interpreting the Provisions of the Computer Matching and Privacy Protection Act of 1988. June 19, 1989. OMB Guidance on the Privacy Act Implications of “Call Detail” Programs. April 20, 1987. OMB Circular A-130, Management of Federal Information Resources, including Federal Agency Responsibilities for Maintaining Records About Individuals, and Implementation of the Paperwork Elimination Act. November 28, 2000. Updates to Original OMB Privacy Act Guidance. May 24, 1985. Revised Supplemental Guidance on Implementation of the Privacy Act of 1974. March 29, 1984. Guidelines on the Relationship of the Debt Collection Act of 1982 to the Privacy Act of 1974. April 11, 1983. OMB Supplemental Guidance for Conducting Matching Programs. May 14, 1982. Supplementary Guidance for Implementation of the Privacy Act of 1974. November 21, 1975. Congressional Inquiries Which Entail Access to Personal Information Subject to the Privacy Act. October 3, 1975. Privacy Act Implementation Guidelines and Responsibilities. July 9, 1975. The following is GAO’s response to OMB’s additional comments. 1. Statements in the 2005 report regarding the draft OMB Paperwork Reduction Act guidance were accurate for that review and supported by the evidence gathered. For that report, among other things, we selected detailed case reviews of 12 OMB-approved collections and compared the agencies’ processes and practices in these case studies with the (1) act’s requirements, (2) OMB’s regulation and draft guidance to agencies, and (3) agencies’ written directives and orders. Nevertheless, in its written response to the 2005 report, OMB officials stated that OMB's draft PRA guidance to agencies had become outmoded. Further, in its response, OMB stated that the report had convinced them that its draft PRA guidance did not serve its intended purpose and that it would explore alternative approaches to advising agencies on their PRA responsibilities. Accordingly, because the draft guidance has not been in effect since the 2005 report was issued, we have removed statements from our current draft regarding this guidance. 2. As we stated in our response to OMB’s comments on our 2003 report, we consider this report to be a comprehensive and accurate source of information on agencies’ implementation of the Privacy Act. Our conclusions were based on the results of a comprehensive analysis of agency compliance with a broad range of requirements. 3. We agree that the responsibility for limiting the collection of personally identifiable information to what is authorized and necessary will require ongoing attention by agencies and oversight by OMB. We also believe that Congress should consider alternatives, as identified in our report, to improve controls on the collection and use of personally identifiable information. In addition to the contact person named above, John de Ferrari (Assistant Director), Shaun Byrnes, Susan Czachor, Barbara Collier, Tim Eagle, Matt Grote, Rebecca LaPaze, David Plocher, Jamie Pressman, and Andrew Stavisky made key contributions to this report. Aviation Security: Efforts to Strengthen International Passenger Prescreening Are Under Way, but Planning and Implementation Issues Remain. GAO-07-346. Washington, D.C.: May 16, 2007. DHS Privacy Office: Progress Made but Challenges Remain in Notifying and Reporting to the Public. GAO-07-522, Washington, D.C.: April 27, 2007. Homeland Security: Continuing Attention to Privacy Concerns Is Needed as Programs Are Developed. GAO-07-630T. Washington, D.C: March 21, 2007. Data Mining: Early Attention to Privacy in Developing a Key DHS Program Could Reduce Risks. GAO-07-293. Washington, D.C.: February 28, 2007. Border Security: US-VISIT Program Faces Strategic, Operational, and Technological Challenges at Land Ports of Entry. GAO-07-248. Washington, D.C.: December 6, 2006. Personal Information: Key Federal Privacy Laws Do Not Require Information Resellers to Safeguard All Sensitive Data. GAO-06-674. Washington, D.C.: June 26, 2006. Veterans Affairs: Leadership Needed to Address Information Security Weaknesses and Privacy Issues. GAO-06-866T. Washington, D.C.: June 14, 2006. Privacy: Preventing and Responding to Improper Disclosures of Personal Information. GAO-06-833T. Washington, D.C.: June 8, 2006. Privacy: Key Challenges Facing Federal Agencies. GAO-06-777T. Washington, D.C.: May 17, 2006. Personal Information: Agencies and Resellers Vary in Providing Privacy Protections. GAO-06-609T. Washington, D.C.: April 4, 2006. Personal Information: Agency and Reseller Adherence to Key Privacy Principles. GAO-06-421. Washington, D.C.: April 4, 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. Paperwork Reduction Act: New Approaches Can Strengthen Information Collection and Reduce Burden. GAO-06-477T. Washington, D.C.: March 8, 2006. Data Mining: Agencies Have Taken Key Steps to Protect Privacy in Selected Efforts, but Significant Compliance Issues Remain. GAO-05-866. Washington, D.C.: August 15, 2005. Aviation Security: Transportation Security Administration Did Not Fully Disclose Uses of Personal Information during Secure Flight Program Testing in Initial Privacy Notices, but Has Recently Taken Steps to More Fully Inform the Public. GAO-05-864R. Washington, D.C.: July 22, 2005. Identity Theft: Some Outreach Efforts to Promote Awareness of New Consumer Rights Are Under Way. GAO-05-710. Washington, D.C.: June 30, 2005. Information Security: Radio Frequency Identification Technology in the Federal Government. GAO-05-551. Washington, D.C.: May 27, 2005. Aviation Security: Secure Flight Development and Testing Under Way, but Risks Should Be Managed as System Is Further Developed. GAO-05- 356. Washington, D.C.: March 28, 2005. Social Security Numbers: Governments Could Do More to Reduce Display in Public Records and on Identity Cards. GAO-05-59. Washington, D.C.: November 9, 2004. Data Mining: Federal Efforts Cover a Wide Range of Uses. GAO-04-548. Washington, D.C.: May 4, 2004. Aviation Security: Computer-Assisted Passenger Prescreening System Faces Significant Implementation Challenges. GAO-04-385. Washington, D.C.: February 12, 2004. Privacy Act: OMB Leadership Needed to Improve Agency Compliance. GAO-03-304. Washington, D.C.: June 30, 2003. Data Mining: Results and Challenges for Government Programs, Audits, and Investigations. GAO-03-591T. Washington, D.C.: March 25, 2003. Technology Assessment: Using Biometrics for Border Security. GAO-03- 174. Washington, D.C.: November 15, 2002. Information Management: Selected Agencies’ Handling of Personal Information. GAO-02-1058. Washington, D.C.: September 30, 2002. Identity Theft: Greater Awareness and Use of Existing Data Are Needed. GAO-02-766. Washington, D.C.: June 28, 2002. Social Security Numbers: Government Benefits from SSN Use but Could Provide Better Safeguards. GAO-02-352. Washington, D.C.: May 31, 2002. | The centerpiece of the federal government's legal framework for privacy protection, the Privacy Act of 1974, provides safeguards for information maintained by federal agencies. In addition, the E-Government Act of 2002 requires federal agencies to conduct privacy impact assessments for systems or collections containing personal information. GAO was asked to determine whether laws and guidance consistently cover the federal government's collection and use of personal information and incorporate key privacy principles. GAO was also asked, in doing so, to identify options for addressing these issues. To achieve these objectives, GAO analyzed the laws and related guidance, obtained an operational perspective from federal agencies, and consulted an expert panel convened by the National Academy of Sciences. Increasingly sophisticated ways of obtaining and using personally identifiable information have raised concerns about the adequacy of the legal framework for privacy protection. Although the Privacy Act, the E-Government Act, and related guidance from the Office of Management and Budget set minimum privacy requirements for agencies, they may not consistently protect personally identifiable information in all circumstances of its collection and use throughout the federal government and may not fully adhere to key privacy principles. Based on discussions with privacy experts, agency officials, and analysis of laws and related guidance, GAO identified issues in three major areas: Applying privacy protections consistently to all federal collection and use of personal information. The Privacy Act's definition of a "system of records" (any grouping of records containing personal information retrieved by individual identifier), which sets the scope of the act's protections, does not always apply whenever personal information is obtained and processed by federal agencies. One alternative to address this concern would be revising the system-of-records definition to cover all personally identifiable information collected, used, and maintained systematically by the federal government. Ensuring that collection and use of personally identifiable information is limited to a stated purpose. According to generally accepted privacy principles of purpose specification, collection limitation, and use limitation, the collection of personal information should be limited, and its use should be limited to a specified purpose. Yet, current laws and guidance impose only the modest requirements in these areas. While, in the post-9/11 environment, the federal government needs better analysis and sharing of certain personal information, there is general agreement that this need must be balanced with individual privacy rights. Alternatives to address this area of concern include requiring agencies to justify the collection and use of key elements of personally identifiable information and to establish agreements before sharing such information with other agencies. Establishing effective mechanisms for informing the public about privacy protections. Another key privacy principle, the principle of openness, suggests that the public should be informed about privacy policies and practices. Yet, Privacy Act notices may not effectively inform the public about government uses of personal information. For example, system-of-records notices published in the Federal Register (the government's official vehicle for issuing public notices) may be difficult for the general public to fully understand. Layered notices, which provide only the most important summary facts up front, have been used as a solution in the private sector. In addition, publishing such notices at a central location on the Web would help make them more accessible. |
Within Labor, the Division of Federal Employees’ Compensation in the OWCP administers the FECA program, which provides wage replacement and medical benefits to federal employees who suffer partial or total disabilities resulting from work-related injuries and occupational diseases. OWCP is the central point where FECA claims are processed and eligibility and benefit decisions are made. Claims examiners (CE) at OWCP’s 12 FECA district offices determine applicants’ eligibility for FECA benefits and process claims for wage-loss payments. FECA laws and regulations specify criteria for computing compensation payments. Using information provided by the employing agency and the claimant on a claims form, OWCP calculates compensation on the basis of a number of factors, including the claimant’s rate of pay, the claimant’s marital status, and whether or not the claimant has dependents. Eligible disabled employees generally receive 66-2/3 percent (or 75 percent if married or with dependents) of their basic salary, tax-free, plus medical- related expenses. When an injury results in partial disability, and the employee suffers a wage loss because of the disability, the claimant is entitled to monthly monetary compensation equal to 66-2/3 percent (or 75 percent if married or with dependents) of the difference between the claimant’s monthly pay and his or her monthly wage-earning capacity (WEC). According to OWCP officials, initial claims received from employing federal agencies are reviewed by claims examiners to assess the existence of key elements. (See fig. 1.) The elements include evidence that the claim was filed within FECA’s statutory time requirements; that the employee was, at the time of injury, disease, or death, an employee of the United States; that the employee was injured while on duty; and that the condition resulted from the work-related injury. If the key elements are in place, OWCP will approve a claim and begin processing bills for medical costs. After initial claim approval, additional reviews are done while a claim remains active to determine whether the claimant can continue to receive wage-loss compensation. Once a claim is approved, payments are sent directly to the claimant or provider. An employee can continue to receive wage-loss compensation for as long as medical evidence shows that the employee is totally or partially disabled and that the disability is related to the accepted injury or condition. Specifically, a medical review is required annually for employees receiving temporary total-disability payments, every 2 years for claimants earning loss of WEC payments, and every 3 years for claimants on the periodic rolls who have been determined to not have any WEC. Employees receiving compensation for partial or total disability must advise OWCP immediately if they return to work, either part-time or full-time. Claimants are required to self-report all employment wages, whether salaried or not, and self-employment. OWCP requires that all individuals on the periodic roll (both partial and total disability) complete Form CA- 1032 on a yearly basis stating their income or whether their dependent status has changed. A new employer may also be requested to provide information regarding a claimant’s employment and earnings. Labor can use this form to adjust the amount of FECA compensation. Employees must report even those earnings that do not seem likely to affect their level of benefits, such as concurrent income that an employee was receiving prior to his or her injury that was not directly related to the employee’s federal employment. While earning income will not necessarily result in a reduced compensation, the FECA statute and implementing regulations stipulate that failure to report income may result in forfeiture of all benefits paid during the reporting period. To help verify income levels, Labor requests that FECA claimants provide it with their consent to access their Social Security Administration (SSA) earnings file; however, claimants are not required to provide Labor with their consent, and authorization to obtain such information is not required to receive compensation. In instances where Labor is authorized to collect earnings information from SSA by claimants, according to OWCP officials, SSA’s earnings data may be as much as 2 years old,may hinder timely adjustments to compensation benefits. Established by the Social Security Act of 1935, the federal-state UI program generally temporarily and partially replaces the lost earnings of those who become unemployed through no fault of their own. To be eligible for UI benefits, unemployed workers must meet eligibility requirements established by state laws that conform to federal law, including that they have worked recently, are involuntarily unemployed, and are able and available for work. Whereas federal statutes and regulations provide broad guidelines on UI eligibility, the specifics of UI eligibility are determined by each state. According to Labor’s Employment and Training Agency, all states require that a claimant must have earned a specified amount of wages, worked a certain number of weeks in covered employment, or must have met some combination of the wage and employment requirements within his or her base period. To be eligible for benefits, claimants must also be free from disqualification for acts such as voluntarily leaving without good cause, discharge for misconduct connected with the work, and refusal of suitable work. However, the specific eligibility requirements regarding an applicant being “able and available for work” vary among the states. For example, a few states specify that a worker must be physically able, or mentally and physically able, to work. Likewise, while some states require that a worker must be available for work, other states require that a worker must be available for suitable work; still other states may find an individual able and available for work so long as any limitation due to illness, injury, or presence in the usual labor market does not constitute a withdrawal from the labor market. In addition to being able and available for work, all states require by law or by practice that a worker be actively seeking work or making a reasonable effort to obtain work. According to ETA, some states permit payment of benefits to sick or disabled individuals under certain circumstances, but there is nothing in their laws that prohibit a denial of benefits in those circumstances. We found examples of improper payments, overlapping benefits, and potential fraud in the FECA program, which could be attributed, in part, to factors such as oversight and data-access issues. OWCP has taken some steps to enhance oversight of the FECA program; however, Labor lacks authority to directly access wage data, which limits its ability to verify self-reported wage information. In addition, OWCP does not have a process to access data needed to identify the extent that claimants are receiving overlapping FECA and UI benefits and does not report FECA claimant information to states, which increases the risk that FECA claimants are receiving overlapping benefits improperly. OWCP has designed additional oversight mechanisms to better monitor claimants’ eligibility, which could help identify improper payments and potential fraud. To determine a claimant’s eligibility for FECA, claimants who suffer partial or total disabilities resulting from work-related injuries are required to submit medical evidence to OWCP so it can determine the nature and extent of disability resulting from this condition and any changes to their condition that could affect continuing entitlement. Specifically, a CE is required to conduct a medical review annually for claimants on total disability receiving long-term compensation who are on the program’s periodic rolls, every 2 years for claimants earning loss of WEC payments, and every 3 years for claimants who have been determined to not have any WEC. OWCP bears the burden of justifying the termination or modification of compensation benefits. Accordingly, OWCP must have medical evidence in order to support any change in compensation to a claimant. Without up-to-date medical reports for claimants, OWCP lacks the necessary evidence to change compensation levels. In addition, claimants are also required to submit an annual form (Form CA-1032) stating whether their income or dependent status has changed. The form must be signed to acknowledge evidence of benefit eligibility and to acknowledge that criminal prosecution may result from deliberate falsehood. OWCP’s review of this annual form is especially important for claimants who are deemed to not have any WEC and, therefore, have less frequent medical reviews. Our review of a nongeneralizable sample of 32 individual cases identified four claimants who were on partial disability, receiving payments for loss of WEC, but did not have evidence that OWCP obtained or reviewed the required medical reports every 2 years, as required. These individuals continued to receive FECA compensation benefits without evidence that their medical condition has not improved, which potentially could result in an improper payment. For the 28 cases that had medical reports, we found that 14 cases did not include the Work Capacity Evaluation (OWCP-5c) form, which is not a mandatory form but is to be completed by a medical professional. According to OWCP, a narrative medical report may be more informative than the OWCP-5c and more helpful in determining a claimant’s ability to earn wages. The purpose of the OWCP-5c form is to help clarify whether a claimant is capable of fulfilling his employment duties by identifying a claimant’s specific work-tolerance limitation, where the accepted condition is musculoskeletal in nature. Without this form, it can be difficult to determine whether the claimant is capable of performing the job and whether employers can readily accommodate the medical condition. For all 14 cases, the claimant did suffer a musculoskeletal injury. Our review identified 2 out of our sample of 32 FECA claimants who did not have evidence in their FECA file that OWCP reviewed their employment activity annually, as required. These two claimants continued to improperly receive higher FECA compensation benefits than warranted during our period of review because a timely adjustment was not made to their disability compensation. In addition, one claimant failed to submit the income certification, and OWCP did not promptly terminate benefits. Labor and IGs from employing departments and agencies have consistently reported similar FECA program-management challenges and have linked increased program costs to improper payments. For example, Labor’s oversight of the FECA program has been identified as a management challenge in prior work. beginning with its 2004 Performance and Accountability Report, and every year since, Labor has indicated that adequately overseeing the FECA program was one of its chief management challenges, citing verifying beneficiaries’ eligibility as one of the oversight difficulties that it faces. Moreover, IGs from employing agencies that participate in FECA have reported that certain policies and procedures did not exist, or when they did exist, they were not always followed by employing agencies. Most often these deficiencies were related to a lack of controls that would have enabled staff to verify beneficiaries’ continued eligibility. For example, see U.S. Department of Labor, Office of Inspector General–Office of Audit, Mechanisms Used to Identify Changes in Eligibility Are Inadequate at the FECA District Office in Jacksonville, Florida. performance measures. Finally, OWCP officials stated that they are in the process of establishing quality-assurance reviews of PER processing. As such, Labor will convene Accountability Review teams of program specialists to evaluate the quality of workload processing in its district operations. These evaluations are to scrutinize processed work, such as elements relating to fiscal and operational integrity. Accountability Review findings are to be reviewed by the relevant OWCP program director and corrective action plans will be developed, as necessary. In addition, according to OWCP officials, two new Quality Measures have been implemented in fiscal year 2013 to rate the accuracy of compensation benefit payments, and whether the factual and medical evidence of record supports the current level of benefits provided. According to Labor officials, OWCP plans to start conducting these reviews by the end of fiscal year 2013. In 2012, we reported that periodic reviews of FECA case files are a promising practice and can be used to help increase program officials’ awareness of potential fraudulent activities. Further, these controls are consistent with the detection and monitoring component of GAO’s fraud-prevention framework, and could help to validate claimants’ eligibility including medical conditions and income information. If implemented properly, these steps will assist OWCP in identifying cases for return-to-work potential and referral to vocational rehabilitation. In addition, verification of proper and accurate benefit levels will also support FECA program fiscal integrity. As we have previously reported, because Labor does not have statutory authority to directly access private or public wage data that is reported to SSA and the Department of Health and Human Services’ (HHS) National Directory of New Hires (NDNH) database, OWCP relies heavily on claimants’ self-reporting of earnings on the annual Form CA-1032 to identify potential fraud. For example, while OWCP requests that FECA claimants provide it with consent to access their SSA earnings file, claimants are not required to provide OWCP with consent, and authorization to obtain such information is not required to receive compensation. Our review of a nongeneralizable sample of 32 individual cases identified eight FECA claimants who had significantly underreported employment wages in comparison to the wages reported in the state’s QW reports for the same period. We also found that three claimants did not provide authorization to OWCP to access their SSA earnings file. GAO-12-402. the SSA.that they studied whether to use NDNH and communicated with HHS, but determined that this would not be an effective solution because of cost issues, limited participation by employers in NDNH, and the likelihood that unreported earnings would not be listed. For example, OWCP officials stated that it would cost about $1 million to implement an automated process for verifying wage information with NDNH. To help address the issue, OWCP officials reported ongoing negotiations over several years with SSA to develop a formal agreement that includes regular data matching to verify wage data so that Labor does not have to rely on obtaining consent to access SSA wage data from the claimant. A current agreement is being developed, though officials stated that these negotiations were still in the early stages. In response to our recommendation, OWCP officials stated Labor has also proposed legislative reforms to FECA that would enhance its ability to assist FECA beneficiaries and also enhance program oversight. As part of this reform, OWCP sought authority to match SSA wage data directly with FECA files. According to Labor OIG officials, to enhance its FECA program oversight, Labor OIG has also requested changes to legislation that would allow Labor to easily and expeditiously access NDNH wage records, so that its investigations can be more efficient and effective. However, at this time, Labor does not have direct access to the NDNH or SSA wage data. Having access to these data sources would allow Labor to verify claimants’ self-reported employment income and better position the agency to identify potential fraud. Because of case law and regulatory requirements, once OWCP calculates an individual’s WEC, it remains in place unless the evidence establishes that there is a material change in the nature and extent of the injury-related condition; the claimant has been retrained, or otherwise vocationally rehabilitated; or it is established that OWCP’s original determination was erroneous. As a result, claimants could be earning more money than they were originally determined capable of earning but never have the WEC adjusted to account for the increase in wage earning capacity. According to program procedures, OWCP can modify the WEC if the claimant is earning 25 percent more than the current pay of the job for which the beneficiary was originally rated. However, to adjust the WEC, OWCP must demonstrate that customary criteria for modification is met such as the claimant is rehabilitated or self-rehabilitated, or evidence shows that the claimant was retrained for a different job. Of the 32 cases we reviewed, we found five instances where an individual’s WEC was not adjusted even though the individual earned substantially more (at least 25 percent) than what was originally calculated as their WEC. While this situation is allowable under FECA program requirements, it could be an indicator of potential waste in the FECA program. In addition, two FECA total-disability claimants continued to receive private-employment salaries that were not subject to the WEC. Earnings received from dissimilar private employment at the time of injury may not be used by Labor when determining an injured employee’s pay rate for compensation purposes, and earnings from that same employment cannot be considered in determining the employee’s WEC. Thus, claimants are allowed to receive income, in some cases substantial income, while also receiving FECA compensation benefits. The FECA program statute allows claimants to select their own physician, which we reported in 2012 to be a potential vulnerability. The regulation also requires examination by a physician employed or selected by the government only when a second opinion is deemed necessary by the government. As a result, as we previously reported, essential processes within the FECA program could be operating without a review conducted by a physician selected by the government. This potential vulnerability affects key control processes outlined in GAO’s fraud- prevention framework in two areas: first, the lack of reviews when assessing validity of initial claims, and second, the lack of the same when monitoring the duration of the injury. Out of the 32 individual cases that we reviewed, 12 did not have a second opinion from a medical professional assessing the injury and possible work restrictions, and a physician selected by the government was not involved in making the disability determination. Without a second opinion, the federal government must rely on the physician of the claimant’s choosing, which is a potential vulnerability in assessing the validity of the claim. While FECA claimants can be eligible to receive state UI benefits in addition to FECA benefits, Labor lacks a process to share the necessary data with states to determine whether FECA claimants may be improperly receiving overlapping benefits. Individuals may be eligible for both FECA and UI depending on the applicable state laws regarding UI eligibility, and federal law does not authorize an automatic reduction or potential elimination of benefits if a claimant receives both. For example, under FECA, an individual is encouraged to return to work. Upon returning to work, the individual’s FECA compensation payment is supposed to be reduced or terminated. In certain circumstances these individuals may have returned to the workforce, for example, with partial disability, and subsequently been involuntarily terminated. These individuals may also meet the states’ “able and available for work” criteria and thus also be eligible for UI benefits. As a result, some individuals may have a disability under federal law but still be able and available for work under state law, and thus are eligible to receive concurrent UI and FECA benefits. However, claimants may be not eligible to receive both types of payments because their disability, especially for those receiving compensation for total disability, may render them unable and unavailable to work. In February 2012, the Middle Class Tax Relief and Job Creation Act was enacted, which amended federal law and included a requirement that individuals claiming UI benefits be actively seeking work as a condition of some eligibility. In addition, certain states, for example four of the five selected states in our review, require the offset of UI benefits against certain workers’ compensation payments, including FECA. Labor officials acknowledged that they do not have a process to share the necessary data to identify overlapping payments, which would help the ETA and the states identify the extent to which overlapping payments are not being offset. As previously reported, we have found that processes that rely heavily on self-reported data by claimants create potential vulnerabilities within the program. Without the ability to verify self-reported information on the receipt of other benefits, Labor may make overlapping payments contrary to the regulations governing the program. Our review of a nongeneralizable sample of 19 individual cases identified claimants who received overlapping UI and FECA benefits totaling over $1.3 million from January 2008 to June 2012. Four claimants who resided in states that require UI payments to be offset received more income from the combined UI and FECA benefits than they would have received from their federal salary alone. Some of these claimants were former FECA claimants who attempted to return to the federal agency to perform work within their medical restrictions. However, the claimants were subsequently discharged because they did not meet the federal agency requirements for continuing employment. As such, these claimants were entitled to their FECA benefits and they also applied for and received UI benefits that were not offset by their respective states. According to OWCP officials, Labor does not systematically report information on claimants receiving FECA benefits to states, which would help states identify overlapping FECA and UI payments as well as UI payments that might need to be offset. Currently, states must rely on obtaining this information either directly from the UI applicant or UI applicant’s recent employers. As previously discussed, certain states use the workers’ compensation amount, such as FECA, to reduce or eliminate the UI benefit amount. States utilize this information to determine whether the individual is actually “able and available for work.” As such, all states must require claimants to certify that they are still meeting all UI eligibility criteria such as changes in employment status. Labor is not required to and thus does not report FECA payments to NDNH, which is a primary mechanism that some states use to verify employee wage levels, because NDNH was established as a depository for wage reporting that, among other things, enables state child-support agencies to be more effective in enforcing child-support orders. Were Labor to report FECA payments to this database, states would more easily be able to identify such payments in their review. Our review of a nongeneralizable sample of 19 individual cases identified nine claimants who potentially committed fraud or improperly obtained UI benefits because they did not properly disclose their FECA benefits to the state on their UI application, which could have potentially reduced or eliminated the UI benefit amount. As previously discussed, limited access to necessary information is a potential vulnerability. Without information on individuals who are receiving federal workers’ compensation payments, it is difficult for the states to identify those individuals and reduce or terminate the UI payments to them. As a promising practice we previously reported, Labor provides quarterly data extracts to employing agencies on wage- compensation payments, medical billing payments, and case- management data. Similarly, if OWCP reported FECA compensation data to the states (either directly or through NDNH), this could help federal and state agencies coordinate benefits and reduce the risk of overlapping payments. We have previously reported on the importance of interagency collaborative mechanisms, such as sharing information across organizational boundaries, to achieve crosscutting program goals. Further, although not a requirement, the value of greater information sharing between federal and state entities is demonstrated by the actions of some states that check the NDNH to determine if an applicant is working. For example, by cross-matching UI claims against NDNH data, states can better detect overpayments to UI claimants who have gone back to work. While our sample of individuals who have received overlapping FECA and UI benefits cannot be generalized to the entire population of FECA claimants, we did identify some claimants who potentially committed fraud or improperly obtained UI benefits because they did not properly disclose their FECA benefits to the state on their UI application. Thus, establishing a mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments, to the extent that it is cost-effective, could help provide ETA with greater assurance that individuals are receiving benefits in accordance with statute. We discussed this proposal with OWCP program officials in January 2013 and they agreed that sharing compensation data with the states may be beneficial, although they stated that they have never been asked to provide FECA compensation information previously. With estimated future actuarial liabilities for government-wide FECA compensation payments at over $34 billion as of fiscal year 2012, and in an era of scarce government resources, it is vital that Labor ensures effective stewardship of those resources. FECA and UI provide an important safety net for workers who have lost their income because of workplace injuries or unemployment. However, Labor and the states must continually monitor these claimants to ensure that they continue to be entitled to these benefits and that the benefits are adjusted to account for changes in claimants’ wage earnings and for overlapping state UI payments. While in certain circumstances receiving concurrent UI and FECA benefits may be allowable, the cases we identified where claimants received concurrent UI and FECA benefits without Labor’s knowledge could be an indicator of improper payments. A cost-effective mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments could help determine the extent that improper payments or potential fraud are occurring, which could help save taxpayer dollars. In addition, without the authority to access wage data, which both OWCP and Labor’s OIG have sought, Labor’s reliance on claimants’ self-reported employment information limits the agency’s ability to identify potential fraud. Congress should consider granting Labor the additional authority it is seeking to access wage data to help verify claimants’ reported income and help ensure the proper payment of benefits. We recommend that the Secretary of Labor assess the feasibility of developing a cost-effective mechanism to share FECA compensation information with states, such as reporting information to NDNH, to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. We provided a draft of this report to Labor for comment on February 28, 2013. Labor provided written comments on the draft, which can be found in appendix I. Labor agreed with the recommendation to assess the feasibility of developing a cost-effective mechanism to share FECA compensation information with the states, such as reporting information to NDNH, to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. Labor stated that it will undertake a review to determine whether such data sharing and reporting is feasible. However, Labor expressed concerns regarding the cost-effectiveness of such an approach. We agree that it will be important for Labor to assess the cost-effectiveness of such an approach when conducting its review. As stated in the report, some states check the NDNH database to verify employee wage levels. Thus, establishing a mechanism, such as reporting FECA compensation to NDNH, could provide a cost-effective way for states to identify whether claimants are inappropriately receiving overlapping UI and FECA payments, and could help provide ETA with greater assurance that individuals are receiving benefits in accordance with statute. In its response, Labor also stated that since FECA contains no offset for UI benefits, a claimant may be entitled to receive both FECA and UI benefits under a particular state law, which would not be classified as receiving improper payments. We recognize, as stated in this report, that there may be certain situations where individuals are entitled to the concurrent receipt of FECA and UI benefits. However, it is also important to note that, as discussed in the report, claimants may not be eligible to receive both types of payments in some cases. For example, some claimants are not able to meet the “able and available” requirement for UI benefits because their disability, especially for those receiving compensation for total disability, may render them unable and unavailable to work. In addition, certain states, such as four of the five selected states in our review, require the offset of UI benefits against certain workers’ compensation payments, including FECA. In addition, Labor stated that one of our examples cited in our report—example 5—should not be classified as an improper payment because FECA program procedures allow a claimant to receive wages from two different employers and not have those wages affect the claimant’s WEC or ability to receive FECA benefits. We agree that this is not an improper payment and did not classify it as such. As stated in the report, claimants are allowed to receive such income, in some cases substantial income, while also receiving FECA compensation benefits. Labor also provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Labor, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff has questions about this report, please contact me at 202-512-4379 or LordS@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. | In fiscal year 2012, the FECA program made more than $2.1 billion in wageloss compensation payments to claimants. FECA provides benefits to federal employees who sustained injuries or illnesses at work. GAO was asked to examine whether examples of improper payments, potential fraud, or overlapping benefits could be found in the FECA program. This report identifies examples of these issues, what factors may contribute to these issues, and how, if at all, Labor could address them. GAO matched QW and unemployment files from five selected states with FECA payment files for the period of July 2009 to June 2010. GAO identified 530 individuals who received concurrent FECA compensation payments and wages of at least $5,000 between July 2009 and June 2010. GAO also identified 50 individuals who received concurrent FECA compensation and UI benefits of at least $5,000 each during the same period. GAO randomly selected up to seven recipients from each state for an in-depth review, for a total of 32 QW and 19 UI cases, respectively. These examples cannot be generalized beyond those presented. GAO also reviewed Labor's policies, guidelines, and procedures for managing claims. GAO found examples of improper payments and indicators of potential fraud in the Federal Employees' Compensation Act (FECA) program, which could be attributed, in part, to oversight and data-access issues. GAO found examples of claimants' receiving overlapping FECA and unemployment insurance (UI) benefits, which may be allowable under certain circumstances, but could also be erroneous. GAO also found that FECA program requirements allow claimants to receive earnings, and earnings increases, without necessarily resulting in adjustment of FECA compensation. For example, of the 32 FECA case files reviewed, GAO found five instances where an individual's wage-earning capacity (WEC), which is used to determine FECA benefits, was not adjusted even though the individual earned substantially more than the wage that was originally used to calculate the WEC. In addition, two FECA claimants continued to receive privateemployment salaries that were not subject to their WEC calculation. This is because, as currently written, program procedures allow claimants to receive increases in earnings, in certain circumstances, without adjustments to FECA compensation, and current law allows for claimants' earnings from dissimilar concurrent private employment at the time of injury to be exempt when determining FECA compensation. As discussed below, GAO identified challenges related to oversight and data access, which could result in improper payments or overlapping benefits. GAO found that the Department of Labor (Labor) did not conduct a timely review of the medical activity reports of 4 of the 32 FECA claimants and did not complete a timely review of the employment activity reports of 2 claimants, which could potentially result in an improper payment or be an indicator of potential fraud in one case where a claimant did not respond to repeated Labor requests for the employment activity reports. Labor has taken some steps to enhance oversight of the program, such as developing measures to improve the periodic review of claimants' documentation. GAO found that 8 out of 32 claimants underreported employment wages in comparison to the state's quarterly wage (QW) reports. Labor does not have authority to directly access Social Security Administration (SSA) wage data to verify claimants' reported income; consequently, it relies on periodic selfreporting of income. GAO has previously identified this as a potential vulnerability that could increase the risk of claimants receiving benefits they are not entitled to. To address this, Labor proposed legislation allowing the agency to match SSA wage data with FECA files, but the proposal is still pending. GAO identified 19 cases where claimants were receiving overlapping UI and FECA benefits totaling over $1.3 million. Four of these 19 claimants received more income from combined UI and FECA benefits than they would have received from their federal salary alone. Four of the five selected states in our review require the offset of UI benefits against FECA compensation payments. Because Labor does not have a process to share necessary data with states to identify overlapping FECA and UI payments, a mechanism to share FECA information with the states would help provide reasonable assurance that payments are being made properly. GAO recommends that the Secretary of Labor develop an effective mechanism to share FECA compensation information with states to help identify whether claimants are inappropriately receiving overlapping UI and FECA payments. In addition, Congress should consider granting Labor the additional authority it is seeking to access wage data to help verify claimants reported income and help ensure the proper payment of benefits. Labor agreed to study the feasibility of sharing compensation information with the states. |
The Federal Aviation Administration’s (FAA) mission is to promote the safe, orderly, and expeditious flow of air traffic in the United States through what is commonly referred to as the National Airspace System (NAS). FAA’s ability to fulfill its mission depends on the adequacy and reliability of the nation’s air traffic control (ATC) system—the principal component of the NAS—which comprises a vast network of radars; automated data-processing, navigation, and communications equipment; and ATC facilities. It is through the ATC system that FAA provides services such as controlling takeoffs and landings and managing the flow of traffic between airports. Sustained growth in air traffic and FAA’s aging equipment have strained the current ATC system. This growth in traffic is predicted to continue as the number of passengers traveling on U.S. airlines is expected to grow from about 674 million in 1998 to 1.055 billion by 2010, an increase of about 57 percent. To relieve the problems of aging equipment and to accommodate the predicted growth in air traffic, FAA initiated a multibillion-dollar modernization effort in December 1981. Our work over the years has chronicled many of FAA’s failures in meeting projects’ cost, schedule, and performance goals. Because of the size, complexity, cost, and problem-plagued past of FAA’s modernization program, we have designated it a high-risk information technology investment since 1995. Under its ambitious modernization program, FAA is acquiring new surveillance, data-processing, navigation, and communications equipment in addition to new facilities and support equipment. Totaling 126 active projects, the modernization is estimated to cost $26.5 billion from fiscal year 1982 through fiscal 2004. Of this total, FAA estimates that it will need $12.9 billion from fiscal year 1982 through 2004 for 59 information technology projects—the software-intensive and complex information and communications systems supporting the ATC system. These projects range from those designed to replace equipment used by controllers to communicate with aircraft and with each other to radars that provide controllers with surveillance information for separating aircraft. An example of an information technology project is the Display System Replacement project that will modernize equipment in FAA’s en route facilities by replacing 20- to 30-year-old display channels, controllers’ workstations, and network infrastructure. Over the past 17 years, FAA’s modernization projects have experienced substantial cost overruns, lengthy delays, and significant performance shortfalls. To illustrate, the longtime centerpiece of the modernization program—the Advanced Automation System—was restructured in 1994 after estimated costs to develop the system tripled from $2.5 billion to $7.6 billion and delays in putting significantly less-than-promised system capabilities into operation were expected to run 8 years or more over the original estimates. These problems have persisted. For example, two key projects in the modernization effort—the Wide Area Augmentation System and the Standard Terminal Automation Replacement System—have encountered significant cost increases, delays, and changes in requirements. In the case of the Wide Area Augmentation System, between September 1997 and January 1998, total estimated costs increased by $600 million, or 25 percent, from $2.4 billion to $3 billion. The increased costs were attributable to FAA’s including previously overlooked costs for periodically updating the project’s equipment and to higher-than-expected operations and maintenance costs. In the case of the Standard Terminal Automation Replacement System, although FAA has not officially changed the project’s baseline approved in February 1996, the baseline is in jeopardy of being breached because of unions’ concerns surrounding human-factor and design issues, the refinement of requirements, and the interjection of a new project phase. FAA estimates that these issues have the potential to increase the project’s costs from $294 million to $410 million above the approved baseline. FAA also estimates that the project’s initial completion could be delayed by almost 2-1/2 years. Because of FAA’s contention that some of its modernization problems were caused by federal acquisition regulations, the Congress enacted legislation in November 1995 that exempted the agency from most federal procurement laws and regulations and directed FAA to develop and implement a new acquisition management system that would address the unique needs of the agency. On April 1, 1996, in response to the Congress’s action, FAA implemented a new acquisition management system. The system is intended to reduce the time and cost to field new products and services by introducing (1) a new investment management system that spans the entire life cycle of an acquisition, (2) a new procurement system that provides flexibility in selecting and managing contractors, and (3) organizational and cultural reform that supports the new investment and procurement systems. The Acquisition Management System (AMS) provides high-level acquisition policy and guidance for selecting and controlling FAA’s investments throughout all phases of the acquisition life cycle, which is organized into a series of phases and decision points, including (1) mission analysis, (2) investment analysis, (3) solution implementation, (4) in-service management, and (5) service life extension. AMS provides guidance on the documents and decisions that result from each of these phases. For example, through the mission analysis process, FAA identifies critical needs that the agency must meet for improving the safety, security, capacity, efficiency, and effectiveness of the NAS. Approval of a mission need statement by the Joint Resources Council—FAA’s corporate decision-making body—signifies that the agency agrees that the need is critical enough to proceed to the next phase, investment analysis. During the investment analysis phase, teams of acquisition and program specialists (1) identify and analyze alternatives, (2) develop baselines and assesses affordability, (3) prepare an investment analysis report, and (4) recommend a preferred solution to the mission need. FAA then scores and ranks each proposed project based on a number of factors, including how well, relative to other projects, it meets mission needs and has a favorable cost-benefit ratio. Once a project is selected, life-cycle cost, schedule, benefits, and performance baselines are established in a formal document called the acquisition program baseline. The acquisition program baseline, which must be approved by the Joint Resources Council, is used to monitor a project’s status in achieving those baselines throughout the remaining phases of the acquisition management life cycle. During the solution implementation phase, a multidisciplinary team develops and carries out an acquisition strategy for implementing the project. Once the project has been implemented and is in operation (the in-service management phase), the team monitors and assesses its performance, costs, and support trends; proposes fixes for any defects or other problems; incorporates product improvements; seeks new technology to enhance the capability or reduce costs; and identifies and prepares for decisions to correct capability shortfalls at the end of the project’s service-life. Finally, during the service-life extension phase, a determination is made about whether the current capability satisfies the demand for services or whether another solution offers the potential for improving safety or effectiveness or for significantly lowering costs. The team initiates a process whereby the mission need would be revalidated and the investment analysis process begun again, which could lead to a new investment decision. See figure 1.1 for a graphic depiction of FAA’s life-cycle acquisition management process. Funding for FAA’s investments is primarily provided through two of its budget accounts: (1) facilities and equipment and (2) operations. The facilities and equipment account covers the costs to develop, procure, and place the new equipment or facility in operation. Once the project goes into full operation, it is funded by the operations account, which covers the costs to support and maintain the new equipment or facility. Costs for planned product improvements and upgrades to the technology can be funded from either the facilities and equipment or the operations accounts. Some investment funding is also provided through the research, engineering, and development account. This account is relatively small compared with the facilities and equipment and operations accounts. For example, in fiscal year 1999, $150 million was appropriated for research, engineering, and development; approximately $2.1 billion for facilities and equipment; and approximately $5.6 billion for operations. Several recent management reforms—including the revision of the Paperwork Reduction Act and the passage of the Clinger-Cohen Act of 1996, the Government Performance and Results Act of 1993, and the Chief Financial Officers Act of 1990—have introduced requirements emphasizing the need for federal agencies to improve their management processes for selecting and managing information technology resources. GAO and the Office of Management and Budget have developed guidance to assist federal agencies in evaluating information technology investments. One such guide, Assessing Risks and Returns: A Guide for Evaluating Federal Agencies’ IT Investment Decision-Making, incorporates our analysis of the management practices of leading private and public sector organizations as well as of the provisions of major federal legislation (e.g., the Clinger-Cohen Act) and executive branch guidance that address investment decision-making. The guide outlines three phases of a successful investment management approach—selection, control, and evaluation. To help ensure that real, positive change is produced as agencies seek to improve their decision-making about their information technology investments, agencies need to (1) institutionalize management processes; (2) regularly validate the cost, benefit, and risk data used to support information technology decisions; and (3) focus on measuring and evaluating results. The guide provides a framework for evaluating and assessing how well a federal agency is achieving these goals and identifies specific areas where improvements can be made. Many of the concepts in our Assessing Risks and Returns have been incorporated into the Office of Management and Budget’s Capital Programming Guide, which provides guidance on the planning, budgeting, acquisition, and management of different kinds of capital assets, including information technology. Our guide has also been endorsed by the federal Chief Information Officers Council. A third guide we prepared, Executive Guide: Leading Practices in Capital Decision-Making, summarizes 12 fundamental practices that have been successfully implemented by organizations recognized for their outstanding capital decision-making.Since information technology investments are a form of capital asset, this guide emphasizes many of the same concepts as the aforementioned guides, such as evaluating alternative approaches to achieving results; assessing investments as a portfolio; tracking projects’ costs, schedules, and performance; and conducting post-implementation reviews. Given the large expenditures required to carry out FAA’s modernization program, the past problems, and the continuing concerns about key projects funded under the program, the Chairmen and Ranking Minority Members of the Senate Commerce, Science, and Transportation Committee’s Subcommittee on Aviation and the House Transportation and Infrastructure Committee’s Subcommittee on Aviation asked us to evaluate the extent to which AMS provides a comprehensive approach for managing FAA’s modernization investments. This report addresses the extent to which FAA, through AMS, (1) has established a structured approach for selecting and controlling its investments; (2) incorporates all investments, including those in operation, in the agency’s portfolio; and (3) selects, controls, and evaluates its investments with complete and reliable information. To address our objectives, we reviewed FAA’s overall approach for managing investments, as carried out through AMS, including the policies, procedures, and guidance for managing the life-cycle acquisition process. AMS is designed to include all of FAA’s acquisition projects, including those related to facilities, mission support, and information technology. Our review focused primarily on information technology projects, and we worked with FAA to identify the universe of such projects. Then, in concert with FAA, we selected five projects for review to obtain a more detailed understanding of how the investment management process is implemented at the project level. The five projects we reviewed were (1) the NAS Infrastructure Management System, (2) the Oceanic Automation Program, (3) the Operational and Supportability Implementation System, (4) the Standard Terminal Automation Replacement System, and (5) the Voice Switching and Control System. We selected these projects because they were in various stages of implementation when AMS was established in April 1996, were key to replacing the aging NAS infrastructure or improving its capacity and effectiveness, and represented significant expenditures. Total estimated facilities and equipment funding for each of these projects exceeds $100 million. Two of the five projects—the NAS Infrastructure Management System and the Operational and Supportability Implementation System—are subject to all AMS requirements because they were selected after AMS went into effect in April 1996. The other three projects, which were ongoing when AMS was established, are subject to AMS requirements for the remaining stages in their development and implementation. As part of our effort, we applied the methodology prescribed in Assessing Risks and Returns. We used the questions in this guide to determine the extent to which FAA has decision-making and management processes and data in place to select information technology projects and systems, control these projects throughout their life cycles, and evaluate results and revise the processes based on lessons learned. We provided the questions in the guide to FAA officials and assessed their responses, along with supporting documentation, as a basis for determining whether FAA’s approach provided the necessary elements for managing its investments. We also incorporated the guidance from the Executive Guide: Leading Practices in Capital Decision-Making in determining whether FAA managed its investments as a portfolio; tracked projects’ costs, schedules, and performance; and conducted post-implementation reviews. To gain an overall perspective on FAA’s investment management process, we interviewed FAA officials responsible for implementing and managing AMS. We also interviewed FAA officials responsible for preparing the facilities and equipment and operations budgets and reviewed the agency’s fiscal year 1999 budget justification documentation to understand how data on FAA’s investments are used to support FAA’s budget request to the Congress. Finally, we interviewed officials responsible for managing the five projects we reviewed to obtain their views on how AMS is applied at the project level as well as potential areas for improvement. We performed our work from April 1998 through April 1999 in accordance with generally accepted government auditing standards. Through AMS, FAA has designed and implemented processes that provide many of the key elements followed by leading organizations for selecting and controlling investments. AMS’ mission analysis and investment analysis processes are meant to provide FAA’s senior management with a basis for screening proposed projects; evaluating their relative costs, benefits, and risks; and selecting projects for funding based on their relative merits. Additionally, AMS policy requires each acquisition project to have an approved baseline that establishes the project’s life-cycle cost, schedule, benefits, and performance boundaries and that is intended to be used to monitor the project’s status in achieving those baselines. During the selection phase, leading organizations take a structured approach to determining priorities, screening and analyzing the relative merits of projects, and making decisions about which projects will be funded during the year. Such an approach builds on an organization’s assessment of where it should invest its resources for the greatest benefit over the long term. The Clinger-Cohen Act requires federal agencies to apply this sort of structured approach in deciding whether to undertake particular investments in information technology systems. A starting point for the selection phase is the screening process in which projects being submitted for funding are compared against a uniform set of screening criteria and thresholds to determine whether the projects meet minimal requirements and to identify at what organizational level the projects should be reviewed. Next, the costs, benefits, risks, and mission focus of all the projects are assessed, and the projects are compared against each other and ranked or prioritized. In conducting their selection processes, leading organizations require all projects to have complete and accurate project proposals and justification information. Finally, a decision-making body of senior managers makes decisions about which projects to select for funding on the basis of mission needs and organizational priorities. The selection phase helps ensure that the organization selects those projects that will best support mission needs and identifies and analyzes each project’s risks and proposed benefits before a significant amount of funds is spent. Through AMS, FAA has established two processes—mission analysis and investment analysis—that together constitute a set of policies, procedures, and guidance that are designed to enhance the agency’s ability to select investments. These two processes define what should be done and who should do it, what reports are required, who reviews and approves reports and processes, who makes corporate-level decisions, and the roles and responsibilities of those involved. AMS policy and guidance—which is on an easily accessible Internet Website—contain the procedures, process flowcharts, document templates, checklists, and other acquisition-related information needed for FAA’s project officials and senior management to understand and implement the selection processes. Although AMS does not include an explicit screening step, screening activities are part of the agency’s mission analysis process. This process culminates in a mission need statement reflecting the Joint Resources Council’s decision that a high-priority, critical need exists and that the agency should go forward with a detailed investment analysis of proposed solutions to meet that need. During mission analysis, FAA’s operating divisions identify and quantify projected demand for and supply of services, capability shortfalls, and technological opportunities to meet those shortfalls, and summarize the major decision factors that the Joint Resources Council should evaluate in considering the need. The Joint Resources Council approves mission need statements. Once a mission need statement is approved, AMS’ investment analysis process provides a set of detailed steps for evaluating the costs, benefits, and risks of alternative solutions and for selecting the best solution to meet the need. Under AMS, multidisciplinary investment analysis teams—comprising officials from the operating divisions and other acquisition and engineering specialists—assess each project proposed for funding to define the technical requirements; estimate the life-cycle costs, benefits, schedule, and risks; and determine the project’s affordability relative to other projects. As part of the investment analysis process, FAA scores and ranks each proposed project on the basis of defined criteria for how well—relative to other projects—it meets the agency’s mission objectives, whether it is of high priority to the organization sponsoring the project, whether it is consistent with the NAS architecture or provides critical administrative capacity for the agency, and whether it has a favorable cost-benefit ratio. AMS requires that the mission need be revalidated during the investment analysis and that the underlying analyses be documented through cost-benefit studies, risk assessments, and other documents. After considering the results of the investment analysis process, the Joint Resources Council decides whether to proceed with a proposed project. This step is called the investment decision, and if the project is selected, the Council commits FAA to fully funding it. The project is then incorporated into the agency’s financial plan for projects funded by the facilities and equipment budget account. Under AMS, FAA’s primary mechanism for controlling a project is the acquisition program baseline, which establishes a project’s life-cycle cost, schedule, benefits, and performance baselines and which is intended to be used to monitor a project’s status in achieving those baselines. The acquisition program baseline is supposed to be established when the investment decision is made for a project. The baseline, which is the agreement between the organizations within FAA that are acquiring and will use the project, sets the cost and schedule boundaries within which the project is authorized to proceed, defines the performance and benefits the project must achieve, and establishes the performance measurements for assessing the project’s success as it advances through its life cycle. FAA’s ultimate goal is to establish an acquisition program baseline document for every acquisition project. When AMS was established in April 1996, however, the agency decided to establish two standards for baseline documentation to facilitate the preparation of baselines during FAA’s transition to AMS. One standard applies to those projects initiated after AMS and another, less detailed standard applies to those projects ongoing at the time that AMS was established. The post-AMS projects must have an acquisition program baseline that provides a full set of detailed information on each baseline element as well as a document called a parameter sheet that summarizes a subset of baseline information that is designated for the Joint Resources Council’s control and that is considered critical to assessing the project’s ability to satisfy mission need, achieve needed operational capability, achieve benefits, and meet the schedule requirements of interdependent programs. Projects begun before AMS was established are required only to have the parameter sheet. Table 2.1 summarizes the full set of baseline information contained in the acquisition program baseline and the subset of information contained in the parameter sheet. At the agencywide level, FAA has a two-tiered process for monitoring projects’ estimated versus actual baselines. Under one process, known as the Integrated Baseline Establishment and Management (I-BEAM) process, the project officials and officials responsible for overseeing projects’ baselines monitor the projects and prepare reports. Project officials prepare a monthly status report that is supposed to analyze estimated versus actual results for the subset of baseline information that is monitored by the Joint Resources Council and summarized in the parameter sheets prepared for every project. Project officials must also inform the Joint Resources Council of any baseline violation or “breach” through a document called a baseline management notice and receive the Council’s approval for any change in the baselines. Additionally, FAA’s acquisition oversight officials prepare a monthly report that analyzes the status reports, baseline management notices, and other documents to identify baseline variances and report this information to the Joint Resources Council. Under a second process, the Acquisition Executive who heads the Council and other senior managers conduct acquisition reviews that are designed to periodically examine the status of the information in each project’s acquisition program baseline, along with assessing a project’s progress, risks, and other issues. In addition to these two primary control processes, FAA also has a variety of other reporting systems for monitoring projects’ status, including executive-level metrics that analyze project performance, project-level reviews, and numerous contractor reports on costs, schedule, and technical performance. However, these various reporting systems do not analyze a project’s status in meeting all of the detailed baseline requirements contained in the acquisition program baselines and parameter sheets. FAA has taken a positive step in establishing an investment management approach through AMS. Under AMS, FAA has developed structured processes for selecting and controlling its investments. AMS provides a defined set of policies, procedures, and reporting requirements that are designed to facilitate FAA’s efforts to analyze mission needs, identify alternative solutions to meet those needs, assess the solutions’ affordability, and establish and control a project’s performance once a solution is selected. FAA’s oversight of its investments is confined to new projects and those under development, limiting its ability to fully assess and make trade-offs between new and existing systems and preventing the agency from managing all of its investments as a complete portfolio. FAA’s oversight includes the agency’s processes for scoring and ranking investments prior to selection as well as its processes for establishing and monitoring financial baselines after a project has been selected. But this oversight is limited to projects that receive funding from the facilities and equipment budget account—that is, new projects and those under development—and excludes projects funded by the operations account. Moreover, the link between FAA’s investment management process and its budget process is limited to the facilities and equipment budget account, which has detailed information on investments that does not exist for the operations budget account. FAA has two ongoing initiatives that may improve its information on operations costs. Leading organizations determine priorities and make decisions about which projects will be funded based on analyses of the relative costs, benefits, and risks of all the projects in their investment portfolios, including projects that are proposed, under development, and in operation. Such a portfolio approach allows the organizations to evaluate the relative merits of spending funds to develop new systems, enhance current systems, or continue operating and maintaining existing systems. FAA’s process for scoring and ranking projects prior to selection is applied to proposed projects and those under development that will receive facilities and equipment funding, not to existing systems that are funded from the operations budget account. In contrast, leading organizations include all types of information technology projects in their selection process to create a complete strategic investment portfolio. By analyzing the entire portfolio, the senior managers of any organization can examine the costs of maintaining existing systems versus investing in new ones; comparatively rank projects based on expected costs, benefits, and risks; and reach decisions based on projects’ overall contribution to the most pressing organizational needs. FAA has not included operations-funded projects in its scoring and ranking process because, as discussed below, the agency lacks reliable data on actual operations costs for existing systems and projections of operations costs for new projects. While FAA’s policy requires baseline cost estimates for the full life cycles of all projects under AMS, in practice, FAA has not yet developed a sound estimate of the operations costs for each of its projects. As of February 1999, the agency had developed operations cost projections for only 26 of the 70 projects identified by FAA as requiring an acquisition program baseline or parameter sheet under AMS. For existing systems already in the operations phase when AMS was implemented in April 1996, FAA also lacked information on life-cycle cost projections for operating the systems in the future or actual operations costs incurred for each of these systems. Moreover, FAA officials throughout the organization indicated that the estimates of operations costs that have been developed for projects are not reliable. Given the lack of data on operations costs, FAA’s financial plan for its modernization effort reports only costs funded by the facilities and equipment budget account, omitting the operations costs associated with its investments. FAA has long recognized the need to project the operations costs of its projects over a multiyear period. In March 1993, FAA issued guidance under its predecessor acquisition system that required an annual operations plan to support long-range resource allocation planning. This plan—which was never prepared—was supposed to summarize the operations and support funding requirements of modernization projects and other acquisitions funded by the operations appropriation. The operations plan was supposed to contain a financial baseline that identified detailed operations requirements over a 5-year period and general requirements for an additional 10 years. FAA officials told us that the agency lacks the information needed to reliably estimate operations costs over a project’s life cycle or to track actual operations costs against estimates because it does not have a cost accounting system. In January 1997, we reported that FAA lacked reliable cost estimating processes and cost accounting practices needed to effectively manage its investments in information technology. We concluded that, as a result, the Congress does not have reliable cost information to use in making decisions about FAA’s billion-dollar modernization investments. FAA has two initiatives that it believes will improve data on operations costs. In August 1998, FAA formed an operations baseline team to address agencywide concerns about the quality of its estimates of the operations costs for modernization projects and the lack of integration between the facilities and equipment and operations budget accounts. This team is evaluating FAA’s current processes for estimating and reporting on operations costs, assessing the validity of operations cost data on a sample of projects, and exploring ways to improve the estimating process. The team, which expects to report its findings in May 1999, plans to develop a 10-year operations cost baseline for selected projects and to recommend revisions to the budget formulation process that will allow FAA to budget for the operations costs of both new and existing systems and to better address the interrelationships between the facilities and equipment and operations budget accounts. FAA is also developing a cost accounting system that it believes will provide more reliable information on actual operations costs; however, FAA has missed its initial milestones for completing the new system’s design and generating improved operations cost data. According to officials responsible for the new cost accounting system, the agency had planned to begin accumulating data for domestic and oceanic air traffic services by October 1998. FAA officials indicated that they underestimated the complexity of developing the system and that they now expect to accumulate data for air traffic services by April 2000 and to fully implement the system by April 2001. While FAA’s budget provides detailed analyses of the actual and projected costs for each of the projects funded by the facilities and equipment budget account, it provides very little project-level detail in its justification for the operations budget account. In its fiscal year 1999 President’s budget request, for example, FAA justified only 5 percent, or $295 million, of its total $5.6 billion operations budget account. This $295 million request—which represented the incremental increase over the prior year’s appropriation—contained information on all of the activities to be funded in a given year, including pay increases for the current staff, costs of hiring new staff, training, accident investigations, and other activities. Among the details provided for the fiscal year 1999 operations budget account, FAA provided project- or system-level justifications for about 1 percent, or $62 million, of its total $5.6 billion operations request. This information, known as the “NAS Handoff” portion of the operations account, contains 1-year estimates for new equipment, systems, and facilities that were initially acquired with facilities and equipment funding but will now be funded under the operations budget account. The NAS Handoff contains details on a variety of projected operations costs, including controller overtime, logistics, systems maintenance, leased communications, and flight inspections and procedures. One factor contributing to the different levels of detail for the two budget accounts is the lack of reliable data on operations costs for individual projects or systems. Also, FAA officials told us that they only justify incremental increases over the prior year’s operations budget account because that is traditionally all that the Congress requires of FAA in preparing its budget justifications. AMS’ lack of oversight of the operations portion of FAA’s investments impedes the agency’s ability to rigorously assess and manage all of its modernization projects as a complete strategic, investment portfolio and to make sound decisions about continuing, modifying, or canceling projects. Excluding operations projects from its selection process prevents FAA from considering the relative merits of existing systems when deciding which projects to fund each year. We recommend that the Secretary of Transportation direct the Administrator of FAA to establish a complete portfolio of investments—including existing systems funded by the operations budget account as well as projects funded by the facilities and equipment account—and to require the Joint Resources Council to periodically review the baseline status and merits of each of these investments throughout their entire life cycles. As part of this portfolio, cost baselines for operating and maintaining all projects should be developed, and this information should be included in the agency’s financial plan for its investments and in its annual budget request to the Congress. FAA agreed with our recommendation. AMS has weaknesses in all three investment management phases—selection, control, and evaluation—that limit FAA’s ability to effectively manage its modernization investments. First, the information used to select projects is not validated to ensure quality control, and critical cost information used to support selection decisions is of questionable reliability. Second, FAA has not fully implemented an effective process for controlling the baselines for the cost, schedule, benefits, performance, and risks of its investments. Third, FAA lacks a post-implementation evaluation process for assessing projects’ outcomes and feeding lessons learned back into the selection and control phases for future projects. Finally, FAA has not fully implemented a standardized management information system for capturing and maintaining consistent, reliable, and easily accessible data on investments. AMS’ processes for selecting investments contain the key elements that leading organizations follow to ensure the selection of projects that enhance mission performance and that are cost-effective; however, weaknesses in some of the data used to support the selection processes limit AMS’ effectiveness. AMS’ mission and investment analysis processes provide FAA’s senior management with a basis for screening proposed projects; evaluating their relative costs, benefits, and risks; and selecting projects for funding based on their relative merits. But the cost information used to make selection decisions is of questionable reliability, and there is little evidence that the data or underlying analyses used in the selection process are validated to ensure accuracy, completeness, and appropriateness. As a result, FAA’s managers cannot be assured that they have all of the information needed to make sound selection decisions. Consistently producing reliable cost estimates for projects requires defining institutional processes for deriving estimates and measuring actual performance against these estimates. However, the cost data used in FAA’s selection process are of questionable reliability. The five projects we reviewed prepared their cost estimates using techniques and data that we criticized in our January 1997 report. We found that FAA’s modernization program’s cost estimating processes do not satisfy recognized standards and that the agency does not have a cost accounting system capable of reliably accumulating full cost information for projects. FAA’s cost estimating techniques do not satisfy recognized standards that call for organizing and retaining cost information on projects in a historical database and using cost models that are calibrated and validated on the basis of actual experience. FAA’s processes allow each project to approach cost estimating in whatever manner its estimators choose. The result is inconsistency in the rigor and discipline with which cost estimates are derived, which in turn means estimates vary in their degrees of reliability. For example, of the six projects reviewed in our 1997 report, two were too poorly documented to permit any comparative analysis, and none of the remaining four satisfied all the recognized standards. Compounding the estimating weaknesses is FAA’s practice of presenting cost estimates as precise point estimates, thus failing to disclose the estimates’ inherent uncertainty and risks. Moreover, the effectiveness of FAA’s cost estimating processes also relies heavily on the quality of projects’ actual cost information, but FAA does not have a cost accounting system for capturing and reporting the full costs of its projects. Consequently, FAA cannot reliably use information about actual cost experiences to improve its future cost estimating efforts. We recommended that FAA institutionalize defined cost estimating processes that include, among other items, a historical database and structured approaches and tools. In response to our 1997 report, FAA is developing a cost estimating process for its projects that is intended to satisfy recognized estimating standards; drafting guidance on reporting projects’ cost estimates as ranges rather than precise point estimates and, in fact, reporting ranges on some systems; and developing a cost accounting system. Additionally, FAA has developed a document, known as a standard work breakdown structure,which provides a good first step toward the development of a historical database on costs. FAA officials also indicated that they are completing a cost estimating handbook that contains a detailed discussion of cost estimating practices. When completed, this handbook should contribute to improving FAA’s approach to estimating projects’ costs. However, it does not require a disciplined process for estimating costs throughout the agency, and the draft handbook acknowledges that FAA still needs to develop sophisticated tools and a historical database to advance its cost estimating processes. FAA has not established firm deadlines for completing the handbook or the other tasks related to cost estimating. As for the cost accounting system, as we discuss earlier, FAA officials underestimated the complexity of developing the system and found that their implementation milestones were unrealistic. The agency plans to fully implement the cost accounting system by April 2001. Leading organizations validate the information and analyses submitted in a new project proposal, which helps to ensure that all the information is up-to-date, cost numbers are accurate, benefits are quantified to the extent possible, alternatives are identified, underlying assumptions are reasonable, and sensitivity analyses are conducted. Validation is also important for ensuring that a project’s risks are identified, that the impact of risks on the project’s outcomes is quantitatively or qualitatively projected, and that risk mitigation strategies are explained. Explicit verification and validation steps sensitize decisionmakers to important factors that have a bearing on projects’ actual outcomes, enhance accountability, and decrease the likelihood that project proposals will contain analyses that are based on inaccurate or incomplete data or faulty assumptions. FAA has not completely defined the requirements for the validation process under AMS, and it is not fully carrying out validation activities. First, AMS does not require the validation of all data used in the selection process. Under AMS guidance, the FAA organization charged with carrying out the investment analysis phase is responsible for validating only the cost and schedule data, not the performance, benefits, or risk analyses used as part of the selection process. Second, AMS guidance does not specify what steps should be taken in validating selection data, nor does it require documentation of the results and resolution of the validation process. Finally, our review of the two projects for which investment decisions had been made under AMS indicated that FAA is not fully carrying out validation activities. For one project, FAA did not provide any documentary evidence of the validation efforts that were performed. For the other project, FAA provided evidence of a validation review of the cost-benefit analysis, but most of the results of that review were not incorporated into the final version of the analysis used to support the investment decision. To control its projects at the agencywide level, FAA relies on periodic reviews of each project’s acquisition program baseline, which, as noted earlier, is a document that establishes a project’s cost, schedule, benefits, and performance boundaries and is intended to be used to monitor a project’s status in achieving those baselines. This document is incomplete, however, because its schedule baseline does not include any milestones for project reviews during the operations phase of a project and because it does not address a project’s risks. Moreover, FAA has not completed about half of the baselines for the projects or project segments that require baselines. Additionally, the agency-level processes for tracking actual baseline performance against estimates frequently provided incomplete information on projects’ costs, schedules, benefits, and performance. Finally, the investment control group of senior managers, the Joint Resources Council, is not actively involved in monitoring all projects after the investment decisions are made. As a result, FAA’s senior managers lack key information needed to make sound decisions about the future of each project. Leading organizations maintain a cycle of continual control and monitoring after a project has been selected. Senior executives review a project at specific milestones as the project moves through its life cycle and as the dollars spent on the project increase. At these milestones, the executives compare the expected costs, risks, and benefits of earlier phases with the actual costs incurred, risks encountered, and benefits realized to date. During the control phase, senior executives determine whether projects should be modified, continued, accelerated, delayed, or terminated. The Clinger-Cohen Act also stresses the importance of consistently monitoring the progress of federal investments in information technology in meeting cost, schedule, and performance objectives. Our review indicated that FAA’s acquisition program baseline is designed to capture sufficient information on most of a project’s key baseline elements, except for two limitations in the areas of schedule and risk. One limitation is that the schedule baseline does not address the operations phase of the project. At leading organizations, even after a project has been implemented, senior managers regularly review how well the acquired system meets organizational needs, including whether it needs unexpected modifications or premature replacement to meet emerging needs. These reviews are used to make decisions pertaining to the retirement or replacement of systems. In addition, because operations activities—such as hardware upgrades, system software changes, ongoing training, and maintenance costs—can consume a significant level of resources, a plan for the review of each project should be developed and periodically reevaluated. Given that AMS is designed to track projects during their entire life cycles, we expected to see one or more milestones in the schedule baseline for a project review during the operations phase of FAA’s information technology investments, which can last as long as 15 years. Such milestones would allow the Joint Resources Council to review projects periodically during the operations phase to determine whether expected performance requirements and benefits are actually being achieved in a cost-effective manner and to evaluate the need for upgrading or enhancing the technology. The second limitation is that the acquisition program baseline does not include a project’s expected risks. The Office of Management and Budget’s guidance requires that federal agencies estimate a project’s risks and develop a strategy for mitigating those risks. While FAA performs a risk analysis as a part of the investment analysis phase, the agency does not systematically monitor each project’s risks during the control phase. Given that the acquisition program baseline is FAA’s primary mechanism for controlling projects, we expected it to include a baseline assessment of risks that could be used to monitor mitigation and resolution of actual risks that occur during a project’s life cycle. Although all five projects we reviewed had discussions of risk issues during their project reviews, none of them presented any systematic assessment of estimated versus actual risks because risk is not a required element of the acquisition program baseline. Requiring an assessment of a project’s risks as an element of the acquisition program baseline and systematically monitoring those risks would allow FAA to identify “red flag” issues that may have an impact on a project’s cost, schedule, and performance. For example, two of the projects we reviewed—the Standard Terminal Automation Replacement System and the NAS Infrastructure Management System—have experienced difficulties with acquiring or developing software. FAA promoted both of these as projects that would use commercial off-the-shelf software that would require very little software development. For both projects, FAA underestimated the lines of software code that needed to be developed or modified, and as a result, the costs for the projects have increased and the schedules have been delayed. FAA has historically had difficulty acquiring software—the most costly and complex component of information technology systems—and the agency has initiated some efforts to improve its software acquisition processes. Improvements in these processes, coupled with an identification of the risks associated with software acquisition for new projects, would help FAA better manage such risks. FAA has identified 70 modernization projects or project segments that require baseline documentation. These 70 projects and segments account for $1.266 billion, or 55 percent, of the $2.319 billion appropriation FAA requested for fiscal year 2000 for all modernization activities funded by the facilities and equipment budget account. Most of the modernization activities that do not have baselines involve improving or sustaining ATC facilities and other buildings; providing technical support services; or funding personnel, compensation, benefits, and travel costs. Of the 70 projects and segments, 10 involve projects that are currently in the investment analysis phase of AMS and, hence, do not yet require an approved baseline. Thus, 60 projects and segments that account for $1.205 billion in fiscal year 2000 estimated costs, currently require a baseline. Of the 60, half have approved baseline documentation (either acquisition program baselines or parameter sheets). These 30 projects and segments account for $619.4 million in estimated costs for fiscal year 2000. Table 4.1 shows the status of FAA’s efforts to develop AMS baseline documentation on the 60 ongoing projects and segments. Our review of five projects found that some of the baseline documentation (both acquisition program baselines and parameter sheets) is incomplete. Of the five projects, two had acquisition program baselines (plus parameter sheets), and three had parameter sheets only. Only the performance element was fully documented on all of the projects, while the cost, benefits, and schedule elements were missing some of the information required by AMS. For the cost baseline, for example, two of the five projects did not estimate operations costs, and one of the two projects with acquisition program baselines did not provide information on the detailed cost elements required by AMS guidance. For the benefits baseline, one of the two projects with acquisition program baselines did not identify the measurements that would be used to determine whether a benefit had been achieved. For the schedule baseline, none of the projects estimated the in-service decision, a milestone required by AMS that specifies when the newly acquired system or equipment is certified ready for operational use. Our review and FAA’s internal evaluation of acquisition reform found that the I-BEAM and acquisition review processes frequently provide incomplete reporting on projects’ estimated versus actual performance in the areas of cost, schedule, benefits, and performance. We reviewed the monthly status reports on the five projects and found information was missing on all of the baseline elements. For example, none of the monthly status reports on the five projects analyzed operations costs; assessed estimated versus actual benefits, even though benefits were projected for fiscal years 1997 or 1998 on four of the five projects; or contained information on the performance requirements outlined in the acquisition program baseline or parameter sheet to confirm whether the original baseline requirements still applied. Our results are consistent with those of FAA’s internal evaluation, which found that the cost, schedule, and performance data in the monthly status reports were generally inconsistent with the estimates in the acquisition program baselines and parameter sheets. With regard to FAA’s tracking of baseline information through the acquisition review process, our review of the five projects showed that information was missing for all of the baseline parameters, as shown in table 4.2. FAA officials managing the five projects we reviewed cited several factors to explain the lack of complete baseline data on their projects. First, project officials told us that frequent budget reductions—imposed either by the Congress or by FAA—make it very difficult to establish a stable baseline and to monitor a project’s performance against that baseline. Second, AMS guidance on the acquisition program baseline requirements has evolved over time, and project officials told us that detailed guidance was not available to projects that established their baselines during the first year of AMS’ implementation. Finally, the two mechanisms used by FAA to monitor projects’ status—the monthly status report and the acquisition reviews—were developed prior to AMS and thus do not always address the specific baseline elements that are supposed to be contained in the acquisition program baselines, report the current status of all baseline estimates, or report the actual deviations from those estimates. We recognize that variances in funding levels exist and, in some cases, have had an impact on FAA’s ability to manage its projects. However, we and others have found that FAA’s problems with baseline parameters have resulted from factors other than funding. Although AMS’ detailed guidance and reporting requirements are evolving, establishing complete acquisition program baseline documentation that has been approved by the Joint Resources Council helps to ensure that all projects are being held accountable to the cost, schedule, benefits, and performance baselines established when the Council made the initial investment decision. Furthermore, the absence of complete, up-to-date data on estimated versus actual results means that FAA has little assurance that its estimates of projects’ costs, schedule, benefits, performance, or risks are sound and accurate or that projects will be managed so that they meet the agency’s expectations. This, in turn, restricts the ability of FAA’s senior management to make sound decisions about continuing the agency’s investments. FAA’s long-standing problems with implementing projects that meet their cost, schedule, and performance objectives illustrate the need for the agency to better manage its baselines. As noted earlier, over the past 17 years, FAA’s modernization projects have experienced substantial cost overruns, lengthy delays, and significant performance shortfalls, problems that have persisted since the implementation of AMS in April 1996. Two of the projects in our review provide examples of continuing cost and schedule problems. In the case of the Standard Terminal Automation Replacement System, although FAA has not officially changed the baseline approved in February 1996, the baseline is in jeopardy of being breached because of unions’ concerns about human-factor and design issues, the refinement of the project’s requirements, and the interjection of a new project phase. FAA estimates that these issues have the potential to increase the project’s costs from $294 million to $410 million above the approved baseline. FAA also estimates that the project’s initial completion date could be delayed by almost 2-1/2 years. Similarly, in the case of the NAS Infrastructure Management System, the agency has not officially changed the baseline that was approved in March 1997. However, the project’s leader expects significant baseline breaches to occur, including a 58-percent increase in the costs from $100.8 million to $159.5 million, and a 123-percent increase in the schedule from 48 to 107 months for the project’s total duration. Under AMS, the Joint Resources Council conducts reviews and makes decisions on each project funded from the facilities and equipment account, from the determination of mission needs to the point at which an investment decision is made. After the investment decision, the Joint Resources Council generally only becomes directly involved in monitoring a project when there is a potential or actual breach of the established baseline. As a result, the Joint Resources Council is not proactively involved in making decisions about the future of most projects when they are being developed, deployed, operated, and maintained; when decisions are being made about technology upgrades or other enhancements; and when assessments are being made about whether the system or product is achieving the intended benefits and meeting the expected performance requirements. The Acquisition Executive, who chairs the Joint Resources Council, told us that he highlights projects whose baseline status is problematic according to data in the monthly status report and that he provides additional oversight for those projects. However, as we have stated, the data contained in the monthly status reports are incomplete and generally inconsistent with the estimated baseline elements in the acquisition program baselines and parameter sheets. FAA does not have a defined, documented process for conducting post-implementation reviews of projects to assess their performance and to improve the selection and control of its other investments. FAA performs some elements of a post-implementation review in its life-cycle management review process, including such tasks as the independent operational test and evaluation of some projects prior to their deployment, operational performance monitoring, customer satisfaction surveys, and periodic reviews throughout an investment’s life cycle. However, this process is not standardized and is not required for all projects. As a result, there is no evidence that changes, especially to the selection and control phases, are being implemented based on lessons learned. Although FAA has not yet designed or implemented a post-implementation review process for individual projects, its fiscal year 1999 performance plan for the Research and Acquisitions operating division includes a new requirement for a post-deployment assessment of NAS modernization systems. The evaluation phase “closes the loop” on the investment management process by comparing actual results against baseline estimates to assess performance and identify areas where future decision-making can be improved. Lessons that are learned during the evaluation phase can be used to improve future decisions about selecting and controlling projects. Central to this process is the post-implementation review, with its evaluation of the historical record of a project and its comparison of actual versus expected costs and benefits. Recognizing the importance of this phase of investment management, the Clinger-Cohen Act requires federal agencies to evaluate the performance of information technology projects and to use that information to decide whether to continue, modify, or terminate projects. At leading organizations, this review generally occurs about 3 to 12 months after a project has reached its end point (i.e., the point at which the project has been fully implemented or canceled) and is generally conducted by a group other than the project team to ensure that the review is independent and objective. In conducting post-implementation reviews, an organization can survey customers to determine users’ satisfaction with the completed product and how well the project supports business processes; assess whether the investment has had its intended impacts on mission goals, cost savings, compliance with the system’s architecture, and other issues involving information accuracy, timeliness, adequacy, and appropriateness; and evaluate current and future technical issues associated with the investment. Until recently, FAA lacked a centralized, standardized management information system or historical database for capturing and maintaining project information. While FAA had a number of stand-alone databases within different groups, none provided a complete picture of estimates, the assumptions that made up the estimates, revisions, and actual performance on projects. As a result, agency officials had no assurance that the project data from these stand-alone systems were complete, accurate, and up-to-date. In March 1999, FAA officials began implementing a centralized repository and management information system under AMS—called the Simplified Program Information Reporting and Evaluation (SPIRE)—to provide access to projects’ baselines and other information. This system consolidates project information related to FAA’s processes for managing key baselines, including data from the acquisition program baselines and parameter sheets, monthly status reports, baseline management notices, meeting minutes from the acquisition reviews, Joint Resources Council decisions, and other baseline information. The system does not, however, contain key information from the selection process, such as mission need statements, cost-benefit analyses, risk assessments, or other required reports. FAA plans to implement SPIRE in three phases. Phase I, which commenced in March 1999, provides the capability to store and display the status and variance reports that have been input by project leaders. Subsequent phases, which do not yet have implementation dates, will focus on automatically generating various reports on projects’ baseline status and variances. Informed management decisions can be made only if accurate, reliable, and up-to-date information from all phases of the investment management process is included in the decision-making process. To do this requires that agencies have a uniform mechanism—that is, a management information system with uniform data standards and entry procedures—for collecting, automating, and processing data on projects’ expected versus actual outcomes. Data in this system should include the initial cost, schedule, benefits, performance, and risk estimates that were developed during the selection process. Various analyses that were conducted to initially justify the project, along with revised estimates, reasons for revisions, and actual performance measured against the estimates, should also be included. These data need to be continually updated as each project’s implementation continues and as expenditures increase. The data also need to be easily accessible to both the project team and senior managers. A management information system, if kept accurate and up-to-date, can make data verification and validation easier by allowing an organization to track costs, risks, and other factors over time. It is also essential from the standpoint of establishing an organizational memory throughout the selection, control, and evaluation phases of the investment management process. As such, it can be used to help assess whether projects are still aligned with mission needs and organizational objectives, determine whether projects are meeting planned performance goals, and identify possible revisions to the overall investment management process based on previous experiences and lessons learned. FAA’s efforts to consolidate project baseline information in SPIRE are a positive step toward improving the agency’s mechanisms for tracking projects and helping to ensure the consistency of information and reporting on all the projects in its investment portfolio. However, SPIRE provides an incomplete record of project information since it does not include key information from the selection process. AMS has weaknesses in its selection, control, and evaluation phases that impede FAA’s ability to manage its investments effectively and to make sound decisions about continuing, modifying, or canceling projects. First, using data that have not been validated and unreliable cost information reduces the likelihood that FAA’s managers can make informed decisions about the relative merits of competing investments. Second, requiring FAA’s senior managers to stay actively involved in the process of controlling project baselines and providing them with complete information on all projects is critical to monitoring how well projects are achieving their intended results. Third, establishing post-implementation reviews is essential for evaluating projects’ performance and identifying areas for which future decision-making could be improved during the selection and control phases. Finally, establishing a standardized management information system that includes complete information from all three investment management phases—selection, control, and evaluation—will help facilitate FAA’s efforts to track projects’ costs, risks, and other factors over time, providing senior managers with uniform, accurate, reliable, and easily accessible data on all the projects in the agency’s portfolio. Taking steps to correct these weaknesses increases the likelihood that FAA’s projects will meet established cost and schedule objectives and contribute to measurable improvements in the agency’s mission performance. We recommend that the Secretary of Transportation direct the Administrator of FAA to take the following actions: Improve the selection process by (1) establishing clearly defined procedures for validating projects’ cost, schedule, benefit, performance, and risk information and (2) requiring documentation of the results of the validation procedures applied to each project. Strengthen control over investments by (1) revising the acquisition program baseline requirements to include project risks and to add milestones for project reviews during the operations phase and (2) ensuring that project officials fully track and document estimated versus actual results on all the elements (i.e., costs, schedule, benefits, performance, and risks) contained in the baseline documentation. Initiate post-implementation evaluations for projects within 3 to 12 months of deployment or cancellation to compare the completed projects’ costs, schedule, performance, and mission improvement outcomes with the original estimates. Incorporate key information from the selection process (e.g., mission need statements, cost-benefit analyses, and risk assessments) into FAA’s management information system for investments. FAA agreed with our recommendations. | Pursuant to a congressional request, GAO reviewed the Federal Aviation Administration's (FAA) modernization investment management approach as carried out through the Acquisition Management System (AMS), focusing on the extent to which FAA, through AMS: (1) has established a structured approach for selecting and controlling its investments; (2) incorporates all investments, including those in operation, in the agency's portfolio; and (3) selects, controls, and evaluates its investments with complete and reliable information. GAO noted that: (1) AMS is a good first step in establishing a structured investment management approach for selecting and controlling the agency's investments; (2) the system contains a set of policies, procedures, and reporting requirements to analyze mission needs, assess the affordability of proposed projects, and establish life-cycle costs, schedules, benefits, and performance baselines to control the performance of the projects that are selected; (3) under this system, a senior management investment review group makes key decisions about which investments best meet the agency's needs and are to be funded; (4) however, the system is not comprehensive in that it does not incorporate all of FAA's projects into a complete strategic investment portfolio; (5) key decisionmaking processes and requirements of AMS are applied only to proposed projects and those under development but not to projects already in operation; (6) agency officials have not yet developed a sound estimate of the costs to operate projects and these costs are not included in the agency's financial plan for modernization; (7) because FAA does not apply the same scrutiny to all of its projects, senior officials are unable to fully assess and make trade-offs about the relative merits of spending funds to develop new systems, to enhance current systems, or to continue operating and maintaining existing systems; (8) AMS does not provide complete and reliable information for selecting, controlling, and evaluating the agency's investments; (9) the cost data used to select projects are of questionable reliability because of weaknesses in FAA's cost estimating practices and processes and the lack of a cost accounting system; (10) the information used to control projects is incomplete since FAA has not fully implemented an effective process for controlling the baselines for the costs, schedules, benefits, performance, and risks of its investments; (11) FAA has approved the baseline information for only half of the required universe of projects, and the agency's processes for tracking actual performance against estimates frequently has provided incomplete information; and (12) FAA lacks information needed to evaluate its investments since AMS does not have a post-implementation evaluation process for assessing projects' outcomes and feeding lessons learned back into the selection and control phases to help improve its management of future projects. |
Purchase cards first came into use as part of the government’s effort to cut the cost of buying goods and services. In March 1982, the President issued an executive order directing executive agencies to reduce administrative procurement costs. Under that order, in 1986, several agencies pilot tested use of a government commercial credit card, called a purchase card, and found that it reduced such costs. According to a report on the pilot tests, those agencies found that the purchase card had advantages over other procurement methods. Generally, the card could be a less costly and more efficient way to buy goods and services. In 1989, the purchase card was made available governmentwide through a competitively awarded contract with Rocky Mountain BankCard System (RMBCS), administered by the General Services Administration (GSA). The contract specifies controls that an agency must establish before issuing cards to their staff. It also requires that an agency designate a program coordinator, who serves as liaison to RMBCS and GSA and who is responsible for the purchase card program within the agency. In 1993, NPR identified the purchase card as an acquisition reform that could save $180 million annually if one half of small purchases were made with the card. NPR recommended that all federal agencies use purchase cards and that the FAR be amended to promote and facilitate purchase card use for making small purchases and in ordering from established contracts. Card use was further facilitated and encouraged in October 1994 by FASA, Executive Order 12931, and an Office of Management and Budget memorandum to agency senior procurement executives and the Deputy Under Secretary of Defense for Acquisition Reform. In December 1994, an interim FAR rule was issued making the card the preferred method for making micropurchases. Agency officials have used the purchase card and the micropurchase authority provided in FASA to move simple purchases from procurement offices to program offices. Several studies have shown this move reduced the labor and payment processing costs for those purchases by eliminating steps from the procurement process and consolidating bills for many purchases into one payment. One interagency study showed that costs were often cut by more than half. Several agencies in our review identified millions of dollars in current or potential savings from using purchase cards. In addition, some agencies are using the card to help absorb the impact of staff reductions being made as a result of the Federal Workforce Restructuring Act of 1994, which has a goal of reducing government employment by almost 273,000 staff. Planned reductions particularly target administrative staff, such as the procurement and finance staff who buy supplies and pay bills. Most agencies in our review also noted that, with purchase cards, program office staff can buy needed goods and services more quickly, thus improving their efficiencies and their abilities to support their agencies’ missions. In 1994, an interagency group, the Purchase Card Council, performed a cost-benefit study on using the purchase card versus purchase orders.The group reviewed the labor cost of requisitioning, purchasing, administering, receiving, invoicing items, and processing bills through finance offices for payment. For all 17 organizations in the study, it found that purchase cards were less expensive than purchase orders. For 15 organizations, purchase card use cut costs by at least one third. For 8 of these 15 organizations, costs were cut by over half. Per transaction savings for the 17 organizations ranged from $1.42 to over $142, with an average saving of about $54. Since 1989, 9 of the 12 agencies in our review have performed cost-benefit analyses on using purchase cards, including 5 agencies that were part of the interagency study. All found that the card was less expensive to use than other methods. However, several noted that determining savings from using the purchase card can be difficult because of several factors. For instance, some studies noted that the purchase card does not replace all transactions made with any one procurement method, such as purchase orders, but instead usually partially replaces transactions previously made by several different methods, such as purchase orders, imprest funds, and blanket purchase agreements. Further, studies stated that the administrative cost of a purchase is affected by local procedures, the dollar amount, and the degree that processing systems are automated. Most of the studies we reviewed included the labor cost for program officials to support the procurement process when using a tool other than the card (e.g., ensuring funds are available, preparing a procurement request, and identifying a vendor). About half of the studies also included the labor cost for program officials to place purchase card orders or reconcile statements. In some cases, the studies included the cost of an administrative service fee charged by RMBCS until early 1994. None included the value of rebates as part of the benefit. All of the studies we reviewed identified significant savings. However, because of the previously mentioned factors, we found no one precise dollar figure that could be used to reliably calculate savings for all government agencies. Several agencies’ studies identified millions of dollars in current or potential savings from card use. For instance, in 1994, Health and Human Services identified the potential to save about $5.7 million a year by using the card. The Postal Service, currently the second largest card user, also identified major current cost reductions. It estimated that using the card, instead of other means, reduced costs by about $22 per transaction. In fiscal year 1995, the Postal Service had almost 700,000 purchase card transactions. Using the $22 figure, it would have reduced costs by over $15 million. The Postal Service developed its estimate of cost reduction per transaction by comparing the costs of ordering and making payment for purchase card purchases versus noncompeted, single source purchases. It found the shortest time for processing purchases without the card was eight times longer than the shortest time with the card, for a labor savings of $15.65 a transaction. It also estimated payment savings of over $6.00 a transaction, based on the cost of paying for transactions individually versus paying for all purchase card transactions with a single monthly check. According to officials at the Office of Federal Procurement Policy, agencies can maximize the savings potential of the purchase card by promoting streamlining and empowerment and eliminating unnecessary paperwork. Officials stated that one way agencies could do this would be to identify high-dollar aggregate purchases from individual merchants and negotiate discounts with those vendors, as recommended by NPR. They also noted that agencies have access to central purchasing contracts that have quantity discounts negotiated into the prices. As an example, they cited a contract for office supplies recently awarded by GSA that allows for 24-hour delivery and payment by purchase card and has prices below discounted retail prices. Agencies have reported that using the purchase card reduces the workload in procurement and finance offices. At the same time, the number of staff in those offices is being targeted for reductions by government reform efforts. In 1993, the executive branch announced a goal to eliminate 252,000 government jobs, particularly targeting administrative areas. The Federal Workforce Restructuring Act of 1994 later raised that goal to 272,900. According to the September 1995 update of NPR, more than 160,000 of those positions had been eliminated. Several agencies in our review cited staffing cuts in support areas as one reason they are emphasizing purchase cards. The Department of the Interior noted that its procurement workforce has decreased by 12 percent since 1993 and that its ability to manage its workload with reduced staff can be partially attributed to the card. Social Security Administration officials also told us that the finance staff is scheduled to be reduced by about one third in fiscal year 1996 and that they will be better able to manage those losses since the card has reduced the number of bills the finance office is paying. The reforms contained in FASA have enabled program staff to use the card to make many purchases that had been handled by procurement offices. While procurement offices had done the actual buying, program office staff supported the procurement process by identifying the needed supplies or services, preparing procurement requests, ensuring money was available, and following up with procurement and other offices involved in the purchases. With the authority provided in FASA and the purchase card, program staff can buy the needed item or service. Most of the agencies in our review reported that, with this change, program offices can improve their efficiency by filling their requirements more quickly and reducing procurement lead times. This improved efficiency enables them to better deliver their services. One example where service delivery has improved is at the Department of Veterans’ Affairs, which pilot tested the use of the card in its vocational rehabilitation and counseling program offices. In the pilot test, those offices reduced the time veterans had to wait for services by an average of 22 days. They did this by using the card to pay for books, tools, and other items veterans needed to enter rehabilitation programs. This use of the card allowed them to better serve veterans by reducing the time the veterans waited to attend classes or to obtain the tools or books needed for classwork. Based on the success of the pilot test, Veterans’ Affairs plans to use the purchase card in vocational rehabilitation and counseling programs nationwide. Since the beginning of the purchase card program, the use of the cards has skyrocketed. However, there is still significant growth potential for card use. During fiscal year 1990, the first full year that cards were available governmentwide, the cards were used for about 271,000 purchases worth about $64 million. Over the next 5 years, card purchases increased by about 1,500 percent, and the value of those purchases increased by almost 2,400 percent until, by fiscal year 1995, purchase cards were used for more than 4 million purchases worth over $1.6 billion. According to agency and GSA officials, this growth is generally due to purchases below the micropurchase level. In fiscal year 1995, the average purchase card transaction, which could include purchases of several items, was $375. The program growth by number of transactions and by dollars is shown in figure 1. Currently, most agencies use purchase cards to some extent. Still, agency data show many purchases that could be made with the card are being made by other means. Some agencies have set goals for card use or have identified purchases that they believe should be made with the card. For instance: The Department of Agriculture could make 207,000 purchases by using the card instead of purchase orders. Health and Human Services could make about 100,000 purchases using the card in program offices instead of purchase orders in procurement offices. Veterans’ Affairs could make most of its 1.4 million micropurchases with the card. Neither GSA nor the agencies we reviewed believed the cards have been used to their fullest potential. Instead, they believe that use will increase as agencies continue to emphasize card use for existing cardholders and add new cardholders in program offices. The results can be dramatic. In the first 4 months of fiscal year 1996, Veterans’ Affairs exceeded by almost 200 percent the number of card purchases it had made in all of fiscal year 1995. Card use is also growing at the Department of the Army, which has the largest agency card program. In the first 10 months of fiscal year 1995, the Army more than doubled its fiscal year 1994 card purchases, from over 310,000 to over 701,000. According to Army data, that number could increase to almost 1.4 million if the Army were to make 80 percent of its micropurchases with the card. The emphasis in the purchase card program has been on using the cards to allow staff in program offices to make simple purchases. At the same time, however, there have been concerns that placing the cards in the hands of program staff would lead to increased abuse. We found no evidence of increased abuse. In fact, with the controls required by the purchase card contract and some tools that agencies have developed, purchase card use can be closely monitored. The purchase card contract requires that agencies have certain specified procedures in place before any purchase cards can be issued to agency staff. For example, agencies must have procedures to identify, by name, those persons who are authorized to use cards; set spending limits for cardholders and offices, including single purchase limits and monthly limits; approve purchases and ensure funds are available before goods or services are bought; and reconcile and approve cardholder statements. Agencies may add other management and financial controls they deem necessary. Also, agencies have recently been able to obtain RMBCS electronic data that identify purchases by cardholder, approving official, date, dollar amount, merchant type, and merchant name. Those agencies in our review that have begun using this electronic data are finding that the card leaves a trail that is more complete and easier to follow than traditional paper records. In addition to these procedural controls, agencies have another safeguard against fraudulent use of the card by unauthorized individuals—they can dispute any purchases they find questionable. In such cases, the contract requires RMBCS to issue a credit against that purchase until the dispute is resolved. One organization that has used the electronic data is the Postal Service. Postal Inspection Service officials developed surveillance software that allows them to analyze thousands of card transactions from a remote location with limited manpower. They are able to analyze transactions by cardholder, approving official, dollar amount, date of purchase, vendor name, vendor type, vendor city, and other attributes. At the recommendation of the Inspection Service, the surveillance software is being made available to appropriate Postal Service managers nationwide. Postal Service officials believe that this will improve their oversight of the card program, since the electronic reviews are more expedient than reviews of paper records. Since 1993, agency inspectors general, audit agencies, or internal review offices have reviewed card programs at most of the agencies in our review. Generally, those reviews found either that controls were adequate or that agencies were taking steps to address control weaknesses. Such weaknesses included noncompliance with procedures and failure to record purchases of accountable property. The reviews did identify several instances where cards were used for prohibited or questionable purchases. Also, officials from one inspector’s general office expressed concern about the rapid growth in card use and questioned whether budgetary and other management controls were sufficient to ensure that credit card purchases were warranted and justified. Overall, the reviews did not identify significant patterns of misuse. Several inspectors general, audit agencies, and internal review reports noted that agencies were not achieving the full benefit of the card because much of the paperwork had not been eliminated from processes, cards had not been provided to staff outside of procurement offices, or card use had not been encouraged or had been excessively limited. Most of the agencies we reviewed indicated they were taking steps to address such concerns. Agency officials told us they were emphasizing card use, reengineering their processes, and developing automated tools to improve their programs. They stated that their efforts were producing benefits, including increased savings. There are still opportunities, though, for the program to be improved on a governmentwide level. For instance, most agencies in our review believed that more explicit guidance to promote the purchase card was needed in the FAR. At present, the FAR only discusses the card in the micropurchase section. Also, we found no effective mechanism for agencies to communicate with each other about their experiences and share innovations. In 1993, NPR recommended that the FAR be amended to promote and facilitate purchase card use for making small purchases and ordering from established contracts. At the time, the FAR provided no guidance on card use, although the cards had been available governmentwide since 1989. As part of implementing FASA, an interim FAR rule for micropurchase procedures was issued in December 1994 that encouraged the use of purchase cards or electronic purchasing techniques for micropurchases to the extent practicable. Officials at most of the agencies in our review told us that more explicit coverage to promote the card in the FAR would be helpful, although some were concerned that coverage not be too restrictive. While agencies have their own regulations and policies for card use, those documents typically refer to the FAR for guidance. In fact, as far back as 1989, Health and Human Services identified the need for purchase card coverage in the FAR and agency regulations. Health and Human Services noted then that, like all agencies, it was being encouraged to use the purchase card, but FAR coverage had not yet been developed and agency regulations would naturally follow the FAR, rather than precede it. With the current coverage, some agencies in our review had differing opinions or were confused about how the card could be used above and even below the micropurchase threshold. Areas of confusion or dispute included whether the card could be used to pay for services or nonexpendable items. The FAR does not provide guidance on usage of the card comparable to the guidance provided for imprest funds, purchase orders, and blanket purchase agreements. Each of those has a separate section in the FAR. The purchase card, on the other hand, is only discussed in the FAR’s micropurchase section. That section states that use of the card is not limited to micropurchases if otherwise authorized under agency procedures. However, no guidance is provided for such use. As the FAR was being revised to incorporate changes from FASA, GSA commented on the proposed changes during the public comment period. GSA commented that the small purchase/simplified procedures section was illogical, confusing, and of limited usefulness to the program staff. Specifically, GSA said that the proposed language did not provide the necessary encouragement to agencies to make maximum effective use of the card and did not promote the objectives of Congress or the executive branch. GSA added that even with the proposed changes, the FAR would provide more coverage for imprest funds, which the government wants to deemphasize, than for purchase cards, which the government wants to encourage. An interagency team has looked at how the FAR addresses small purchases/simplified procedures to determine what revisions may be necessary and has proposed FAR language. In its proposal, the team has included a separate section on the purchase card. A proposed FAR rule is planned for issuance later this year. Most of the agencies in our review have identified the potential to increase their savings or efficiencies gained from card use by reengineering their programs or using automated tools to improve their processes. Agency officials told us that they are interested in communicating with each other about their efforts and have identified instances where tools developed by one agency can be useful to other agencies. However, we found no effective system for agencies to communicate with each other about their successes or problems. In fact, several agencies in our review identified problems that we learned had been addressed or partially addressed by other agencies’ efforts. Agencies have found that efforts to improve their programs can be very resource-intensive, requiring input from several offices, top management support, and good communication. However, they have also found that such efforts can have a significant payoff. Agriculture, for example, initially emphasized purchase cards because it found that the process cost was less than half of that for a purchase order, or $32 versus $77. It has since determined that reengineering can cut the process cost almost in half again. By automating the billing and payment processes as recommended by a cross-functional team guided by a top management review board, Agriculture expects to reduce the card process cost to $17. According to its business process reengineering report, this could lead to over $45 million in savings from fiscal years 1996 through 2000. This amount is in addition to what is already saved by using cards instead of purchase orders. Agriculture has already eliminated an administrative payment system costing $400,000 per year. Other agencies have also automated or reengineered their payment processes, including the Social Security Administration, Veterans’ Affairs, and, within the Department of Transportation, the Coast Guard, which accounts for about 70 percent of Transportation’s card purchases. Agency officials told us that, by improving how they pay their bills, they have also increased their potential for rebates. In fact, from November 1994 through July 1995, the most current period for which data were available, Transportation was the largest rebate recipient. Over that time period, Transportation received 34 percent of all rebates paid to agencies, even though it accounted for only 8 percent of sales. In addition to these efforts, some other agencies or organizations within agencies have developed automated tools to address particular problems. For example: Within the Department of Defense, the Defense Mapping Agency developed a database intended to help streamline the process for reconciling cardholder statements and maintain accounting information and property accountability for goods and services purchased with the card. Within the Department of Transportation, the Federal Aviation Administration developed a database intended to help cardholders reconcile their statements. The Postal Service developed surveillance software, discussed earlier in this report, intended to improve program oversight. GSA and, within Defense, the Army Management Engineering College, developed an interactive program intended to improve training for cardholders and approving officials. Agencies have found that their improvement efforts can be useful to other agencies. For instance, the Postal Service has demonstrated its surveillance software for purchase card program coordinators from 15 agencies and inspectors general from 10 agencies, both civilian and military. Almost all officials attending the demonstrations believed that the software was worth deploying governmentwide and that it would be useful for finance, accounting, inspectors general, and program management offices. The Postal Service plans to make its software available to other agencies. Officials said the software is being provided to the Departments of Transportation, Treasury, and Commerce. In another example, after the Defense Mapping Agency’s database was profiled in an issue of “Government Computer News,” officials said they were inundated with requests for information from other agencies, both military and civilian. They sent copies of their database to more than 90 agencies and offices in 32 states and Europe. Although agencies want to share information about their innovations, we found that innovations were not always well known outside the agencies that developed them. We also found no effective means for agencies to communicate with each other about their problems or improvements. Some agency officials share information through informal networks and there are some formal multiagency forums, such as GSA and RMBCS purchase card conferences, the Purchase Card Council, and the Chief Financial Officers Council’s Financial Implementation Team for Electronic Commerce. However, these mechanisms are not readily accessible to all officials, particularly those who are away from headquarters or who are newer to the program. Further, there can be considerable lag time between when an agency identifies a problem or develops an innovation and when a formal interagency meeting or conference is scheduled. Without a more effective means of communication, agencies may not be able to build on the successes and failures of other agencies to improve their purchase card programs. Officials at the Office of Federal Procurement Policy stated that Acquisition Reform Net, a government Internet site for acquisition reform information and discussion, could be used for this type of communication. By its nature, it would be available to agency officials nationwide and could be used to disseminate information or questions quickly. Using the purchase card has helped government agencies achieve administrative savings and efficiencies, absorb some of the impact of staffing cuts, and improve their abilities to fulfill their missions. However, the FAR does not provide guidance on usage of the card comparable to the guidance provided for imprest funds, purchase orders, and blanket purchase agreements. Further, agencies have no effective means to communicate with each other about their problems and innovations. We therefore recommend that the Administrator for Federal Procurement Policy ensure, in conjunction with the Federal Acquisition Regulatory Council, that the FAR provides clear guidance on the appropriate uses of the purchase card as a means for making payments, purchases, and orders from established contracts and establish a site on one of the government’s electronic media, such as the Acquisition Reform Net on the Internet, to facilitate agencies’ efforts to exchange information about problems or progress with purchase card use. In commenting orally on a draft of this report, the Office of Federal Procurement Policy said that it had no major objections. It obtained informal comments from the agencies we reviewed and found that they also indicated no material objections to our report, although several agencies stressed that any FAR coverage should emphasize flexibility and not be restrictive. We have incorporated in our report, where appropriate, editorial and technical comments that were provided. To obtain background and program history information, we reviewed executive and congressional guidance, including Executive Orders 12931 and 12352; the Vice President’s NPR and subsequent updates; FASA; the FAR; and agency regulations, policies, and directives. We also interviewed officials from the Office of Management and Budget’s Office of Federal Procurement Policy, GSA, and the Interagency Purchase Card Council. We obtained card program statistical data from RMBCS and GSA for the government as a whole and by agency for 1989 through 1995. The data included number and dollar value of transactions and rebates and the number of cardholders. We did not validate the computer-generated data; however, we discussed data reliability and quality with all of the agencies in our review and with GSA. We reviewed purchase card programs in the agencies with 12 of the largest programs, including the 9 largest programs judged by either dollars or transactions (see app. I). In addition to obtaining data on program size, we obtained data on potential for growth, length of involvement in the purchase card program, special program initiatives, and administrative responsibility. To determine the extent to which card use has resulted in administrative savings or other benefits, we interviewed purchase card program coordinators, officials from agency finance and procurement offices, and officials from GSA, NPR, and the Office of Federal Procurement Policy. We also obtained and reviewed cost-benefit studies, management reports, and reengineering studies. We discussed the methodology used for those studies, and the subsequent findings and projections, with appropriate personnel. We did not verify the cost data and savings projections in those studies. To determine the potential for continued growth in purchase card use, we examined trends in card use and projections made by the agencies in our review, GSA, and RMBCS. We also reviewed agency and federal directives encouraging, requiring, or setting goals for card use. To identify protections against misuse, we interviewed appropriate personnel at agencies and audit organizations. In addition, we reviewed the RMBCS contract guide, agency purchase card procedures and regulations, and internal audit and inspectors general reports. To identify opportunities to improve agency card programs, we interviewed appropriate agency personnel and reviewed public comments on proposed FAR changes stemming from FASA and agencies’ plans to automate or reengineer portions of their systems or processes. We also witnessed demonstrations of the Postal Service’s surveillance software, the Social Security Administration’s and the Coast Guard’s automated payment systems, the Defense Mapping Agency’s and the Federal Aviation Administration’s tracking databases, and GSA’s and the Army Management Engineering College’s training material. We conducted our work from May 1995 through April 1996 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Director, Office of Management and Budget; the Administrator for Federal Procurement Policy; the Administrator, GSA; and officials at the agencies in our review. Copies will also be made available to others upon request. Please contact me or my Associate Director, David Cooper, at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report were David Childress, Maria Storts, and Diane Handley. Department of Agriculture, Washington, D.C. Department of Commerce, Washington D.C. Department of Health and Human Services, Washington, D.C. Department of Interior, Washington, D.C. Department of Transportation, Washington, D.C. Department of the Treasury, Washington, D.C. Department of Veterans Affairs, Washington, D.C. Social Security Administration, Baltimore, Md. U.S. Postal Service, Washington, D.C. Department of the Air Force Department of the Navy The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a legislative requirement, GAO reviewed federal agencies' progress in using purchase cards, focusing: (1) the extent to which card use has led to administrative savings or other benefits; (2) the potential for growth in card use; (3) agencies' management controls; and (4) opportunities to improve agencies' purchase card programs. GAO found that: (1) the use of purchase cards for small purchases can reduce agencies' mission support, labor, and payment processing costs 50 percent by moving simple purchases from procurement offices to program offices and consolidating payments; (2) some agencies have found that purchase card use has helped them absorb the impact of administrative staff reductions and improve service delivery; (3) although the use of purchase cards has increased since 1990, there is potential for greater card use; (4) in fiscal year 1995, the average purchase card transaction was $375, well below the micropurchase threshold of $2,500; (5) there is no evidence of increased abusive use of purchase cards despite tremendous growth in the purchase card program; (6) electronic records of all purchase card transactions allow close and detailed monitoring of card use; (7) agencies' management controls are adequate to protect the government's interest and agencies are addressing control weaknesses and failures to follow proper procurement procedures; (8) most agencies are trying to improve their card programs by emphasizing card use, reengineering their processes, and increasing their use of automation; and (9) opportunities to improve the card program include revising the Federal Acquisition Regulation (FAR) to address card use more thoroughly and establishing a mechanism so agencies can share their innovations and experiences. |
In general, freedom-to-farm proposals allow farmers who have participated in the commodity payment programs to plant whatever crops they wish. The proposals in H.R. 2195 and the Balanced Budget Act of 1995 would have ended the 60-year-old requirement for farmers to idle farmland in order to qualify for federal support payments. Farmers would have been expected to plant for the marketplace, and the federal government would have gradually reduced its role in agriculture. Under H.R. 2195, farmers would have entered into 7-year market transition contracts and received fixed annual payments based on their production. The proposal would have placed a limit on total payments under the program and allowed farmers greater flexibility in planting decisions. The program’s total expenditures would have been limited to $43.2 billion over the 7-year period. The program’s annual expenditures would likewise have been limited, and the crops covered by the proposal would have been allocated a percentage of these total annual expenditures. Similar provisions were included in the proposed Balanced Budget Act of 1995. FSA is the agency principally responsible for administering payments to the farmers who receive federal agricultural assistance. FSA calculates payments to farmers under the federal agricultural assistance programs. FSA also monitors compliance with the programs’ requirements, including the environmental requirements. In addition, the agency administers the federal crop insurance program and provides credit to farmers under the agricultural credit programs. In fiscal year 1995, FSA had the equivalent of 20,905 full-time employees, including 13,432 county-based employees. FSA employs 11 percent of USDA’s staff in the Washington, D.C., area and 18 percent of USDA’s staff outside that area. FSA’s county office staff perform a series of complex tasks to compute acreage bases and calculate and distribute payments to farmers. FSA tracks the workload in its field offices through a system that measures the amount of time staff take to complete tasks. The agency uses this information to project personnel and budget needs. During fiscal year 1995, five major tasks—administrative functions, compliance activities, commodity program payments, crop insurance activities, and maintenance of basic farm records—represented 70 percent of the field offices’ workload. Adopting the freedom-to-farm provisions set forth in H.R. 2195 would have enabled USDA to realize significant personnel savings because the proposal would have required fewer program activities than the commodity programs in effect until the enactment of the 1996 farm bill. As a result, USDA would have needed fewer staff. All of the personnel savings would have occurred in FSA, most of it at the county office level. Under the provisions of H.R. 2195, USDA could have reduced FSA personnel by 1,823 staff years and saved approximately $332 million between 1997 and 2002, using USDA’s assumptions about personnel costs. USDA would not have realized dollar savings from the reduction of 197 of these staff years. These 197 staff years are associated with farm-measurement services, which are supported by the funds collected from the fees that farmers pay for the services. The savings would essentially have begun in fiscal year 1997—the second year of implementation—and continued through fiscal year 2002—the final year of implementation. The staff year workload would not have decreased in fiscal year 1996, the first year of implementation, because of the increased workload associated with implementing the new program. For example, FSA’s staff would have had to sign up owners and operators for the program and inform them of the new program’s provisions. FSA would also have needed to inform participants how these provisions would affect their operations and payments. Furthermore, although staff reductions would have begun in fiscal year 1997, the savings during that year would have been partially offset by $28 million in employee separation costs. The personnel reductions would have decreased FSA’s total staff by about 9 percent over the period. According to USDA officials, because of the timing of the enactment of the 1996 farm bill, the full savings related to its freedom-to-farm and crop insurance provisions may not occur until 1998. Most of the personnel reductions resulting from H.R. 2195 would have occurred in FSA’s county staff, particularly in five functional areas—payments under the commodity programs, maintenance of basic farm records, compliance activities, reimbursable farm-measurement services, and the establishment of bases and yields. USDA anticipated that additional staff reductions would occur in FSA’s headquarters, state offices, and technical offices. Table 1 shows our analysis of the changes in staff years by work function. Regarding payments for commodity programs, reductions would have occurred primarily because farmers would have signed up for the program only once, by entering into a contract at the start of the 7-year period. Consequently, FSA would have performed the notification and recordkeeping associated with enrollment only once. In contrast, under the 1990 farm bill, farmers had to sign up annually for program payments. Regarding basic farm records, staff reductions would have occurred because less recordkeeping would have been required for changes pertaining to owners’ and operators’ relationships. Under the 1990 farm bill, the relationships between owners and operators could change annually. Under H.R. 2195, owners and operators would have been less likely to change their relationships because they would have signed 7-year contracts with USDA. As a result, FSA staff would have performed less work to keep the records on owners and operators updated. According to USDA officials, contrary to the initial assumptions made for H.R. 2195, under the 1996 farm bill, changes to owner-operator relationships may continue at the same level as in the past. Under the initial assumptions made for H.R. 2195, staff reductions would also have occurred in relation to compliance activities because the amount of farmland that participants would have to certify as meeting environmental standards would have decreased. Under the 1990 farm bill, participating farmers had to certify that all of their farmland met certain environmental standards. Under H.R. 2195, participating farmers would have certified only that the land covered by the market transition contracts met these environmental standards. As a result, FSA would have needed fewer staff because the number of acres subject to environmental standards would have decreased. According to USDA officials, under the 1996 farm bill, this assumption is no longer valid because participants will have to certify all farmland as meeting environmental standards, not just the land subject to the market transition contracts. Regarding reimbursable services, FSA collects fees for measuring participants’ farmland. Measuring farmland helps ensure that farmers report acreage accurately. Under the 1990 farm bill, farmers could request that FSA measure their farmland to avoid the penalties assessed for incorrect reporting. H.R. 2195 would have allowed farmers greater flexibility in deciding not only what crops to plant but also how much of each crop. Because reporting accuracy would not have been as critical under this proposal, farmers may have requested this service less and therefore decreased FSA’s workload. However, since farmers pay for this service, the salary savings would have been offset by the loss of these fees. Regarding establishing bases and yields, FSA’s workload would have been reduced under H.R. 2195 because staff would not have needed to update this information annually under the 7-year contracts. Under the 1990 farm bill, FSA annually recalculated and notified operators of changes in crop acreage bases and yields. Under H.R. 2195, contract payments over the entire 7-year period would have been based on 1995 acreage bases and yields. Therefore, FSA would have had to update this information only when an event changed a contract payment, rather than annually. Such events would have included changes in the relationships between owners and operators or land being taken out of the Conservation Reserve Program during the 7-year period. The proposed Balanced Budget Act of 1995 included freedom-to-farm provisions as well as provisions affecting crop insurance, livestock, and conservation programs. While the freedom-to-farm provisions under the proposed Balanced Budget Act would have achieved savings similar to those under H.R. 2195, USDA would have achieved greater personnel savings under the act because it included changes in areas not addressed by H.R. 2195. The act would have resulted in a net reduction of 2,719 staff years, which represents about a 13-percent decrease in FSA’s total staff from the fiscal year 1995 level. Reductions in staff beyond those resulting from the freedom-to-farm provisions would have occurred because the primary responsibility for enrolling farmers in the crop insurance program would have been transferred to the private sector. However, no dollar savings are associated with these reimbursable activities because USDA would have lost, in addition to the staff, the related offsetting collections. In addition, other provisions in the act would have slightly offset the total savings. Table 2 shows the net effect of the provisions of the proposed Balanced Budget Act. As the table shows, the proposed Balanced Budget Act included additional provisions that would have had the net effect of reducing FSA’s workload by 896 staff years beyond the savings resulting from the act’s freedom-to-farm provisions. Most of these additional staff year savings are associated with transferring enrollment for crop insurance from FSA to the private sector. Under procedures in effect until the enactment of the 1996 farm bill, FSA’s staff sold basic catastrophic crop insurance to farmers through FSA’s county offices. Farmers paid a $50 service fee per crop to sign up for the insurance coverage. FSA retained this fee to cover the cost of administering the enrollment. Transferring the crop insurance function to the private sector would have reduced FSA’s workload by 1,022 staff years. Other provisions of the act covering livestock programs, environmental programs, and the reporting of information to reinsured companies would have resulted in a net workload increase of 126 staff years. Thus, the net effect of the personnel savings from crop insurance and other provisions would have been 896 staff years. Although no dollar savings would have resulted from the decrease of these 1,022 staff years, all of which are supported by offsetting collections, USDA would have incurred separation costs of $14 million as a result of these reductions. Similarly, USDA would have incurred additional costs of $14 million for the increased workload of 126 staff years resulting from the Balanced Budget Act’s provisions, as discussed above. Combined, these two costs would have lowered the savings under the act by $28 million, resulting in a net savings of $304 million. The newly enacted farm bill delays the transfer of crop insurance enrollment from FSA to the private sector until crop year 1997, and FSA’s county offices will continue to sell insurance in areas where private insurance is not available. Therefore, according to USDA officials, the full impact of the staff year savings and separation costs associated with changes in the crop insurance program will be delayed until 1998. USDA may have achieved additional organizational changes and related savings as it reevaluated efficiencies in its delivery of services to its customers. For example, the loss of over 2,300 county-office-based staff years could have led to office closures or consolidations. These, in turn, would have resulted in savings of operations and maintenance costs. Until the regulations for the 1996 farm bill become final, similar savings under that legislation will be difficult to estimate. We transmitted a draft of this report to FSA for review and comment. In commenting on this report, FSA’s Associate Administrator pointed out that the estimates used in developing the savings discussed in this report were based on assumptions that were valid when USDA’s analysis was completed. However, with the enactment of the 1996 farm bill, several of these assumptions will have to be reevaluated. For example, he said that the new legislation delays the timing of changes in the crop insurance program, amends the conservation provisions, and changes the assumptions USDA used when estimating its workload for maintaining basic farm records. We made changes in the body of this report to reflect these concerns. USDA acknowledges that the 1996 farm bill will result in reductions in workload and staffing, but the magnitude of the savings has not been determined at this time. USDA will soon begin evaluating the implications for personnel levels of the new farm bill. To estimate the reductions in staffing levels under H.R. 2195 and the agricultural provisions of the proposed Balanced Budget Act of 1995, we used the fiscal year 1995 levels of personnel in farm support programs and of workload as a baseline. The estimates of reductions were based on the changes that would have occurred in the work processes under the two proposals. We reviewed H.R. 2195 and title I of the proposed Balanced Budget Act of 1995 to identify how commodity programs would be affected. We also reviewed the Federal Agriculture Improvement and Reform Act (P.L. 104-127) to determine whether its freedom-to-farm provisions were similar to those in the two legislative proposals. We reviewed the methodology and workload measurement assumptions that USDA used in making its estimates of the workload and staffing levels that would be needed in its county offices to administer all of the farm support programs under the proposed Balanced Budget Act of 1995. Because the proposed act included freedom-to-farm provisions, USDA’s analysis included data on how staff years and work functions would be affected by these provisions. We isolated the work functions related to the freedom-to-farm provisions in H.R. 2195 and estimated the resulting work reductions. USDA estimated that FSA’s staff at headquarters, state offices, and technical offices would be reduced by 10 percent—about the same percentage that resulted from its calculation of the reduction in county office staff. This methodology differs from the analysis of workload statistics that USDA used to estimate the workload changes and staff reductions in the county offices. To assess the reasonableness of USDA’s workload measurement assumptions and estimates, we reviewed and analyzed work processes, tasks, and personnel levels at several field offices. This analysis enabled us to reach an informed opinion on the reasonableness of USDA’s methodology and assumptions. We believe USDA’s methodology was reasonable. We also reviewed and discussed with USDA officials at headquarters, state, and county levels the impact that freedom-to-farm provisions would have on staffing levels. For information on the workload required to administer the commodity programs, we relied heavily on USDA’s workload management assumptions and workload measurement statistics. We did not verify the accuracy of USDA’s workload measurement data, but we identified how the data were developed, collected, and summarized. We performed our review from October 1995 through April 1996 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Senate Committee on Agriculture, Nutrition, and Forestry; the House Committee on Agriculture; and other appropriate congressional committees. We are also sending copies to the Secretary of Agriculture, the Congressional Budget Office, and the Office of Management and Budget. If you or your staff have any questions about this report, I can be reached at (202) 512-5138. Major contributors to this report are listed in appendix I. Robert C. Summers, Assistant Director Signora James May, Project Leader Patrick J. Kalk Paul Pansini Stuart Ryba Carol Herrnstadt Shulman The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. | Pursuant to a congressional request, GAO examined the personnel reductions that the Department of Agriculture (USDA) could have achieved if Congress had implemented the freedom-to-farm provisions of H.R. 2195 and the proposed Balanced Budget Act. GAO noted that: (1) under H.R. 2195, the freedom-to-farm provisions would have reduced the Farm Service Agency's (FSA) personnel by 1,823 staff years and saved approximately $332 million; (2) most of the personnel savings under H.R. 2195 would have occurred at the county level and would affect such program activities as commodity payment, record keeping, compliance, and reimbursable farm-measurement; (3) the proposed Balanced Budget Act would have achieved greater personnel savings than H.R. 2195 because it included changes not addressed by H.R. 2195; (4) personnel reductions under the proposed Balanced Budget Act would have decreased FSA staff by 13 percent, a net reduction of 2,719 staff years; (5) the Balanced Budget Act would have had the net effect of reducing FSA workload by 896 staff years; (6) as a result of the personnel reductions, USDA would have incurred separation costs of $28 million for a workload of 126 staff years; (7) these costs would have lowered USDA net savings to $304 million; and (8) the Balanced Budget Act would also afford USDA additional organizational changes, more savings, and an opportunity to focus on how it delivers its services. |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.