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United States Government Accountability Office: 
GAO: 

Report to the Congress: 

February 2011: 

High-Risk Series: An Update: 

GAO-11-278: 

GAO Highlights: 

Highlights of GAO-11-278, a report to congressional committees 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 $3.5 trillion in outlays in fiscal year 2010 funding a 
broad array of programs and operations. GAO maintains a program to 
focus attention on government operations that it identifies as high 
risk due to their greater vulnerabilities to fraud, waste, abuse, and 
mismanagement or the need for transformation to address economy, 
efficiency, or effectiveness challenges. Since 1990, GAO has 
designated over 50 areas as high risk and subsequently removed over 
one-third of the areas due to progress made. 

This biennial update describes the status of high-risk areas listed in 
2009 and identifies any new high-risk area needing attention by 
Congress and the executive branch. Solutions to high-risk problems 
offer the potential to save billions of dollars, improve service to 
the public, and strengthen the performance and accountability of the 
U.S. government. 

What GAO Found: 

In January 2009, GAO detailed 30 high-risk areas and, in July 2009, 
added a 31st—Restructuring the U.S. Postal Service to Achieve 
Sustainable Financial Viability. GAO has determined that sufficient 
progress has been made to remove the high-risk designation from two 
areas: the DOD Personnel Security Clearance Program and the 2010 
Census. 

* High-level attention by DOD, OMB, and the Office of the Director of 
National Intelligence, along with consistent congressional oversight, 
has led to significant improvements in processing security clearances. 
For example, DOD processed 90 percent of all initial clearances in an 
average of 49 days in fiscal year 2010 and thus met the 60-day 
statutory timeliness objective. Furthermore, DOD has reduced the 
average time it takes to process 90 percent of initial security 
clearances for industry personnel from 129 days in 2008 to 63 days in 
2010. DOD has also developed and is implementing quality assessment 
tools and has issued adjudicative standards for addressing incomplete 
investigations. 

* The Census Bureau (Bureau), with active congressional oversight, 
took steps to address problems GAO pointed out since designating the 
2010 Census a high-risk area in March 2008. Those steps included 
efforts to control costs, better manage operations, strengthen its 
risk management activities, and enhance the testing of automated 
systems. The Bureau generally completed its data collection activities 
consistent with its plans and released the data used to apportion 
Congress on December 21, 2010, several days ahead of the legally 
required end-of-year deadline. 

This year, GAO is designating one new high-risk area—Interior’s 
Management of Federal Oil and Gas Resources. Interior does not have 
reasonable assurance that it is collecting its share of billions of 
dollars of revenue from oil and gas produced on federal lands and it 
continues to experience problems in hiring, training, and retaining 
sufficient staff to provide oversight and management of oil and gas 
operations on federal lands and waters. Further, Interior recently 
began restructuring its oil and gas program, which is inherently 
challenging, and there are many open questions about whether Interior 
has the capacity to undertake this reorganization while carrying out 
its range of responsibilities, especially in a constrained resource 
environment. 

In the past 2 years, progress has been made, to varying degrees, in 
most areas that remain on GAO’s High-Risk List. Congressional 
oversight and legislative action, high-level administration attention, 
and efforts of the responsible agencies have been central to progress. 
For example, Congress passed the Improper Payments Elimination and 
Recovery Act (IPERA) of 2010 to enhance reporting and recovering of 
improper payments in federal programs. In addition, in November 2009, 
the President issued Executive Order 13520, Reducing Improper Payments 
and Eliminating Waste in Federal Programs. Congress also passed the 
Weapon Systems Acquisition Reform Act of 2009, which requires DOD to 
provide more realistic cost estimates and terminate programs with high 
cost growth. 

What GAO Recommends: 

This report contains GAO’s views on progress made and 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 essential 
to achieving progress. GAO is dedicated to continue working with 
Congress and the executive branch to help ensure additional progress 
is made. 

View [hyperlink, http://www.gao.gov/products/GAO-11-278] or key 
components. For more information, contact J. Christopher Mihm at (202) 
512-6806 or mihmj@gao.gov. 

[End of section] 

GAO’s 2011 High-Risk List: 

Strengthening the Foundation for Efficiency and Effectiveness: 

* Management of Federal Oil and Gas Resources (New): 

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

* Restructuring the U.S. Postal Service to Achieve Sustainable: 

Financial Viability: 

* Funding the Nation’s Surface Transportation System: 

* Strategic Human Capital Management: 

* Managing Federal Real Property: 

Transforming DOD Program Management: 

* DOD Approach to Business Transformation: 

* DOD Business Systems Modernization: 

* DOD Support Infrastructure Management: 

* DOD Financial Management: 

* DOD Supply Chain Management: 

* DOD Weapon Systems Acquisition: 

Ensuring Public Safety and Security: 

* Implementing and Transforming the Department of Homeland Security: 

* Establishing Effective Mechanisms for Sharing and Managing Terrorism-
Related Information to Protect the Homeland: 

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

* Ensuring the Effective Protection of Technologies Critical to U.S. 
National Security Interests: 

* Revamping Federal Oversight of Food Safety: 

* Protecting Public Health through Enhanced Oversight of Medical 
Products: 

* Transforming EPA’s Process for Assessing and Controlling Toxic 
Chemicals: 

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: 

* IRS Business Systems Modernization: 

Modernizing and Safeguarding Insurance and Benefit Programs: 

* Improving and Modernizing Federal Disability Programs: 

* Pension Benefit Guaranty Corporation Insurance Programs: 

* Medicare Program: 

* Medicaid Program: 

* National Flood Insurance Program: 

Source: GAO. 

[End of section] 

Contents: 

Letter: 

High-Risk Designation Removed: 

New High-Risk Area: 

Progress Being Made in Remaining High-Risk Areas: 

Overviews for Each High-Risk Area: 

Management of Federal Oil and Gas Resources (New): 

Modernizing the Outdated U.S. Financial Regulatory System: 

Restructuring the U.S. Postal Service to Achieve Sustainable Financial 
Viability: 

Funding the Nation's Surface Transportation System: 

Strategic Human Capital Management: 

Managing Federal Real Property: 

Department of Defense Approach to Business Transformation: 

Department of Defense Business Systems Modernization: 

Department of Defense Support Infrastructure Management: 

Department of Defense Financial Management: 

Department of Defense Supply Chain Management: 

Department of Defense Weapon Systems Acquisition: 

Implementing and Transforming the Department of Homeland Security: 

Establishing Effective Mechanisms for Sharing and Managing Terrorism- 
Related Information: 

Protecting the Federal Government's Information Systems and the 
Nation's Cyber Critical Infrastructures: 

Ensuring the Effective Protection of Technologies Critical to U.S. 
National Security Interests: 

Revamping Federal Oversight of Food Safety: 

Protecting Public Health through Enhanced Oversight of Medical 
Products: 

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

Department of Defense Contract Management: 

Department of Energy's Contract Management for the National Nuclear 
Security Administration and Office of Environmental Management: 

National Aeronautics and Space Administration Acquisition Management: 

Management of Interagency Contracting: 

Enforcement of Tax Laws: 

Internal Revenue Service Business Systems Modernization: 

Improving and Modernizing Federal Disability Programs: 

Pension Benefit Guaranty Corporation Insurance Programs: 

Medicare Program: 

Medicaid Program: 

National Flood Insurance Program: 

Appendix I: High-Risk Program History and Criteria: 

Tables: 

Table 1: Examples of Congressional Actions and Administration 
Initiatives Leading to Progress on High-Risk Areas: 

Table 2: Postal Service Financial Results and Projections, Fiscal 
Years 2006 through 2011: 

Table 3: Strategies and Options to Facilitate Progress toward 
Financial Viability: 

Table 4: Changes to GAO's High-Risk List, 1990-2011: 

Table 5: Areas Removed from GAO's High-Risk List, 1990-2011: 

Table 6: Year That Areas on GAO's 2011 High-Risk List Were Designated 
High Risk: 

Table 7: Criteria for Removal from High-Risk List and Examples of 
Actions by Congress, the Administration, and Agencies Leading to 
Progress: 

Figures: 

Figure 1: The Average Cost of Counting Each Housing Unit (in Constant 
2010 Dollars) Has Escalated Each Decade While Mail Response Rates Have 
Declined: 

Figure 2: Information Security Weaknesses at Major Federal Agencies 
for Fiscal Year 2010: 

Figure 3: PBGC's Net Financial Position, Single-Employer and 
Multiemployer Programs Combined: 

[End of section] 

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

February 2011: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Darrell E. Issa: 
Chairman: 
The Honorable Elijah E. Cummings: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

GAO regularly reports 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 billions of dollars each 
year. To help improve these high-risk operations, GAO has made 
hundreds of recommendations and the administration and agencies have 
addressed, or are addressing, many of them and Congress continues to 
take actions that are important to helping resolve high-risk issues. 

This year, GAO is removing the high-risk designation from two areas-- 
the DOD Personnel Security Clearance Program and the 2010 Census--and 
designating one new high-risk area--Interior's Management of Federal 
Oil and Gas Resources. These changes bring GAO's 2011 High-Risk List 
to a total of 30 areas. 

In the past two decades, attention to high-risk areas has brought 
results. Over one-third of the areas previously designated as high 
risk have been removed from the list because sufficient progress was 
made to address problems. Further, progress had been made in nearly 
all of the areas that remain on GAO's list as a result of 
congressional oversight and action, high-level administration 
attention, efforts of the responsible agencies, and support from GAO 
through our many recommendations and consistent follow-up on the 
implementation of recommended actions. In three areas--Strategic Human 
Capital Management, Managing Federal Real Property, and DOD Support 
Infrastructure Management--progress has been sufficient for GAO to 
narrow the scope of the high-risk issue. However, additional progress 
is both possible and needed in all 30 high-risk areas to save billions 
of dollars more and further improve the performance of federal 
programs and operations. 

The high-risk effort is a top priority for GAO. Going forward, GAO 
will provide even greater emphasis on identifying high-risk issues 
across government and providing insights and sustained attention to 
help address them, working collaboratively with Congress, agency 
leaders, and the Office of Management and Budget (OMB). OMB's Deputy 
Director for Management has held regular meetings with top agency 
officials to discuss plans for addressing high-risk areas. GAO has 
been pleased to participate in these meetings. 

This high-risk update and GAO's High Risk and Other Major Government 
Challenges Web site, [hyperlink, http://www.gao.gov/highrisk/], can 
help inform the oversight agenda for the 112th Congress and guide 
efforts of the administration and agencies to improve government 
performance and reduce waste and risks. We are providing this update 
to the President and Vice President, the congressional leadership, 
other Members of Congress, the Office of Management and Budget, and 
the heads of major departments and agencies. 

Signed by: 

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

[End of section] 

High-Risk Designation Removed: 

When legislative, administration, and agency actions, including those 
in response to our recommendations, result in significant progress 
toward resolving a high-risk problem, we remove the high-risk 
designation. The five criteria for determining if the high-risk 
designation can be removed are (1) a demonstrated strong commitment 
to, and top leadership support for, addressing problems; (2) the 
capacity to address problems; (3) a corrective action plan; (4) a 
program to monitor corrective measures; and (5) demonstrated progress 
in implementing corrective measures. These criteria are discussed in 
greater detail in appendix I of this report. 

For our 2011 high-risk update, we determined that two areas warranted 
removal from the High-Risk List: the Department of Defense (DOD) 
Personnel Security Clearance Program and the 2010 Census. As we have 
with areas previously removed from the High-Risk List, we will 
continue to monitor these areas, as appropriate, to ensure that the 
improvements we have noted are sustained. If significant problems 
again arise, we will consider reapplying the high-risk designation. 

Department of Defense Personnel Security Clearance Program: 

We are removing DOD's personnel security clearance program from the 
High-Risk List because of the agency's progress in timeliness and the 
development of tools and metrics to assess quality, as well as its 
commitment to sustaining progress. Importantly, continued 
congressional oversight and the committed leadership of the 
Suitability and Security Clearance Performance Accountability Council 
(Performance Accountability Council)[Footnote 1]--which is responsible 
for overseeing security clearance reform efforts--have greatly 
contributed to the progress of DOD and the governmentwide security 
clearance reform.[Footnote 2] 

Long-standing delays in the clearance process led us to designate 
DOD's personnel security program, which comprises the vast majority of 
governmentwide security clearances, as a high-risk area in 2005. 
[Footnote 3] That designation continued in 2007 and 2009, when we 
identified continued delays in the clearance process and additional 
concerns with clearance documentation.[Footnote 4] In our January 2009 
high-risk update, we noted that DOD had made significant progress 
toward meeting statutory timeliness goals for initial clearances as 
established in Section 3001 of the Intelligence Reform and Terrorism 
Prevention Act (IRTPA) of 2004. 

Since 2009, DOD has continued to make significant progress. DOD 
officials within the Under Secretary of Defense for Intelligence, in 
coordination with the Performance Accountability Council, have 
demonstrated a strong commitment to, and a capacity for, addressing 
security clearance reform efforts in line with IRTPA. Specifically, 
DOD (1) significantly improved timeliness of security clearances and 
met IRTPA objectives for fiscal year 2010, (2) worked with members of 
the Performance Accountability Council to develop a strategic 
framework for clearance reform, (3) designed quality tools to evaluate 
completeness of clearance documentation, (4) issued guidance on 
adjudication standards, and (5) continues to be a prominent player in 
the overall security clearance reform effort, which includes entities 
within the Office of Management and Budget (OMB), Office of Personnel 
Management (OPM) and Office of Director of National Intelligence 
(ODNI). These efforts have yielded positive results. More specifically: 

* Timeliness. Since our 2009 high-risk report, DOD has made 
significant progress in improving the timeliness for processing 
initial personnel security clearances. Specifically, we found that DOD 
processed 90 percent of initial clearances in an average of 49 days 
and met the 60-day statutory timeliness objective for processing 
initial clearances in fiscal year 2010. Furthermore, while the 
executive branch reported that DOD took an average of 129 days to 
process 90 percent of initial clearances for industry personnel in 
2008, we found that DOD completed 90 percent of initial clearances for 
industry personnel in an average of 63 days for all the data we 
reviewed for fiscal year 2010. 

* Strategic framework. DOD worked with the Performance Accountability 
Council to issue a strategic framework that was included in its 2009 
report to the President. The strategic framework identified key 
governmentwide reform goals and identified the root causes for 
timeliness delays and delays to agencies honoring reciprocity. DOD 
continues to work with the Performance Accountability Council to 
sustain clearance reform efforts and enhance transparency and 
accountability through annual reporting to Congress, as required by 
IRTPA and in new reporting requirements included in the recently 
passed Intelligence Authorization Act for Fiscal Year 2010.[Footnote 5] 

* Quality assessment tools. DOD developed, and is implementing, two 
quality tools to evaluate completeness of documentation. First, the 
Rapid Assessment of Incomplete Security Evaluations (RAISE) tracks the 
quality of investigations conducted by OPM. Results of RAISE will be 
reported to the ODNI, which, as the Security Executive Agent of the 
Performance Accountability Council, will arbitrate any potential 
disagreements between OPM and DOD and clarify policy questions. DOD 
deployed RAISE to four Central Adjudication Facilities from July to 
October 2010 and planned to complete deployment to the remaining 
Central Adjudication Facilities by the beginning of calendar year 
2011. Second, the Review of Adjudication Documentation Accuracy and 
Rationales (RADAR) tracks the quality of clearance adjudications. The 
Under Secretary of Defense for Intelligence has directed DOD Central 
Adjudication Facilities to provide adjudication case records to the 
Defense Personnel Research Center for analysis. The Under Secretary of 
Defense for Intelligence plans to use results of the RADAR assessments 
to monitor Central Adjudication Facilities' compliance with 
documentation policies, communicate performance to the Central 
Adjudication Facilities, identify potential weaknesses and training 
needs, increase compliance, and establish trend data. DOD has 
completed a pilot program for the use of RADAR and began its 
implementation for the Army, Defense Industrial Security Clearance 
Office, and Navy Central Adjudication Facilities in September 2010. 

* Adjudicative guidance. DOD has taken steps to issue guidance on 
adjudication standards. On November 8, 2009, the Under Secretary of 
Defense for Intelligence issued guidance on adjudication standards 
that outline the minimum documentation requirements adjudicators must 
adhere to when documenting personnel security clearance determinations 
for cases with potentially damaging information. On March 10, 2010, 
the Under Secretary of Defense for Intelligence issued additional 
guidance that clarifies when adjudicators may use incomplete 
investigative reports as the basis for granting clearances. This 
guidance provides standards that can be used for the sufficient 
explanation of incomplete investigative reports. Further, DOD recently 
created a Performance Accountability Directorate within the 
Directorate of Security to provide oversight and accountability for 
the DOD Central Adjudication Facilities that process DOD adjudicative 
decisions. 

* Commitment to reform. DOD has participated in the development and 
tracking of quality metrics through the Performance Accountability 
Council. Executive Order 13467 established the leadership structure 
for security and suitability reform headed by the Performance 
Accountability Council as the entity responsible for driving and 
overseeing the reform efforts. The executive order designated the 
Deputy Director for Management at OMB as the chair of the council, the 
Director of National Intelligence as the Security Executive Agent, and 
the Director of OPM as the Suitability Executive Agent. In March 2010, 
the leaders of the joint reform effort under the Performance 
Accountability Council--OMB, OPM, ODNI, and DOD--engaged in an effort 
to develop quality metrics for security clearance investigations and 
adjudications. In May 2010, the leaders of the reform effort provided 
the Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia, Committee on Homeland 
Security and Governmental Affairs of the U.S. Senate with 15 metrics 
assessing the timeliness and quality of investigations, adjudications, 
reciprocity, and automation. The quality metrics, in turn, can be used 
to gauge progress and assess the quality of the personnel security 
clearance process. These are positive developments that can contribute 
to greater visibility over the clearance process. However, these 
performance measures have not been fully implemented. Therefore, much 
remains to be done to ensure that progress continues. Meanwhile, DOD 
is working with OPM to refine the Federal Investigative Standards, 
which are scheduled to be issued in calendar year 2011. 

We will continue to monitor DOD's efforts because security clearance 
reform is ongoing, and DOD needs to place a high priority on ensuring 
that timeliness improvements continue and quality is built into every 
step of the process using quantifiable and independently verifiable 
metrics. Security clearance reform efforts are critical because DOD 
security clearances make up a vast majority of security clearances 
governmentwide. However, security clearance reform extends beyond DOD 
to include all executive branch agencies, including those within the 
Intelligence Community. As the Performance Accountability Council 
addresses security clearance reforms, it is important that the council 
ensure other non-DOD executive branch agencies that are not meeting 
timeliness objectives have the plans and tools necessary to make 
progress and ensure that quality metrics are applied and reported on. 

The 2010 Census: 

We are removing the 2010 Census from our High-Risk List because the 
U.S. Census Bureau (Bureau) generally completed its peak census data 
collection activities consistent with its operational plans; released 
the state population counts used to apportion Congress on December 21, 
2010, several days ahead of the legally mandated end-of-year deadline; 
and remaining activities appear to be on track, including delivering, 
by April 1, 2011, the data that states use for congressional 
redistricting, as required by law. 

The decennial census is a constitutionally mandated enterprise whose 
data products are critical to our nation. In 2004, we first reported 
on some of the operational and management challenges that confronted 
the Bureau.[Footnote 6] The lack of progress in addressing these 
issues along with the emergence of new uncertainties, led us to 
designate the 2010 Census a high-risk area in March 2008.[Footnote 7] 
Specifically, we noted that with little time remaining until Census 
Day, April 1, 2010, (1) long-standing weaknesses in the Bureau's 
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, all jeopardized a cost-effective enumeration. 

To address these issues and help secure a successful census, beginning 
in 2005 we recommended that the Bureau improve its IT management 
capabilities, complete operational planning, update and document its 
cost estimates, and ensure its readiness for the enumeration through 
continued rigorous end-to-end testing.[Footnote 8] At the same time, 
active congressional oversight helped ensure the Bureau effectively 
designed and managed operations and kept the enumeration on schedule. 
[Footnote 9] 

The Bureau demonstrated strong commitment and top leadership support 
to mitigate the risks, implement our recommendations, and improve its 
overall preparedness for the census. For example, in November 2008, 
the Bureau developed a corrective action plan that described its 
efforts to control costs and manage operations, strengthen risk 
management activities, enhance systems testing, and improve management 
of key automation efforts. Bureau executives also met regularly with 
executives from its parent agency, the Department of Commerce, to 
discuss progress and monitor risks, and engaged external research 
organizations to independently review the Bureau's efforts. 

The Bureau also took steps to improve its capacity to address risks, 
including (1) implementing a new management structure and management 
processes, (2) bringing in experienced personnel to key positions, and 
(3) improving several reporting processes and metrics. For example, 
the Bureau named a Decennial Census Testing Officer who, among other 
activities, led a bimonthly process to consolidate and evaluate test 
planning across all key decennial census operations. Moreover, 
frequent oversight hearings convened by the House and Senate provided 
regular updates on the Bureau's progress in addressing the operational 
challenges it was facing and helped hold the agency accountable for 
results. 

The Bureau made major strides in mitigating the risks to a successful 
enumeration, and data collection activities proceeded on or ahead of 
schedule and were generally implemented as planned. This was no small 
accomplishment because, in addition to the internal operational and 
management challenges already noted, various social and demographic 
trends, such as an increasingly diverse population and a distrust of 
government, make a cost-effective census inherently problematic. 

To achieve these operational successes, the 2010 Census required an 
unprecedented commitment of resources, including recruiting more than 
3.8 million applicants--roughly equivalent to the entire population of 
Oregon--for its temporary workforce. The cost of the 2010 Census 
escalated from an initial estimate of $11.3 billion in 2001 to around 
$13 billion, the most expensive population count in our nation's 
history. 

Although every census has its decade-specific difficulties, societal 
trends such as concerns over personal privacy, more non-English 
speakers, and more people residing in makeshift and other 
nontraditional living arrangements make each decennial inherently 
challenging. As shown in figure 1, the cost of enumerating each 
housing unit has escalated from an average of around $16 in 1970 to 
around $98 in 2010, in constant 2010 dollars (an increase of over 500 
percent). At the same time, the mail response rate--a key indicator of 
a successful census--has declined from 78 percent in 1970 to 63 
percent in 2010. The bottom line is that the Bureau has to invest 
substantially more resources each decade in an effort to keep pace 
with key results from prior enumerations. 

Figure 1: The Average Cost of Counting Each Housing Unit (in Constant 
2010 Dollars) Has Escalated Each Decade While Mail Response Rates Have 
Declined: 

[Refer to PDF for image: combination vertical bar and line graph] 

Year: 1970; 
Average cost per housing unit (in constant 2010 dollars): $16; 
Mail response rate: 78%. 

Year: 1980; 
Average cost per housing unit (in constant 2010 dollars): $30; 
Mail response rate: 75%. 

Year: 1990; 
Average cost per housing unit (in constant 2010 dollars): $39; 
Mail response rate: 66%. 

Year: 2000; 
Average cost per housing unit (in constant 2010 dollars): $70; 
Mail response rate: 66%. 

Year: 2010; 
Average cost per housing unit (in constant 2010 dollars): $98 
(projected); 
Mail response rate: 63%. 

Source: GAO analysis of Census Bureau data. 

Note: In the 2010 Census, the Bureau used only a short-form 
questionnaire. For this report, we use the 1990 and 2000 Census short- 
form mail response rate when comparing 1990, 2000, and 2010 mail-back 
response rates. Because Census short-form mail response rates are 
unavailable for 1980 and 1970, we use the overall response rate. 

[End of figure] 

Therefore, as we noted in our 2010 report, in looking ahead toward the 
next Census, it will be vitally important to both identify lessons 
learned from the 2010 enumeration to improve existing census-taking 
activities, as well as to re-examine and perhaps fundamentally 
transform the way the Bureau plans, tests, implements, monitors, and 
evaluates future enumerations in order to address long-standing 
challenges.[Footnote 10] Continued congressional oversight to help 
ensure the Bureau's reform efforts, as well as its management, 
culture, business practices, and systems, are all aligned with a cost-
effective enumeration will also be critical. 

Potential focus areas include new data collection methods such as 
using administrative records from other government agencies, including 
driver's licenses; better leveraging innovations in technology and 
social media to more fully engage census stakeholders and the general 
public on census issues; reaching agreement on a set of criteria that 
could be used to weigh the trade-offs associated with the need for 
high levels of accuracy on the one hand, and the increasing cost of 
achieving that accuracy on the other hand; and ensuring that the 
Bureau's approach to human capital management, collaboration, capital 
decision-making, knowledge sharing, and other internal functions are 
aligned toward delivering a more cost-effective headcount.[Footnote 11] 

The Bureau recognizes that it needs to fundamentally change its method 
of doing business, and has already taken some important first steps in 
addressing these and other re-examination areas. For example, the 
Bureau is rebuilding its research directorate to lead early planning 
efforts and has plans to evaluate the feasibility of using 
administrative records. Further, the Bureau has already developed a 
strategic plan for 2020 and other related documents that, among other 
things, outline the Bureau's mission and vision for 2020. 

To help ensure these efforts stay on track and coalesce into a viable 
path toward a more cost-effective 2020 Census, in our December report 
we recommended that the Bureau issue a comprehensive operational plan 
that includes performance goals, milestones, cost estimates, and other 
critical information that could be reviewed by stakeholders and 
updated regularly. The Bureau generally agreed with our recommendation. 

As the Bureau's past experience has shown, early investments in 
planning can help reduce the costs and risks of its downstream 
operations. Therefore, while the complete results of the 2010 Census-- 
including a detailed assessment of the quality of the count--are still 
some years away, and Census Day 2020 is even further over the horizon, 
it is not too early for Congress and stakeholders to start considering 
the fundamental reforms needed to help ensure the next headcount is as 
cost-effective as possible. As part of this effort, at the request of 
Congress, we will continue to review the Bureau's progress in 
evaluating the results of the 2010 Census and the rollout of more cost-
effective options for 2020. 

[End of section] 

New High-Risk Area: 

For 2011, we are designating one new high-risk area--Management of 
Federal Oil and Gas Resources. 

GAO and others--including the Department of the Interior's Office of 
the Inspector General and Interior's Royalty Policy Committee--have 
identified significant problems with Interior's management of federal 
oil and gas resources, which provide an important source of energy for 
the United States, create jobs in the oil and gas industry, and 
generate billions of dollars annually in revenues that are shared 
between federal, state, and tribal governments. These include human 
capital and other challenges that jeopardize Interior's management of 
federal oil and gas resources. The April 2010 explosion and fire on 
the Deepwater Horizon drilling rig, which resulted in a tragic loss of 
life and catastrophic oil spill in the Gulf of Mexico, also increased 
attention on Interior's oversight of its oil and gas resources, 
including its efforts to manage risk associated with oil and gas 
exploration and production, as well as its permitting and inspection 
processes to ensure operational and environmental safety. The National 
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling 
reported in January 2011 that this disaster was the product of several 
individual missteps and oversights by BP, Halliburton, and Transocean, 
which government regulators lacked the authority, the necessary 
resources, and the technical expertise to prevent. 

Historically, within Interior, the Bureau of Land Management (BLM) 
managed onshore federal oil and gas leases, while the Minerals 
Management Service (MMS) managed offshore leases and collected 
royalties for all leases. In May 2010, in response to the Deepwater 
Horizon incident, the Secretary of the Interior announced a major 
reorganization of Interior's management of federal oil and gas 
resources. This reorganization eliminated MMS and transferred offshore 
oversight responsibilities to the newly created Bureau of Ocean Energy 
Management, Regulation and Enforcement (BOEMRE) and revenue collection 
to a new Office of Natural Resource Revenue. Interior has acknowledged 
that this restructuring will be complicated and require careful and 
deliberate planning. 

GAO is designating federal management of oil and gas resources, 
including production and revenue collection, as high risk because of 
(1) shortcomings in Interior's revenue collection policies, (2) 
weaknesses in Interior's human capital management, and (3) inherent 
challenges Interior faces in reorganizing its offshore and revenue 
collection functions. In recent years, GAO has made more than 50 
recommendations to the Secretary of the Interior to address weaknesses 
in Interior's revenue collection and human capital policies and modify 
its practices for managing oil and gas resources. Interior has been 
acting on many of these recommendations, but as of December 2010, many 
recommendations remain unimplemented and ongoing GAO work and other 
studies will likely identify additional challenges and 
recommendations. Interior will be challenged to successfully implement 
existing and future recommendations and undertake a major 
reorganization while operating in a constrained resource environment. 

Specifically, our recent work has found the following: 

Revenue collection: Our work has identified three major shortcomings 
in Interior's revenue collection policies, including ensuring that (1) 
the federal government receives a fair return on its oil and gas 
resources, (2) Interior completes its oil and gas production 
verification inspections, and (3) Interior's data on production and 
royalties are consistent and reliable. Specifically: 

* In September 2008, GAO reported that Interior had not conducted a 
comprehensive evaluation of the federal oil and gas revenue system in 
over 25 years and that it did not have a process in place to evaluate 
whether this system was in need of reassessment.[Footnote 12] At the 
time, GAO reported that Interior collected lower levels of revenues 
for oil and gas production than other oil and gas resource owners, 
including some U.S. states and other countries. For example, GAO 
reported that federal revenues for oil and gas produced in the Gulf of 
Mexico, according to a major study, were lower than 93 out of 104 
resource owners. 

In addition, due to a lack of price flexibility in royalty rates-- 
automatic adjustment of rates to changes in oil and gas prices or 
other market conditions--and the inability to change fiscal terms on 
existing leases, Interior and Congress were pressured to change 
royalty rates on an ad hoc basis, potentially resulting in billions of 
dollars in forgone revenues. For example, special lower royalty rates--
referred to as royalty relief--granted on leases issued in the 
deepwater areas of the Gulf of Mexico from 1996 to 2000--a period when 
oil and gas prices and industry profits were much lower than they are 
today--could result in between $21 billion and $53 billion in lost 
revenue to the federal government, compared with what it would have 
received without these provisions. 

GAO recommended Interior conduct a comprehensive review of the federal 
oil and gas system using an independent panel. After Interior 
initially disagreed with our recommendations, we recommended that 
Congress consider directing the Secretary of the Interior to convene 
an independent panel to perform a comprehensive review of the federal 
system for collecting oil and gas revenue. More recently, Interior 
stated in an April 12, 2010, press release that in response to GAO's 
recommendation, it is undertaking a study it expects to complete in 
2011 to inform decisions about federal lease terms, such as royalties, 
by consistently comparing the federal oil and gas fiscal systems with 
such systems of other countries. Specifically, Interior stated that 
the results of this study will enable it to ensure that its leasing 
policies give the public a fair return on federally owned oil and gas 
resources while balancing other objectives, including production and 
environmental quality. The results of the study may reveal the 
potential for greater revenues to the federal government. 

* Our past work has also found that Interior's verification of the 
volume of oil and gas produced from federal leases--on which royalties 
are due to the federal government--does not provide reasonable 
assurance that operators are accurately measuring and reporting these 
volumes. For example, in March 2010, we reported that neither the 
Minerals Management Service (MMS) nor the Bureau of Land Management 
(BLM) had consistently met their statutory requirements or agency 
goals for oil and gas production verification inspections of certain 
federal leases--a key control for verifying oil and gas production. 
[Footnote 13] For offshore leases, MMS just once met its goals to 
conduct oil and gas site security inspections and witness meter 
calibrations during fiscal years 2004 through 2008 in the four 
district offices we reviewed. For onshore leases, BLM met its oil and 
gas production verification goals one-third of the time for fiscal 
years 1998 through 2008 in the six field offices with reliable data we 
reviewed. 

* We found that Interior does not have consistent and reliable data on 
the production and sale of oil and gas from federal leases and 
therefore lacks assurance that production and sales royalties are 
accurately reported and paid. For example, we reported in October 2010 
that Interior's data likely underestimated the amount of natural gas 
produced on federal leases that is released directly to the atmosphere 
(vented) or is burned (flared).[Footnote 14] This vented and flared 
gas contributes to greenhouse gases and represents lost royalties. 
Accordingly, we made a number of recommendations to Interior to both 
improve its tracking of vented and flared gas and to reduce these 
emissions, which, if implemented, would increase the royalties due the 
federal government. 

In addition, in July 2009, we reported on numerous instances in which 
oil and gas production data were missing or sales data appeared to be 
erroneous.[Footnote 15] For example, we reported that MMS was missing 
about 5.5 percent of royalty reports for fiscal years 2006 and 2007 
that were due on sales of oil and gas from leases in the Gulf of 
Mexico, potentially resulting in $117 million in uncollected 
royalties. For that same time period, we also found that significant 
amounts of data reported by royalty payors appeared erroneous. For 
example, we found that either Gulf of Mexico oil and gas sales values 
or sales volume appeared incorrect about 3.9 percent to 6.6 percent of 
the time. 

Previously, in September 2008, we reported that MMS's royalty 
collection processes relied too heavily on company-reported oil and 
gas production figures to effectively verify the accuracy of royalty 
payments.[Footnote 16] Based on our work, we concluded that a more 
consistent use of available third-party data to verify company-
reported data could provide greater assurance that royalties are 
accurately paid and verified. Interior agreed with this assessment and 
has taken steps to reduce its reliance on company-reported data to 
verify royalties, although the effect remains uncertain. 

In the same report, we also found that Interior did not have 
sufficient controls over changes to royalty and production data that 
companies reported to MMS. While companies are allowed by statute to 
revise data up to 6 years after they initially submit it, we found 
that MMS's information technology system allowed companies to continue 
to revise their data after 6 years. Further, MMS did not always 
recalculate royalties based on these revisions. 

Human capital: BLM and MMS have encountered persistent problems in 
hiring, training, and retaining sufficient staff to meet a workload 
that is increasing as a result of rapid increases in oil and gas 
operations on federal lands and waters. In March 2010, we found that 
key BLM and MMS oil and gas inspection and engineering positions 
experienced high turnover rates and that the training offered for 
these positions was insufficient for carrying out the bureau's 
responsibilities.[Footnote 17] For fiscal years 2004 and 2008, 
turnover rates for BLM's petroleum engineer technicians were above 50 
percent in five of the nine field offices that we reviewed, and 
between 27 percent and 44 percent for MMS offshore inspectors in the 
four MMS district offices that we reviewed. 

Moreover, neither BLM nor MMS provided consistent and formal training 
for key oil and gas staff. For example, BLM did not provide training 
for recently hired petroleum engineers--the staff who review and 
approve drilling permits--and did not require that staff pursue 
continuing education. Similarly, MMS did not have a formal training 
program for its offshore inspectors on how to verify oil and gas 
production. As result of these staffing and training shortfalls, 
Interior has been unable to successfully balance its multiple 
responsibilities to oversee oil and gas development on federal leases, 
placing both the environment and royalty collections at risk. 

These human capital issues have been persistent. In June 2005, we 
reported that BLM lacked sufficient staff to manage the increasing 
demand for onshore oil and gas drilling permits while fulfilling its 
environmental protection responsibilities.[Footnote 18] From fiscal 
years 1999 to 2004, the total number of onshore oil and gas drilling 
permits approved by BLM more than tripled, from 1,803 to 6,399. During 
this same time period, the eight BLM field offices that we reviewed 
were able to meet their goals for environmental inspections only about 
half of the time, in part because staff that would have performed 
these inspections were assigned to work on drilling permits. 
Furthermore, staff from the majority of the field offices that we 
reviewed stated that increased oil and gas permitting responsibilities 
affected their ability to implement oil and gas resource monitoring 
programs, track the number of nonproducing wells and review the 
justification for allowing wells to sit idle, and ensure that 
reclamation efforts were successful. 

GAO made a number of recommendations to address these issues. While 
Interior's newly established Bureau of Ocean Energy Management 
Regulation and Enforcement (BOEMRE) stated that it planned to hire 
additional staff with expertise in oil and gas inspections and 
engineering, these plans have not been fully implemented and it 
remains unclear whether Interior will be fully successful in hiring, 
training, and retaining these staff. Further, BLM's human capital 
challenges continue, yet this issue has not been addressed in 
Interior's reorganization plans. 

Reorganization: In June 2010, Interior began implementing its plans to 
restructure its management of oil and gas resources by establishing 
BOEMRE, which is responsible for oil and gas leasing, drilling, and 
inspections, and the Office of Natural Resource Revenue (ONRR), which 
oversees the collection of royalties and other revenues. Interior 
plans to continue restructuring BOEMRE to establish two separate 
bureaus--the Bureau of Ocean Energy Management which will focus on 
leasing and permitting and the Bureau of Safety and Environmental 
Enforcement which will focus on inspection and enforcement functions. 
The Secretary of the Interior stated that dividing MMS's 
responsibilities among three separate bureaus will help ensure that 
each of the three newly established bureaus have a distinct and 
independent mission. Interior acknowledged that the restructuring will 
take until at least the end of 2011 and that separating these 
functions and their processes will be complicated and require careful 
and deliberate planning. As we have reported, agency reorganizations 
are complex and pose significant challenges to both agency management 
and staff and that the failure to adequately address--and often even 
consider--a wide variety of people and cultural issues is at the heart 
of unsuccessful transformation.[Footnote 19] Finally, this 
reorganization does not address ongoing challenges with BLM's ability 
to address its human capital challenges. 

Interior's efforts to change and improve many of its current practices 
are an important first step to address material weaknesses in the 
existing system. For example, Interior has taken steps to improve the 
quality of its production and royalty data in addition to reducing its 
reliance on company-reported oil and gas production volumes to verify 
royalty payments. However, Interior may lack the resources and skills 
it needs to simultaneously address significant changes in its 
practices and effectively meet routine responsibilities while 
reorganizing the agency responsible for offshore oil and gas 
activities. In addition, it remains unclear if and how the 
reorganization will affect Interior's efforts to implement our many 
outstanding recommendations to improve its management of the federal 
oil and gas program, both offshore and onshore. If steps are not taken 
to effectively manage these challenges, the agency may face continued 
employee turnover at its senior levels and ongoing challenges hiring 
qualified new staff, further putting federal oil and gas resources and 
revenues at risk. 

[End of section] 

Progress Being Made in Remaining High-Risk Areas: 

For the areas that remain on our 2011 High-Risk List, there have been 
important but varying levels of progress--in some areas enough 
progress for us to narrow the scope of the high-risk area. Several of 
the high-risk areas remaining on the High-Risk List required and 
subsequently received congressional oversight and legislation needed 
to make progress in addressing risks. Congress 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. 

Top administration officials also have shown their commitment to 
ensuring that high-risk areas receive attention and oversight. OMB's 
Deputy Director for Management has held regular meetings with top 
agency officials to discuss plans for addressing high-risk areas. GAO 
has been pleased to participate in these meetings. Progress on 
resolving high-risk issues has been positive and is forming a 
foundation of accountability that, if sustained, could lead to 
significant movement toward addressing high-risk problems. Continued 
attention by OMB, concerted effort by agencies and GAO, as well as 
sustained congressional oversight are critical to making more 
progress; our experience has shown that perseverance is required to 
fully resolve high-risk areas. 

Table 1 provides examples of congressional actions and high-level 
administration initiatives, discussed in more detail throughout this 
report, that have led to progress in addressing high-risk areas. 

Table 1: Examples of Congressional Actions and Administration 
Initiatives Leading to Progress on High-Risk Areas: 

High-risk area: Revamping Federal Oversight of Food Safety; 
Actions and initiatives: Food safety legislation that was signed into 
law in January 2011 expands FDA's oversight authority but does not 
apply to the federal food safety system as a whole. In March 2009, the 
President convened the Food Safety Working Group, demonstrating strong 
commitment and top leadership support for food safety. 

High-risk area: Medicare and Medicaid Programs; 
Actions and initiatives: Congress passed the Improper Payments 
Elimination and Recovery Act (IPERA) of 2010 to enhance reporting and 
recovering of improper payments. The Patient Protection and Affordable 
Care Act and the Health Care and Education Reconciliation Act of 2010 
also contain provisions designed to help reduce improper payments in 
the Medicare and Medicaid programs. In addition, in November 2009, the 
President issued Executive Order 13520, Reducing Improper Payments and 
Eliminating Waste in Federal Programs, and issued two additional 
memorandums in 2010 to help reduce and recover improper payments. 

High-risk area: Modernizing the Outdated Financial Regulatory System; 
Actions and initiatives: Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (Dodd-Frank Act) reforms the financial 
regulatory system in several ways that, depending on how the 
provisions are implemented, could begin to address many of the 
limitations of the financial regulatory system that GAO has identified. 

High-risk area: Ensuring the Effective Protection of Technologies 
Critical to U.S. National Security Interests; 
Actions and initiatives: In April 2010, the administration announced a 
reform initiative to strengthen and streamline the government's export 
control system by creating a single licensing agency, control list, 
enforcement coordination agency, and electronic licensing system. 

High-risk area: Enforcement of Tax Laws; 
Actions and initiatives: In March 2010, Congress passed the Hiring 
Incentives to Restore Employment Act, which included provisions that 
require financial institutions to report information on foreign bank 
accounts. IRS data show that compliance is very high when adequate 
information reporting exists. Congress passed other laws in 2008 that 
require reporting of securities' basis and businesses' credit card 
receipts. 

High-risk area: DOD Weapon Systems Acquisition; 
Actions and initiatives: The Weapon Systems Acquisition Reform Act of 
2009 includes provisions to ensure programs are based on realistic 
cost estimates and to terminate programs that experience high levels 
of cost growth. In DOD's fiscal year 2010 and 2011 budget requests, 
the Secretary of Defense proposed ending all or part of at least a 
half dozen major defense acquisition programs that were over cost, 
behind schedule, or no longer suited to meet warfighters' current 
needs. 

High-risk area: DOD Contract Management; 
Actions and initiatives: Legislation in 2008 directed DOD to determine 
the number of and functions performed by contractors, in part to help 
identify functions that might be better performed by DOD employees. In 
March 2009, the administration proposed initiatives to improve 
contracting at all agencies, including DOD, in areas such as 
increasing competition and reducing the use of high-risk contracting 
strategies. 

High-risk area: Protecting the Federal Government's Information 
Systems and the Nation's Cyber Critical Infrastructures; 
Actions and initiatives: Since the 2009 update to GAO's High-Risk 
Series, the President directed an assessment of U.S. policies and 
structures for cybersecurity and appointed a national cybersecurity 
policy official who is responsible for coordinating the nation's 
cybersecurity policies and activities. 

High-risk area: DOD Approach to Business Transformation; 
Actions and initiatives: In the National Defense Authorization Acts 
for fiscal years 2008 and 2009, Congress codified the Chief Management 
Officer (CMO) position, created a deputy CMO (DCMO), required DOD to 
develop a strategic management plan, and required the secretaries of 
the military departments to designate their undersecretaries as CMOs 
and to develop business transformation plans. 

Source: GAO. 

[End of table] 

GAO has continued to work collaboratively with Congress, agency 
leaders, and OMB to resolve high-risk issues. Related to our high-risk 
work in fiscal year 2010, we issued 151 reports, delivered 67 
testimonies to Congress, and prepared numerous other products, such as 
briefings and presentations. In addition, we documented nearly $27 
billion in financial benefits and 522 nonfinancial benefits related to 
high-risk areas. These results are based on reviews spanning a wide 
range of issues on the High-Risk List. All of our recommendations are 
described in our reports and on our Web site, [hyperlink, 
http://www.gao.gov], and together with our criteria for removal from 
the High-Risk List can form the foundation for addressing high-risk 
areas. 

Progress has been made in a number of areas that remain on our 2011 
High-Risk List, including in three areas--Strategic Human Capital 
Management, Managing Federal Real Property and DOD Support 
Infrastructure Management--for which the scope has been narrowed 
because of the progress that has been made. 

* Strategic Human Capital Management. The federal government has made 
substantial progress in addressing its human capital challenges. For 
example, in 2002 and 2004, Congress provided agencies--individually 
and across the federal government--with additional authorities and 
flexibilities to manage the federal workforce. More recently, Congress 
enacted the Telework Enhancement Act of 2010, which is intended to 
ensure that agencies more effectively integrate telework into their 
management plans and agency cultures and to provide opportunities for 
more federal employees to telework. Also, OPM issued guidance on the 
availability and use of flexibilities in 2008, and, in 2010, undertook 
a major initiative to streamline and reform the federal hiring 
process. OPM also is expanding its assistance to agencies with more 
strategic approaches to human capital management. These changes 
demonstrate increased top level attention and clear progress toward 
more strategic management of the federal workforce. 

GAO, therefore, is narrowing the scope of this high-risk area to focus 
on the most significant challenges that remain to close current and 
emerging critical skills gaps in vital areas such as acquisitions, 
foreign language capabilities, and oil and gas management. Building on 
the progress that has been made, federal agencies need to continue to 
both take actions to address their specific challenges and to work 
with OPM and through the Chief Human Capital Officers Council to 
address critical skills gaps that cut across several agencies. 
Additional information on the planning, implementation, and 
measurement and evaluation actions needed to address current and 
emerging critical skills gaps and hereby reduce risk in Strategic 
Human Capital Management is provided on page of this report. 

* Managing Federal Real Property. We found that real property data 
reliability and managing the deteriorating condition of facilities no 
longer remain high-risk issues due to governmentwide progress. Other 
real property management issues--such as excess and underutilized 
properties, overreliance on leasing, and protection of facilities-- 
remain ongoing governmentwide concerns. 

The federal government has taken numerous steps since 2003 to improve 
the completeness and reliability of its real property data. In 
response to the 2004 Executive Order 13327 on Federal Real Property 
Asset Management, Senior Real Property Officers for the major real 
property holding agencies formed the Federal Real Property Council 
(FRPC) that supports real property reform efforts. The council, in 
conjunction with GSA, established the Federal Real Property Profile 
(FRPP) to meet the order's requirement for a single database that 
includes all real property under the control of executive branch 
agencies. FRPP contains asset-level information submitted annually by 
agencies on 25 high-level data elements, including four performance 
measures that enable agencies to track progress in achieving property 
management objectives. In response to our 2007 recommendation to 
improve the reliability of FRPP data, the Office of Management and 
Budget required, and agencies implemented, data validation plans that 
include procedures to verify that the data are accurate and complete. 
[Footnote 20] Furthermore, GSA's Office of Governmentwide Policy 
(OGP), which acts as the database administrator of FRPP, instituted a 
data validation process whereby FRPP will not accept an agency's data 
until it has corrected any violations of established business rules 
and data checks. Our more recent analysis of the reliability of FRPP 
data found none of the basic problems we have previously found, such 
as missing data or inexplicably large changes between years.[Footnote 
21] Despite these improvements, agencies continue to improve their 
real property data for their own purposes. However, from a 
governmentwide perspective, OGP has sufficient standards and processes 
in place to consider the 25 elements in FRPP sufficiently reliable as 
a database describing the real property holdings of the federal 
government. 

Federal agencies have also improved their ability to manage their 
repair and maintenance backlogs by conducting facility condition 
assessments, prioritizing repairs, and improving the definition of 
deferred repair and maintenance. All major real property-holding 
agencies have initiated facility condition assessments to identify 
repair and maintenance deficiencies associated with their assets and 
define or estimate their maintenance backlog. Furthermore, these 
agencies prioritize repair and maintenance for assets they consider to 
be important to their mission when deciding what projects to fund. Our 
2008 review of six property-holding agencies did not identify any 
instances in which an agency's mission had been significantly hampered 
as a result of a repair and maintenance backlog.[Footnote 22] FRPP 
performance measures, including condition index, mission dependency, 
and annual operating costs, enable governmentwide measurement of 
progress in addressing maintenance needs. In addition, the Federal 
Accounting Standards Advisory Board, in consultation with OMB and 
FRPC, is progressing in addressing our recommendation to provide a 
realistic estimate of the government's fiscal exposure to repair and 
maintenance costs by revising the definition for deferred maintenance 
and repairs. Despite these improvements in information, agencies 
continue to face challenges in reducing maintenance backlogs, although 
some agencies--such as GSA and the departments of Veterans Affairs and 
Interior--were able to address needed repairs and improve the 
condition of facilities through temporary funds they received through 
the American Recovery and Reinvestment Act of 2009. Additional 
information about the actions needed to reduce risks for Managing 
Federal Real Property is provided on page of this report. 

* DOD Support Infrastructure Management. Within the Department of 
Defense (DOD) Support Infrastructure Management high-risk area, the 
management and planning for defense facilities sustainment-- 
maintenance and repair activities necessary to keep facilities in good 
working order--no longer remains high risk because DOD has made 
significant progress in that area. Other DOD support infrastructure 
management issues--disposing of excess facilities and achieving 
efficiencies in base support--remain ongoing high-risk concerns. 

We have previously found that the military services redirected 
sustainment funds to other purposes and facilities were not 
sufficiently maintained in good working order. DOD is more accurately 
assessing infrastructure requirements through efforts to improve real 
property inventory and facility data collection with ongoing 
implementation of its Real Property Assets Database and efforts to 
verify the accuracy of inventory records. Moreover, DOD's Senior Real 
Property Officer has certified the department's inventory data for 
inclusion in the General Services Administration's and Federal Real 
Property Council's Federal Real Property Profile. DOD also has 
developed a facilities sustainment model that provides a consistent 
and reasonable framework for preparing estimates of DOD's annual 
facility sustainment funding requirements. DOD's more accurate real 
property inventory data and facilities sustainment model effectively 
positions DOD to more accurately account for facilities inventory and 
facilities' condition, and can help to ensure that DOD requests 
sufficient funding to maintain the facilities in good working order. 

The department has demonstrated strong commitment and top leadership 
support to address the risks and has the capacity to resolve the risks 
related to planning and management for facilities sustainment. More 
specifically, according to DOD officials, DOD issued guidance in 2007 
requiring the services to budget funding of at least 90 percent of 
facilities' sustainment requirements in fiscal years 2009 through 2013 
to provide a minimum funding level for sustainment across DOD and more 
consistency across the military services in sustainment budgeting. 
According to DOD, in fiscal year 2010, the services met the 
requirement to fund at 90 percent of sustainment needs. DOD's steps to 
accurately determine its facility sustainment needs and improve its 
budgeting process should help to arrest the rate of increase in the 
backlog of unfunded maintenance through timely facilities sustainment 
and thus help to improve DOD's efforts to better maintain the 
condition of its facilities. DOD is also improving facilities and 
enhancing service members' and their families' quality of life by 
leveraging private capital through the privatization of military 
family housing and other facilities such as barracks. For these 
reasons, we no longer believe that facilities sustainment remains high 
risk. However, DOD needs to maintain its current level of sustained 
commitment to ensure that it carries its progress to date through to a 
successful conclusion and we plan to continue to monitor this issue to 
determine if the desired results are achieved and sustained. 

Regarding the two remaining high-risk concerns for DOD support 
infrastructure management issues--disposing of excess facilities and 
achieving efficiencies in base support--DOD has demonstrated 
leadership commitment and developed the capacity, in terms of people 
and resources, to address existing challenges for these two areas, but 
has not yet demonstrated sufficient progress in implementing 
corrective actions or fully developed corrective action plans. DOD 
needs to continue to implement its schedule for demolishing excess and 
surplus facilities in the inventory to achieve the high rates of 
demolition needed to dispose of remaining unneeded facilities. 
Additionally, the department needs to develop and implement a 
corrective action plan to achieve economies and efficiencies from base 
consolidation under its joint basing initiative. A more detailed 
discussion of these two remaining concerns is contained in the 
Department of Defense Support Infrastructure Management update on page 
of this report. 

Several additional examples of progress made to address high-risk 
issues underscore the importance of high-level attention by the 
executive branch and coordinated action by Congress and efforts by 
agencies to implement our recommendations and targeted corrective 
actions to address high-risk areas within the context of our criteria. 

* DOD Weapon Systems Acquisition. While DOD still faces significant 
challenges in managing its weapon system programs, the past 3 years 
have seen DOD and Congress take meaningful steps toward addressing 
long-standing weapon acquisition issues. DOD made major revisions to 
its acquisition policies to place more emphasis on acquiring knowledge 
about requirements, technology, and design before programs start--thus 
putting it in a better position to field capabilities on time and at 
the estimated cost. Congress strengthened DOD's acquisition policies 
and processes by passing the Weapon Systems Acquisition Reform Act of 
2009, which includes provisions to ensure programs are based on 
realistic cost estimates and to terminate programs that experience 
high levels of cost growth. The House Armed Services Committee Panel 
on Defense Acquisition Reform issued its final report in March 2010 
and made additional recommendations to improve the performance of the 
defense acquisition system, many of which were incorporated into the 
Improve Acquisition Act of 2010. 

In addition, DOD has started to reprioritize and rebalance its weapon 
system investments. In DOD's fiscal year 2010 and 2011 budget 
requests, the Secretary of Defense proposed ending all or part of at 
least a half dozen major defense acquisition programs that were over 
cost, behind schedule, or no longer suited to meet the warfighters' 
current needs. Congress's support for several of the recommended 
terminations signaled a willingness to make difficult choices on 
individual weapon systems and DOD's weapon system investments as a 
whole. Further, the Undersecretary of Defense for Acquisition, 
Technology, and Logistics is beginning to implement a range of 
efficiency initiatives that focus on affordability, trade-offs, and 
portfolio reviews, consistent with past GAO recommendations. 

These are all positive steps, but inconsistent implementation has 
hindered past DOD efforts to address this high-risk area. To build a 
more balanced and affordable portfolio of weapon programs and improve 
outcomes over the long term, DOD must still develop an analytical 
approach and empower portfolio managers to better prioritize 
capability needs while doing a better job of allocating resources. It 
must also work harder to ensure that its policy changes and 
initiatives are consistently put into practice and reflected in 
decisions made on individual acquisitions. Additional information 
about the actions needed to reduce risks for DOD Weapon Systems 
Acquisition is provided on page of this report. 

DOD Supply Chain Management: DOD has taken a major step toward 
improving management of supply inventories, a primary reason for the 
department's supply chain management program being on GAO's High-Risk 
List. Long-standing problems in this area have included high levels of 
inventory and ineffective and inefficient inventory management 
practices. In response to a legislative mandate, the department 
submitted its Comprehensive Inventory Management Improvement Plan to 
Congress in November 2010. The plan is aimed at improving the 
inventory management systems of the military departments and the 
Defense Logistics Agency with the objective of reducing the 
acquisition and storage of spare parts and other secondary inventory 
items that are excess to requirements. DOD reported that the total 
value of its secondary inventory was more than $91 billion in 2009 and 
that $10.3 billion (11 percent) of its secondary inventory has been 
designated as excess and categorized for potential reuse or disposal. 

DOD's plan addresses the eight inventory management plan elements 
required by the statute.[Footnote 23] For example, the plan includes 
efforts to (1) comprehensively review demand-forecasting procedures to 
identify and correct any systematic weaknesses in such procedures, (2) 
accelerate DOD's efforts to achieve total asset visibility, and (3) 
more aggressively pursue disposal reviews and actions on stocks 
identified for potential reuse or disposal. In addressing these and 
other elements of inventory management, the plan includes 
characteristics--such as a mission statement, problem definition, and 
performance measures--that our prior work has shown to be important in 
helping to establish a results-oriented management framework. 

The development and issuance of the plan is a major step toward 
resolving long-standing problems that we and others have identified in 
prior reports and testimonies. Further, DOD has established working 
groups and an associated reporting structure intended to ensure 
actions are progressing as planned while monitoring for adverse 
effects on operational readiness. Nevertheless, DOD faces a number of 
implementation challenges, including aggressive timelines and 
benchmarking; the absence of estimates for the extent that additional 
resources would be required; delays in implementing new information 
systems; nonstandard definitions, processes, and procedures, and 
metrics across DOD components; and the need for coordination and 
collaboration among multiple types of stakeholders. Overcoming these 
challenges will be important to successfully implementing the plan and 
to achieving more efficient and effective management of DOD's supply 
inventories. To assist in continued congressional oversight of this 
area, GAO will evaluate DOD's implementation of its plan and, in 
response to a legislative mandate, issue a report not later than 18 
months after the plan was submitted to Congress. 

Three focus areas for improvement in this high-risk area are 
requirements forecasting, asset visibility, and materiel distribution. 
With the issuance of its November 2010 plan for improving inventory 
management practices, DOD has a corrective action plan to address 
requirements forecasting and other aspects of inventory management. 
DOD, however, has not yet developed detailed corrective action plans 
that address the other two focus areas of asset visibility and 
materiel distribution. In addition, DOD will need to fully implement a 
program for monitoring and independently validating the effectiveness 
and sustainability of corrective actions and will need to demonstrate 
progress in all three of the key focus areas. Key to DOD's ability to 
demonstrate progress in addressing supply chain management challenges 
is the development and implementation of outcome-based performance 
measures. Additional information about the actions needed to reduce 
risks for DOD Supply Chain Management is discussed on page of this 
report. 

* Revamping Federal Oversight of Food Safety. For years, GAO has 
reported on the fragmented nature of federal food safety oversight. 
While the Food and Drug Administration (FDA) and U.S. Department of 
Agriculture (USDA) have primary oversight responsibilities, a total of 
15 agencies collectively administer at least 30 food-related laws. As 
a first step that could address this fragmentation, in March 2009, the 
President convened the Food Safety Working Group, demonstrating strong 
commitment and top leadership support for food safety. The working 
group is co-chaired by the Secretaries of Health and Human Services 
and USDA and includes officials from federal agencies with key food 
safety responsibilities, including FDA. The working group has set 
priorities for federal food safety agencies, established goals, and 
taken steps designed to increase collaboration in some areas that 
cross regulatory jurisdictions. In particular, federal agencies have 
taken steps designed to increase collaboration on improving produce 
safety, reducing Salmonella contamination, and developing food safety 
performance measures. New food safety legislation that was signed into 
law in January 2011 strengthens a major part of the food safety 
system. It shifts the focus of FDA regulators from responding to 
contamination to preventing it, according to FDA, and expands FDA's 
oversight authority. However, it does not apply to the federal food 
safety system as a whole. Thus, food safety oversight remains 
fragmented and the agencies have not developed a governmentwide 
performance plan that includes results-oriented goals and performance 
measures, and information about resources. Such a plan could be used 
to guide corrective actions and monitor progress. Additional 
information about the actions needed to reduce risks for Revamping 
Federal Oversight of Food Safety is provided on page of this report. 

* DOE's Contract Management for the National Nuclear Security 
Administration and Office of Environmental Management. Since the 2009 
high-risk update, the Department of Energy's (DOE) National Nuclear 
Security Administration (NNSA) and Office of Environmental Management 
(EM) have continued to make progress addressing underlying weaknesses 
in their contract and project performance. During the last 2 years, 
DOE has taken a number of actions to implement the departmentwide 
corrective action plan it developed in 2008. For example, DOE has 
updated program and project management policies and guidance in an 
effort to improve the reliability of project cost estimates, better 
assess project risks, and better ensure project reviews are timely and 
useful and identify problems early. Specifically, DOE has updated its 
policies and guidance in November 2010 to require an independent cost 
estimate for projects with a total cost of $100 million or greater 
before approving a project's cost and schedule baseline. Also, for 
projects with a total cost of $750 million or more and where critical 
new technologies are being developed, the updated guidance generally 
requires an assessment of the technology readiness level. DOE is also 
taking steps to ensure that contractors for large-scale projects are 
using an earned value management system that conforms to project 
management industry standards and that has been certified as reliable. 
An earned value system allows project managers to assess the extent to 
which the cost and schedule of work performed at any given point in 
time is in line with what had been planned. Finally, DOE is also 
restructuring its portfolio of projects to distinguish between capital 
asset projects and operating projects to better recognize the 
different issues faced by each. It is also breaking large projects 
into smaller, more manageable projects, when possible. DOE management, 
particularly in EM, has been proactive in working with GAO and the 
Office of Management and Budget--both through meetings and 
correspondence--to share information and perspectives on planned and 
actual improvements made. 

These and other steps illustrate DOE's commitment to improving its 
contract and project management, but the results of these efforts must 
ultimately be demonstrated through improved project performance. DOE 
has generally met three of five criteria needed to remove NNSA and EM 
from the 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 that the many corrective measures it has 
taken are both effective and sustainable over the long term. With 
regard to capacity, DOE's corrective action plan recognized capacity 
as one of the top 10 issues facing the department. Specifically, the 
plan said 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. These challenges are likely to 
continue as DOE's workforce ages and the department faces future 
budget constraints. Both NNSA and EM are taking steps to assess 
current and future staffing needs and are in the process of developing 
plans to address the shortfalls. In particular, we note EM's progress 
on hiring and training federal contracting and project personnel, as 
well as the development of alternative staffing arrangements to 
supplement EM employees' technical expertise with experts from the 
U.S. Army Corps of Engineers and contractors from DOE national 
laboratories. Perhaps more importantly, DOE must demonstrate that the 
policy and process changes being made result in sustained improved 
project performance--that is, that projects are being consistently 
brought in on time and on budget and that they fulfill mission 
requirements. 

Recent GAO work, however, has shown that both NNSA and EM continue to 
struggle to develop credible and reliable cost estimates, meet cost 
and schedule goals on projects, and overcome other related project 
management challenges. With a combined annual budget of more than $15 
billion and with missions often involving complex one-of-a-kind 
efforts, consistent and rigorous contract and project management are 
critical. NNSA is tasked with modernizing the nation's aging nuclear 
weapons production facilities, a challenging effort that will take 
years and cost billions of dollars. In an era of fiscal challenges, 
NNSA anticipates future budget requests will include multibillion- 
dollar increases for capital asset projects. EM faces ongoing complex 
and long-term challenges in removing radioactive and hazardous 
chemical contaminants--left over from decades of weapons production--
from soil, groundwater, and facilities. Billions of dollars have 
already been spent, and will continue to be spent over the coming 
decades, to treat and dispose of this waste. Thus, until DOE can 
consistently demonstrate that these recent changes to policies and 
processes have actually resulted in improved performance on major 
projects, NNSA and EM will remain on the High-Risk List. Additional 
information about the actions needed to reduce risks for DOE's 
Contract Management for the National Nuclear Security Administration 
and Office of Environmental Management is provided on page 128 of this 
report. 

* Management of Interagency Contracting. Federal agencies and the 
Office of Management and Budget (OMB) continue to make progress in 
strengthening the management of interagency contracting as a result of 
demonstrated commitment and leadership support for addressing 
identified problems. In congressionally required reviews of selected 
agencies' use of interagency contracts to make purchases on behalf of 
the Department of Defense (DOD), agency inspectors general have found 
that agencies have demonstrated progress addressing shortcomings in 
their interagency contracting practices. For example, a review of DOD 
purchases through the General Services Administration (GSA) found that 
GSA had made significant progress over the past several years in 
strengthening controls over the management, monitoring, and reporting 
of client funds. Similarly, the National Institutes of Health (NIH) 
and DOD signed a formal Memorandum of Agreement that outlines the 
roles and responsibilities of each party in using NIH contracts to 
procure goods and services for DOD. However, these reviews have also 
highlighted persistent problems with DOD users that request goods and 
services through interagency contracts, in areas such as acquisition 
planning and contract administration, demonstrating a need for DOD to 
continue to focus on addressing these deficiencies. 

OMB has similarly committed to improving interagency contracting 
across government. In August 2010, OMB reported on its efforts to 
strengthen interagency contracting practices, as well as challenges 
that remain. For example, OMB surveyed 24 agencies on efforts taken to 
implement prior OMB guidance that was designed to improve the 
management and use of interagency contracting. 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 agencies throughout the acquisition 
life cycle. OMB's survey found that most agencies had reported 
implementing at least some of the internal controls called for in the 
guidance, such as adequately documenting decisions to use another 
agency's contract and conducting a cost effectiveness analysis when 
deciding to use an interagency contract. However, agencies need to 
ensure they monitor and validate that users of interagency contracts 
comply with the guidance to maximize the value of these management 
controls. OMB has established a corrective action plan to implement 
GAO's recent recommendations designed to provide better transparency 
and a more coordinated approach in awarding interagency contracts. OMB 
plans to issue guidance on the creation and management of new 
multiagency contracts and is currently exploring different options for 
improving the amount of information available on existing interagency 
contracts. While these initiatives are promising, their success will 
be contingent on continued management attention. 

Finally, congressional initiatives to provide oversight and improve 
management of interagency contracting have also contributed to 
sustaining progress in this area. In 2008, Congress enacted 
legislation which directed that the Federal Acquisition Regulation be 
amended to require that agencies establish business cases when 
creating certain types of interagency contracts. This legislation also 
directed that federal procurement regulations include additional 
management controls for interagency acquisitions; these new 
requirements were recently incorporated into the Federal Acquisition 
Regulation through an interim rule. Recent congressional oversight 
hearings on the management of interagency contracting have also served 
to underscore the importance of continued improvement in the use of 
this acquisition method. 

To sustain progress and further improve the management of interagency 
contracting, OMB and federal agencies must continue to focus on 
addressing identified deficiencies in the use, management, and 
transparency of these contracts. Agencies also must take steps to 
ensure compliance with OMB's interagency contracting guidance to 
maximize the value of this contracting method. Additional information 
on the actions needed to improve the Management of Interagency 
Contracting is discussed on page of this report. 

* Implementing and Transforming DHS. The Department of Homeland 
Security (DHS) continues to make progress in implementing and 
transforming its acquisition, information technology, financial, and 
human capital management functions. Senior leaders at the department, 
including the Secretary and Deputy Secretary of Homeland Security, 
have continued to demonstrate strong commitment and support to 
addressing this high-risk area by, for example, periodically meeting 
with GAO to discuss DHS's plans and efforts. DHS has also developed a 
strategy for addressing the high-risk designation and resolving its 
management challenges, and, in January 2011, provided us with an 
updated strategy. Among other things, the strategy includes corrective 
action plans for addressing challenges within each management function 
and designates senior officials responsible for implementing 
corrective actions identified in those plans. Going forward, we will 
be providing DHS with feedback on this strategy and monitoring its 
implementation. 

In addition, DHS has made progress in strengthening its management 
functions and integrating those functions with and across the 
department and its components. For example, DHS has revised its 
acquisition and information technology management oversight policies 
to include more detailed guidance to inform departmental decision 
making. Within financial management, DHS has reduced the number of 
conditions at the component level contributing to departmentwide 
material weaknesses. DHS has also issued human capital plans, such as 
its Workforce Strategy for Fiscal Years 2011-2016, containing goals, 
objectives, and measures for human capital management at the 
department. Further, DHS has taken action to integrate its management 
functions by, among other things, establishing common policies within 
each function and developing a revised management integration plan 
that identifies initiatives for driving management integration at the 
department. 

While these are positive steps, DHS needs to address significant 
management weaknesses in acquisition, financial management, human 
capital, and information technology by, for example, validating key 
acquisition documents during the acquisition review process, obtaining 
and sustaining unqualified audit opinions on departmentwide financial 
statements, implementing its workforce strategy, and enhancing its IT 
investment practices. DHS also needs to continue to demonstrate 
measurable, sustainable progress in addressing its management 
challenges and implementing corrective actions to improve and 
integrate its management functions within and across the department 
and its components. Additional information on the actions needed to 
reduce risks for Implementing and Transforming DHS is provided on page 
of this report. 

[End of section] 

Overviews 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. 

The following pages provide overviews of each of the 30 high-risk 
areas on our updated list. The overviews show (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 to be resolved; and (3) what remains to be done to address the 
risk. Each of these high-risk areas is described on our High Risk and 
Other Major Government Challenges Web site, [hyperlink, 
http://www.gao.gov/highrisk/]. The Web Site is updated regularly to 
reflect newly issued GAO reports and recommendations, as well as 
agencies' progress in implementing our recommendations. 

[End of section] 

Management of Federal Oil and Gas Resources (New): 

Why Area Is High Risk: 

GAO's work has identified continued challenges in the Department of 
the Interior's management of federal oil and gas on leased federal 
lands and waters; specifically, (1) Interior does not have reasonable 
assurance that it is collecting its share of revenue from oil and gas 
produced on federal lands; (2) Interior continues to experience 
problems in hiring, training and retaining sufficient staff to provide 
oversight and management of oil and gas operations on federal lands 
and waters; and (3) Interior is currently engaged in a broad 
reorganization of both its offshore oil and gas management and revenue 
collection functions and there are many open questions about whether 
Interior has the capacity to undertake such a reorganization while 
continuing to provide reasonable assurance that billions of dollars of 
revenue owed the public are being properly assessed and collected as 
well as managing oil and gas exploration and production on federal 
lands and waters. As a result, GAO has concluded that management of 
federal oil and gas resources is a high-risk area. 

Federal oil and gas resources provide an important source of energy 
for the United States, create jobs in the oil and gas industry, and 
generate billions of dollars annually in revenues that are shared 
between federal, state, and tribal governments. Revenue generated from 
federal oil and gas production is one of the largest nontax sources of 
federal government funds, accounting for about $9 billion in fiscal 
year 2009. Also, the explosion onboard the Deepwater Horizon and oil 
spill in the Gulf of Mexico in April 2010 emphasized the importance of 
Interior's management of permitting and inspection processes to ensure 
operational and environmental safety. The National Commission on the 
BP Deepwater Horizon Oil Spill and Offshore Drilling reported in 
January 2011 that this disaster was the product of several individual 
missteps and oversights by BP, Halliburton, and Transocean, which 
government regulators lacked the authority, the necessary resources, 
and the technical expertise to prevent. 

Historically, Interior's Bureau of Land Management (BLM) managed 
onshore federal oil and gas activities while the Minerals Management 
Service (MMS) managed offshore activities and collected royalties for 
all leases. Interior recently began restructuring its oil and gas 
program, transferring offshore oversight responsibilities to the newly 
created Bureau of Ocean Energy Management, Regulation and Enforcement 
(BOEMRE) and revenue collection to a new Office of Natural Resource 
Revenue. 

What GAO Found: 

Interior faces ongoing challenges in three broad areas, including: 

* Revenue collection. In 2008, GAO reported that Interior collected 
lower levels of revenues for oil and gas production than all but 11 of 
104 oil and gas resource owners whose revenue collection systems were 
evaluated in a comprehensive industry study--these resource owners 
included many other countries as well as some states. GAO recommended 
that Interior undertake a comprehensive reassessment of its revenue 
collection policies and processes. Interior has commissioned such a 
study in response to GAO's September 2008 report, which it expects to 
complete in 2011. The results of the study may reveal the potential 
for greater revenues to the federal government. GAO also reported in 
2010 that neither BLM nor MMS had consistently met their statutory 
requirements or agency goals for oil and gas production verification 
inspections. Without such verification, Interior cannot provide 
reasonable assurance that the public is collecting its legal share of 
revenue from oil and gas development on federal lands and waters. In 
addition, GAO reported in 2009 on numerous problems with Interior's 
efforts to collect data on oil and gas produced on federal lands, 
including missing data, errors in company-reported data on oil and gas 
production, sales data that did not reflect prevailing market prices 
for oil and gas, and a lack of controls over changes to the data that 
companies reported. As a result of Interior's lack of consistent and 
reliable data on the production and sale of oil and gas from federal 
lands, Interior could not provide reasonable assurance that it was 
assessing and collecting the appropriate amount of royalties on this 
production. GAO made a number of recommendations to Interior to 
improve controls on the accuracy and reliability of royalty data. 
Interior generally agreed with GAO's recommendations and is working to 
implement many of them, but these efforts are not complete and it is 
uncertain at this time if they will be fully successful. 

* Human capital. GAO has reported that BLM and MMS have encountered 
persistent problems in hiring, training, and retaining sufficient 
staff to meet its oversight and management of oil and gas operations 
on federal lands and waters. For example, in 2010, GAO found that BLM 
and MMS experienced high turnover rates in key oil and gas inspection 
and engineering positions. As a result, Interior faces challenges 
meeting its responsibilities to oversee oil and gas development on 
federal leases, potentially placing both the environment and royalties 
at risk. GAO made recommendations to address these issues. While 
Interior's reorganization of MMS includes plans to hire additional 
staff with expertise in oil and gas inspections and engineering, these 
plans have not been fully implemented and it remains unclear whether 
Interior will be fully successful in hiring, training, and retaining 
these staff. Further, human capital issues also exist in the BLM and 
the management of onshore oil and gas, and these issues have not been 
addressed in Interior's reorganization plans. 

* Reorganization. In May 2010, the Secretary of the Interior announced 
plans to reorganize MMS--its bureau responsible for overseeing 
offshore oil and gas activities and collecting royalties--into three 
separate bureaus. The Secretary of the Interior stated that dividing 
MMS's responsibilities among three separate bureaus will help ensure 
that each of the three newly established bureaus have a distinct and 
independent mission. While this reorganization may eventually lead to 
more effective operations, GAO has reported that organizational 
transformations are not simple endeavors and require the concentrated 
efforts of both leaders and employees to realize intended synergies 
and accomplish new organizational goals. One key practice that GAO has 
identified for effective organizational transformation is to balance 
continued delivery of services with transformational activities. 
However, we are concerned about Interior's capacity to find the proper 
balance given its history of management problems and challenges in the 
human capital area. Specifically, GAO is concerned about Interior's 
ability to undertake this reorganization while providing reasonable 
assurance that billions of dollars of revenues owed the public are 
being properly assessed and collected and that oversight of oil and 
gas exploration and production on federal lands and waters maintains 
an appropriate balance between efficiency and timeliness on one hand, 
and protection of the environment and operational safety on the other. 
In addition, Interior's reorganization efforts do not address BLM's 
ongoing challenges with its permitting and inspections programs and 
human capital challenges. 

What Remains to Be Done: 

Interior must successfully address the challenges GAO has identified, 
implement open recommendations, and meet its routine responsibilities 
to manage federal oil and gas resources in the public interest, while 
managing a major reorganization that has the potential to distract 
agency management from other important tasks and put additional strain 
on Interior staff. While Interior recently began implementing a number 
of GAO recommendations, including those intended to improve the 
reliability of data necessary for determining royalties, the agency 
has yet to fully implement a number of recommendations, including 
those intended to (1) provide reasonable assurance that oil and gas 
produced from federal leases is accurately measured and that the 
public is getting an appropriate share of oil and gas revenues, and 
(2) its long-standing human capital issues. 

GAO Contact: 

For additional information about this high-risk area, contact Frank 
Rusco at (202) 512-3841 or ruscof@gao.gov. 

Related GAO Products: 

Federal Oil and Gas Leases: Opportunities Exist to Capture Vented and 
Flared Natural Gas, Which Would Increase Royalty Payments and Reduce 
Greenhouse Gases. [hyperlink, http://www.gao.gov/products/GAO-11-34]. 
Washington, D.C.: October 29, 2010. 

Oil and Gas Management: Interior's Oil and Gas Production Verification 
Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of 
Production Volumes. [hyperlink, 
http://www.gao.gov/products/GAO-10-313]. Washington, D.C.: March 15, 
2010. 

Offshore Oil and Gas Development: Additional Guidance Would Help 
Strengthen the Minerals Management Service's Assessment of 
Environmental Impacts in the North Aleutian Basin. [hyperlink, 
http://www.gao.gov/products/GAO-10-276]. Washington, D.C.: March 8, 
2010. 

Energy Policy Act of 2005: Greater Clarity Needed to Address Concerns 
with Categorical Exclusions for Oil and Gas Development under Section 
390 of the Act. [hyperlink, http://www.gao.gov/products/GAO-09-872]. 
Washington, D.C.: September 16, 2009. 

Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key 
Data Used to Collect and Verify Oil and Gas Royalties. [hyperlink, 
http://www.gao.gov/products/GAO-09-549]. Washington, D.C.: July 15, 
2009. 

Oil and Gas Leasing: Interior Could Do More to Encourage Diligent 
Development. [hyperlink, http://www.gao.gov/products/GAO-09-74]. 
Washington, D.C.: October 3, 2008. 

Mineral Revenues: Data Management Problems and Reliance on Self- 
Reported Data for Compliance Efforts Put MMS Royalty Collections at 
Risk. [hyperlink, http://www.gao.gov/products/GAO-08-893R]. 
Washington, D.C.: September 12, 2008. 

Oil and Gas Royalties: The Federal System for Collecting Oil and Gas 
Revenues Needs Comprehensive Reassessment. [hyperlink, 
http://www.gao.gov/products/GAO-08-691]. Washington, D.C.: September 
3, 2008. 

Oil and Gas Royalties: Royalty Relief Will Cost the Government 
Billions of Dollars but Uncertainty Over Future Energy Prices and 
Production Levels Make Precise Estimates Impossible at this Time. 
[hyperlink, http://www.gao.gov/products/GAO-07-590R]. Washington, 
D.C.: April 12, 2007. 

Oil and Gas Development: Increased Permitting Activity Has Lessened 
BLM's Ability to Meet Its Environmental Protection Responsibilities. 
[hyperlink, http://www.gao.gov/products/GAO-05-418]. Washington, D.C.: 
June 17, 2005. 

Results-Oriented Cultures: Implementation Steps to Assist Mergers and 
Organizational Transformations. [hyperlink, 
http://www.gao.gov/products/GAO-03-669]. Washington, D.C.: July 2, 
2003. 

[End of section] 

Modernizing the Outdated U.S. Financial Regulatory System: 

Why Area Is High Risk: 

The United States continues to recover from the aftermath of the worst 
financial crisis in more than 75 years, which led to federal 
assistance being provided to many firms, including the two large 
housing-related government sponsored enterprises (GSE). These events 
clearly demonstrated that the U.S. financial regulatory system was in 
need of significant reform. GAO designated reform of the financial 
regulatory system as a high-risk area in 2009. 

What GAO Found: 

During the past few decades, the U.S. financial regulatory system 
failed to adapt to significant changes. First, although the U.S. 
financial system increasingly became dominated by large interconnected 
financial conglomerates, no single regulator was tasked with 
monitoring and assessing the risks that these firms' activities posed 
across the entire financial system. Second, various entities, such as 
nonbank mortgage lenders, hedge funds, and credit rating agencies, 
were not subject to sufficiently comprehensive regulation and 
oversight, despite their critical roles in financial markets. Third, 
the regulatory system was not effective at providing key information 
and protections for new and more complex financial products for 
consumers and investors. Making changes that better position 
regulators to oversee firms and products that pose risks to the 
financial system and consumers and to adapt to new products and 
participants as they arise is essential to reduce the likelihood that 
the financial markets will experience another financial crisis similar 
to the most recent one. Losses from risky mortgage products also 
resulted in two large housing-related GSEs being placed into 
government conservatorship. 

In the last year, policymakers have taken significant actions intended 
to reform the U.S. financial regulatory system to address the risks 
associated with evolving financial firms, markets, and products. After 
considerable debate within the administration and Congress, in July 
2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (Dodd-Frank Act) was enacted. The act's reforms aim to better 
position the financial regulatory system in areas addressing the 
changes and risks that GAO identified. 

* A new Financial Stability Oversight Council made up of the various 
financial regulators was created to identify risks to U.S. financial 
stability, including risks posed by large, interconnected financial 
conglomerates. Reducing the potential for systemic risk posed by the 
interconnectedness of firms was also addressed by new requirements for 
many over-the-counter derivatives to be cleared through clearinghouses 
and traded on exchanges. 

* Additional requirements and oversight have also been placed on hedge 
funds, credit rating agencies, and other market participants 
previously subject to less regulation. 

* A new Bureau of Consumer Financial Protection has been created to 
have broad regulatory responsibilities for mortgage loans and other 
consumer financial products, although securities, futures, and 
insurance products are exempt. 

These changes represent significant steps in this high-risk area. 
However, much of the work to implement these new entities and 
requirements and address the role of the government in mortgage 
markets remains. 

What Remains to Be Done: 

The Dodd-Frank Act includes many provisions that are intended to 
improve the U.S. financial regulatory system. However, many of the 
act's changes, including new regulatory structures, agencies, and 
requirements, are yet to be implemented, and many decisions by 
regulators as to how new regulations will address various problem 
areas are forthcoming. For example, the new oversight council has only 
recently begun meetings to fulfill its mission. Similarly, financial 
regulators have yet to develop and issue many of the rules necessary 
to fully implement various changes, including those related to 
proprietary trading, trading and clearing of over-the-counter 
derivatives, and others. Until these new structures, requirements, and 
entities are in place, fully staffed, and functioning effectively, the 
act's intent to reform the financial system will not be achieved. 
Policymakers also must determine how to reform the housing GSEs and 
the extent of government involvement in housing finance going forward. 

GAO Contact: 

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

Related GAO Products: 

Troubled Asset Relief Program: Bank Stress Test Offers Lessons as 
Regulators Take Further Actions to Strengthen Supervisory Oversight. 
[hyperlink, http://www.gao.gov/products/GAO-10-861]. Washington, D.C.: 
September 29, 2010. 

Life Insurance Settlements: Regulatory Inconsistencies May Pose a 
Number of Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-775]. Washington, D.C.: July 9, 
2010. 

Financial Markets Regulation: Financial Crisis Highlights Need to 
Improve Oversight of Leverage at Financial Institutions and across 
System. [hyperlink, http://www.gao.gov/products/GAO-10-555T]. 
Washington, D.C.: May 6, 2010. 

Federal Deposit Insurance Act: Regulators' Use of Systemic Risk 
Exception Raises Moral Hazard Concerns and Opportunities Exist to 
Clarify the Provision. [hyperlink, 
http://www.gao.gov/products/GAO-10-100]. Washington, D.C.: April 15, 
2010. 

Fannie Mae and Freddie Mac: Analysis of Options for Revising the 
Housing Enterprises' Long-term Structures. [hyperlink, 
http://www.gao.gov/products/GAO-10-144T]. Washington, D.C.: October 8, 
2009. 

Financial Regulation: Recent Crisis Reaffirms the Need to Overhaul the 
U.S. Regulatory System. [hyperlink, 
http://www.gao.gov/products/GAO-09-1049T]. Washington, D.C.: September 
29, 2009. 

Financial Markets Regulation: Financial Crisis Highlights Need to 
Improve Oversight of Leverage at Financial Institutions and across 
System. [hyperlink, http://www.gao.gov/products/GAO-09-739]. 
Washington, D.C.: July 22, 2009. 

Fair Lending: Data Limitations and the Fragmented U.S. Financial 
Regulatory Structure Challenge Federal Oversight and Enforcement 
Efforts. [hyperlink, http://www.gao.gov/products/GAO-09-704]. 
Washington, D.C.: July 15, 2009. 

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. 

[End of section] 

Restructuring the U.S. Postal Service to Achieve Sustainable Financial 
Viability: 

Why Area Is High Risk: 

In July 2009, GAO added the U.S. Postal Service's (USPS) financial 
condition to the list of high-risk areas needing attention by Congress 
and the executive branch to achieve broad-based restructuring. Amid 
challenging economic conditions, a changing business environment, and 
declining mail volumes, USPS is facing a deteriorating financial 
situation in which it does not have sufficient revenues to cover its 
expenses and financial obligations. 

Mail volume has declined from 213 billion pieces in fiscal year 2006 
to 171 billion pieces in fiscal year 2010--a decline of about 20 
percent. USPS expects mail volume to decline further to about 150 
billion pieces by 2020. This trend exposes weaknesses in USPS's 
business model, which has relied on mail volume growth to help cover 
costs. USPS actions to improve its financial condition have been 
limited in part by statutory and regulatory requirements, such as 
those related to closing unneeded facilities. 

What GAO Found: 

USPS cannot fund its current level of service and operations from its 
revenues and urgently needs to restructure to reflect changes in mail 
volume, revenue, and use of the mail. Although USPS reports $12.5 
billion in cost savings since fiscal year 2006, it has not been able 
to cut costs fast enough to offset the large decline in mail volume 
and revenue--particularly costs related to its workforce, retail and 
processing networks, and delivery services. Further, its revenue 
initiatives have had limited results. USPS can borrow up to $3 billion 
from the Treasury annually but expects to reach its statutory $15 
billion borrowing limit in fiscal year 2011. USPS must align its costs 
with revenues, generate sufficient funding for capital investment, and 
manage its growing debt (see table 2). 

Table 2: Postal Service Financial Results and Projections, Fiscal 
Years 2006 through 2011: 

Fiscal year: 2006; 
Net income (loss): $0.9 billion; 
Total revenues: $72.8 billion; 
Total expenses: $71.9 billion; 
Outstanding debt: $2.1 billion. 

Fiscal year: 2007; 
Net income (loss): ($5.1 billion); 
Total revenues: $75.0 billion; 
Total expenses: $80.1 billion; 
Outstanding debt: $4.2 billion. 

Fiscal year: 2008; 
Net income (loss): ($2.8 billion); 
Total revenues: $75.0 billion; 
Total expenses: $77.8 billion; 
Outstanding debt: $7.2 billion. 

Fiscal year: 2009; 
Net income (loss): ($3.8 billion); 
Total revenues: $68.1 billion; 
Total expenses: $71.9 billion; 
Outstanding debt: $10.2 billion. 

Fiscal year: 2010; 
Net income (loss): ($8.5 billion); 
Total revenues: $67.1 billion; 
Total expenses: $75.6 billion; 
Outstanding debt: $12.0 billion. 

Fiscal year: 2011 (projected); 
Net income (loss): ($6.4 billion); 
Total revenues: $67.7 billion; 
Total expenses: $74.1 billion; 
Outstanding debt: $15.0 billion. 

Source: USPS. 

[End of table] 

In March 2010, USPS issued a 10-year Action Plan, as suggested by GAO 
when it added USPS to its High-Risk List, that included actions for 
Congress and USPS to take to achieve financial viability. The plan 
included restructuring its retiree health benefits payments, 
eliminating Saturday delivery, expanding access to retail services, 
establishing a more flexible workforce, and expanding products and 
services. In April 2010, GAO reported on strategies and options for 
USPS to generate revenues, reduce costs, and increase efficiency (see 
table 3). Options included reducing compensation and benefit costs-- 
which constitute about 80 percent of expenses--and optimizing networks 
to eliminate excess capacity. Several bills were introduced in 2010 
that included provisions to restructure USPS benefit payments and 
address barriers to implementing USPS's Action Plan. These bills were 
not enacted. 

USPS has yet to fully implement its Action Plan. USPS's actions alone 
under its existing authority will not be sufficient to achieve 
sustainable financial viability. Congress, USPS, and other 
stakeholders need to reach agreement on a package of actions that 
would allow USPS to modernize its services to meet changing customer 
needs, and remove barriers restricting USPS actions, which in turn 
would permit USPS to optimize its networks and workforce so that it 
can become more efficient and reduce costs. 

What Remains to Be Done: 

Congress needs to approve a comprehensive package of actions to 
improve USPS's financial viability by (1) modifying its retiree health 
benefit cost structure in a fiscally responsible manner; (2) 
facilitating USPS cost reduction, such as by modernizing and 
optimizing postal networks and workforce; and (3) requiring any 
binding arbitration in the negotiation process for USPS labor 
contracts to take USPS's financial condition into account. USPS needs 
to take more aggressive action to reduce costs. 

The following table summarizes selected strategies and options for 
action by Congress and USPS to address USPS's financial viability, 
with some options requiring collaboration with unions through 
collective bargaining. 

Table 3: Strategies and Options to Facilitate Progress toward 
Financial Viability: 

Strategy: Reduce compensation and benefits costs: 

Challenges: Workforce size; 
About 300,000 postal employees are expected to retire through 2020; 
Collective bargaining agreements include limits on outsourcing; 
Postal unions are concerned about the loss of jobs paying a middle-
class wage and benefits to private-sector jobs with lower wages and no 
benefit guarantees; 
Options for USPS: Reduce the size of the workforce through retirements 
and outsourcing, where it is cost-effective to do so; 
Options for Congress: [Empty]. 

Challenges: Wages: USPS is required to maintain compensation and 
benefits comparable to the private sector, and wages account for about 
one-half of USPS's costs; 
Options for USPS: Reduce wage costs, for example, through a two-tiered 
pay system that would pay new hires lower wages and "grandfather" 
employees in the current system; 
Options for Congress: Require arbitrators to consider USPS's financial 
condition when making binding arbitration decisions. 

Challenges: Benefits; 
USPS benefits account for about 30 percent of USPS's costs. USPS is 
required to make annual multibillion-dollar retiree health benefit 
payments; 
Employees eligible for workers' compensation benefits can continue 
these more generous benefits even when eligible to retire; 
Options for USPS: Reduce benefit costs by reducing USPS health and 
life insurance contribution rates for active employees to levels 
comparable to those paid by other federal agencies; 
Options for Congress: Defer costs by revising funding requirements for 
retiree health benefits; Revise workers compensation laws for 
employees eligible for retirement. 

Challenges: Workforce mix and work rules; 
USPS has a high ratio of full-time career employees--about 78 percent--
and wants flexibility to hire more part-time employees; 
Options for USPS: Adjust workforce mix, for example, by using more 
part-time staff; 
Options for Congress: [Empty]. 

Strategy: Reduce other operations and network costs and improve 
efficiency: 

Challenges: USPS has costly excess capacity and inadequate flexibility 
to quickly reduce costs in its retail, processing, and delivery 
networks; Closing facilities has been limited by political, employee, 
union, and community opposition to potential job losses. Retail: Legal 
restrictions limit its ability to close certain types of post offices. 
Delivery: Delivery is the largest cost segment, labor-intensive, and 
required by USPS annual appropriation to be provided 6 days a week; 
Options for USPS: Mail processing: Close unneeded facilities; 
Relax delivery standards to facilitate closures or consolidations. 
Retail: Optimize USPS retail facility network (including hours and 
locations). Move more retail services to private stores and self-
service and close unneeded retail facilities. Delivery: Expand use of 
more cost-efficient delivery, such as cluster boxes. Field structure: 
Reduce the number of field administrative offices; 
Options for Congress: Mail processing: Support having USPS reduce 
excess capacity by closing some of its major mail processing 
facilities. Retail: Remove statutory and appropriations language 
restricting USPS's ability to close some of its 36,500 retail 
facilities. Delivery: Remove appropriations language requiring 6-day 
delivery. 

Strategy: Generate revenues through product and pricing flexibility: 

Challenges: The changing use of the mail is projected to continue 
limiting USPS's ability to generate sufficient revenues. Rate 
increases for market-dominant products are limited by the inflation- 
based price cap. Large rate increases may lower USPS revenues in the 
long run and add to its excess capacity. In fiscal year 2009, USPS 
lost $1.7 billion from products with revenues that did not cover 
costs, mainly Periodicals and Standard Mail Flats (e.g., catalogs); 
Options for USPS: Revise pricing for market-dominant products, such as 
First-Class Mail and Standard Mail. Address loss-making products by 
better aligning prices and costs. Provide volume incentives for 
certain types of bulk business mail. Develop new postal products and 
product enhancements. Provide incentives by simplifying complex rules 
for mail preparation; 
Options for Congress: Determine whether preferential pricing required 
by law for loss-making products should continue. Broaden USPS 
authority to enter into partnerships with state and local governments. 

Source USPS. 

[End of table] 

GAO Contact: 

For additional information about this high-risk area, contact Phillip 
Herr at (202) 512-2834 or herrp@gao.gov. 

Related GAO Products: 

U.S. Postal Service: Legislation Needed to Address Key Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-11-244T]. Washington, 
D.C.: December 2, 2010. 

U.S. Postal Service: Mail Processing Network Initiatives Progressing, 
and Guidance for Consolidating Area Mail Processing Operations Being 
Followed. [hyperlink, http://www.gao.gov/products/GAO-10-731]. 
Washington, D.C.: June 16, 2010. 

U.S. Postal Service: Action Needed to Facilitate Financial Viability. 
[hyperlink, http://www.gao.gov/products/GAO-10-601T]. Washington, 
D.C.: April 22, 2010. 

U.S. Postal Service: Action Needed to Facilitate Financial Viability. 
[hyperlink, http://www.gao.gov/products/GAO-10-624T]. Washington, 
D.C.: April 15, 2010. 

U.S. Postal Service: Strategies and Options to Facilitate Progress 
toward Financial Viability. [hyperlink, 
http://www.gao.gov/products/GAO-10-455]. Washington, D.C.: April 12, 
2010. 

U.S. Postal Service: Financial Crisis Demands Aggressive Action. 
[hyperlink, http://www.gao.gov/products/GAO-10-538T]. Washington, 
D.C.: March 18, 2010. 

High-Risk Series: Restructuring the U.S. Postal Service to Achieve 
Sustainable Financial Viability. [hyperlink, 
http://www.gao.gov/products/GAO-09-937SP]. Washington, D.C.: July 28, 
2009. 

U.S. Postal Service: Network Rightsizing Needed to Help Keep USPS 
Financially Viable. [hyperlink, 
http://www.gao.gov/products/GAO-09-674T]. Washington, D.C.: May 20, 
2009. 

U.S. Postal Service: Deteriorating Postal Finances Require Aggressive 
Actions to Reduce Costs. [hyperlink, 
http://www.gao.gov/products/GAO-09-332T]. Washington, D.C.: January 
28, 2009. 

U.S. Postal Service Facilities: Improvements in Data Would Strengthen 
Maintenance and Alignment of Access to Retail Services. [hyperlink, 
http://www.gao.gov/products/GAO-08-41]. Washington, D.C.: December 10, 
2007. 

U.S. Postal Service: Mail Processing Realignment Efforts Under Way 
Need Better Integration and Explanation. [hyperlink, 
http://www.gao.gov/products/GAO-07-717]. Washington, D.C.: June 21, 
2007. 

[End of section] 

Funding the Nation's Surface Transportation System: 

Why Area Is High Risk: 

The nation's surface transportation system is critical to the economy 
and affects the daily life of most Americans. However, the system is 
under growing strain, and the cost to repair and upgrade the system to 
safely and reliably meet current and future demands is estimated in 
the hundreds of billions of dollars. The demand for infrastructure 
improvements may exceed what the nation can afford. Moreover, recent 
increases in spending for surface transportation programs have not 
commensurately improved system performance because many programs do 
not effectively address key challenges, federal goals and roles are 
unclear, programs lack links to performance, and some programs do not 
use the best tools and approaches to ensure effective investment 
decisions. 

What GAO Found: 

Highways and transit. Revenues to support the Highway Trust Fund--the 
major source of federal highway and transit funding--are eroding. To 
supplement these revenues, which are derived from motor fuel and other 
highway use taxes, Congress has transferred over $30 billion from 
general revenues to the Highway Trust Fund since 2008. This approach 
to augmenting transportation funding is not sustainable in the face of 
the federal government's growing fiscal challenge. GAO's long-term 
simulations show that absent policy changes, the federal government 
faces unsustainable growth in deficits and debt. Alternative financing 
approaches, such as public-private partnerships and bonding 
strategies, can help meet demands, but these, too, can be forms of 
debt that must be repaid. New revenues for transportation 
infrastructure investments can come only from taxes and fees, and 
ultimately major changes in transportation spending, revenues, or both 
will be needed to bring the two into balance. 

Passenger rail. Amtrak's reliance on federal financial support--about 
$1.5 billion in annual subsidies--is likely to continue. Even with 
$1.3 billion in one-time capital funds from the American Recovery and 
Reinvestment Act of 2009 (Recovery Act), Amtrak has estimated capital 
needs of about $52 billion for Northeast Corridor improvements through 
2030 and about $23 billion for locomotive and passenger car 
replacement by 2040. The federal government finances nearly all of 
Amtrak's capital costs. In response to the Passenger Rail Investment 
and Improvement Act of 2008, which reauthorized federal support for 
intercity passenger rail service, Amtrak and the Department of 
Transportation (DOT) recently established minimum performance and 
service quality standards for Amtrak. In addition, Amtrak has taken 
measures to improve its financial management. However, these actions 
are too recent to determine how they will affect Amtrak's financial 
performance, the need for federal subsidies, and the targeting of 
subsidies to achieve public benefits. 

Freight rail. Freight rail currently moves about 40 percent of the 
goods shipped nationwide (as measured by ton-miles), and DOT expects 
the demand for freight rail service to increase 88 percent by 2035. 
The federal government has begun to finance freight railroad 
infrastructure improvements expected to generate public benefits. For 
example, in 2010 DOT awarded over $300 million in Recovery Act grants 
for such improvements. However, the federal role with regard to 
freight rail is still being defined, and the sustainability of future 
investments is unclear given the growing federal fiscal challenge. 
Decisions about future federal investments will involve trade-offs 
between potential gains in economic efficiency from freight rail 
improvements and the benefits of alternative uses of funds. 
Identifying the public benefits of federal investments in freight 
projects may also be challenging, as will determining how best to 
leverage investments in this sector. 

What Remains to Be Done: 

GAO has called for fundamental reexamination and reform of the 
nation's surface transportation policies to ensure (1) the federal 
role is based on well-defined national goals and interests, (2) 
performance and accountability for results, and (3) a fiscally 
sustainable program. Congressional reauthorization of federal surface 
transportation programs presents a timely opportunity to address the 
need for reform. These actions have not occurred in large part because 
the current multiyear authorization for surface transportation 
programs expired in 2009, and the administration has not presented a 
reauthorization proposal. Existing programs have been funded since 
then through temporary extensions. 

GAO Contact: 

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

Related GAO Products: 

Statewide Transportation Planning: Opportunities Exist to Transition 
to Performance-Based Planning and Federal Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-11-77]. Washington, D.C.: December 15, 
2010. 

Federal Transit Programs: Federal Transit Administration Has 
Opportunities to Improve Performance Accountability. [hyperlink, 
http://www.gao.gov/products/GAO-11-54]. Washington, D.C.: November 17, 
2010. 

Highway Bridge Program: Condition of Nation's Bridges Shows Limited 
Improvement, but Further Actions Could Enhance the Impact of Federal 
Investment. [hyperlink, http://www.gao.gov/products/GAO-10-930T]. 
Washington, D.C.: July 21, 2010. 

Highway Trust Fund: Nearly All States Received More Funding Than They 
Contributed in Highway Taxes Since 2005. [hyperlink, 
http://www.gao.gov/products/GAO-10-780]. Washington, D.C.: June 30, 
2010. 

Metropolitan Planning Organizations: Options Exist to Enhance 
Transportation Planning Capacity and Federal Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-09-868]. Washington, D.C.: September 
9. 2009. 

High Speed Passenger Rail: Future Development Will Depend on 
Addressing Financial and Other Challenges and Establishing a Clear 
Federal Role. [hyperlink, http://www.gao.gov/products/GAO-09-317]. 
Washington, D.C.: March 19, 2009. 

Highway Trust Fund: Improved Solvency Mechanisms and Communication 
Needed to Help Avoid Shortfalls in the Highway Account. [hyperlink, 
http://www.gao.gov/products/GAO-09-316]. Washington, D.C.: February 6, 
2009. 

Surface Transportation: Clear Federal Role and Criteria-Based 
Selection Process Could Improve Three National and Regional 
Infrastructure Programs. [hyperlink, 
http://www.gao.gov/products/GAO-09-219]. Washington, D.C.: February 6, 
2009. 

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. 

[End of section] 

Strategic Human Capital Management: 

Why Area Is High Risk: 

GAO initially designated strategic human capital management as a high- 
risk area because of the long-standing lack of leadership of strategic 
human capital management. While as discussed below, significant steps 
have been taken, the area remains high risk because of a need to 
address current and emerging critical skills gaps that are undermining 
agencies' abilities to meet their vital missions. The federal 
government's current budget and long-term fiscal pressures underscore 
the importance of a strategic and efficient approach to the 
recruitment, hiring, development and retention of individuals with the 
needed critical skills. 

What GAO Found: 

In 2001, GAO reported that a consistent approach to the government's 
management of its people--its human capital--was the critical missing 
link in reforming and modernizing the federal government's management 
practices. Many agencies faced challenges in key areas, including 
leadership; strategic human capital planning; acquiring, developing, 
and retaining staff; and creating results-oriented organizational 
cultures. 

The federal government has made substantial progress in addressing its 
human capital challenges. For example, in 2002 and 2004, Congress 
provided agencies--individually and across the federal government-- 
with additional authorities and flexibilities to manage the federal 
workforce. More recently, Congress enacted the Telework Enhancement 
Act of 2010, which is intended to ensure that agencies more 
effectively integrate telework into their management plans and agency 
cultures and to provide opportunities for more federal employees to 
telework.[Footnote 24] Also, the Office of Personnel Management (OPM) 
issued guidance on the availability and use of flexibilities in 2008, 
and, in 2010, undertook a major initiative to streamline and reform 
the federal hiring process. OPM is also expanding its assistance to 
agencies with more strategic approaches to human capital management. 
These changes demonstrate increased top level attention and clear 
progress toward more strategic management of the federal workforce. 

Therefore, GAO is narrowing the scope of this high-risk area to focus 
on the most significant challenges that remain to close current and 
emerging critical skills gaps. These challenges must be addressed for 
agencies to effectively and efficiently meet their missions. For 
example: 

Acquisition management: The shortage of trained acquisition personnel 
impedes the capacity and capability of agencies, such as the 
Departments of Defense (DOD) and Homeland Security (DHS) to oversee 
and manage contracts that have become more expensive and increasingly 
complex. As a result, GAO work has found that the federal government 
is at risk for significant overcharges and wasteful spending of the 
hundreds of billions of contract dollars it spends for goods and 
services each year. In 2009, GAO found that DOD lacked critical 
information to ensure its acquisition workforce was sufficient to meet 
its national security mission. As a result, GAO made recommendations 
aimed at improving DOD's management and oversight of its acquisition 
workforce. In particular, GAO recommended that DOD identify and 
update, on an ongoing basis, the number and skill sets of the total 
acquisition workforce--including civilian, military, and contractor 
personnel--that the department needs to fulfill its mission. DOD could 
then use this information to better inform its resource allocation 
decisions. DOD concurred with the recommendation and noted several 
efforts to address elements of the recommendation, such as the 
deployment of a competency assessment of the acquisition workforce to 
identify gaps and improve training. 

In 2008, GAO recommended to DHS several actions to be taken to better 
manage acquisition workforce challenges, including establishing a 
coordinated planning process across the component agencies within the 
agency, improving workforce data, and developing a comprehensive 
implementation plan to execute the existing DHS acquisition workforce 
initiatives. In response, DHS agreed with GAO's recommendations and is 
implementing several efforts to address them, including a more 
accurate identification of employees performing acquisition-related 
functions, collecting data on the current acquisition workforce, and 
development of a comprehensive implementation plan to execute existing 
acquisition workforce initiatives. 

Foreign language capabilities: Agencies, such as the Department of 
State, have persistent shortages of staff with critical language 
skills and have some foreign language shortfalls in areas of 
geographic strategic interest. GAO has reported that these skills gaps 
put diplomatic readiness at risk and could hinder U.S. overseas 
operations. Therefore, for example, GAO recommended in 2009 that State 
develop a comprehensive strategic plan that links all of State's 
efforts to meet its foreign language requirements, and that includes 
clearly defined and measurable performance goals and objectives of the 
language proficiency program. State generally agreed and convened a 
working group to develop an action plan to address GAO's 
recommendations. 

Further, domestically, an agency like the Federal Emergency Management 
Agency (FEMA) can improve its services to limited English proficiency 
(LEP) communities. GAO recommended in 2010 that agencies, including 
FEMA, take a variety of steps to ensure that LEP persons can access 
federal services and programs. DHS agreed with the recommendation to 
FEMA and stated that it will collaborate with FEMA to determine 
documents for translation as well as monitoring and evaluating 
services to the LEP communities. 

Oil and gas management: The Department of the Interior lacks 
sufficient staff with the critical skills, such as petroleum 
engineering, needed to process drilling permits, review oil and gas 
metering systems, and conduct oil and gas production verification 
inspections, including conducting site inspections and activities to 
ensure meters are correctly measuring oil and gas. GAO found in 2010 
that this lack of skills could result in inaccurate oil and gas 
measurement and possibly lead to less federal revenue due to 
inaccurate royalty collections, and contributed to the federal 
government's oil and gas management being high-risk. As a result, in 
2010, GAO made recommendations, including that Interior take 
additional steps to attract, train, and retain qualified staff at 
sufficient levels to ensure an effective inspection program. Interior 
generally agreed with GAO's recommendations and has taken several 
actions and planned others to address the recommendations. For 
example, while Interior continues to use its traditional recruitment 
and retention tools, such as bonuses, superior qualifications 
appointments, and student loan repayments, it recognized that this may 
not be sufficient and has committed to exploring other opportunities 
to acquire staff with the skills necessary to carry out Interior's oil 
and gas oversight responsibilities. Further, Interior plans to have 
inspections staff attend standardized training necessary to carry out 
their job functions. 

FAA technician workforce: FAA lacks a longer-term strategy to address 
the hundreds of technician retirements projected through 2020 and has 
just begun to assess the skills and competencies its technician 
workforce will need to maintain its Next Generation technologies. GAO 
has reported that safe and efficient air travel depends on FAA having 
technicians with the right skills now and in the future. Also, GAO 
recommended in 2010 that FAA develop a written technician workforce 
planning strategy that identifies needed skills and staffing, and a 
strategic training plan showing how training efforts contribute to 
performance goals. GAO is awaiting FAA's response to the 
recommendation. 

Veterinarians: There is a growing shortage of veterinarians at 
agencies, such as the Food Safety and Inspection Service, who oversee 
the slaughter and handling of livestock and poultry. GAO reported in 
2009 that this shortage has the potential to place human health, the 
economy, and our nation's food supply at risk. GAO recommended that 
agencies, such as the U.S. Department of Agriculture and other 
agencies with food safety responsibilities, conduct assessments of 
their veterinarian workforces to identify current and future workforce 
needs, while also taking into consideration training and employee 
development needs, and that a governmentwide approach be used to 
address shortcomings. In response, OPM and relevant federal agencies 
created an interagency forum and developed a strategic workforce plan 
to obtain a governmentwide understanding of the current status and 
future needs of the federal veterinary workforce. While this is a 
positive step, more work remains to be done. For example, the agencies 
still need to conduct agencywide assessments of their veterinarian 
workforces and create shared solutions to agency problems. Moreover, 
steps are still needed to prepare for potential catastrophic events, 
such as multiple intentional introductions of foot-and-mouth disease, 
and respond to disease outbreaks that affect public health. 

What Remains to Be Done: 

Legislative initiatives by Congress and the demonstrated commitment by 
executive branch officials are helping to address high-risk human 
capital challenges. 

In recent years, as indicated above, GAO has made numerous 
recommendations to individual agencies to address their specific human 
capital challenges. At the same time, GAO has also recommended actions 
that OPM can take to better assist agencies in achieving their 
strategic workforce planning goals. Resolving human capital high-risk 
issues will require that agencies continue to both take actions to 
address their specific challenges and work with OPM and through the 
Chief Human Capital Officers Council to address critical skills gaps 
that cut across several agencies. Overall, the needed actions can be 
grouped into the following three broad categories: 

Planning: Agencies' workforce plans must fully support the highly 
skilled talent needs of agencies, both now and as those needs evolve 
to address new mission priorities. These workforce plans must define 
the root causes of skills gaps, identify effective solutions to skills 
shortages, and provide the steps necessary to implement solutions. 

Implementation: Agencies' recruitment, hiring, and development 
strategies must be responsive to changing applicant and workforce 
needs and expectations, as well as to the increasingly competitive 
battle for top talent. They must also show the capacity to define and 
implement corrective measures to narrow skill shortages. 

Measurement and evaluation: Agencies need to measure the effects of 
key initiatives to address critical skills gaps, evaluate the 
performance of those initiatives, and make appropriate adjustments. By 
taking these steps, agencies will improve their ability to monitor and 
independently validate the effectiveness and sustainability of 
corrective measures. 

GAO Contact: 

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

Related GAO Products: 

Defense Acquisition Workforce: DOD's Training Program Demonstrates 
Many Attributes of Effectiveness, but Improvement Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-11-22. Washington, D.C.: 
October 28, 2010. 

Federal Aviation Administration: Agency Is Taking Steps to Plan for 
and Train Its Technician Workforce, but a More Strategic Approach Is 
Warranted. [hyperlink, http://www.gao.gov/products/GAO-11-91. 
Washington, D.C.: October 22, 2010. 

Highlights of a Forum: Participant-Identified Leading Practices That 
Could Increase the Employment of Individuals with Disabilities in the 
Federal Workforce. [hyperlink, http://www.gao.gov/products/GAO-11-
81SP. Washington, D.C.: October 5, 2010. 

Human Capital: Further Actions Needed to Enhance DOD's Civilian 
Strategic Workforce Plan. [hyperlink, http://www.gao.gov/products/GAO-
10-814R. Washington, D.C.: September 27, 2010. 

Language Access: Selected Agencies Can Improve Services to Limited 
English Proficient Persons. [hyperlink, 
http://www.gao.gov/products/GAO-10-91. Washington, D.C.: April 26, 
2010. 

Workforce Planning: Interior, EPA and the Forest Service Should 
Strengthen Linkages to Their Strategic Plans and Improve Evaluation. 
[hyperlink, http://www.gao.gov/products/GAO-10-413. Washington, D.C.: 
March 31, 2010. 

Oil and Gas Management: Interior's Oil and Gas Production Verification 
Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of 
Production Volumes. [hyperlink, http://www.gao.gov/products/GAO-10-
313. Washington, D.C.: March 15, 2010. 

Human Capital: Continued Opportunities Exist for FDA and OPM to 
Improve Oversight of Recruitment, Relocation, and Retention 
Incentives. [hyperlink, http://www.gao.gov/products/GAO-10-226. 
Washington, D.C.: January 22, 2010. 

Department of State: Comprehensive Plan Needed to Address Persistent 
Foreign Language Shortfalls. [hyperlink, 
http://www.gao.gov/products/GAO-09-955. Washington, D.C.: September 
17, 2009. 

Department of Defense: Additional Actions and Data Are Needed to 
Effectively Manage and Oversee DOD's Acquisition Workforce. 
[hyperlink, http://www.gao.gov/products/GAO-09-342. Washington, D.C.: 
March 25, 2009. 

Human Capital: Opportunities Exist to Build on Recent Progress to 
Strengthen DOD's Civilian Human Capital Strategic Plan. [hyperlink, 
http://www.gao.gov/products/GAO-09-235]. Washington, D.C.: February 
10, 2009. 

Veterinarian Workforce: Actions Are Needed to Ensure Sufficient 
Capacity for Protecting Public and Animal Health. [hyperlink, 
http://www.gao.gov/products/GAO-09-178]. Washington, D.C.: February 4, 
2009. 

Department of Homeland Security: A Strategic Approach Is Needed to 
Better Ensure the Acquisition Workforce Can Meet Mission Needs. 
[hyperlink, http://www.gao.gov/products/GAO-09-30]. Washington, D.C.: 
November 19, 2008. 

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

[End of section] 

Managing Federal Real Property: 

Why Area Is High Risk: 

The federal real property portfolio is vast and diverse. It totals 
over 900,000 buildings and structures with a combined area of over 3 
billion square feet. Progress has been made on many fronts, including 
significant progress with real property data reliability and managing 
the condition of facilities. However, federal agencies continue to 
face long-standing problems, such as overreliance on leasing, excess 
and underutilized property, and protecting federal facilities. As a 
result, this area remains high risk, with the exceptions of 
governmentwide real property data reliability and management of 
condition of facilities, which GAO found to be sufficiently improved 
to be no longer considered high risk. Additionally, challenges persist 
with the Department of Defense's management of its real property (see 
Department of Defense Support Infrastructure Management for an update 
on this topic). 

What GAO Found: 

Since GAO first designated real property management as a high-risk 
area in 2003, the government has made progress in many aspects of real 
property management. Two consecutive administrations demonstrated 
commitment to this issue. First, the 2004 Executive Order 13327 
established the Federal Real Property Council (FRPC), composed of 
representatives from real property-holding agencies, to promote reform 
efforts. The FRPC and the General Services Administration (GSA) 
established the Federal Real Property Profile (FRPP) a centralized 
real property database, and agencies have developed asset management 
plans, standardized data, and adopted performance measures. Further, a 
June 2010 presidential memorandum directed agencies to identify and 
eliminate excess properties to produce a $3 billion cost savings by 
2012. 

Most recently, GAO has found that governmentwide data reliability and 
managing the condition of facilities no longer remain high-risk 
concerns. Improvements in FRPP data reliability are due to the Office 
of Management and Budget's (OMB) leadership, along with GSA data 
controls and data verification plans developed by agencies. Although 
agencies continue to improve their real property data for their own 
purposes, the improved FRPP data allows for the measurement of 
governmentwide progress, particularly in the areas of excess and 
underutilized property and condition of facilities. Furthermore, 
agencies have procedures in place to prioritize maintenance and repair 
needs to minimize their impact on their mission. 

While progress has been made, certain long-standing problems remain. 
OMB has not developed a corrective action plan to address the fact 
that agencies increasingly rely on leasing. GSA, as the government's 
principal landlord, now leases more property than it owns. In 
addition, although efforts to dispose of unneeded assets have been 
made, a large number of excess and underutilized assets remain. 
According to FRPP data, agencies reported 45,190 buildings as 
underutilized in fiscal year 2009--an increase of 1,830 such buildings 
from the previous fiscal year. Maintaining this unneeded space is 
costly. For example, in fiscal year 2009, agencies reported 
underutilized buildings accounted for $1.66 billion in annual 
operating costs. As GAO has reported over the years, attempted 
corrective action measures have not addressed the root causes that 
exacerbate these problems, such as various legal and budget-related 
limitations and competing stakeholder interests. 

Federal agencies also have made limited progress and continue to face 
challenges in securing real property. GAO has reported that, since 
transferring to the Department of Homeland Security, the Federal 
Protective Service (FPS) experienced management and funding challenges 
that have hampered its ability to protect about 9,000 federal 
facilities. In particular, FPS has limited ability to allocate 
resources using risk management and lacks appropriate oversight and 
enforcement to manage its growing contract guard program. In 2010, GAO 
found that limited information about risks and the inability to 
control common areas pose challenges to protecting leased space. 

What Remains to Be Done: 

Two consecutive administrations have demonstrated a commitment to this 
issue and improved FRPP data now gives OMB the ability to measure 
progress governmentwide. Other actions are needed to address root 
causes. GAO has recommended that OMB and the FRPC develop a strategy 
to address the continued reliance on leasing in cases where ownership 
would be less costly. This strategy should identify the conditions, if 
any, under which leasing is an acceptable alternative. Also, OMB and 
the FRPC should develop potential strategies to reduce the effect of 
competing stakeholder interests as a barrier to disposing of excess 
property. Also, to better protect facilities, agencies such as FPS 
should develop a more comprehensive program to assess risk and 
allocate resources. GAO will monitor the implementation of current 
efforts, such as the presidential memorandum. 

GAO Contact: 

For additional information about this high-risk area, contact David 
Wise or Mark L. Goldstein at (202) 512-5731 or wised@gao.gov or 
goldsteinm@gao.gov. 

Related GAO Products: 

Building Security: New Federal Standards Hold Promise, But Could Be 
Strengthened to Better Protect Leased Space. [hyperlink, 
http://www.gao.gov/products/GAO-10-873]. Washington, D.C.: September 
22, 2010. 

Homeland Security: Federal Protective Service's Contract Guard Program 
Requires More Oversight and Reassessment of Use of Contract Guards. 
[hyperlink, http://www.gao.gov/products/GAO-10-341]. Washington, D.C.: 
April 13, 2010. 

Homeland Security: Greater Attention to Key Practices Would Improve 
the Federal Protective Service's Approach to Facility Protection. 
[hyperlink, http://www.gao.gov/products/GAO-10-142]. Washington, D.C.: 
October 23, 2009. 

Homeland Security: Actions Needed to Improve Security Practices at 
National Icons and Parks. [hyperlink, 
http://www.gao.gov/products/GAO-09-983]. Washington, D.C.: August 28, 
2009. 

Homeland Security: Federal Protective Service Should Improve Human 
Capital Planning and Better Communicate with Tenants. [hyperlink, 
http://www.gao.gov/products/GAO-09-749]. Washington, D.C.: July 30, 
2009. 

Homeland Security: Preliminary Results Show Federal Protective 
Service's Ability to Protect Federal Facilities Is Hampered by 
Weaknesses in Its Contract Security Guard Program. [hyperlink, 
http://www.gao.gov/products/GAO-09-859T]. Washington, D.C.: July 8, 
2009. 

VA Real Property: VA Emphasizes Enhanced-Use Leases to Manage Its Real 
Property Portfolio. [hyperlink, 
http://www.gao.gov/products/GAO-09-776T]. Washington, D.C.: June 10, 
2009. 

Federal Real Property: Authorities and Actions Regarding Enhanced Use 
Leases and Sale of Unneeded Real Property. [hyperlink, 
http://www.gao.gov/products/GAO-09-283R]. Washington, D.C.: February 
17, 2009. 

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. 

Federal Real Property: Progress Made in Reducing Unneeded Property, 
but VA Needs Better Information to Make Further Reductions. 
[hyperlink, http://www.gao.gov/products/GAO-08-939]. Washington, D.C.: 
September 10, 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. 

[End of section] 

Department of Defense Approach to Business Transformation: 

Why Area Is High Risk: 

In 2005, GAO identified DOD's approach to business transformation as a 
high-risk area because (1) DOD had not established clear and specific 
management responsibility, accountability and control over business 
transformation-related activities and applicable resources; and (2) 
DOD lacked a clear strategic and integrated plan for business 
transformation with specific goals, measures and accountability 
mechanisms to monitor progress. GAO has designated many of DOD's key 
business areas as high risk due to their vulnerability to waste, 
fraud, abuse, and mismanagement. 

Because of the complexity and long-term nature of DOD's transformation 
efforts, GAO has reported the need for a chief management officer 
(CMO) position and a comprehensive, enterprisewide business 
transformation plan. In May 2007, DOD designated the Deputy Secretary 
of Defense as the CMO. In addition, the National Defense Authorization 
Acts for Fiscal Years 2008 and 2009 contained provisions that codified 
the CMO and deputy CMO (DCMO) positions, required DOD to develop a 
strategic management plan, and required the Secretaries of the 
military departments to designate their Undersecretaries as CMOs and 
to develop business transformation plans. 

DOD also has made progress in establishing management oversight and 
developing a strategic plan to guide business transformation efforts. 
Specifically, DOD's senior leadership has demonstrated its commitment 
and taken positive steps, including filling key positions, issuing 
directives broadly defining the responsibilities of the CMO and DCMO, 
establishing governance entities, issuing an initial strategic 
management plan, and refining the plan in two subsequent updates. To 
fully implement its management approach, DOD needs to take additional 
actions to more clearly define management roles and responsibilities, 
including for the CMO and DCMO; further refine strategic goals, 
performance measures, and other elements of DOD's strategic management 
plan; and establish mechanisms to guide and synchronize its strategic 
planning efforts. 

What GAO Found: 

The Department of Defense (DOD) spends billions of dollars each year 
to maintain 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 
weapons systems acquisition. Weaknesses in these areas adversely 
affect DOD's efficiency and effectiveness, and hinder its ability to 
free up resources for higher priority needs. 

DOD senior leadership is committed to transforming business operations 
and continues to refine its management approach to guide 
transformation-related activities. For example, in 2008, DOD issued 
directives outlining broad CMO and DCMO responsibilities and issued 
its first strategic management plan. In the plan, DOD stated the plan 
would be used by senior managers as a guide to align their business 
operations with performance priorities, and would serve as a template 
for future strategic management plans. Prior to these actions, DOD had 
established governance entities, such as the Defense Business Systems 
Management Committee--intended to be the primary transformation 
oversight mechanism--and the Business Transformation Agency to support 
the committee. In July 2009, DOD updated its plan, which defines 
priorities and related goals, performance measures, and reform 
initiatives. DOD has since begun to collect data and, in January 2010, 
began reporting on progress. By July 2010, DOD had filled key 
positions such as the DCMO and military department CMOs. Also, in 
2010, the Defense Secretary initiated a departmentwide effort to find 
greater efficiencies and reduce costs, including in key business areas. 

DOD has taken some positive steps in developing its approach to 
business transformation, but additional actions are needed to further 
define management roles and responsibilities, and to strengthen 
strategic planning. For example, the CMO and DCMO have 
responsibilities, under statutes and department guidance, related to 
improving the efficiency and effectiveness of business operations. 
Given these responsibilities, the CMO and DCMO are uniquely positioned 
to monitor, integrate, and otherwise institutionalize the Secretary of 
Defense's ongoing initiative that is specifically focused on finding 
greater efficiencies and reducing costs, including in key business 
areas. However, the CMO and DCMO have not been assigned any specific 
roles and responsibilities for this initiative. DOD agreed with our 
recommendation that the Secretary assign such roles and 
responsibilities. Without doing so, it is unclear how DOD will 
establish accountability and leverage those positions to provide the 
leadership needed to sustain momentum and progress in achieving 
reforms in the long term. DOD also has yet to clearly define the 
relationship between the DCMO and military department CMOs or the 
responsibilities of governance entities. For example, DOD considers 
the Defense Business Systems Management Committee to be the primary 
forum for addressing business transformation issues, but has not yet 
revised its charter to reflect a broader role beyond overseeing 
information technology related-investments to modernize business 
systems. 

With respect to strategic planning, DOD's updated 2009 plan, issued in 
July 2009, identified top-level priorities for DOD's business 
operations, which was an improvement over its initial plan. However, 
it did not have a complete set of measurable goals, funding 
priorities, or resources needed to achieve the stated goals. Our prior 
work has shown that a performance goal should be expressed in an 
objective, quantifiable, and measurable form, and that performance 
measures should have quantifiable, numerical targets or other 
measurable values to allow assessments of whether overall goals and 
objectives were achieved. Of the 43 goals in DOD's 2009 plan, 15 were 
not expressed in a measurable form and, of the 76 measures, 56 lacked 
information, such as baseline or target data, that would enable DOD to 
assess progress in achieving the plan's goals. 

For example, under its business priority to "support contingency 
business operations," DOD's 2009 plan stated that defense business 
operations must provide adaptable, responsive, effective support for 
the warfighter. One of the goals related to this priority was stated 
broadly--to "improve business process internal controls in 
Afghanistan." For this goal, DOD identified two broad performance 
measures--"increase contract oversight" and "apply lessons-learned in 
Iraq to Afghanistan"--but did not specify any targets or other 
measurable values to demonstrate how it would measure progress against 
the goal. On December 30, 2010, DOD issued an updated plan that covers 
fiscal year 2011. We plan to evaluate the updated plan to assess 
whether it contains key elements, such as measurable goals, funding 
priorities, and resource needs. 

DOD has also not set up internal mechanisms, such as procedures and 
milestones, to reach consensus with the military departments and 
others on priorities, synchronize the development of plans with each 
other and the budget process, and guide efforts to monitor progress 
and take corrective action. Without a comprehensive plan, supported by 
a well-defined planning process, DOD will not have the tools it needs 
to set strategic direction for business transformation efforts; fully 
align efforts to develop plans and budget requests that reflect 
business priorities; institutionalize strategic planning efforts; and 
measure and demonstrate progress in reforming its business operations, 
including in high-risk areas discussed in this report. 

What Remains to Be Done: 

DOD still needs to clearly establish roles and responsibilities, as 
well as relationships, among various business-related positions and 
governance entities. For example, DOD needs to: 

* assign specific roles and responsibilities to the CMO and DCMO for 
integrating the Secretary's efficiency initiative with ongoing reform 
efforts, overseeing its implementation, and otherwise 
institutionalizing the effort in the long term; 

* more clearly define the relationship between the DCMO and military 
department CMOs; and: 

* update the charter of the DBSMC to reflect its broader 
responsibilities for business transformation efforts beyond systems 
modernization. 

DOD also needs to develop a clear, comprehensive, and integrated 
enterprisewide business transformation plan with measurable goals and 
funding priorities, supported by a clearly defined strategic planning 
process. In defining the process, DOD needs to outline elements such 
as how DOD and the military departments--including the CMO, DCMO, and 
military department CMOs--will: 

* reach consensus on business priorities; 

* coordinate review and approval of updates to plans; 

* synchronize the development of plans with the budget process; and: 

* monitor the implementation of reform initiatives, and report 
progress, on a periodic basis, toward achieving established goals. 

GAO Contact: 

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

Related GAO Products: 

Defense Business Transformation: DOD Needs to Take Additional Actions 
to Further Define Key Management Roles, Develop Measurable Goals, and 
Align Planning Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-11-181R]. Washington, D.C.: January 
26, 2011. 

DOD Business Transformation: Improved Management Oversight of Business 
System Modernization Efforts Needed. [hyperlink, 
http://www.gao.gov/products/GAO-11-53]. Washington, D.C.: October 7, 
2010. 

Department of Defense: Financial Management Improvement and Audit 
Readiness Efforts Continue to Evolve. [hyperlink, 
http://www.gao.gov/products/GAO-10-1059T]. Washington, D.C.: September 
29, 2010. 

DOD's High-Risk Areas: Actions Needed to Reduce Vulnerabilities and 
Improve Business Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-09-460T]. Washington, D.C.: March 12, 
2009. 

Defense Business Transformation: Status of Department of Defense 
Efforts to Develop a Management Approach to Guide Business 
Transformation. [hyperlink, http://www.gao.gov/products/GAO-09-272R]. 
Washington, D.C.: January 9, 2009. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January 
2009. 

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. 

[End of section] 

Department of Defense Business Systems Modernization: 

Why Area Is High Risk: 

The Department of Defense (DOD) is spending billions of dollars each 
year to acquire modern systems that are fundamental to achieving its 
business transformation goals. While the department's capability and 
performance relative to business systems modernization has improved, 
significant challenges remain. The department has not fully defined 
and established a family of business system modernization management 
controls that is vital to ensuring that it can effectively and 
efficiently manage an undertaking with the size, complexity, and 
significance of its business systems modernization, and minimize the 
associated risks. 

What GAO Found: 

DOD reports that its business systems environment includes about 2,300 
investments, which are supported by billions of dollars in annual 
expenditures and are intended to support business functions and 
operations. DOD has been attempting to modernize its business systems. 
Since GAO designated this area as high risk in 1995, it has made over 
250 recommendations aimed at strengthening DOD's institutional 
approach to modernization, and reducing the risks associated with key 
investments. For example, since 2001, GAO has provided a series of 
recommendations relative to developing and using a business enterprise 
architecture and establishing effective investment management controls 
to guide and constrain DOD's multibillion-dollar business systems 
environment. GAO also made recommendations aimed at ensuring that DOD 
follows best practices when acquiring information technology systems 
and services. In addition, since 2002, Congress has included 
provisions consistent with GAO's recommendations in National Defense 
Authorization Acts. 

In response to GAO recommendations and statutory provisions, between 
2005 and 2008 GAO reported that DOD had made progress implementing key 
institutional modernization management controls. For example, DOD has 
continued to develop updates to its architecture that address 
important elements related to the National Defense Authorization Acts 
and practices that GAO has identified as missing. In addition, DOD has 
defined and begun implementing improved investment controls, such as 
the Business Capability Lifecycle, which is intended to streamline 
business system capability definition, acquisition, and investment 
oversight processes, to guide and constrain its departmentwide systems 
modernizations. 

However, notwithstanding this progress, in May 2009, GAO reported that 
the pace of DOD's efforts in defining and consistently implementing 
fundamental business systems modernization management controls (both 
institutional and program specific) had slowed compared with progress 
made in previous years, leaving much to be accomplished. To this end, 
GAO's work has highlighted challenges that DOD still faces in aligning 
its corporate architecture and its component organization 
architectures, leveraging the federated architecture to avoid 
investments that provide similar but duplicative functionality in 
support of common DOD activities, and institutionalizing the business 
systems investment process at all levels of the organization. In 
addition, ensuring that effective system acquisition management 
controls are implemented on each business system investment also 
remains a formidable challenge, as GAO's recent reports on management 
weaknesses associated with individual programs have disclosed. In 
particular, GAO recently reported that DOD's large-scale, software- 
intensive system acquisitions continue to fall short of cost, 
schedule, and performance expectations. Specifically, GAO reported in 
2010 that six of nine enterprise resource planning systems had 
experienced schedule delays ranging from 2 to 12 years, and five had 
incurred cost increases ranging from $530 million to $2.4 billion. 
According to DOD, as of December 2009, it had invested approximately 
$5.8 billion to develop and implement these systems. 

Relatedly, GAO continues to identify weaknesses in such areas as 
architectural alignment, informed investment decision making, earned 
value management, economic justification, risk management, 
requirements management, and test management. For example: 

* In September 2009, GAO reported that the Defense Readiness Reporting 
System program was not being effectively managed and made 
recommendations to address a number of acquisition management 
weaknesses, including the absence of effective executive oversight, a 
reliable integrated master schedule, well-defined and managed 
requirements, and adequate testing. GAO concluded that, as a result, 
these acquisition management weaknesses had collectively contributed 
to a program that had fallen well short of expectations--a 7-year 
schedule delay--and was unlikely to meet future expectations. 

* In September 2008 and July 2008, respectively, GAO reported that the 
Navy Enterprise Resource Planning (ERP) and the Global Combat Support 
System-Marine Corps (GCSS-MC) programs' compliance with DOD's 
federated business enterprise architecture had not been sufficiently 
demonstrated. As a result, GAO concluded that the department did not 
have a sufficient basis for knowing if these programs had been defined 
to optimize the DOD and Department of the Navy business operations. 
GAO also reported the programs had not performed basic earned value 
management activities, such as conducting integrated baseline reviews 
of its cost and schedule estimates and schedule risk assessments, 
resulting in actual program costs and schedules that did not track to 
estimates. Specifically, not effectively implementing key IT 
management controls had contributed to a more than 2-year schedule 
delay and almost $600 million cost overrun on Navy ERP since it began, 
and had in part contributed to a 3-year schedule slippage and about 
$193 million cost overrun on the first phase of GCSS-MC, and would 
likely contribute to future delays and overruns if not corrected. 

* In August 2008, GAO reported that the Expeditionary Combat Support 
System had not used a comprehensive and fully integrated risk 
management process that provided adequate visibility of risk 
management activities program-wide. In addition, in October 2010, GAO 
reported that the program was not fully following best practices for 
developing reliable schedules and cost estimates and had experienced a 
schedule slippage of at least 4 years and a $2.2 billion increase in 
its life-cycle cost estimate. 

GAO concluded that these acquisition planning limitations could result 
in actual program costs continuing to exceed the estimates, and made 
recommendations to address each limitation. 

Until DOD fully defines and consistently implements the full range of 
business systems modernization management controls, it will not be 
able to adequately ensure that its business system investments are the 
right solutions for addressing its business needs, that its business 
system investments are being managed to produce expected capabilities 
efficiently and cost effectively, and that business stakeholders are 
satisfied. GAO plans to continue to monitor DOD's efforts to address 
these areas and, to this end, has ongoing work focusing on (1) the 
status and progress of the military departments' enterprise 
architecture programs; and (2) GAO's prior recommendations pertaining 
to the department's and the military departments' investment 
management processes, and the effectiveness of the department's 
investment review boards in approving and certifying business system 
investments in accordance with applicable criteria. 

What Remains to Be Done: 

At DOD, the supporting component architectures--modernization 
blueprints--for component organizations need to be further developed 
and aligned with the corporate architecture to provide a federated 
business enterprise architecture (i.e., a family of coherent but 
distinct member architectures that conform to an overarching corporate 
or parent architecture). In addition, business system investments need 
to be defined and implemented within the context of DOD's federated 
architecture, 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 expected benefits and capabilities on time and 
within budget. 

GAO Contact: 

For additional information about this high-risk area, contact Valerie 
C. Melvin at (202) 512-6304 or melvinv@gao.gov. 

Related GAO Products: 

DOD Business Transformation: Improved Management Oversight of Business 
System Modernization Efforts Needed. [hyperlink, 
http://www.gao.gov/products/GAO-11-53]. Washington, D.C.: October 7, 
2010. 

Business Systems Modernization: Scope and Content of DOD's 
Congressional Report and Executive Oversight of Investments Need to 
Improve. [hyperlink, http://www.gao.gov/products/GAO-10-663]. 
Washington, D.C.: May 24, 2010. 

Military Readiness: DOD Needs to Strengthen Management and Oversight 
of the Defense Readiness Reporting System. [hyperlink, 
http://www.gao.gov/products/GAO-09-518]. Washington, D.C.: September 
25, 2009. 

DOD Business Systems Modernization: Navy Implementing a Number of Key 
Management Controls on Enterprise Resource Planning System, but 
Improvements Still Needed. [hyperlink, 
http://www.gao.gov/products/GAO-09-841]. Washington, D.C.: September 
15, 2009. 

Information Technology: DOD Needs to Strengthen Management of Its 
Statutorily Mandated Software and System Process Improvement Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-09-888]. Washington, D.C.: 
September 8, 2009. 

DOD Business Systems Modernization: Recent Slowdown in 
Institutionalizing Key Management Controls Needs to Be Addressed. 
[hyperlink, http://www.gao.gov/products/GAO-09-586]. Washington, D.C.: 
May 18, 2009. 

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 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. 

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. 

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. 

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: DOD Needs to Fully Define Policies and 
Procedures for Institutionally Managing Investments. [hyperlink, 
http://www.gao.gov/products/GAO-07-538]. Washington, D.C., May 11, 
2007. 

[End of section] 

Department of Defense Support Infrastructure Management: 

Why Area Is High Risk: 

The Department of Defense (DOD) has 507 permanent installations that 
comprise more than 300,000 buildings and 200,000 other structures-- 
including barracks, commissaries, data centers, office buildings, 
laboratories, and maintenance depots--with a replacement value of more 
than $800 billion. This infrastructure is critical to maintaining 
military readiness, and the cost to build and maintain it represents a 
significant financial commitment. 

Since designating this area high-risk in 1997, GAO has reported on 
challenges DOD faces in reducing excess and obsolete infrastructure, 
sustaining facilities, and achieving efficiencies in base support by 
eliminating duplication of support services where bases are in close 
proximity to one another or adjacent to one another. Because DOD has 
made significant progress in addressing issues regarding planning and 
funding to sustain facilities, we are narrowing the defense 
infrastructure high risk area to focus on two remaining issues: 
reducing excess infrastructure and achieving efficiencies in base 
support. Although DOD has made some progress in reducing excess 
facilities and in establishing joint bases and common base support 
standards at the joint bases, additional actions by DOD are needed in 
these two areas, based on our criteria for removing areas from being 
designated high risk and specifically to warrant removing the high 
risk designation for DOD's defense support infrastructure. Challenges 
also persist with the government-wide management of federal real 
property (see Managing Federal Real Property for an update on this 
topic). 

What GAO Found: 

DOD has clearly demonstrated leadership commitment to improving 
management of defense support infrastructure and has made some 
progress in addressing the three issues that comprise this high risk 
area: funding facilities sustainment, reducing excess facilities, and 
establishing joint bases with common standards. Regarding facilities 
sustainment funding, we have previously reported on a long standing 
practice by the services to redirect funds from facilities' 
sustainment to other purposes thus risking facilities' deterioration 
and potentially making them less mission capable. According to DOD 
officials, in 2007, DOD issued guidance requiring the services to fund 
sustainment at 90 percent or more of such requirements through 2013. 
According to DOD officials, sustainment was funded at this level in 
fiscal year 2010. In addition, DOD has made improvements in its model 
used to budget for sustainment funding and developing an inventory of 
its facilities that accurately reflects their condition. These actions 
should arrest the rate of increase of the maintenance backlog that 
resulted from DOD's prior approach to managing and funding sustainment 
and thus we no longer consider this issue to be a factor in our 
designation of defense support infrastructure as high risk. Regarding 
the disposal of excess facilities and delivering consistent 
installation support at joint bases, DOD has demonstrated leadership 
commitment and developed the capacity, in terms of people and 
resources to address existing challenges but has not yet fully 
developed corrective action plans or demonstrated sufficient progress 
in implementing corrective actions. 

DOD has made progress in reducing its excess infrastructure by 
implementing base closures as part of the 2005 base realignment and 
closure process, which has been the primary means of disposing of the 
Department's excess infrastructure. The 2005 base realignment and 
closure recommendations must be implemented by September 15, 2011. 
However, DOD continues to have significant amounts of excess 
infrastructure and senior DOD officials have stated that further 
reductions may be needed to ensure that DOD's infrastructure is 
appropriately sized to carry out its missions in a cost effective 
manner. As part of addressing the excess infrastructure issue, DOD has 
established annual targets for each of its service components for 
demolishing 222 million square feet of excess or surplus facilities 
between fiscal years 2011 and 2016. DOD's scheduled targets call for 
demolition of about 44 million square feet between fiscal years 2011 
and 2013. The department's schedule shows that the majority--178 
million square feet or about 80 percent of the total--is scheduled for 
demolition in fiscal years 2014 through 2016. Data provided by DOD 
shows that the department demolished only about 40 million square feet 
of excess and surplus facilities between fiscal years 2007 and 2010, 
or an average of about 10 million square feet per year. While DOD's 
actions to establish targets for the further reduction of excess and 
surplus capacity is encouraging, the department has not yet made 
sufficient progress in reducing its excess and surplus facilities and 
is only in the early stages of future reductions. This is particularly 
important in light of the Secretary of Defense's overall effort to 
achieve efficiencies since maintaining only those facilities needed to 
meet mission requirements and avoiding sustaining those that do not 
helps to conserve resources and makes such resources available for 
other high priority uses. 

Second, DOD has made some progress in implementing joint bases with 
common support standards but has not demonstrated progress in 
achieving greater economies and cost savings thought to be likely 
through elimination of duplicate base support where bases are adjacent 
to or in close proximity to one another. DOD has consolidated 26 
individual bases into 12 joint bases to implement a base realignment 
and closure recommendation and adopted a set of 267 common base 
support standards. However, our work has shown that little if any cost 
savings are likely, at least in the near term, because some of the 
common standards adopted would require a higher and more costly level 
of base support than the services have traditionally funded and, 
because certain administrative efficiencies have not been attained. 
DOD officials acknowledge that the joint basing initiative has not yet 
produced savings. However, they do expect to achieve savings as the 
bases gain experience with consolidation and the common standards and 
new operational efficiencies are identified and adopted over time. 

In 2009, to address the expected increased installation support costs 
from implementing joint basing, we recommended that DOD periodically 
review the installation support standards as experience is gained with 
delivering installation support at the joint bases and make 
adjustments, if needed, to ensure that each standard reflects the 
level of service necessary to meet installation requirements as 
economically as possible. We further recommended that DOD complete a 
detailed analysis of the estimated installation support costs from the 
initial joint bases and report the results of the analysis to the 
Congress in the department's documents supporting the administration's 
annual budget submission. 

While DOD partially agreed with our recommendations, it has neither 
conducted the analyses yet, nor developed a specific plan to achieve 
the efficiencies originally expected from the joint basing initiative. 
DOD officials told us that ideally, all bases should provide support 
services in accordance with the newly established standards and the 
Installations Strategic Plan identifies the use of common standards as 
a measure to help achieve the goal of providing high quality base 
capabilities. However, DOD officials said that primarily because of 
the significant increase in base support funding that would be needed 
for all bases to meet the joint basing support standards, DOD has 
required that only the joint bases but not the remaining nearly 500 
other bases meet the standards for the time being. The officials also 
told us that the department will begin regular assessments of the 
common standards to determine what adjustments are needed in February 
2011. 

What Remains to Be Done: 

To demonstrate sustained progress in defense support infrastructure 
management, DOD needs to continue to implement its schedule for 
demolishing excess and surplus facilities in the inventory to achieve 
the high rates of demolition needed to dispose of remaining unneeded 
facilities. 

DOD additionally needs to develop and implement a corrective action 
plan to achieve economies and efficiencies from base consolidation 
under the joint basing initiative. Specifically, DOD needs to ensure 
prudent use of resources by (1) fully implementing its plan to conduct 
regular assessments of the common standards due to begin in February 
2011 and make adjustments if warranted, to ensure that each standard 
reflects the level of service actually needed to meet base support 
requirements as economically as possible before further expanding use 
of these new common standards to the other approximately 500 bases; 
and (2) periodically reviewing administrative costs as joint basing is 
implemented to achieve efficiencies. 

GAO Contact: 

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

Related GAO Products: 

Defense Planning: DOD Needs to Review the Costs and Benefits of Basing 
Alternatives for Army Forces in Europe. [hyperlink, 
http://www.gao.gov/products/GAO-10-745R]. Washington, D.C.: September 
13, 2010. 

Military Base Realignments and Closures: DOD Is Taking Steps to 
Mitigate Challenges but Is Not Fully Reporting Some Additional Costs. 
[hyperlink, http://www.gao.gov/products/GAO-10-725R]. Washington, 
D.C.: July 21, 2010. 

Defense Infrastructure: Army Needs to Improve Its Facility Planning 
Systems to Better Support Installations Experiencing Significant 
Growth. [hyperlink, http://www.gao.gov/products/GAO-10-602]. 
Washington, D.C.: June 24, 2010. 

Defense Infrastructure: Opportunities Exist to Improve the Navy's 
Basing Decision Process and DOD Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-10-482]. Washington, D.C.: May 11, 
2010. 

Military Base Realignments and Closures: Estimated Costs Have 
Increased While Savings Estimates Have Decreased Since Fiscal Year 
2009. [hyperlink, http://www.gao.gov/products/GAO-10-98R]. Washington, 
D.C.: November 13, 2009. 

Military Base Realignments and Closures: DOD Needs to Update Savings 
Estimates and Continue to Address Challenges in Consolidating Supply- 
Related Functions at Depot Maintenance Locations. [hyperlink, 
http://www.gao.gov/products/GAO-09-703]. Washington, D.C.: July 9, 
2009. 

Defense Infrastructure: Planning Challenges Could Increase Risks for 
DOD in Providing Utility Services When Needed to Support the Military 
Buildup on Guam. [hyperlink, http://www.gao.gov/products/GAO-09-653]. 
Washington, D.C.: June 30, 2009. 

Defense Infrastructure: DOD Needs to Improve Oversight of Relocatable 
Facilities and Develop a Strategy for Managing Their Use across the 
Military Services. [hyperlink, 
http://www.gao.gov/products/GAO-09-585]. Washington, D.C.: June 12, 
2009. 

Defense Infrastructure: DOD Needs to Periodically Review Support 
Standards and Costs at Joint Bases and Better Inform Congress of 
Facility Sustainment Funding Uses. [hyperlink, 
http://www.gao.gov/products/GAO-09-336]. Washington, D.C.: March 30, 
2009. 

Defense Infrastructure: Army's Approach for Acquiring Land Is Not 
Guided by Up-to-Date Strategic Plan or Always Communicated 
Effectively. [hyperlink, http://www.gao.gov/products/GAO-09-32]. 
Washington, D.C.: January 13, 2009. 

Defense Infrastructure: Continued Management Attention Is Needed to 
Support Installation Facilities and Operations. [hyperlink, 
http://www.gao.gov/products/GAO-08-502]. Washington, D.C.: April 24, 
2008. 

[End of section] 

Department of Defense Financial Management: 

Why Area Is High Risk: 

Given the size and complexity of the Department of Defense's (DOD) 
worldwide operations, involving hundreds of billions of dollars of 
resources, accurate and timely financial management information and 
effective accountability are critical. Nonetheless, pervasive 
financial and related business management systems and control 
deficiencies resulted in GAO designating DOD financial management as 
high risk in 1995. These deficiencies adversely affected DOD's 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; address pressing 
management issues; and prepare auditable financial statements. 

What GAO Found: 

Since GAO's last update, DOD has taken encouraging steps toward 
establishing departmentwide financial management improvements that 
provide timely, reliable, accurate, and useful information for 
management operations, including financial reporting and decision 
making. The department's primary vehicle for financial management 
reform is the Financial Improvement and Audit Readiness (FIAR) Plan, 
which lays out DOD's strategy, methodology, and guidance. In 
accordance with this plan, DOD continues its efforts to build its 
capacity for auditable financial reporting, though full audit 
readiness remains a long-term goal. Key to DOD's audit readiness and 
its ability to produce information that decision makers can rely on is 
the modernization of automated information systems through the 
department's Enterprise Resource Planning (ERP) programs; however, 
these programs continue to present challenges in implementation. 
Finally, lasting financial management improvement, and the 
departmentwide transformation entailed, will depend on sustained 
commitment from DOD leadership at the department level and, as well, 
in each military department. The leadership role of the Chief 
Management Officers (CMO) recently established in the military 
departments will become increasingly important as focus on 
implementation of the FIAR Plan increases. 

The FIAR Plan, first issued in 2005, defines the department's strategy 
and methodology for improving financial management and controls, and 
it reports summary results of DOD's progress toward achieving 
financial statement auditability. The FIAR Plan has continued to 
evolve and mature as a strategic plan. GAO made several 
recommendations in its May 2009 report for increasing the plan's 
effectiveness as a strategic and management tool for guiding, 
monitoring, and reporting on financial management improvement efforts 
and increasing the likelihood of meeting the department's goal of 
financial statement auditability. 

GAO recommended that DOD take the following actions: 

* Issue guidance for developing and implementing improvement efforts, 

* Establish a baseline of the department and key components current 
financial management weaknesses and capabilities to effectively 
measure and report on incremental progress, 

* Describe linkage between FIAR Plan goals and corrective actions and 
reported accomplishments, 

* Establish clear results-oriented metrics for measuring and reporting 
incremental progress, and: 

* Assign accountability and identify the resources budgeted and 
consumed. 

In its May 2010 FIAR Status Report and Guidance, the department 
identified steps taken to address GAO's recommendations to strengthen 
the FIAR Plan strategy and establish sustainable financial management 
improvements for decision making and audit readiness. For example, DOD 
has established shared priorities and methodology, including guidance 
to develop component financial improvement plans, and an improved 
governance framework that includes the CMOs in the military 
departments. 

In its November 2010 FIAR Plan Status Report, DOD's strategy and 
methodology continue to focus in the near term on two departmentwide 
priorities: (1) strengthening processes, controls, and systems that 
produce budgetary information and support the departments Statement of 
Budgetary Resources (SBR); and (2) improving the accuracy and 
reliability of management information pertaining to mission-critical 
assets, including military equipment and real property, and validating 
improvement through existence and completeness testing. The plan is 
now organized into five phases, or waves. They focus on audit 
readiness for the SBR (waves 1 and 2), audit readiness for the 
existence and completeness of assets (wave 3), and readiness for full 
financial statement audit (waves 4 and 5). DOD has not yet completed 
the plan, and needs to add the specific steps for achieving a full 
audit through waves 4 and 5. 

While completing the FIAR Plan and taking corrective actions in 
response to our recommendations and related legislative requirements 
for improving the plan, DOD will also need to increase its focus on 
implementation of the plan. Key to successful implementation of the 
FIAR Plan will be the efforts of DOD military departments and the 
quality of their individual financial improvement plans. 

Although DOD as a whole will require years to achieve readiness for a 
full financial statement audit, some individual reporting entities 
have received unqualified, or "clean," audit opinions , including the 
Army Corps of Engineers and Military Retirement Fund. The U.S. Marine 
Corps has sought, as a first step, to prepare for a financial audit 
focused on its SBR. While its initial efforts have not yet been 
successful, they can provide lessons learned for the Corps and other 
DOD components. 

A key element of financial management improvement under the FIAR Plan 
is the successful implementation of its ERP systems. However, the 
department has yet to take important steps to address inadequate 
requirements management and systems testing, data quality issues, and 
other problems that continue to hinder its efforts to implement its 
automated systems on schedule, within cost, and with the intended 
capabilities. 

To continue to make progress toward financial transformation in 
today's demanding environment and through the long term, DOD needs the 
sustained commitment of its top leadership, departmentwide and within 
its components. The leadership of the military departments' CMOs will 
be an important element in effective implementation of the FIAR Plan. 
To guide the CMOs' efforts, DOD needs to define their specific roles 
and responsibilities, as we have recommended. 

Accurate, timely, and useful financial management information is 
essential for sound management analysis, decision making, and 
reporting within DOD. The resolution of long-standing and deeply 
entrenched financial management problems facing the department is a 
daunting challenge. 

What Remains to Be Done: 

GAO has made numerous recommendations in this area. Key to 
successfully transforming DOD's financial management operations will 
be allocating sufficient resources; augmenting current corrective 
action plans; implementing effective solutions; and establishing 
performance measurement monitoring mechanisms. As the resolution of 
DOD's long-standing and deeply entrenched financial management 
problems is likely to require a number of years, sustained top 
leadership support will also be critical to successful transformation. 

GAO Contact: 

For additional information about this high-risk area, contact Asif A. 
Khan at (202) 512-9095 or khana@gao.gov. 

Related GAO Products: 

DOD Business Transformation: Improved Management Oversight of Business 
System Modernization Efforts Needed. [hyperlink, 
http://www.gao.gov/products/GAO-11-53]. October 7, 2010. 

Department of Defense: Financial Management Improvement and Audit 
Readiness Efforts Continue to Evolve. [hyperlink, 
http://www.gao.gov/products/GAO-10-1059T]. September 29, 2010. 

Department of Defense: Additional Actions Needed to Improve Financial 
Management of Military Equipment. [hyperlink, 
http://www.gao.gov/products/GAO-10-695]. July 26, 2010. 

Business Systems Modernization: Scope and Content of DOD's 
Congressional Report and Executive Oversight of Investments Need to 
Improve. [hyperlink, http://www.gao.gov/products/GAO-10-663]. May 24, 
2010. 

U.S. Government Financial Statements: Fiscal Year 2009 Audit 
Highlights Financial Management Challenges and Unsustainable Long-Term 
Fiscal Path. [hyperlink, http://www.gao.gov/products/GAO-10-483T]. 
April 14, 2010. 

Fiscal Year 2008 U.S. Government Financial Statements: Federal 
Government Faces New and Continuing Financial Management and Fiscal 
Challenges. [hyperlink, http://www.gao.gov/products/GAO-09-805T]. July 
8, 2009. 

Financial Management: Achieving Financial Statement Auditability in 
the Department of Defense. [hyperlink, 
http://www.gao.gov/products/GAO-09-373]. May 6, 2009. 

Defense Business Transformation: Status of Department of Defense 
Efforts to Develop a Management Approach to Guide Business 
Transformation. [hyperlink, http://www.gao.gov/products/GAO-09-272R]. 
January 9, 2009. 

[End of section] 

Department of Defense Supply Chain Management: 

Why Area Is High Risk: 

GAO has identified Department of Defense (DOD) supply chain management 
as a high-risk area due to weaknesses in the management of supply 
inventories and responsiveness to warfighter requirements, such as 
shortages of critical items during the early years of operations in 
Iraq. Supply chain management is the operation of a continuous and 
comprehensive logistics process, from initial customer order for 
materiel or services to the ultimate satisfaction of the customer's 
requirements. DOD estimated that its logistics operations, including 
supply chain management, cost about $194 billion in fiscal year 2009. 
DOD's goal is to have efficient and effective supply chain processes. 
Three key focus areas for improvement in this high-risk area are 
requirements forecasting, asset visibility, and materiel distribution. 

What GAO Found: 

DOD has made progress in supply chain management, but long-standing 
problems have not yet been resolved. GAO found that DOD generally met 
two and partially met three criteria for removing a high-risk 
designation. DOD has demonstrated top leadership support for improving 
supply chain management. For example, the department's Strategic 
Management Plan identifies improving the effectiveness and efficiency 
of supply chain management as a top business priority. DOD also has 
the capacity to resolve risks in this area; it has people and other 
resources to draw from to help resolve its supply chain management 
problems. However, DOD has not yet fully met three criteria for 
removing a high-risk designation. These pertain to its (1) corrective 
action plan, (2) program for monitoring and independently validating 
the effectiveness and sustainability of corrective measures, and (3) 
ability to demonstrate progress in having implemented corrective 
measures. 

DOD has taken positive steps to address its management of supply 
inventories and responsiveness to warfighter requirements, but 
systemic weaknesses remain to be addressed in the three focus areas 
for improvement. 

Requirements forecasting: DOD's ability to match supply inventories 
with requirements has been a continuing challenge due, in part, to 
difficulties in accurately forecasting demand. As a result, the 
services and the Defense Logistics Agency (DLA) have had inventory 
levels that are higher than needed to meet current requirements. GAO 
reported in May 2010 that DLA had substantial amounts of spare parts 
inventory beyond current needs and projected demand, including an 
annual average inventory excess of about $1 billion from fiscal year 
2006 to 2008. GAO's review of DLA, as well as prior reviews of the 
Army, Navy, and Air Force, found that problems with accurately 
forecasting demand for spare parts were a major factor contributing to 
mismatches between inventory levels and requirements. 

In response to a provision of the National Defense Authorization Act 
for Fiscal Year 2010, DOD submitted a plan to Congress in November 
2010 aimed at improving inventory management practices and reducing 
excess inventory. DOD's plan cites efforts to improve demand 
forecasting, among several other improvement efforts. GAO's review 
showed that this plan is an important step in improving inventory 
management practices; however, DOD still needs to implement these 
efforts and demonstrate progress in reducing average excess inventory. 
The act also mandates that GAO review the implementation of DOD's plan 
and issue a report within 18 months of the plan's submission to 
Congress. 

Asset visibility and materiel distribution: GAO's prior work has shown 
that DOD has had continuing challenges with asset visibility and 
materiel distribution, which are interrelated focus areas that affect 
support to the warfighter. Asset visibility challenges have included a 
lack of interoperability among information technology systems and 
problems with management of shipping containers. Limitations in asset 
visibility make it difficult to obtain timely and accurate information 
on the assets that are present in the theater of operations. DOD also 
has faced challenges in coordinating and consolidating distribution 
and supply support within a theater. For example, one key challenge 
was establishing an effective mechanism that would enable a joint 
force commander to exercise appropriate command and control over 
transportation and other logistics assets in the theater. 

Drawing from lessons learned, DOD has taken steps to improve both 
asset visibility and materiel distribution in support of ongoing 
military operations, including operations in Afghanistan. For example, 
it has increased the use of radio frequency identification on cargo to 
provide better visibility of assets that are in transit and also used 
a Deployment and Distribution Operations Center to help coordinate the 
movement of materiel and forces. However, GAO's review of supply 
support for troops in Afghanistan found that DOD continues to be 
challenged by a lack of full asset visibility and limited cargo- 
processing and cargo-receiving capabilities, among several other 
issues. GAO reported in June 2010 that while DOD was taking steps to 
mitigate these challenges, some longer-term efforts, such as planned 
or ongoing projects to expand storage hub and airfield capacity, would 
not be in place to support the troop increase, further burdening a 
heavily strained transportation system. 

Weaknesses in asset visibility and materiel distribution have 
remained, in part, due to the lack of detailed corrective action plans 
defining root causes and identifying effective solutions. GAO has long 
recommended that DOD develop and implement a comprehensive strategy to 
guide and integrate improvement efforts, and several congressional 
hearings in recent years have focused specifically on DOD's strategic 
planning for supply chain management. In July 2010, DOD released its 
Logistics Strategic Plan to provide high-level strategic direction for 
supply chain management, including asset visibility and distribution, 
and other logistics improvements. GAO found that this plan provides 
unifying themes for improvement efforts and lists several initiatives 
related to asset visibility and distribution, but it lacks detailed 
information to guide and integrate improvement efforts. For example, 
it does not discuss gaps in current capabilities and lacks milestones 
and other information for the initiatives. 

DOD also does not have management tools for monitoring and validating 
the effectiveness of corrective measures and demonstrating progress. 
For example, the Logistics Strategic Plan highlights the need for 
performance management, but GAO reported that it lack benchmarks and 
targets for tracking supply chain effectiveness and efficiency. The 
plan also does not clearly link stated performance measures to the 
asset visibility and distribution initiatives. Moreover, it is not 
clear how the plan will be used within the existing logistics 
governance framework to assist decision makers and influence resource 
decisions and priorities. 

Finally, GAO has previously noted that improvements to supply chain 
management are closely linked with DOD's efforts to modernize its 
business information systems (another high-risk area GAO has 
identified at DOD). GAO's recent work shows that these systems have 
continuing weaknesses that affect data reliability. For example, the 
Army has a $2.6 billion enterprise resource planning system, the 
Logistics Modernization Program, intended to help reduce inventory and 
improve supply and demand forecast planning; however, GAO reported in 
2010 that the Army has yet to achieve these envisioned benefits 
because data issues prevent using the system as intended. GAO 
recommended that the Army take actions to enhance data quality, 
including improved testing. The Army concurred; however, efforts to 
date have not been sufficient. 

What Remains to Be Done: 

With the issuance of its November 2010 plan for improving inventory 
management practices, DOD has a corrective action plan to address the 
focus area of requirements forecasting, as well as other aspects of 
inventory management. DOD, however, has not yet developed detailed 
corrective action plans that address the focus areas of asset 
visibility and materiel distribution and that are linked to its 
overall Logistic Strategic Plan. These action plans, when developed, 
should address root causes and effective solutions, and should 
incorporate elements of effective strategic planning. As GAO has 
discussed in prior reports and testimonies, these elements include a 
comprehensive mission statement, long-term goals, strategies to 
achieve the goals, use of measures to gauge progress, identification 
of key external factors that could affect the achievement of goals, a 
description of how program evaluations will be used, and stakeholder 
involvement in developing the plan. 

In addition, DOD will need to fully implement a program for monitoring 
and independently validating the effectiveness and sustainability of 
corrective actions and will need to demonstrate progress in all three 
of the key focus areas. The Logistics Strategic Plan describes DOD's 
new performance management framework for monitoring implementation of 
the plan. Building upon this framework, DOD needs to fully develop and 
implement the processes and management tools needed to comprehensively 
guide and integrate its various improvement efforts, demonstrate 
measurable progress, and achieve its goals for effective and efficient 
supply chain management. 

Key to DOD's ability to demonstrate progress in addressing supply 
chain management challenges is the development and implementation of 
outcome-based performance measures. Characteristics of successful 
performance measures include baseline or trend data for assessing 
performance, measurable targets for future performance, and timeframes 
for the achievement of goals. DOD has identified some performance 
measures in both the Logistics Strategic Plan and the inventory 
management plan; however, other needed measures have yet to be 
defined. The inventory management plan, for example, notes that key 
performance measures for demand forecasting are to be developed by 
2012. Further, GAO's prior work has found an absence of outcome-based 
performance measures for the asset visibility and materiel 
distribution focus areas, as well as a lack of cost-related measures. 
DOD has acknowledged that it needs to track the speed, reliability, 
and overall efficiency of the supply chain through measures such as 
perfect order fulfillment (which aims to measure how well the supply 
chain delivers the right part to the customer on time, in the correct 
quantity, and with no materiel deficiencies) and total supply chain 
management cost. Lastly, DOD will need to ensure that it has reliable 
data supporting its performance measures to evaluate supply chain 
effectiveness and efficiency. As one example, it will need to enhance 
data quality in the Army's Logistics Modernization Program. 

GAO Contact: 

For additional information, contact Jack E. Edwards at (202) 512-8246 
or edwardsj@gao.gov, or William M. Solis at (202) 512-8365 or 
solisw@gao.gov. 

Related GAO Products: 

DOD's 2010 Comprehensive Inventory Management Improvement Plan 
Addresses Statutory Requirements, But Faces Implementation Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-11-240R]. Washington, 
D.C.: January 7, 2011. 

Defense Logistics: Additional Oversight and Reporting for the Army 
Logistics Modernization Program Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-11-139]. Washington, D.C.: November 
18, 2010. 

DOD's High-Risk Areas: Observations on DOD's Progress and Challenges 
in Strategic Planning for Supply Chain Management. [hyperlink, 
http://www.gao.gov/products/GAO-10-929T]. Washington, D.C.: July 27, 
2010. 

Warfighter Support: Preliminary Observations on DOD's Progress and 
Challenges in Distributing Supplies and Equipment to Afghanistan. 
[hyperlink, http://www.gao.gov/products/GAO-10-842T]. Washington, 
D.C.: June 25, 2010. 

Defense Inventory: Defense Logistics Agency Needs to Expand on Efforts 
to More Effectively Manage Spare Parts. [hyperlink, 
http://www.gao.gov/products/GAO-10-469]. Washington, D.C.: May 11, 
2010. 

Defense Logistics: Actions Needed to Improve Implementation of the 
Army Logistics Modernization Program. [hyperlink, 
http://www.gao.gov/products/GAO-10-461]. Washington, D.C.: April 30, 
2010. 

Operation Iraqi Freedom: Actions Needed to Facilitate the Efficient 
Drawdown of U.S. Forces and Equipment from Iraq. [hyperlink, 
http://www.gao.gov/products/GAO-10-376]. Washington, D.C.: April 19, 
2010. 

[End of section] 

Department of Defense Weapon Systems Acquisition: 

Why Area Is High Risk: 

Congress and the Department of Defense (DOD) have long explored ways 
to improve the acquisition of major weapon systems, yet poor program 
outcomes persist. Over the next 5 years, DOD expects to invest almost 
$343 billion (fiscal year 2011 dollars) on the development and 
procurement of major defense acquisition programs. With the prospect 
of slowly growing or flat defense budgets for years to come, DOD must 
get better returns on its weapon system investments and find ways to 
deliver more capability to the warfighter for less than it has in the 
past. 

What GAO Found: 

While the performance of individual programs can vary greatly, GAO's 
work has revealed significant aggregate cost and schedule growth in 
DOD's portfolio of major defense acquisition programs. In 2009, GAO 
reported that the total cost growth on DOD's fiscal year 2008 
portfolio of 96 major defense acquisition programs was over $303 
billion (fiscal year 2011 dollars) and the average delay in delivering 
initial capability was 22 months. 

DOD has demonstrated a strong commitment, at the highest levels, to 
address the management of its weapon system acquisitions. At the 
strategic level, DOD has started to reprioritize and rebalance its 
weapon system investments. In 2009 and 2010, the Secretary of Defense 
proposed canceling or significantly curtailing weapon programs, such 
as the Army's Future Combat System Manned Ground Vehicles and the 
Navy's DDG-1000 Destroyer--which he characterized as too costly or no 
longer relevant for current operations. DOD plans to replace several 
of the canceled programs and has an opportunity to pursue knowledge-
based acquisition strategies on the new programs. In addition, the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
has embraced an Army initiative to eliminate redundant programs within 
capability portfolios and make affordability a key requirement for 
weapon programs. These actions are consistent with past GAO findings 
and recommendations. However, if these initiatives are going to have a 
lasting, positive effect, they need to be translated into better day- 
to-day management and decision making. For example, GAO has 
recommended that DOD empower its capability portfolio managers at the 
departmentwide level to prioritize needs, make decisions about 
solutions, and allocate resources; and develop criteria to assess the 
affordability and capabilities provided by new programs in the context 
of overall defense spending. 

At the program level, GAO's recent observations present a mixed 
picture of DOD's adherence to a knowledge-based acquisition approach, 
which is key for improving acquisition outcomes. For 42 programs GAO 
assessed in depth in 2010, there was continued improvement in the 
technology, design, and manufacturing knowledge the programs had at 
key points in the acquisition process. However, most programs were 
still proceeding with less knowledge than best practices suggest, 
putting them at higher risk for cost growth and schedule delays. DOD 
has begun to implement a revised acquisition policy and congressional 
reforms that address these and other common acquisition risks. If DOD 
consistently implements these reforms, the number of programs adhering 
to a knowledge-based acquisition approach should increase and the 
outcomes for DOD programs should improve. To help promote 
accountability for compliance with acquisition policies and address 
the factors that keep weapon acquisitions on the High-Risk list, DOD 
has worked with GAO and the Office of Management and Budget to develop 
a comprehensive set of process and outcome metrics to provide 
consistent criteria for measuring progress. 

What Remains to Be Done: 

Due to actions by Congress, such as the Weapon Systems Acquisition 
Reform Act of 2009, and DOD, DOD's policy for defense acquisition 
programs now reflects the basic elements of a knowledge-based 
acquisition approach and its weapon system investments are being 
rebalanced. However, to improve outcomes over the long-term, DOD 
should: 

* develop an analytical approach to better prioritize capability needs; 

* empower portfolio managers to prioritize needs, make decisions about 
solutions, and allocate resources; and: 

* enable well-planned programs by providing them the resources they 
need, while holding itself and its programs accountable for policy 
implementation via milestone and funding decisions and reporting on 
performance metrics. 

GAO Contact: 

For additional information about this high-risk area, contact Michael 
J. Sullivan at (202) 512-4841 or sullivanm@gao.gov. 

Related GAO Products: 

Defense Acquisitions: Observations on Weapon Program Performance and 
Acquisition Reforms. [hyperlink, 
http://www.gao.gov/products/GAO-10-706T]. Washington, D.C.: May 19, 
2010. 

Defense Acquisitions: Assessments of Selected Weapon Programs. 
[hyperlink, http://www.gao.gov/products/GAO-10-388SP]. Washington, 
D.C.: March 30, 2010. 

Acquisition policy and practices: 

Defense Acquisitions: Strong Leadership Is Key to Planning and 
Executing Stable Weapon Programs. [hyperlink, 
http://www.gao.gov/products/GAO-10-522]. Washington, D.C.: May 6, 2010. 

Best Practices: DOD Can Achieve Better Outcomes by Standardizing the 
Way Manufacturing Risks Are Managed. [hyperlink, 
http://www.gao.gov/products/GAO-10-439]. Washington, D.C.: April 22, 
2010. 

Best Practices: High Levels of Knowledge at Key Points Differentiate 
Commercial Shipbuilding from Navy Shipbuilding. [hyperlink, 
http://www.gao.gov/products/GAO-09-322]. Washington, D.C.: May 13, 
2009. 

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. 

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: 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: 

Joint Strike Fighter: Additional Costs and Delays Risk Not Meeting 
Warfighter Requirements on Time. [hyperlink, 
http://www.gao.gov/products/GAO-10-382]. Washington, D.C.: March 19, 
2010. 

Defense Acquisitions: Opportunities Exist to Position Army's Ground 
Force Modernization Efforts for Success. [hyperlink, 
http://www.gao.gov/products/GAO-10-406]. Washington, D.C.: March 15, 
2010. 

Defense Acquisitions: Missile Defense Transition Provides Opportunity 
to Strengthen Acquisition Approach. [hyperlink, 
http://www.gao.gov/products/GAO-10-311]. Washington, D.C.: February 
25, 2010. 

Defense Acquisitions: Rapid Acquisition of MRAP Vehicles. [hyperlink, 
http://www.gao.gov/products/GAO-10-155T]. Washington, D.C.: October 8, 
2009. 

[End of section] 

Implementing and Transforming the Department of Homeland Security: 

Why Area Is High Risk: 

In 2003, GAO designated implementing and transforming the Department 
of Homeland Security (DHS) as high risk because DHS had to transform 
22 agencies--several with major management challenges--into one 
department, and failure to effectively address DHS's management and 
mission risks could have serious consequences for U.S. national and 
economic security. GAO's prior work on mergers and acquisitions, 
undertaken before the creation of DHS, found that successful 
transformations of large organizations, even those faced with less 
strenuous reorganizations than DHS, can take years to achieve. DHS, 
with more than 200,000 employees and an annual budget of more than $40 
billion, is the third-largest federal department, and its 
transformation is critical to achieving its homeland security 
missions. This high-risk area includes challenges in strengthening 
DHS's management functions, including acquisition, information 
technology, financial, and human capital management; the impact of 
those challenges on DHS's mission implementation; and challenges in 
integrating management functions within and across the department and 
its components. 

What GAO Found: 

DHS has taken action to implement, transform, and strengthen its 
management functions. The Secretary and Deputy Secretary of Homeland 
Security, and other senior officials, have demonstrated commitment and 
top leadership support to address the department's management 
challenges. For example, the Secretary designated, in January 2010, 
the Under Secretary for Management to be responsible for coordinating 
DHS's efforts to address this high-risk area, as well as other senior 
officials to be responsible for implementing corrective actions within 
each management function. According to the Deputy Secretary, the 
department is committed to actively monitoring and improving programs 
and operations that have been assessed as high risk, and ensuring that 
leadership provides continuing support for these improvement efforts. 
Senior DHS officials have also periodically met with GAO since our 
January 2009 high risk update to discuss the high-risk area and their 
improvement plans. In January 2011, DHS provided us with its updated 
Integrated Strategy for High Risk Management, which details the 
department's plans for addressing the high-risk designation. The 
strategy contains information on the implementation and transformation 
of DHS, such as corrective actions to address challenges within each 
management area and officials responsible for implementing these 
corrective actions. Specifically, the strategy includes, among other 
things, 

* an overview of each management function, including key 
accomplishments, perceived challenges, and examples of integration 
within the specific lines of business; 

* an overview of the department's plan to address management 
integration, by, for example, enhancing acquisition management efforts 
across the department; and: 

* corrective action plans for each management function. For example, 
the acquisition management corrective action plan calls for conducting 
a study to identify acquisition capabilities and the positions that 
are necessary for an appropriate DHS workforce. 

GAO plans to provide DHS with detailed feedback on the strategy, as 
well as monitor its implementation, going forward. 

While DHS has taken action to implement and transform its management 
functions, this area remains high risk because DHS has not yet 
demonstrated sustainable progress in implementing corrective actions 
and addressing key challenges within its management functions, and in 
integrating those functions within and across the department and its 
components. DHS also needs to identify and acquire the resources 
needed to address these challenges. For example, DHS has not fully 
planned for or acquired the workforce needed to implement its 
acquisition oversight policies. DHS has established a framework to 
monitor the implementation of corrective actions through various 
departmentwide committees, but these committees have just begun to 
monitor implementation efforts and the department is working to 
develop measures to assess its progress in implementing corrective 
actions. DHS has also begun to implement corrective actions, but it 
has not yet demonstrated sustainable, measurable progress in 
addressing key challenges within each management function and in the 
integration of those functions. 

Regarding its management functions, DHS has made progress in 
implementing and strengthening the functions, but continues to face 
significant weaknesses that hinder the department's transformation 
efforts and its ability to meet its missions. For example: 

* DHS revised its acquisition management oversight policies to include 
more detailed guidance to inform departmental acquisition decision 
making. However, as GAO reported in June 2010, DHS's Acquisition 
Review Board had not reviewed most major programs, and DHS did not yet 
have accurate cost estimates for most programs. GAO has recommended 
that, among other things, DHS establish a mechanism to identify and 
track on a regular basis new and ongoing major investments and ensure 
compliance with actions called for by investment oversight boards, and 
that investment decisions be transparent and documented as required. 
DHS generally concurred with these recommendations and reported taking 
action to begin to address some of them, including developing the Next 
Generation Periodic Reporting System to capture and track key program 
information, and monitoring cost and schedule performance, contract 
awards and program risks. 

* DHS strengthened its enterprise architecture, or blueprint to guide 
information technology acquisitions, but has not yet fully defined and 
prioritized all architecture segments. DHS has also improved its 
policies and procedures for investment management, but more work 
remains. GAO has made a range of recommendations to strengthen DHS 
information technology management, such as establishing procedures for 
implementing project-specific investment management policies, and 
policies and procedures for portfolio-based investment management. DHS 
generally concurred with these recommendations and stated it would use 
GAO's findings to improve its investment management and investment 
review procedures. DHS has since reported taking action to address 
some of the recommendations, including issuing a new departmental 
directive and related guidance for information technology acquisitions 
in November 2008. 

* DHS developed corrective action plans for its financial management 
weaknesses, and the number of conditions contributing to 
departmentwide material weaknesses has declined at the component level 
since 2005. However, DHS has been unable to obtain an unqualified 
audit opinion on its departmentwide financial statements and has not 
yet implemented a consolidated financial management system. In 
December 2009, GAO recommended that DHS establish contractor oversight 
mechanisms to monitor its procurement of a consolidated financial 
management system; expedite the completion of the development of its 
financial management strategy and plan so that the department is well 
positioned to move forward with an integrated solution; and develop a 
human capital plan for the system that identifies needed skills for 
the acquisition and implementation of the new system. DHS generally 
agreed with these recommendations and described actions it had taken 
and planned to take to address them. DHS noted, for example, the 
importance of being vigilant in its oversight of the program and that 
it had already taken some action such as taking steps toward 
developing a robust concept of operations for the financial system. In 
November 2010, DHS awarded a contract for the financial system, which 
will enable the department to move forward with the standardization of 
business processes and fiscal reporting capabilities. 

* DHS issued plans for human capital management and employee 
development. For example, in December 2010 DHS issued its Workforce 
Strategy for Fiscal Years 2011-2016 which contains the department's 
workforce goals, objectives, and performance measures for human 
capital management. DHS's scores on the Partnership for Public 
Service's 2010 rankings of Best Places to Work in the Federal 
Government improved from prior years, but DHS was ranked 28 out of 32 
large federal agencies on employee satisfaction and commitment. DHS 
also has not fully assessed its needs and capabilities to identify 
shortfalls, such as foreign language gaps. In June 2010, GAO 
recommended that DHS comprehensively assess the extent to which 
existing foreign language programs and activities address foreign 
language shortfalls, and incorporate the results of these foreign 
language assessments into the department's future strategic and 
workforce planning documents. DHS generally concurred with our 
recommendations and reported taking actions to address them. For 
example, DHS stated that it would establish a task force consisting of 
DHS offices and components to, among other things, identify foreign 
language requirements and assess the necessary skills. 

Challenges within acquisition, information technology, financial, and 
human capital management have resulted in performance problems and 
mission delays. For example, because of acquisition management 
weaknesses, major programs, such as the recently canceled Secure 
Border Initiative Network virtual fence, have not met capability, 
benefit, cost, and schedule expectations. Further, financial 
management internal control weaknesses have impeded DHS from providing 
reliable and timely financial data to support daily operational 
decision making. In addition, human capital management challenges at 
the Federal Protective Service within DHS, such as some new security 
officers not completing basic law enforcement training and a lack of 
data on officers' skills and abilities, have hindered the agency's 
ability to protect federal facilities and conduct law enforcement 
activities. 

DHS has taken action to integrate its management functions by, for 
example, establishing common policies within each function. In 
February 2010, DHS also developed an initial plan for management 
integration in which it identified seven initiatives for achieving 
management integration, including implementing a consolidated 
financial management system, developing a balanced workforce strategy, 
and consolidating DHS headquarters operations at one location. 
However, GAO reported that this initial plan did not contain details 
on how the initiatives contribute to management integration, among 
other things. In January 2011, DHS provided us with its updated 
management integration plan, which is part of the Integrated Strategy 
for High Risk Management. The plan contains information on ongoing and 
planned initiatives to integrate its management functions within and 
across the department and its components. For example, DHS plans to 
establish a framework for managing investments across its components 
and management functions to strengthen integration within and across 
those functions, as well as to ensure mission needs drive investment 
decisions. This framework seeks to enhance DHS resource decision 
making and oversight by creating new department-level councils to 
identify priorities and capability gaps, revising how DHS components 
and lines of business manage acquisition programs, and developing a 
common framework for monitoring and assessing implementation of 
investment decision. GAO will continue to provide DHS with feedback on 
their plans and monitor their implementation. 

What Remains to Be Done: 

Based on GAO's prior work, we have identified and provided to DHS key 
actions and outcomes that are critical to addressing the challenges 
within the department's management functions and in integrating those 
functions across the department. These key outcomes include, among 
others, validating required acquisition documents at major milestones 
in the acquisition review process; demonstrating that enterprise 
architecture documents provide a meaningful basis for informing 
investment decisions; obtaining and then sustaining unqualified audit 
opinions for at least 2 consecutive years on the departmentwide 
financial statements while demonstrating measurable progress in 
reducing material weaknesses and significant deficiencies; and 
implementing the Workforce Strategy for Fiscal Years 2011-2016 and 
linking workforce planning efforts to strategic and program-specific 
planning efforts to identify current and future human capital needs. 
In addition to addressing these actions and outcomes, DHS needs to 
implement its Integrated Strategy for High Risk Management, and 
continue its efforts to (1) identify and acquire resources needed to 
achieve key actions and outcomes; (2) implement a program to 
independently monitor and validate corrective measures; and (3) show 
measurable, sustainable progress in implementing corrective actions 
and achieving key outcomes. Demonstrated, sustained progress in all of 
these areas will help DHS strengthen and integrate management 
functions within and across the department and its components. 

GAO Contact: 

For additional information about this high-risk area, contact David C. 
Maurer at (202) 512-9627 or maurerd@gao.gov. 

Related GAO Products: 

Department of Homeland Security: Progress Made in Implementation and 
Transformation of Management Functions, but More Work Remains. 
[hyperlink, http://www.gao.gov/products/GAO-10-911T]. Washington, 
D.C.: September 30, 2010. 

Department of Homeland Security: Assessments of Selected Complex 
Acquisitions. [hyperlink, http://www.gao.gov/products/GAO-10-588SP]. 
Washington, D.C.: June 30, 2010. 

Department of Homeland Security: DHS Needs to Comprehensively Assess 
Its Foreign Language Needs and Capabilities and Identify Shortfalls. 
[hyperlink, http://www.gao.gov/products/GAO-10-714]. Washington, D.C.: 
June 22, 2010. 

Department of Homeland Security: A Comprehensive Strategy Is Still 
Needed to Achieve Management Integration Departmentwide. [hyperlink, 
http://www.gao.gov/products/GAO-10-318T]. Washington, D.C.: December 
15, 2009. 

Financial Management Systems: DHS Faces Challenges to Successfully 
Consolidating Its Existing Disparate Systems. [hyperlink, 
http://www.gao.gov/products/GAO-10-76]. Washington, D.C.: December 4, 
2009. 

Department of Homeland Security: Actions Taken Toward Management 
Integration, but a Comprehensive Strategy Is Still Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-131]. Washington, D.C.: November 
20, 2009. 

Homeland Security: Despite Progress, DHS Continues to Be Challenged in 
Managing Its Multi-Billion Dollar Annual Investment in Large-Scale 
Information Technology Systems. [hyperlink, 
http://www.gao.gov/products/GAO-09-1002T]. Washington, D.C.: September 
15, 2009. 

Department of Homeland Security: A Strategic Approach Is Needed to 
Better Ensure the Acquisition Workforce Can Meet Mission Needs. 
[hyperlink, http://www.gao.gov/products/GAO-09-30]. Washington, D.C.: 
November 19, 2008. 

Information Technology: DHS Needs to Fully Define and Implement 
Policies and Procedures for Effectively Managing Investments. 
[hyperlink, http://www.gao.gov/products/GAO-07-424]. Washington, D.C.: 
April 27, 2007. 

[End of section] 

Establishing Effective Mechanisms for Sharing and Managing Terrorism- 
Related Information: 

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 sharing it among federal, state, local, 
and other security partners in a timely, accurate, and useful way to 
protect against terrorist threats. GAO has since monitored federal 
efforts to implement the Information Sharing Environment 
(Environment)--an approach that facilitates the sharing of terrorism 
and homeland security information, which may include any method 
determined necessary and appropriate. The Environment is to serve as 
an overarching solution to strengthening the sharing of intelligence, 
terrorism, law enforcement, and other information among these partners. 

GAO found that the government had begun to implement some initiatives 
that improved sharing but did not yet have a comprehensive approach 
that was guided by an overall plan and measures to help gauge progress 
and achieve desired results. In addition, recent homeland security 
incidents and the changing nature of domestic threats, among other 
things, make continued progress in improving sharing critical. As a 
result, this area remains high risk. 

What GAO Found: 

The government has continued to make progress during the past 2 years 
in sharing terrorism-related information among its many security 
partners, but does not yet have a fully-functioning Information 
Sharing Environment in place. In terms of progress to date, the 
Program Manager for the Environment, as well as key security agencies, 
have taken steps that partially address the criteria GAO uses to 
designate an issue as high risk. For example, they developed a 
corrective action plan--or framework--to implement a set of initial 
activities that help to establish the Environment, partly responding 
to GAO's previous recommendations calling for a guiding roadmap. The 
framework includes, among other things, developing common information 
sharing standards and ways to better share primarily unclassified 
information with state and local partners. The Program Manager also 
developed performance measures to assess progress achieved in 
implementing these initial activities, and agencies are building some 
of these activities into their enterprise architectures, thereby 
providing agencies with important information to help implement 
information sharing capabilities and technologies. Furthermore, the 
administration aimed to strengthen leadership for the Environment by 
elevating the Program Manager to co-chair of an interagency policy 
committee, consisting of senior officials from the key agencies, that 
reports to national security staff. 

Nevertheless, the Program Manager and agencies have additional work to 
do to stand up the Environment, including moving beyond the initial 
framework and developing a comprehensive corrective action plan--or 
roadmap--that, among other things, includes solutions to past barriers 
to sharing. For example, the Program Manager and agencies have not yet 
defined their vision of how the Environment should fully function and 
what results it should achieve; determined the next set of information 
sharing initiatives beyond the initial framework that must be 
implemented; and ensured that agencies have fully inventoried what 
information they own that could have a possible link to terrorism and 
determined how to share it within the Environment. The Program Manager 
also has not used an enterprise architecture to capture the vision and 
expected results of the Environment, to fully define information 
sharing technologies and capabilities, and develop an implementation 
roadmap. 

In addition, better clarifying how and to what extent some agency-led 
initiatives that are outside of the Environment will be integrated 
into it could help leverage benefits achieved. For example, 
intelligence agencies have technology initiatives--including new ways 
of ensuring that authorized users have access to, and are able to 
search across, classified systems and networks to facilitate 
information sharing--but it is not clear to what extent transferring 
this best practice to non classified information is being considered 
under the Environment. Further, the Program Manager has been able to 
provide some resources to support the standup of the Environment, 
including seed money to support some of the initial actions under the 
framework. However, since a budget estimate that identifies 
incremental costs for building and operating the Environment has not 
been developed, some agencies are concerned about obtaining funds to 
pay for additional implementing activities. 

The administration and Program Manager recognize that they need to 
determine what the next generation Environment should contain, how 
agencies will develop it, and how they will monitor and demonstrate 
progress and results achieved, among other things. They have begun 
outreach efforts with security partners to discuss these issues, but 
have not yet set timelines for completing these actions. To monitor 
and report on results, in addition to the metrics and monitoring 
established under the framework, the Program Manager has provided 
annual progress reports to Congress that catalogue information sharing 
initiatives agencies have underway. In terms of demonstrating 
progress, however, the metrics and reports do not provide an 
accounting of the activities completed and capabilities in place 
compared with those still needed for a fully-functioning Environment. 
Finally, while the changes to the interagency committee and Program 
Manager's role have the potential to provide sustained leadership for 
the Environment, it is too early to determine whether the changes 
provide the authority and leverage to ensure that all agencies 
participate and fulfill their responsibilities under the Environment. 

GAO's work has also shown that agencies, such as the Department of 
Homeland Security, can take steps to improve their own sharing. For 
example, the Department has established an information sharing vision 
with goals and objectives, implementing roadmap, and governance board 
to set policy and monitor progress, as well as taken steps to use an 
enterprise architecture approach to guide technology and program 
investments. We have also recommended that the Department, as the 
designated lead agency for sharing with state and local partners, 
should take steps to fully identify states' information needs, define 
the programs and activities it will use to meet these needs, and set 
time frames for establishing metrics to gauge results. Furthermore, 
GAO's ongoing work shows that federal agencies have made progress in 
implementing corrective actions to address problems exposed by the 
December 25, 2009, attempted airline bombing. These actions are 
intended to address problems in the way agencies share and use 
information to nominate individuals to the terrorist watchlist, and 
use the list to prevent persons of concern from obtaining visas and 
boarding planes to the United States, among other things. However, we 
found that these changes can have impacts--such as on the resources of 
agencies that nominate persons to the watchlist and on individuals 
prescreened for air travel--that will be important for agencies to 
monitor and address as appropriate moving forward. 

What Remains to Be Done: 

The Program Manager and key security agencies need to (1) develop a 
corrective action plan to fully address GAO's past recommendation 
calling for a comprehensive roadmap for the Environment that defines 
expected results and the remaining actions needed to achieve them; (2) 
determine what capacity, including funding and technologies, are 
needed moving forward; (3) more fully respond to GAO's past 
recommendation that the Program Manager and agencies develop measures 
to monitor and show results achieved, such as improved sharing; and 
(4) develop ways to demonstrate progress in terms of comparing how 
much of the Environment is implemented and how much remains to be 
built. GAO will also continue to monitor how changes in the leadership 
of the Environment have helped to provide the authority and leverage 
needed to ensure that agencies participate and fulfill their 
responsibilities for achieving a fully-functioning Environment. 

GAO Contact: 

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

Related GAO Products: 

Information Sharing: DHS Could Better Define How It Plans to Meet Its 
State and Local Mission and Improve Performance Accountability. 
[hyperlink, http://www.gao.gov/products/GAO-11-223], Washington, D.C.: 
December 16, 2010. 

Information Sharing: Federal Agencies Are Helping Fusion Centers Build 
and Sustain Capabilities and Protect Privacy, but Could Better Measure 
Results. [hyperlink, http://www.gao.gov/products/GAO-10-972]. 
Washington, D.C.: September 29, 2010. 

Critical Infrastructure Protection: DHS Efforts to Assess and Promote 
Resiliency Are Evolving but Program Management Could Be Strengthened. 
[hyperlink, http://www.gao.gov/products/GAO-10-772]. Washington, D.C.: 
September 23, 2010. 

Public Transit Security Information Sharing: DHS Could Improve 
Information Sharing through Streamlining and Increased Outreach. 
[hyperlink, http://www.gao.gov/products/GAO-10-895]. Washington, D.C: 
September 22, 2010. 

Critical Infrastructure Protection: Key Private and Public Cyber 
Expectations Need to Be Consistently Addressed. [hyperlink, 
http://www.gao.gov/products/GAO-10-628] Washington, D.C: July 15, 2010. 

Firearm and Explosives Background Checks Involving Terrorist Watch 
List Records. [hyperlink, http://www.gao.gov/products/GAO-09-125R]. 
Washington, D.C: May 21, 2009. 

Terrorist Watchlist Screening: FBI Has Enhanced Its Use of Information 
from Firearm and Explosives Background Checks to Support 
Counterterrorism Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-10-703T]. Washington, D.C: May 5, 2010. 

Intelligence, Surveillance, and Reconnaissance: Overarching Guidance 
Is Needed to Advance Information Sharing. [hyperlink, 
http://www.gao.gov/products/GAO-10-500T]. Washington, D.C: March 17, 
2010. 

Homeland Security: Better Use of Terrorist Watchlist Information and 
Improvements in Deployment of Passenger Screening Checkpoint 
Technologies Could Further Strengthen Security. [hyperlink, 
http://www.gao.gov/products/GAO-10-401T]. Washington, D.C: January 27, 
2010. 

Information Sharing: Federal Agencies Are Sharing Border and Terrorism 
Information with Local and Tribal Law Enforcement Agencies, but 
Additional Efforts Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-41]. Washington, D.C: December 18, 
2009. 

[End of section] 

Protecting the Federal Government's Information Systems and the 
Nation's Cyber Critical Infrastructures: 

Why Area Is High Risk: 

Federal agencies and our nation's critical infrastructures--such as 
power distribution, water supply, telecommunications, 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 protecting national and economic 
security, and public health and safety. Safeguarding 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. Risks to information systems 
include continuing insider threats from disaffected or careless 
employees and business partners, escalating and emerging threats from 
around the globe, 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: 

The administration and agencies of the executive branch, including the 
Departments of Defense (DOD) and Homeland Security (DHS), continue to 
improve the security of federal systems, better protect cyber-reliant 
critical infrastructures, and strengthen the nation's security 
posture. Since the 2009 update to GAO's High-Risk Series, the 
president directed a review of U.S. policies and structures for 
cybersecurity and appointed a national cybersecurity policy official 
who is responsible for coordinating the nation's cybersecurity 
policies and activities. Executive branch agencies have also made 
progress instituting several governmentwide initiatives that are aimed 
at bolstering aspects of federal cybersecurity, such as reducing the 
number of federal access points to the Internet, establishing security 
configurations for desktop computers, and enhancing situational 
awareness of cyber events. In addition, DOD established a new Cyber 
Command in 2009 to help defend military computer networks and, in its 
role as the focal point for federal efforts to protect the nation's 
cyber critical infrastructures, DHS issued a revised national 
infrastructure protection plan in 2009 and an interim national cyber 
incident response plan in 2010. These actions demonstrate the 
executive branch's commitment to managing the risks associated with 
the nation's extensive reliance on federal information systems and 
cyber critical infrastructures. 

The federal government continues to face significant challenges in 
protecting its information systems and the nation's cyber critical 
infrastructures. Cyber threats are growing and evolving, reported 
security incidents are on the rise, and significant security 
deficiencies pervade federal systems that jeopardize the 
confidentiality, integrity, and availability of the systems and the 
information they process. In addition, the administration and 
executive branch agencies have not yet fully implemented key actions 
that are intended to address threats and improve the current U.S. 
approach to cybersecurity, such as: 

* updating the national strategy for securing the information and 
communications infrastructure, 

* developing a comprehensive national strategy for addressing global 
cybersecurity and governance, 

* creating a prioritized national and federal research and development 
agenda for improving cybersecurity, and: 

* implementing the near-and mid-term actions recommended by the 
cybersecurity policy review directed by the president. 

Executive branch agencies, in particular DHS, also need to improve 
their capacity to protect against cyber threats by, among other 
things, advancing cyber analysis and warning capabilities, acquiring 
sufficient analytical and technical capabilities, developing 
strategies for hiring and retaining highly qualified cyber analysts, 
and strengthening the effectiveness of the public-private sector 
partnerships in securing cyber critical infrastructure. Furthermore, 
shortcomings and challenges associated with the implementation of 
several of the governmentwide security initiatives limit the 
initiatives' effectiveness in protecting federal systems. 

In addition, federal systems continued to be afflicted by persistent 
control weaknesses. GAO determined that serious and widespread 
information security control deficiencies were a governmentwide 
material weakness in internal control over financial reporting as part 
of its audit of the fiscal year 2010 financial statements for the 
United States government. 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. Most of the 24 major federal 
agencies had information security weaknesses in five key control 
categories, as illustrated in figure 2. 

Figure 2: Information Security Weaknesses at Major Federal Agencies 
for Fiscal Year 2010: 

[Refer to PDF for image: vertical bar graph] 

Weakness: Security management; 
Number of agencies: 24. 

Weakness: Access controls; 
Number of agencies: 24. 

Weakness: Configuration management; 
Number of agencies: 24. 

Weakness: Segregation of duties; 
Number of agencies: 17. 

Weakness: Contingency planning; 
Number of agencies: 21. 

Source: GAO analysis of agency, IG and GAO reports as of December 21, 
2010. 

[End of figure] 

An underlying cause for the information security weaknesses identified 
at executive branch agencies is that they have not yet fully or 
effectively implemented key elements of an agencywide information 
security program, such as assessing risks, developing and implementing 
cost-effective security safeguards that reduce risk to an acceptable 
level, periodically testing and evaluating the effectiveness of the 
safeguards, and mitigating known control deficiencies. Until the 
executive branch agencies implement the hundreds of recommendations 
made by GAO and agency inspectors general to address cyber challenges, 
resolve identified deficiencies, and fully implement effective 
security programs, a broad array of federal assets and operations will 
remain at risk of fraud, misuse, and disruption, and the nation's most 
critical federal and private sector infrastructure systems will remain 
at increased risk of attack from our adversaries. 

What Remains to Be Done: 

Additional federal efforts are needed to update and implement national 
strategies and plans for (1) securing cyber critical infrastructures, 
(2) addressing global cybersecurity and governance, (3) prioritizing 
cybersecurity research and development, and (4) completing near-and 
midterm cybersecurity actions recommended by a presidentially directed 
review. In this regard, the administration needs to clearly articulate 
the goals and objectives of these efforts, assign specific roles and 
responsibilities to agencies, develop milestones, deploy sufficient 
resources, define performance measures, monitor progress, and validate 
the effectiveness of completed actions in meeting stated goals and 
objectives. 

Executive branch agencies, in particular DHS, also need to improve and 
expand their cyber analytical and technical capabilities, expand 
oversight of federal agencies' implementation of information security, 
and demonstrate progress in strengthening the effectiveness of public- 
private sector partnerships in securing cyber critical infrastructures. 

Agencies also need to (1) develop and implement remedial action plans 
for resolving known security deficiencies of government systems, (2) 
fully develop and effectively implement agencywide information 
security programs, as required by the Federal Information Security 
Management Act of 2002, and (3) demonstrate measurable, sustained 
progress in improving security over federal systems. Such progress 
should include having the governmentwide material weakness in 
information security upgraded to a significant deficiency for 2 
consecutive years and reducing the deficiencies that contribute to the 
significant deficiency, as reported by GAO in its annual audit of the 
financial statements for the United States government. 

GAO Contact: 

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

Related GAO Products: 

Information Security: Federal Agencies Have Taken Steps to Secure 
Wireless Networks, but Further Actions Can Mitigate Risk. [hyperlink, 
http://www.gao.gov/products/GAO-11-43]. Washington, D.C.: November 30, 
2010. 

Cyberspace Policy: Executive Branch Is Making Progress Implementing 
2009 Policy Review Recommendations, but Sustained Leadership Is 
Needed. [hyperlink, http://www.gao.gov/products/GAO-11-24]. 
Washington, D.C.: October 6, 2010. 

Information Security: Progress Made on Harmonizing Policies and 
Guidance for National Security and Non-National Security Systems. 
[hyperlink, http://www.gao.gov/products/GAO-10-916]. Washington, D.C.: 
September 15, 2010. 

Privacy: OPM Should Better Monitor Implementation of Privacy-Related 
Policies and Procedures for Background Investigations. [hyperlink, 
http://www.gao.gov/products/GAO-10-849]. Washington, D.C.: September 
7, 2010. 

Information Management: Challenges in Federal Agencies' Use of Web 2.0 
Technologies. [hyperlink, http://www.gao.gov/products/GAO-10-872T]. 
Washington, D.C.: July 22, 2010. 

Critical Infrastructure Protection: Key Private and Public Cyber 
Expectations Need to Be Consistently Addressed. [hyperlink, 
http://www.gao.gov/products/GAO-10-628]. Washington, D.C.: July 15, 
2010. 

Cyberspace: United States Faces Challenges in Addressing Global 
Cybersecurity and Governance. [hyperlink, 
http://www.gao.gov/products/GAO-10-606]. Washington, D.C.: July 2, 
2010. 

Cybersecurity: Continued Attention Is Needed to Protect Federal 
Information Systems from Evolving Threats. [hyperlink, 
http://www.gao.gov/products/GAO-10-834T]. Washington, D.C.: June 16, 
2010. 

Cybersecurity: Key Challenges Need to Be Addressed to Improve Research 
and Development. [hyperlink, http://www.gao.gov/products/GAO-10-466]. 
Washington, D.C.: June 3, 2010. 

Information Security: Federal Guidance Needed to Address Control 
Issues with Implementing Cloud Computing. [hyperlink, 
http://www.gao.gov/products/GAO-10-513]. Washington, D.C.: May 27, 
2010. 

Information Security: Veterans Affairs Needs to Resolve Long-Standing 
Weaknesses. [hyperlink, http://www.gao.gov/products/GAO-10-727T]. 
Washington, D.C.: May 19, 2010. 

Information Security: IRS Needs to Continue to Address Significant 
Weaknesses. [hyperlink, http://www.gao.gov/products/GAO-10-355]. 
Washington, D.C.: March 19, 2010. 

Information Security: Agencies Need to Implement Federal Desktop Core 
Configuration Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-10-202]. Washington, D.C.: March 12, 
2010. 

Information Security: Concerted Effort Needed to Consolidate and 
Secure Internet Connections at Federal Agencies. [hyperlink, 
http://www.gao.gov/products/GAO-10-237]. Washington, D.C.: March 12, 
2010. 

Cybersecurity: Progress Made but Challenges Remain in Defining and 
Coordinating the Comprehensive National Initiative. [hyperlink, 
http://www.gao.gov/products/GAO-10-338]. Washington, D.C.: March 5, 
2010. 

Electronic Personal Health Information Exchange: Health Care Entities' 
Reported Disclosure Practices and Effects on Quality of Care. 
[hyperlink, http://www.gao.gov/products/GAO-10-361]. Washington, D.C.: 
February 17, 2010. 

[End of section] 

Ensuring the Effective Protection of Technologies Critical to U.S. 
National Security Interests: 

Why Area Is High Risk: 

The U.S. government and U.S. companies sell advanced military weapons 
and technologies overseas to promote foreign policy, increase 
security, and improve economic welfare. These weapons are often 
targets for espionage, theft, and reverse engineering. 

The U.S. government has a number of programs to identify and protect 
technologies critical to U.S. national security interests. These 
include the export control system to approve the commercial sale of 
arms and dual-use items, the Foreign Military Sales (FMS) program for 
government-to-government sales of military goods and services, anti- 
tamper policies for advanced weapon systems, and government review of 
foreign investment in U.S. companies. These programs are administered 
by multiple federal agencies with related and sometimes overlapping 
jurisdictions, including the Departments of Commerce, Defense, 
Justice, Homeland Security, State, and the Treasury. GAO designated 
this area as high risk in 2007. 

What GAO Found: 

Over the last decade, GAO has identified a number of weaknesses in 
government programs designed to regulate and protect critical defense- 
related technologies and has made multiple recommendations to correct 
these weaknesses. Individual agencies have been responsive to prior 
GAO report findings on the existing export control system, as well as 
in other related programs, and have taken the following actions in 
specific areas since the 2009 High-Risk update. 

* In 2009, the National Security Council issued guidelines to ensure 
timely adjudication of commodity jurisdiction cases. As of July 2010, 
State officials reported that the median processing time for such 
cases decreased to 36 days, down from 118 days in 2002. 

* Commerce has reached agreement with China to conduct on-site reviews 
of validated end-users receiving U.S. dual-use goods. 

* Defense improved its system of identifying military-critical 
technologies and has coordinated with Commerce and State to establish 
guidance for developing and maintaining this system. 

* Defense began offering training on anti-tamper guidelines to program 
managers in 2009 to help protect weapons systems and military-critical 
technologies from unauthorized or improper use. 

GAO has also identified a number of areas in which further action is 
needed to improve specific programs. 

* Defense, Homeland Security, and State need to improve internal and 
interagency practices to facilitate reliable shipment verification, 
monitoring, and administration of the foreign military sales program. 

* Agencies need to eliminate gaps and inconsistencies in the defense 
exports data collection systems used to monitor foreign military sales 
and direct commercial sales programs. 

* Defense and State need to develop and implement specific plans to 
monitor, evaluate, and report routinely on outcomes for projects that 
provide weapons, defense-critical technologies, and training to 
foreign governments to help them respond to global terrorism. 

In April 2010, the administration announced a reform initiative to 
strengthen and streamline the government's export control system by 
creating a single licensing agency, control list, enforcement 
coordination agency, and electronic licensing system. This initiative 
represents a significant step in re-evaluating and reforming a key 
component of critical technology protection programs and has the 
potential to significantly improve the efficiency of the export 
control process. The administration's challenge will be to maintain or 
improve the system's effectiveness, as well as work with Congress to 
implement a number of regulatory and legal changes, such as merging 
existing licensing responsibilities into a single agency. Further, 
programs essential to the protection of critical technologies extend 
beyond export control and must work collectively to be effective. For 
example, the FMS program also exports defense arms to foreign 
governments but separately reports such exports from those approved 
under the export control system, limiting a complete picture of 
defense exports. To date, the executive and legislative branches have 
not re-examined programs to identify and protect technologies critical 
to U.S. national security interests to determine if they are 
collectively effective in light of the current security environment 
and technological advances. 

What Remains to Be Done: 

Action is needed at three levels to help protect technologies critical 
to U.S. national security interests. 

First, individual federal agencies need to continue to take action to 
fully address identified weaknesses in their respective programs, such 
as oversight of programs that provide weapons and other support and 
training to foreign governments to help them respond to global 
terrorism. 

Second, to build on the constructive efforts currently under way, the 
executive branch will need to identify measures to assess the 
effectiveness and sustainability of its government-wide export control 
reform efforts. For example, these measures could include assessments 
of exporter compliance and the impact of the new system on U.S. 
economic interests. It will also need to work with Congress to 
implement a number of regulatory and legal aspects of the reform. 

Finally, the executive branch and Congress should consider re- 
evaluating the wider portfolio of critical technology-related 
programs, such as FMS and government review of foreign investment in 
U.S. companies, to ensure that these programs work together as a 
system to meet the demands of the new security environment and help 
the U.S. military retain its technological superiority. 

GAO Contact: 

For additional information about this high-risk area, contact Belva M. 
Martin at (202) 512-4841 or martinb@gao.gov. 

Related GAO Products: 

Export Controls: Agency Actions and Proposed Reform Initiatives May 
Address Previously Identified Weaknesses, but Challenges Remain. 
[hyperlink, http://www.gao.gov/products/GAO-11-135R]. Washington, 
D.C.: November 16, 2010. 

Defense Exports: Reporting on Exported Articles and Services Needs to 
Be Improved. [hyperlink, http://www.gao.gov/products/GAO-10-952]. 
Washington, D.C.: September, 21, 2010. 

Persian Gulf: U.S. Agencies Need to Improve Licensing Data and to 
Document Reviews of Arms Transfers for U.S. Foreign Policy and 
National Security Goals. [hyperlink, 
http://www.gao.gov/products/GAO-10-918]. Washington, D.C.: September 
20, 2010. 

Export Controls: Observations on Selected Countries' Systems and 
Proposed Treaties. [hyperlink, 
http://www.gao.gov/products/GAO-10-557]. Washington, D.C.: May 27, 
2010. 

Iran Sanctions: Complete and Timely Licensing Data Needed to 
Strengthen Enforcement of Export Restrictions. [hyperlink, 
http://www.gao.gov/products/GAO-10-375]. Washington, D.C.: March 4, 
2010. 

Export Controls: Fundamental Reexamination of System Is Needed to Help 
Protect Critical Technologies. [hyperlink, 
http://www.gao.gov/products/GAO-09-767T]. Washington, D.C.: June 4, 
2009. 

Military and Dual-use Technology: Covert Testing Shows Continuing 
Vulnerabilities of Domestic Sales for Illegal Export. [hyperlink, 
http://www.gao.gov/products/GAO-09-725T]. Washington, D.C.: June 4, 
2009. 

Defense Exports: Foreign Military Sales Program Needs Better Controls 
for Exported Items and Information for Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-09-454]. Washington, D.C.: May 20, 
2009. 

International Security: DOD and State Need to Improve Sustainment 
Planning and Monitoring and Evaluation for Section 1206 and 1207 
Assistance Programs. [hyperlink, 
http://www.gao.gov/products/GAO-10-431]. Washington, D.C.: April 15, 
2009. 

[End of section] 

Revamping Federal Oversight of Food Safety: 

Why Area Is High Risk: 

The fragmented federal oversight of food safety has caused 
inconsistent oversight, ineffective coordination, and inefficient use 
of resources. The 2010 nationwide recall of more than 500 million eggs 
due to Salmonella contamination highlights this fragmentation. Several 
agencies have different roles and responsibilities in the egg 
production system, including the Food and Drug Administration (FDA) 
and the U.S. Department of Agriculture's (USDA) Food Safety and 
Inspection Service (FSIS), USDA's Agricultural Marketing Service, and 
USDA's Animal and Plant Health Inspection Service. Three major trends 
also create food safety challenges: a substantial and increasing 
portion of the U.S. food supply is imported, consumers are eating more 
raw and minimally processed foods, and growing segments of the 
population are increasingly susceptible to food-borne illnesses. New 
food safety legislation that was signed into law in January 2011 
strengthens a major part of the food safety system. It shifts the 
focus of FDA regulators from responding to contamination to preventing 
it, according to FDA, and expands FDA's oversight authority. While the 
law has several provisions that require interagency collaboration on 
food safety oversight, it does not apply to the federal food safety 
system as a whole or address USDA's authorities, which remain separate 
and distinct from FDA's. 

What GAO Found: 

GAO recommended that one of the actions to help reduce fragmentation 
was for the President to reconvene the Council on Food Safety. 
Positively, the President demonstrated strong commitment and top 
leadership support by establishing the Food Safety Working Group in 
2009 to coordinate federal efforts and develop goals to make food 
safe. The working group is co-chaired by the Secretaries of Health and 
Human Services and USDA and includes officials from many federal 
agencies, including FDA. Through the working group, federal agencies 
have taken steps designed to increase collaboration in some areas that 
cross regulatory jurisdictions--in particular, improving produce 
safety, reducing Salmonella contamination, and developing food safety 
performance measures. 

While such actions are encouraging, they are first steps. The agencies 
have not developed a governmentwide performance plan for food safety 
that includes results-oriented goals and performance measures, and 
information about resources. When GAO added food safety to the High 
Risk list in 2007, it said that what remains to be done is to develop 
a governmentwide performance plan that is mission based, has a results 
orientation, and provides a cross-agency perspective. Such a plan 
could be used to guide corrective actions for addressing fragmentation 
and monitor progress by the 15 federal agencies that collectively 
administer over 30 food-related laws. Without a governmentwide plan, 
decision makers do not have a comprehensive picture of the federal 
government's performance on food safety. 

Food safety oversight remains fragmented in several areas. The two 
primary food safety agencies are USDA, which is responsible for the 
safety of meat, poultry, processed egg products, and catfish, and FDA, 
which is responsible for virtually all other food, including shell 
eggs and seafood. The 2008 Farm Bill assigned USDA oversight 
responsibility for catfish, thus splitting up seafood oversight and 
expending scarce resources. Specifically, USDA officials estimate it 
will cost about $30 million for fiscal years 2011 and 2012 to develop 
and implement its catfish inspection program. 

GAO has also reported that food safety oversight is fragmented in the 
following areas. 

* Customs and Border Protection (CBP), FDA, and USDA oversee the 
safety of imported food, which makes up a growing portion of food sold 
in the United States. In September 2009, GAO found gaps in enforcement 
and collaboration, such as the agencies' computer systems not sharing 
key information, which may increase the risk that unsafe food might 
enter U.S. commerce. GAO recommended that the agencies take specific 
steps to improve information sharing and streamline processes, such as 
ensuring that CBP's new screening system communicates time-of-arrival 
information to FDA's and USDA's screening systems. GAO continues to 
monitor their actions. 

* CBP, FDA, and the National Marine Fisheries Service share 
responsibility for detecting and preventing seafood fraud, which 
includes mislabeling species for financial gain. In February 2009, GAO 
found that the agencies have not identified similar and sometimes 
overlapping activities, such as operating laboratories for determining 
seafood species. GAO recommended that the agencies develop goals, 
strategies, and mechanisms to share information and resources. GAO is 
monitoring their progress on implementing these recommendations. 

* FDA and the Federal Trade Commission (FTC) have jurisdiction over 
health-and nutrient-related claims made by food manufacturers. In 
January 2011, GAO reported that FDA had difficulty taking action 
against companies with potentially false or misleading claims on food 
labels. Unlike FTC, FDA does not have express legal authority to 
compel companies to provide information supporting their claims and 
must develop the evidence needed to support an enforcement action. We 
recommended that FDA identify and request from Congress the 
authorities it needs. 

What Remains to Be Done: 

The executive branch should develop a governmentwide performance plan 
that includes results-oriented goals and performance measures, and a 
discussion of strategies and resources in order to guide corrective 
actions and monitor progress. While the new food safety law expands 
FDA's oversight authority, Congress should also consider enacting 
comprehensive, uniform, and risk-based food safety legislation. 
Congress should also consider commissioning a detailed analysis of 
alternative organizational structures for food safety. 

GAO Contact: 

For additional information about this high-risk area, contact Lisa 
Shames at (202) 512-3841 or shamesl@gao.gov. 

Related GAO Products: 

Food Labeling: FDA Needs to Reassess Its Approach to Protecting 
Consumers from False or Misleading Claims. [hyperlink, 
http://www.gao.gov/products/GAO-11-102]. Washington, D.C.: January 14, 
2011. 

Food and Drug Administration: Overseas Offices Have Taken Steps to 
Help Ensure Import Safety, but More Long-Term Planning Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-10-960]. Washington, D.C.: 
September 30, 2010. 

Food Safety: FDA Could Strengthen Oversight of Imported Food by 
Improving Enforcement and Seeking Additional Authorities. [hyperlink, 
http://www.gao.gov/products/GAO-10-699T]. Washington, D.C.: May 6, 
2010. 

Food Safety: FDA Has Begun to Take Action to Address Weaknesses in 
Food Safety Research, but Gaps Remain. [hyperlink, 
http://www.gao.gov/products/GAO-10-182R]. Washington, D.C.: April 23, 
2010. 

Food Irradiation: FDA Could Improve Its Documentation and 
Communication of Key Decisions on Food Irradiation Petitions. 
[hyperlink, http://www.gao.gov/products/GAO-10-309R]. Washington, 
D.C.: February 16, 2010. 

Food Safety: Agencies Need to Address Gaps in Enforcement and 
Collaboration to Enhance Safety of Imported Food. [hyperlink, 
http://www.gao.gov/products/GAO-09-873]. Washington, D.C.: September 
15, 2009. 

Seafood Fraud: FDA Program Changes and Better Collaboration among Key 
Federal Agencies Could Improve Detection and Prevention. [hyperlink, 
http://www.gao.gov/products/GAO-09-258]. Washington, D.C.: February 
19, 2009. 

Veterinarian Workforce: Actions Are Needed to Ensure Sufficient 
Capacity for Protecting Public and Animal Health. [hyperlink, 
http://www.gao.gov/products/GAO-09-178]. Washington, D.C.: February 4, 
2009. 

[End of section] 

Protecting Public Health through Enhanced Oversight of Medical 
Products: 

Why Area Is High Risk: 

The Food and Drug Administration (FDA) oversees the safety and 
effectiveness of all medical products marketed in the United States, 
regardless of whether they are manufactured here or abroad. 
Globalization has placed increasing demands on the agency. For 
example, drugs manufactured in more than 100 countries were offered 
for entry into the United States in fiscal year 2009. The oversight of 
medical products was added to GAO's High-Risk List in January 2009 
because FDA was facing multiple challenges that threatened to 
compromise its ability to protect the public health. GAO identified 
weaknesses in several areas, including inspections of foreign 
manufacturing establishments, postmarket safety monitoring, and 
oversight of clinical trials. FDA will need to respond to these 
challenges, in addition to managing a growing workload. 

What GAO Found: 

As discussed below, FDA has begun taking steps to improve its 
oversight of medical products, such as modernizing its mission 
critical information management systems, but more needs to be done to 
resolve concerns, including the following: 

* Improving resource management and strategic planning. FDA has 
encountered difficulties in fulfilling its medical product 
responsibilities. These responsibilities have grown in recent years as 
have the number of medical products subject to FDA's oversight. FDA 
has been unable to fulfill some of its statutory requirements, such as 
biennially inspecting certain manufacturing establishments. FDA does 
not have reliable estimates of its resource requirements. For example, 
FDA could not provide data showing its workload and accomplishments in 
some areas, such as its review of reports identifying potential safety 
issues associated with specific medical products. While FDA 
established 48 annual performance measures for fiscal year 2010, GAO 
found that they were only partially results-oriented. 

GAO believes that FDA needs performance measures that are more clearly 
focused on results, such as public health outcomes, the agency's 
strategic objectives, and identified management challenges. These 
challenges include recruiting, retaining, and developing its 
workforce; continuing to modernize its information systems; 
coordinating internally and externally; and keeping up with scientific 
advances. GAO also found that FDA does not have an agencywide 
strategic human capital plan. FDA has said that it is in the process 
of developing evidence-based estimates of its resource needs and that 
it was preparing to begin a workforce planning effort. In addition, in 
2010, FDA introduced a new Internet-based agencywide system--FDA 
Transparency, Results, Accountability, Credibility and Knowledge-
sharing (TRACK)--to monitor progress and performance in key program 
areas in a transparent manner: 

* Responding to globalization. There are thousands of foreign drug and 
medical device establishments registered to market their products in 
the United States. FDA has opened offices overseas, but GAO found that 
while these offices are engaging in activities to help ensure the 
safety of imported products, FDA has not yet developed a long-term 
workforce plan that could help address the offices' potential staffing 
challenges and that it also needed a set of performance goals and 
measures that can demonstrate the contribution of these offices to the 
long-term outcomes related to the regulation of imported products. 
While FDA also increased its inspections of foreign drug 
establishments, it still conducts relatively fewer foreign inspections 
than it conducts domestically. GAO estimated that while FDA inspects 
domestic drug establishments about once every 2.5 years, it would take 
FDA about 9 years to inspect all the drug establishments in its 
foreign inventory. 

Also, FDA's approach in selecting establishments for inspection is 
inconsistent with GAO's 2008 recommendation that FDA inspect, at a 
comparable rate, those establishments that are identified as having 
the greatest public health risk potential, if they experience a 
manufacturing defect, regardless of whether they are a foreign or 
domestic establishment. FDA has acknowledged that conducting foreign 
inspections can pose unique challenges, such as limits on its ability 
to require foreign establishments to allow the agency to inspect their 
facilities, the large number and incompleteness of information on 
certain suppliers of ingredients to foreign establishments, and the 
expenses associated with conducting foreign inspections. 

To meet the challenge of globalization, FDA has begun to improve the 
information used to manage its foreign drug inspection program, but 
its data systems continue to contain inaccurate information on foreign 
establishments, compromising the agency's oversight. It has also begun 
to increase the number of inspections of foreign drug manufacturing 
establishments and has devoted more staff and dedicated greater 
financial resources to these inspections. It is also planning to 
implement a system for use at U.S. borders and ports that is designed 
to identify shipments that appear to pose the greatest risk and target 
them for examination. 

* Overseeing postmarket safety. Although improvements have been made, 
long-standing concerns remain regarding the effectiveness of FDA's 
postmarket oversight. FDA staff have expressed concern about their 
ability to meet a growing postmarket workload, with some maintaining 
that their premarket responsibilities are considered a higher 
priority. FDA is also encountering technological and staffing issues 
that limit its capacity to conduct drug safety studies. In addition, 
GAO identified concerns with FDA's oversight of certain drugs approved 
through its accelerated approval process. As part of this process, 
which is designed to expedite marketing approval for new drugs 
intended to treat serious or life-threatening illnesses, FDA may 
require drug sponsors to conduct postmarketing studies to confirm a 
drug's clinical benefit. Yet, GAO found that FDA was not routinely 
monitoring the status of these studies and had little in the way of 
accessible, comprehensive data to monitor the progression of such 
studies. 

In addition, GAO reported that FDA had not developed criteria for 
exercising its authority to expedite the withdrawal from the market of 
a drug approved under the accelerated approval process, if a study was 
either not completed or if the study failed to confirm a drug's 
clinical benefit. Although GAO determined that FDA had never exercised 
its authority to withdraw a drug from the market--even when study 
requirements had gone unfulfilled for nearly 13 years--and recommended 
that the agency develop criteria to clarify the conditions under which 
it would utilize this authority, FDA disagreed with the need to 
develop such criteria, citing the need to address each situation on 
its own merits. 

To address long-standing concerns regarding the postmarket safety of 
the products it regulates, FDA has several efforts underway. For 
example, FDA acknowledged that its oversight of postmarket studies had 
been inadequate and is implementing a number of improvements to ensure 
appropriate oversight and more efficient tracking. FDA has begun an 
initiative to improve the reporting and analysis of adverse events 
that are associated with the use of specific medical products. 

* Implementing the Safe Medical Devices Act of 1990. This act requires 
FDA to either reclassify certain high-risk medical device types to a 
less-risky class or establish a schedule for such devices to be 
reviewed through its most stringent premarket approval process. GAO 
found that a significant number of high-risk devices--including device 
types that FDA has identified as implantable; life sustaining; or 
posing a significant risk to the health, safety, or welfare of a 
patient--still enter the market through FDA's less stringent premarket 
notification process. FDA has agreed that implementing this act is 
important and that it is committed to taking action. In August 2010, 
FDA proposed a rule that would require manufacturers of 4 of the 24 
device types GAO raised concerns about to submit applications to have 
their devices reviewed through FDA's most stringent premarket approval 
process. FDA is continuing to consider its options for completing this 
task as expeditiously as possible. In addition, FDA is also conducting 
its own comprehensive internal assessment of the premarket medical 
device review process and has taken the important step of 
commissioning the Institute of Medicine to conduct an independent 
review of this activity. 

What Remains to Be Done: 

GAO believes that FDA must do more to respond to identified weaknesses 
before the high-risk designation can be removed. In addition to making 
a strong commitment to address key management challenges, FDA needs to: 

* strengthen its resource management and its strategic and human 
capital planning. To ensure it has the capacity to fulfill its 
mission, it must establish reliable estimates of resource needs and 
use these estimates in planning and prioritizing its work. 

* develop more results-oriented performance measures--particularly in 
light of increasing demands facing the agency. With this information 
in hand, FDA needs to employ a risk-based approach in planning and 
conducting activities. For example, FDA needs to conduct more 
inspections of foreign drug establishments and inspect those foreign 
establishments that pose a greater public health risk at a frequency 
comparable to domestic establishments with similar characteristics and 
continue to improve the information it uses to manage the foreign drug 
inspection program. 

* create a workforce plan for its new overseas offices and acknowledge 
that it may need new legal authorities to better oversee foreign 
establishments. 

* balance these demands with its other priorities, such as 
implementing a rigorous postmarket safety system without sacrificing a 
thorough and careful premarket approval process. Long-standing 
concerns regarding the postmarket safety of drugs and medical devices 
make this an area in need of considerable attention. Among other 
things, GAO believes that FDA needs to place additional emphasis on 
ensuring staff can fulfill their postmarket duties and the careful 
monitoring of postmarket studies. 

* establish both a plan and a timetable for ensuring that high-risk 
medical device types are reviewed through FDA's most stringent 
premarket approval process. 

Part of meeting these challenges will require that the agency's 
management foster a culture in which managers and staff identify, 
understand, value, and implement meaningful metrics. This will enable 
the agency to appropriately prioritize its work, monitor its 
performance, independently validate the effectiveness of its 
corrective actions, and ultimately, objectively demonstrate the 
progress it has made. 

GAO Contact: 

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

Related GAO Products: 

Food and Drug Administration: Response to Heparin Contamination Helped 
Protect Public Health; Controls That Were Needed for Working With 
External Entities Were Recently Added. [hyperlink, 
http://www.gao.gov/products/GAO-11-95]. Washington, D.C.: October 29, 
2010. 

Drug Safety: FDA Has Conducted More Foreign Inspections and Begun to 
Improve Its Information on Foreign Establishments, but More Progress 
Is Needed. [hyperlink, http://www.gao.gov/products/GAO-10-961]. 
Washington, D.C.: September 30, 2010. 

Food and Drug Administration: Overseas Offices Have Taken Steps to 
Help Ensure Import Safety, but More Long-Term Planning Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-10-960]. Washington, D.C.: 
September 30, 2010. 

Food and Drug Administration: Opportunities Exist to Better Address 
Management Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-279]. Washington, D.C.: February 
19, 2010. 

Food and Drug Administration: Improved Monitoring and Development of 
Performance Measures Needed to Strengthen Oversight of Criminal and 
Misconduct Investigations. [hyperlink, 
http://www.gao.gov/products/GAO-10-221]. Washington, D.C.: January 29, 
2010. 

Drug Safety: FDA Has Begun Efforts to Enhance Postmarket Safety, but 
Additional Actions Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-68]. Washington, D.C.: November 9, 
2009. 

New Drug Approval: FDA Needs to Enhance Its Oversight of Drugs 
Approved on the Basis of Surrogate Endpoints. [hyperlink, 
http://www.gao.gov/products/GAO-09-866]. Washington, D.C.: September 
23, 2009. 

Food and Drug Administration: FDA Faces Challenges Meeting Its Growing 
Medical Products Responsibilities and Should Develop Complete 
Estimates of Its Resource Needs. [hyperlink, 
http://www.gao.gov/products/GAO-09-581]. Washington, D.C.: June 19, 
2009. 

Medical Devices: FDA Should Take Steps to Ensure That High-Risk Device 
Types Are Approved through the Most Stringent Premarket Review 
Process. [hyperlink, http://www.gao.gov/products/GAO-09-190]. 
Washington, D.C.: January 15, 2009. 

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. 

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. 

[End of section] 

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

Why Area Is High Risk: 

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 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. EPA conducts assessments of chemicals under its Integrated Risk 
Information System (IRIS) program and is authorized under TSCA to 
obtain information on the risks of chemicals and to control those it 
determines pose an unreasonable risk. Because EPA had not developed 
sufficient chemical assessment information under these programs to 
limit public exposure to many chemicals that may pose substantial 
health risks, GAO added this issue to the High-Risk List in 2009. 

What GAO Found: 

IRIS. EPA's IRIS database provides the basic information the agency 
needs to determine whether it should establish controls to, for 
example, protect the public from exposure to toxic chemicals in the 
air, in water, and at hazardous waste sites. In March 2008, GAO 
reported that the viability of the IRIS program was at risk because 
EPA had been unable to complete timely, credible chemical assessments--
including those of chemicals of greatest concern, such as formaldehyde 
and dioxin, which have been in progress for 13 and 19 years, 
respectively. In addition, EPA had been unable to decrease its long- 
standing backlog of ongoing assessments or to keep its existing 
assessments current. In May 2009, EPA revised its IRIS assessment 
process. If implemented effectively, these assessment reforms 
represent significant improvements and will be largely responsive to 
GAO's 2008 recommendations. They will restore EPA's control of the 
process and increase its transparency, among other things. For 
example, under the prior process, interagency reviews were required 
and managed by the Office of Management and Budget (OMB), and EPA was 
not allowed to proceed with assessments at various stages until OMB 
agreed that EPA had sufficiently responded to interagency comments. In 
contrast, under the reforms, EPA is to manage the entire assessment 
process, and all written comments on draft assessments provided during 
the interagency process are to be part of the public record. It is too 
soon to determine whether the reforms will be effective, but EPA has 
made some progress in addressing its assessment backlog. GAO is 
currently reviewing EPA's implementation of the revised process. 

TSCA. GAO has also reported that EPA's assessments of industrial 
chemicals under TSCA provide limited information on health and 
environmental risks. In contrast to the approach 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--TSCA generally places the burden on 
EPA to obtain information about the roughly 80,000 chemicals already 
on the U.S. market. TSCA also 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 already in use. 
For the approximately 700 new chemicals introduced into commerce 
annually, chemical companies are required to provide EPA with certain 
information in premanufacture notices, and EPA can ban or limit the 
use of these chemicals if the 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. Subsequent to 
GAO's reports, EPA has taken some steps to begin to address some of 
these issues. For example, using its existing authorities, EPA has 
initiated actions on such chemicals as mercury and lead to, for 
example, ban or phase out their use in certain products. However, most 
such actions are in the early stages of development. Regarding 
statutory changes, the EPA Administrator has expressed support for 
TSCA reforms and developed principles for addressing them. 

What Remains to Be Done: 

The EPA Administrator needs to continue to demonstrate a strong 
commitment to and support of the IRIS program and its TSCA 
initiatives. Specifically, EPA needs to ensure that its 2009 IRIS 
reforms are implemented effectively and that the program can routinely 
provide timely and credible assessments. Regarding 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. 

GAO Contact: 

For additional information about this high-risk area, contact David 
Trimble at (202) 512-3841 or trimbled@gao.gov. 

Related GAO Products: 

Chemical Regulation: Observations on Improving the Toxic Substances 
Control Act. [hyperlink, http://www.gao.gov/products/GAO-10-292T]. 
Washington, D.C.: December 2, 2009. 

EPA Chemical Assessments: Process Reforms Offer the Potential to 
Address Key Problems. [hyperlink, 
http://www.gao.gov/products/GAO-09-774T]. Washington, D.C.: June 11, 
2009. 

Scientific Integrity: EPA's Efforts to Enhance the Credibility and 
Transparency of Its Scientific Processes. [hyperlink, 
http://www.gao.gov/products/GAO-09-773T]. Washington, D.C.: June 9, 
2009. 

Chemical Regulation: Options for Enhancing the Effectiveness of the 
Toxic Substances Control Act. [hyperlink, 
http://www.gao.gov/products/GAO-09-428T]. Washington, D.C.: February 
26, 2009. 

High Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January, 
2009. 

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 section] 

Department of Defense Contract Management: 

Why Area Is High Risk: 

The Department of Defense (DOD) obligated $372 billion on contracts 
for goods and services in fiscal year 2009. At times, however, 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 place the department at risk of potentially paying 
more than necessary. 

What GAO Found: 

DOD relies heavily on contractors to provide services to help meet 
critical needs, but its approach to managing services acquisitions 
traditionally has not been strategically oriented. For example, DOD's 
reliance on contractors is not yet fully guided by a systematic 
determination of which functions and activities should be contracted 
out and which should be performed by civilian employees or military 
personnel, or by an assessment of the risks that reliance on 
contractors may pose. GAO reported in November 2009 that DOD policies 
do not require assessments of the risks associated with contractors 
closely supporting inherently governmental functions at key 
acquisition decision points. Similarly, legislation in 2008 directed 
DOD to determine the number of contractors and the functions they 
perform, in part to help identify functions that might be better 
performed by DOD employees, but it is too soon to determine whether 
this effort will prove successful. 

Improved DOD guidance, initiation and use of independent management 
reviews, and other steps to promote the use of sound business 
arrangements have begun to address prior weaknesses in the 
department's management and use of undefinitized contract actions, 
time-and-materials contracts, and award fees. Over the past 2 years, 
however, GAO reported that DOD had missed opportunities to promote 
competition. For example, in September 2009, GAO reported that DOD, 
along with other federal agencies, rarely took advantage of additional 
opportunities for competition when placing orders under blanket 
purchase agreements. In response to this report and others, DOD 
leadership in 2010 has identified steps to promote more effective 
competition in its acquisitions. 

Properly managing the acquisition of goods and services requires a 
workforce with the right skills and capabilities. In support of the 
Secretary of Defense's strategy to resize and rebalance the 
acquisition workforce, DOD in April 2010 issued an acquisition 
workforce plan that identified planned workforce growth, specified 
recruitment and retention goals, and forecasted workforce-wide 
attrition and retirement trends. While a positive step, GAO reported 
in September 2010 that DOD had not yet fully addressed the desired mix 
of civilian, military, and contractor personnel or completed its 
assessment of the critical skills and competencies of DOD's 
acquisition workforce. 

Planning for the use of contractors in military operations, vetting 
contractor personnel who provide security, and training nonacquisition 
personnel on the use and management of contractors in contingencies 
are all challenges evidenced in Iraq and Afghanistan. For example, in 
July 2009, GAO reported that DOD faced challenges when vetting its 
foreign security contractors because it had not developed procedures 
for vetting these personnel. Similarly, although DOD guidance calls 
for combatant commanders to include operational contract support 
requirements in their operation plans, GAO reported in March 2010 that 
few plans included this information. In June 2010, GAO reported that a 
cultural change emphasizing an awareness of operational contract 
support throughout DOD is needed to address these challenges. 

What Remains to Be Done: 

To improve outcomes on the billions of dollars spent annually on goods 
and services, sustained DOD leadership and commitment is needed to 
ensure that policies are consistently put into practice. Further, DOD 
needs to: 

* take steps to strategically manage services acquisition, including 
defining and measuring against desired outcomes, and developing the 
data needed to do so; 

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

* assess the effectiveness of efforts to improve competition and 
address prior weaknesses with specific contracting arrangements and 
incentives; 

* ensure that its acquisition workforce is adequately sized, trained, 
and equipped to meet the department's needs; and: 

* fully integrate operational contract support throughout the 
department through education and predeployment training. 

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

GAO Contact: 

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

Related GAO Products: 

Iraq and Afghanistan: DOD, State, and USAID Face Continued Challenges 
in Tracking Contracts, Assistance Instruments, and Associated 
Personnel. [hyperlink, http://www.gao.gov/products/GAO-11-1]. 
Washington, D.C.: October 1, 2010. 

Human Capital: Further Actions Needed to Enhance DOD's Civilian 
Strategic Workforce Plan. [hyperlink, 
http://www.gao.gov/products/GAO-10-814R]. Washington, D.C.: September 
27, 2010. 

Federal Contracting: Opportunities Exist to Increase Competition and 
Assess Reasons When Only One Offer Is Received. [hyperlink, 
http://www.gao.gov/products/GAO-10-833. Washington, D.C.: July 26, 
2010. 

Warfighter Support: Cultural Change Needed to Improve How DOD Plans 
for and Manages Operational Contract Support. [hyperlink, 
http://www.gao.gov/products/GAO-10-829T]. Washington, D.C.: June 29, 
2010. 

Contingency Contracting: Improvements Needed in Management of 
Contractors Supporting Contract and Grant Administration in Iraq and 
Afghanistan. [hyperlink, http://www.gao.gov/products/GAO-10-357]. 
Washington, D.C.: April 12, 2010. 

Warfighter Support: DOD Needs to Improve Its Planning for Using 
Contractors to Support Future Military Operations. [hyperlink, 
http://www.gao.gov/products/GAO-10-472]. Washington, D.C.: March 30, 
2010. 

Defense Acquisitions: Observations on the Department of Defense 
Service Contract Inventories for Fiscal Year 2008. [hyperlink, 
http://www.gao.gov/products/GAO-10-350R]. Washington, D.C.: January 
29, 2010. 

Defense Acquisitions: Status of DOD's Implementation of Independent 
Management Reviews for Services Acquisitions. [hyperlink, 
http://www.gao.gov/products/GAO-10-284]. Washington, D.C.: January 28, 
2010. 

Defense Contracting: DOD Has Enhanced Insight into Undefinitized 
Contract Action Use, but Management at Local Commands Needs 
Improvement. [hyperlink, http://www.gao.gov/products/GAO-10-299]. 
Washington, D.C.: January 28, 2010. 

Defense Acquisitions: Further Actions Needed to Address Weaknesses in 
DOD's Management of Professional and Management Support Contracts. 
[hyperlink, http://www.gao.gov/products/GAO-10-39]. Washington, D.C.: 
November 20, 2009. 

Contract Management: Agencies Are Not Maximizing Opportunities for 
Competition or Savings under Blanket Purchase Agreements despite 
Significant Increase in Usage. [hyperlink, 
http://www.gao.gov/products/GAO-09-792]. Washington, D.C.: September 
9, 2009. 

Contingency Contract Management: DOD Needs to Develop and Finalize 
Background Screening and Other Standards for Private Security 
Contractors. [hyperlink, http://www.gao.gov/products/GAO-09-351]. 
Washington, D.C.: July 31, 2009. 

[End of section] 

Department of Energy's Contract Management for the National Nuclear 
Security Administration and Office of Environmental Management: 

Why Area Is High Risk: 

The Department of Energy (DOE), the largest non-Defense Department 
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. Contract management--which includes both 
contract administration and project management--is a high-risk area 
because DOE's record of inadequate management and oversight of 
contractors has left the department vulnerable to fraud, waste, abuse, 
and mismanagement. In January 2009, to recognize progress made at the 
Office of Science, GAO narrowed the focus of its high-risk designation 
to two DOE program elements--the National Nuclear Security 
Administration (NNSA) and Office of Environmental Management (EM). 
Together, these two programs account for 60 percent of DOE's budget of 
nearly $27 billion. 

What GAO Found: 

DOE has continued to take many steps to address contract and project 
management weaknesses, including (1) demonstrating strong commitment 
and top leadership support, (2) developing a corrective action plan 
that identifies effective solutions, and (3) demonstrating progress 
implementing corrective measures. These are three of the five criteria 
for removal from GAO's High-Risk List. In March 2009, GAO testified 
that DOE was managing over 100 construction projects with estimated 
costs over $90 billion and 97 nuclear waste cleanup projects with 
estimated costs over $230 billion. GAO found that 8 of the 10 major 
NNSA and EM construction projects (DOE defines a major project as any 
project greater than or equal to $750 million) that GAO reviewed had 
exceeded the initial cost estimates for completing these projects. In 
total, DOE added $14 billion to these initial estimates. GAO also 
found that 9 of the 10 major construction projects were behind 
schedule. In total, DOE added more than 45 years to the initial 
schedule estimates for these projects. Since that time, DOE has been 
restructuring its portfolio of projects to distinguish between capital 
asset projects and operating projects and is taking steps to break 
large projects into smaller, more manageable components when possible. 
In addition, over the last 2 years, DOE has updated program and 
project management guidance to improve the reliability of project cost 
estimates, better assess project risks, and ensure that project 
reviews are timely and useful and identify problems early. DOE 
officials stated that these and other changes will improve project 
performance. 

The steps DOE has taken are very important, but have not yet 
consistently improved contract and management performance in NNSA and 
EM. For example, GAO found that NNSA cannot accurately identify the 
total costs to operate and maintain its nuclear weapons facilities 
because NNSA does not have a mechanism to reconcile the differences in 
site contractors' accounting practices. As a result, NNSA lacks the 
management information necessary to make cost-benefit decisions on 
infrastructure investment. Furthermore, NNSA's project to construct a 
new Uranium Processing Facility at the Y-12 National Security Complex 
has experienced a nearly sevenfold cost increase from its 2004 
estimate of between $600 million and $1.1 billion to its current 
estimate of between $4.2 billion and $6.5 billion. Moreover, NNSA does 
not expect all technologies for this facility to be mature enough 
before critical decisions on cost and schedule are made. Finally, GAO 
found that NNSA's plans to modernize its Kansas City Plant were based 
on an inadequate cost estimate. Specifically, NNSA based its cost 
estimate of leasing a new facility versus constructing one itself upon 
an arbitrary 20-year horizon rather than on the estimated actual 
lifespan of the facility. As a result, NNSA's financing decisions were 
not as fully informed or as transparent as they could have been. 
Constructing a new Uranium Processing Facility, modernizing the Kansas 
City Plant, and constructing a major new nuclear facility at NNSA's 
Los Alamos National Laboratory are cornerstones of NNSA's multibillion-
dollar transformation of the nuclear weapons complex and exemplify 
high-risk endeavors by NNSA that GAO will continue to monitor closely. 

EM has also experienced problems. For example, GAO reported in January 
2010 that its reviews of cost estimates for two major EM projects-- 
construction of a $1.3 billion Salt Waste Processing Facility at the 
Savannah River Site in South Carolina and decontamination and 
decommissioning at the Y-12 National Security Complex in Tennessee 
that DOE estimates will cost between $1.1 billion and $1.2 billion--
found that the estimates did not exemplify the four characteristics of 
high-quality cost estimates. Specifically, best practices establish 
that high-quality cost estimates must be credible, well-documented, 
accurate, and comprehensive. GAO also found that another large EM 
project--emptying, cleaning, and closing large underground liquid 
radioactive waste tanks at the Savannah River Site--has experienced a 
$1.4 billion increase in its estimated cost from $3.2 billion to $4.6 
billion because, among other things, DOE's cost estimate that formed 
the basis of its contractor's initial proposal was inaccurate. In 
addition, of the 91 EM cleanup projects funded with $6 billion in 
Recovery Act funds, nearly one-third were not meeting cost or schedule 
targets when GAO reviewed them, although more recent information 
indicates cost and schedule performance on these projects has 
improved. These Recovery Act projects were generally smaller and 
simpler than some of EM's other cleanup work. Furthermore, DOE has 
also recently renegotiated commitments with the Environmental 
Protection Agency and the state of Washington that move out DOE's 
promise to complete the treatment of the Hanford Site's radioactive 
waste by nearly 20 years. Cleaning up the entire site will cost the 
department tens of billions to over a hundred billion dollars. 

In its corrective action plan, DOE recognized that having sufficient 
people and other resources to resolve its contract and project 
management problems was one of the top 10 issues facing the 
department. Specifically, the plan said 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. 
These challenges are likely to continue as DOE's workforce ages and 
the department faces future budget constraints. Both NNSA and EM are 
taking steps to assess current and future staffing needs and are in 
the process of developing plans to address the shortfalls. 

What Remains to Be Done: 

DOE's removal from the High-Risk List requires meeting all five of 
GAO's long-established criteria. DOE has already demonstrated and must 
continue to sustain leadership commitment and progress implementing 
corrective measures and also ensure the successful implementation of 
its corrective action plan. Additional actions are needed to meet the 
remaining two criteria. DOE needs to commit sufficient people and 
resources to resolve its contract management problems. Furthermore, 
DOE must monitor and independently validate the effectiveness and 
sustainability of its corrective measures. In particular, DOE must 
ensure that the corrective measures it is taking to improve its cost 
estimating policies and procedures ultimately result in cost estimates 
for its major projects that are more accurate and reliable, and can be 
used to hold the department accountable for its performance. 

GAO Contact: 

For additional information about this high-risk area, contact Gene 
Aloise at (202) 512-3841 or aloisee@gao.gov. 

Related GAO Products: 

Nuclear Weapons: National Nuclear Security Administration's Plans for 
Its Uranium Processing Facility Should Better Reflect Funding 
Estimates and Technology Readiness. [hyperlink, 
http://www.gao.gov/products/GAO-11-103]. Washington, D.C.: November 
19, 2010. 

Nuclear Weapons: National Nuclear Security Administration Needs to 
Ensure Continued Availability of Tritium for the Weapons Stockpile. 
[hyperlink, http://www.gao.gov/products/GAO-11-100]. Washington, D.C.: 
October 7, 2010. 

Nuclear Waste: Actions Needed to Address Persistent Concerns with 
Efforts to Close Underground Radioactive Waste Tanks at DOE's Savannah 
River Site. [hyperlink, http://www.gao.gov/products/GAO-10-816]. 
Washington, D.C.: September 14, 2010. 

Recovery Act: Most DOE Cleanup Projects Appear to Be Meeting Cost and 
Schedule Targets, but Assessing Impact of Spending Remains a 
Challenge. [hyperlink, http://www.gao.gov/products/GAO-10-784]. 
Washington, D.C.: July 29, 2010. 

Nuclear Weapons: Actions Needed to Identify Total Costs of Weapons 
Complex Infrastructure and Research and Production Capabilities. 
[hyperlink, http://www.gao.gov/products/GAO-10-582]. Washington, D.C.: 
June 21, 2010. 

Nuclear Weapons: Actions Needed to Address Scientific and Technical 
Challenges and Management Weaknesses at the National Ignition 
Facility. [hyperlink, http://www.gao.gov/products/GAO-10-488]. 
Washington, D.C.: April 8, 2010. 

Department of Energy: Actions Needed to Develop High-Quality Cost 
Estimates for Construction and Environmental Cleanup Projects. 
[hyperlink, http://www.gao.gov/products/GAO-10-199]. Washington, D.C.: 
January 14, 2010. 

Nuclear Weapons: National Nuclear Security Administration Needs to 
Better Manage Risks Associated with the Modernization of Its Kansas 
City Plant. [hyperlink, http://www.gao.gov/products/GAO-10-115]. 
Washington, D.C.: October 23, 2009. 

Nuclear Waste: Uncertainties and Questions about Costs and Risks 
Persist with DOE's Tank Waste Cleanup Strategy at Hanford. [hyperlink, 
http://www.gao.gov/products/GAO-09-913]. Washington, D.C.: September 
30, 2009. 

Department of Energy: Contract and Project Management Concerns at the 
National Nuclear Security Administration and Office of Environmental 
Management. [hyperlink, http://www.gao.gov/products/GAO-09-406T]. 
Washington, D.C.: March 4, 2009. 

[End of section] 

National Aeronautics and Space Administration Acquisition Management: 

Why Area Is High Risk: 

The National Aeronautics and Space Administration (NASA) plans to 
invest billions of dollars in the coming years to explore space, 
understand Earth's environment, and conduct aeronautics research. GAO 
has designated NASA's acquisition management as high risk in view of 
persistent cost growth and schedule slippage in the majority of its 
major projects. GAO's work has focused on identifying a number of 
causal factors, including antiquated financial management systems, 
poor cost estimating, and underestimating risks associated with 
development of its major systems. 

What GAO Found: 

NASA has taken steps to improve its acquisition management and 
continues to work to address systemic weaknesses by adopting practices 
that focus on closing gaps in knowledge about requirements, 
technologies, funding, time, and other resources before commitments 
are made to a new project. In 2007, NASA developed a plan to improve 
how it manages its acquisitions. The plan identifies specific actions 
to strengthen project management, increase accuracy in cost 
estimating, facilitate monitoring of contractor cost performance, and 
improve business processes and financial management; it also 
establishes points of accountability and metrics to assess progress. 
NASA has made some progress on the management and oversight of its 
major projects to improve overall acquisition outcomes, including the 
following: 

* revising its acquisition and engineering policies in 2007 to 
incorporate elements of a knowledge-based approach and continuing to 
refine the policies to provide better information for decision makers. 

* enhancing cost-estimating methodologies and as of 2009 ensuring that 
independent analyses are used to provide decision makers with an 
objective representation of likely project cost and schedule results. 

* implementing a management review process in 2006 to enable it to 
more effectively monitor a project's performance, including cost, 
schedule, and cross-cutting technical and nontechnical issues. 

* updating and increasing the availability of program and project 
management learning and development activities. Importantly, as of 
October 2009, NASA has certified all major program and project 
managers to ensure they possess the necessary competencies, training, 
and experience pursuant to OMB's guidance. 

Although not part of its improvement plan, NASA continues to utilize 
earned value management to assess contract performance. NASA has also 
initiated an effort to develop and pilot agency processes with a long- 
term goal of improving NASA's ability to utilize earned value 
management as a performance assessment tool for in-house projects. 
Additionally, a key initiative aimed at improving contractor cost 
performance monitoring has not been fully implemented. In addition, 
NASA is completing work aimed at identifying the root causes of its 
acquisition issues. It may take several years before it is apparent 
whether the initiatives will significantly improve NASA's acquisition 
performance. GAO's work continues to find that NASA has difficulty 
meeting cost, schedule, and performance goals for many of its 
projects. For example, GAO reported in 2010 that 10 major NASA 
projects have experienced cost growth averaging almost $121.1 million, 
or 18.7 percent, and a 15-month schedule delay. Many of these projects 
experienced challenges, including developing new or retrofitting older 
technologies, stabilizing engineering designs, managing the 
performance of contractors, and resolving issues with partners. 
Moreover, a recent review by the James Webb Space Telescope 
Independent Comprehensive Review Panel highlighted significant 
breakdowns in oversight, accountability, and cost estimating that are 
likely to lead to an unanticipated cost overrun of approximately $1.4 
billion, or potentially more, and a schedule delay of about 15 months. 

What Remains to Be Done: 

NASA is implementing a corrective action plan to improve the 
effectiveness of its project management. Successful implementation of 
the plan will gain even more importance in an increasingly constrained 
fiscal environment. In addition to implementing its plan, NASA needs 
to continue to define the metrics it uses to monitor progress of its 
acquisitions at key milestones, such as project confirmation and 
critical design review. Further, once those measures are fully 
defined, NASA should track its decisions against those metrics. 
Ultimately, NASA must demonstrate positive outcomes in controlling 
cost growth and schedule slippage in its major programs and projects. 
This could take several years to become apparent given the long-term 
nature of spacecraft development. 

GAO Contact: 

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

Related GAO Products: 

NASA: Issues Implementing the NASA Authorization Act of 2010. 
[hyperlink, http://www.gao.gov/products/GAO-11-216T]. Washington, 
D.C.: December 1, 2010. 

NASA: Key Management and Program Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-387T]. Washington, D.C.: February 
3, 2010. 

NASA: Assessments of Selected Large-Scale Projects. [hyperlink, 
http://www.gao.gov/products/GAO-10-227SP]. Washington, D.C.: February 
1, 2010. 

Information Technology: Agencies Need to Improve the Implementation 
and Use of Earned Value Techniques to Help Manage Major System 
Acquisitions. [hyperlink, http://www.gao.gov/products/GAO-10-2]. 
Washington, D.C.: October 8, 2009. 

NASA: Constellation Program Cost and Schedule Will Remain Uncertain 
Until a Sound Business Case Is Established. [hyperlink, 
http://www.gao.gov/products/GAO-09-844]. Washington, D.C.: August 26, 
2009. 

Federal Contracting: Application of OMB Guidance Can Improve Use of 
Award Fee Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-09-839T]. Washington, D.C.: August 3, 
2009. 

Federal Contracting: Guidance on Award Fees Has Led to Better 
Practices but Is Not Consistently Applied. [hyperlink, 
http://www.gao.gov/products/GAO-09-630]. Washington, D.C.: May 29, 
2009. 

NASA: Projects Need More Disciplined Oversight and Management to 
Address Key Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-09-436T]. Washington, D.C.: March 5, 
2009. 

NASA: Assessments of Selected Large-Scale Projects. [hyperlink, 
http://www.gao.gov/products/GAO-09-306SP]. Washington, D.C.: March 2, 
2009. 

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. 

[End of section] 

Management of Interagency Contracting: 

Why Area Is High Risk: 

When used correctly, interagency contracting--where 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. By providing a simplified, expedited, and lower 
cost method of procurement, interagency contracting can help agencies 
save both time and administration costs versus awarding new contracts. 
This is particularly important at a time when agencies face growing 
workloads and slow growth in the acquisition workforce. Although 
precise numbers are unavailable, agencies reported spending at least 
$53 billion in fiscal year 2009 using interagency contracts to acquire 
goods and services that support a wide variety of activities. 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 
agencies have made progress but still face challenges in making 
effective use of this contracting method. In response to congressional 
direction since 2004, agency inspectors general (IG) continue to 
review interagency contracting for the Department of Defense (DOD), 
the largest government purchaser of goods and services. These reviews 
found that, in general, agencies making purchases for DOD have 
improved interagency contracting practices by better defining roles 
and responsibilities and improving controls over funding procedures, 
among other things; however, problems persist with DOD's use of 
interagency contracting. Specifically, the DOD IG has identified 
acquisition planning, the use of proper funds, and contract 
administration as areas that require further improvement when other 
agencies make purchases on behalf of DOD. 

In April 2010, GAO reported on additional challenges that agencies 
face in fully realizing the benefits of interagency contracts. 
Specifically, GAO found that the Office of Management and Budget (OMB) 
and federal agencies lack reliable and comprehensive data to 
effectively leverage, manage, and oversee these contracts. For 
example, the total number of one type of interagency contract--
multiagency contracts (MAC)--is unknown due to a lack of sufficient 
and reliable data on these contracts. Similarly, GAO found that the 
General Services Administration (GSA) lacks data about customer 
agencies' use of the Multiple Award Schedule program--the largest 
interagency contracting program--which limits GSA's ability to 
determine how well the program meets customers' needs. In addition, 
agency officials and vendors expressed concerns to GAO about potential 
duplication when multiple agencies create separate contracts for 
similar products and services. Unjustified duplication needlessly 
increases costs to vendors, which they pass on to the government, and 
can result in missed opportunities to leverage the government's buying 
power. Finally, GAO found limited governmentwide policy in place for 
establishing and overseeing MACs. GAO made a number of recommendations 
to OMB and GSA in April 2010 to improve transparency and management, 
and to promote a more coordinated approach in awarding interagency 
contracts. 

GSA and OMB have taken steps to address these recommendations and 
improve the management of interagency contracting. GSA has established 
an action plan with timeframes for implementing GAO's recommendations. 
In August 2010, OMB reported on its efforts to strengthen interagency 
contracting. For example, it conducted a survey of 24 agencies on 
actions taken to implement prior OMB guidance on the management and 
use of interagency contracts. The survey found that most agencies had 
reported implementing at least some of the internal controls called 
for in the guidance, such as documenting decisions to use another 
agency's contract. OMB also plans to issue guidance on creating and 
managing new MACs and is exploring options for improving the 
information available on existing interagency contracts to help 
agencies make better procurement decisions. 

What Remains to Be Done: 

OMB and GSA have established corrective action plans that outline the 
steps they will take in response to GAO recommendations. These 
initiatives are in the early stages of implementation and will require 
continued management attention to demonstrate progress. In addition, 
given the continued problems identified with DOD's use of interagency 
contracts, it is similarly important that DOD continue to focus on 
addressing these deficiencies. Finally, agencies must take steps to 
ensure their compliance with OMB's guidance in order to achieve the 
greatest value possible from interagency contracting. 

GAO Contact: 

For additional information about this high-risk area, contact William 
T. Woods at (202) 512-4841 or woodsw@gao.gov. 

Related Products: 

GAO reports: 

Contracting Strategies: Data and Oversight Problems Hamper 
Opportunities to Leverage Value of Interagency and Enterprisewide 
Contracts. [hyperlink, http://www.gao.gov/products/GAO-10-367]. 
Washington, D.C.: April 29, 2010. 

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. 

Improvements Needed to the Federal Procurement Data System-Next 
Generation. [hyperlink, http://www.gao.gov/products/GAO-05-960R]. 
Washington, D.C.: September 27, 2005. 

Other reports: 

DOD Office of Inspector General. More DOD Oversight Needed for 
Purchases Made Through the Department of Energy. D-2011-021. 
Arlington, Va: December 3, 2010. 

DOD Office of Inspector General. FY 2008 and FY 2009 Purchases Made 
Through the General Services Administration. D-2011-018. Arlington, 
Va: November 30, 2010. 

U.S. General Services Administration, Office of Inspector General. 
Review of the Federal Acquisition Service's Client Support Centers. 
Report No. A090139/Q/A/P10011. Arlington, Va: September 17, 2010. 

Department of Health and Human Services, Office of Inspector General. 
Follow-Up Review of Procurements Made by the National Institutes of 
Health for the Department of Defense. Report No. A-03-08-03000. 
Washington, D.C.: May 4, 2009. 

DOD Office of Inspector General. FY 2007 DOD Purchases Made Through 
the National Institutes of Health. D-2009-064. Arlington, Va: March 
24, 2009. 

DOD Office of Inspector General. FY 2007 DOD Purchases Made Through 
the Department of Veterans Affairs. D-2009-043. Arlington, Va: January 
21, 2009. 

[End of section] 

Enforcement of Tax Laws: 

Why Area Is High Risk: 

Internal Revenue Service (IRS) enforcement of the tax laws is vital to 
ensuring that all owed taxes are paid, which in turn can promote 
voluntary compliance by giving taxpayers confidence that others are 
paying their fair share. GAO's high-risk area includes IRS's efforts 
to ensure payment both of unpaid taxes known to IRS and unpaid taxes 
IRS has not detected. 

What GAO Found: 

Typically, about 84 percent of owed taxes are paid voluntarily and 
timely. IRS last estimated the resulting tax gap to be $345 billion 
for 2001. After late payments and IRS enforcement, the net tax gap was 
$290 billion. Many experts believe that the tax gap was underestimated 
for 2001 and has grown larger since then. IRS expects to update the 
tax gap estimate by 2013. 

IRS has stepped up enforcement over the past decade. Over the last 3 
years, IRS collected an average annual amount of $54 billion through 
enforcement actions, up by 61 percent from 2000. Importantly, IRS 
continues to research the extent and causes of tax noncompliance and 
is using the results to revise its examination programs. The results 
have also helped support legislation, passed in 2008, estimated to 
raise tens of billions of dollars, such as requiring brokers to report 
taxpayers' basis in securities for computing capital gains. 

Recently, Congress and IRS have taken innovative actions aimed at 
further improving tax compliance, often directly based on GAO's work. 
In 2010, IRS began implementing a new regulatory regime for paid tax 
return preparers; an important step given the critical role they play 
in helping taxpayers meet their tax obligations. Congress passed a law 
in 2010 that requires financial institutions to report information on 
foreign bank accounts and others in 2008 that require reporting of 
securities' basis and businesses' credit card receipts. In addition, 
as of tax year 2010, IRS is requiring businesses to report uncertain 
tax positions on their tax returns. Finally, increased electronic 
filing and the continued modernization of its information systems 
should give IRS access to more timely and accurate data. 

The impact of these initiatives on tax compliance will depend on how 
IRS implements them. IRS is just beginning to develop a strategy for 
better integrating paid preparers into its enforcement and taxpayer 
service programs. The new information from financial institutions may 
be so complex that it cannot be readily incorporated into IRS's 
automated compliance verification processes, requiring those processes 
to be rethought. One example of rethinking is IRS's nascent efforts at 
modeling networks of related businesses that share a common owner. 
Finally, further refining of return-on-investment measures for its 
enforcement programs should improve how IRS allocates resources across 
the programs. Resource allocation will become increasingly important 
as IRS is tasked with broader responsibilities, such as those in the 
Patient Protection and Affordable Care Act of 2010. 

Further, legislative action may be needed to address some compliance 
issues. IRS has statutory authority to correct certain errors, such as 
calculation mistakes or omitted or inconsistent entries, during tax 
return processing. Expanding such math error authority could help IRS 
correct additional errors before interest is owed by taxpayers and 
avoid burdensome audits. The complexity of the tax code is also a 
compliance issue--complexity can cause taxpayer confusion and provide 
opportunities to hide willful noncompliance. 

What Remains to Be Done: 

For IRS to improve its enforcement of tax laws it must: 

* continue to perform compliance research on a regular basis and use 
the results to identify areas of noncompliance, justify resource 
requests, and target scarce resources; and: 

* leverage new requirements for paid preparers, sources of taxpayer 
information, and technologies to enhance the effectiveness and 
timeliness of service and enforcement corrective measures. 

In that regard, IRS should implement GAO's open recommendations, such 
as developing a strategy for ensuring compliance by business networks. 

To assist IRS in reducing the tax gap, Congress should consider 
expanding IRS's legal authority, called math error authority, to 
correct taxpayer calculation mistakes or omitted or inconsistent 
entries during tax return processing before issuing refunds. 
Simplifying the tax code has the potential to improve compliance, as 
well. 

GAO Contacts: 

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

Related GAO Products: 

Tax Gap: IRS Can Improve Efforts to Address Tax Evasion by Networks of 
Businesses and Related Entities. [hyperlink, 
http://www.gao.gov/products/GAO-10-968]. Washington, D.C.: September 
24, 2010. 

Tax Administration: Expanded Information Reporting Could Help IRS 
Address Compliance Challenges with Forgiven Mortgage Debt. [hyperlink, 
http://www.gao.gov/products/GAO-10-997]. Washington, D.C.: August 31, 
2010. 

Tax Gap: IRS Has Modernized Its Business Nonfiler Program but Could 
Benefit from More Evaluation and Use of Third-Party Data. [hyperlink, 
http://www.gao.gov/products/GAO-10-950]. Washington, D.C.: August 31, 
2010. 

Internal Revenue Service: Assessment of Budget Justification for 
Fiscal Year 2011 Identified Opportunities to Enhance Transparency. 
[hyperlink, http://www.gao.gov/products/GAO-10-687R]. Washington, 
D.C.: May 26, 2010. 

Recovery Act: IRS Quickly Implemented Tax Provisions, but Reporting 
and Enforcement Improvements Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-349]. Washington, D.C: February 10, 
2010. 

Tax Gap: Actions Needed to Address Noncompliance with S Corporation 
Tax Rules. [hyperlink, http://www.gao.gov/products/GAO-10-195]. 
Washington, D.C.: December 15, 2009. 

Home Mortgage Interest Deduction: Despite Challenges Presented by 
Complex Tax Rules, IRS Could Enhance Enforcement and Guidance. 
[hyperlink, http://www.gao.gov/products/GAO-09-769]. Washington, D.C.: 
July 29, 2009. 

Real Estate Tax Deduction: Taxpayers Face Challenges in Determining 
What Qualifies; Better Information Could Improve Compliance. 
[hyperlink, http://www.gao.gov/products/GAO-09-521]. Washington, D.C.: 
May 13, 2009. 

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. 

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. 

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 section] 

Internal Revenue Service Business Systems Modernization: 

Why Area Is High Risk: 

The Internal Revenue Service's (IRS) Business Systems Modernization 
(BSM) program is a multibillion-dollar, highly complex effort that 
involves the development and delivery of a number of modernized tax 
administration and internal management systems as well as core 
infrastructure projects that are intended to replace the agency's 
aging business and tax processing systems. It is critical to providing 
improved and expanded service to taxpayers and internal business 
efficiencies for IRS and providing the reliable and timely financial 
management information needed to better enable IRS to justify its 
resource allocation decisions and congressional budgetary requests. 

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. 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. Because 
challenges remain and IRS has not yet implemented its new strategy for 
managing individual taxpayer accounts, the area has remained high risk. 

What GAO Found: 

Since GAO designated this area as high risk, it has reported on a 
number of management controls and capabilities and financial 
management controls that are critical to the effective management of 
BSM and IRS's ability to provide reliable and timely financial 
management information and has made numerous recommendations aimed at 
improving these areas. To address weaknesses identified, GAO 
recommended that IRS take the following actions, among others: 

* fully revisit the vision and strategy for the BSM program and 
develop a new set of long-term goals, strategies, and plans consistent 
with the budgetary outlook and IRS's management capabilities; 

* define procedures for validating contractor-developed cost and 
schedule estimates; 

* develop processes for determining the type of task order to be 
awarded in acquiring modernized systems; 

* improve its process for determining whether expected project 
benefits were achieved by including an analysis of quantitative and 
qualitative investment data; and: 

* define policies and procedures to guide system modernization 
projects in developing and managing requirements. 

GAO has also made numerous recommendations aimed at addressing 
deficiencies in controls over tax revenue collections, tax refund 
disbursements, hard-copy tax receipts and related data and information 
systems security. 

IRS has taken action to address GAO's recommendations. For example, in 
2008, IRS began working on a new strategy that, among other things, 
addresses the management of individual taxpayer accounts as well as 
several long-term goals to enhance IRS's systems. In the initial phase 
intended to be delivered by the January 2012 filing season, IRS plans 
to create a modernized taxpayer account database and to move the 
processing of individual taxpayer accounts from a weekly processing 
cycle to a daily processing cycle. IRS expects the new strategy will 
result in faster refunds, improved customer service, elimination of 
notices based on out-of-date information, faster resolution of 
taxpayer account issues, and better online tools and services for 
taxpayers several years sooner than the previous approach. GAO also 
reported that IRS, in response to recommendations, developed 
requirements development and management policies, procedures, and 
tools including (1) a standardized process for the elicitation and 
documentation of requirements; (2) guidance on establishing and 
maintaining full bidirectional requirements traceability; (3) guidance 
on tracking cost and schedule impacts of changes to requirements; and 
(4) a process for ensuring that formal peer reviews are planned and 
completed for key requirements. IRS also addressed several 
deficiencies that GAO identified in prior financial statement audits, 
including resolving a material weakness in internal controls over 
financial reporting and improving the availability of cost information 
to support informed decision making. IRS also made significant 
enhancements to its general ledger system for tax transactions and 
brought it into compliance with the United States Standard General 
Ledger. 

While progress has been made, GAO recommended that IRS needed to 
further define the second phase of its new strategy for managing 
individual taxpayer accounts which it expects to deliver in January 
2014. GAO also reported in May 2010, that IRS had not yet developed a 
quantitative measure of work accomplished for its projects, a 
recommendation made to IRS in 2007. While IRS has taken steps to 
address this recommendation, it does not plan to have it fully 
implemented until fiscal year 2012. GAO further reported in November 
2010 that significant financial management weaknesses remain. 
Specifically, the legacy automated financial management systems IRS 
continues to rely on (1) do not provide adequate information to 
support day-to-day decision making or to report reliable financial 
statement balances without reliance on significant compensating 
procedures, and (2) continue to exhibit serious deficiencies in 
information security that jeopardize the integrity and confidentiality 
of the financial and taxpayer information they process and the 
accuracy of the financial information they report. 

What Remains to Be Done: 

For BSM, while IRS has made progress in addressing weaknesses in 
management controls and capabilities in response to GAO's 
recommendations, it now needs to leverage these controls and 
capabilities to successfully deliver its BSM projects. Specifically, 
IRS needs to deliver a modernized taxpayer account database and move 
the processing of individual taxpayer accounts from a weekly 
processing cycle to a daily processing cycle by 2012. IRS also needs 
to continue its efforts to achieve expected benefits including faster 
refunds, improved customer service, and faster resolution of taxpayer 
account issues through 2014. For financial management issues, in 
addition to addressing outstanding recommendations, IRS needs to (1) 
ensure corrective action plans address all issues and define root 
causes; and (2) strengthen its program for monitoring the 
effectiveness of corrective actions taken in response to GAO's 
information security recommendations. Until IRS resolves these issues, 
the agency's ability to successfully modernize its operational and 
financial management systems will continue to be jeopardized. 

GAO Contact: 

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. 

Related GAO Products: 

Financial Audit: IRS's Fiscal Years 2010 and 2009 Financial 
Statements. [hyperlink, http://www.gao.gov/products/GAO-11-142]. 
Washington, D.C.: November 10, 2010. 

Internal Revenue Service: Status of GAO Financial Audit and Related 
Financial Management Report Recommendations. [hyperlink, 
http://www.gao.gov/products/GAO-10-597]. Washington, D.C.: June 30, 
2010. 

Management Report: Improvements Are Needed in IRS's Internal Controls 
and Compliance with Laws and Regulations [hyperlink, 
http://www.gao.gov/products/GAO-10-565R]. Washington, D.C.: June 28, 
2010. 

Business Systems Modernization: Internal Revenue Service's Fiscal Year 
2010 Expenditure Plan. [hyperlink, 
http://www.gao.gov/products/GAO-10-539]. Washington, D.C.: May 10, 
2010. 

2009 Tax Filing Season: IRS Met Many 2009 Goals, but Telephone Access 
Remained Low, and Taxpayer Service and Enforcement Could Be Improved. 
[hyperlink, http://www.gao.gov/products/GAO-10-225]. Washington, D.C.: 
December 10, 2009. 

Financial Audit: IRS's Fiscal Years 2009 and 2008 Financial 
Statements. [hyperlink, http://www.gao.gov/products/GAO-10-176]. 
Washington, D.C.: November 10, 2009. 

Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer 
Service and Enforcement for the 2010 Filing Season. [hyperlink, 
http://www.gao.gov/products/GAO-09-1026]. Washington, D.C.: September 
23, 2009. 

Internal Revenue Service: Status of GAO Financial Audit and Related 
Financial Management Report. [hyperlink, 
http://www.gao.gov/products/GAO-09-514]. Washington, D.C.: June 25, 
2009. 

Management Report: Improvements Are Needed to Enhance in IRS's 
Internal Controls and Operating Effectiveness. [hyperlink, 
http://www.gao.gov/products/GAO-09-513R]. Washington, D.C.: June 24, 
2009. 

[End of section] 

Improving and Modernizing Federal Disability Programs: 

Why Area Is High Risk: 

Designated a high-risk area in 2003, federal disability programs 
remain in need of modernization. Almost 200 federal programs provide a 
wide range of services and supports, resulting in a patchwork of 
policies and programs without a unified strategy or set of national 
goals. Further, disability programs emphasize medical conditions in 
assessing work incapacity without adequate consideration of work 
opportunities afforded by advances in medicine, technology, and job 
demands. Beyond these broad concerns, the largest disability programs--
managed by the Social Security Administration (SSA), Department of 
Veterans Affairs (VA), and Department of Defense (DOD)--are 
experiencing growing workloads, creating challenges to making timely 
and accurate decisions. 

What GAO Found: 

Some agencies have taken steps to modernize their disability programs, 
such as updating and revising their eligibility criteria. However, 
such revisions have not fully incorporated a modern understanding of 
how technology and labor market changes could affect eligibility for 
disability benefits. Moreover, there is no set of agreed upon 
governmentwide outcomes for disability policies and programs as well 
as strategies to achieve them. Key stakeholders agree that a stronger 
federal role is needed to focus and align efforts across numerous 
federal agencies and programs that play a role in supporting 
individuals with disabilities. In ongoing discussions with GAO, the 
administration and Office of Management and Budget have said they are 
considering a course of action going forward. 

SSA has taken steps to address challenges with claims processing, but 
it continues to struggle with growing workloads and long waits for 
decisions. For example, SSA developed a plan that has helped the 
agency reduce its hearing-level backlog from over 760,000 in fiscal 
year 2008 to about 697,000 in fiscal year 2010. SSA's goal is to 
reduce the number of pending hearing-level claims to below 466,000 by 
the end of fiscal year 2013. Workloads, however, are increasing at 
SSA's initial claims level, where pending claims exceeded 1 million in 
fiscal year 2010. The agency has developed additional strategies to 
deal with its workload challenges. Effective management of SSA's 
disability claims process will require comprehensive planning and 
monitoring going forward. 

VA has made progress in some areas of its claims process and faced 
continued challenges in others. In fiscal year 2008, VA completed 
nearly 66 percent more initial compensation claims than in fiscal year 
2000 and reduced pending appeals from about 127,000 to 95,000. 
However, in fiscal year 2008, it took VA on average 776 days to 
resolve an appeal. We reported in January 2010 that VA has implemented 
several improvement initiatives, including expanding its practice of 
workload distribution and testing new claims-processing approaches--
such as shortening response periods for certain claims and appeals and 
reorganizing its claims-processing units. Per our recommendations, VA 
recently completed evaluations of some key initiatives, and continues 
to evaluate others. Thus, their long-term impact on the timeliness and 
accuracy of veterans' claims is not yet known. 

Through their pilot of an integrated disability evaluation system 
(IDES), DOD and VA have made some progress toward addressing 
inefficiencies associated with operating two separate yet similar 
disability systems, but full implementation will require careful 
monitoring. DOD's and VA's recently completed evaluation of the pilot 
has generally shown positive results. In support of plans to expand 
the IDES militarywide, DOD and VA have identified actions needed to 
address staffing, logistical, and other challenges. However, they do 
not have a monitoring process for identifying emerging problems such 
as staffing shortages in order to quickly take remedial actions. 

What Remains to Be Done: 

An overall federal strategy and governmentwide coordination among 
programs is needed to align disability policies, services, and 
supports, but little progress has been made. SSA, VA, and DOD 
leadership have demonstrated a strong commitment and invested 
additional resources to address claims workloads. However, the 
agencies still need to complete work on the following recommendations. 
SSA needs to employ a comprehensive plan that considers its entire 
disability process. VA needs to evaluate its claims-processing 
initiatives to assess return on investment. As VA and DOD proceed with 
a joint disability evaluation system, they need to develop a 
systematic monitoring process and ensure adequate staffing is in place. 

GAO Contact: 

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

Related GAO Products: 

Military and Veterans Disability System: Pilot Has Achieved Some 
Goals, but Further Planning and Monitoring Needed. [hyperlink, 
http://www.gao.gov/products/GAO-11-69]. Washington, D.C.: December 6, 
2010. 

Highlights of a Forum: Participant-Identified Leading Practices That 
Could Increase the Employment of Individuals with Disabilities in the 
Federal Workforce. [hyperlink, 
http://www.gao.gov/products/GAO-11-81SP]. Washington, D.C.: October 5, 
2010. 

Highlights of a Forum: Actions That Could Increase Work Participation 
for Adults with Disabilities. [hyperlink, 
http://www.gao.gov/products/GAO-10-812SP]. Washington, D.C.: July 29, 
2010. 

Social Security Disability: Management of Disability Claims Workload 
Will Require Comprehensive Planning. [hyperlink, 
http://www.gao.gov/products/GAO-10-667T]. Washington, D.C.: April 27, 
2010. 

Veterans' Disability Benefits: Further Evaluation of Ongoing 
Initiatives Could Help Identify Effective Approaches for Improving 
Claims Processing. [hyperlink, 
http://www.gao.gov/products/GAO-10-213]. Washington, D.C.: January 29, 
2010. 

Social Security Disability: Additional Performance Measures and Better 
Cost Estimates Could Help Improve SSA's Efforts to Eliminate Its 
Hearings Backlog. [hyperlink, http://www.gao.gov/products/GAO-09-398]. 
Washington, D.C.: September 9, 2009. 

Veterans' Disability Benefits: Preliminary Findings on Claims 
Processing Trends and Improvement Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-09-910T]. Washington, D.C.: July 29, 
2009. 

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. 

[End of section] 

Pension Benefit Guaranty Corporation Insurance Programs: 

Why Area Is High Risk: 

The Pension Benefit Guaranty Corporation (PBGC) insures the pension 
benefits of 44 million participants in more than 27,000 private 
defined benefit plans through its single-employer and multiemployer 
insurance programs. At the end of fiscal year 2010, PBGC's net 
accumulated financial deficit for its programs was $23 billion--an 
increase of over $11 billion from the end of fiscal year 2008, and 
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 $170 billion, an amount that has been 
worsening due to economic circumstances. The Pension Protection Act of 
2006 (PPA) strengthened some aspects of funding rules and premiums, 
but in response to the recession, subsequent legislation authorized a 
phase-in of those changes. PBGC has implemented various measures to 
improve its operations, but weaknesses remain. GAO put the single-
employer program on its High-Risk List in July 2003 and added the 
multiemployer program in January 2009. 

What GAO Found: 

As the insurer of private defined benefit pension plans, PBGC's 
financial portfolio is now one of the largest of any federal 
government corporation, with nearly $80 billion in assets. Yet, 
because of long-term structural challenges and recent investment 
losses, PBGC's financial future is uncertain and GAO is continuing to 
designate PBGC's insurance programs as high risk. 

In the wake of the recent financial crisis, the combined net financial 
condition of PBGC's single-employer and multiemployer insurance 
programs declined precipitously. Although it has stabilized some as 
the economy has begun to recover, PBGC continues to face the ongoing 
threat of losses from the termination of underfunded plans. At the end 
of fiscal year 2010, PBGC projected $99.4 billion in liabilities under 
the single-employer program, mostly for benefits owed participants in 
terminated plans, and $3.1 billion under the multiemployer program, 
mostly for nonrecoverable financial assistance. As a result, PBGC's 
net accumulated deficit totaled $23 billion at the end of fiscal year 
2010, more than double its deficit from 2 years earlier. 

Figure 3: PBGC's Net Financial Position, Single-Employer and 
Multiemployer Programs Combined: 

[Refer to PDF for image: line graph] 

Fiscal year (at year end) 1990:	-$1.78 billion; 
Fiscal year (at year end) 1991:	-$2.34 billion; 
Fiscal year (at year end) 1992:	-$2.57 billion; 
Fiscal year (at year end) 1993:	-$2.62 billion; 
Fiscal year (at year end) 1994:	-$1.04 billion; 
Fiscal year (at year end) 1995:	-$0.12 billion; 
Fiscal year (at year end) 1996:	$0.99 billion; 
Fiscal year (at year end) 1997:	$3.7 billion; 
Fiscal year (at year end) 1998:	$5.35 billion; 
Fiscal year (at year end) 1999:	$7.24 billion; 
Fiscal year (at year end) 2000:	$9.97 billion; 
Fiscal year (at year end) 2001:	$7.85 billion; 
Fiscal year (at year end) 2002:	-$3.48 billion; 
Fiscal year (at year end) 2003:	-$11.5 billion; 
Fiscal year (at year end) 2004:	-$23.54 billion; 
Fiscal year (at year end) 2005:	-$23.11 billion; 
Fiscal year (at year end) 2006:	-$18.88 billion; 
Fiscal year (at year end) 2007:	-$14.07 billion; 
Fiscal year (at year end) 2008:	-$11.15 billion; 
Fiscal year (at year end) 2009:	-$21.95 billion; 
Fiscal year (at year end) 2010:	-$23.03 billion. 

Source: PBGC. 

Note: Net financial position equals program assets less the current 
value of future benefit obligations and financial assistance unlikely 
to be repaid. 

[End of figure] 

Long-term structural challenges are at the heart of PBGC's 
difficulties. For example, PBGC's premium base has been eroding over 
time as fewer sponsors are paying premiums for fewer participants. In 
fiscal year 2010, PBGC insured about half the number of plans it 
insured 15 years ago. In addition, many underfunded defined benefit 
plans are sponsored by companies that have been hurt by the recession. 
To the extent these sponsors have a greater likelihood of bankruptcy, 
their plans are at greater risk of termination. All of these 
developments increase PBGC's financial risk. 

To respond to these challenges, PBGC has taken various steps to 
improve its workforce planning and contracting procedures, but 
weaknesses remain--especially in the areas of governance and strategic 
management. For example, PBGC's current three-member board of 
directors cannot devote sufficient time to provide adequate policy 
direction and oversight. Further, PBGC's current strategic management 
does not adequately incorporate goals for setting a long-term, 
coherent investment policy, for determining the optimal mix of 
contract and federal workers, and for addressing delays in determining 
benefits for participants in large, complex plans that have been 
terminated. 

What Remains to Be Done: 

To safeguard the private pension system's role in national retirement 
security, PPA's changes related to funding rules and premiums, which 
are being phased-in as a result of subsequent legislation, need to be 
fully implemented. Also, Congress should expand PBGC's board and 
encourage PBGC to strengthen its strategic management. Although PBGC 
will likely remain at risk from a premium rate structure that does not 
adequately reflect its financial exposure and the threat of 
terminations of large underfunded plans, it can take steps to 
strengthen its operations to better manage the challenges of its 
unstable financial condition and increasing workloads. 

For example, PBGC could adopt a coherent, long-term investment policy 
to strengthen strategic management of its assets; include procurement 
decision making in corporate-level strategic planning to strengthen 
strategic management of its contract workforce; and establish separate 
performance measures for large, complex plans to strengthen strategic 
management of its benefit determination process. 

GAO Contact: 

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

Related GAO Products: 

Pension Benefit Guaranty Corporation: Improvements Needed to 
Strengthen Governance Structure and Strategic Management. [hyperlink, 
http://www.gao.gov/products/GAO-11-182T]. Washington, D.C.: December 
1, 2010. 

Private Pensions: Changes Needed to Better Protect Multiemployer 
Pension Benefits. [hyperlink, http://www.gao.gov/products/GAO-11-79]. 
Washington, D.C.: October 18, 2010. 

Private Pensions: Long-standing Challenges Remain for Multiemployer 
Pension Plans. [hyperlink, http://www.gao.gov/products/GAO-10-708T]. 
Washington, D.C.: May 27, 2010. 

Troubled Asset Relief Program: Automaker Pension Funding and Multiple 
Federal Roles Pose Challenges for the Future. [hyperlink, 
http://www.gao.gov/products/GAO-10-492]. Washington, D.C.: April 6, 
2010. 

Pension Benefit Guaranty Corporation: Workers and Retirees Experience 
Delays and Uncertainty when Underfunded Plans Are Terminated. 
[hyperlink, http://www.gao.gov/products/GAO-10-181T]. Washington, 
D.C.: October 29, 2009. 

Private Pensions: Sponsors of 10 Underfunded Plans Paid Executives 
Approximately $350 Million in Compensation Shortly Before Termination. 
[hyperlink, http://www.gao.gov/products/GAO-10-77]. Washington, D.C.: 
October 21, 2009. 

Pension Benefit Guaranty Corporation: More Strategic Approach Needed 
for Processing Complex Plans Prone to Delays and Overpayments. 
[hyperlink, http://www.gao.gov/products/GAO-09-716]. Washington, D.C.: 
August 17, 2009. 

Pension Benefit Guaranty Corporation: Financial Challenges Highlight 
Need for Improved Governance and Management. [hyperlink, 
http://www.gao.gov/products/GAO-09-702T]. Washington, D.C.: May 20, 
2009. 

Defined Benefit Plans: Proposed Plan Buyouts by Financial Firms Pose 
Potential Risks and Benefits. [hyperlink, 
http://www.gao.gov/products/GAO-09-207]. Washington, D.C.: March 16, 
2009. 

[End of section] 

Medicare Program: 

Why Area Is High Risk: 

GAO has designated Medicare as a high-risk program because its 
complexity and susceptibility to improper payments, added to its size, 
have led to serious management challenges. In 2010, Medicare covered 
47 million elderly and disabled beneficiaries had estimated outlays of 
$509 billion. Medicare had estimated improper payments of almost $48 
billion in fiscal year 2010. However, this improper payment estimate 
did not include all of the program's risk, since it did not include 
improper payments in its prescription drug benefit, for which the 
agency has not yet estimated a total amount. The Centers for Medicare 
& Medicaid Services (CMS), which administers Medicare, is responsible 
for implementing payment methods that encourage efficient service 
delivery, managing the program to serve beneficiaries and safeguard it 
from loss, and overseeing patient safety and care. CMS faces growing 
challenges in coming years, given the rapid growth expected in the 
number of Medicare beneficiaries and program spending. 

What GAO Found: 

The Medicare program remains on a path that is fiscally unsustainable 
over the long term. This fiscal pressure heightens the need for CMS to 
improve Medicare's payment methods to achieve efficiency and savings, 
and its management, program integrity, and oversight of patient care 
and safety. 

Reforming and refining payments. Since January 2009, CMS has 
implemented payment reforms for Medicare Advantage, and inpatient 
hospital, home health, and end-stage renal disease services. The 
agency has also begun to provide feedback to physicians on their 
resource use and is developing a value-based payment method for 
physician services that accounts for the quality and cost of care. 
Efforts to provide feedback and encourage efficiency are crucial 
because physician influence on the use of other services is estimated 
to account for up to 90 percent of health care spending. 

In addition, CMS has taken steps to ensure that some physician fees 
recognize efficiencies when certain services are furnished together, 
but the agency has not targeted the services with the greatest 
potential for savings. Under the budget neutrality requirement, the 
savings that have been generated have been redistributed to increase 
physician fees for other services. Therefore, GAO recommended in 2009 
that Congress consider exempting savings from adjusting physician fees 
to recognize efficiencies from budget neutrality to ensure that 
Medicare realizes these savings. 

GAO's work has also shown that payment for imaging services may 
benefit from refinements. Specifically, CMS could add more front-end 
approaches to better ensure appropriate payments, such as requiring 
physicians to obtain prior authorization from Medicare before ordering 
an imaging service. CMS also has opportunities to improve the way it 
adjusts physician payments to account for geographical differences in 
the costs of providing care in different localities. GAO has 
recommended that the agency examine and revise the physician payment 
localities it uses for this purpose by using an approach that is 
uniformly applied to all states and based on the most current data. 
CMS agreed to consider the recommendation, but was concerned about its 
redistributive effects. The agency subsequently initiated a study of 
physician payment locality adjustments. The study is ongoing and CMS 
has not implemented any change. 

Improving program management. CMS's implementation of competitive 
bidding for medical equipment and supplies and its new Medicare 
Administrative Contractors (MAC) have progressed, with some delays. 
Congress halted the first round of competitive bidding and required 
CMS to improve its implementation. In regard to contracting reform, 
due to delays because of protests filed in connection with the 
procurement process, CMS did not meet the target that it set for 2009 
and 2010 in transferring workload to MACs. As of December 2010, CMS 
transferred Medicare's fee-for-service claims workload to the new MACs 
in all but six jurisdictions. For those six jurisdictions, CMS is 
transferring claims workload in two jurisdictions, and has ongoing 
procurement activity in the remainder. Some new MACs had delays in 
paying providers' claims, but overall, CMS's contractors continued to 
meet the agency's performance targets for timeliness of claims 
processing in 2009. 

Regarding Medicare Advantage, CMS has not complied with statutory 
requirements to mail information on plan disenrollment to 
beneficiaries but did take steps to post this information on its Web 
site. In addition, the agency took enforcement actions for 
inappropriate marketing against at least 73 organizations that 
sponsored Medicare Advantage plans from January 2006 to February 2009. 

In regard to CMS's management of its contracting function, GAO found 
pervasive internal control deficiencies that put billions of taxpayer 
dollars at risk of improper payments or waste and recommended that CMS 
take actions to address them. Recently, CMS has taken several actions 
to address the recommendations and correct certain deficiencies we 
noted, such as revising policies and procedures, and developing a 
centralized tracking mechanism for employee training. However, CMS has 
not made sufficient progress to complete actions to address 
recommendations related to clarifying the roles and responsibilities 
for implementing certain contractor oversight responsibilities, 
clearing a backlog of contracts that are overdue for closeout, and 
finishing its investigation of over $70 million in payments GAO 
questioned in 2007. 

Enhancing program integrity. New directives, implementing guidance, 
and legislation will impact CMS's efforts to reduce improper payments 
in the next few years. The administration has issued Executive Order 
13520 on Reducing Improper Payments in 2009 and related implementing 
guidance in 2010. In addition, the Improper Payments Elimination, and 
Recovery Act of 2010 (IPERA) amended the Improper Payments Information 
Act of 2002 and established additional requirements related to 
accountability, recovery auditing, compliance and noncompliance 
determinations, and reporting. Further, the Patient Protection and 
Affordable Care Act and the Health Care and Education Reconciliation 
Act of 2010 contain provisions designed to help reduce improper 
payments in the Medicare program. 

CMS has already taken action in some areas--for example, as required 
by law, it implemented a national Medicare Recovery Audit Contractors 
(RAC) program in 2009. CMS has set a key performance measure to reduce 
improper fee-for-service and Part C payments and is developing 
measures of improper payment for Part D. CMS was not able to 
demonstrate sustained progress at reducing its fee-for-service error 
rate, because changes made to improve the methodology for measurement 
make current year estimates noncomparable to any issued before 2009. 
Its 2010 fee-for-service payment error rate of 10.5 percent will serve 
as the baseline for setting targets for future reduction efforts. 
However, with a 2010 Part C improper payment rate of 14.1 percent, the 
agency met its target to have its 2010 improper payment rate lower 
than 14.3 percent. For Part D, the agency is working to develop a 
composite improper payment rate, and for 2010 has four nonaddable 
estimates, with the largest being $5.4 billion. 

Other recent CMS program integrity efforts include issuing 
regulations, tightening provider enrollment requirements and creating 
a Center for Program Integrity, responsible for addressing program 
vulnerabilities leading to improper payments. However, having 
corrective action processes to address the vulnerabilities that lead 
to improper payments is also important to effectively managing them. 
CMS did not develop an adequate process to address the vulnerabilities 
to improper payments identified by the RACs. 

Further, several recommendations GAO made to improve the targeting of 
claims review for services with high rates of improper billing have 
not been addressed. Our February 2009 report indicated that Medicare 
continued to pay some home health agencies for services that are not 
medically necessary or not rendered. To help address the issue, GAO 
recommended that postpayment reviews be conducted on claims submitted 
by home health agencies with high rates of improper billing identified 
through prepayment review and that CMS require that physicians receive 
a statement of home health services beneficiaries received based on 
the physicians' certification. In addition, GAO recommended that CMS 
require its contractors to develop thresholds for unexplained 
increases in billing by providers and use them to develop automated 
prepayment controls as a way to reduce improper payments. CMS has not 
implemented these three recommendations because the agency indicated 
it had taken other actions; however, GAO believes these actions will 
not have the same effect. 

CMS's oversight of Part D plan sponsors' programs to deter fraud and 
abuse has been limited. However, CMS has taken some actions to 
increase it. For example, CMS officials indicated that they had 
conducted expanded desk audits and were implementing an oversight 
strategy. 

Overseeing patient care and safety. CMS's oversight of the quality of 
nursing home care has increased significantly in recent years, but 
weaknesses remain in surveillance that could understate care quality 
problems. Under contract with CMS, states conduct surveys at nursing 
homes to help ensure compliance with federal quality standards, but a 
substantial percentage of state nursing home surveyors and state 
agency directors identified weaknesses in CMS's survey methodology and 
guidance. In addition to these methodology and guidance weaknesses, 
workforce shortages and insufficient training, inconsistencies in the 
focus and frequency of the supervisory review of deficiencies, and 
external pressure from the nursing home industry may lead to 
understatement of serious care problems. 

CMS established the Special Facility Focus (SFF) Program in 1998 to 
help address poor nursing home performance. The SFF Program is limited 
to 136 homes because of resource constraints, but according to GAO's 
estimate, almost 4 percent (580) of the roughly 16,000 nursing homes 
in the United States could be considered the most poorly performing. 
CMS's current approach for funding state surveys of facilities 
participating in Medicare and Medicaid is ineffective yet these 
surveys are meant to ensure that these facilities provide safe, high-
quality care. GAO found serious weaknesses in CMS's ability to (1) 
equitably allocate more than $250 million in federal Medicare funding 
to states according to their workload, (2) determine the extent to 
which funding or other factors affected states' ability to accomplish 
their workload, and (3) guarantee appropriate state contributions. 
These weaknesses make assessing the adequacy of funding difficult. 

However, CMS has implemented many recommendations that GAO has made to 
improve oversight of nursing home care. Of the 96 recommendations made 
by GAO from July 1998 through March 2010, CMS has fully implemented 
45, partially implemented 4, is taking steps to implement 29, did not 
implement 18. Examples of key recommendations implemented by CMS 
include (1) a new survey methodology to improve the quality and 
consistency of state nursing home surveys and (2) new complaint and 
enforcement databases to better monitor state survey activities and 
hold nursing homes accountable for poor care. 

What Remains to Be Done: 

CMS has not met GAO's criteria for having the Medicare program removed 
from the High-Risk List--for example, the agency is still developing 
its Part D improper payment rate methodology and has not yet been able 
to demonstrate sustained progress in lowering its fee-for-service and 
Part C improper payment rates. CMS needs a plan with clear measures 
and benchmarks for reducing Medicare's risk for improper payments, 
inefficient payment methods, and issues in program management and 
patient care and safety. One important step relates to how well CMS 
implements IPERA and earlier requirements to identify the causes of 
improper payments and take appropriate action on them. Identifying the 
causes of improper payments and implementing GAO's recommendation to 
develop an adequate corrective action process to address 
vulnerabilities could strengthen CMS's efforts to reduce improper 
payments. Without an adequate corrective action process that uses 
information on vulnerabilities identified by the agency, its 
contractors, and others, CMS will not be able to effectively address 
its challenges related to improper payment. CMS has implemented 
certain GAO recommendations, such as in the area of nursing home 
oversight; however, further action is needed on GAO's recommendations 
to improve management of key activities. To refine payment methods to 
encourage efficient provision of services CMS should take action to: 

* ensure the implementation of an effective physician profiling system; 

* better manage payments for services, such as imaging; 

* systematically apply payment changes to reflect efficiencies 
achieved by providers when services are commonly furnished together; 
and: 

* refine the geographic adjustment of physician payments by revising 
the physician payment localities using an approach uniformly applied 
to all states and based on current data. 

In addition, further action is needed by CMS to establish policies to 
improve contract oversight, better target review of claims for 
services with high rates of improper billing, and improve the 
monitoring of nursing homes with serious care problems. 

GAO Contact: 

For additional information about this high-risk area, contact Cynthia 
A. Bascetta at (202) 512-7114 or bascettac@gao.gov. 

Related GAO Products: 

Medicare Recovery Audit Contracting: Weaknesses Remain in Addressing 
Vulnerabilities to Improper Payments, Although Improvements Made to 
Contractor Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-10-143]. Washington, D.C.: March 31, 
2010. 

Medicare Contracting Reform: Agency Has Made Progress with 
Implementation, but Contractors Have Not Met All Performance 
Standards. [hyperlink, http://www.gao.gov/products/GAO-10-71]. 
Washington, D.C.: March 25, 2010. 

Nursing Homes: Addressing the Factors Underlying Understatement of 
Serious Care Problems Requires Sustained CMS and State Commitment. 
[hyperlink, http://www.gao.gov/products/GAO-10-70]. Washington, D.C.: 
November 24, 2009. 

Medicare: CMS Working to Address Problems from Round 1 of the Durable 
Medical Equipment Competitive Bidding Program. [hyperlink, 
http://www.gao.gov/products/GAO-10-27]. Washington, D.C.: November 6, 
2009. 

Centers for Medicare and Medicaid Services: Deficiencies in Contract 
Management Internal Control Are Pervasive. [hyperlink, 
http://www.gao.gov/products/GAO-10-60]. Washington, D.C.: October 23, 
2009. 

Medicare Physician Payments: Fees Could Better Reflect Efficiencies 
Achieved When Services Are Provided Together. [hyperlink, 
http://www.gao.gov/products/GAO-09-647]. Washington, D.C.: July 31, 
2009. 

Medicare: Improvements Needed to Address Improper Payments in Home 
Health. [hyperlink, http://www.gao.gov/products/GAO-09-185]. 
Washington, D.C.: February 27, 2009. 

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 B Imaging Services: Rapid Spending Growth and Shift to 
Physician Offices Indicate Need for CMS to Consider Additional 
Management Practices. [hyperlink, 
http://www.gao.gov/products/GAO-08-452]. Washington, D.C.: June 13, 
2008. 

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. 

[End of section] 

Medicaid Program: 

Why Area Is High Risk: 

GAO designated Medicaid as a high-risk program in part due to concerns 
about the adequacy of fiscal oversight, which is necessary to prevent 
inappropriate program spending. Medicaid, the federal-state program 
that covered acute health care, long-term care and other services for 
over 65 million low-income people in fiscal year 2009, consists of 
more than 50 distinct state-based programs that cost the federal 
government and states an estimated $381 billion that year. The program 
accounts for more than 20 percent of states' expenditures and exerts 
continuing pressure on state budgets. The federal government matches 
state expenditures for most Medicaid services using the Federal 
Medical Assistance Percentage, a statutory formula based on each 
state's per capita income. 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: 

Strong federal oversight of Medicaid is warranted as the program 
continues to grow in size and cost to states and the federal 
government. For example, under the Patient Protection and Affordable 
Care Act (PPACA), the cost of the Medicaid expansion is estimated to 
exceed $430 billion over the next 10 years, with the federal 
government responsible for paying over 90 percent of these increased 
costs. CMS will need new tools and resources, including more reliable 
data for assessing expenditures and measuring performance, as the law 
is implemented. Medicaid remains at high-risk due to concerns about 
the adequacy of fiscal oversight of this large, diverse, and growing 
program. Areas of concern include the following: 

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 payments are made for people not eligible for Medicaid or 
made for services not provided. In its 2010 agency financial report, 
HHS estimated--on the basis of individual state error rates from a 
sample of 17 states reviewed on a rotating basis each year--a national 
improper payment rate for Medicaid of 9.4 percent (with the federal 
share estimated at $22.5 billion) for fiscal year 2010. Certain 
services may be more susceptible to improper payments. For example, in 
2009 GAO found that Medicaid beneficiaries and providers were involved 
in potentially wasteful or abusive purchases of controlled substances 
in five selected states. Specifically, GAO found that Medicaid paid 
over $2 million in controlled substance prescriptions during fiscal 
years 2006 and 2007 that were written or filled by 65 medical 
practitioners and pharmacies barred, excluded, or both from federal 
health care programs, including Medicaid. GAO recommended that CMS 
issue guidance to states to implement processes that better prevent 
payment of improper claims for controlled substances in Medicaid. CMS 
generally agreed with GAO recommendations; however, guidance had not 
been issued as of the end of 2010. 

Positive steps toward improving the transparency over and reducing 
improper payments have been taken in recent years, including issuance 
of Presidential Memoranda and a 2009 Executive Order, Reducing 
Improper Payments, along with the enactment of the Improper Payments 
Elimination and Recovery Act of 2010 (IPERA). CMS has also taken steps 
to address improper payments. For example, in 2010 the agency issued 
guidance to states in response to PPACA provisions requiring the 
establishment of a Recovery Audit Contractor Program for Medicaid and 
implementation of standard prepayment edits for Medicaid claims in all 
states. In addition, CMS's Medicaid Integrity Group was elevated and 
incorporated into the agency's overall program integrity program. 
However, it is too soon to assess the effectiveness of CMS's actions 
and the activities called for in the Presidential Memoranda, Executive 
Order, and IPERA in reducing improper payments. 

Managed care rate setting and quality of data used to set such rates 
has not been consistently reviewed by CMS. Requirements for Medicaid 
managed care rates to be actuarially sound are key safeguards in 
efforts to ensure that federal spending is appropriate. In 2010, GAO 
reported that CMS had been inconsistent in ensuring that states are 
complying with the actuarial soundness requirements. Further, GAO 
found that CMS efforts were not sufficient to ensure the quality of 
the data used by states to set managed care rates. With limited 
information on data quality, CMS cannot ensure that states' managed 
care rates are appropriate, which places billions of dollars at risk 
for misspending. GAO recommended that CMS implement a mechanism to 
track state compliance with actuarial soundness requirements, clarify 
federal guidance on rate-setting reviews, and make use of information 
on data quality in overseeing states' rate setting. HHS agreed with 
the recommendations and described efforts begun to improve CMS's 
oversight. 

Financing methods that are inappropriate and large supplemental 
payments that are not always transparent. Some states have established 
varied financing arrangements involving Medicaid supplemental payments 
that inappropriately increase federal Medicaid matching payments. 
Subject to certain requirements, states may make supplemental payments 
to Medicaid providers that are separate from and in addition to 
standard state Medicaid payments for services. In fiscal year 2010, 
states made more than $31 billion in supplemental payments; the 
federal share was more than $19 billion. GAO and others have reported 
concerns with states' Medicaid supplemental payments over the last 
decade, including the use of supplemental payment arrangements to 
increase federal funding without a commensurate increase in state 
funding. 

A variety of federal legislative and CMS actions have helped curb 
inappropriate arrangements, but gaps remain. In 2003 CMS began an 
initiative to closely review state supplemental payments and required 
states to end those it found inappropriate, however, in 2008, GAO 
reported that CMS had not reviewed all supplemental payment 
arrangements to ensure payments were appropriate and for Medicaid 
purposes. In 2009, GAO found that ongoing federal oversight of 
supplemental payments was warranted in part because states' Medicaid 
supplemental payments to certain hospitals through Disproportionate 
Share Hospital (DSH) payments for uncompensated hospital care did not 
account for other Medicaid payments the hospitals had received. In 
2011, improved transparency and accountability requirements will go 
into effect for state DSH payments, including standards for state 
calculations of DSH payment limits, state reporting of DSH payments on 
a facility basis, and independent auditing of state DSH payment 
reports and calculations. Similar standards for calculating and 
reporting of other types of Medicaid supplemental payments, such as 
non-DSH supplemental payments made under the Medicaid upper payment 
limit, have not been established. 

Congress has capped overall federal expenditures for DSH payments and 
created a hospital DSH payment limit that caps DSH payments to 
individual hospitals. And under the Patient Protection and Affordable 
Care Act (PPACA), reductions to DSH allocations to states in future 
years will occur. Similar limits have not been established for non-DSH 
supplemental payments, which appear to be increasing in amounts. In 
2006 states reported making $6.3 billion (federal share $3.7 billion) 
in non-DSH supplemental payments, but not all states were reporting 
their payments. By 2010 this amount had grown to $14 billion (federal 
share $9.6 billion) in non-DSH supplemental payments; however, 
according to CMS officials reporting is likely incomplete. Some key 
GAO recommendations aimed at improving federal oversight of non-DSH 
payments have not yet been implemented. GAO has recommended, among 
other things, that CMS establish uniform guidance for states setting 
forth acceptable methods for calculating payment amounts, require 
facility specific reporting of supplemental payments and develop a 
strategy to ensure all state supplemental payment arrangements have 
been reviewed. 

Demonstrations that inappropriately increase federal costs. HHS has 
authority to waive certain statutory provisions to allow states to 
implement demonstrations that test ideas for achieving program 
objectives. By policy, demonstrations should not increase federal 
costs. However, GAO reported in 2008 that HHS had approved two state 
demonstrations that could increase the federal financial liability 
substantially. At the time of our work in 2007, HHS disagreed with our 
recommendation to improve the demonstration review process through 
steps such as clarifying the criteria for reviewing and approving 
states' proposed spending limits and ensuring that valid methods were 
used to demonstrate budget neutrality. Consequently, we elevated this 
recommendation to the Congress for consideration. HHS subsequently 
reported taking steps, such as monitoring the budget neutrality of 
ongoing demonstrations, to improve its oversight. However, no changes 
are planned in the approval process and methods used to determine 
budget neutrality of demonstrations to ensure that demonstrations do 
not increase the federal financial liability. 

What Remains to Be Done: 

Congress, HHS and CMS have taken steps to improve the fiscal integrity 
of Medicaid, and CMS has implemented certain GAO recommendations, such 
as improving the information collected on certain supplemental 
payments. More federal oversight of Medicaid's fiscal and program 
integrity is needed, however, in addition to state actions. For 
example, CMS needs to ensure states develop adequate corrective action 
processes to address vulnerabilities to improper Medicaid payments to 
providers, and issue guidance to states to better prevent payment of 
improper claims for controlled substances in Medicaid. States also 
have key roles in reducing improper payments to providers in 
developing, implementing, and evaluating the effectiveness of 
corrective plans to reduce improper payments. 

CMS should also continue taking steps to improve oversight of Medicaid 
managed care payment rate-setting and Medicaid supplemental payments. 
CMS needs to identify and review the appropriateness of all Medicaid 
supplemental payment arrangements; establish guidance to states on 
appropriate methods for calculating non-DSH Medicaid supplemental 
payments; improve reporting on non-DSH supplemental payments, and 
ensure that states account for all Medicaid payments when calculating 
DSH payment limits for payments to hospitals for uncompensated care. 

GAO Contact: 

For additional information about this high-risk area, contact 
Katherine M. Iritani at (202) 512-7114 or iritanik@gao.gov. 

Related GAO Products: 

Medicaid Managed Care: CMS's Oversight of States' Rate Setting Needs 
Improvement. [hyperlink, http://www.gao.gov/products/GAO-10-810]. 
Washington D.C.: August 4, 2010. 

Medicaid: Ongoing Federal Oversight of Payments to Offset 
Uncompensated Hospital Care Costs Is Warranted. [hyperlink, 
http://www.gao.gov/products/GAO-10-69]. Washington D.C.: November 20, 
2009. 

Medicaid: Fraud and Abuse Related to Controlled Substances Identified 
in Selected States. [hyperlink, 
http://www.gao.gov/products/GAO-09-957]. Washington, D.C.: September 
9, 2009. 

Improper Payments: Progress Made but Challenges Remain in Estimating 
and Reducing Improper Payments. [hyperlink, 
http://www.gao.gov/products/GAO-09-628T]. Washington, D.C.: April 22, 
2009. 

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 section] 

National Flood Insurance Program: 

Why Area Is High Risk: 

The National Flood Insurance Program (NFIP) is a key component of the 
federal government's efforts to limit the damage and financial impact 
of floods; however, it likely will not generate sufficient revenues to 
repay the billions of dollars borrowed from the Treasury Department to 
cover claims from the 2005 hurricanes or future catastrophic losses. 
The lack of sufficient revenues highlights structural weaknesses in 
how the program is funded. Also, weaknesses in NFIP management and 
operations, including financial reporting processes and internal 
controls, and oversight of contractors place the program at risk. The 
Federal Emergency Management Agency (FEMA), within the Department of 
Homeland Security, is responsible for managing NFIP. While FEMA has 
taken some steps to address these issues, including increasing the 
number of policyholders and implementing new contractor oversight 
processes, it continues to face complex challenges, and Congress needs 
to act to restructure the program. 

What GAO Found: 

The potential losses generated by NFIP create substantial financial 
exposure for the federal government and U.S. taxpayers. While Congress 
and FEMA intended that NFIP be funded with premiums collected from 
policyholders rather than with tax dollars, the program is, by design, 
not actuarially sound. NFIP cannot do some of the things that private 
insurers do to manage risks. For example, NFIP is not structured to 
build a capital surplus, is likely unable to purchase reinsurance to 
cover catastrophic losses, cannot reject high-risk applicants, and is 
subject to statutory limits on rate increases. In addition, its 
premium rates do not reflect actual flood risk. For example, nearly 
one in four property owners pay subsidized rates, "full-risk" rates 
may not reflect the full risk of flooding, and NFIP allows 
"grandfathered" rates that allow some property owners to continue 
paying rates that do not reflect reassessments of their properties' 
flood risk. Further, NFIP cannot deny insurance on the basis of 
frequent losses and, thus, provides policies for repetitive loss 
properties, which represent only 1 percent of policies but account for 
25 percent to 30 percent of claims. NFIP's financial condition has 
improved slightly due to an increase in the number of policyholders 
and moderate flood losses, and FEMA has taken some encouraging steps 
toward improving its financial position, including reducing its debt 
to Treasury by almost $850 million since August 2009. However, FEMA 
will likely not be able to repay the $18.5 billion owed to Treasury as 
of November 30, 2010, especially if it faces catastrophic loss years 
or increased borrowing rates. 

Weaknesses in the management and operations of NFIP also create a risk 
that the funds allocated to NFIP and the premiums paid by 
policyholders are not being used efficiently or effectively. Payments 
to write-your-own (WYO) insurers--the private insurers who sell NFIP 
policies and administer claims--generally represent one-third to two-
thirds of the premiums collected in a given year. But FEMA does not 
systematically consider actual expense information when calculating 
these payments or implement all of its financial controls for the WYO 
program. GAO also found that FEMA did not consistently follow its 
procedures for monitoring non-WYO contractors or coordinate contract 
monitoring responsibilities among departments on some contracts. Some 
contract monitoring records were missing, and no system was in place 
that would allow departments to share information on contractor 
deficiencies. GAO also found that FEMA does not have an effective 
system to manage flood insurance policy and claims data, although it 
invested roughly 7 years and $40 million on a new system whose 
development has been halted because it did not meet users' needs. GAO 
will be issuing a detailed report on underlying management and 
operational challenges facing NFIP in March 2011. FEMA has begun to 
acknowledge its management challenges and develop a plan of action, 
but the effectiveness of these actions is not yet clear. Unless these 
operational and management issues are addressed, FEMA risks ongoing 
challenges in effectively and efficiently managing NFIP, including its 
management and use of information, data, and technology. 

What Remains to Be Done: 

Addressing NFIP's financial challenges will require reforming the 
program. At the same time, FEMA must develop and implement a plan to 
address its operational and management issues. FEMA officials have 
acknowledged the need for actions to improve NFIP operations, 
including the many recommended by GAO, and must demonstrate a 
continued strong commitment and support for these actions. 

GAO Contact: 

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

Related GAO Products: 

National Flood Insurance Program: Continued Actions Needed to Address 
Financial and Operational Issues. [hyperlink, 
http://www.gao.gov/products/GAO-10-1063T]. Washington, D.C.: September 
22, 2010. 

Financial Management: Improvements Needed in National Flood Insurance 
Program's Financial Controls and Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-10-66]. Washington, D.C.: December 22, 
2009. 

Flood Insurance: Opportunities Exist to Improve Oversight of the WYO 
Program. [hyperlink, http://www.gao.gov/products/GAO-09-455]. 
Washington, D.C.: August 21, 2009. 

Information on Proposed Changes to the National Flood Insurance 
Program. [hyperlink, http://www.gao.gov/products/GAO-09-420R]. 
Washington, D.C.: February 27, 2009. 

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. 

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: 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 section] 

Appendix I: High-Risk Program History and Criteria: 

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 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 2009.[Footnote 25] 
That update identified 30 high-risk areas. In July 2009, a 31st area 
was added, Restructuring the U.S. Postal Service to Achieve 
Sustainable Financial Viability. 

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 a number of 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 21 years is 
shown in table 4. Areas removed from the High-Risk List over that same 
period are shown in table 5. The areas on GAO's 2011 High-Risk List, 
and the year each was designated as high risk, are shown in table 6. 

Table 4: Changes to GAO's High-Risk List, 1990-2011: 

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

High-risk areas added since 1990; 
Number of areas: 39. 

High-risk areas removed since 1990; 
Number of areas: 21. 

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

High-risk list in 2011; 
Number of areas: 30. 

Source: GAO. 

[End of table] 

Table 5: Areas Removed from GAO's High-Risk List, 1990-2011: 

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. 

Area: 2010 Census; 
Year removed: 2011; 
Year designated high risk: 2008. 

Area: DOD Personnel Security Clearance Program; 
Year removed: 2011; 
Year designated high risk: 2005. 

Source: GAO. 

[End of table] 

Table 6: Year That Areas on GAO's 2011 High-Risk List Were Designated 
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 Cyber 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 and Managing 
Terrorism-Related Information to Protect the Homeland; 
Year designated high risk: 2005. 

Area: DOD Approach to Business Transformation; 
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: 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. 

Area: Restructuring the U.S. Postal Service to Achieve Sustainable 
Financial Viability; 
Year designated high risk: 2009. 

Area: Management of Federal Oil and Gas Resources; 
Year designated high risk: 2011. 

[End of table] 

Source: GAO. 

Eight of the 21 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 to over half of 
our original High-Risk List have been successfully addressed. 

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 26] 
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; a program 
to monitor corrective measures; and demonstrated progress in 
implementing corrective measures. Our experience with the High-Risk 
Series over the past 21 years has shown that the key elements needed 
to make progress in high-risk areas are congressional action, high-
level administration initiatives, and agency efforts targeted to 
address the risks and grounded in the five criteria we established for 
removal from the High-Risk List. Table 7 provides more detail on the 
types of actions that have led to success. 

Table 7: Criteria for Removal from High-Risk List and Examples of 
Actions by Congress, the Administration, and Agencies Leading to 
Progress: 

These five criteria can form a road map for efforts to improve and 
ultimately address high-risk issues: 

1. Demonstrated top leadership commitment; 
* Congressional oversight and legislation; 
* OMB leadership; 
* Top leadership in individual agencies. 

2. Capacity; 
* People and other resources to reduce risks; 
* Processes for reporting and accountability mechanisms. 

3. Corrective action plan; 
* Analysis identifying root causes of problems; 
* Plans targeted to address root causes; 
* Implementation of solutions to root causes. 

4. Monitoring; 
* Established performance measures; 
* Data collection and analysis. 

5. Demonstrated progress; 
* Evidence of implemented corrective actions; 
* Appropriate adjustments to action plans based on data. 

Source: GAO. 

Note: Addressing some of the criteria leads to progress, while 
satisfying all of the criteria is central to removal from the list. 

[End of table] 

[End of section] 

Footnotes: 

[1] The Performance Accountability Council is comprised of the 
Director of National Intelligence as the Security Executive Agent, the 
Director of OPM as the Suitability Executive Agent, and the Deputy 
Director for Management, OMB as the chair with the authority to 
designate officials from additional agencies to serve as members. The 
current council includes representatives from the Department of 
Defense, Department of State, Federal Bureau of Investigation, 
Department of Homeland Security, Department of Energy, Department of 
Health and Human Services, Department of Veterans Affairs, and 
Department of the Treasury. 

[2] Since GAO first designated DOD's personnel security clearance 
program as a high-risk area, Congress has held over 14 oversight 
hearings on security clearance reforms. Key committees include (1) the 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia, Senate Committee on Homeland 
Security and Governmental Affairs; (2) the Subcommittee on 
Intelligence Community Management, House Permanent Select Committee on 
Intelligence; (3) the Subcommittee on Government Management, 
Organization, and Procurement, House Committee on Oversight and 
Government Reform; and (4) the Subcommittee on Readiness, House 
Committee on Armed Services. 

[3] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-05-207] (Washington, D.C.: January 
2005). 

[4] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-07-310] (Washington, D.C.: January 
2007); and High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January 
2009). 

[5] Pub. L. No. 111-259, § 367 (2010). 

[6] GAO, 2010 Census: Cost and Design Issues Need to Be Addressed 
Soon, [hyperlink, http://www.gao.gov/products/GAO-04-37] (Washington, 
D.C.: Jan. 15, 2004). 

[7] GAO, 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.: Mar. 5, 
2008). 

[8] See, for example, GAO, Information Technology Management: Census 
Bureau Has Implemented Many Key Practices, but Additional Actions Are 
Needed, [hyperlink, http://www.gao.gov/products/GAO-05-661] 
(Washington, D.C.: June 16, 2005); 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.: 
Oct. 5, 2007); 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); and Information Technology: Census 
Bureau Testing of 2010 Decennial Systems Can Be Strengthened, 
[hyperlink, http://www.gao.gov/products/GAO-09-262] (Washington, D.C.: 
Mar. 5, 2009). 

[9] Since GAO first designated the 2010 Census as a high-risk area, 
Congress has held 12 oversight hearings on the status of the decennial 
census. Key committees include (1) the Senate Committee on Homeland 
Security and Governmental Affairs; (2) the Subcommittee on Federal 
Financial Management, Government Information, Federal Services and 
International Security, Senate Committee on Homeland Security and 
Governmental Affairs; and (3) the Subcommittee on Information Policy, 
Census, and National Archives, House Committee on Oversight and 
Government Reform. 

[10] GAO, 2010 Census: Data Collection Operations Were Generally 
Completed as Planned, but Longstanding Challenges Suggest Need for 
Fundamental Reforms, [hyperlink, 
http://www.gao.gov/products/GAO-11-193] (Washington, D.C.: Dec. 14, 
2010). 

[11] GAO, 2010 Census: Data Collection Operations Were Generally 
Completed as Planned, but Longstanding Challenges Suggest Need for 
Fundamental Reforms, [hyperlink, http://www.gao.gov/products/GAO-11-
193 (Washington, D.C.: Dec. 14, 2010). 

[12] GAO, Oil and Gas Royalties: The Federal System for Collecting Oil 
and Gas Revenues Needs Comprehensive Reassessment, [hyperlink, 
http://www.gao.gov/products/GAO-08-691] (Washington, D.C.: Sept. 3, 
2008). 

[13] GAO, Oil and Gas Management: Interior's Oil and Gas Production 
Verification Efforts Do Not Provide Reasonable Assurance of Accurate 
Measurement of Production Volumes, [hyperlink, 
http://www.gao.gov/products/GAO-10-313] (Washington, D.C.: Mar. 15, 
2010). 

[14] GAO, Federal Oil and Gas Leases: Opportunities Exist to Capture 
Vented and Flared Natural Gas, Which Would Increase Royalty Payments 
and Reduce Greenhouse Gases, [hyperlink, 
http://www.gao.gov/products/GAO-11-34] (Washington, D.C.: Oct. 29, 
2010). 

[15] GAO, Mineral Revenues: MMS Could Do More to Improve the Accuracy 
of Key Data Used to Collect and Verify Oil and Gas Royalties, 
[hyperlink, http://www.gao.gov/products/GAO-09-549] (Washington, D.C.: 
July 15, 2009). 

[16] GAO, Mineral Revenues: Data Management Problems and Reliance on 
Self-Reported Data for Compliance Efforts Put MMS Royalty Collections 
at Risk, [hyperlink, http://www.gao.gov/products/GAO-08-893R] 
(Washington, D.C.: Sept. 12, 2008). 

[17] [hyperlink, http://www.gao.gov/products/GAO-10-313]. 

[18] GAO, Oil and Gas Development: Increased Permitting Activity Has 
Lessened BLM's Ability to Meet Its Environmental Protection 
Responsibilities, [hyperlink, http://www.gao.gov/products/GAO-05-418] 
(Washington, D.C.: June 17, 2005). 

[19] GAO, Results-Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations, [hyperlink, 
http://www.gao.gov/products/GAO-03-669] (Washington, D.C.: July 2, 
2003). 

[20] GAO, 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.: 
Apr. 13, 2007). 

[21] In order to independently assess the reliability of FRPP data, we 
reviewed the fiscal year 2008 and 2009 data for domestic buildings and 
structures from the Departments of Energy, Homeland Security, the 
Interior, and Veterans Affairs, and the General Services 
Administration. 

[22] GAO, 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.: Oct. 16, 
2008). 

[23] GAO, DOD's 2010 Comprehensive Inventory Management Improvement 
Plan Addressed Statutory Requirements, But Faces Implementation 
Challenges, [hyperlink, http://www.gao.gov/products/GAO-11-240R] 
(Washington, D.C.: Jan. 7, 2011). 

[24] Pub. L. No. 111-292, 124 Stat. 3165 (Dec. 9, 2010), codified at 5 
U.S.C. §§ 6501-6506. 

[25] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January 
2009). 

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

[End of section] 

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