This is the accessible text file for GAO report number GAO-09-271 
entitled 'High-Risk Series: An Update' which was released on January 
22, 2009.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

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. 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. 

Report to Congress: 

United States Government Accountability Office: 
GAO: 

High-Risk Series: 

An Update: 

GAO-09-271: 

GAO Highlights: 

Highlights of GAO-09-271, a report to Congress on GAO’s High-Risk 
Series. 

Why GAO Did This Study: 

The federal government is the world’s largest and most complex entity, 
with about $3 trillion in outlays in fiscal year 2008 funding a broad 
array of programs and operations. GAO’s biennial reports on high-risk 
areas, done since 1990, are meant to bring focus to specific areas 
needing added attention. Areas are identified, in some cases, as high 
risk due to their greater vulnerabilities to fraud, waste, abuse, and 
mismanagement. GAO also identifies high-risk areas needing broad-based 
transformation to address major economy, efficiency, or effectiveness 
challenges. In this 2009 update for the 111th Congress, GAO presents 
the status of high-risk areas listed in 2007 and identifies new high-
risk areas warranting attention by Congress and the executive branch. 
Solutions to high-risk problems offer the potential to save billions of 
dollars, dramatically improve service to the public, strengthen 
confidence and trust in the performance and accountability of the U.S. 
government, and ensure the ability of government to deliver on its 
promises. 

What GAO Found: 

In January 2007, GAO detailed 27 high-risk areas and, in March 2008, 
added a 28th—planning for the 2010 Census. In the last 2 years, 
progress has been made in most of the 27 areas, although the extent 
varies. Overall, federal departments and agencies, as well as Congress, 
have shown a continuing commitment to addressing high-risk challenges, 
including taking steps to help correct several of the problems’ root 
causes. In particular, the Office of Management and Budget has led an 
initiative to work with agencies to develop corrective action plans for 
high-risk areas. GAO has determined that sufficient progress has been 
made to remove the high-risk designation from one area: the Federal 
Aviation Administration’s (FAA) air traffic control modernization. 
Since 2007, FAA has continued to make progress in addressing the root 
causes of its past problems and has committed to sustaining this 
progress in the future. Continued attention from the executive branch 
and Congress is needed to make additional progress in other areas. 

This year, GAO is designating three new high-risk areas: 

Modernizing the Outdated U.S. Financial Regulatory System. As a result 
of significant market developments that, in recent decades, have 
outpaced a fragmented and outdated regulatory structure, significant 
reforms to the U.S. regulatory system are critically and urgently 
needed. The current regulatory approach has significant weaknesses that 
if not addressed will continue to expose the U.S. financial system to 
serious risks. Determining how to create and implement a regulatory 
system that reflects new market realities is a key step to reducing the 
likelihood that our nation will experience another financial crisis 
similar to the current one. 

Protecting Public Health through Enhanced Oversight of Medical 
Products. Concerns have been expressed about FDA’s ongoing ability to 
fulfill its mission of ensuring the safety and efficacy of drugs, 
biologics, and medical devices. GAO’s work examining a variety of 
issues at FDA echoes the conclusions reached by others that the agency 
is facing significant challenges that compromise its ability to protect 
Americans from unsafe and ineffective products. FDA needs to, among 
other things, improve the data it uses to manage the foreign drug 
inspection program, conduct more inspections of foreign establishments, 
systematically prioritize and track promotional materials for review, 
and adopt management tools to ensure that drug sponsors comply with 
regulations on the presentation of clinical trial results. 

Transforming EPA’s Processes for Assessing and Controlling Toxic 
Chemicals. EPA does not have sufficient chemical assessment information 
to determine whether it should establish controls to limit public 
exposure to many chemicals that may pose substantial health risks. 
Actions are needed to streamline and increase the transparency of the 
Integrated Risk Information System and to enhance EPA’s ability under 
the Toxic Substances Control Act to obtain health and safety 
information from the chemical industry. 

What Remains To Be Done: 

This report contains GAO’s views on what remains to be done to bring 
about lasting solutions for each high-risk area. Perseverance by the 
executive branch in implementing GAO’s recommended solutions and 
continued oversight and action by Congress are both essential to 
achieving progress. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-271]. For more 
information, contact George H. Stalcup at (202) 512-9490 or 
stalcupg@gao.gov. 

[End of section] 

GAO’s 2009 High-Risk List: 

Addressing Challenges In Broad-Based Transformations: 

* Modernizing the Outdated U.S. Financial Regulatory System[A] (New); 

* Protecting Public Health through Enhanced Oversight of Medical 
Products (New); 

* Transforming EPA’s Processes for Assessing and Controlling Toxic 
Chemicals[A] (New); 

* 2010 Census (New in March 2008); 

* Strategic Human Capital Management[A]; 

* Managing Federal Real Property[A]; 

* Protecting the Federal Government’s Information Systems and the 
Nation’s Critical Infrastructures; 

* Implementing and Transforming the Department of Homeland Security; 

* Establishing Effective Mechanisms for Sharing Terrorism-Related 
Information to Protect the Homeland; 

* DOD Approach to Business Transformation[A]; 
- Business Systems Modernization; 
- Personnel Security Clearance Program; 
- Support Infrastructure Management; 
- Financial Management; 
- Supply Chain Management; 
- Weapon Systems Acquisition; 

* Funding the Nation’s Surface Transportation System[A]; 

* Ensuring the Effective Protection of Technologies Critical to U.S. 
National Security Interests[A]; 

* Revamping Federal Oversight of Food Safety[A]. 

Managing Federal Contracting More Effectively: 

* DOD Contract Management; 

* DOE’s Contract Management for the National Nuclear Security 
Administration and Office of Environmental Management; 

* NASA Acquisition Management; 

* Management of Interagency Contracting. 

Assessing the Efficiency and Effectiveness of Tax Law Administration: 

* Enforcement of Tax Laws[A]; 

* IRS Business Systems Modernization. 

Modernizing and Safeguarding Insurance and Benefit Programs: 

* Improving and Modernizing Federal Disability Programs[A]; 

* Pension Benefit Guaranty Corporation Insurance Programs[A]; 

* Medicare Program[A]; 

* Medicaid Program[A]; 

* National Flood Insurance Program[A]. 

Source: GAO. 

[A] Legislation is likely to be necessary, as a supplement to actions 
by the executive branch, in order to effectively address this high-risk 
area. 

[End of section] 

Contents: 

Letter: 

Historical Perspective: 

High-Risk Designation Removed: 

FAA’s Air Traffic Control Modernization: 

New High-Risk Areas: 

Modernizing the Outdated U.S. Financial Regulatory System: 

Protecting Public Health through Enhanced Oversight of Medical 
Products: 

Transforming EPA’s Processes for Assessing and Controlling Toxic 
Chemicals: 

Progress Being Made in Other High-Risk Areas: 

Highlights for Each High-Risk Area: 

Tables: 

Table 1: Changes to GAO’s High-Risk List, 1990-2009: 

Table 2: Areas Removed from GAO’s High-Risk List, 1990-2009: 

Table 3: Year That Areas on GAO’s 2009 High-Risk List Were Designated 
as High Risk: 

[End of section] 

Comptroller General of the United States: 
United States Government Accountability Office: 
Washington, DC 20548: 

January 2009: 

The President Pro Tempore of the Senate: 
The Speaker of the House of Representatives: 

Since 1990, GAO has periodically reported on government operations that 
it identifies as “high risk.” This effort, supported by the Senate 
Committee on Homeland Security and Governmental Affairs and the House 
Committee on Oversight and Government Reform, has brought much-needed 
focus to problems impeding effective government and costing the 
government billions of dollars each year. To help improve these high-
risk operations, GAO has made hundreds of recommendations. GAO’s high-
risk status reports are provided at the start of each new Congress. 
GAO’s focus on high-risk problems also has contributed to congressional 
oversight and enactment of a series of governmentwide reforms to 
address critical human capital challenges, strengthen financial 
management, improve information technology practices, and help promote 
a more effective, credible, and results-oriented government. 

Given the wide range of challenges facing the government, and what 
needs to be done to improve federal programs and operations and save 
billions of dollars, GAO recently launched its Congressional and 
Presidential Transition Web site. Together, this high-risk update and 
GAO’s transition Web site can help set the oversight agenda for the 
111th Congress, as well as contribute to an informed and smooth 
transition to the new administration. Moreover, in the coming months, 
GAO plans to report on a range of major national issues. 

We are providing this update to the President and Vice President, the congressional leadership, other Members of Congress, the Director of the Office of Management and Budget, and the heads of major departments and agencies. 

Signed by: 

Gene L. Dodaro: 
Acting Comptroller General of the United States: 

[End of section] 

Historical Perspective: 

In 1990, GAO began a program to report on government operations that it 
identified as “high risk.” Since then, generally coinciding with the 
start of each new Congress, GAO has periodically reported on the status 
of progress to address high-risk areas and updated the high-risk list. 
GAO’s most recent high-risk update was in January 2007.[Footnote 1] 
That update identified 27 high-risk areas. In March 2008, a 28th area 
was added, the 2010 Census. 

Overall, our high-risk program has served to identify and help resolve 
serious weaknesses in areas that involve substantial resources and 
provide critical services to the public. Since our program began, the 
government has taken high-risk problems seriously and has made long-
needed progress toward correcting them. In some cases, progress has 
been sufficient for us to remove the high-risk designation. A summary 
of changes to our high-risk list over the past 19 years is shown in 
table 1. Areas removed from the high-risk list over that same period 
are shown in table 2. The areas on GAO’s 2009 high-risk list, and the 
year each was designated as high risk, are shown in table 3. 

Table 1: Changes to GAO’s High-Risk List, 1990-2009: 

Original high-risk list in 1990: 
Number of areas: 14. 

High-risk areas added since 1990: 
Number of areas: 37. 

High-risk areas removed since 1990: 
Number of areas: 19. 

High-risk areas consolidated since 1990: 
Number of areas: 2. 

High-risk list in 2009: 
Number of areas: 30. 

Source: GAO. 

[End of table] 

Table 2: Areas Removed from GAO’s High-Risk List, 1990-2009: 

Area: Federal Transit Administration Grant Management; 
Year removed: 1995;
Year designated high risk: 1990. 

Area: Pension Benefit Guaranty Corporation; 
Year removed: 1995;
Year designated high risk: 1990. 

Area: Resolution Trust Corporation; 
Year removed: 1995;
Year designated high risk: 1990. 

Area: State Department Management of Overseas Real Property; 
Year removed: 1995;
Year designated high risk: 1990. 

Area: Bank Insurance Fund; 
Year removed: 1995;
Year designated high risk: 1991. 

Area: Customs Service Financial Management; 
Year removed: 1999;
Year designated high risk: 1991. 

Area: Farm Loan Programs; 
Year removed: 2001;
Year designated high risk: 1990. 

Area: Superfund Program; 
Year removed: 2001;
Year designated high risk: 1990. 

Area: National Weather Service Modernization; 
Year removed: 2001;
Year designated high risk: 1995. 

Area: The 2000 Census; 
Year removed: 2001;
Year designated high risk: 1997. 

Area: The Year 2000 Computing Challenge; 
Year removed: 2001;
Year designated high risk: 1997. 

Area: Asset Forfeiture Programs; 
Year removed: 2003;
Year designated high risk: 1990. 

Area: Supplemental Security Income; 
Year removed: 2003;
Year designated high risk: 1997. 

Area: Student Financial Aid Programs; 
Year removed: 2005;
Year designated high risk: 1990. 

Area: Federal Aviation Administration Financial Management; 
Year removed: 2005;
Year designated high risk: 1999. 

Area: Forest Service Financial Management; 
Year removed: 2005;
Year designated high risk: 1999. 

Area: HUD Single-Family Mortgage Insurance and Rental Housing 
Assistance Programs; 
Year removed: 2007;
Year designated high risk: 1994. 

Area: U.S. Postal Service’s Transformation Efforts and Long-Term 
Outlook; 
Year removed: 2007;
Year designated high risk: 2001. 

Area: FAA’s Air Traffic Control Modernization; 
Year removed: 2009;
Year designated high risk: 1995. 

Source: GAO. 

[End of table] 

Table 3: Year That Areas on GAO’s 2009 High-Risk List Were Designated 
as High Risk: 

Area: Medicare Program; 
Year designated high risk: 1990. 

Area: DOD Supply Chain Management; 
Year designated high risk: 1990. 

Area: DOD Weapon Systems Acquisition; 
Year designated high risk: 1990. 

Area: DOE’s Contract Management for the National Nuclear Security 
Administration and Office of Environmental Management; 
Year designated high risk: 1990. 

Area: NASA Acquisition Management; 
Year designated high risk: 1990. 

Area: Enforcement of Tax Laws; 
Year designated high risk: 1990. 

Area: DOD Contract Management; 
Year designated high risk: 1992. 

Area: DOD Financial Management; 
Year designated high risk: 1995. 

Area: DOD Business Systems Modernization; 
Year designated high risk: 1995. 

Area: IRS Business Systems Modernization; 
Year designated high risk: 1995. 

Area: Protecting the Federal Government’s Information Systems and the 
Nation’s Critical Infrastructures; 
Year designated high risk: 1997. 

Area: DOD Support Infrastructure Management; 
Year designated high risk: 1997. 

Area: Strategic Human Capital Management; 
Year designated high risk: 2001. 

Area: Medicaid Program; 
Year designated high risk: 2003. 

Area: Managing Federal Real Property; 
Year designated high risk: 2003. 

Area: Improving and Modernizing Federal Disability Programs; 
Year designated high risk: 2003. 

Area: Implementing and Transforming the Department of Homeland 
Security; 
Year designated high risk: 2003. 

Area: Pension Benefit Guaranty Corporation Insurance Programs;
Year designated high risk: 2003. 

Area: Establishing Effective Mechanisms for Sharing Terrorism-Related 
Information to Protect the Homeland; 
Year designated high risk: 2005. 

Area: DOD Approach to Business Transformation; 
Year designated high risk: 2005. 

Area: DOD Personnel Security Clearance Program; 
Year designated high risk: 2005. 

Area: Management of Interagency Contracting 
Year designated high risk: 2005. 

Area: National Flood Insurance Program; 
Year designated high risk: 2006. 

Area: Funding the Nation’s Surface Transportation System; 
Year designated high risk: 2007. 

Area: Ensuring the Effective Protection of Technologies Critical to 
U.S. National Security Interests; 
Year designated high risk: 2007. 

Area: Revamping Federal Oversight of Food Safety; 
Year designated high risk: 2007. 

Area: 2010 Census; 
Year designated high risk: 2008. 

Area: Modernizing the Outdated U.S. Financial Regulatory System; 
Year designated high risk: 2009. 

Area: Protecting Public Health through Enhanced Oversight of Medical 
Products; 
Year designated high risk: 2009. 

Area: Transforming EPA's Processes for Assessing and Controlling Toxic 
Chemicals; 
Year designated high risk: 2009. 

Source: GAO. 

[End of table] 

Eight of the 19 areas removed from the list over the years were among 
the 14 programs and operations we determined to be high risk at the 
outset of our efforts to monitor such programs. These results 
demonstrate that the sustained attention and commitment by Congress and 
agencies to resolve serious, long-standing high-risk problems have paid 
off, as root causes of the government’s exposure for half of our 
original high-risk list have been successfully addressed. 

Historically, high-risk areas have been so designated because of 
traditional vulnerabilities related to their greater susceptibility to 
fraud, waste, abuse, and mismanagement. As our high-risk program has 
evolved, we have increasingly used the high-risk designation to draw 
attention to areas associated with broad-based transformations needed 
to achieve greater economy, efficiency, effectiveness, accountability, 
and sustainability of selected key government programs and operations. 
Perseverance by the executive branch is needed in implementing our 
recommended solutions for addressing these high-risk areas. Continued 
congressional oversight and, in some cases, additional legislative 
action will also be key to achieving progress, particularly in 
addressing challenges in broad-based transformations. 

To determine which federal government programs and functions should be 
designated high risk, we use our guidance document Determining 
Performance and Accountability Challenges and High Risks.[Footnote 2] 
In determining whether a government program or operation is high risk, 
we consider whether it involves national significance or a management 
function that is key to performance and accountability. We also 
consider whether the risk is: 

* an inherent problem, such as may arise when the nature of a program 
creates susceptibility to fraud, waste, and abuse, or; 

* a systemic problem, such as may arise when the programmatic; 
management support; or financial systems, policies, and procedures 
established by an agency to carry out a program are ineffective, 
creating a material weakness. 

Further, we consider qualitative factors, such as whether the risk: 

* involves public health or safety, service delivery, national 
security, national defense, economic growth, or privacy or citizens’ 
rights, or; 

* could result in significantly impaired service; program failure; 
injury or loss of life; or significantly reduced economy, efficiency, 
or effectiveness. 

In addition, we also consider the exposure to loss in monetary or other 
quantitative terms. At a minimum, $1 billion must be at risk in areas 
such as the value of major assets being impaired; revenue sources not 
being realized; major agency assets being lost, stolen, damaged, 
wasted, or underutilized; improper payments; and contingencies or 
potential liabilities. 

Before making a high-risk designation, we also consider corrective 
measures planned or under way to resolve a material control weakness 
and the status and effectiveness of these actions. 

When legislative and agency actions, including those in response to our 
recommendations, result in significant and sustainable progress toward 
resolving a high-risk problem, we remove the high-risk designation. Key 
determinants here include a demonstrated strong commitment to, and top 
leadership support for, addressing problems, the capacity to address 
problems, a corrective action plan, and demonstrated progress in 
implementing corrective measures. 

The next sections discuss how we applied our criteria in determining 
what high-risk designations to add or remove for our 2009 update. 

[End of section] 

High-Risk Designation Removed: 

For our 2009 high-risk update, we determined that one area warranted 
removal from the high-risk list: the Federal Aviation Administration’s 
(FAA) air traffic control modernization. As we have with areas 
previously removed from the high-risk list, we will continue to monitor 
this program, as appropriate, to ensure that the improvements we have 
noted are sustained. 

FAA’s Air Traffic Control Modernization: 

Faced with growing air traffic and aging equipment, FAA initiated an 
ambitious effort to modernize its air traffic control system in 1981. 
This modernization involved acquiring a vast network of radar, 
navigation, communications, and information-processing systems, as well 
as new air traffic control facilities. However, key projects within 
this modernization experienced significant cost overruns, schedule 
delays, and performance shortfalls that affected FAA’s ability to 
deliver systems as promised. 

In 1995, we designated FAA’s air traffic control modernization as high 
risk because of the program’s estimated $36 billion cost, its 
complexity, its criticality to FAA’s mission of ensuring safe and 
efficient air travel, and its problem-plagued past. In our 1997 high-
risk update, we again included the modernization, not only for the 
reasons cited in 1995, but also because our subsequent work found 
pervasive and fundamental problems in FAA’s approach to managing the 
modernization. Over the years, we reported on the root causes of these 
problems, including (1) immature capabilities for acquiring systems, 
(2) lack of an institutionalized architecture, (3) inadequate cost 
estimating and accounting practices, (4) an incomplete investment 
management process, and (5) an organizational culture that impaired 
modernization efforts. 

In our January 2007 high-risk update, we noted that FAA had made 
significant progress in addressing weaknesses in its air traffic 
control modernization. For example, the agency established a framework 
for improving system management capabilities, addressed weaknesses on 
selected air traffic control systems, implemented components of a cost 
accounting system, established a cost estimating methodology, and made 
progress in establishing an organizational culture that supported sound 
acquisitions. We also reported that FAA worked with the Office of 
Management and Budget (OMB) to develop an action plan to continue to 
address program weaknesses. However, we retained FAA’s modernization on 
the high-risk list in 2007 because improved system management 
capabilities had not been institutionalized, the cost estimating 
methodology had not been fully implemented, and major systems were 
coming on line. Moreover, FAA still faced many human capital 
challenges, including obtaining the technical and contract management 
expertise needed to define, implement, and integrate numerous complex 
programs and systems. 

Since 2007, FAA has continued to make significant progress in 
addressing the weaknesses that put it on the high-risk list. FAA 
executives, managers, and staff have demonstrated a strong commitment 
to—and a capacity for—resolving risks. Agency executives worked with 
OMB to refine corrective action plans to address weaknesses, instituted 
programs to monitor and evaluate the effectiveness of corrective 
measures, and demonstrated progress in implementing these corrective 
measures. Specifically, FAA (1) improved management capabilities on 
major projects and is working to extend these improvements to new 
projects; (2) continued to develop an enterprise architecture—a 
blueprint of the agency’s current and target operations and 
infrastructure—and is refining it as FAA’s next-generation system 
becomes better defined; (3) implemented a cost estimating methodology 
and a cost accounting system; (4) implemented a comprehensive 
investment management process; and (5) assessed its human capital 
challenges and is now identifying plans to address critical staff 
shortages. These efforts have yielded positive results. FAA has put 
multiple new systems into operation throughout the country, including 
new air traffic displays, runway safety systems, and weather processing 
systems. In addition, while FAA has reduced the scope of several key 
programs, its acquisitions have experienced fewer cost overruns and 
schedule delays. Looking to the future, FAA also developed an updated 
corrective action plan for 2009 to sustain its improvement efforts and 
enhance its ability to address risks. 

We are removing FAA’s air traffic control modernization from the high-
risk list because of the agency’s progress in addressing most of the 
root causes of its past problems and its commitment to sustaining 
progress in the future. Nonetheless, we will be closely monitoring 
FAA’s efforts because the modernization program is still technically 
complex and costly, and FAA needs to place a high priority on efficient 
and effective management. 

FAA’s improvement efforts are even more critical because the 
modernization has now been extended to plan for a next-generation air 
transportation system that is to transform the current radar-based 
system to an aircraft-centered, satellite-based system. The next-
generation program extends beyond FAA to include multiple federal 
agencies, including the Department of Defense and the National 
Aeronautics and Space Administration, as well as nonfederal aviation 
stakeholders, such as aviation equipment manufacturers, airports, and 
aircraft operators. As FAA moves forward with this program, it risks 
confronting the same system acquisition issues that have plagued it in 
the past. In addition, we and the Department of Transportation’s 
Inspector General have reported that FAA faces challenges in 
undertaking needed research and development to better define new 
technologies, transitioning legacy systems to next-generation 
technologies, addressing aging facilities, and obtaining staff with the 
knowledge and skills to manage the program. We plan to closely monitor 
FAA’s efforts to plan and implement the next-generation air 
transportation system. 

[End of section] 

New High-Risk Areas: 

GAO’s use of the high-risk designation to draw attention to the 
challenges associated with the economy, efficiency, and effectiveness 
of government programs and operations in need of broad-based 
transformation has led to important progress. We will also continue to 
identify high-risk areas based on the more traditional focus on fraud, 
waste, abuse, and mismanagement. Our focus will continue to be on 
identifying the root causes behind vulnerabilities, as well as actions 
needed on the part of the agencies involved and, if appropriate, 
Congress. 

For 2009, we are designating three new high-risk areas: 

* Modernizing the Outdated U.S. Financial Regulatory System. 

* Protecting Public Health through Enhanced Oversight of Medical 
Products. 

* Transforming EPA’s Processes for Assessing and Controlling Toxic 
Chemicals. 

In addition to the new high-risk designations discussed below, we will 
continue to monitor other management challenges identified through our 
work. These include, for example, oil and gas resource management and 
revenue collection, the deteriorating financial condition of the U.S. 
Postal Service, and FAA’s oversight of aviation safety. 

Modernizing the Outdated U.S. Financial Regulatory System: 

Having a vibrant, healthy financial sector is critical to the United 
States. Banks and other depository institutions provide safe locations 
for the savings of the nation’s citizens, and these funds are used to 
provide loans to businesses that provide many of the jobs in the 
economy. Having active and liquid markets for securities enables the 
U.S. government, states, and municipalities, as well as private-sector 
businesses, to raise the capital needed to provide infrastructure for 
the nation and for new products and services. To ensure that the nation 
benefits from the offerings of the financial sector, the United States 
found that regulating financial markets, institutions, and products is 
more efficient and effective than leaving the fairness and integrity of 
this activity to market participants themselves. Among the goals that 
the U.S. financial regulatory system has sought to achieve are: 

* ensuring adequate consumer protections, 

* ensuring the integrity and fairness of markets, 

* monitoring the safety and soundness of institutions, and, 

* acting to ensure the stability of the overall financial system. 

However, recently the United States has been experiencing the worst 
financial crisis in more than 75 years. In the past year, several large 
financial institutions have failed or required assistance from the 
government. The crisis also spread to global financial markets, 
requiring coordinated action by world leaders in an attempt to protect 
savings and restore the health of the markets. U.S. regulators have 
taken unprecedented steps to stem the unraveling of the financial 
services sector by using taxpayer funds to rescue financial 
institutions and restore order to credit markets. These include actions 
by the Department of the Treasury, the Federal Reserve, the Federal 
Deposit Insurance Corporation, the Federal Housing Finance Agency, and 
others.[Footnote 3] 

One of the major efforts to address the current crisis includes the 
Troubled Asset Relief Program (TARP), which was authorized under the 
Emergency Economic Stabilization Act that was signed into law on 
October 3, 2008. Under this authority, the Department of the Treasury 
has undertaken various efforts to stabilize U.S. financial markets and 
the banking system, including injecting billions of dollars into 
financial institutions. Through the capital purchase program—a 
preferred stock and warrant purchase program—Treasury provided more 
than $155 billion in capital to 87 institutions as of December 5, 
2008.[Footnote 4] We recognize that TARP has only recently been created 
and that a new program of such magnitude faces many challenges, 
especially in this current uncertain economic climate. However, we 
reported that Treasury had yet to address a number of critical issues, 
including determining how it will ensure that the capital purchase 
program is achieving its intended goals and monitoring participating 
institutions’ compliance with the program’s limitations on executive 
compensation and dividend payments. Moreover, further actions are 
needed to establish an effective management structure and an essential 
system of internal control. 

While much of the attention of policymakers appropriately has been 
focused on taking short-term steps to address the immediate nature of 
the crisis, these events have served to demonstrate that the current 
U.S. financial regulatory system is in need of significant reform. The 
current U.S. financial regulatory structure is the culmination of 150 
years of statutory and regulatory changes in response to financial 
crises or significant developments in the financial services sector. 
Congress created one of the first federal banking regulators—the Office 
of the Comptroller of the Currency, which charters and supervises 
national banks and their subsidiaries—in 1863 to establish a system for 
financing the nation’s Civil War debt and reducing financial 
uncertainty resulting from differences in state banking regulations. 
Congress created much of the remaining structure for banking oversight 
either in response to bank runs and panics at the turn of the 20th 
century, which resulted in the creation of the Federal Reserve System 
in 1913, or as a result of the Great Depression, which saw the creation 
of the Federal Deposit Insurance Corporation—which today oversees state-
chartered institutions and insures the deposits of all federally 
supervised banks. As a result of the turmoil of the 1920s and 1930s, 
including the severe stock market crash of 1929, the Securities and 
Exchange Commission was created to supplement the oversight of states 
and other organizations that oversee broker-dealers, investment 
advisers, exchanges, and other key market participants. Since then, 
Congress has continued to adjust the U.S. regulatory structure in 
response to crises like the savings and loan failures of the 1980s. Not 
all changes to the regulation of financial markets arose out of crises. 
For example, the Gramm-Leach-Bliley Act of 1999 allowed banks to expand 
their securities activities by reversing restrictions put in place in 
the 1930s. Accounting and auditing rules—which are an integral part of 
the financial regulatory system—have also changed significantly in 
recent years, in response to the development of new financial assets as 
well as corporate scandals. 

Several significant changes in financial markets and products in recent 
decades have revealed limitations in the existing financial regulatory 
system. First, overseeing large financial conglomerates has proved 
challenging, particularly in overseeing their risk management 
activities on a consolidated basis and in identifying and mitigating 
the systemic risks they pose. Second, regulators have had to address 
problems in financial markets resulting from the activities of large 
and sometimes less-regulated market participants, some of which play 
significant roles in today’s financial markets. For example, nonbank 
mortgage lenders, which generally are not subject to direct federal 
oversight, as well as largely unregulated investment bank 
securitization of mortgage loans, played a key role in subprime 
mortgage lending in recent years, which triggered broader financial 
turmoil. Similarly, entities such as hedge funds, credit rating 
agencies, and special entities created to hold assets outside of 
regulated financial institutions have played significant roles in 
financial market activities and recent or past crises, but have created 
challenges for effective oversight. A third development that has 
revealed limitations in the current regulatory system has been the 
increasing prevalence of new and more complex products. For example, 
institutions and investors have faced losses arising from new 
securities investment products whose income and returns derive from 
pools of mortgage loans and other securities, and consumers have faced 
difficulty understanding new and increasingly complex retail mortgage 
and credit products. Fourth, standard setters for accounting and 
financial regulators, including the Financial Accounting Standards 
Board and the Securities and Exchange Commission, have faced growing 
challenges in trying to ensure that accounting standards appropriately 
respond to financial market developments, as well as the new challenges 
arising from the global convergence of accounting and auditing 
standards. Finally, despite the increasingly global aspects of 
financial markets, the current fragmented U.S. regulatory structure has 
complicated some efforts to coordinate internationally with other 
regulators. 

As a result of significant market developments that, in recent decades 
have outpaced a fragmented and outdated regulatory structure, 
significant reforms to the U.S. regulatory system are critically and 
urgently needed. The current regulatory approach has significant 
weaknesses that if not addressed will continue to expose the U.S. 
financial system to serious risks in the future. As the administration 
and Congress continue to take actions to address the immediate 
financial crisis, determining how to create a regulatory system that 
reflects new market realities is a key step to reducing the likelihood 
that the nation will experience a similar financial crisis in the 
future. 

Currently, considerable debate is under way over whether and how the 
current regulatory system should be changed; calls have been made for 
consolidating regulatory agencies, broadening certain regulators’ 
authorities, and subjecting certain products or entities to more 
regulation. For example, in March 2008, the Department of the Treasury 
proposed significant financial regulatory reforms in its Blueprint for 
a Modernized Financial Regulatory Structure, and other federal 
regulatory officials and industry groups have also put forth reform 
proposals. As these and other proposals are developed or evaluated, it 
will be important to carefully consider their advantages and 
disadvantages and long-term implications. 

As early as 1994, we identified the need to modernize the federal 
financial regulatory structure, including the need to address the risks 
from new unregulated products. Since then, we have described various 
options for Congress to consider, each of which provides potential 
improvements, as well as some risks and potential costs. Building upon 
the existing body of work on the regulation of financial markets and 
emerging issues, we issued a report in January 2009 that can be used to 
help create a new system of regulation and to evaluate regulatory 
proposals that emerge.[Footnote 5] Specifically, this report to 
Congress includes an evaluation framework that outlines the key 
elements that any new regulatory system should include regardless of 
the structure it takes, such as ensuring systemwide risks are 
identified and mitigated and that consumers are protected. 

The total cost of loans, credit guarantees, and other assistance that 
the Treasury, Federal Reserve or other government entities have 
committed to date to address the current financial turmoil has been 
estimated to be in the trillions of dollars, which far exceeds the $160 
billion cost of the savings and loan crisis. In the near term, 
oversight is needed to ensure that the government’s responses to the 
crisis achieve their goals effectively. In the longer term, modernizing 
the U.S. financial regulatory system will be a critical step to 
ensuring that the challenges of the 21st century can be met. 

Protecting Public Health through Enhanced Oversight of Medical 
Products: 

Americans depend on the Food and Drug Administration (FDA), an agency 
within the Department of Health and Human Services (HHS), to ensure the 
safety and effectiveness of medical products—drugs, biologics, and 
medical devices—marketed in the United States. The agency’s medical 
product responsibilities are far-reaching and apply to such products 
regardless of whether they are manufactured domestically or overseas. 
In 2006, medical products regulated by FDA generated $290 billion in 
pharmaceutical sales, and about 3.3 billion prescriptions were filled. 
In that same year, investments in biological products—such as vaccines 
and human tissues—exceeded $40 billion, and 235 million vaccines were 
administered. In addition, sales by manufacturers of medical devices 
and radiological products totaled $110 billion. Over 100 million 
surgical procedures—all requiring the use of medical devices—were 
performed in 2005. In 2008, FDA reported that over 64,000 domestic 
establishments were manufacturing medical products in 2008. There are 
thousands of additional establishments located overseas that are 
manufacturing products for the U.S. market, and with globalization, 
their numbers are increasing annually. 

FDA’s role has grown significantly since the federal government first 
began regulating medical products more than 100 years ago. Its 
responsibilities now begin long before a product is brought to market 
and continue after a product’s approval. For example, while a new drug 
is still in the investigational, preapproval stage, FDA monitors the 
success of the drug in clinical trials. It reviews the applications of 
thousands of new medical products filed annually to decide whether they 
should be allowed to be marketed in the United States. FDA also 
oversees the quality of thousands of products already on the market. 
Among other things, the agency inspects establishments to ensure they 
are in compliance with current good manufacturing practices 
requirements (GMP) and evaluates the results of studies conducted by 
drug sponsors concerning the safety and efficacy of their products. In 
addition, FDA receives reports and tracks adverse events associated 
with marketed medical products and responds to public health 
emergencies, such as those involving tainted drugs. It also examines 
manufacturers’ promotional materials, including direct-to-consumer 
advertising, to ensure they are not false or misleading. 

Many have begun expressing concern about FDA’s ongoing ability to 
fulfill its mission of ensuring the safety and efficacy of drugs, 
biologics, and medical devices. Reports issued by both FDA’s own 
Science Board in 2007 and the Congressional Research Service in 2008 
point out that the demands on the agency have soared in recent years 
for a variety of reasons. These include the complexity of new products 
submitted to FDA for premarket approval, the emergence of challenging 
safety problems, the globalization of the industries that FDA 
regulates, and new statutory responsibilities. The Science Board also 
found that FDA’s resources had not increased in proportion to the 
growing demands placed on it, putting public health at risk. Similarly, 
in 2006, citing serious resource constraints, the National Academy of 
Sciences’ Institute of Medicine expressed concern for the future of 
drug safety. HHS’s Office of Inspector General (OIG) included the 
oversight of drug and medical device safety as one of its top 
management performance challenges for fiscal year 2007. 

Our work examining a variety of issues at FDA echoes the conclusions 
reached by others that the agency is facing significant challenges that 
compromise its ability to protect Americans from unsafe and ineffective 
products. FDA has recently announced plans that may help it address 
some of it resource challenges, such as embarking on a major multiyear 
hiring initiative and investing in an information technology 
modernization effort. However, to make a meaningful difference, these 
initiatives will require effective implementation, and their success 
cannot yet be evaluated. Although such initiatives may hold promise, we 
nonetheless believe that FDA needs to enhance its oversight of medical 
products to better protect public health. 

Inspecting Foreign Manufacturers: 

FDA’s ability to ensure the quality of medical products manufactured 
overseas is an area of particular concern. FDA’s management of its 
foreign drug and medical device inspection programs has been 
compromised by weaknesses in its databases, which contain divergent 
estimates of the number of foreign establishments subject to 
inspection.[Footnote 6] These databases are not electronically 
integrated and do not readily interact with one another. Comparisons of 
the data are complex, and some must be performed manually, complicating 
FDA’s ability to appropriately prioritize foreign establishments for 
inspection. 

Although inspections of manufacturing establishments are an essential 
component of ensuring safety and compliance with GMPs, the agency 
conducts relatively few inspections of foreign establishments. Because 
FDA does not know how many foreign establishments manufacturing drugs 
and medical devices are actually subject to inspection, the exact 
percentage that has been inspected cannot be calculated with certainty. 
However, for fiscal year 2007, by using information from its databases, 
FDA compiled a list of 3,249 foreign drug manufacturing establishments 
for the purpose of prioritizing them for inspections that focus on 
compliance with GMPs. Using this count of establishments and the 
average number of foreign drug inspections conducted between fiscal 
years 2002 and 2007, we found that the agency may inspect about 8 
percent of such establishments in a given year. At this rate, it would 
take FDA more than 13 years to inspect each foreign drug establishment 
on this list once, assuming that no additional establishments are 
subject to inspection. Similarly, FDA estimated that it has inspected 
foreign establishments manufacturing medical devices that it considers 
high risk every 6 years and medium risk devices every 27 years. 

FDA’s inspections of drug and device manufacturers overseas are further 
challenged by unique circumstances posing difficulties that are not 
encountered domestically. For example, FDA does not have a dedicated 
staff to conduct foreign inspections. It is unable to conduct 
unannounced inspections of foreign manufacturers, as it sometimes does 
with domestic manufacturers. It also lacks the flexibility to easily 
extend foreign inspections if problems are encountered, due to the need 
to adhere to an itinerary that typically involves multiple inspections 
in the same country. Language barriers can add to the difficulty of 
these inspections. FDA does not routinely provide translators to its 
inspection teams. Instead, they may have to rely on an English-speaking 
representative of the establishment being inspected, rather than an 
independent translator. Although FDA has proposed initiatives to 
improve foreign inspections, including opening a limited number of 
overseas offices, it is too early to tell whether they will be 
effective. We recently recommended that FDA, among other things, 
improve the data it uses to manage the foreign drug inspection program 
and conduct more inspections of foreign establishments. HHS agreed that 
FDA should conduct more inspections of foreign establishments and 
elaborated on its efforts to improve its databases, but it did not 
provide specific time frames for accomplishing these tasks. 

Monitoring Postmarket Safety: 

FDA’s monitoring of postmarket safety of approved products has been 
questioned by numerous groups for more than 30 years. Several recent 
high-profile drug safety cases have continued to raise concerns that 
the agency did not respond appropriately or quickly enough to evidence 
that drugs already on the market were causing serious adverse reactions 
among patients. In 2004, FDA was criticized during congressional 
hearings for taking too long to tell physicians and patients about 
studies linking the use of antidepressants among children to an 
increased risk of suicidal behavior. In that same year, also during 
congressional hearings, it received criticism that it did not act 
quickly enough on evidence it obtained in 2001 about the cardiovascular 
risks of Vioxx, an anti-inflammatory drug. 

Among other things, we found that FDA lacked clear and effective 
processes for making decisions about, and providing management 
oversight of, postmarket safety issues.[Footnote 7] We also identified 
problems with the data sources FDA relies on to obtain information 
about postmarket drug safety. For example, while decisions about 
postmarket drug safety are often based on reports of adverse events, 
FDA cannot establish the true frequency of adverse events in the 
population through its data system. Because it cannot calculate the 
true frequency of such events, it is difficult to establish the 
magnitude of a safety problem. 

Reports of adverse events may also be confounded by other factors, such 
as other drug exposures. FDA may also rely on the results of clinical 
trials and observational studies, but we found that FDA has often 
relied on the voluntary agreement of drug sponsors to complete 
postmarket studies—many of which are never completed. The HHS OIG has 
also identified weaknesses in FDA’s postmarket monitoring of drugs, 
such as an ineffective management information system to track 
postmarket studies. It concluded that FDA was unable to readily 
determine whether studies were progressing toward completion. 

Although FDA has made some organizational and policy changes to its 
management and oversight of postmarket safety and received new 
authority to require and enforce that drug manufacturers conduct 
postmarket studies, when deemed necessary, we remain concerned with 
FDA’s progress and the potential public health consequences if FDA is 
not able to make decisions quickly. 

Reviewing Promotional Materials for Medical Products: 

As advertising and other promotions of prescription drugs have 
increased, the need for FDA’s scrutiny of such materials has also 
increased. The agency’s oversight is meant to ensure that promotional 
materials are not false or misleading and includes reviews of materials 
directed at both physicians and patients. Among other things, the 
agency seeks to identify materials that omit or minimize risks, 
overstate a medication’s effectiveness, or provide unsubstantiated 
comparative claims of superiority. In 2007, drug companies spent $6.7 
billion on promotions directed at medical professionals, such as 
advertisements in professional medical journals and materials provided 
by drug company sales representatives. They also spent $3.7 billion in 
direct-to-consumer advertising, including promotions found on 
television, radio, magazines, newspapers, and the Internet. 

FDA’s oversight has not kept pace with the workload generated by this 
spending. For example, in 2007, the agency received 68,000 separate 
submissions of promotional materials from drug companies. At that time 
FDA had no more than 44 full-time equivalent staff to review such 
materials and, thus, was only able to examine a small portion of them. 
As a consequence, FDA prioritizes its reviews in order to examine those 
promotional materials that have the greatest potential effect on public 
health. However, we have found that this prioritization is not 
systematic, and, as a result, the agency cannot ensure it is 
identifying those materials that may have the greatest adverse effect 
on public health, should they contain false or misleading information. 
[Footnote 6] 

We have also found the agency does not track information on its reviews 
and cannot determine how many materials it reviews in a given year. In 
addition to these reviews, FDA is limited in its ability to identify 
violations that would not be identified through its review of submitted 
material—for instance, presentations by drug companies at medical 
conferences and discussions between doctors and sales representatives 
in doctors’ offices. We found that when FDA does identify potentially 
violative promotional materials—such as those that promote the use of a 
drug for a broader range of patients than it has been found to be safe 
and effective for—it has taken the agency months to ask that the drug 
companies cease their dissemination of these materials and more time 
for the companies to respond to FDA’s request. Yet, multimillion-dollar 
settlements between the Department of Justice and drug manufacturers 
regarding allegations that manufacturers illegally promoted drugs by 
distributing violative advertising materials continue to point to the 
need for greater FDA scrutiny. We have recommended that FDA 
systematically prioritize materials for review and track these 
materials. HHS disagreed with our finding that promotional materials 
are not systematically prioritized by FDA. HHS also disagreed with our 
recommendation that FDA should track these materials. We continue to 
believe our recommendations merit action. 

Overseeing Clinical Trials: 

As part of its duties, FDA is charged with overseeing clinical trials 
of investigational new drugs before they are approved for marketing. 
These trials are critical to establishing the safety and efficacy of a 
drug prior to approval. However, weaknesses in FDA’s oversight of these 
trials have been reported by the HHS OIG. For example, the OIG recently 
reported on weaknesses in FDA’s ability to oversee the protection of 
human subjects in clinical drug trials. Among other things, the OIG 
found vulnerabilities, including data limitations, which inhibit FDA’s 
ability to effectively manage clinical trials conducted through its 
Bioresearch Monitoring Program. It also determined that few inspections 
are conducted of clinical trial sites—only 1 percent of such sites 
during fiscal years 2000-2005. We have also raised concerns regarding 
FDA’s oversight of clinical trials. For example, we reported on FDA’s 
oversight of these trials involving elderly persons and found many 
instances where FDA’s analyses of differences in the safety and 
effectiveness of particular drugs for various age groups were not 
reported in its clinical review summaries, even though the drugs were 
used to treat conditions more prevalent among the elderly.[Footnote 9] 
Similarly, we cited weaknesses involving the reporting of clinical 
trial results by drug companies that did not adequately distinguish the 
results of male participants from female participants.[Footnote 10] 
Because there are differences in the way men and women absorb, 
distribute, and metabolize drugs, it is important that clinical trials 
track whether men and women face different drug-related health risks. 
We found that FDA did not take full advantage of available data to 
learn more about the effects of drugs in women and recommended that the 
agency take steps to ensure that drug sponsors comply with regulations 
regarding the presentation of results by gender. We further recommended 
that FDA consistently and systematically discuss gender differences in 
their written reviews of new drug applications. FDA has not implemented 
this recommendation, which we made in 2001. 

Transforming EPA’s Processes for Assessing and Controlling Toxic 
Chemicals: 

The Environmental Protection Agency (EPA) lacks adequate scientific 
information on the toxicity of many chemicals that may be found in the 
environment—as well as on tens of thousands of chemicals used 
commercially in the United States. Scientific information on the 
toxicity of chemicals is needed to, among other things, support 
effective and informed decision making on whether EPA should establish 
controls to protect the public under such environmental laws as the 
Clean Air Act, the Safe Drinking Water Act, and the Toxic Substances 
Control Act (TSCA). EPA’s inadequate progress in assessing toxic 
chemicals significantly limits the agency’s ability to fulfill its 
mission of protecting human health and the environment. 

GAO recently reported that EPA’s Integrated Risk Information System 
(IRIS)—a database that contains EPA’s scientific position on the 
potential human health effects of exposure to more than 540 
chemicals—is at serious risk of becoming obsolete because the agency 
has not been able to complete timely, credible assessments or decrease 
its backlog of 70 ongoing assessments. Overall, EPA has finalized a 
total of only 9 assessments in the past 3 fiscal years. As of December 
2007, 69 percent of ongoing assessments had been in progress for more 
than five years, and 17 percent had been in progress for more than 9 
years. In addition, EPA data as of 2003 indicated that more than half 
of the 540 existing assessments may be outdated. Five years later, the 
percentage is likely to be much higher. 

Some of the IRIS assessments that have been in progress the longest 
cover key chemicals likely to cause cancer or other significant health 
effects. For example, EPA’s assessment of dioxin has been under way for 
18 years. The Assistant Administrator for Research and Development 
recently told a congressional committee that the agency is years away 
from completing the dioxin assessment, and, as of December 2008, EPA’s 
database providing the status of individual IRIS assessments does not 
indicate either a starting date for developing a draft assessment or an 
estimated completion date for this key assessment. Although dioxin is a 
known cancer-causing chemical to which humans are regularly exposed by 
eating such dietary staples as meats, fish, and dairy products, actions 
to protect the public will likely be delayed until the assessment is 
complete. Since EPA estimates that the assessment process for complex 
chemicals such as dioxin could take 6 to 8 years to complete, the 
public in the meantime will likely remain at risk. Other toxic 
chemicals with widespread human exposure whose assessments have been in 
progress for 10 or more years include formaldehyde, trichloroethylene, 
and tetrachloroethylene. 

EPA’s efforts to finalize the assessments have been thwarted by a 
combination of factors, including (1) two new OMB-required reviews of 
IRIS assessments by the Office of Management and Budget (OMB) and other 
federal agencies; (2) EPA management decisions, such as delaying some 
assessments to await new research or analyses; and (3) the compounding 
effect of delays—even one delay can have a domino effect, requiring the 
process to essentially be repeated to incorporate changing science. 
Thus, EPA’s decision to wait for new research on key chemicals rather 
than relying on the best available scientific data at the time of the 
assessment is conducted—as had been EPA’s general approach in the 
1990s—can have a significant impact on assessment completion dates, 
delaying the agency’s ability to protect the public from exposure to 
toxic chemicals. As a general rule, requiring that IRIS assessments be 
based on the best science available at the time of the assessment is a 
standard that would best support a goal of completing assessments with 
reasonable time periods and minimizing the need to conduct significant 
levels of rework. 

Moreover, the OMB-required reviews, which are not publicly available, 
are problematic because they involve other federal agencies in EPA’s 
IRIS assessment process in a manner that limits the credibility of IRIS 
assessments and hinders EPA’s ability to manage them. Specifically, 
some of the agencies providing input into the assessments are those 
that may be affected by the assessments should they lead to regulatory 
or other actions that would place additional requirements on the 
agencies. Importantly, these reviews lack transparency—a particular 
credibility concern in light of the involvement of agencies that may be 
affected by the outcome. 

GAO has also reported that EPA’s assessments of industrial chemicals 
under TSCA provide limited information on health and environmental 
risks. Most significantly, EPA does not routinely assess the risks of 
the roughly 80,000 industrial chemicals that are already in use in the 
United States. TSCA generally places the burden of obtaining data on 
these chemicals on EPA, rather than requiring the companies that 
produce the chemicals to develop and submit such data. This burden is 
costly and time-consuming since TSCA requires that EPA demonstrate that 
certain health or environmental risks are likely before it can require 
companies to further test their chemicals. TSCA provides slightly more 
robust authority in the case of new chemicals, about 700 of which are 
introduced into commerce annually. Chemical companies are required to 
provide EPA with certain information on new chemicals in 
“premanufacture notices,” and EPA may ban or limit their use if this 
information is inadequate. However, while 85 percent of premanufacture 
notices lack any health or safety test data, the agency does not often 
use its authority to obtain this information. In contrast, the European 
Union’s Registration, Evaluation and Authorization of Chemicals (REACH) 
legislation generally places the burden on companies to provide data on 
the chemicals they produce and to address the risks those chemicals 
pose to human health and the environment. 

Although numerous GAO reports have identified significant shortcomings 
with the IRIS assessment process and TSCA, and made recommendations to 
remedy them, EPA’s responses have not sufficiently improved the 
scientific information available to support critical decisions 
regarding whether and how to protect human health from toxic chemicals. 
For example, GAO recommended that EPA streamline and increase the 
transparency of its IRIS assessment process. However, when EPA 
implemented a new assessment process in 2008, it did not incorporate 
the recommendations. In fact, the new process exacerbates the 
productivity and credibility concerns GAO identified. In its previous 
reports on TSCA, GAO has recommended both statutory and regulatory 
changes to, among other things, strengthen EPA’s authority to obtain 
additional information from the chemical industry, shift more of the 
burden to chemical companies for demonstrating the safety of their 
chemicals, and enhance the public’s understanding of the risks of 
chemicals to which they may be exposed. Neither Congress nor EPA has 
implemented the most important recommendations aimed at providing EPA 
with the information needed to support its assessments of industrial 
chemicals. Without greater attention to EPA’s efforts to assess toxic 
chemicals, the nation lacks assurance that human health and the 
environment are adequately protected. 

[End of section] 

Progress Being Made in Other High-Risk Areas: 

In many other areas that remain on our 2009 high-risk list, there has 
been progress, including in one area, Department of Energy contract 
management, for which the scope has been narrowed. Top administration 
officials have expressed their commitment to ensuring that high-risk 
areas receive adequate attention and oversight. The Office of 
Management and Budget (OMB) has led an initiative to prompt agencies to 
develop action plans for each area on our high-risk list. 

A number of the more detailed plans establish specific goals and 
milestones for addressing the risks identified by us within the high-
risk areas. OMB has held regular meetings with agency officials as 
these plans have been developed and updated. Further, OMB has 
encouraged agencies to consult with us regarding the problems our past 
work has identified, as well as the many recommendations we have made. 
OMB has made these action plans publicly available on the Internet for 
the vast majority of high-risk areas we identified, thereby enhancing 
the visibility of high-risk areas and accountability for addressing 
high-risk problems. 

While progress on developing and implementing action plans has been 
mixed, collectively the plans are forming a foundation of 
accountability that, if sustained, could lead to significant movement 
toward addressing high-risk problems. Such a concerted effort by 
agencies and continued attention by OMB are critical; our experience 
over the past 19 years has shown that perseverance is required to fully 
resolve high-risk areas. Congress, too, will continue to play an 
important role through its oversight and, where appropriate, through 
legislative action targeting both specific problems and the high-risk 
areas overall. 

Examples of progress in other programs or operations that were 
previously designated as high risk are discussed below and in the 
highlights pages following this section. 

* Since the January 2007 high-risk update, the Department of Energy 
(DOE) has completed a root-cause analysis to better understand the 
underlying weaknesses with its contract and project management. Based 
on that root-cause analysis, DOE also completed a comprehensive 
corrective action plan to address these weaknesses, with both near-term 
and long-term goals and objectives. On the basis of these actions, and 
other improvements made over the past decade to establish a more 
structured and disciplined approach to contract and project management, 
GAO believes DOE as a whole has substantially met three of the five 
criteria necessary for removal from our high-risk list. Specifically, 
DOE has (1) demonstrated strong commitment and leadership, (2) 
demonstrated progress in implementing corrective measures, and (3) 
developed a corrective action plan that identifies root causes, 
effective solutions, and a near-term plan for implementing the 
solutions. Two criteria remain: having the capacity (people and 
resources) to resolve the problems and monitoring and independently 
validating the effectiveness and sustainability of corrective measures. 
Regarding capacity, DOE’s April 2008 root-cause analysis report 
recognized as one of the top 10 issues that the department lacked an 
adequate number of federal contracting and project personnel with the 
appropriate skills (such as cost estimating, risk management, and 
technical expertise) to plan, direct, and oversee project execution. 
Monitoring and validating the effectiveness and sustainability of 
corrective measures will take time to demonstrate. GAO’s recent work at 
the Office of Science—DOE’s third-largest program element—showed 
additional progress in meeting these criteria. Science officials are 
taking steps to address human capital and resource issues, and Science 
has demonstrated strong performance in meeting cost and schedule 
targets. Specifically, GAO’s work found that of 42 Office of Science 
projects completed or under way from fiscal years 2003 through 2007, 
more than two-thirds were completed or being carried out within 
original cost and schedule targets. 

Although projects across DOE will continue to receive scrutiny, 
especially as investments in the research and development of innovative 
energy technologies are projected to increase in the coming years, GAO 
has decided to narrow the scope of this high-risk area to focus on the 
two major program elements remaining within DOE that continue to 
experience significant problems—the National Nuclear Security 
Administration (NNSA) and the Office of Environmental Management (EM). 
Our work has shown that NNSA and EM do not yet consistently follow 
departmental requirements for project management and continue to 
struggle to meet cost and schedule goals on major projects. With a 
combined annual budget of more than $14 billion and with missions often 
involving complex one-of-a-kind efforts, consistent and rigorous 
contract and project management are vital. Furthermore, NNSA and EM are 
each facing daunting tasks over the coming decades. NNSA is embarking 
on a major initiative to modernize the nation's aging nuclear weapons 
production facilities, a project that will take more than a decade and 
cost, at a minimum, tens of billions of dollars. EM continues to face 
complex and long-term challenges in cleaning the legacy of radioactive 
and hazardous waste from decades of weapons production. Billions of 
dollars will be spent over the coming decades to build facilities to 
treat and dispose of millions of gallons of this waste. 

* Since the 2007 high-risk update, the National Aeronautics and Space 
Administration (NASA) has taken significant steps to improve its 
acquisition management with the implementation of new policies and 
procedures and the development of a corrective action plan to address 
weaknesses in areas identified as high risk by GAO. For example, NASA 
revised its acquisition and engineering polices to incorporate elements 
of a knowledge-based approach that should allow the agency to make 
informed decisions. The agency is also instituting a new approach 
whereby senior leadership is reviewing acquisition strategies earlier 
in the process and developed broad procurement tenets to guide the 
agency’s procurement practices. In order to improve its contracting and 
procurement process, NASA has instituted an agencywide standard 
contract writing application intended to ensure all contracts include 
the most up-to-date NASA contract clauses and to improve the efficiency 
of the contracting process. Among other procurement policy reforms, an 
earned value management procurement policy has been established and a 
requirement that all award fee contracts undergo a cost-benefit 
analysis has been codified to improve the likelihood that NASA is using 
its resources most effectively. In addition, NASA has approved new or 
revised policies pertaining to project management requirements and risk 
management procedural requirements. NASA has also focused significant 
attention on improving training related to high-risk areas and has 
developed training courses that focus on program management, cost 
estimating and other high-risk-related areas targeted for improvement. 
Implementing these actions will be challenging given budgetary and 
other pressures facing NASA. However, if done successfully, these 
measures should enable NASA to foster the expansion of a business-
oriented culture, reduce persistent cost growth and schedule delays, 
and maximize investment dollars. 

* Regarding the Medicare program, the Centers for Medicare & Medicaid 
Services (CMS) has made progress in the last 2 years in improving 
program management, reforming and refining its payment methods, 
enhancing program integrity, and overseeing patient care and safety. 
For example, the agency has made progress in implementing its reform of 
Medicare contracting by conducting competitions for claims 
administration services in more than half of the jurisdictions and has 
completed transferring 40 percent of the Medicare claims workload to 
nine Medicare administrative contractors. CMS has refined how it 
updates or sets payments for hospitals, home health agencies, and 
ambulatory surgery centers. In 2008, CMS improved its reporting of 
improper payments by including those made by the Medicare Advantage 
(MA) health plans, as well as those made in the traditional fee-for-
service parts of the program. In addition, CMS’s oversight of the 
quality of nursing home care has increased significantly in recent 
years, and the agency recently issued regulations to improve fire 
safety in nursing homes. Nevertheless, Medicare’s size, complexity, and 
vulnerability to mismanagement and improper payments suggest that its 
high-risk designation cannot be removed. For example, CMS is now 
estimating that in addition to the $10.4 billion in improper payments 
made to fee-for-service providers, MA plans made $6.8 billion in 
improper payments. This enhanced reporting of improper payments 
indicates that there are weaknesses in the MA program that CMS needs to 
address, as well as continuing issues in its fee-for-service payments. 

* The Department of Health and Human Services (HHS) and CMS have made 
some progress to improve the fiscal integrity and oversight of the 
Medicaid program, which was designated high risk in 2003. For example, 
CMS has taken steps to improve the oversight of certain Medicaid 
financial management activities, including issuing, for the first time, 
the rate of improper payments for a full year of the Medicaid program. 
HHS has also established a performance goal to improve accountability 
over approved Medicaid demonstrations, through the administration’s 
Program Assessment Rating Tool (PART) program. CMS has also taken some 
steps to improve its oversight of Medicaid supplemental payments, which 
totaled at least $23 billion in fiscal year 2006. The exact amount was 
unknown because of incomplete state reporting. While these HHS actions 
have been taken, several oversight weaknesses previously identified by 
GAO have not yet been addressed. For example, CMS has not incorporated 
the use of key Medicaid data systems into its oversight of states’ 
Medicaid claims, improved the criteria and process it uses to review 
the budget neutrality of Medicaid demonstrations prior to approving 
them, or taken certain recommended steps to enhance its oversight of 
states’ Medicaid supplemental payments. Further, CMS has estimated that 
the states made $32.7 billion in improper Medicaid payments, of which 
the federal share was $18.6 billion, for fiscal year 2007. The 
magnitude of the program’s payment errors indicates that CMS and the 
states face significant challenges to address the program’s 
vulnerabilities. The results of HHS and CMS actions will need to be 
assessed to determine their effectiveness in improving the program’s 
fiscal integrity. 

* The Department of Defense (DOD) has revised its policies and guidance 
to improve its acquisition of weapon systems and address contract 
management issues—two long-standing high-risk areas. For example, in 
December 2008, DOD revised its policy governing major defense 
acquisition programs in ways that aim to provide key department leaders 
with the knowledge needed to make informed decisions before a program 
starts and to maintain discipline once it begins. The revised policy 
includes the completion of key systems engineering activities before 
the start of the systems development, a requirement for more 
prototyping early in programs, and the establishment of review boards 
to monitor weapon system configuration changes. These changes are 
consistent with the knowledge-based approach to weapons development 
that GAO has recommended in its work. Similarly, DOD has issued 
guidance to address contracting weaknesses and promote the use of sound 
business arrangements. For example, in response to congressional 
direction and GAO recommendations, DOD has established a framework for 
reviewing major services acquisitions, developed guidance on linking 
monetary incentives for contractors to acquisition outcomes, and 
promulgated regulations to better manage its use of contracting 
arrangements that can pose additional risks for the government. These 
are positive steps, but inconsistent implementation has hindered past 
DOD efforts to address these high-risk areas. To improve outcomes on 
the whole, DOD must ensure that these policy changes and others are 
consistently put into practice and reflected in decisions made on 
individual acquisitions. 

* The Office of Management and Budget (OMB) and federal agencies have 
made progress toward improving the use of interagency contracting. At 
both the Department of Defense (DOD), the largest user of interagency 
contracting, and the agencies that provide contracting support for DOD, 
congressionally required reviews by agency inspectors general have 
found some improvements in procedures used in making purchases on 
behalf of DOD. These improvements have led DOD to rescind limits it had 
imposed on the use of the Department of the Interior’s interagency 
contracting services. More broadly, in June 2008, OMB issued policy 
guidance designed to improve the use of interagency contracting across 
the government. The guidance emphasizes that the use of interagency 
contracting is a shared responsibility between the requesting and 
servicing agencies and includes a checklist of roles and 
responsibilities for the agencies throughout the acquisition life 
cycle. It also includes a model interagency contracting agreement. But 
the issuance of guidance alone is not enough to ensure better outcomes. 
Success in improving the use of interagency contracting will require 
continued management attention by all parties involved, including 
agencies, servicing agencies, and OMB. 

[End of section] 

Highlights for Each High-Risk Area: 

Overall, the government continues to take high-risk problems seriously 
and is making long-needed progress toward correcting them. Congress has 
also acted to address several individual high-risk areas through 
hearings and legislation. Continued perseverance in addressing high-
risk areas will ultimately yield significant benefits. Lasting 
solutions to high-risk problems offer the potential to save billions of 
dollars, dramatically improve service to the American public, 
strengthen public confidence and trust in the performance and 
accountability of our national government, and ensure the ability of 
government to deliver on its promises. 

We have prepared highlights of each of the 30 high-risk areas on our 
updated list, showing (1) why the area is high risk; (2) the actions 
that have been taken and that are under way to address the problem 
since our last update, as well as the issues that are yet to be 
resolved; and (3) what remains to be done to address the risk. These 
highlights are presented on the following pages. 

High-Risk Series: Modernizing the Outdated U.S. Financial
Regulatory System (New): 

GAO Highlights: 

For additional information about this high-risk area, contact Orice M. 
Williams at (202) 512-8678 or williamso@gao.gov. 

Why Area Is Important: 

The United States has been experiencing the worst financial crisis in 
more than 75 years. While much of the attention of policymakers has 
been appropriately focused on taking short-term steps to address the
immediate nature of the crisis, these events have served to demonstrate 
that the current U.S. financial regulatory system is in need of 
significant reform. To address the crisis, actions are being taken by 
the Department of the Treasury, the Federal Reserve, the Federal 
Deposit Insurance Corporation, and others. These actions place 
potentially trillions of taxpayer dollars at risk. In addition, failure 
to modernize the regulatory system places the United States at risk of 
experiencing future crises. GAO is placing this area on the high-risk 
list for the first time. 

Why GAO IS Designating This Area As High Risk: 

The outbreak of the worst financial crisis since the Great Depression 
has revealed that the U.S. financial regulatory system has grown 
increasingly ill-suited to meet the nation’s needs in the 21st century. 
The current system is a fragmented, complex arrangement of federal and 
state regulators that arose over the past 150 years often in response 
to past crises. In the short term,U.S. regulators are taking 
unprecedented steps to stem the unraveling of the financial services 
sector. For example, GAO recently reported on a series of actions 
needed to be taken by the Department of the Treasury to better ensure 
the integrity, accountability, and transparency of the Troubled Asset 
Relief Program, intended to restore liquidity and stability to the 
financial system. As the administration and Congress continue to take 
actions to address the immediate financial crisis, determining how to 
create a regulatory system that reflects new market realities is a key 
step to reducing the likelihood that we will experience another 
financial crisis similar to the current one. 

Several significant changes in financial markets and products in recent
decades have revealed limitations and gaps in the existing regulatory 
system that, if not addressed, will continue to expose the financial 
system to serious risks. 

* First, regulators have struggled, and often failed, to mitigate the 
systemic risks posed by large and interconnected financial 
conglomerates and to ensure these institutions adequately manage their 
risks. The portion of firms operating as conglomerates that cross 
financial sectors of banking, securities, and insurance increased 
significantly in recent years, but none of the regulators is tasked 
with assessing the risks posed across the entire financial system. 

* Second, regulators have had to address problems in financial markets
resulting from the activities of large and sometimes less-regulated 
market participants—such as nonbank mortgage lenders, hedge funds, and 
credit rating agencies—some of which play significant roles in today’s 
financial markets. 

* Third, the increasing prevalence of new and more complex investment
products have challenged regulators and investors, and consumers have
faced difficulty understanding new and increasingly complex retail
mortgage and credit products. 

* Fourth, standard setters for accounting and financial regulators have
faced growing challenges in ensuring that accounting standards
appropriately respond to financial market developments and in addressing
challenges arising from the global convergence of accounting and 
auditing standards. 

* Finally, despite the increasingly global aspects of financial 
markets, the current fragmented U.S. regulatory structure has 
complicated some efforts to coordinate internationally with other 
regulators. 

The following framework presents nine characteristics that should be 
reflected in any new regulatory system. By applying the elements of 
this framework, the relative strengths and weaknesses of any reform 
proposal should be better revealed, and policymakers should be able to
focus on identifying trade-offs and balancing competing goals. 

Similarly, the framework GAO presents could be used to craft a proposal 
or to identify aspects to be added to existing proposals to make them 
more effective and appropriate for addressing the limitations of the 
current system. 

With trillions of dollars in loans, credit guarantees, and other 
assistance having been committed by government entities to address the 
current financial turmoil, ensuring that the United States has an 
effective and efficient financial regulatory system should serve to 
minimize additional exposures to taxpayers and potentially prevent 
large outlays by the federal government to address crises in the 
future. 

Characteristic: Clearly defined regulatory goals; 
Description: Goals should be clearly articulated and relevant, so that 
regulators can effectively carry out their missions and be held 
accountable. Key issues include considering the benefits of re-
examining the goals of financial regulation to gain needed consensus 
and making explicit a set of updated comprehensive and cohesive goals 
that reflect today’s environment. 

Characteristic: Appropriately comprehensive; 
Description: Financial regulations should cover all activities that 
pose risks or are otherwise important to meeting regulatory goals and 
should ensure that appropriate determinations are made about how 
extensive such regulations should be, considering that some activities 
may require less regulation than others. Key issues include identifying 
risk-based criteria, such as a product’s or institution’s potential to
create systemic problems, for determining the appropriate level of 
oversight for financial activities and institutions, including closing 
gaps that contributed to the current crisis. 

Characteristic: Systemwide focus; 
Description: Mechanisms should be included for identifying, monitoring, 
and managing risks to the financial system regardless of the source of 
the risk. Given that no regulator is currently tasked with this, key
issues include determining how to effectively monitor market 
developments to identify potential risks; the degree, if any, to which 
regulatory intervention might be required; and who should hold such
responsibilities. 

Characteristic: Flexible and adaptable; 
Description: A regulatory system that is flexible and forward looking 
allows regulators to readily adapt to market innovations and changes. 
Key issues include identifying and acting on emerging risks in a timely 
way without hindering innovation. 

Characteristic: Efficient and effective; 
Description: Effective and efficient oversight should be developed, 
including eliminating overlapping federal regulatory missions where 
appropriate. Any changes to the system should be continually focused on
improving the effectiveness of the financial regulatory system. Key 
issues include determining opportunities for consolidation given the 
large number of overlapping participants identifying the appropriate 
role of states and self-regulation, and ensuring a smooth transition to 
any new system. 

Characteristic: Consistent consumer and investor protection; 
Description: Consumer and investor protection should be included as 
part of the regulatory mission to ensure that market participants 
receive consistent, useful information, as well as legal protections 
for similar financial products and services, including disclosures, 
sales practice standards, and suitability requirements. Key issues 
include determining what amount, if any, of consolidation of 
responsibility may be necessary to streamline consumer protection 
activities across the financial services industry. 

Characteristic: Regulators provided with independence, prominence, 
authority, and accountability; 
Description: Regulators should have independence from inappropriate 
influence, as well as prominence and authority to carry out and enforce 
statutory missions, and be clearly accountable for meeting regulatory 
goals. With regulators with varying levels of prominence and funding 
schemes, key issues include how to appropriately structure and fund 
agencies to ensure that each one’s structure sufficiently achieves 
these characteristics. 

Characteristic: Consistent financial oversight; 
Description: Similar institutions, products, risks, and services should 
be subject to consistent regulation, oversight, and transparency, which 
should help minimize negative competitive outcomes while harmonizing
oversight, both within the United States and internationally. Key 
issues include identifying activities that pose similar risks, and 
streamlining regulatory activities to achieve consistency. 

Characteristic: Minimal taxpayer exposure; 
Description: A regulatory system should foster financial markets that 
are resilient enough to absorb failures and thereby limit the need for 
federal intervention and limit taxpayers’ exposure to financial risk. 
Key issues include identifying safeguards to prevent systemic crises, 
and minimizing moral hazard. 

[End of table] 

What Remains to Be Done: 

In the near term, oversight is needed to ensure that the government’s 
responses to the crisis achieve their goals effectively. In the longer 
term, modernizing the U.S. financial regulatory system will be a 
critical step to ensuring that the challenges of the 21st century can 
be met. In January 2009, GAO issued a report that described how market 
and product developments in recent decades have challenged the current 
system and presented an evaluation framework that should help 
policymakers make needed changes. 

Related GAO Products for: Modernizing the Outdated U.S. Financial 
Regulatory System: 

Financial Regulation: A Framework for Crafting and Assessing Proposals 
to Modernize the Outdated U.S. Financial Regulatory System. [hyperlink, 
http://www.gao.gov/products/GAO-09-216]. Washington, D.C.: January 8, 
2009. 

Troubled Asset Relief Program: Additional Actions Needed to Better 
Ensure Integrity, Accountability, and Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-09-161]. Washington, D.C.: December 2, 
2008. 

Information on Recent Default and Foreclosure Trends for Home Mortgages 
and Associated Economic and Market Developments. [hyperlink, 
http://www.gao.gov/products/GAO-08-78R]. Washington, D.C.: October 16, 
2007. 

Financial Regulation: Industry Trends Continue to Challenge the Federal 
Regulatory Structure. [hyperlink, 
http://www.gao.gov/products/GAO-08-32]. Washington, D.C.: October 12, 
2007. 

Financial Market Regulation: Agencies Engaged in Consolidated 
Supervision Can Strengthen Performance Measurement and Collaboration. 
[hyperlink, http://www.gao.gov/products/GAO-07-154]. Washington, D.C.: 
March 15, 2007. 

Financial Regulation: Industry Changes Prompt Need to Reconsider U.S. 
Regulatory Structure. [hyperlink, 
http://www.gao.gov/products/GAO-05-61]. Washington, D.C.: October 6, 
2004. 

[End of Highlights for Modernizing the Outdated U.S. Financial 
Regulatory System] 

High-Risk Series: Protecting Public Health through Enhanced Oversight 
of Medical Products (New): 

GAO Highlights: 

For additional information about this high-risk area, contact Marcia 
Crosse at (202) 512-7114 or crossem@gao.gov. 

Why Area Is Important: 

Americans depend on the Food and Drug Administration (FDA) to ensure 
the safety and effectiveness of medical products—drugs, biologics, and 
medical devices—marketed in the United States. In 2006, Americans 
filled over 3 billion prescriptions and received 235 million vaccines. 
In 2005, more than 100 million surgical procedures were performed, all
relying on the use of medical devices. The agency’s responsibilities 
begin long before a product is brought to market and continue after a 
product’s approval. In recent years FDA’s responsibilities have grown 
with the passage of laws containing new requirements, the complexity of
products submitted to FDA for approval, and the globalization of the 
medical products industry. Many, including FDA’s own Science Board and 
the National Academy of Sciences’ Institute of Medicine have questioned 
FDA’s ability to continue to adequately fulfill its mission. 

Why GAO Is Designating This Are As High Risk: 

GAO’s recent work echoes the conclusions reached by others that FDA is
facing significant challenges that compromise its ability to protect 
Americans from unsafe and ineffective medical products. Specifically, 
GAO identified challenges in: 

* Inspecting foreign establishments manufacturing drugs or medical
devices—FDA’s management of inspections has been compromised by
weaknesses in its databases which limit its ability to identify all
establishments subject to inspection. FDA also inspects relatively few
foreign establishments each year. For example, FDA used a list of 3,249
foreign drug establishments to prioritize its fiscal year 2007 
inspections that focus on good manufacturing practices. Based on this 
list, GAO estimated that FDA may inspect about 8 percent of such 
establishments in a given year, despite the increasing globalization of 
this and other industries FDA regulates. At this rate, it would take 
FDA more than 13 years to inspect each foreign drug establishment on 
this list once, assuming that no additional establishments are subject 
to inspection. 

* Monitoring postmarket drug safety—FDA has lacked clear and effective 
processes for its decision-making on postmarket safety issues. For 
example, the agency was criticized during congressional hearings for not
acting quickly enough on evidence it obtained about the cardiovascular
risks of Vioxx, an anti-inflammatory drug. GAO also identified problems
with the data systems FDA relies on to obtain safety information. 
Although FDA has made some changes to its management and oversight, GAO 
remains concerned with FDA’s progress and the potential public health 
consequences if it is not able to make decisions quickly. 

* Reviewing advertising and promotional materials—FDA’s review is meant
to ensure that these materials are not false or misleading. Because of 
the sheer volume of materials received—68,000 separate submissions for 
drug promotions in 2007—FDA was able to examine only a small portion of
them. GAO found that FDA’s prioritization of materials to review is not
systematic and that the agency does not track information on its 
reviews. In addition, when potentially violative materials are 
identified—such as materials that promote the use of a drug for a 
broader range of patients than it has been found to be safe and 
effective for—it has taken FDA months to ask that the drug company 
cease dissemination of these materials. 

• Overseeing clinical trials of investigational new drugs—GAO identified
weaknesses in reporting clinical trial results. For example, drug
companies often did not adequately distinguish the results of male from
female participants, despite the importance of determining whether men
and women face different drug-related health risks. 

What Remains to Be Done: 

GAO believes that, to better protect the public health, FDA needs to 
implement GAO recommendations that remain unaddressed. These include 
improving the data it uses to manage the foreign drug inspection 
program, conducting more inspections of foreign establishments, 
systematically prioritizing and tracking promotional materials for 
review, and taking steps to ensure that drug sponsors comply with
regulations regarding the presentation of clinical trial results. 

Related GAO Products for: Protecting Public Health through Enhanced 
Oversight of Medical Products: 

Drug Safety: Better Data Management and More Inspections Are Needed to 
Strengthen FDA’s Foreign Drug Inspection Program. [hyperlink, 
http://www.gao.gov/products/GAO-08-970]. Washington, D.C.: September 
22, 2008. 

Prescription Drugs: FDA’s Oversight of the Promotion of Drugs for Off-
Label Uses. [hyperlink, http://www.gao.gov/products/GAO-08-835]. 
Washington, D.C.: July 28, 2008. 

Medical Devices: FDA Faces Challenges in Conducting Inspections of 
Foreign Manufacturing Establishments. [hyperlink, 
http://www.gao.gov/products/GAO-08-780T]. Washington, D.C.: May 14, 
2008. 

Prescription Drugs: Trends in FDA’s Oversight of Direct-to-Consumer 
Advertising. [hyperlink, http://www.gao.gov/products/GAO-08-758T]. 
Washington, D.C.: May 8, 2008. 

Drug Safety: Preliminary Findings Suggest Recent FDA Initiatives Have 
Potential, but Do Not Fully Address Weaknesses in Its Foreign Drug 
Inspection Program. [hyperlink, 
http://www.gao.gov/products/GAO-08-701T]. Washington, D.C.: April 22, 
2008. 

Medical Devices: Challenges for FDA in Conducting Manufacturer 
Inspections. [hyperlink, http://www.gao.gov/products/GAO-08-428T]. 
Washington, D.C.: January 29, 2008. 

Prescription Drugs: FDA Guidance and Regulations Related to Data on 
Elderly Persons in Clinical Trials. [hyperlink, 
http://www.gao.gov/products/GAO-07-47R]. Washington, D.C.: September 
28, 2007. 

Drug Safety: Further Actions Needed to Improve FDA’s Postmarket 
Decision-making Process. [hyperlink, 
http://www.gao.gov/products/GAO-07-856T]. Washington, D.C.: May 9, 
2007. 

Prescription Drugs: Improvements Needed in FDA’s Oversight of Direct-to-
Consumer Advertising. [hyperlink, 
http://www.gao.gov/products/GAO-07-54]. Washington, D.C.: November 16, 
2006. 

Drug Safety: Improvement Needed in FDA’s Postmarket Decision-making and 
Oversight Process. [hyperlink, http://www.gao.gov/products/GAO-06-402]. 
Washington, D.C.: March 31, 2006. 

Women’s Health: Women Sufficiently Represented in New Drug Testing, but 
FDA Oversight Needs Improvement. [hyperlink, 
http://www.gao.gov/products/GAO-01-754]. Washington, D.C.: July 6, 
2001. 

[End of Highlights for Protecting Public Health through Enhanced 
Oversight of Medical Products] 

High-Risk Series: Transforming EPA’s Processes for Assessing and 
Controlling Toxic Chemicals (New): 

GAO Highlights: 

For additional information about this high-risk area, contact John 
Stephenson at (202) 512-3841 or stephensonj@gao.gov. 

Why Area Is Important: 

The Environmental Protection Agency’s (EPA) ability to effectively 
implement its mission of protecting public health and the environment 
is critically dependent on credible and timely assessments of the risks 
posed by toxic chemicals. Such assessments are the cornerstone of 
scientifically sound environmental decisions, policies, and regulations 
under a variety of statutes, such as the Safe Drinking Water Act, the 
Toxic Substances Control Act (TSCA), and the Clean Air Act. However,
EPA has failed to develop sufficient chemical assessment information
to limit public exposure to many chemicals that may pose substantial 
health risks. 

Why GAO Is Designating This Area As High Risk: 

EPA’s Integrated Risk Information System (IRIS). Created in 1985 to
provide EPA with consensus opinions within the agency on the health 
effects of chronic exposure to chemicals, the IRIS database provides 
the basic information EPA needs to determine whether it should 
establish controls to, for example, protect the public from exposure to 
toxic chemicals in the air and water and at hazardous waste sites. In 
2008, GAO reported that IRIS, which contains assessments of more than 
540 toxic chemicals, is at serious risk of becoming obsolete because 
EPA has not been able to keep its existing assessments current or to 
complete assessments of the most important chemicals of concern. 
Factors contributing to EPA’s inability to complete assessments in a 
timely manner include OMB-required reviews of IRIS assessments, certain 
management decisions, such as delaying some assessments to await new 
research, and the compounding effect of delays—even a single delay can 
force EPA to essentially restart assessments to incorporate changing 
science and methods. A number of key chemicals have been caught in this 
seemingly endless cycle, limiting EPA’s ability to protect the public 
health from ubiquitous chemicals that are likely to cause cancer or 
other serious health effects. For example, EPA’s formaldehyde and dioxin
assessments have been in progress for about 12 and 18 years, 
respectively. Overall, EPA has finalized a total of only 9 assessments 
in the past 3 fiscal years; as of December 2007, most of the 70 ongoing 
assessments had been in progress for more than 5 years; and more than 
half of all current assessments may be outdated. Moreover, the OMB-
required reviews, which are not publicly available, limit the 
credibility of the assessments because they involve federal agencies 
that may be affected by the assessments should they lead to regulatory 
actions. GAO recommended that EPA adopt a streamlined, more transparent 
assessment process. Instead, EPA adopted a revised process in 2008 that 
did not incorporate the recommendations and also exacerbates the 
productivity and credibility concerns GAO identified. 

TSCA. GAO has also reported that EPA’s assessments of industrial 
chemicals under TSCA provide limited information on health and 
environmental risks. TSCA generally places the burden of obtaining 
information about the roughly 80,000 chemicals already on the U.S. 
market on EPA, rather than on the companies that produce the chemicals. 
The act requires EPA to demonstrate that certain health or 
environmental risks are likely before it can require companies to 
further test their chemicals. As a result, EPA does not routinely
assess the risks of the industrial chemicals that are already in use. 
For the approximately 700 new chemicals introduced into commerce 
annually, chemical companies provide EPA with certain information in 
premanufacture notices, and EPA can ban or limit their use if this 
information is inadequate. Although 85 percent of the notices lack any 
health or safety test data, EPA does not often use its authority to 
obtain more information. This approach contrasts with the one taken by 
the European Union, which generally places the burden on companies to 
provide data on the chemicals they produce and to address the risks 
they pose to human health and the environment. 

What Remains to Be Done: 

Because the viability of the IRIS database has been further jeopardized 
by EPA’s revised IRIS assessment process, the agency should immediately 
implement GAO’s recommendations to streamline and increase the 
transparency of this assessment process. In reports on TSCA, GAO has 
recommended both statutory and regulatory changes to, among other 
things, provide EPA with additional authorities to obtain health and 
safety information from the chemical industry and to shift more of the 
burden to chemical companies for demonstrating the safety of their 
chemicals. Congress and EPA need to act on these important issues. 

Related GAO Products for: Transforming EPA’s Processes for Assessing 
and Controlling Toxic Chemicals: 

EPA Science: New Assessment Process Further Limits the Credibility and 
Timeliness of EPA’s Assessments of Toxic Chemicals. [hyperlink, 
http://www.gao.gov/products/GAO-08-1168T]. Washington, D.C.: September 
18, 2008. 

Chemical Assessments: EPA’s New Assessment Process Will Further Limit 
the Productivity and Credibility of Its Integrated Risk Information 
System. [hyperlink, http://www.gao.gov/products/GAO-08-810T]. 
Washington, D.C.: May 21, 2008. 

Toxic Chemicals: EPA’s New Assessment Process Will Increase Challenges 
EPA Faces in Evaluating and Regulating Chemicals. [hyperlink, 
http://www.gao.gov/products/GAO-08-743T]. Washington, D.C.: April 29, 
2008. 

Chemical Assessments: Low Productivity and New Interagency Review 
Process Limit the Usefulness and Credibility of EPA’s Integrated Risk 
Information System. [hyperlink, 
http://www.gao.gov/products/GAO-08-440]. Washington, D.C.: March 7, 
2008. 

Chemical Regulation: Comparison of U.S. and Recently Enacted European 
Union Approaches to Protect against the Risks of Toxic Chemicals. 
[hyperlink, http://www.gao.gov/products/GAO-07-825]. Washington, D.C.: 
August 17, 2007. 

Chemical Regulation: Actions Are Needed to Improve the Effectiveness of 
EPA's Chemical Review Program. [hyperlink, 
http://www.gao.gov/products/GAO-06-1032T]. Washington, D.C.: August 2, 
2006. 

Chemical Regulation: Approaches in the United States, Canada, and the 
European Union. [hyperlink, http://www.gao.gov/products/GAO-06-217R]. 
Washington, D.C.: November 4, 2005. 

Chemical Regulation: Options Exist to Improve EPA’s Ability to Assess 
Health Risks and Manage Its Chemical Review Program. [hyperlink, 
http://www.gao.gov/products/GAO-05-458]. Washington, D.C.: June 13, 
2005. 

[End of Highlights for Transforming EPA’s Processes for Assessing and 
Controlling Toxic Chemicals] 

High-Risk Series: 2010 Census (New in March 2008): 

GAO Highlights: 

For additional information about this high-risk area, contact Robert 
Goldenkoff at (202) 512-2757 or goldenkoffr@gao.gov, or David Powner at 
(202) 512-9286 or pownerd@gao.gov. 

Why Area Is High Rick: 

The decennial census is a constitutionally mandated enterprise 
essential to our nation. Census data are used to apportion and 
redistrict Congress and to help allocate billions of dollars in federal 
assistance to state and local governments each year. GAO initially 
designated the 2010 Census as a high-risk area in March 2008 because of 
(1) long-standing weaknesses in the U.S. Census Bureau’s (Bureau) 
information technology (IT) acquisition and contract management 
function, (2) problems with the performance of handheld computers used 
to collect data, and (3) uncertainty over the ultimate cost of the 
census, currently estimated at more than $14 billion. In response to 
GAO’s recommendations, the Bureau has made progress on these challenges,
in part by strengthening its risk management efforts. Still, the census 
remains high risk because a critical risk management exercise planned 
for 2008—a “dress rehearsal” of all census operations—was curtailed. As 
a result, key operations and systems, including some that will be used 
for the first time in a census, were not tested in concert with one 
another or under census-like conditions. 

What GAO Found: 

The lack of a full dress rehearsal limits the Bureau’s ability to 
demonstrate the various enumeration activities under near-census-like 
conditions. This is significant because while the Bureau has performed 
many of these activities in previous censuses, some operations—such as 
mailing a second questionnaire to households that do not complete their 
census forms by a certain date, the removal of late mail returns, and 
fingerprinting hundreds of thousands of temporary census workers—are 
new for 2010 and introduce new operational risks. Moreover, uncertainty 
over the cost of the census remains, as the Bureau has not fully 
updated or documented the components of its 2010 Census cost estimate. 

The Bureau canceled a full dress rehearsal, in part, because of 
performance problems with handheld computers (HHC) that were to be used 
in two large, labor-intensive operations: address canvassing, and 
following up with nonrespondents. However, because the HHCs experienced 
slow processing, freeze ups, and other technical problems, the Bureau 
abandoned plans to use them for nonresponse follow-up and will only use 
them for address canvassing, where the Bureau verifies map and address 
information. 

In lieu of a full dress rehearsal, the Bureau has tested, and will 
continue to test, individual components of the census prior to Census 
Day, April 1, 2010. However, the tests will be in isolation, and there 
will be no end-to-end test similar to what the dress rehearsal would 
have provided. For example, in December2008, the Bureau conducted an 
operational field test of the systems and software used for address 
canvassing, including the HHCs. Initial test results appear to be 
encouraging. However, more information is needed to determine the 
Bureau’s overall readiness for address canvassing as the test was not 
an end-to-end systems evaluation, did not validate all address 
canvassing requirements, and did not assess procedures or training. 

Moreover, the Bureau has yet to develop a testing plan for nonresponse
follow-up, its largest and most expensive census operation. According to
Bureau officials, they are currently focused on carrying out address
canvassing, the Bureau’s first major field operation, and that detailed 
plans for nonresponse follow-up should be in place soon. Consequently, 
while the December test and other evaluations will help inform future 
preparations, the schedule is becoming increasingly compressed, and 
little time will be available for the Bureau to make refinements. 
Importantly, the Bureau has made progress in addressing some of the 
challenges GAO has identified. For example, in November 2008, the 
Bureau issued a high-risk improvement plan that describes its strategy 
for managing risk and key actions to address GAO’s earlier 
recommendations. While these are steps in the right direction, the 
Bureau has yet to demonstrate that the full complement of census-taking
activities will work together as intended; as a result, the Bureau’s 
overall readiness for the 2010enumeration is uncertain. 

What Remains to Be Done: 

The Bureau will need to continue to address GAO’s recommendations to 
improve its IT management capabilities, complete operational planning, 
and update and document its cost estimates. Further, in the absence of 
a full dress rehearsal, the Bureau will need to ensure its readiness 
for the enumeration through continued rigorous end-to-end testing. 

Related GAO Products for: 2010 Census: 

2010 Census: The Bureau’s Plans for Reducing the Undercount Show 
Promise, but Key Uncertainties Remain. [hyperlink, 
http://www.gao.gov/products/GAO-08-1167T]. Washington, D.C.: September 
23, 2008. 

2010 Census: Census Bureau’s Decision to Continue with Handheld 
Computers for Address Canvassing Makes Planning and Testing Critical. 
[hyperlink, http://www.gao.gov/products/GAO-08-936]. Washington, D.C.: 
July 31, 2008. 

2010 Census: Census Bureau Should Take Action to Improve the 
Credibility and Accuracy of Its Cost Estimate for the Decennial Census. 
[hyperlink, http://www.gao.gov/products/GAO-08-554]. Washington, D.C.: 
June 16, 2008. 

2010 Census: Plans for Decennial Census Operations and Technology Have 
Progressed, but Much Uncertainty Remains. [hyperlink, 
http://www.gao.gov/products/GAO-08-886T]. Washington, D.C.: June 11, 
2008. 

2010 Census: Census at Critical Juncture for Implementing Risk 
Reduction Strategies. [hyperlink, 
http://www.gao.gov/products/GAO-08-659T]. Washington, D.C.: April 9, 
2008. 

Information Technology: Significant Problems of Critical Automation 
Program Contribute to Risks Facing 2010 Census. [hyperlink, 
http://www.gao.gov/products/GAO-08-550T]. Washington, D.C.: March 5, 
2008. 

Information Technology: Census Bureau Needs to Improve Its Risk 
Management of Decennial Systems. [hyperlink, 
http://www.gao.gov/products/GAO-08-259T]. Washington, D.C.: December 
11, 2007. 

Information Technology: Census Bureau Needs to Improve Its Risk 
Management of Decennial Systems. [hyperlink, 
http://www.gao.gov/products/GAO-08-79]. Washington, D.C.: October 5, 
2007. 

[End of Highlights for 2010 Census] 

High-Risk Series: Strategic Human Capital Management: 

GAO Highlights: 

For additional information about this high-risk area, contact Yvonne 
Jones at (202) 512-2717 or jonesy@gao.gov. 

Why Area is High Risk: 

GAO designated strategic human capital management as a high-risk area 
in 2001 because of the federal government’s long-standing lack of a 
consistent approach to human capital management. The area remains high 
risk because of a continuing need for a governmentwide framework to
advance human capital reform. This framework is vital to avoid further 
fragmentation within the civil service, ensure management flexibility 
as appropriate, allow a reasonable degree of consistency, provide 
adequate safeguards, and maintain a level playing field among agencies 
competing for talent. 

What GAO Found: 

Congress and the executive branch have taken steps to address the 
federal government's human capital shortfalls. For example, Congress 
provided agencies across the executive branch with additional human 
capital flexibilities, such as specific hiring authorities. The Office 
of Personnel Management (OPM) launched an 80-day hiring model to help 
speed up the hiring process and issued guidance on the use of hiring 
authorities and flexibilities. OPM has also helped agencies develop 
more strategic approaches to human capital management by putting a 
variety of tools and guidance on its Web site. 

While much progress has been made in the last few years to address human
capital challenges, strategic human capital management is a critical 
element in 18 of 30 GAO high-risk areas—one of which is the state of 
the federal acquisition workforce, which has been experiencing an 
increasing workload and complexity of responsibilities without adequate 
attention to its size, skills and knowledge, and succession planning. 
Thus, ample opportunities continue to exist for agencies to improve 
their strategic human capital management in four key areas and for 
OPM’s continued leadership in fostering and guiding improvements in 
these areas. 

* Leadership: Top leadership in agencies across the federal government 
must provide committed and inspired attention needed to address human
capital and related organizational transformation issues. 

* Strategic human capital planning: Strategic human capital planning 
that is integrated with broader organizational strategic planning is 
critical to ensuring agencies have the talent and skill mix they need 
to address their current and emerging human capital challenges, 
especially as the federal government faces a retirement wave. 

* Acquiring, developing, and retaining talent: Faced with a workforce 
that is becoming more retirement eligible and finding gaps in talent, 
agencies need to strengthen their efforts and use of available 
flexibilities to acquire, develop, motivate, and retain talent. 

* Results-oriented organizational culture: Leading organizations create 
a clear linkage—“line of sight”—between individual performance and
organizational success and, thus, transform their workplaces and 
cultures to be more results-oriented, customer-focused, collaborative, 
diverse, and inclusive. 

OPM and federal agencies should be held accountable for the ongoing
monitoring and refinement of human capital approaches to recruit, hire,
develop, motivate, and retain a capable and committed federal workforce.
With continued commitment and strong leadership, the federal government
can be an employer of choice. 

What Remains to Be Done: 

GAO has suggested that until a governmentwide framework to advance 
human capital reform is in place, agencies still need to take actions 
to help address the complex challenges. Specifically, (1) top agency 
leaders must commit to addressing human capital and related 
organizational transformation issues; (2) human capital planning 
efforts need to be fully integrated with mission and critical program 
goals; (3) continued efforts are needed to improve recruiting, hiring,
professional development, and retention strategies, to ensure agencies 
have needed talent; and (4) organizational cultures need to promote 
high performance and accountability, empower and include employees in 
setting and accomplishing programmatic goals, and ensure diversity at 
all levels of the workforce. 

Related GAO Products for: Strategic Human Capital Management: 

Human Capital: Diversity in the Federal SES and Processes for Selecting 
New Executives. [hyperlink, http://www.gao.gov/products/GAO-09-110]. 
Washington, D.C.: November 26, 2008. 

Results-Oriented Management: Opportunities Exist for Refining the 
Oversight and Implementation of the Senior Executive Performance-Based 
Pay System. [hyperlink, http://www.gao.gov/products/GAO-09-82]. 
Washington, D.C.: November 21, 2008. 

Human Capital: DOD Needs to Improve Implementation of and Address 
Employee Concerns about Its National Security Personnel System. 
[hyperlink, http://www.gao.gov/products/GAO-08-773]. Washington, D.C.: 
September 10, 2008. 

Human Capital: Transforming Federal Recruiting and Hiring Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-08-762T]. Washington, D.C.: 
May 8, 2008. 

Older Workers: Federal Agencies Face Challenges, but Have Opportunities 
to Hire and Retain Experienced Employees. [hyperlink, 
http://www.gao.gov/products/GAO-08-630T]. Washington, D.C.: April 30, 
2008. 

Office of Personnel Management: Opportunities Exist to Build on Recent 
Progress in Internal Human Capital Capacity. [hyperlink, 
http://www.gao.gov/products/GAO-08-11]. Washington, D.C.: October 31, 
2007. 

Federal Acquisitions and Contracting: Systemic Challenges Need 
Attention. [hyperlink, http://www.gao.gov/products/GAO-07-1098T]. 
Washington, D.C.: July 17, 2007. 

Human Capital: Greater Focus on Results in Telework Programs Needed. 
[hyperlink, http://www.gao.gov/products/GAO-07-1002T]. Washington, 
D.C.: June 12, 2007. 

Human Capital: Federal Workforce Challenges in the 21st Century. 
[hyperlink, http://www.gao.gov/products/GAO-07-556T]. Washington, D.C.: 
March 6, 2007. 

Office of Personnel Management: Key Lessons Learned to Date for 
Strengthening Capacity to Lead and Implement Human Capital Reforms. 
[hyperlink, http://www.gao.gov/products/GAO-07-90]. Washington, D.C.: 
January 19, 2007. 

GAO’s Congressional and Presidential Transition Web Site: 

For additional information on human capital issues facing the federal 
government, visit GAO’s Web site on the 2009 congressional and 
presidential transition: 
[hyperlink, http://www.gao.gov/transition_2009/challenges/human-capital-
management.php] 

[hyperlink, 
http://www.gao.gov/transition_2009/challenges/acquisition_management/ens
ure_capacity.php] 

[End of Highlights for Strategic Human Capital Management] 

High-Risk Series: Managing Federal Real Property: 

GAO Highlights: 

For additional information about this high-risk area, contact Mark L. 
Goldstein at (202) 512-2834 or goldsteinm@gao.gov. 

Why Area is High Risk: 

Federal agencies continue to face long-standing problems, including 
excess and underutilized property, deteriorating facilities, and 
reliance on costly leasing. Protecting federal facilities from 
terrorism is also an ongoing challenge. Progress has been made due to 
the Office of Management and Budget’s (OMB) and agencies’ attention to 
this area, but the problems that led to the designation of real property
management as a high-risk area in 2003 persist. In addition, deep-rooted
obstacles, including competing stakeholder interests and legal and 
budgetary limitations, will continue to affect reform efforts. As a 
result, this area remains high risk. 

What GAO Found: 

Long-standing problems with excess and underutilized property, 
deteriorating facilities, unreliable real property data, over reliance 
on costly leasing, and security challenges led to GAO’s high-risk 
designation in 2003. In response to an administration reform initiative 
and Executive Order 13327, agencies have, among other things, 
established asset management plans, standardized data, and adopted 
performance measures. The executive order also established the Federal 
Real Property Council to promote reform efforts. In April 2008, OMB 
reported that the President had set a goal of disposing of $15 billion 
in unneeded assets by 2015, including $7 billion that agencies had 
disposed of since 2004. OMB also reported success in developing a 
comprehensive database of federal real property assets. GAO plans to 
monitor these efforts. 

While these actions represent positive steps, some of the core problems 
that led to the designation of this area as high risk persist. For 
example, in January 2008, GAO reported that agencies’ reliance on 
leasing instead of ownership was increasing. In fact, the General 
Services Administration (GSA), which acts as the government’s leasing 
agent, predicted that in 2008 it would, for the first time, lease more 
property than it owned. In addition, in October 2008, GAO reported that 
the government’s fiscal exposure from repair and maintenance backlogs 
is unclear and that agencies generally expect their backlogs to 
increase as buildings age and construction costs increase. GAO had 
reported in April 2007 that the backlog for six large agencies exceeded 
$16 billion. Regarding security, GAO reported in June 2008 that the
Federal Protective Service—a unit of the Department of Homeland 
Security—faces operational challenges that have increased the risk of 
crime or terrorist attacks at about 9,000 GSA facilities. 

As GAO has reported in the past, real property management problems have
been exacerbated by deep-rooted obstacles that include competing
stakeholder interests, various legal and budget-related limitations, 
and the need for better capital planning among agencies. For example, 
competing stakeholder interests—such as local resistance to giving up a 
federal presence—pose a barrier to disposal of property. Legal and 
budgetary limitations—such as funding needed to prepare property for 
disposal and the inability of some agencies to retain sale proceeds—are 
also obstacles. While reforms to date are positive, the new 
administration and Congress will be challenged to sustain reform 
momentum and reach consensus on how the obstacles should be addressed. 

What Remains to Be Done: 

A challenge for the incoming administration will be to sustain ongoing 
reform efforts in real property management and show continued progress 
in eliminating problems, such as excess property and repair backlogs. 
To solidify the reform efforts, GAO supports enacting the executive 
order 13327 requirements into law. Furthermore, agencies continue to
face deep-rooted obstacles that will require strategies that are well
thought out, and in some cases, additional changes in law. To inform 
these efforts, OMB and agencies need to address the obstacles more 
directly through a re-assessment of options, which GAO has recommended. 
Although progress has been made, it is unlikely that a large-scale
transformation in this area will occur unless this is done. 

Related GAO Products for: Managing Federal Real Property: 

Federal Real Property: Government’s Fiscal Exposure from Repair and 
Maintenance Backlogs Is Unclear. [hyperlink, 
http://www.gao.gov/products/GAO-09-10]. Washington, D.C.: October 16, 
2008. 

Homeland Security: The Federal Protective Service Faces Several 
Challenges That Hamper Its Ability to Protect Federal Facilities. 
[hyperlink, http://www.gao.gov/products/GAO-08-683]. Washington, D.C.: 
June 11, 2008. 

Federal Real Property: Strategy Needed to Address Agencies’ Long-
standing Reliance on Costly Leasing. [hyperlink, 
http://www.gao.gov/products/GAO-08-197]. Washington, D.C.: January 24, 
2008. 

Federal Real Property: Progress Made toward Addressing Problems, but 
Underlying Obstacles Continue to Hamper Reform. [hyperlink, 
http://www.gao.gov/products/GAO-07-349]. Washington, D.C.: April 13, 
2007. 

Federal Capital: Three Entities’ Implementation of Capital Planning 
Principles Is Mixed. [hyperlink, 
http://www.gao.gov/products/GAO-07-274]. Washington, D.C.: February 23, 
2007. 

Homeland Security: Guidance and Standards Are Needed for Measuring the 
Effectiveness of Agencies’ Facility Protection Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-06-612]. Washington, D.C.: May 31, 
2006. 

[End of Highlights for Managing Federal Real Property] 

High-Risk Series: Protecting the Federal Government’s Information 
Systems and the Nation’s Critical Infrastructures: 

GAO Highlights: 

For additional information about this high-risk area, contact David 
Powner at (202) 512-9286 or pownerd@gao.gov, or Gregory C. Wilshusen at 
(202) 512-6244 or wilshuseng@gao.gov. 

Why Area IS High Risk: 

Federal agencies and our nation’s critical infrastructures—such as 
power distribution, water supply, telecommunications, national defense, 
and emergency services—rely extensively on computerized information 
systems and electronic data to carry out their operations. The security 
of these systems and data is essential to preventing disruptions in 
critical operations, fraud, and inappropriate disclosure of sensitive 
information. Protecting federal computer systems and the systems that 
support critical infrastructures—referred to as cyber critical 
infrastructure protection, or cyber CIP—is a continuing concern. Federal
information security has been on GAO’s list of high-risk areas since 
1997; in 2003, GAO expanded this high-risk area to include cyber CIP.
The continued risks to information systems include escalating and 
emerging threats; the ease of obtaining and using hacking tools; the 
steady advance in the sophistication of attack technology; and the 
emergence of new and more destructive attacks. 

What GAO Found: 

Federal agencies have made progress in strengthening information 
security, as required by the Federal Information Security Management 
Act of 2002 (FISMA). The administration has also launched several 
initiatives that are intended to improve security over federal systems, 
such as establishing security configurations for desktop computers and 
reducing the number of federal access points to the Internet. However, 
most agencies continue to experience significant deficiencies that 
jeopardize the confidentiality, integrity, and availability of their 
systems and information. For example, agencies did not consistently 
implement effective controls to prevent, limit, and detect unauthorized 
access or manage the configuration of network devices to prevent 
unauthorized access and ensure system integrity. A primary reason for 
these problems is that agencies have not fully institutionalized 
comprehensive security management programs, which are critical for 
identifying and resolving weaknesses and managing risks on an ongoing 
basis. Until agencies implement the hundreds of recommendations made by 
GAO and their inspectors general to resolve identified deficiencies and 
fully implement effective security programs, a broad array of federal 
assets and operations will remain at unnecessary risk of fraud, misuse, 
and disruption. 

As the focal point for federal efforts to protect the nation’s critical
infrastructures, the Department of Homeland Security (DHS) has key cyber
security responsibilities, including developing a national plan for 
cyber critical infrastructure protection; planning for and coordinating 
cyber incident response and recovery; and identifying and assessing 
cyber threats and vulnerabilities. In its 2007 high-risk report, GAO 
reported that although DHS had taken steps to fulfill its 
responsibilities—including establishing the U.S. Computer Emergency 
Readiness Team, developing high-level plans for infrastructure 
protection and incident response, establishing public/private working 
groups to facilitate coordination among government and industry, and 
organizing exercises in which government and private industry can 
practice responding to cyber events—DHS had not completely fulfilled 
any of its key responsibilities. GAO had made recommendations to 
address these shortfalls. Since then, DHS continues to make progress in 
several areas, and GAO’s work also continues to highlight areas 
requiring further attention. Since 2006, GAO has made numerous 
recommendations in the following key areas: 

* bolstering cyber analysis and warning capabilities. 

* reducing organizational inefficiencies. 

* completing actions identified during cyber exercises. 

* developing sector-specific plans that fully address all cyber-related
criteria. 

* improving cyber security of infrastructure control systems. 

* strengthening DHS’s ability to help recover from Internet 
disruptions. 

Until these and other key cyber security areas are effectively 
addressed, the nation’s cyber critical infrastructure is at risk of 
increasing threats posed by terrorists, nation-states, and others. 

What Remains to Be Done: 

Additional federal efforts are needed to establish effective 
information security programs that are consistent with FISMA, including 
resolving identified deficiencies. Federal cyber CIP actions should 
include fulfilling key cyber security responsibilities, such as 
bolstering cyber analysis and warning capabilities, improving 
infrastructure control systems cyber security, and strengthening DHS’s 
ability to help recover from Internet disruptions. 

Related GAO Products for: Protecting the Federal Government’s 
Information Systems and the Nation’s Critical Infrastructures: 

Critical Infrastructure Protection: DHS Needs to Better Address Its 
Cybersecurity Responsibilities. [hyperlink, 
http://www.gao.gov/products/GAO-08-1157T]. Washington, D.C.: September 
16, 2008. 

Information Security: Actions Needed to Better Protect Los Alamos 
National Laboratory’s Unclassified Computer Network. [hyperlink, 
http://www.gao.gov/products/GAO-08-1001]. Washington, D.C.: September 
9, 2008. 

Cyber Analysis and Warning: DHS Faces Challenges in Establishing a 
Comprehensive National Capability. [hyperlink, 
http://www.gao.gov/products/GAO-08-588]. Washington, D.C.: July 31, 
2008. 

Information Security: Federal Agency Efforts to Encrypt Sensitive 
Information Are Under Way, but Work Remains. [hyperlink, 
http://www.gao.gov/products/GAO-08-525]. Washington, D.C.: June 27, 
2008. 

Information Security: TVA Needs to Address Weaknesses in Control 
Systems and Networks. [hyperlink, 
http://www.gao.gov/products/GAO-08-526]. Washington, D.C.: May 21, 
2008. 

Information Security: Progress Reported, but Weaknesses at Federal 
Agencies Persist. [hyperlink, http://www.gao.gov/products/GAO-08-571T]. 
Washington, D.C.: March 12, 2008. 

Information Security: Protecting Personally Identifiable Information. 
[hyperlink, http://www.gao.gov/products/GAO-08-343]. Washington, D.C.: 
January 25, 2008. 

Information Security: IRS Needs to Address Pervasive Weaknesses. 
[hyperlink, http://www.gao.gov/products/GAO-08-211]. Washington, D.C.: 
January 8, 2008. 

Critical Infrastructure Protection: Multiple Efforts to Secure Control 
Systems Are Under Way, but Challenges Remain. [hyperlink, 
http://www.gao.gov/products/GAO-08-119T]. Washington, D.C.: October 17, 
2007. 

Critical Infrastructure Protection: Sector-Specific Plans’ Coverage of 
Key Cyber Security Elements Varies. [hyperlink, 
http://www.gao.gov/products/GAO-08-113]. Washington, D.C.: October 31, 
2007. 

Information Security: Sustained Management Commitment and Oversight Are 
Vital to Resolving Long-standing Weaknesses at the Department of 
Veterans Affairs. [hyperlink, http://www.gao.gov/products/GAO-07-1019]. 
Washington. D.C.: September 7, 2007. 

Information Security: Despite Reported Progress, Federal Agencies Need 
to Address Persistent Weaknesses. [hyperlink, 
http://www.gao.gov/products/GAO-07-837]. Washington, D.C.: July 27, 
2007. 

[End of Highlights for Protecting the Federal Government’s Information 
Systems and the Nation’s Critical Infrastructures] 

High-Risk Series: Implementing and Transforming the Department of 
Homeland Security: 

GAO Highlights: 

For additional information about this high-risk area, contact Cathleen 
Berrick at (202) 512-3404 or berrickc@gao.gov. 

Why Area is High Risk: 

GAO designated implementing and transforming the Department of Homeland 
Security (DHS) as high risk in 2003 because DHS had to transform 22 
agencies—several with major management challenges—into one department,
and failure to effectively address its management challenges and 
program risks could have serious consequences for our national 
security. The areas GAO identified as at risk included planning and
priority setting; accountability and oversight; and a broad array of
management, programmatic, and partnering challenges. Continued 
oversight and monitoring of DHS’s transformation efforts are 
particularly important in light of the transition to a new Congress
and administration. 

What GAO Found: 

Although DHS has made progress in transforming into a fully functioning
department, this transformation remains high risk because DHS has not 
yet developed a comprehensive plan to address the transformation, 
integration, management and mission challenges GAO identified since 
2003. With an annual budget of more than $40 billion—including billions 
in acquisitions, research and development, and grants to states and 
localities—the department’s successful transformation is critical to 
achieving its mission. DHS has developed an Integrated Strategy for 
High Risk Management that outlines the department’s process for, among 
other things, assessing risks and proposing initiatives to address 
challenges, but the strategy lacks details for the transformation of 
DHS and integration of its management functions. DHS has also developed 
corrective action plans to address management challenges that contain 
several of the key elements GAO has identified for a corrective action 
plan, including defining the root causes of problems, identifying 
initiatives to address the causes and setting milestones for 
completion, and designating high-level officials to be responsible for 
implementing the plans. However, the plans generally do not contain 
measures to gauge performance and progress, nor do they identify the 
resources needed to carry out the corrective actions identified. 
Furthermore, in some cases, required elements need to be strengthened 
or clarified, including more directly linking planned initiatives to 
root causes and milestones. DHS has developed a framework to monitor 
the implementation of its corrective action plans, but has just begun
to demonstrate progress in implementing corrective actions. 

Since GAO’s 2007 update, DHS has made progress in strengthening its
management functions, but more work remains for DHS to integrate these
functions. DHS has reduced financial internal control weaknesses, but 
has not yet integrated its financial management systems. DHS has also 
taken action to organize the acquisition function and develop clear 
acquisition policies and processes, but needs to begin implementing 
these policies and continue to develop its acquisition workforce. DHS 
has heavily invested in information technology, but has not 
institutionalized related management controls, such as more disciplined 
program and information security management. DHS has worked to 
implement its human capital system, but has faced challenges in 
implementing a market-based and more performance-oriented pay system. 

DHS has generally made more progress in implementing its mission 
activities than its management functions, reflecting an initial focus 
on efforts to secure the homeland. DHS has improved its performance 
goals and measures and strengthened its risk management activities in 
its mission areas. DHS has strengthened partnerships to prepare for and 
respond to disasters and secure transportation and other critical 
infrastructure sectors. However, DHS can improve implementation of 
mission activities, including further clarifying roles and 
responsibilities for emergency preparedness and response, implementing 
controls to screen individuals and cargo, and enhancing partnerships to 
secure critical infrastructure, among other areas. 

What Remains to Be Done: 

GAO’s prior work on mergers and transformations concluded that 
successful transformations of large organizations, even those faced
with less strenuous reorganizations than DHS, can take years to 
achieve. For DHS to successfully transform into a more effective 
organization, it needs to (1) revise its Integrated Strategy for High
Risk Management and related corrective action plans to better define 
root causes, include the resources required to implement corrective 
actions, and identify key performance measures to gauge progress; and 
(2) continue to identify, refine, and implement corrective actions to 
improve management functions—including financial, information 
technology, human capital, and acquisition—and address programmatic and
partnering challenges. For details, visit GAO’s Transition Web site. 

Related GAO Products for: Implementing and Transforming the Department 
of Homeland Security: 

GAO Products Department of Homeland Security: Billions Invested in 
Major Programs Lack Appropriate Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-09-29]. Washington, D.C.: November 18, 
2008. 

Government Performance: Lessons Learned for the Next Administration on 
Using Performance Information to Improve Performance. [hyperlink, 
http://www.gao.gov/products/GAO-08-1026T]. Washington, D.C.: July 24, 
2008. 

Emergency Management: Observations on DHS's Preparedness for 
Catastrophic Disasters. [hyperlink, 
http://www.gao.gov/products/GAO-08-868T]. Washington, D.C.: June 11, 
2008. 

Transportation Security: Efforts to Strengthen Aviation and Surface 
Transportation Security Continue to Progress, But More Work Remains. 
[hyperlink, http://www.gao.gov/products/GAO-08-651T]. Washington, D.C.: 
April 15, 2008. 

Highlights of a Forum Convened by the Comptroller General of the United 
States: Strengthening the Use of Risk Management Principles in Homeland 
Security. [hyperlink, http://www.gao.gov/products/GAO-08-627SP]. 
Washington, D.C.: April 15, 2008. 

Department of Homeland Security: Progress Report on Implementation of 
Mission and Management Functions. [hyperlink, 
http://www.gao.gov/products/GAO-07-454]. Washington, D.C.: August 17, 
2007. 

Homeland Security: DHS Enterprise Architecture Continues to Evolve, but 
Improvements Needed. [hyperlink, 
http://www.gao.gov/products/GAO-07-564]. Washington, D.C.: May 9, 2007. 

Homeland Security: Departmentwide Integrated Financial Management 
Systems Remain a Challenge. [hyperlink, 
http://www.gao.gov/products/GAO-07-536]. Washington, D.C.: June 21, 
2007. 

GAO’s Congressional and Presidential Transition Web Site: 

For additional information on issues facing the Department of Homeland 
Security, visit GAO’s Web site on the 2009 congressional and 
presidential transition: [hyperlink, 
http://www.gao.gov/transition_2009/agency/dhs/]. 

DHS Products: 

DHS Office of the Inspector General. Major Management Challenges Facing 
the Department of Homeland Security. OIG-09-08. Washington, D.C.: 
November 2008. 

[End of Highlights for Implementing and Transforming the Department of 
Homeland Security] 

High-Risk Series: Establishing Effective Mechanisms for Sharing 
Terrorism-Related Information to Protect the Homeland: 

GAO Highlights: 

For additional information about this high-risk area, contact Eileen 
Regen Larence at (202) 512-6510 or larencee@gao.gov. 

Why Area Is High Risk: 

In January 2005, GAO designated terrorism-related information sharing 
as high risk because the government faced serious challenges in 
analyzing key information and disseminating it among federal, state, 
local, and private partners in a timely, accurate, and useful way. GAO 
and the Office of Management and Budget (OMB) have since monitored 
efforts to provide a plan, commitment, and measures to ensure needed 
sharing is achieved. The federal government has devised improvement 
plans, is making financial commitments, and is developing performance
measures but needs a better road map and system of accountability to 
ensure the needed sharing is achieved. As a result, this area remains 
high risk. 

What GAO Found: 

More than 7 years after 9/11, federal, state, local, and private 
partners are sharing more terrorism-related information in new ways 
across new channels. But Congress and the new administration will need 
to be vigilant to ensure commitment for integrating and 
institutionalizing these changes, holding agencies accountable for 
results, and maintaining momentum. Agencies are now collaborating on an 
overarching Information Sharing Environment (ISE)—described as an 
approach for the sharing of terrorism-related information—by following 
an implementation plan, establishing a governance structure and 
interagency working groups, and making annual funding commitments. 
Agencies also completed several steps, including issuing standards to 
guide technology and sharing, as well as a new policy that provides for 
a more consistent way to handle and protect sensitive 
information—removing a barrier to sharing that GAO had previously 
identified. Putting in place guidance, training, and internal controls 
for the new policy will help to ensure that information is not overly 
restricted. In addition, agencies created a new group whose task is to 
obtain federal consensus on how valid and reliable terrorist threat 
information is before it is shared with state and local partners, 
although it was too early to judge the group’s sustainability and 
success. Furthermore, agencies now have one consolidated list of 
individuals who may pose terrorist threats for screening travelers at 
ports of entry and for other purposes. However, GAO found that agencies 
had not developed an updated screening strategy and investment plan, 
which in turn could help to address potential screening vulnerabilities
and interagency conflicts GAO identified. Overall, agencies are making
progress on the ISE but still face some challenging implementation 
steps. Specifically, GAO found that the scope, projects, and 
milestones—the road map—for guiding the future ISE were not fully 
defined and, along with OMB, observed that the expected results and 
metrics—the system of accountability—to ensure progress were not in 
place. 

The Departments of Homeland Security (DHS) and Justice (DOJ)—key ISE 
agencies—are taking their own steps to improve sharing. DHS is 
implementing an information sharing policy and governance structure to
improve how it collects, analyzes, and shares homeland security 
information across the department and with state and local 
partners—although GAO found that DHS had not fully defined requirements 
or ways to better manage risks for the next version of its Homeland 
Security Information Network, a key vehicle for sharing. In addition, 
DHS paired with DOJ to provide guidance, funds, people, information, 
and technical support to state and local fusion centers, which the 
government plans to link into a national ISE network. GAO’s work showed 
that centers vary widely in maturity and capabilities but face some 
common challenges—information overload; analyst recruitment, training, 
and retention; and especially long-term sustainability. A recent law
frees up federal grants to help sustain personnel, but the government 
has not defined and articulated the extent to which it will help 
sustain centers long term. 

What Remains to Be Done: 

GAO recommended that agencies provide a better road map and system of 
accountability to guide overall information sharing initiatives, as 
well as ways to enhance individual efforts, including: (1) providing 
guidance, training, and internal controls for protecting yet sharing 
sensitive information; (2) updating the interagency strategy and
investment plan for sharing terrorist information used to screen for 
threats; (3) fully defining requirements and better managing risks for 
the update to DHS’s key information sharing network; and (4) defining 
and articulating the government’s role in sustaining state and local 
information sharing (fusion) centers. 

Related GAO Products for: Establishing Effective Mechanisms for Sharing 
Terrorism-Related Information to Protect the Homeland: 

Information Technology: Management Improvements Needed on the 
Department of Homeland Security’s Next Generation Information Sharing 
System. [hyperlink, http://www.gao.gov/products/GAO-09-40]. Washington, 
D.C.: October 8, 2008. 

Information Sharing: Definition of the Results to Be Achieved in 
Terrorism-Related Information Sharing Is Needed to Guide Implementation 
and Assess Progress. [hyperlink, 
http://www.gao.gov/products/GAO-08-637T]. Washington, D.C.: July 23, 
2008. 

Information Sharing Environment: Definition of the Results to Be 
Achieved in Improving Terrorism-Related Information Sharing Is Needed 
to Guide Implementation and Assess Progress. [hyperlink, 
http://www.gao.gov/products/GAO-08-492]. Washington, D.C.: June 25, 
2008. 

Homeland Security: Federal Efforts Are Helping to Address Some 
Challenges Faced by State and Local Fusion Centers. [hyperlink, 
http://www.gao.gov/products/GAO-08-636T]. Washington, D.C.: April 17, 
2008. 

Transportation Security Administration’s Processes for Designating and 
Releasing Sensitive Security Information. [hyperlink, 
http://www.gao.gov/products/GAO-08-232R]. Washington, D.C.: November 
30, 2007. 

Terrorist Watch List Screening: Recommendations to Promote a 
Comprehensive and Coordinated Approach to Terrorist-Related Screening. 
[hyperlink, http://www.gao.gov/products/GAO-08-253T]. Washington, D.C.: 
November 8, 2007. 

Homeland Security: Federal Efforts Are Helping to Alleviate Some 
Challenges Encountered by State and Local Information Fusion Centers. 
[hyperlink, http://www.gao.gov/products/GAO-08-35]. Washington, D.C.: 
October 30, 2007. 

Terrorist Watch List Screening: Opportunities Exist to Enhance 
Management Oversight, Reduce Vulnerabilities in Agency Screening 
Processes, and Expand Use of the List. [hyperlink, 
http://www.gao.gov/products/GAO-08-110]. Washington, D.C.: October 11, 
2007. 

Information Technology: Numerous Federal Networks Used to Support 
Homeland Security Need to Be Better Coordinated with Key State and 
Local Information-Sharing Initiatives. [hyperlink, 
http://www.gao.gov/products/GAO-07-455]. Washington, D.C.: April 16, 
2007. 

Managing Sensitive Information: DOJ Needs a More Complete Staffing 
Strategy for Managing Classified Information and a Set of Internal 
Controls for Other Sensitive Information. [hyperlink, 
http://www.gao.gov/products/GAO-07-83]. Washington, D.C.: October 20, 
2006. 

[End of Highlights for Establishing Effective Mechanisms for Sharing 
Terrorism-Related Information to Protect the Homeland] 

High-Risk Series: Department of Defense Approach to Business 
Transformation: 

GAO Highlights: 

For additional information about this high-risk area, contact Sharon 
Pickup (202) 512-9619 or pickups@gao.gov. 

Why Area Is High Risk: 

GAO identified the Department of Defense’s (DOD) approach to business 
transformation as a high-risk area in 2005 because (1) DOD’s business 
improvement efforts and control over resources were fragmented, (2) DOD 
lacked an integrated and enterprisewide transformation plan and 
investment strategy, and (3) DOD had not designated a senior management 
official at an appropriate level with the authority to be responsible 
and accountable for enterprisewide business transformation. To 
illustrate the magnitude of the risk DOD faces with its business 
transformation efforts, DOD bears sole responsibility for eight defense-
specific high-risk areas and shares responsibility for seven other high-
risk areas—all of which are related to business operations. 

What GAO Found: 

DOD spends billions of dollars to sustain key business operations 
intended to support the warfighter, including systems and processes 
related to the management of contracts, finances, the supply chain, 
support infrastructure, and weapon systems acquisition. Long-standing 
weaknesses in these areas, as well as the lack of sustained leadership 
and a comprehensive, integrated, and enterprisewide business 
transformation plan, adversely affect DOD’s efficiency and 
effectiveness, and have resulted in a lack of adequate accountability. 
As a result, DOD continues to waste billions of dollars annually that 
could be freed up for higher-priority needs. 

DOD’s senior leadership has shown a commitment to transforming business
operations and taken steps to strengthen its management approach. In May
2007, the Secretary of Defense designated the Deputy Secretary of 
Defense as DOD’s Chief Management Officer (CMO). The National Defense 
Authorization Act for Fiscal Year 2008 codified the CMO position, 
created a Deputy CMO (DCMO), directed that CMO duties be assigned to 
the Under Secretary of each military department, and required DOD to 
develop a strategic management plan for business operations. In 2008, 
DOD issued its first plan, and directives outlining broad CMO and DCMO 
roles and responsibilities, established a DCMO office, and named an 
Assistant DCMO. Prior to these actions, DOD had established various 
governance entities, such as the Defense Business Systems Management 
Committee, which is intended to serve as the primary transformation 
leadership and oversight mechanism, and the Business Transformation 
Agency to support the committee. 

DOD has taken some positive steps, but still lacks some critical 
elements that are needed to ensure successful and sustainable 
transformation efforts. As currently defined, the DCMO position appears 
to be advisory. Specifically, the DCMO assists the CMO, but the 
position has not been assigned clear decision-making authority or 
accountability for results. DOD also has yet to clearly define the 
relationship between the DCMO and military department CMOs or the 
unique and shared responsibilities of various governance entities, such 
as identifying how they would manage and integrate transformation 
efforts. Finally, DOD’s first strategic plan lacks basic information 
such as identifying specific business areas, and key elements, such as 
goals, objectives, and performance measures. Because of the complexity 
and long-term nature of DOD’s business transformation efforts, GAO has 
reported the need for the CMO to be a separate position with 
significant authority, experience and a term. As DOD continues to 
develop its approach, GAO remains open to the possibility of further 
progress. However, because of the roles and responsibilities currently 
assigned to key positions, it is still unclear that DOD will be able to 
provide the long-term sustained leadership needed to address 
significant challenges in its business operations. 

What Remains to Be Done: 

DOD still needs to clearly establish the roles and responsibilities, as
well as relationships, among various business-related positions and 
governance entities. DOD also needs to develop a clear, comprehensive, 
integrated, enterprisewide business transformation plan, supported by
a strategic planning process that addresses all of DOD’s major business 
areas and includes specific goals, measures, and accountability 
mechanisms to measure progress. GAO continues to believe that Congress 
should consider modifying existing legislation to establish the CMO
position as a separate, full-time position with sufficient authority
and an appropriate term to sustain progress across administrations. 

Related GAO Products for: Department of Defense Approach to Business 
Transformation: 

Defense Business Transformation: Sustaining Progress Requires 
Continuity of Leadership and an Integrated Approach. [hyperlink, 
http://www.gao.gov/products/GAO-08-462T]. Washington, D.C.: February 7, 
2008. 

Organizational Transformation: Implementing Chief Operating 
Officer/Chief Management Officer Positions in Federal Agencies. 
[hyperlink, http://www.gao.gov/products/GAO-08-322T]. Washington, D.C.: 
December 13, 2007. 

Organizational Transformation: Implementing Chief Operating 
Officer/Chief Management Officer Positions in Federal Agencies. 
[hyperlink, http://www.gao.gov/products/GAO-08-34]. Washington, D.C.: 
November 1, 2007. 

Defense Business Transformation: Achieving Success Requires a Chief 
Management Officer to Provide Focus and Sustained Leadership. 
[hyperlink, http://www.gao.gov/products/GAO-07-1072]. Washington, D.C.: 
September 5, 2007. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-07-310]. Washington, D.C.: January 
2007. 

Defense Business Transformation: A Comprehensive Plan, Integrated 
Efforts, and Sustained Leadership Are Needed to Assure Success. 
[hyperlink, http://www.gao.gov/products/GAO-07-229T. Washington, D.C.: 
November 16, 2006. 

Defense Transformation: Accountability Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-06-1083CG]. Washington, D.C.: August 
22, 2006. 

Department of Defense: Sustained Leadership Is Critical to Effective 
Financial and Business Management Transformation. [hyperlink, 
http://www.gao.gov/products/GAO-06-1006T]. Washington, D.C.: August 3, 
2006. 

Business Systems Modernization: DOD Continues to Improve Institutional 
Approach, but Further Steps Needed. [hyperlink, 
http://www.gao.gov/products/GAO-06-658]. Washington, D.C.: May 15, 
2006. 

GAO High-Risk Program. [hyperlink, 
http://www.gao.gov/products/GAO-06-497T]. Washington, D.C.: March 15, 
2006. 

[End of Highlights for Department of Defense Approach to Business 
Transformation] 

High-Risk Series Department of Defense Business Systems Modernization: 

GAO Highlights: 

For additional information about this high-risk area, contact Randolph 
C. Hite at (202) 512-3439 or hiter@gao.gov. 

Why Area Is High Rick: 

The Department of Defense (DOD) is spending billions of dollars each 
year to acquire modern business systems that are fundamental to 
achieving DOD’s business transformation goals. While the department’s 
capability and performance relative to business systems modernization 
has improved, significant challenges remain. As a result, DOD as a
whole is not yet well-positioned to effectively and efficiently manage
an undertaking with the size, complexity, and significance of its 
business systems modernization. GAO first designated this program as 
high risk in 1995; it remains so today. 

What GAO Found: 

DOD is one of the largest and most complex organizations in the world,
reportedly relying on approximately 3,000 business systems to support 
its business operations. For years, the department has attempted to 
modernize these systems and GAO has provided numerous recommendations 
to help it do so. For example, since2001,GAO has provided a series of
recommendations relative to developing and using a business enterprise
architecture (BEA) and establishing effective investment management 
controls to guide and constrain its business systems. GAO also made
recommendations aimed at ensuring that DOD follows best practices when
acquiring information technology (IT) systems and services. To its 
credit, the department has made some progress, particularly in the last 
4 years. For example, at the institutional level, the latest versions 
of its corporate BEA and enterprise transition plan (ETP) continue to 
add important elements related to legislative provisions and best 
practices. In addition, DOD has begun to define and implement improved 
investment controls, such as the Business Capability Lifecycle, to 
streamline business system capability definition, acquisition, and
investment oversight processes. 

However, more needs to be done. Consistent with GAO’s recommendations,
DOD needs to further define and consistently implement fundamental
business systems modernization management controls (both institutional 
and program specific). For example, it still needs to extend (federate) 
its corporate BEA to its component organizations; ensure that its 
business system investments are defined and implemented within the 
context of its federated BEA; evolve its corporate and component 
business system investment management processes; and ensure these 
processes are institutionalized at all levels of the organization. 

Beyond this, formidable challenges remain relative to ensuring that the
thousands of DOD business system modernization and IT services programs
and projects employ program management rigor and discipline. In this 
regard, GAO’s work has continued to show program-specific management
weaknesses, including not economically justifying investments on the 
basis of reliable estimates of future costs and benefits; not pursuing 
investments within the context of an enterprise architecture; and not 
conducting key acquisition functions, such as requirements management, 
risk management, test management, performance management, and contract 
management. 

Until DOD fully defines and consistently implements the full range of 
business systems modernization management controls (institutional and 
program-specific), it will be not be able to adequately ensure that its 
IT investments are the right solutions for addressing its business 
needs, that they are being managed to produce expected capabilities 
efficiently and cost effectively, and that business stakeholders are 
satisfied. 

What Remains to Be Done: 

Key aspects of DOD’s business systems modernization effort still need 
to be strengthened. At the institutional level, the subsidiary 
architectures for component organizations still need to be further 
developed and aligned with the overall corporate architecture to 
provide a federated BEA, business system investments need to be defined 
and implemented within the context of its federated BEA, and both the 
corporate and component investment management processes need to be 
better defined and institutionalized. Further, DOD needs to ensure that
its business system investments are managed with the kind of 
acquisition management rigor and discipline that is embodied in 
relevant guidance and best practices so that each investment will 
deliver promised benefits and capabilities on time and within budget. 

Related GAO Products for: Department of Defense Business Systems 
Modernization: 

DOD Business Systems Modernization: Key Navy Programs’ Compliance with 
DOD’s Federated Business Enterprise Architecture Needs to Be Adequately 
Demonstrated. [hyperlink, http://www.gao.gov/products/GAO-08-972]. 
Washington, D.C.: August 7, 2008. 

DOD Business Systems Modernization: Key Marine Corps System Acquisition 
Needs to Be Better Justified, Defined, and Managed. [hyperlink, 
http://www.gao.gov/products/GAO-08-822]. Washington, D.C.: July 28, 
2008. 

DOD Business Systems Modernization: Important Management Controls Being 
Implemented on Major Navy Program, but Improvements Needed in Key 
Areas. [hyperlink, http://www.gao.gov/products/GAO-08-896]. Washington, 
D.C.: September 8, 2008. 

DOD Business Systems Modernization: Progress in Establishing Corporate 
Management Controls Needs to Be Replicated within Military Departments. 
[hyperlink, http://www.gao.gov/products/GAO-08-705]. Washington, D.C.: 
May 15, 2008. 

DOD Business Systems Modernization: Military Departments Need to 
Strengthen Management of Enterprise Architecture Programs. [hyperlink, 
http://www.gao.gov/products/GAO-08-519]. Washington, D.C.: May 12, 
2008. 

Business Systems Modernization: Air Force Needs to Fully Define 
Policies and Procedures for Institutionally Managing Investments. 
[hyperlink, http://www.gao.gov/products/GAO-08-52]. Washington, D.C.: 
October 31, 2007. 

Business Systems Modernization: Department of the Navy Needs to 
Establish Management Structure and Fully Define Policies and Procedures 
for Institutionally Managing Investments. [hyperlink, 
http://www.gao.gov/products/GAO-08-53]. Washington, D.C.: October 31, 
2007. 

DOD Business Systems Modernization: Progress Continues to Be Made in 
Establishing Corporate Management Controls, but Further Steps Are 
Needed. [hyperlink, http://www.gao.gov/products/GAO-07-733]. 
Washington, D.C.: May 14, 2007. 

Business Systems Modernization: Strategy for Evolving DOD’s Business 
Enterprise Architecture Offers a Conceptual Approach, but Execution 
Details Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-07-451]. Washington, D.C.: April 16, 
2007. 

[End of Highlights for Department of Defense Business Systems 
Modernization] 

High-Risk Series: Department of Defense Personnel Security Clearance 
Program: 

GAO Highlights: 

For additional information about this high-risk area, contact Brenda S. 
Farrell at (202) 512-3604 or farrellb@gao.gov. 

Why Area Is High Rick: 

In fiscal year 2008, the Department of Defense (DOD), which grants the 
vast majority of clearances across the government, approved about 
630,000 initial and renewal personnel security clearances for DOD’s 
military and civilian personnel and industry personnel working on DOD 
contracts. Clearances give individuals access to information that, if 
improperly disclosed, could in some cases cause exceptionally grave 
damage to national security. Since 2005, the Office of Management and 
Budget (OMB) has been responsible for implementing policy relating to
eligibility for access to classified information and for reporting
annually to Congress on progress in the clearance process. The Office 
of Personnel Management (OPM) conducts most of DOD’s clearance 
investigations, and DOD adjudicators use these to make clearance 
eligibility decisions. GAO placed DOD’s personnel security clearance 
program on its high-risk list in 2005 and continued that designation in 
2007 because of problems such as processing delays and incomplete 
documentation. 

What GAO Found: 

While many clearances continue to experience delays and challenges 
remain in the completeness of clearance documentation, OMB,DOD, and OPM 
have made significant progress and are meeting statutory requirements 
for initial clearances. In 2007, GAO reported that a sample of initial 
clearances for DOD industry personnel took an average of 325 days to 
complete. The Intelligence Reform and Terrorism Prevention Act (IRTPA) 
of 2004 currently requires that a determination be made on 80 percent 
of initial clearances within an average of 120 days. In 
December2008,GAO reported that a sample of initial DOD clearances 
completed in fiscal year 2008 took an average of 87 days. However, DOD 
and OMB officials have noted that the existing clearance process is not
likely to allow DOD and other agencies to meet the December 2009 
timeliness requirements in IRTPA, under which the executive branch is 
required to implement a plan requiring agencies, to the extent 
practical, to make a determination on 90 percent of initial personnel 
security clearances within 60 days, on average. To meet these more 
demanding timeliness requirements and other goals set by IRTPA—such as 
requiring reciprocity of clearances and establishing an integrated 
database to track clearance information—the executive branch 
established a Joint Reform Team, consisting of OMB,DOD, OPM, and the 
Office of the Director of National Intelligence, in June 2007 to reform 
the security clearance process for DOD and other agencies. 

The Joint Reform Team issued a reform implementation plan to the 
President in December 2008 to guide future reform efforts. The plan 
identifies a number of issues, including timeliness and quality of the 
process as well as aspects of reciprocity, that are consistent with 
some of the best practices and key factors GAO has identified as 
instrumental to the security clearance reform efforts. Specifically, 
GAO has reported that reform efforts could benefit by establishing a 
coherent mission and integrating strategic goals, among other best 
practices. In addition, GAO has identified four key factors to be
considered.First, a sound requirements process is important because
requesting clearances for positions where they are not needed or 
requesting higher-level clearances when a lower-level would be 
sufficient increases unnecessary costs and workload. Second, building 
quality throughout DOD’s process could promote positive outcomes, such 
as facilitating reciprocity with other agencies. For example, in 
December 2008GAO estimated that 87 percent (95 percent confidence 
level, +/- 9 percent)of investigative reports for DOD personnel 
adjudicated in July 2008 were missing required documentation. Third, 
while DOD and other agency efforts to monitor the clearance process 
have emphasized timeliness, additional metrics can provide a more 
complete picture of the process. GAO has highlighted various metrics 
(e.g., completeness of investigative reports, and staffs’ and customers’
perceptions of the process) that could add value to monitoring the 
process. Fourth, providing Congress with the long-term funding 
requirements to implement reform efforts would enable more-informed 
congressional oversight. For the recent progress of the reform efforts 
to be successful, it is important that momentum be sustained. 

What Remains to Be Done: 

In July 2008, GAO noted that ongoing efforts to reform the personnel 
security clearance process should follow best practices such as having 
a coherent mission and integrated strategic goals. GAO has also 
identified the following four key factors: a sound requirements 
process; quality throughout the process; metrics to assess all aspects 
of the process; and identification of the long-term funding 
requirements necessary for reform. 

Related GAO Products for: Department of Defense Personnel Security 
Clearance Program: 

DOD Personnel Clearances: Preliminary Observations about Timeliness and 
Quality. [hyperlink, http://www.gao.gov/products/GAO-09-261R]. 
Washington, D.C.: December 19, 2008. 

Personnel Security Clearances: Preliminary Observations on Joint Reform 
Efforts to Improve the Governmentwide Clearance Eligibility Process. 
[hyperlink, http://www.gao.gov/products/GAO-08-1050T]. Washington, 
D.C.: July 30, 2008. 

Personnel Clearances: Questions for the Record Regarding Security 
Clearance Reform. [hyperlink, http://www.gao.gov/products/GAO-08-965R]. 
Washington, D.C.: July 14, 2008. 

Personnel Clearances: Key Factors for Reforming the Security Clearance 
Process. [hyperlink, http://www.gao.gov/products/GAO-08-776T]. 
Washington, D.C.: May 22, 2008. 

Employee Security: Implementation of Identification Cards and DOD’s 
Personnel Security Clearance Program Need Improvement. [hyperlink, 
http://www.gao.gov/products/GAO-08-551T]. Washington, D.C.: April 9, 
2008. 

DOD Personnel Clearances: Questions for the Record Related to the 
Quality and Timeliness of Clearances. [hyperlink, 
http://www.gao.gov/products/GAO-08-580R]. Washington, D.C.: March 25, 
2008. 

Personnel Clearances: Key Factors to Consider in Efforts to Reform 
Security Clearance Processes. [hyperlink, 
http://www.gao.gov/products/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. [hyperlink, 
http://www.gao.gov/products/GAO-08-470T]. Washington, D.C.: Feb. 13, 
2008. 

DOD Personnel Clearances: Improved Annual Reporting Would Enable More 
Informed Congressional Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-08-350]. Washington, D.C.: February 13, 
2008. 

DOD Personnel Clearances: Delays and Inadequate Documentation Found for 
Industry Personnel. [hyperlink, 
http://www.gao.gov/products/GAO-07-842T]. Washington, D.C.: May 17, 
2007. 

[End of Highlights for Department of Defense Personnel Security 
Clearance Program] 

High-Risk Series: Department of Defense Support Infrastructure 
Management: 

GAO Highlights: 

For additional information about this high-risk area, contact Brian J. 
Lepore at (202) 512-4523 or leporeb@gao.gov. 

Why Area Is High Risk: 

The Department of Defense (DOD) owns and operates about 577,000 
buildings and other structures worldwide—including training facilities, 
office space, military hospitals, and equipment maintenance 
depots—worth a replacement value of about $712 billion. This 
infrastructure is critical to maintaining military readiness, and the 
cost to build and maintain it represents a significant financial 
commitment. GAO has reported on long-term challenges DOD faces in 
managing its portfolio of facilities and reducing unneeded 
infrastructure while providing facilities needed to support several 
simultaneous force structure initiatives and adapting to encroachment 
pressures affecting its training ranges. GAO first designated this area 
high risk in 1997, and it remains so today. 

What GAO Found: 

Although DOD has made progress in managing its support infrastructure in
recent years, a number of challenges remain and opportunities exist for 
DOD to further improve management of its infrastructure. Through four 
rounds of domestic base realignments and closures (BRAC) beginning in 
1988,DOD has realigned and reduced unneeded infrastructure, thus 
freeing up resources for other needs, and it is continuing similar 
efforts with the implementation of the BRAC 2005 round. DOD is also 
restructuring infrastructure support for its global defense posture 
realignment and is consolidating many of its overseas bases and 
repositioning others to better meet national security objectives. 
Further, DOD has revised its strategic plan to better address 
infrastructure issues, revised its readiness reporting to better gauge 
facility conditions, and has developed analytical tools to better 
forecast infrastructure funding needs. Also, through its environmental 
stewardship efforts, DOD has increased populations of some endangered 
species on DOD property while meeting its training needs. DOD has also 
made progress in achieving efficiencies and quality of life 
improvements through the privatization of military family housing and 
is expanding these efforts to other facilities such as barracks. 

In a 2008 report, GAO noted that the military services had not met all 
of DOD’s goals for funding facility maintenance and recapitalization to 
prevent deterioration and ensure that facilities are restored and 
modernized. Officials stated that sustainment resources were limited 
and programs such as force modernization often have higher funding 
priority. Moreover, DOD continues to lack common standards and metrics 
across the military services for installation support services, 
creating difficulties in establishing a consistent basis for making 
funding decisions. DOD infrastructure growth due to overseas rebasing, 
Army modularity, and planned increases in Army and Marine Corps force 
structure has presented the department with additional challenges to 
providing timely new or renovated facilities to accommodate large 
personnel increases at many of its installations, and many projects are
facing significantly increased costs. A rapid return of forces from 
overseas operations to the United States would compound the problem. 
Further,DOD now estimates that its costs to implement the BRAC 2005 
recommendations have risen to $32 billion—over 50 percent higher than 
the BRAC Commission’s $21 billion estimate, and estimated net annual 
savings have decreased. Moreover,GAO has reported that DOD has not yet 
fully addressed funding, operational, and local infrastructure 
challenges associated with the military buildup on Guam. In many cases, 
DOD’s need for permanent infrastructure has been lagging behind 
operational demands, and DOD has had to resort to temporary facilities 
to meet immediate needs. Further, the Army has forecast a 4.5 million-
acre training land shortfall by 2013 and is proposing additional land 
purchases, yet the Army lacks a current strategic plan to acquire land. 
Finally, GAO has noted that DOD still lacks the ability to relate 
changes in reported unit readiness to limitations on the use of military
lands, marine areas, and airspace due to the increasing encroachment of
residential, commercial, and industrial development on training areas. 

What Remains to Be Done: 

To improve support infrastructure management, DOD needs to address 
outstanding GAO concerns and achieve significant progress toward 
resolution. For example, DOD needs to adequately fund maintenance of 
its infrastructure in order to avoid costlier long term repairs later, 
develop common installation support service standards and metrics to 
better guide funding decisions, commit to periodically updating BRAC
savings estimates, overcome challenges to providing timely facilities 
for mission and quality of life needs at growing installations, and 
exercise high-level leadership for providing coordinated federal
assistance to communities affected by emerging DOD growth. 

Related GAO Products for: Department of Defense Support Infrastructure 
Management: 

Defense Infrastructure: Opportunity to Improve the Timeliness of Future 
Overseas Master Plans and Factors Affecting the Master Planning Effort 
for the Military Buildup on Guam. [hyperlink, 
http://www.gao.gov/products/GAO-08-1005]. Washington, D.C.: September 
17, 2008. 

Defense Infrastructure: High-Level Leadership Needed to Help 
Communities Address Challenges Caused by DOD-Related Growth. 
[hyperlink, http://www.gao.gov/products/GAO-08-665]. Washington, D.C.: 
June 17, 2008. 

Defense Infrastructure: Planning Efforts for the Proposed Military 
Buildup on Guam Are in Their Initial Stages, with Many Challenges Yet 
to Be Addressed. [hyperlink, http://www.gao.gov/products/GAO-08-722T]. 
Washington, D.C. May 1, 2008. 

Defense Infrastructure: Continued Management Attention Is Needed to 
Support Installation Facilities and Operations. [hyperlink, 
http://www.gao.gov/products/GAO-08-852]. Washington, D.C.: April 24, 
2008. 

Military Training: Compliance with Environmental Laws Affects Some 
Training Activities, but DOD has not Made a Sound Business Case for 
Additional Environmental Exemptions. [hyperlink, 
http://www.gao.gov/products/GAO-08-407]. Washington, D.C.: March 7, 
2008. 

Military Base Realignments and Closures: Cost Estimates Have Increased 
and Are Likely to Continue to Evolve. [hyperlink, 
http://www.gao.gov/products/GAO-08-159]. Washington, D.C.: December 11, 
2007. 

Improvements Continue in DOD’s Reporting on Sustainable Ranges, but 
Opportunities Exist to Improve Its Range Assessments and Comprehensive 
Plan. [hyperlink, http://www.gao.gov/products/GAO-08-10R]. Washington, 
D.C.: Oct. 11, 2007. 

Defense Infrastructure: Challenges Increase Risks for Providing Timely 
Infrastructure Support for Army Installations Expecting Substantial 
Personnel Growth. [hyperlink, http://www.gao.gov/products/GAO-07-1007]. 
Washington, D.C.: September 13, 2007. 

Defense Management: Comprehensive Strategy and Annual Reporting Are 
Needed to Measure Progress and Costs of DOD’s Global Posture 
Restructuring. [hyperlink, http://www.gao.gov/products/GAO-06-852]. 
Washington, D.C.: September 13, 2006. 

Military Bases: Analysis of DOD’s 2005 Selection Process and 
Recommendations for Base Closures and Realignments. [hyperlink, 
http://www.gao.gov/products/GAO-05-785]. Washington, D.C.: July 1, 
2005. 

Defense Infrastructure: Issues Need to Be Addressed in Managing and 
Funding Base Operations and Facilities Support. [hyperlink, 
http://www.gao.gov/products/GAO-05-556]. Washington, D.C.: June 15, 
2005. 

[End of Highlights for Department of Defense Support Infrastructure 
Management] 

High-Risk Series: Department of Defense Financial Management: 

GAO Highlights: 

For additional information about this high-risk area, contact Paula 
Rascona at (202) 512-9095 or rasconap@gao.gov. 

Why Area Is High Risk: 

The Department of Defense (DOD) is a massive and complex organization. 
Efficient and effective management and accountability of DOD’s hundreds 
of billions of dollars of resources require timely, reliable, and 
useful information. However, DOD’s pervasive financial and related 
business management and system deficiencies continue to adversely
affect its ability to control costs; ensure basic accountability; 
anticipate future costs and claims on the budget; measure performance; 
maintain funds control; prevent and detect fraud, waste, and abuse; and 
address pressing management issues. GAO first designated DOD financial
management as high risk in 1995. 

What GAO Found: 

Weaknesses in DOD’s financial management adversely affect not only the
reliability of reported financial data, but also the efficiency and 
effectiveness of its business operations. Transforming DOD's financial 
management operations to provide timely, reliable, accurate, and useful 
information for management operations, including financial reporting 
and decision making, is a significant challenge. To date, the U.S. Army 
Corps of Engineers, Civil Works has achieved a clean audit opinion on 
its financial statements. However, none of the military services have 
received favorable financial statement audit opinions, and the 
department has annually acknowledged that long-standing pervasive 
weaknesses in its business systems, processes, and controls have 
prevented auditors from determining the reliability of reported
financial statement information. 

Over the years, the department has initiated numerous efforts intended 
to improve its financial management practices. However, DOD has not yet
addressed many of the underlying impediments to obtaining and sustaining
reliable financial information. In response to a congressional mandate 
to assist DOD in addressing its financial management challenges, the 
department issued its Financial Improvement and Audit Readiness Plan in 
December 2005, which it updates twice a year, to outline its strategy 
for addressing DOD's financial management challenges and achieving 
clean audit opinions. Further, 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 
decision making and reporting, a key defense transformation priority. 
This framework includes the following: 

* Standard Financial Information Structure (SFIS), which is intended to 
provide a standard financial management data structure and uniformity 
throughout DOD in reporting on the results of operations; and; 

* Business Enterprise Information System (BEIS), which is intended to 
provide standard financial reporting, cash reporting, and reconciliation
capabilities DOD-wide by facilitating the conversion of financial
information from a component's data structure into the SFIS format 
within BEIS. 

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 enhancing data integrity; improvements to current 
policies, processes, procedures, and controls; and implementation of 
fully integrated systems. 

What Remains to Be Done: 

GAO has made numerous recommendations intended to improve DOD’s 
financial management. Key to successful transformation of DOD’s 
financial management operations will be the development and sustained
implementation of a comprehensive and integrated financial management
transformation strategy, within an overall business transformation 
strategy, to guide financial management improvement efforts; prioritize 
initiatives and resources; and monitor progress through the 
establishment and utilization of cascading performance goals, 
objectives, and metrics. 

Related GAO Products for: Department of Defense Financial Management: 

DOD Financial Management: Improvements Are Needed in Antideficiency Act 
Controls and Investigations. [hyperlink, 
http://www.gao.gov/products/GAO-08-1063]. Washington, D.C.: September 
26, 2008. 

DOD Business Transformation: Air Force's Current Approach Increases 
Risk That Asset Visibility Goals and Transformation Priorities Will Not 
Be Achieved. [hyperlink, http://www.gao.gov/products/GAO-08-866]. 
Washington, D.C.: August 8, 2008. 

Fiscal Year 2007 U.S. Government Financial Statements: Sustained 
Improvement in Financial Management Is Crucial to Improving 
Accountability and Addressing the Long-Term Fiscal Challenge. 
[hyperlink, http://www.gao.gov/products/GAO-08-926T]. Washington, D.C.: 
June 26, 2008. 

Defense Business Transformation: Sustaining Progress Requires 
Continuity of Leadership and an Integrated Approach. [hyperlink, 
http://www.gao.gov/products/GAO-08-462T]. Washington, D.C.: February 7, 
2008. 

Defense Business Transformation: A Full-time Chief Management Officer 
with a Term Appointment Is Needed at DOD to Maintain Continuity of 
Effort and Achieve Sustainable Success. [hyperlink, 
http://www.gao.gov/products/GAO-08-132T]. Washington, D.C.: October 16, 
2007. 

DOD Business Transformation: Lack of an Integrated Strategy Puts the 
Army’s Asset Visibility System Investments at Risk. [hyperlink, 
http://www.gao.gov/products/GAO-07-860]. Washington, D.C.: July 27, 
2007. 

[End of Highlights for Department of Defense Financial Management] 

High-Risk Series: Department of Defense Supply Chain Management: 

GAO Highlights: 

For additional information about this high-risk area, contact William 
M. Solis at (202) 512-8365 or solisw@gao.gov. 

Why Area Is High Risk: 

Supply chain management has been on GAO’s high-risk list since 1990
as a result of weaknesses in the Department of Defense’s (DOD)
management of supply inventories and responsiveness to warfighter 
requirements. Supply chain management is the operation of a continuous 
and comprehensive logistics process, from initial customer order for 
material or services to the ultimate satisfaction of the customer’s 
requirements. DOD’s goal is to provide effective and efficient supply 
chain management—in short, to deliver “the right items to the right 
place at the right time.” According to DOD, it spent approximately $178 
billion on its supply chain in fiscal year 2007. It is imperative that 
DOD and its components provide effective supply support to deploy and
sustain military forces and be good stewards of the resources that have
been invested. 

What GAO Found: 

DOD faces a number of supply chain management challenges in supporting
the deployment and sustainment of military forces. Although DOD has 
taken positive steps to implement initiatives, such as consolidating 
certain inventories in regional hubs and improving transportation 
management of military freight, GAO has identified problems related to 
the effectiveness and efficiency of DOD supply chain management. For 
example, the military services continue to have billions of dollars 
worth of spare parts that are excess to current requirements. A major 
cause for these excess inventories is weakness in demand forecasting. 
Moreover, GAO noted a lack of metrics and targets focusing on the cost 
efficiency of inventory management. In addition, DOD has not instituted 
a coordinated management approach to improving distribution and supply 
support for joint military operations, and it faces challenges in 
achieving widespread implementation of key technologies aimed at 
improving asset visibility. GAO also found that DOD, as it looks ahead 
to drawing down its forces from Iraq, lacks a unified or coordinated 
command structure to plan for the management and execution of the 
return of material and equipment from Iraq, worth approximately $16.5 
billion. 

DOD has recognized the need for a comprehensive, integrated strategy for
transforming logistics and in July 2008 released its Logistics Roadmap 
with the intent to provide a more coherent and authoritative framework 
for logistics improvement efforts, including supply chain management. 
However, GAO found that the road map lacked key information needed for 
it to be a more useful tool for DOD senior leaders. Specifically, the 
road map did not identify the scope of DOD’s logistics problems or gaps 
in logistics capabilities, it lacked outcome-based performance measures 
to track progress toward reaching its goals and objectives, and it 
lacked a clear mechanism for accountability and integration with 
existing logistics decision-making processes. DOD officials said they 
plan to remedy some of these weaknesses in their follow-on efforts to 
update the road map in 2009. Until these missing elements are 
addressed, the road map is likely to be of limited use to senior DOD 
decision makers as they seek to improve supply chain management. 

Some of DOD’s supply chain management problems are exacerbated by the
diffuse organization of DOD’s logistics operations, including separate 
funding and management of resources and systems. In September 2008, DOD
formalized its policy to use capability portfolio management to advise 
senior decision makers on how to optimize capability investments across 
joint logistics, among other areas. While it remains to be seen to what 
extent and how this policy will be implemented, it could potentially 
help to address some of the governance challenges DOD faces improving 
its supply chain management operations. 

What Remains to Be Done: 

To successfully resolve supply chain management problems, DOD needs to 
sustain top leadership commitment and long-term institutional support 
for the Logistics Roadmap, obtain necessary commitments for its 
initiatives from the military services and other DOD components, make 
substantial progress in implementing improvement initiatives and 
programs across the department, and demonstrate progress in achieving 
the objectives in the road map. DOD also should make the necessary 
changes to ensure that the road map provides a comprehensive, 
integrated strategy for guiding supply chain management improvement 
efforts. 

Related GAO Products for: Department of Defense Supply Chain 
Management: 

Defense Logistics: Lack of Key Information May Impede DOD’s Ability to 
Improve Supply Chain Management. [hyperlink, 
http://www.gao.gov/products/GAO-09-150]. Washington, D.C.: January 12, 
2009. 

Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to 
Improve Demand Forecasts for Spare Parts. [hyperlink, 
http://www.gao.gov/products/GAO-09-199]. Washington, D.C.: January 12, 
2009. 

Defense Inventory: Management Actions Needed to Improve the Cost 
Efficiency of the Navy’s Spare Parts Inventory. [hyperlink, 
http://www.gao.gov/products/GAO-09-103]. Washington, D.C.: December 12, 
2008. 

Operation Iraqi Freedom: Actions Needed to Enhance DOD Planning for 
Reposturing of U.S. Forces from Iraq. [hyperlink, 
http://www.gao.gov/products/GAO-08-930]. Washington, D.C.: September 
10, 2008. 

Defense Logistics: Army Has Not Fully Planned or Budgeted for the 
Reconstitution of Its Afloat Prepositioned Stocks. [hyperlink, 
http://www.gao.gov/products/GAO-08-257R]. Washington, D.C.: February 8, 
2008. 

DOD’s High-Risk Areas: Efforts to Improve Supply Chain Can Be Enhanced 
by Linkage to Outcomes, Progress in Transforming Business Operations, 
and Reexamination of Logistics Governance and Strategy. [hyperlink, 
http://www.gao.gov/products/GAO-07-1064T]. Washington, D.C.: July 10, 
2007. 

Defense Logistics: Efforts to Improve Distribution and Supply Support 
for Joint Military Operations Could Benefit from a Coordinated 
Management Approach. [hyperlink, 
http://www.gao.gov/products/GAO-07-807]. Washington, D.C.: June 29, 
2007. 

Defense Transformation: DOD Has Taken Actions to Incorporate Lessons 
Learned in Transforming Its Freight Distribution System. [hyperlink, 
http://www.gao.gov/products/GAO-07-675R]. Washington, D.C.: May 8, 
2007. 

Defense Inventory: Opportunities Exist to Save Billions by Reducing Air 
Force's Unneeded Spare Parts Inventory. [hyperlink, 
http://www.gao.gov/products/GAO-07-232]. Washington, D.C.: April 27, 
2007. 

Defense Inventory: Opportunities Exist to Improve the Management of 
DOD's Acquisition Lead Times for Spare Parts. [hyperlink, 
http://www.gao.gov/products/GAO-07-281]. Washington, D.C.: March 2, 
2007. 

[End of Highlights for Department of Defense Supply Chain Management] 

High-Risk Series: Department of Defense Weapon Systems Acquisition: 

GAO Highlights: 

For additional information about this high-risk area, contact Katherine 
V. Schinasi at (202) 512-4841 or schinasik@gao.gov. 

Why Area Is High Risk: 

Investment in weapon acquisition programs is now at its highest level
in two decades. The Department of Defense (DOD) expects to invest more 
than $357 billion over the next 5 years on the development and 
procurement of major defense acquisition programs. At the same time, 
these programs continue to take longer, cost more, and deliver fewer 
quantities and capabilities than originally planned. Given the size of 
this investment, poor outcomes in DOD’s weapon system programs 
reverberate across the federal government. GAO has designated DOD’s 
management of weapon systems acquisition a high-risk area since 1990. 

What GAO Found: 

DOD is not receiving expected returns on its investment in weapon 
systems. Since fiscal year 2000, DOD significantly increased the number 
of major defense acquisition programs and its overall investment in 
them; however, acquisition outcomes are still poor. The total 
acquisition cost of DOD’s 2007 portfolio of major programs under 
development or in production has grown by $295 billion over initial 
estimates, and these programs are experiencing, on average, a 21-month 
delay in delivering initial capabilities to the warfighter. As program 
costs increase, DOD must request more funding to cover the overruns, 
make trade-offs with existing programs, delay the start of new 
programs, or take funds from other accounts. Delays in providing 
capabilities to the warfighter result in the need to operate costly 
legacy systems longer than expected, find alternatives to fill 
capability gaps, or go without the capability. 

GAO’s work has highlighted a number of systemic causes for cost growth 
and schedule delays both at the strategic and program levels. At the 
strategic level, DOD’s processes for identifying warfighter needs, 
allocating resources, and developing and procuring weapon systems—which 
together define DOD’s overall weapon system investment strategy—are 
fragmented and broken. At the program level, the military services 
propose and DOD approves programs without adequate knowledge about 
requirements and the resources needed to execute the program within 
cost, schedule, and performance targets. 

Recent congressionally mandated changes to the DOD acquisition system, 
as well as initiatives being pursued by DOD, could begin to improve 
weapon program outcomes. Congress has enacted legislation that requires 
DOD to certify that programs meet specific criteria at key decision 
points; report on its strategies for balancing funding and other 
resources among major defense acquisition programs; identify strategies 
for enhancing the role of program managers in carrying out acquisition 
programs; and establish review boards to monitor configuration changes. 
DOD’s initiatives include a new concept decision review and a 
requirement for more prototyping early in programs, both of which are 
designed to enable key department leaders to make informed decisions 
before a program starts. 

Table: Analysis of DOD Major Defense Acquisition Program Portfolio 
(fiscal year 2008 dollars): 

Portfolio status: Number of programs; 
Fiscal year 2007 portfolio: 95. 

Portfolio status: Change to total research and development costs from 
first estimate; 
Fiscal year 2007 portfolio: 40 percent. 

Portfolio status: Change in total acquisition cost from first estimate; 
Fiscal year 2007 portfolio: 26 percent. 

Portfolio status: Estimated total acquisition cost growth from first 
estimate; 
Fiscal year 2007 portfolio: $295 billion. 

Portfolio status: Share of programs with 25 percent or more increase in 
program acquisition unit cost; 
Fiscal year 2007 portfolio: 44 percent. 

Portfolio status: Average schedule delay in delivering initial 
capabilities; 
Fiscal year 2007 portfolio: 21 months. 

Source: GAO analysis of DOD data. 

[End of table] 

What Remains to Be Done: 

DOD has begun several initiatives that could provide a foundation for 
establishing a well-balanced investment strategy and sound major weapon 
system acquisition programs. However, DOD must take additional actions 
to reinforce the initiatives in practice, including: 

* making better decisions about which programs should be pursued or not 
pursued given existing and expected funding; 

* developing an analytical approach to better prioritize capability 
needs; 

* requiring new programs to have manageable development cycles; 

* requiring programs to establish knowledge-based cost and schedule 
estimates; and; 

* requiring contractors to perform detailed systems engineering 
analysis before proceeding to system development. 

Related GAO Products for: Department of Defense Weapon Systems 
Acquisition: 

Defense Acquisitions: Fundamental Changes Are Needed to Improve Weapon 
Program Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-08-1159T]. Washington, D.C.: September 
25, 2008. 

Defense Acquisitions: Assessments of Selected Weapon Programs. 
[hyperlink, http://www.gao.gov/products/GAO-08-467SP]. Washington, 
D.C.: March 31, 2008. 

Best Practices: 

Defense Acquisitions: A Knowledge-Based Funding Approach Could Improve 
Major Weapon System Program Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-08-619]. Washington, D.C.: July 2, 
2008. 

Best Practices: Increased Focus on Requirements and Oversight Needed to 
Improve DOD’s Acquisition Environment and Weapon System Quality. 
[hyperlink, http://www.gao.gov/products/GAO-08-294]. Washington, D.C.: 
February 1, 2008. 

Space Acquisitions: Actions Needed to Expand and Sustain Use of Best 
Practices. [hyperlink, http://www.gao.gov/products/GAO-07-730T]. 
Washington, D.C.: April 19, 2007. 

Investment Strategy: 

Defense Acquisitions: DOD’s Requirements Determination Process Has Not 
Been Effective in Prioritizing Joint Capabilities. [hyperlink, 
http://www.gao.gov/products/GAO-08-1060]. Washington, D.C.: September 
25, 2008. 

Tactical Aircraft: DOD Needs a Joint and Integrated Investment 
Strategy. [hyperlink, http://www.gao.gov/products/GAO-07-415]. 
Washington, D.C.: April 2, 2007. 

Best Practices: An Integrated Portfolio Management Approach to Weapon 
System Investments Could Improve DOD’s Acquisition Outcomes. 
[hyperlink, http://www.gao.gov/products/GAO-07-388]. Washington, D.C.: 
March 30, 2007. 

Weapon System Reviews: 

Defense Acquisitions: Cost to Deliver Zumwalt-Class Destroyers Likely 
to Exceed Budget. [hyperlink, http://www.gao.gov/products/GAO-08-804]. 
Washington, D.C.: July 31, 2008. 

Defense Acquisitions: Progress Made in Fielding Missile Defense, but 
Program Is Short of Meeting Goals. [hyperlink, 
http://www.gao.gov/products/GAO-08-448]. Washington, D.C.: March 14, 
2008. 

Joint Strike Fighter: Recent Decisions by DOD Add to Program Risks. 
[hyperlink, http://www.gao.gov/products/GAO-08-388]. Washington, D.C.: 
March 11, 2008. 

Defense Acquisitions: 2009 Is a Critical Juncture for the Army’s Future 
Combat System. [hyperlink, http://www.gao.gov/products/GAO-08-408]. 
Washington, D.C.: March 7, 2008. 

[End of Highlights for Department of Defense Weapon Systems 
Acquisition] 

High-Risk Series Funding the Nation’s Surface Transportation System: 

GAO Highlights: 

For additional information about this high-risk area, contact Katherine 
Siggerud at (202) 512-2834 or siggerudk@gao.gov. 

Why Area Is High Risk: 

The nation’s economic vitality and its citizens’ quality of life depend 
significantly on the efficiency of its surface transportation 
infrastructure. Increasingly, however,congestion is threatening the 
efficiency of the infrastructure. The federal government, as well as
state and local governments, faces challenges in providing funds to
maintain and expand the nation’s surface transportation system. Over 
the long term, the federal government’s fiscal imbalance, as well as 
the fiscal stress faced by state and local governments, will constrain 
resources available for investment in infrastructure. The federal 
government will be further challenged to determine the appropriate 
federal role in financing these investments and in ensuring that 
federal funds are used efficiently. 

What GAO Found: 

The cost to repair and upgrade the nation’s surface transportation 
system so that it can safely and reliably meet current and future 
demands is estimated in the hundreds of billions of dollars, and calls 
have been made to significantly increase federal investment in the 
system. However, the large increases in expenditures for surface 
transportation in recent years have not commensurately improved the 
performance of the system because many current surface transportation 
programs are not effective at addressing key challenges, federal goals 
are numerous and sometimes conflicting, roles are unclear, programs 
lack links to the performance of the transportation system or of the 
grantees, and programs in some areas do not use the best tools and 
approaches to ensure effective investment decisions. 

Highways and transit. Revenues to support the Highway Trust Fund—the
major source of federal highway and transit funding—are eroding. 
Receipts for the fund are derived from motor fuel and truck-related 
taxes and are declining in purchasing power because the federal motor 
fuel tax rate has not been increased since 1993. Furthermore, as 
vehicles become more fuel efficient and increasingly run on alternative 
fuels, fuel taxes may not be a sustainable source of transportation 
financing. In the near term, expenditures now exceed revenues for the 
fund, and, to prevent a funding shortfall, Congress recently 
transferred $8 billion from the general fund of the Treasury to the 
fund. Without major changes to current funding or spending levels, 
deficits will continue to occur. 

Intercity passenger rail. The financial condition of Amtrak is poor. The
recently enacted Passenger Rail Investment and Improvement Act of 2008
authorizes significant federal funds for the system through 2013 to, 
among other things, address operating costs and deferred maintenance of 
physical assets. GAO has found that subsidies provided to Amtrak are 
not targeted to the greatest public benefits, such as transportation 
congestion relief. Although the act requires new or improved metrics 
and minimum standards for measuring performance and service quality, as 
well as development of an improvement plan for Amtrak’s long-distance 
routes, it is too early to tell whether these will better target 
federal subsidies toward the greatest public benefits. 

Freight rail. The freight railroad industry is projected to grow 
substantially, but the ability of private railroads to fund the 
capacity needed to meet this projected growth is uncertain. 
Increasingly, the potential public benefits of rail projects, such as 
reductions in highway congestion, have led the federal and state 
governments to invest public funds in freight rail projects. Decision
makers will continue to be challenged in making both passenger and 
freight rail investments that reflect public priorities and maximize 
public benefits. 

What Remains to Be Done: 

To improve the effectiveness of the federal investment in surface 
transportation, meet the nation’s transportation needs, and ensure a
sustainable commitment to transportation infrastructure, GAO has called 
for a fundamental re-examination of the nation’s surface transportation 
policies. The federal approach to surface transportation should be 
restructured based on the following principles: (1) ensuring goals are 
well-defined and focused on the federal interest, (2) ensuring the 
federal role in achieving each goal is clearly defined, (3) ensuring 
accountability for results by entities receiving federal funds, (4) 
using the best tools and approaches to emphasize return on targeted 
federal investment, and (5) ensuring fiscal sustainability. 

Related GAO Products for: Funding the Nation’s Surface Transportation 
System: 

Surface Transportation: Principles Can Guide Efforts to Restructure and 
Fund Federal Programs. [hyperlink, 
http://www.gao.gov/products/GAO-08-744T]. Washington, D.C.: July 10, 
2008. 

Physical Infrastructure: Challenges and Investment Options for the 
Nation’s Infrastructure. [hyperlink, 
http://www.gao.gov/products/GAO-08-763T]. Washington, D.C.: May 8, 
2008. 

Surface Transportation: Restructured Federal Approach Needed for More 
Focused, Performance-Based, and Sustainable Programs. [hyperlink, 
http://www.gao.gov/products/GAO-08-400]. Washington, D.C.: March 6, 
2008. 

Highway Public-Private Partnerships: More Rigorous Up-front Analysis 
Could Better Secure Potential Benefits and Protect the Public Interest. 
[hyperlink, http://www.gao.gov/products/GAO-08-44]. Washington, D.C.: 
February 8, 2008. 

Freight Transportation: National Policy and Strategies Can Help Improve 
Freight Mobility. [hyperlink, http://www.gao.gov/products/GAO-08-287]. 
Washington, D.C.: January 7, 2008. 

Intercity Passenger Rail: National Policy and Strategies Needed to 
Maximize Public Benefits from Federal Expenditures. [hyperlink, 
http://www.gao.gov/products/GAO-07-15]. Washington, D.C.: November 13, 
2006. 

Freight Railroads: Industry Health Has Improved, but Concerns about 
Competition and Capacity Should Be Addressed. [hyperlink, 
http://www.gao.gov/products/GAO-07-94]. Washington, D.C.: October 6, 
2006. 

Highway Finance: States’ Expanding Use of Tolling Illustrates Diverse 
Challenges and Strategies. [hyperlink, 
http://www.gao.gov/products/GAO-06-554]. Washington, D.C.: June 28, 
2006. 

Highway Trust Fund: Overview of Highway Trust Fund Estimates. 
[hyperlink, http://www.gao.gov/products/GAO-06-572T]. Washington, D.C.: 
April 4, 2006. 

Freight Transportation: Short Sea Shipping Option Shows Importance of 
Systematic Approach to Public Investment Decisions. [hyperlink, 
http://www.gao.gov/products/GAO-05-768]. Washington, D.C.: July 29, 
2005. 

Highlights of an Expert Panel: The Benefits and Costs of Highway and 
Transit Investments. [hyperlink, 
http://www.gao.gov/products/GAO-05-423SP]. Washington, D.C.: May 6, 
2005. 

Highway and Transit Investments: Options for Improving Information on 
Projects’ Benefits and Costs and Increasing Accountability for Results. 
[hyperlink, http://www.gao.gov/products/GAO-05-172]. Washington, D.C.: 
January 24, 2005. 

[End of Highlights for Funding the Nation’s Surface Transportation 
System] 

High-Risk Series: Ensuring the Effective Protection of Technologies 
Critical to U.S. National Security Interests: 

GAO Highlights: 

For additional information about this high-risk area, contact Ann 
Calvaresi Barr at (202) 512-4841 or calvaresibarra@gao.gov. 

Why Area Is High Risk: 

The Department of Defense annually spends billions of dollars to 
develop and produce advanced weaponry. At the same time, the U.S. 
government approves selling these weapons and defense-related 
technologies overseas for foreign policy, security, and economic
reasons. These weapons and technologies are often targets for theft, 
espionage, reverse engineering, and illegal export. The U.S. government 
has a number of programs to identify and protect critical technologies 
consistent with U.S. interests. These include the export control 
systems for defense-related and dual-use items, the foreign military 
sales program, and reviews of foreign investments in U.S. companies. In 
2007, GAO designated ensuring the effective protection of technologies 
critical to U.S. national security interests as a high-risk area. 

What GAO Found: 

Over the years, GAO has identified weaknesses in the effectiveness and
efficiency of government programs designed to protect critical 
technologies while advancing U.S. interests. Since this area was 
designated high risk in 2007, the agencies responsible for 
administering these programs, including the Departments of Commerce, 
Defense, Justice, State and the Treasury, have made improvements in 
several areas. However, vulnerabilities continue to exist, and agencies 
have yet to take action to address GAO’s major underlying concern, 
which is the need for a fundamental re-examination of current 
government programs to determine how they can collectively achieve their
mission and to evaluate the need for alternative approaches. 

As seen in the following examples, agencies have made progress in 
improving their individual programs for protecting critical 
technologies. 

* State is analyzing its export license process and restructuring its
workforce to reduce processing times and decrease open cases. 

* Justice established a task force with other agencies responsible for
enforcing export controls to address overlapping jurisdiction for 
investigating potential violations and poor interagency coordination. 

* The Committee on Foreign Investment in the U.S. expanded the factors 
to be considered in evaluating the national security effects of foreign 
acquisitions of U.S. companies. 

Recent GAO work has identified other agency actions needed, including: 

* Enforcement agencies need to improve data collection processes for
their nuclear counterproliferation efforts. 

* Defense and State need to resolve disagreements on export control
exemption use and guidelines. 

* Commerce needs to develop procedures and negotiate access for 
conducting on-site reviews for dual-use items transferred to China as
part of its validated end-user program. 

While actions at the agency level can improve processes in performing 
their individual responsibilities, these improvements do not respond to 
GAO’s underlying concern that the programs need to work as a system. The
executive branch has neither re-examined these programs to determine if 
they are collectively effective nor evaluated alternative approaches. 
While recent agency actions improve the likelihood of agencies meeting 
their individual responsibilities, the effectiveness of the existing 
system depends on their working collectively. In discussions with the 
Office of Management and Budget on governmentwide actions to address 
this high-risk area, GAO was informed that conducting a fundamental 
reexamination of programs for protecting critical technologies would 
fall under the purview of the National Security Council. To date, the 
National Security Council has not responded to GAO’s requests to 
discuss any planned actions. 

What Remains to Be Done: 

To ensure the collective effectiveness of programs to identify and 
protect critical technologies, the executive and legislative branches 
need to conduct a fundamental reexamination of the current programs and 
evaluate the potential of alternative approaches. This re-examination 
could yield proposed legislative changes that could provide a 
comprehensive framework with clear responsibilities and accountability. 

Related GAO Products for: Ensuring the Effective Protection of 
Technologies Critical to U.S. National Security Interests: 

Export Controls: Challenges with Commerce’s Validated-End User Program 
May Limit Its Ability to Ensure That Semiconductor Equipment Exported 
to China Is Used as Intended. [hyperlink, 
http://www.gao.gov/products/GAO-08-1095]. Washington, D.C.: September 
25, 2008. 

Department of Defense: Observations on the National Industrial Security 
Program. [hyperlink, http://www.gao.gov/products/GAO-08-695T]. 
Washington, D.C.: April 16, 2008. 

Foreign Investment: Laws and Policies Regulating Foreign Investment in 
10 Countries. [hyperlink, http://www.gao.gov/products/GAO-08-320]. 
Washington, D.C.: February 28, 2008. 

Defense Acquisitions: Departmentwide Direction Is Needed for 
Implementation of the Anti-tamper Policy. [hyperlink, 
http://www.gao.gov/products/GAO-08-91]. Washington, D.C.: January 11, 
2008. 

Defense Trade: State Department Needs to Conduct Assessments to 
Identify and Address Inefficiencies and Challenges in the Arms Export 
Process. [hyperlink, http://www.gao.gov/products/GAO-08-89]. 
Washington, D.C.: November 30, 2007. 

Nonproliferation: U.S. Efforts to Combat Nuclear Networks Need Better 
Data on Proliferation Risks and Program Results. [hyperlink, 
http://www.gao.gov/products/GAO-08-21]. Washington, D.C.: October 31, 
2007. 

Defense Trade: Clarification and More Comprehensive Oversight of Export 
Exemptions Certified by DOD Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-07-1103]. Washington, D.C.: September 
19, 2007. 

Export Controls: Vulnerabilities and Inefficiencies Undermine System’s 
Ability to Protect U.S. Interests. [hyperlink, 
http://www.gao.gov/products/GAO-07-1135T]. Washington, D.C.: July 26, 
2007. 

Defense Trade: National Security Reviews of Foreign Acquisitions of 
U.S. Companies Could Be Improved. [hyperlink, 
http://www.gao.gov/products/GAO-07-661T]. Washington, D.C.: March 23, 
2007. 

[End of Highlights for Ensuring the Effective Protection of 
Technologies Critical to U.S. National Security Interests] 

High-Risk Series: Revamping Federal Oversight of Food Safety: 

GAO Highlights: 

For additional information about this high-risk area, contact Lisa 
Shames at (202) 512-2649 or shamesl@gao.gov. 

Why Area Is High Risk: 

In 2007, GAO added the federal oversight of food safety to GAO’s high-
risk list because 15 agencies collectively administer at least 30 food-
related laws. Since then, the largest food-borne outbreak in the last 
10 years was linked to Salmonella in fresh produce. Also, high levels 
of imported foods underscore the urgency to revamp this system. About 
15 percent of the overall U.S. food supply is imported, as is about 60 
percent of fresh fruits and vegetables and over 80 percent of seafood. 
In addition, more of the population—including older adults, children, 
immune-compromised individuals, and pregnant women—is increasingly
susceptible to food-borne illnesses. 

What GAO Found: 

Federal oversight of food safety is becoming more fragmented. The U.S.
Department of Agriculture (USDA) is responsible for all meat and 
poultry and the Food and Drug Administration (FDA) for nearly all other 
foods, including seafood. However, the 2008 Farm Bill assigned USDA 
oversight responsibility for catfish, thus splitting up the seafood 
oversight. Also, USDA must inspect all meat and poultry prepared for 
commerce. In contrast, FDA’s inspections have been sporadic; FDA 
conducted 96 inspections in 11 countries in fiscal year 2007, down from 
211 inspections in 26 countries in 2001. 

GAO has reported that this fragmented federal oversight of food safety 
has caused inconsistent oversight, ineffective coordination, and 
inefficient use of resources. Over 70 percent of processed foods 
contain ingredients from genetically engineered crops. However,USDA, 
FDA, and the Environmental Protection Agency do not have a coordinated 
strategy for monitoring and evaluating the use of marketed genetically 
engineered crops to determine whether they are causing food safety 
concerns, such as the unintentional introduction of pharmaceutical or 
industrial compounds into the food supply. 

Federal expenditures on food safety are not based on the volume of foods
regulated by the agencies or consumed by the public. FDA is responsible 
for about 80 percent of the food supply and yet accounts for about 24 
percent of expenditures. FDA reported that limited resources challenge 
its efforts to carry out its responsibilities. GAO found that FDA has 
little assurance that companies comply with food-labeling laws and 
regulations. In addition, while FDA has considered fresh produce safety 
a priority for many years, unplanned events like food-borne outbreaks 
have caused FDA to provide limited oversight of domestic and imported 
fresh produce as well as delay key safety actions, such as updating 
regulations and guidance. FDA’s Food Protection Plan proposed positive 
first steps, such as stating its intent to request authority to order 
food recalls and issue preventive controls. However,GAO expressed 
concerns about the lack of more specific information on strategies and 
resources as well as FDA’s capacity to implement the plan. On the other
hand, USDA is responsible for regulating about 20 percent of the food 
supply and accounts for the majority of expenditures. Still, staffing 
declined from its highest level in 1995. Vacancy rates in some areas 
were as high as 22 percent in 2008. Officials reported this decline is 
due to fewer facilities and risk-based efforts to reduce food 
contamination. Although the number of recalls dropped, the quantity of 
meat and poultry recalled has increased sharply. 

Selected countries’ food safety systems can offer insights into 
overseeing our food safety challenges. These systems focus on the 
entire food supply chain, from “farm to table”; place primary 
responsibility for safety on producers; separate risk assessment and 
risk management; conduct risk-based inspections; and take steps to 
ensure certain food imports meet equivalent safety standards. 

What Remains to Be Done: 

GAO recommends that the President in the short term reconvene the 
President’s Council on Food Safety and in the long term consider 
alternative structures for the oversight of food safety. The executive 
branch should develop a results-oriented governmentwide performance plan
to help ensure agencies’ goals are complementary and to help decision 
makers balance trade-offs when resource allocation and restructuring 
decisions are made. Congress should consider commissioning the National
Academy of Sciences or a blue ribbon panel to conduct a detailed 
analysis of alternative food safety organizational structures and enact
comprehensive, uniform, and risk-based food safety legislation. 

Related GAO Products for: Revamping Federal Oversight of Food Safety: 

Genetically Engineered Crops: Agencies Are Proposing Changes to Improve 
Oversight, but Could Take Additional Steps to Enhance Coordination and 
Monitoring. [hyperlink, http://www.gao.gov/products/GAO-09-60]. 
Washington, D.C.: November 5, 2008. 

Food Safety: Improvements Needed in FDA Oversight of Fresh Produce. 
[hyperlink, http://www.gao.gov/products/GAO-08-1047]. Washington, D.C.: 
September 26, 2008. 

Food Labeling: FDA Needs to Better Leverage Resources, Improve 
Oversight, and Effectively Use Available Data to Help Consumers Select 
Healthy Foods. [hyperlink, http://www.gao.gov/products/GAO-08-597]. 
Washington, D.C.: September 9, 2008. 

Federal Oversight of Food Safety: FDA Has Provided Few Details on the 
Resources and Strategies Needed to Implement Its Food Protection Plan. 
[hyperlink, http://www.gao.gov/products/GAO-08-909T]. Washington, D.C.: 
June 12, 2008. 

Food Safety: Selected Countries’ Systems Can Offer Insights into 
Ensuring Import Safety and Responding to Foodborne Illness. [hyperlink, 
http://www.gao.gov/products/GAO-08-794]. Washington, D.C.: June 10, 
2008. 

Humane Methods of Handling and Slaughter: Public Reporting on 
Violations Can Identify Enforcement Challenges and Enhance 
Transparency. [hyperlink, http://www.gao.gov/products/GAO-08-686T]. 
Washington, D.C.: April 17, 2008. 

Federal Oversight of Food Safety: FDA’s Food Protection Plan Proposes 
Positive First Steps, but Capacity to Carry Them Out Is Critical. 
[hyperlink, http://www.gao.gov/products/GAO-08-435T]. Washington, D.C.: 
January 29, 2008. 

Agricultural Quarantine Inspection Program: Management Problems May 
Increase Vulnerability to Foreign Pests and Diseases. [hyperlink, 
http://www.gao.gov/products/GAO-08-96T]. Washington, D.C.: October 3, 
2007. 

National Animal Identification System: USDA Needs to Resolve Several 
Key Implementation Issues to Achieve Rapid and Effective Disease 
Traceback. [hyperlink, http://www.gao.gov/products/GAO-07-592]. 
Washington, D.C.: July 6, 2007. 

Federal Oversight of Food Safety: High-Risk Designation Can Bring 
Attention to Limitations in the Government’s Food Recall Programs. 
[hyperlink, http://www.gao.gov/products/GAO-07-785T]. Washington, D.C.: 
April 24, 2007. 

[End of Highlights for Revamping Federal Oversight of Food Safety] 

High-Risk Series: Department of Defense Contract Management: 

GAO Highlights: 

For additional information about this high-risk area, contact John 
Hutton at (202) 512-4841 or huttonj@gao.gov. 

Why Area Is High Risk: 

The Department of Defense (DOD) obligated more than $315 billion on
contracts for goods and services in fiscal year 2007, more than double
the amount it spent 6 years ago. At times, however, DOD’s acquisitions
have not resulted in the desired outcomes. The lack of well-defined
requirements, the use of ill-suited business arrangements, and the lack 
of an adequate number of trained acquisition and contract oversight 
personnel contribute to unmet expectations and continue to place the 
department at risk of potentially paying more than necessary. GAO 
designated DOD contract management as a high-risk area in 1992. 

What GAO Found: 

DOD relies heavily on contractors to provide services to help meet 
critical missions and support acquisition functions. In November 2006, 
GAO reported that DOD’s approach to managing services acquisitions 
tended to be reactive and did not position DOD to determine whether 
services acquisitions were achieving desired outcomes. DOD has efforts 
under way to improve its management of major services acquisitions, 
including establishing criteria to assess proposed acquisitions and 
developing a capability to conduct independent management reviews, but 
these efforts are relatively new. DOD’s reliance on contractors 
presents several broader management challenges, including determining 
which functions and activities should be contracted out; developing a 
total workforce strategy to address the appropriate mix, roles, and 
responsibilities of contractor, civilian, and military personnel; and
ensuring appropriate oversight, including addressing risks, ethics 
concerns, and surveillance needs. Such issues take on heightened 
significance in Iraq and Afghanistan, where DOD estimated that more 
than 230,000 contractor personnel were engaged as of October 2008. 

DOD continues to face challenges in employing sound business 
arrangements. In June 2007, GAO reported on DOD’s use of time-and-
materials contracts and on undefinitized contract actions, two 
arrangements for which DOD obligated billions of dollars but which can 
pose risk if not effectively managed. For example, time-and-materials 
contracts can be awarded quickly and adjusted when requirements or 
funding are uncertain, but GAO found few attempts to convert follow-on 
work to less risky contract types and wide discrepancies in DOD’s 
oversight. GAO also found that DOD personnel failed to definitize—or
reach final agreement on—contract terms within required time frames in 
60 percent of the 77 contracts GAO reviewed. Until contracts are 
definitized, DOD bears increased risk because contractors have little 
incentive to control costs. For example, GAO reported in July 2007 that 
DOD had not completed negotiations on certain task orders in Iraq until 
more than 6 months after the work began and after most of the costs had 
been incurred, contributing to its decision to pay nearly all of the 
$221 million questioned by auditors. DOD has issued guidance to address 
these and other contract management issues. 

Properly managing the acquisition of goods and services requires a 
workforce with the right skills and capabilities. DOD reports it has 
identified the competencies needed by its contracting officers but DOD 
officials acknowledged that more needs to be done to close skill gaps 
and to expand efforts to those who perform oversight or other key 
acquisition roles. DOD also faces challenges in supporting operations 
in Iraq and Afghanistan. For example, in 2007 an Army-commissioned 
study concluded the Army lacked the military and civilian acquisition 
personnel to support expeditionary or peacetime missions. Similarly, in 
2008, GAO reported that the lack of qualified personnel hindered 
oversight of contracts to maintain military equipment in Kuwait and 
provide linguistic services in Iraq and questioned whether DOD could 
sustain increased oversight of its private security providers. 

What Remains to Be Done: 

To improve outcomes on the billions of dollars DOD spends annually on 
goods and services, DOD needs to: 

* adopt a more proactive approach to managing services acquisitions; 

* assess the risks that its reliance on contractors poses and take 
action to mitigate such risks; 

* determine the appropriate mix, roles, and responsibilities of 
contractor, civilian, and military personnel; 

* ensure that recent guidance to address contracting weaknesses is 
consistently reflected in decisions made on individual transactions; 
and; 

* ensure that its acquisition workforce is adequately sized, trained, 
and equipped to meet the department’s needs. 

DOD has generally agreed with GAO’s recommendations and has efforts 
under way to implement them. 

Related GAO Products for: Department of Defense Contract Management: 

Contract Management: DOD Developed Draft Guidance for Operational 
Contract Support but Has Not Met All Legislative Requirements. 
[hyperlink, http://www.gao.gov/products/GAO-09-114R]. Washington, D.C.: 
November 20, 2008. 

Contingency Contracting: DOD, State, and USAID Contracts and Contractor 
Personnel in Iraq and Afghanistan. [hyperlink, 
http://www.gao.gov/products/GAO-09-19]. Washington, D.C.: October 1, 
2008. 

Military Operations: DOD Needs to Address Contract Oversight and 
Quality Assurance Issues for Contracts Used to Support Contingency 
Operations. [hyperlink, http://www.gao.gov/products/GAO-08-1087]. 
Washington, D.C: September 26, 2008. 

Rebuilding Iraq: DOD and State Department Have Improved Oversight and 
Coordination of Private Security Contractors in Iraq, but Further 
Actions Are Needed to Sustain Improvements. [hyperlink, 
http://www.gao.gov/products/GAO-08-966]. Washington, D.C.: July 31, 
2008. 

Defense Contracting: Post-Government Employment of Former DOD Officials 
Needs Greater Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-08-485]. Washington, D.C.: May 21, 
2008. 

Defense Contracting: Army Case Study Delineates Concerns with Use of 
Contractors as Contract Specialists. [hyperlink, 
http://www.gao.gov/products/GAO-08-360]. Washington, D.C.: March 26, 
2008. 

Defense Management: DOD Needs to Reexamine Its Extensive Reliance on 
Contractors and Continue to Improve Management and Oversight. 
[hyperlink, http://www.gao.gov/products/GAO-08-572T]. Washington, D.C.: 
March 11, 2008. 

Defense Contracting: Additional Personal Conflict of Interest 
Safeguards Needed for Certain DOD Contractor Employees. [hyperlink, 
http://www.gao.gov/products/GAO-08-169]. Washington, D.C.: March 7, 
2008. 

Defense Contract Management: DOD's Lack of Adherence to Key Contracting 
Principles on Iraq Oil Contract Put Government Interests at Risk. 
[hyperlink, http://www.gao.gov/products/GAO-07-839]. Washington, D.C.: 
July 31, 2007. 

Defense Contracting: Improved Insight and Controls Needed over DOD's 
Time-and-Materials Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-07-273]. Washington, D.C.: June 29, 
2007. 

Defense Contracting: Use of Undefinitized Contract Actions Understated 
and Definitization Time Frames Often Not Met. [hyperlink, 
http://www.gao.gov/products/GAO-07-559]. Washington, D.C.: June 19, 
2007. 

Defense Acquisitions: Tailored Approach Needed to Improve Service 
Acquisition Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-07-20]. Washington, D.C.: November 9, 
2006. 

[End of Highlights for Department of Defense Contract Management] 

High-Risk Series: Department of Energy’s Contract Management for the 
National Nuclear Security Administration and Office of Environmental 
Management: 

GAO Highlights: 

For additional information about this high-risk area, contact Patricia 
A. Dalton at (202) 512-3841 or daltonp@gao.gov. 

Why Area IS High Risk: 

GAO designated the Department of Energy’s (DOE) contract management as 
a high-risk area in 1990. DOE, the largest non-Defense contracting 
agency in the federal government, relies primarily on contractors to 
carry out its diverse missions and operate its laboratories and other 
facilities. About 90 percent of DOE’s annual budget is spent on 
contracts. Two of DOE’s largest program elements—the National Nuclear
Security Administration and Office of Environmental Management—account 
for about 60 percent of the annual budget. DOE’s record of inadequate 
management and oversight of its contractors has resulted in the high-
risk designation for contract management. 

What GAO Found: 

DOE’s contract management, including both contract administration and
project management, continues to be at high risk for fraud, waste, 
abuse, and mismanagement. In January 2007, GAO reported that the 
department was taking steps to strengthen contract and project 
management but that performance problems continued on DOE’s major 
projects, and DOE had yet to do a root-cause analysis to understand the 
underlying weaknesses. Based on progress over the past 2 years, GAO is 
narrowing the scope of this high-risk area to focus on the National 
Nuclear Security Administration (NNSA) and the Office of Environmental 
Management (EM), although projects across DOE will continue to receive 
scrutiny. 

Over the last 2 years, DOE has been working to better understand the
underlying weaknesses in its contract and project management and develop
appropriate corrective actions to address the weaknesses. As part of the
Office of Management and Budget initiative for federal agencies to 
develop detailed corrective action plans for high-risk areas, DOE 
obtained input from headquarters and field officials with contract and 
project management expertise to develop a root-cause analysis of its 
weaknesses. DOE then used this analysis to develop a corrective action 
plan and performance measures to assess progress. Further, GAO found 
that in the Office of Science—DOE’s third-largest program element—more 
than two-thirds of the 42 projects completed or under way from fiscal 
years 2003 through 2007 were completed or were being carried out within 
original cost and schedule targets. GAO found that the factors 
contributing to this performance were fundamental to effective project 
management, including leadership commitment, appropriate management and 
technical expertise, and disciplined and rigorous implementation of 
project management policies. 

Two major program elements within DOE—NNSA and EM—account for the 
majority of DOE’s budget and continue to experience significant 
problems. Specifically, GAO found that for 12 major construction 
projects with total costs of about $27 billion—10 of which were NNSA or 
EM projects—9 exceeded original cost or schedule estimates, principally 
because of ineffective DOE project oversight and poor contractor 
management. Cost increases on these projects ranged from $79 million to 
$7.9 billion, with schedule delays ranging from 9 months to more than 
11 years. In addition, neither NNSA nor EM consistently applied project 
management policies. Effective contract and project management will 
remain critical over the coming decades as NNSA embarks on a major 
initiative to modernize the nation’s aging nuclear weapons production 
facilities costing tens of billions of dollars and EM will spend 
billions of dollars to build facilities to treat and dispose of 
millions of gallons of radioactive waste. 

What Remains to Be Done: 
 
DOE needs to ensure that it has the needed people and resources in 
place to solve problems and that its solutions are independently
validated for their effectiveness and sustainability. GAO has made a
series of recommendations to strengthen DOE’s contract management. These
recommendations collectively call for DOE to ensure that project 
management requirements are consistently followed, to improve its 
oversight of contractors, and to strengthen accountability for 
performance. DOE generally agreed with the recommendations but in some 
cases asserted that its ongoing efforts already addressed the 
recommendations. GAO concluded that further improvements were needed. 

Related GAO Products for: Department of Energy’s Contract Management 
for the National Nuclear Security Administration and Office of 
Environmental Management: 

Federal Research: Opportunities Exist to Improve the Management and 
Oversight of Federally Funded Research and Development Centers. 
[hyperlink, http://www.gao.gov/products/GAO-09-15]. Washington, D.C.: 
October 8, 2008. 

Nuclear Waste: Action Needed to Improve Accountability and Management 
of DOE’s Major Cleanup Projects. [hyperlink, 
http://www.gao.gov/products/GAO-08-1081]. Washington, D.C.: September 
26, 2008. 

Nuclear Weapons: Views on NNSA’s Proposal to Transform the Nuclear 
Weapons Complex. [hyperlink, http://www.gao.gov/products/GAO-08-1032T]. 
Washington, D.C.: July 17, 2008. 

Nuclear Waste: DOE Lacks Critical Information Needed to Assess Its Tank 
Management Strategy at Hanford. [hyperlink, 
http://www.gao.gov/products/GAO-08-793]. Washington, D.C.: June 30, 
2008. 

Department of Energy: Office of Science Has Kept Majority of Projects 
within Budget and on Schedule, but Funding and Other Challenges May 
Grow. [hyperlink, http://www.gao.gov/products/GAO-08-641]. Washington, 
D.C.: May 30, 2008. 

Nuclear Weapons: NNSA Needs to Establish a Cost and Schedule Baseline 
for Manufacturing a Critical Nuclear Weapon Component. [hyperlink, 
http://www.gao.gov/products/GAO-08-593]. Washington, D.C.: May 23, 
2008. 

Hanford Waste Treatment Plant: Department of Energy Needs to Strengthen 
Controls over Contractor Payments and Project Assets. [hyperlink, 
http://www.gao.gov/products/GAO-07-888]. Washington, D.C.: July 20, 
2007. 

Nuclear Waste: DOE Should Reassess Whether the Bulk Vitrification 
Demonstration Project at Its Hanford Site Is Still Needed to Treat 
Radioactive Waste. [hyperlink, http://www.gao.gov/products/GAO-07-762]. 
Washington, D.C.: June 12, 2007. 

Department of Energy: Consistent Application of Requirements Needed to 
Improve Project Management. [hyperlink, 
http://www.gao.gov/products/GAO-07-518]. Washington, D.C.: May 11, 
2007. 

Department of Energy: Major Construction Projects Need a Consistent 
Approach for Assessing Technology Readiness to Help Avoid Cost 
Increases and Delays. [hyperlink, 
http://www.gao.gov/products/GAO-07-336]. Washington, D.C.: March 27, 
2007. 

National Nuclear Security Administration: Additional Actions Needed to 
Improve Management of the Nation’s Nuclear Programs. [hyperlink, 
http://www.gao.gov/products/GAO-07-36]. Washington, D.C.: January 19, 
2007. 

[End of Highlights for Department of Energy’s Contract Management for 
the National Nuclear Security Administration and Office of 
Environmental Management] 

High-Risk Series: National Aeronautics and Space Administration 
Acquisition Management: 

GAO Highlights: 

For additional information about this high-risk area, contact Cristina 
T. Chaplain at (202) 512-4841 or chaplainc@gao.gov. 

Why Area Is High Risk: 

NASA is in the midst of phasing out the Space Shuttle Program and 
beginning another major undertaking, the Constellation Program, that 
will create the next generation of spacecraft for human spaceflight. 
This effort, expected to ultimately cost nearly $230 billion over 
several decades, has been launched against a backdrop of acquisition 
problems in NASA’s major programs. In 1990, GAO designated NASA’s 
contract management as high risk in view of persistent cost growth and
schedule slippage in the majority of its major projects. Since that 
time, GAO’s high-risk work has focused on identifying a number of causal
factors, including antiquated financial management systems, poor cost 
estimating, and undefinitized contracts. Because cost growth and 
schedule delays persist, this area—now titled acquisition management 
because of the scope of issues that need to be resolved—remains high 
risk. 

What GAO Found: 

NASA has made a concerted effort to improve its acquisition management. 
In 2007, NASA developed a comprehensive plan to address systemic 
weaknesses related to how it manages its acquisitions. The plan 
specifically seeks to strengthen program/project management, increase 
accuracy in cost estimating, facilitate monitoring of contractor cost 
performance, improve agencywide business processes, and improve 
financial management. The plan identifies specific actions to be taken 
in each area and establishes points of accountability and metrics to 
assess progress. NASA has also acted to reduce acquisition management 
risks by adopting practices that focus on closing gaps in knowledge 
about requirements, technologies, funding, time, and other resources 
before commitments are made to new large-scale programs. In addition, 
NASA has continued to implement its new enterprisewide financial 
system. 

Although NASA has made important advances, it will take several years to
fully implement these initiatives and transform the agency into an 
organization that delivers the kind of analysis and forward-looking
information needed to effectively manage its many complex programs. Not
only do changes need to take root at the center and project level, but
obstacles, such as a lack of accurate historical data on program costs, 
also will need to be dealt with.Moreover,NASA will be attempting to 
implement these reforms at a time when the agency will be undergoing a 
massive transition from a shuttle-based environment to new modes of 
space transportation. The transition itself will impact a large span of 
NASA’s workforce and its contractors and could detract attention from 
acquisition management reforms. However, this transition also provides 
a good opportunity for NASA to implement its reforms. Further, NASA 
will likely need to tackle these challenges under an increasingly 
constrained budget environment—that is, projects will likely get more 
expensive at a time when there is no guarantee of additional funding as 
they move forward. 

More work is necessary to address these challenges and implement NASA’s
acquisition improvement plan. Since fiscal year 2006, 10 out of 12, or 
83 percent, of all major development projects in implementation 
exceeded their baseline thresholds. In addition, GAO reported in 2007 
that NASA had begun to tackle the most significant management 
challenges it faced by deploying its integrated financial management 
program. When NASA completes this project in 2009 it will be a 
significant accomplishment. 

What Remains to Be Done: 

NASA has laid out a broad plan for reducing acquisition risk and taken
steps to reflect best practices in policies. Successful implementation 
of both the plan and revised policies should stem cost growth and 
schedule slippage. However, to maximize NASA’s investment dollars, 
implementation needs to be complemented by vigorous executive 
leadership to foster the expansion of a business-oriented culture and a 
sustained commitment to identify and take action on projects that are 
not achieving cost, schedule or performance goals upon which
they were based when they were initiated. 

Related GAO Products for: National Aeronautics and Space Administration 
Acquisition Management: 

NASA: Agency Has Taken Steps toward Making Sound Investment Decisions 
for Ares I but Still Faces Challenging Knowledge Gaps. [hyperlink, 
http://www.gao.gov/products/GAO-08-51]. Washington, D.C.: October 31, 
2007. 

Business Modernization: NASA Must Consider Agencywide Needs to Reap the 
Full Benefits of Its Enterprise Management System Modernization Effort. 
[hyperlink, http://www.gao.gov/products/GAO-07-691]. Washington, D.C.: 
July 20, 2007. 

NASA: Sound Management and Oversight Key to Addressing Crew Exploration 
Vehicle Project Risks. [hyperlink, 
http://www.gao.gov/products/GAO-06-1127T]. Washington, D.C.: September 
28, 2006. 

NASA Procurement: Use of Award Fees for Achieving Program Outcomes 
Should Be Improved. [hyperlink, http://www.gao.gov/products/GAO-07-58]. 
Washington, D.C.: January 17, 2007. 

Enterprise Architecture: Leadership Remains Key to Establishing and 
Leveraging Architectures for Organizational Transformation. [hyperlink, 
http://www.gao.gov/products/GAO-06-831]. Washington, D.C.: August 14, 
2006. 

NASA: Long-Term Commitment to and Investment in Space Exploration 
Program Requires More Knowledge. [hyperlink, 
http://www.gao.gov/products/GAO-06-817R]. Washington, D.C.: July 17, 
2006. 

NASA’s James Webb Space Telescope: Knowledge-Based Acquisition Approach 
Key to Addressing Program Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-06-634]. Washington, D.C.: July 14, 
2006. 

Financial Management Systems: Additional Efforts Needed to Address Key 
Causes of Modernization Failures. [hyperlink, 
http://www.gao.gov/products/GAO-06-184]. Washington, D.C.: March 15, 
2006. 

NASA: Implementing a Knowledge-Based Acquisition Framework Could Lead 
to Better Investment Decisions and Project Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-06-218]. Washington, D.C.: December 21, 
2005. 

[End of Highlights for National Aeronautics and Space Administration 
Acquisition Management] 

High-Risk Series: Management of Interagency Contracting: 

GAO Highlights: 

For additional information about this high-risk area, contact William 
T. Woods at (202) 512-8214 or woodsw@gao.gov. 

Why Area Is High Risk: 

When used correctly, interagency contracting—a process by which one 
agency either uses another agency’s contract directly or obtains 
contracting support services from another agency—can offer improved 
efficiency in the procurement process at a time when agencies face 
growing workloads and declines in the acquisition workforce. Though 
precise numbers are unavailable, agencies spend billions of dollars
annually using interagency contracting to acquire goods and services 
that support a wide variety of activities, ranging from the war in Iraq 
to installing new computer systems. GAO designated the management of 
interagency contracting as a high-risk area in 2005, due in part to the 
need for stronger internal controls, clear definitions of roles and
responsibilities, and training to ensure proper use of this contracting 
method. 

What GAO Found: 

The management of interagency contracting continues to evolve and 
federal agencies have made some progress. In response to congressional 
direction, agency inspectors general (IG) have reviewed the use of 
interagency contracting by the Department of Defense (DOD), the largest 
user of this contracting method. The results have been mixed.For 
example, the DOD IG found that the Department of the Interior had 
improved its contracting on behalf of DOD, and restrictions that DOD 
had placed on the use of Interior’s procurement services were 
rescinded. In addition, the Department of Veterans Affairs (VA) IG 
found that internal controls were generally adequate to ensure 
compliance with DOD procurement requirements when VA activities made
purchases on behalf of DOD. The DOD IG found in its own reviews of VA, 
as well as of several other agencies, however, that DOD policy on the 
use of non-DOD contracts had not always been implemented properly. In 
particular, the DOD IG noted the lack of adequate interagency 
agreements, market research, and clearly delineated roles and 
responsibilities. Similarly, GAO found that some DOD agencies involved 
in interagency contracting had failed to comply with requirements for 
using time-and-materials contracts, an arrangement that is considered 
to be high risk for the government. 

In January 2007, the congressionally chartered Acquisition Advisory 
Panel made numerous recommendations for improving the interagency 
contracting process, including actions OMB could take to address a lack 
of consistent governmentwide policy on the creation and continuation of 
interagency contracts. In response, OMB has taken several steps to 
address the panel’s recommendations. Additionally, several agencies 
have ceased the administration of certain interagency contracts. The 
Department of the Treasury, for example, has decided to discontinue its 
franchise fund contracting operation because it was not able to provide 
adequate processes and systems to support its customers. Other 
agencies, including the Department of Commerce, have shifted 
responsibility for administration of interagency contracts to the 
General Services Administration, whose mission is, in part, to support 
acquisitions by and for other agencies. 

In June 2008,OMB issued policy guidance, including a model agreement,
designed to improve the management and use of interagency contracting. 
The guidance emphasizes that effective use of interagency contracting 
is a shared responsibility between customer and servicing agencies. 
Other agencies also have issued guidance on the use of interagency 
contracting, but the guidance has not always been implemented properly. 
For example, GAO found that the manner in which the Department of State 
had implemented its interagency contracting policy significantly 
limited the ability of acquisition officials to manage the risks in 
using interagency contracts. Finally, GAO and others have continued to 
report that there are still no complete and reliable data on how much 
is spent governmentwide or the amount of fees paid for the use of 
interagency contracts. These data are needed to promote the effective 
use of interagency contracting. 

What Remains to Be Done: 

While agencies have taken some action in response to GAO 
recommendations, these initiatives are still being implemented, and 
success will require continued management attention. In addition, 
agencies still need to develop reliable data to track the use and costs 
of interagency contracting and assess whether they are achieving good 
outcomes. Agencies also need to implement the Office of Management and 
Budget’s (OMB) recent guidance intended to help agencies achieve the 
greatest value possible from interagency contracting. 

Related GAO Products for: Management of Interagency Contracting: 

GAO Reports: 

Interagency Contracting: Need for Improved Information and Policy 
Implementation at the Department of State. [hyperlink, 
http://www.gao.gov/products/GAO-08-578]. Washington, D.C.: May 8, 2008. 

Federal Acquisition: Oversight Plan Needed to Help Implement 
Acquisition Advisory Panel Recommendations. [hyperlink, 
http://www.gao.gov/products/GAO-08-160]. Washington, D.C: December 20, 
2007. 

Information Technology: FBI Following a Number of Key Acquisition 
Practices on New Case Management System but Improvements Still Needed. 
[hyperlink, http://www.gao.gov/products/GAO-07-912]. Washington, D.C.: 
July 30, 2007. 

Defense Contracting: Improved Insight and Controls Needed over DOD’s 
Time-and-Materials Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-07-273]. Washington, D.C.: June 29, 
2007. 

Other Reports: 

DOD Office of Inspector General. Follow-up on DOD Purchases Made 
Through the Department of the Interior. D-2008-122. Arlington, Va.: 
August 18, 2008. 

DOD Office of Inspector General. Report on FY2006 DOD Purchases Made 
Through the Department of the Treasury. D-2008-050. Arlington, Va.: 
February 11, 2008. 

DOD Office of Inspector General. FY2006 DOD Purchases Made Through the 
U.S. Department of Veterans Affairs. D-2008-036. Arlington, Va.: 
December 20, 2007. 

Department of Veterans Affairs Office of Inspector General. Audit of VA 
Purchases Made on Behalf of the Department of Defense. Report No. 06-
03540-24. Washington, D.C.: November 19, 2007. 

DOD Office of Inspector General. FY2006 DOD Purchases Made Through the 
National Institutes of Health. D-2008-022. Arlington, Va.: November 15, 
2007. 

Acquisition Advisory Panel. Report of the Acquisition Advisory Panel to 
the Office of Federal Procurement Policy and the United States 
Congress. January 2007. 

[End of Highlights for Management of Interagency Contracting] 

High-Risk Series: Enforcement of Tax Laws: 

GAO Highlights: 

For additional information about this high-risk area, contact Michael 
Brostekor James White at (202) 512-9110 or brostekm@gao.gov or 
whitej@gao.gov. 

Why Area Is High Risk: 

Internal Revenue Service (IRS) enforcement of the tax laws is vital—not 
only to catch tax cheats, but also to promote broader compliance by 
giving taxpayers confidence that others are paying their fair share. 
Since 1990 GAO has designated one or more aspects of tax law 
enforcement as high risk. Since 2001, GAO’s high-risk area has included 
IRS’s efforts to ensure payment both of unpaid taxes known to IRS and 
unpaid taxes IRS has not detected. 

What GAO Found: 

The amount of taxes that taxpayers should have paid on time but did not 
was last estimated (for tax year 2001) to be $345 billion, for a tax 
compliance rate of about 84 percent—a rate that has changed little in 3 
decades. After late payments and IRS enforcement actions, the net tax 
gap estimate was $290 billion. Many experts believe the gap was 
underestimated in 2001 and has grown larger since then. One area of 
concern is taxes on international income. GAO’s recent work showed that 
U.S. multinational corporations are shifting profits to low-tax 
jurisdictions. 

IRS has improved enforcement since 2000. Although dipping in 2008 to 
$56.4 billion, revenue from enforcement actions is up by 67 percent 
from 2000. While also dipping in 2008, the examination rate is up from 
recent years. High quality service also can contribute to compliance, 
especially for those who want to comply. IRS’s toll-free taxpayer 
service efforts continued to show high ratings in customer satisfaction 
and answering taxpayers’ tax law questions. 

One key to reducing the tax gap is adequate information on 
noncompliance. Commendably, IRS has committed to conducting annual 
compliance research studies for individual taxpayers and periodic 
studies on other segments of the taxpaying population. IRS plans to use 
these study data to update tax gap estimates and revise audit selection 
criteria. Such studies have contributed to legislative proposals to 
address specific compliance problems that are estimated to raise tens 
of billions of dollars in revenue over 10 years. 

However, IRS needs to build on the tax gap strategy that it developed 
with the Department of the Treasury and updated in 2007. Among other 
things, IRS needs to (1) develop a focused strategy to improve 
compliance by sole proprietor businesses, which are among the most 
noncompliant taxpayers; (2) maintain its renewed emphasis on studying 
tax gap components and gain a more in-depth understanding of specific 
compliance problems and how they might best be addressed; (3) expand 
the use of return on investment measures included in IRS’s budget for 
certain new initiatives to best allocate IRS’s limited resources; (4) 
determine whether additional information reporting, such as the 
recently passed basis reporting for securities transactions, is 
possible and whether other steps could be taken to maximize information
reporting; and (5) determine whether and how the increase in electronic 
filing of tax returns can be leveraged to ensure that all information 
on tax returns can be used to improve service and enforcement. 

Further, some compliance issues may need to be addressed by legislative
actions. GAO’s recent work noted that (1) many noncompliant taxpayers 
rely on paid preparers, but IRS does not track or regulate preparer 
performance; (2) some information reporting requirements apply to 
nonincorporated entities but not to corporations; (3) some rental real 
estate activity escapes information reporting because it is not 
considered a trade or business; and (4) IRS has limited time to conduct 
audits of taxpayers with offshore activity. Because complex laws offer 
opportunities to hide noncompliance, simplifying the tax code also has 
the potential to help reduce the tax gap. 

What Remains to Be Done: 

For IRS to improve its enforcement of tax laws, specific and targeted
approaches are necessary. IRS must: 

* continue to perform compliance research on a regular basis and use the
results to justify resource requests and target scarce enforcement 
resources, and; 

* develop service and enforcement corrective measures - both 
administrative and statutory - that address noncompliance. 

In addition, IRS should consider prior recommendations from GAO. 

To assist IRS in reducing the tax gap, Congress should consider whether 
tax compliance could be improved by regulating or otherwise changing 
the role of paid preparers, making additional taxpayers subject to 
information reporting requirements, and granting IRS more time to audit
taxpayers with offshore activity. Simplifying the tax code may improve 
compliance, as well. 

Related GAO Products for: Enforcement of Tax Laws: 

Tax Gap: Actions That Could Improve Rental Real Estate Reporting 
Compliance. [hyperlink, http://www.gao.gov/products/GAO-08-956]. 
Washington, D.C.: August 28, 2008. 

Tax Preparers: Oregon's Regulatory Regime May Lead to Improved Federal 
Tax Return Accuracy and Provides a Possible Model for National 
Regulation. [hyperlink, http://www.gao.gov/products/GAO-08-781]. 
Washington, D.C.: August 15, 2008. 

U.S. Multinational Corporations: Effective Tax Rates Are Correlated 
with Where Income Is Reported. [hyperlink, 
http://www.gao.gov/products/GAO-08-950]. Washington, D.C.: August 12, 
2008. 

Internal Revenue Service: Fiscal Year 2009 Budget Request and Interim 
Performance Results of IRS’s 2008 Tax Filing Season. [hyperlink, 
http://www.gao.gov/products/GAO-08-567] Washington, D.C.: March 13, 
2008. 

Tax Compliance: Qualified Intermediary Program Provides Some Assurance 
That Taxes on Foreign Investors Are Withheld and Reported, but Can Be 
Improved. [hyperlink, http://www.gao.gov/products/GAO-08-99]. 
Washington, D.C.: December 19, 2007. 

Tax Administration: 2007 Filing Season Continues Trend of Improvement, 
but Opportunities to Reduce Costs and Increase Tax Compliance Should Be 
Evaluated. [hyperlink, http://www.gao.gov/products/GAO-08-38]. 
Washington, D.C.: November 15, 2007. 

Tax Gap: A Strategy for Reducing the Gap Should Include Options for 
Addressing Sole Proprietor Noncompliance. [hyperlink, 
http://www.gao.gov/products/GAO-07-1014]. Washington, D.C.: July 13, 
2007. 

Internal Revenue Service: Assessment of the 2008 Budget Request and an 
Update of 2007 Performance. [hyperlink, 
http://www.gao.gov/products/GAO-07-719T]. Washington, D.C.: May 9, 
2007. 

2007 Tax Filing Season: Interim Results and Updates of Previous 
Assessments of Paid Preparers and IRS’s Modernization and Compliance 
Research Efforts. [hyperlink, http://www.gao.gov/products/GAO-07-720T]. 
Washington, D.C.: April 12, 2007. 

Tax Administration: Additional Time Needed to Complete Offshore Tax 
Evasion Examinations. [hyperlink, 
http://www.gao.gov/products/GAO-07-237]. Washington, D.C.: March 30, 
2007. 

Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap. 
[hyperlink, http://www.gao.gov/products/GAO-07-488T]. Washington, D.C.: 
February 16, 2007. 

[End of Highlights for Enforcement of Tax Laws] 

High-Risk Series: Internal Revenue Service Business Systems 
Modernization: 

GAO Highlights: 
For additional information about this high-risk area, contact David 
A.Powner at (202) 512-9286 or pownerd@gao.gov or Steven J. Sebastian at 
(202) 512-3406 or sebastians@gao.gov. 

Why Area Is High Risk: 

The Internal Revenue Service’s (IRS) highly complex, multibillion-dollar
Business Systems Modernization (BSM) program is critical to (1) 
transforming the agency’s manual paper-intensive business operations, 
(2) fulfilling its obligations under the IRS Restructuring and Reform 
Act, and (3) providing the reliable and timely financial management
information needed to better enable IRS to justify its resource 
allocation decisions and congressional budgetary requests. Despite 
progress in improving modernization management controls and 
capabilities and addressing long-standing financial management 
weaknesses, significant challenges and serious risks remain. 

What GAO Found: 

IRS has long relied on obsolete automated systems for key operational 
and financial management functions, and its attempts to modernize these 
aging computer systems span decades. A long history of continuing 
delays and design difficulties and their impact on IRS’s operations led 
GAO to designate IRS’s systems modernization and its financial 
management as separate high-risk areas in 1995. GAO has previously 
reported that despite progress in establishing management controls, 
acquiring foundational system infrastructure and applications, and 
addressing several financial management deficiencies, including 
deficiencies in controls over budgetary activity and property and 
equipment, both BSM and financial management have remained high risk. 
Since resolution of IRS’s most serious remaining financial management 
problems depended largely on the success of BSM, GAO combined the two 
issues into one high-risk area in 2005. 

IRS has made further progress since 2007 in addressing GAO’s concerns 
about the management of BSM. For example, IRS (1) delivered releases of 
key tax administration projects; (2) developed policies, procedures, 
and tools for developing and managing project requirements; and (3) 
took steps to further develop its modernization vision and strategy. In 
addition, IRS implemented the initial phase of the system intended to 
serve as a subsidiary ledger for its tax administration activities, as 
well as identification numbers for tax revenue and refund transactions 
that, once fully implemented, are together expected to provide 
transaction traceability and detailed support for all of its tax-related
transactions and balances. IRS also made significant progress in
addressing long-standing deficiencies in controls over tax revenue 
collections, tax refund disbursements, and hard-copy tax receipts and 
related data. In addition, IRS completed several pilot projects to 
demonstrate its ability to determine the full cost of its programs and 
activities. 

However,GAO recently reported that while some project releases were
delivered within cost or schedule estimates, others continued to 
experience cost increases or schedule delays. In addition, risks 
continue to exist and are likely to escalate. IRS has also not 
developed a plan with specific time frames for addressing human capital 
initiatives for the organization that is responsible for delivering the 
modernization effort. Finally, the legacy automated financial 
management systems IRS continues to rely on (1) do not provide adequate 
information to support day-to-day decision making and (2) continue to 
exhibit serious deficiencies in information security that jeopardize 
the integrity and confidentiality of the financial and taxpayer 
information they process. IRS is taking action to resolve these issues 
and to address GAO’s recommendations related to BSM and financial 
management. However, more remains to be done to fully address the 
problems that have affected past systems modernization efforts and that 
continue to affect IRS’s ability to successfully modernize its 
operational and financial management systems. 

What Remains to Be Done: 

While IRS has made progress in reducing risk with systems modernization 
and financial management, improvements have not been sustained long 
enough to provide confidence that the program is fully stable. In 
addition, many challenges remain, including (1) addressing the risks 
facing current and future BSM project releases, (2) improving processes
for delivering modernized IT systems within cost and schedule 
estimates, (3) developing the cost and revenue information needed to
support day-to-day decision making, and (4) addressing outstanding 
weaknesses in information security weaknesses. 

Related GAO Products for: Internal Revenue Service Business Systems 
Modernization: 

Financial Audit: IRS’s Fiscal Years 2008 and 2007 Financial Statements. 
[hyperlink, http://www.gao.gov/products/GAO-09-119]. Washington, D.C.: 
November 10, 2008. 

Internal Revenue Service: Status of GAO Financial Audit and Related 
Financial Management Report Recommendations. [hyperlink, 
http://www.gao.gov/products/GAO-08-693]. Washington, D.C.: July 2, 
2008. 

Management Report: Improvements Needed in IRS’s Internal Controls. 
[hyperlink, http://www.gao.gov/products/GAO-08-368R]. Washington, D.C.: 
June 4, 2008. 

Internal Revenue Service: Assessment of the Fiscal Year 2009 Budget 
Request. [hyperlink, http://www.gao.gov/products/GAO-08-620T]. 
Washington, D.C.: April 16, 2008. 

Internal Revenue Service: Fiscal Year 2009 Budget Request and Interim 
Performance Results of IRS’s 2008 Tax Filing Season. [hyperlink, 
http://www.gao.gov/products/GAO-08-567]. Washington, D.C.: March 13, 
2008. 

Business Systems Modernization: Internal Revenue Service’s Fiscal Year 
2008 Expenditure Plan. [hyperlink, 
http://www.gao.gov/products/GAO-08-420]. Washington, D.C.: March 7, 
2008. 

Financial Audit: IRS’s Fiscal Years 2007 and 2006 Financial Statements. 
[hyperlink, http://www.gao.gov/products/GAO-08-166]. Washington, D.C.: 
November 9, 2007. 

Internal Revenue Service: Status of GAO Financial Audit and Related 
Financial Management Report. [hyperlink, 
http://www.gao.gov/products/GAO-08-629]. Washington, D.C.: June 7, 
2007. 

Management Report: IRS’s First Year Implementation of the Requirements 
of the Office of Management and Budget’s Revised Circular A-123. 
[hyperlink, http://www.gao.gov/products/GAO-07-692R]. Washington, D.C.: 
May 18, 2007. 

Management Report: Improvements Needed in IRS’s Internal Controls. 
[hyperlink, http://www.gao.gov/products/GAO-07-689R]. Washington, D.C.: 
May 11, 2007. 

Internal Revenue Service: Assessment of the 2008 Budget Request and an 
Update of 2007 Performance. [hyperlink, 
http://www.gao.gov/products/GAO-07-719T]. Washington, D.C.: May 9, 
2007. 

Internal Revenue Service: Interim Results of the 2007 Tax Filing Season 
and the Fiscal Year 2008 Budget Request. [hyperlink, 
http://www.gao.gov/products/GAO-07-673]. Washington, D.C.: April 3, 
2007. 

Business Systems Modernization: Internal Revenue Service’s Fiscal Year 
2007 Expenditure Plan. [hyperlink, 
http://www.gao.gov/products/GAO-07-247]. Washington, D.C.: February 15, 
2007. 

[End of Highlights for Internal Revenue Service Business Systems 
Modernization] 

High-Risk Series: Improving and Modernizing Federal Disability 
Programs: 

GAO Highlights: 

For additional information about this high-risk area, contact Daniel 
Bertoni at (202) 512-7215 or bertonid@gao.gov. 

Why Area Is High Risk: 

In January 2003, GAO designated modernizing federal disability programs 
as a high-risk area. Current demographics are affecting the ability of 
Social Security Administration (SSA) to manage workloads and provide 
timely and accurate disability decisions. At the same time, the tens of
thousands of servicemembers wounded in recent actions have strained the 
capacity of the Department of Defense (DOD) and the Department of 
Veterans Affairs (VA) disability evaluation systems. Despite 
opportunities afforded by medical and technological advances, the 
economic shift toward service- and knowledge-based jobs, and growing
expectations that people with disabilities can and want to work, 
federal disability programs remain grounded in outmoded concepts 
that equate medical conditions with work incapacity. 

What GAO Found: 

While some federal disability programs have taken steps to address 
growing workloads, in general little progress has been made in 
improving the accuracy and timeliness of disability decisions and in 
modernizing federal disability programs. 

* SSA continues to struggle to keep pace with growing numbers of 
disability applications, leading to large claims backlogs and long 
waits for claimants. In 2006, it introduced a comprehensive set of 
reforms to improve the efficiency of the disability determination 
process and the accuracy and timeliness of decisions. Tight time 
frames, poor communication, and a lack of financial planning hampered
implementation of these reforms, and by 2008 most had been superseded
by more focused efforts to fully implement electronic case processing 
and eliminate the growing claims backlog at the hearings level. Whether
concentration on fewer, more immediate issues will better position SSA 
to meet the challenges it faces remains to be seen. 

* In addition to growing workloads, DOD and VA are struggling to address
servicemember confusion and potential inefficiencies associated with
operating two separate yet similar disability systems. The Army and VA
have hired more staff to help manage workloads, but the Army has yet to
meet timeliness goals, while VA faces human capital challenges from 
rapid personnel growth. VA established programs to speed up the receipt 
of VA disability benefits for those leaving the military, but GAO 
identified gaps in program accountability and uneven program access. 
Significantly, DOD and VA are piloting a joint process with potential 
for reducing redundancy between their disability evaluation systems, as 
well as improving overall timeliness and consistency in decisions. 
Evaluation of the pilot is ongoing, and large-scale implementation will 
require careful management. 

* Federal disability programs need continuous re-examination and
transformation. Disability policies and programs have been individually
developed over many years, creating a patchwork of federal policies and
programs without a unified set of national goals. As a result, these
programs have different legal mandates, funding streams, missions,
eligibility criteria, and priorities. Agencies have taken steps to 
modernize their programs, such as revising eligibility criteria. 
However, the revisions to eligibility criteria fall short of fully 
incorporating a modern understanding of how technology and labor market 
changes could affect eligibility for disability benefits. More 
importantly, steps have not been taken to develop a set of agreed-upon 
desired outcomes for disability policies and programs and the processes 
to achieve them. Without a federal strategy and governmentwide 
coordination among the almost 200 disability programs, there is no 
assurance that federal policies, services, and supports for people with 
disabilities will be aligned. 

What Remains to Be Done: 

SSA, DOD, and VA continue to take steps to manage their growing 
workloads, but more progress is needed to achieve fundamental program 
reform. SSA needs to recommit itself to achieving comprehensive reform 
to improve both the accuracy and timeliness of disability decisions. 
DOD and VA need to soundly evaluate their pilot of a joint disability 
determination system and carefully manage any efforts at large-scale 
implementation. Beyond improvements in agency operations, modernizing 
federal disability programs calls for better coordination between 
federal disability programs, in general, and creation of an overall 
federal strategy aligning disability policies, services, and supports. 

Related GAO Products for: Improving and Modernizing Federal Disability 
Programs: 

Military Disability System: Increased Supports for Servicemembers and 
Better Pilot Planning Could Improve the Disability Evaluation Process. 
[hyperlink, http://www.gao.gov/products/GAO-08-1137]. Washington, D.C.: 
September 24, 2008. 

Veterans’ Disability Benefits: Better Accountability and Access Would 
Improve the Benefits Delivery at Discharge Program. [hyperlink, 
http://www.gao.gov/products/GAO-08-901]. Washington, D.C.: September 9, 
2008. 

Federal Disability Programs: More Strategic Coordination Could Help 
Overcome Challenges to Needed Transformation. [hyperlink, 
http://www.gao.gov/products/GAO-08-635]. Washington, D.C.: May 20, 
2008. 

Veterans’ Disability Benefits: Claims Processing Challenges Persist, 
while VA Continues to Take Steps to Address Them. [hyperlink, 
http://www.gao.gov/products/GAO-08-473T]. Washington, D.C.: February 
14, 2008. 

Social Security Disability: Better Planning, Management, and Evaluation 
Could Help Address Backlogs. [hyperlink, 
http://www.gao.gov/products/GAO-08-40]. Washington, D.C.: December 7, 
2007. 

Veterans’ Benefits: Improved Operational Controls and Management Data 
Would Enhance VBA’s Disability Reevaluation Process. [hyperlink, 
http://www.gao.gov/products/GAO-08-75]. Washington, D.C.: December 6, 
2007. 

SSA Disability Representatives: Fee Payment Changes Show Promise, but 
Eligibility Criteria and Representative Overpayments Require Further 
Monitoring. [hyperlink, http://www.gao.gov/products/GAO-08-5]. 
Washington, D.C.: October 15, 2007. 

Veterans’ Benefits: Further Changes in VBA’s Field Office Structure 
Could Help Improve Disability Claims Processing. [hyperlink, 
http://www.gao.gov/products/GAO-06-149]. Washington, D.C.: December 9, 
2005. 

Social Security Administration: Strategic Workforce Planning Needed to 
Address Human Capital Challenges Facing the Disability Determination 
Services. [hyperlink, http://www.gao.gov/products/GAO-04-121]. 
Washington, D.C.: January 27, 2004. 

Social Security Disability: Reviews of Beneficiaries’ Disability Status 
Require Continued Attention to Achieve Timeliness and Cost-
Effectiveness. [hyperlink, http://www.gao.gov/products/GAO-03-662]. 
Washington, D.C.: July 24, 2003. 

SSA and VA Disability Programs: Re-Examination of Disability Criteria 
Needed to Help Ensure Program Integrity. [hyperlink, 
http://www.gao.gov/products/GAO-02-597]. Washington, D.C.: August 9, 
2002. 

[End of Highlights for Improving and Modernizing Federal Disability 
Programs] 

High-Risk Series: Pension Benefit Guaranty Corporation Insurance 
Programs: 

GAO Highlights: 

For additional information about this high-risk area, contact Barbara 
Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. 

Why Area Is High Risk: 

The Pension Benefit Guaranty Corporation’s (PBGC) single- and multi-
employer insurance programs insure the pension benefits of 44 million 
participants in more than 29,000 private defined benefit (DB) plans. 
PBGC reported that the net accumulated financial deficit of these 
programs, as of September 30, 2008, was $11.2 billion. While this is an 
improvement of almost $3 billion from 2007, it remains significantly 
worse than in 2000, when PBGC reported a $10 billion surplus. PBGC 
estimates that plans sponsored by financially weak firms are 
underfunded by about $47 billion, a figure that may worsen because of 
the recent financial crisis. The Pension Protection Act of 2006 (PPA) 
improved some aspects of funding rules and premiums, but these changes 
are being phased in slowly. PBGC’s insurance programs remain exposed to 
the threat of terminations of large underfunded plans sponsored by 
financially weak firms. PBGC also faces governance and program 
management challenges. GAO put the single-employer program on its high-
risk list in July 2003. 

What GAO Found: 

GAO is designating the PBGC and the pension insurance programs that it
administers as areas that need urgent attention and transformation to 
ensure that our national government functions in the most economical, 
efficient, and effective manner possible. Although the combined net 
financial condition of PBGC’s single- and multi-employer insurance 
programs has recently improved, the programs and the agency are 
designated high risk because of the ongoing threat of losses from the 
termination of underfunded plans.As of fiscal year-end 2008, PBGC’s 
accumulated deficit totaled $11.2 billion, down from $14.1 billion in 
2007. However, the recent financial crisis has likely eroded the 
funding of many large plans and lowered the credit rating of many 
sponsors, developments that the most recent estimates may not reflect. 
In 2008, PBGC also decided to change its investment policy to increase 
its allocation of assets invested in equities and other, new asset 
classes, while decreasing its fixed-income investment allocation. PBGC 
believes this change will help it meet its long-term financial 
obligations, but it also increases the risk of large investment losses. 
PBGC’s assets may currently be much lower than reported, given the 
significant stock market decline since the end of the 2008 fiscal year. 
Further, the long-term decline of the DB system continues to erode 
PBGC’s premium base, with PBGC insuring about 65 percent fewer plans 
than it did 15 years ago. Recent legislation gives funding relief to 
certain sponsors and delays implementation of certain aspects of PPA; 
in addition, the financial fate of the Detroit automakers, which 
sponsor very large DB plans, is also uncertain. These developments 
likely increase PBGC’s risk exposure, perhaps significantly. 

In addition, PBGC’s governance structure and program management need
improvements. PBGC’s board of directors is limited in its ability to 
provide policy direction and oversight. Further, PBGC lacks a strategic 
approach to its acquisition and human capital management needs. 

Figure: Net Financial Position,PBGC Combined Insurance Programs 
Dollars: 

[Refer to PDF for image] 

This figure is a line graph depicting the following data: 

Fiscal year (at year end): 1990; 
Dollars (in billions): -$1.8 billion. 

Fiscal year (at year end): 1991; 
Dollars (in billions): -$2.3 billion. 

Fiscal year (at year end): 1992; 
Dollars (in billions): -$2.6 billion. 

Fiscal year (at year end): 1993; 
Dollars (in billions): -$2.6 billion. 

Fiscal year (at year end): 1994; 
Dollars (in billions): -$1 billion. 

Fiscal year (at year end): 1995; 
Dollars (in billions): -$0.1 billion. 

Fiscal year (at year end): 1996; 
Dollars (in billions): $1 billion. 

Fiscal year (at year end): 1997; 
Dollars (in billions): $3.7 billion. 

Fiscal year (at year end): 1998; 
Dollars (in billions): $5.4 billion. 

Fiscal year (at year end): 1999; 
Dollars (in billions): $7.2 billion. 

Fiscal year (at year end): 2000; 
Dollars (in billions): $10 billion. 

Fiscal year (at year end): 2001; 
Dollars (in billions): $7.8 billion. 

Fiscal year (at year end): 2002; 
Dollars (in billions): -$3.5 billion. 

Fiscal year (at year end): 2003; 
Dollars (in billions): -$11.5 billion. 

Fiscal year (at year end): 2004; 
Dollars (in billions): -$23.5 billion. 

Fiscal year (at year end): 2005; 
Dollars (in billions): -$23.1 billion. 

Fiscal year (at year end): 2006; 
Dollars (in billions): -$18.9 billion. 

Fiscal year (at year end): 2007; 
Dollars (in billions): -$14.1 billion. 

Fiscal year (at year end): 2008; 
Dollars (in billions): -$11.2 billion. 

Source: Pension Benefit Guaranty Corporation. 

Note: Net financial position equals program assets less the current 
value of future benefit obligations for terminated plans and those 
deemed probable for termination for the single- and multi-employer 
programs. 

[End of figure] 

What Remains to Be Done: 

Congress may need to carefully monitor the financial health of PBGC’s 
programs, and of DB plans generally, and may need to take additional 
action to safeguard the private pension system’s role in national 
retirement security. In the longer term, PBGC may remain at risk from a 
weak premium rate structure that does not adequately reflect its 
exposure to losses and from funding rules that have not yet facilitated 
the accumulation of sufficient plan reserves. 

Related GAO Products for: Pension Benefit Guaranty Corporation 
Insurance Programs: 

Pension Benefit Guaranty Corporation: Improvements Needed to Address 
Financial and Management Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-08-1162T]. Washington, D.C.: September 
24, 2008. 

Pension Benefit Guaranty Corporation: Need for Improved Oversight 
Persists. [hyperlink, http://www.gao.gov/products/GAO-08-1062]. 
Washington, D.C.: September 10, 2008. 

Pension Benefit Guaranty Corporation: Some Steps Have Been Taken to 
Improve Contracting, but a More Strategic Approach Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-08-871]. Washington, D.C.: 
August 18, 2008. 

Defined Benefit Pensions: Plan Freezes Affect Millions of Participants 
and May Pose Retirement Income Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-08-817]. Washington, D.C.: July 21, 
2008. 

PBGC Assets: Implementation of New Investment Policy Will Need Stronger 
Board Oversight. [hyperlink, http://www.gao.gov/products/GAO-08-667]. 
Washington, D.C.: July 17, 2008. 

Pension Benefit Guaranty Corporation: A More Strategic Approach Could 
Improve Human Capital Management. [hyperlink, 
http://www.gao.gov/products/GAO-08-624]. Washington, D.C.: June 12, 
2008. 

Employer-Sponsored Benefits: Many Factors Affect the Treatment of 
Pension and Health Benefits in Chapter 11 Bankruptcy. [hyperlink, 
http://www.gao.gov/products/GAO-07-1101]. Washington, D.C.: September 
6, 2007. 

Pension Benefit Guaranty Corporation: Governance Structure Needs 
Improvements to Ensure Policy Direction and Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-07-808]. Washington, D.C.: July 6, 
2007. 

PBGC’s Legal Support: Improvements Needed to Eliminate Confusion and 
Ensure Provision of Consistent Advice. [hyperlink, 
http://www.gao.gov/products/GAO-07-757R]. Washington, D.C.: May 18, 
2007. 

[End of Highlights for Pension Benefit Guaranty Corporation Insurance 
Programs] 

High-Risk Series: Medicare Program: 

GAO Highlights: 

For additional information about this high-risk area, contact Marjorie 
Kanof at (202) 512-7114 or kanofm@gao.gov. 

Why Area Is High Risk: 

Since 1990, GAO has designated Medicare as a high-risk program due to 
its size and complexity, as well as its susceptibility to mismanagement 
and improper payments. In 2007, the program covered over 44 million 
elderly and disabled beneficiaries and had estimated outlays of over 
$431 billion. Its improper fee-for-service payments were estimated to be
$10.4 billion in fiscal year 2008, but a recent Department of Health and
Human Services Inspector General report suggests that this could 
understate payment errors. The Centers for Medicare & Medicaid Services 
(CMS), which administers Medicare, is responsible for managing the 
program to better serve beneficiaries, developing payment rates that 
encourage efficient service delivery, safeguarding the program from 
loss, and overseeing patient safety and care. With rapid growth 
expected in the number of Medicare beneficiaries and spending, CMS will 
face growing fiscal and management challenges in the years to come. 

What GAO Found: 

Absent reform, Medicare’s spending growth is unsustainable over time—
spending is projected to increase to 7 percent of gross domestic 
product by 2035. This fiscal pressure highlights CMS’s challenges to 
improve program management, reform payment methods, and strengthen 
program integrity and care quality. 

Improving program management. CMS faces challenges managing the 
prescription drug benefit (Part D) and the Medicare Advantage (MA) 
program. For example, CMS’s oversight of Part D implementation 
contracts had deficiencies that led to nearly $90 million in 
questionable payments. CMS's poor management of data collection meant 
the agency was unable in 2006 to adequately monitor beneficiaries' use 
of the coverage determination process needed to obtain access to 
prescription drugs restricted by the Part D plans. In addition, plan 
sponsors, beneficiary advocates, and others have expressed concerns 
that the model language CMS provided to explain Part D plan changes is 
not clear to beneficiaries. For the MA program, in which private health 
plans provide coverage to beneficiaries, CMS has not met a legislative
requirement to audit one-third of the MA plan organizations’ financial 
records for contract years 2001-2005 or to provide beneficiaries with 
disenrollment information on MA plans. 

Reforming and refining payments. Since January 2007, CMS has refined 
how it updates or sets payments for hospitals, home health agencies, and
ambulatory surgery centers. However, the rising costs for and use of 
physician services raise concerns that Medicare’s payment policies do 
not foster physician responsibility to provide the most effective 
services efficiently. Also, GAO’s work has shown that relatively high 
Medicare payments to MA plans do not prevent the possibility that some 
beneficiaries in MA plans could experience out-of-pocket costs 
exceeding those in the traditional program. 

Enhancing program integrity. CMS has also taken promising steps to
strengthen its program safeguards, such as adding automated reviews of
claims and increasing enforcement in localities with high rates of 
fraud. Nevertheless, when GAO tested program defenses, it was able to 
obtain billing privileges for two fictitious medical supply companies. 
CMS has not used some tools to safeguard the program, such as refusing 
enrollment to providers that owe tax debt to the U.S. government. In 
addition, CMS’s oversight of Part D plans’ fraud and abuse programs has 
been limited. 

Overseeing patient safety and care. CMS’s oversight of the quality of
nursing home care has increased significantly in recent years, but 
several CMS initiatives—including its enforcement policy against homes 
that do not meet federal requirements—require refinement. For example, 
CMS’s management of nursing home enforcement is hampered by its 
fragmented and incomplete enforcement data system and a policy that 
allows some homes with the worst compliance histories to escape 
immediate sanctions. 

What Remains to Be Done: 

CMS has implemented certain GAO recommendations, such as to improve 
fire safety in nursing homes. However, further action must be taken to 
improve management of key activities, such as monitoring beneficiary
grievances; eliminate inappropriate payment incentives; safeguard the
program from payment errors; and address deficiencies in oversight of
care quality in nursing homes and hospitals. 

Related GAO Products for: Medicare Program: 

Medicare Advantage: Characteristics, Financial Risks, and Disenrollment 
Rates of Beneficiaries in Private Fee-for-Service Plans. [hyperlink, 
http://www.gao.gov/products/GAO-09-25]. Washington, D.C.: December 15, 
2008. 

Medicare Part D: Opportunities Exist for Improving Information Sent to 
Enrollees and Scheduling the Annual Election Period. [hyperlink, 
http://www.gao.gov/products/GAO-09-4]. Washington, D.C.: December 12, 
2008. 

Medicare Advantage Organizations: Actual Expenses and Profits Compared 
to Projections for 2006. [hyperlink, 
http://www.gao.gov/products/GAO-09-132R]. Washington, D.C.: December 8, 
2008. 

Medicare Part D: Some Plan Sponsors Have Not Completely Implemented 
Fraud and Abuse Programs, and CMS Oversight Has Been Limited. 
[hyperlink, http://www.gao.gov/products/GAO-08-760]. Washington, D.C.: 
July 21, 2008. 

Medicare Part D: Complaint Rates Are Declining, but Operational and 
Oversight Challenges Remain. [hyperlink, 
http://www.gao.gov/products/GAO-08-719]. Washington, D.C.: June 27, 
2008. 

Medicare Advantage: Increased Spending Relative to Medicare Fee-for-
Service May Not Always Reduce Beneficiary Out-of-Pocket Costs. 
[hyperlink, http://www.gao.gov/products/GAO-08-359]. Washington, D.C.: 
February 22, 2008. 

Medicare Part D: Plan Sponsors' Processing and CMS Monitoring of Drug 
Coverage Requests Could Be Improved. [hyperlink, 
http://www.gao.gov/products/GAO-08-47]. Washington, D.C.: January 22, 
2008. 

Centers for Medicare and Medicaid Services: Internal Control 
Deficiencies Resulted in Millions of Dollars of Questionable Contract 
Payments. [hyperlink, http://www.gao.gov/products/GAO-08-54]. 
Washington, D.C.: November 15, 2007. 

Medicare Advantage: Required Audits of Limited Value. [hyperlink, 
http://www.gao.gov/products/GAO-08-154T]. Washington, D.C.: October 16, 
2007. 

Medicare: Focus on Physician Practice Patterns Can Lead to Greater 
Program Efficiency. [hyperlink, http://www.gao.gov/products/GAO-07-
307]. Washington, D.C.: April 30, 2007. 

Nursing Homes: Efforts to Strengthen Federal Enforcement Have Not 
Deterred Some Homes from Repeatedly Harming Residents. [hyperlink, 
http://www.gao.gov/products/GAO-07-241]. Washington, D.C.: March 26, 
2007. 

[End of Highlights for Medicare Program] 

High-Risk Series: Medicaid Program: 

GAO Highlights: 

For additional information about this high-risk area, contact James 
Cosgrove at (202) 512-7114 or cosgrovej@gao.gov. 

Why Area Is High Risk: 

In 2003, GAO designated Medicaid a high-risk program in part because
of growing concerns about the quality of fiscal oversight,which is 
necessary to prevent inappropriate program spending. Medicaid, the 
federal-state program that covered acute health care and long-term
care services for over 60 million low-income people in fiscal year
2007, consists of more than 50 distinct state-based programs that cost 
the federal government and states an estimated $333 billion that year. 
The program accounts for more than 20 percent of states’ expenditures, 
exerting continuing pressure on state budgets. The federal government, 
by a formula established in law, can pay from half to more than three-
fourths of each state’s Medicaid expenditures. The Centers for Medicare 
& Medicaid Services (CMS) in the Department of Health and Human 
Services (HHS) is responsible for overseeing the program at the federal 
level, while the states administer their respective programs’ day-to-
day operations. 

What GAO Found: 

Congress and CMS have taken important steps to improve Medicaid’s fiscal
integrity and financial management, but the program remains high risk 
due to concerns about the program’s size, growth, and diversity, as 
well as the adequacy of fiscal oversight. Concerns remain in several 
areas: 

Financial management weaknesses that allow states to leverage federal 
funds inappropriately. For more than a decade, some states created the 
illusion that they had made large Medicaid supplemental payments to 
certain government providers in order to generate excessive federal 
matching payments. In reality, the states only temporarily made 
payments to these providers but then required that the payments be 
returned. CMS has taken steps to improve its oversight of Medicaid 
financial management activities, including its efforts to oversee 
states’ financing arrangements. However, several oversight weaknesses 
have not been addressed. For example, CMS has not developed a financial 
management strategic plan for Medicaid, incorporated the use of key 
Medicaid data systems into its oversight of states’ claims, reviewed 
all supplemental payment arrangements, or ensured that states report 
information that CMS needs to adequately oversee the appropriateness of 
supplemental payments. In fiscal year 2006, states made at least $23 
billion in Medicaid supplemental payments. 

Demonstrations that inappropriately increase the federal government’s 
financial liability. The Secretary of HHS has authority under section 
1115 of the Social Security Act to waive certain statutory provisions
and to allow reimbursement for otherwise unallowable expenditures in 
order for states to test new ideas for achieving program objectives. 
HHS has a long-standing policy that Medicaid demonstrations must be 
“budget neutral”: They should not be approved if they would increase 
the federal financial liability beyond what it would have been 
otherwise. Since the mid-1990s, HHS has approved demonstrations 
projected to increase federal costs by permitting states to use 
questionable methods to demonstrate budget neutrality. For example, GAO 
in 2008 reported that HHS’s rationale for approving two states’
demonstration spending limits was unclear and not documented: The
approved spending limit in one of these states was $6.9 billion more 
than what was supported. 

Improper payments to Medicaid providers serving program beneficiaries. 
Improper payments to providers that submit inappropriate claims can 
result in substantial financial losses to states and the federal 
government. Medicaid payments can be improper for various reasons, such 
as if people served are not eligible for Medicaid. Measuring improper 
payments within the Medicaid program is important to recouping and 
reducing them. For fiscal year 2007, CMS issued its first full-year 
Medicaid improper payment rate estimate of 10.5 percent, or $32.7 
billion (the federal share is $18.6 billion). Identifying and reducing 
improper payments in Medicaid are important first steps toward 
improving the integrity of the program. 

What Remains to Be Done: 

A GAO recommendation to Congress to limit Medicaid payments to 
government facilities to the costs of providing services remains open. 
CMS has not identified needed systems projects or taken certain 
recommended steps to improve payment oversight. HHS has also not acted
on GAO recommendations to develop methods to better ensure the budget 
neutrality of Medicaid demonstrations; consequently, GAO has elevated 
this matter to Congress for consideration. Because of these issues, 
Medicaid retains its high-risk designation. 

Related GAO Products for: Medicaid Program: 

Medicaid: CMS Needs More Information on the Billions of Dollars Spent 
on Supplemental Payments. [hyperlink, 
http://www.gao.gov/products/GAO-08-614]. Washington, D.C.: May 30, 
2008. 

Medicaid Financing: Long-standing Concerns about Inappropriate State 
Arrangements Support Need for Improved Federal Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-08-650T]. Washington D.C.: April 3, 
2008. 

Improper Payments: Status of Agencies’ Efforts to Address Improper 
Payment and Recovery Auditing Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-08-438T]. Washington, D.C.: January 31, 
2008. 

Medicaid Demonstration Waivers: Recent HHS Approvals Continue to Raise 
Cost and Oversight Concerns. [hyperlink, 
http://www.gao.gov/products/GAO-08-87]. Washington, D.C.: January 31, 
2008. 

Improper Payments: Federal Executive Branch Agencies’ Fiscal Year 2007 
Improper Payment Estimate Reporting. [hyperlink, 
http://www.gao.gov/products/GAO-08-377R]. Washington, D.C.: January 23, 
2008. 

Medicaid Financing: Long-standing Concerns about Inappropriate State 
Arrangements Support Need for Improved Federal Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-08-255T]. Washington D.C.: November 1, 
2007. 

Medicaid Financing: Federal Oversight Initiative Is Consistent with 
Medicaid Payment Principles but Needs Greater Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-07-214]. Washington, D.C.: March 30, 
2007. 

Medicaid Financial Management: Steps Taken to Improve Federal Oversight 
but Other Actions Needed to Sustain Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-06-705]. Washington, D.C.: June 22, 
2006. 

Medicaid Financing: States’ Use of Contingency-Fee Consultants to 
Maximize Federal Reimbursements Highlights Need for Improved Federal 
Oversight. [hyperlink, http://www.gao.gov/products/GAO-05-748]. 
Washington, D.C.: June 28, 2005. 

[End of Highlights for Medicaid Program] 

High-Risk Series: National Flood Insurance Program: 

GAO Highlights: 

For additional information about this high-risk area, contact Orice M. 
Williams at (202) 512-8678 or williamso@gao.gov. 

Why Area Is High Risk: 

The National Flood Insurance Program (NFIP), a key component of the 
federal government’s efforts to minimize the damage and financial 
impact of floods, likely will not generate sufficient revenues to repay 
the billions borrowed from the Treasury to cover flood claims from the 
2005 hurricanes. And it is unlikely that NFIP could cover catastrophic
losses in future years should they occur. The insufficient revenues 
highlight structural weaknesses in how the program is funded. The 
Federal Emergency Management Agency (FEMA) is the Department of 
Homeland Security agency responsible for managing NFIP. FEMA has taken 
some steps to address these issues, including reducing the percentage of
subsidized properties and the number of severe repetitive loss 
properties, but still faces complex challenges in addressing these
issues. GAO placed NFIP on its high-risk list in March 2006, and it
remains high risk. 

What GAO Found: 

NFIP, by design, is not actuarially sound. It subsidizes rates for 
about 25 percent of policies, primarily for certain high-risk 
structures constructed before NFIP flood plain regulations went into 
effect in their communities. Although policyholders with subsidized 
rates on average pay more than policyholders paying “full-risk” 
premiums, subsidized rates may be only 35 percent to 40 percent of full-
risk rates. In addition, potentially outdated and inaccurate data about 
flood probabilities, damage claims, and flood maps make it more likely 
that full-risk premiums do not reflect actual risk of flooding. Also, 
unlike many private insurers, FEMA has done little to understand the 
long-term impact of planned and ongoing developments on damage 
estimates and has not evaluated how such development could affect the 
accuracy of its maps. Because FEMA’s rate-setting process for its
subsidized properties depends in part on the accuracy of its full-risk 
rates, concerns exist about how the subsidized rates are calculated. 
The losses associated with subsidized properties that have had repeated 
flood losses (known as repetitive loss properties) are a financial 
challenge to NFIP. While repetitive loss properties are only 1 percent 
of NFIP-insured buildings, they account for 25 percent to 30 percent of 
all claims losses. 

In addition, the program is not structured to build loss reserves like 
a typical commercial insurance company, and it does not build and hold 
capital. Instead, it generally pays claims and expenses out of current 
premium income.NFIP currently has about 5.6 million policies in force, 
resulting in about $2.6 billion in total premiums. As shown in the 
figure, the unprecedented losses from the 2005 hurricanes greatly 
exceeded losses of previous years. When it has insufficient income to 
pay claims, NFIP has authority to borrow from the U.S. Treasury. As of 
December 2008,NFIP owed over $18 billion to the U.S. Treasury, 
primarily as a result of loans that the program received to pay claims 
resulting from the 2005 hurricane season. While FEMA has paid $1.98 
billion in interest to the Treasury since 2005, it is unlikely that 
NFIP will be able to meet its interest payments in most years. 
Therefore, NFIP’s debt may grow as the program borrows to meet the 
interest payments. 

Figure: Flood Loss Payments by Year of Flood Event, as of May 29, 2008: 

[Refer to PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Year of Flood Event: 1978; 
Flood Loss Payments: $0.1477 billion. 

Year of Flood Event: 1980; 
Flood Loss Payments: $0.2304 billion. 

Year of Flood Event: 1982; 
Flood Loss Payments: $0.1983 billion. 

Year of Flood Event: 1984; 
Flood Loss Payments: $0.2546 billion. 

Year of Flood Event: 1986; 
Flood Loss Payments: $0.1264 billion. 

Year of Flood Event: 1988; 
Flood Loss Payments: $0.051 billion.  

Year of Flood Event: 1990; 
Flood Loss Payments: $0.1679 billion. 

Year of Flood Event: 1992; 
Flood Loss Payments: $0.7102 billion. 

Year of Flood Event: 1994; 
Flood Loss Payments: $0.4111 billion. 

Year of Flood Event: 1996; 
Flood Loss Payments: $0.828 billion. 

Year of Flood Event: 1998; 
Flood Loss Payments: $0.8863 billion. 

Year of Flood Event: 2000; 
Flood Loss Payments: $0.2517 billion. 

Year of Flood Event: 2001; 
Flood Loss Payments: $1.277 billion. 

Year of Flood Event: 2002; 
Flood Loss Payments: $0.4336 billion. 

Year of Flood Event: 2003; 
Flood Loss Payments: $0.7788 billion. 

Year of Flood Event: 2004; 
Flood Loss Payments: $2.2143 billion. 

Year of Flood Event: 2005; 
Flood Loss Payments: $17.5751 billion. 

Year of Flood Event: 2006; 
Flood Loss Payments: $0.6327 billion. 

Year of Flood Event: 2007; 
Flood Loss Payments: $0.5232 billion. 

Source: FEMA. 

[End of figure] 

What Remains to Be Done: 

GAO continues to believe that comprehensive reform will be needed to 
stabilize the long-term finances of this program. GAO will continue to 
provide FEMA and Congress with recommendations to help consider ways to 
improve the sufficiency of NFIP’s rate-setting process, decrease the 
inventory of subsidized properties, mitigate losses from repetitive loss
properties, increase compliance with mandatory purchase requirements, 
and expedite FEMA’s flood map modernization efforts. 

Related GAO Products for: National Flood Insurance Program: 

Flood Insurance: Options for Addressing the Financial Impact of 
Subsidized Premium Rates on the National Flood Insurance Program. 
[hyperlink, http://www.gao.gov/products/GAO-09-20]. Washington, D.C.: 
November 14, 2008. 

Flood Insurance: FEMA’s Rate-Setting Process Warrants Attention. 
[hyperlink, http://www.gao.gov/products/GAO-09-12]. Washington, D.C.: 
October 31, 2008. 

National Flood Insurance Program: Financial Challenges Underscore Need 
for Improved Oversight of Mitigation Programs and Key Contracts. 
[hyperlink, http://www.gao.gov/products/GAO-08-437]. Washington, D.C.: 
June 16, 2008. 

National Flood Insurance Program: Greater Transparency and Oversight of 
Wind and Flood Damage Determinations Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-08-28]. Washington, D.C.: December 28, 
2007. 

Federal Emergency Management Agency: Ongoing Challenges Facing the 
National Flood Insurance Program. [hyperlink, 
http://www.gao.gov/products/GAO-08-118T]. Washington, D.C.: October 2, 
2007. 

National Flood Insurance Program: FEMA’s Management and Oversight of 
Payments for Insurance Company Services Should Be Improved. [hyperlink, 
http://www.gao.gov/products/GAO-07-1078]. Washington, D.C.: September 
5, 2007. 

National Flood Insurance Program: Preliminary Views on FEMA's Ability 
to Ensure Accurate Payments on Hurricane-Damaged Properties. 
[hyperlink, http://www.gao.gov/products/GAO-07-991T]. Washington, D.C.: 
June 12, 2007. 

National Flood Insurance Program: New Processes Aided Hurricane Katrina 
Claims Handling, but FEMA's Oversight Should Be Improved. [hyperlink, 
http://www.gao.gov/products/GAO-07-169]. Washington, D.C.: December 15, 
2006. 

High Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-07-310]. Washington, D.C.: January 31, 
2007. 

Federal Emergency Management Agency: Challenges for the National Flood 
Insurance Program. [hyperlink, 
http://www.gao.gov/products/GAO-06-335T]. Washington, D.C.: January 25, 
2006. 

Federal Emergency Management Agency: Oversight and Management of the 
National Flood Insurance Program. [hyperlink, 
http://www.gao.gov/products/GAO-06-183T]. Washington, D.C.: October 20, 
2005. 

Federal Emergency Management Agency: Improvements Needed to Enhance 
Oversight and Management of the National Flood Insurance Program. 
[hyperlink, http://www.gao.gov/products/GAO-06-119]. Washington, D.C.: 
October 18, 2005. 

[End of Highlights for National Flood Insurance Program] 

[End of section] 

Footnotes: 

[1] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-07-310] (Washington, D.C.: January 
2007). 

[2] GAO, Determining Performance and Accountability Challenges and High 
Risks, [hyperlink, http://www.gao.gov/products/GAO-01-159SP] 
(Washington, D.C.: November 2000). 

[3] For example, the Federal Reserve created a funding facility to 
provide liquidity to U.S. money market investors and the Federal 
Deposit Insurance Corporation temporarily increased deposit insurance 
coverage. 

[4] See GAO, Troubled Asset Relief Program: Additional Actions Needed 
to Better Ensure Integrity, Accountability, and Transparency, 
[hyperlink, http://www.gao.gov/products/GAO-09-266T] (Washington, D.C.: 
Dec. 10, 2008); and Troubled Asset Relief Program: Additional Actions 
Needed to Better Ensure Integrity, Accountability, and Transparency, 
[hyperlink, http://www.gao.gov/products/GAO-09-161] (Washington, D.C.: 
Dec. 2, 2008). 

[5] GAO, Financial Regulation: A Framework for Crafting and Assessing 
Proposals to Modernize the Outdated U.S. Financial Regulatory System, 
[hyperlink, http://www.gao.gov/products/GAO-09-216] (Washington, D.C.: 
Jan. 8, 2009). 

[6] GAO, Drug Safety: Better Data Management and More Inspections Are 
Needed to Strengthen FDA’s Foreign Drug Inspection Program, [hyperlink, 
http://www.gao.gov/products/GAO-08-970] (Washington, D.C.: Sept. 22, 
2008); and Medical Devices: Challenges for FDA in Conducting 
Manufacturer Inspections, [hyperlink, 
http://www.gao.gov/products/GAO-08-428T] (Washington, D.C.: Jan. 29, 
2008). 

[7] GAO, Drug Safety: Improvement Needed in FDA’s Postmarket Decision-
making and Oversight Process, [hyperlink, 
http://www.gao.gov/products/GAO-06-402] (Washington, D.C.: Mar. 31, 
2006); and Drug Safety: Further Actions Needed to Improve FDA’s 
Postmarket Decision-making Process, [hyperlink, 
http://www.gao.gov/products/GAO-07-856T] (Washington, D.C.: May 9, 
2007). 

[8] GAO, Prescription Drugs: FDA’s Oversight of the Promotion of Drugs 
for Off-Label Uses, [hyperlink, http://www.gao.gov/products/GAO-08-835] 
(Washington, D.C.: July 28, 2008); Prescription Drugs: Trends in FDA’s 
Oversight of Direct-to-Consumer Advertising, [hyperlink, 
http://www.gao.gov/products/GAO-08-758T] (Washington, D.C.: May 8, 
2008); and Prescription Drugs: Improvements Needed in FDA’s Oversight 
of Direct-to-Consumer Advertising, [hyperlink, 
http://www.gao.gov/products/GAO-07-54] (Washington, D.C.: Nov. 16, 
2006). 

[9] GAO, Prescription Drugs: FDA Guidance and Regulations Related to 
Data on Elderly Persons in Clinical Drug Trials, [hyperlink, 
http://www.gao.gov/products/GAO-07-47R] (Washington, D.C.: Sept. 28, 
2007). 

[10] GAO, Women’s Health: Women Sufficiently Represented in New Drug 
Testing, but FDA Oversight Needs Improvement, [hyperlink, 
http://www.gao.gov/products/GAO-01-754] (Washington, D.C.: July 6, 
2001). 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: