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GAO: 

Report to Congressional Addressees: 

March 2011: 

Opportunities to Reduce Potential Duplication in Government Programs, 
Save Tax Dollars, and Enhance Revenue: 

GAO-11-318SP: 

Contents: 

Letter: 

Section I: GAO Identified Areas of Potential Duplication, Overlap, and 
Fragmentation, Which, if Effectively Addressed, Could Provide 
Financial and Other Benefits: 

Section II: Other GAO-Identified Cost-Saving and Revenue-Enhancing 
Areas: 

Appendix I: List of Congressional Addressees: 

Appendix II: Objectives, Scope, and Methodology: 

Abbreviations: 

AC: Bureau of Arms Control: 

AFR: Agency Financial Report: 

AFV: alternative fuel vehicle: 

AHLTA: Armed Forces Health Longitudinal Technology Application: 

ARS: Agricultural Research Service: 

ATF: Bureau of Alcohol, Tobacco, Firearms and Explosives: 

AUR: Automated Underreporter Program: 

BEA: business enterprise architecture: 

BEST: Border Enforcement Security Task Force: 

BLM: Bureau of Land Management: 

BOEMRE: Bureau of Ocean Energy Management, Regulation and Enforcement: 

BPA: blanket purchase agreement: 

BRAC: base realignment and closure: 

CBP: Customs and Border Protection: 

CDE: Community Development Entities: 

CFDA: Catalog of Federal Domestic Assistance: 

CDFI: Community Development Financial Institution: 

CERP: Commander's Emergency Response Program: 

CIO: Chief Information Officer: 

CMS: Centers for Medicare & Medicaid Services: 

COBRA: Consolidated Omnibus Budget Reconciliation Act of 1985: 

Commerce: Department of Commerce: 

Corrosion Office: Office of Corrosion Policy and Oversight: 

DHS: Department of Homeland Security: 

DLA: Defense Logistics Agency: 

DNDO: Domestic Nuclear Detection Office: 

DOD: Department of Defense: 

DOT: Department of Transportation: 

DSH: Disproportionate Share Hospital: 

EAS: Essential Air Service: 

Education: Department of Education: 

EDA: Economic Development Administration: 

EHR: Electronic Health Record: 

Energy: Department of Energy: 

EPA: Environmental Protection Agency: 

EPAct: Energy Policy Act: 

FAM: Foreign Affairs Manual: 

FBI: Federal Bureau of Investigation: 

FCC: Federal Communications Commission: 

FDA: Food and Drug Administration: 

FEMA: Federal Emergency Management Agency: 

FFS: fee-for-service: 

FMCSA: Federal Motor Carrier Safety Administration: 

FPDS-NG: Federal Procurement Data System-Next Generation: 

FSIS: Food Safety and Inspection Service: 

FSSI: Federal Strategic Sourcing Initiative: 

FTA: Federal Transit Administration: 

FTHBC: First-Time Homebuyer Credit: 

Fund: Universal Service Fund: 

GAGAS: generally accepted government auditing standards: 

GHG: greenhouse gas: 

GPO: Government Pension Offset: 

GPRA: Government Performance and Results Act: 

GSA: General Services Administration: 

HHA: home health agency: 

HHS: Department of Health and Human Services: 

HUBZone: Historically Underutilized Business Zone: 

HUD: Department of Housing and Urban Development: 

IBET: Integrated Border Enforcement Team: 

IED: improvised explosive device: 

IG: Inspector General: 

Interior: Department of the Interior: 

IPERA: Improper Payments Elimination and Recovery Act: 

IRS: Internal Revenue Service: 

ISN: Bureau of International Security and Nonproliferation: 

ISR: intelligence, surveillance, and reconnaissance: 

IT: information technology: 

JIEDDO: Joint IED Defeat Organization: 

Justice: Department of Justice: 

Labor: Department of Labor: 

MAS: Multiple Award Schedule: 

MEA: math error authority: 

MHS: Military Health System: 

MPPR: multiple procedure payment reduction: 

NAFTA: North American Free Trade Agreement: 

NASA: National Aeronautics and Space Administration: 

NMTC: New Markets Tax Credit: 

NP: Bureau of Nonproliferation: 

NSLP: National School Lunch Program: 

OFPP: Office of Federal Procurement Policy: 

OMB: Office of Management and Budget: 

ONRR: Office of Natural Resources and Revenue: 

O&S: operating and support: 

PAR: Performance and Accountability Report: 

PBL: performance-based logistics: 

PMS: Payment Management System: 

RAC: recovery audit contractor: 

RFS: renewable fuel standard: 

ROI: return on investment: 

S&T: Science and Technology Directorate: 

SBA: Small Business Administration: 

SNAP: Supplemental Nutrition Assistance Program: 

SPOT: Screening of Passengers by Observation Techniques: 

SSA: Social Security Administration: 

State: Department of State: 

STEM: science, technology, engineering, and mathematics: 

TANF: Temporary Assistance for Needy Families: 

Treasury: Department of the Treasury: 

TSA: Transportation Security Administration: 

USAC: Universal Service Administrative Company: 

USAID: U.S. Agency for International Development: 

USDA: Department of Agriculture: 

USICH: U.S. Interagency Council on Homelessness: 

VA: Department of Veterans Affairs: 

VC: Bureau of Verification and Compliance: 

VCI: Bureau of Verification, Compliance and Implementation: 

VEETC: Volumetric Ethanol Excise Tax Credit: 

VistA: Veterans Health Information Systems and Technology Architecture: 

WEP: Windfall Elimination Provision: 

WIA: Workforce Investment Act: 

WIC: Special Supplemental Nutrition Program for Women, Infants, and 
Children: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 1, 2011: 

Congressional Addressees: 

This is GAO's first annual report to Congress in response to a new 
statutory requirement that GAO identify federal programs, agencies, 
offices, and initiatives, either within departments or governmentwide, 
which have duplicative goals or activities. Congress asked GAO to 
conduct this work and to report annually on our findings.[Footnote 1] 
This work will inform government policymakers as they address the 
rapidly building fiscal pressures facing our national government. 
GAO's most recent update of its annual simulations of the federal 
government's fiscal outlook underscores the need to address the long- 
term sustainability of the federal government's fiscal policies.
[Footnote 2] Since the end of the recent recession, the gross 
domestic product has grown slowly and unemployment has remained at a 
high level. While the economy is still recovering and in need of 
careful attention, there is widespread agreement on the need to 
look not only at the near term but also at steps that begin to change 
the long-term fiscal path as soon as possible without slowing the 
recovery. With the passage of time, the window to address the challenge 
narrows and the magnitude of the required changes grows. GAO's 
simulations show continually increasing levels of debt that are 
unsustainable over time absent changes in current fiscal policies. 

The objectives of this report are to (1) identify federal programs or 
functional areas where unnecessary duplication, overlap, or 
fragmentation exists, the actions needed to address such conditions, 
and the potential financial and other benefits of doing so; and (2) 
highlight other opportunities for potential cost savings or enhanced 
revenues. To meet these objectives, we are including 81 areas for 
consideration based on related GAO work. This report is divided into 
two sections. Section I presents 34 areas where agencies, offices, or 
initiatives have similar or overlapping objectives or provide similar 
services to the same populations; or where government missions are 
fragmented across multiple agencies or programs. These areas span a 
range of government missions: agriculture, defense, economic 
development, energy, general government, health, homeland security, 
international affairs, and social services. Within and across these 
missions, this report touches on hundreds of federal programs, 
affecting virtually all major federal departments and agencies. 
Overlap and fragmentation among government programs or activities can 
be harbingers of unnecessary duplication. Reducing or eliminating 
duplication, overlap, or fragmentation could potentially save billions 
of tax dollars annually and help agencies provide more efficient and 
effective services. The areas identified in this report are not 
intended to represent the full universe of duplication, overlap, or 
fragmentation within the federal government. We will continue to 
identify additional issues in future reports. 

Given today's fiscal environment, Section II of this report summarizes 
47 additional areas--beyond those directly related to duplication, 
overlap, or fragmentation--describing other opportunities for agencies 
or Congress to consider taking action that could either reduce the 
cost of government operations or enhance revenue collections for the 
Treasury. These cost-savings and revenue opportunities also span a 
wide range of federal government agencies and mission areas. The 
issues raised in both sections were drawn from GAO's prior and ongoing 
work. 

Many of the issues included in this report are focused on activities 
that are contained within single departments or agencies. In those 
cases, agency officials can generally achieve cost savings or other 
benefits by implementing existing GAO recommendations or by 
undertaking new actions suggested in this report. However, a number of 
issues we have identified, particularly in the duplication area, span 
multiple organizations and therefore may require higher-level 
attention by the executive branch or enhanced congressional oversight 
or legislative action. 

In some cases, there is sufficient information available today to show 
that if actions are taken to address individual issues summarized in 
this report, financial benefits ranging from the tens of millions to 
several billion dollars annually may be realized by addressing that 
single issue. For example, while the Department of Defense is making 
limited changes to the governance of its military health care system, 
broader restructuring could result in annual savings of up to $460 
million. Similarly, we developed a range of options that could reduce 
federal revenue losses by up to $5.7 billion annually by addressing 
potentially duplicative policies designed to boost domestic ethanol 
production. Likewise, we identified a number of other opportunities 
for cost savings or enhanced revenues such as reducing improper 
federal payments totaling billions of dollars, or addressing the gap 
between taxes owed and paid, potentially involving billions of 
dollars. Collectively, these savings and revenues could result in tens 
of billions of dollars in annual savings, depending on the extent of 
actions taken. 

In other cases, precise estimates of the extent of unnecessary 
duplication among certain programs, and the cost savings that can be 
achieved by eliminating any such duplication, are difficult to specify 
in advance of congressional and executive branch decision making. In 
some instances, needed information on program performance is not 
readily available; the level of funding in agency budgets devoted to 
overlapping or fragmented programs is not clear; and the implementation 
costs that might be associated with program consolidations or terminations, 
among other variables, are difficult to predict. For example, we identified 
44 federal employment and training programs that overlap with at least 
one other program in that they provide at least one similar service 
to a similar population. However, our review of three of the largest 
programs showed that the extent to which individuals receive the same 
services from these programs is unknown due to program data 
limitations. In addition, Congress' determinations in making policy 
decisions and actions that agencies may take would affect the potential 
savings associated with any given option.[Footnote 3] Nevertheless, 
considering the amount of program dollars involved in the issues we 
have identified, even limited adjustments could result in significant 
savings. 

Given the challenges noted above, careful, thoughtful actions will be 
needed to address many of the issues discussed in this report, 
particularly those involving potential duplication. Additionally, in 
January 2011, the President signed the GPRA Modernization Act of 2010, 
[Footnote 4] updating the almost two-decades-old Government 
Performance and Results Act (GPRA).[Footnote 5] Implementing 
provisions of the new act--such as its emphasis on establishing 
outcome-oriented goals covering a limited number of crosscutting 
policy areas--could play an important role in clarifying desired 
outcomes, addressing program performance spanning multiple 
organizations, and facilitating future actions to reduce unnecessary 
duplication, overlap, and fragmentation. 

As the nation rises to meet the current fiscal challenges, GAO will 
continue to assist Congress and federal agencies in reducing 
duplication, overlap, or fragmentation; achieving cost savings; and 
enhancing revenues. In GAO's future annual reports, we will look at 
additional federal programs to identify further instances of 
duplication, overlap, or fragmentation, as well as other opportunities 
to reduce the cost of government operations or increase revenues to 
the government. Likewise, we will continue to monitor developments in 
the areas we have already identified. Issues of duplication, overlap, 
and fragmentation will be addressed in our routine audit work during 
the year as appropriate and summarized in our annual reports. 

This report is based substantially upon work conducted for ongoing 
audits and previously completed GAO products, which were conducted in 
accordance with generally accepted government auditing standards or 
with GAO's quality assurance framework, as appropriate. We conducted 
the work for the overall report from February 2010 through February 
2011. For issues being reported on for the first time, GAO sought 
comments from the agencies involved and incorporated those comments as 
appropriate. Appendix II contains additional details of our scope and 
methodology. 

This report was prepared under the coordination of Patricia Dalton, 
Chief Operating Officer, who may be reached at (202) 512-5600, or 
DaltonP@gao.gov; and Janet St. Laurent, Managing Director, Defense 
Capabilities and Management, who may be reached at (202) 512-4300, or 
StLaurentJ@gao.gov. Specific questions about individual issues may be 
directed to the area contact listed at the end of each summary. 

Signed by: 

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

[End of section] 

Section I: GAO Identified Areas of Potential Duplication, Overlap, and 
Fragmentation, Which, if Effectively Addressed, Could Provide 
Financial and Other Benefits: 

Table 1 presents 34 areas for consideration related to duplication, 
overlap, or fragmentation from GAO's recently completed and ongoing 
work. In some cases, there is sufficient information to estimate 
potential savings or other benefits if actions are taken to address 
individual issues. In those cases, as noted below, financial benefits 
ranging from hundreds of millions to several billion dollars annually 
may be realized. In other cases, estimates of cost savings or other 
benefits would depend upon what congressional and executive branch 
decisions were made, including how certain GAO recommendations are 
implemented. Additionally, information on program performance, the 
level of funding in agency budgets devoted to overlapping or 
fragmented programs, and the implementation costs that might be 
associated with program consolidations or terminations, are factors 
that could impact actions to be taken as well as potential savings. 
Following the table are summaries for each of the 34 areas listed. In 
addition to summarizing what GAO has found, each area presents actions 
for the executive branch or Congress to consider. Each of the 
summaries contains a "Framework for Analysis" providing the 
methodology used to conduct the work and a list of related GAO 
products for further information. 

Table 1: Duplication, Overlap, or Fragmentation Areas Identified in 
This Report: 

Mission: Agriculture; 
Areas identified: 1. Fragmented food safety system has caused 
inconsistent oversight, ineffective coordination, and inefficient use 
of resources; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: The Department of Agriculture's (USDA) Food 
Safety and Inspection Service and the Food and Drug Administration are 
the primary food safety agencies, but 15 agencies are involved in some 
way; 
Page: 8. 

Mission: Defense; 
Areas identified: 2. Realigning DOD's military medical command 
structures and consolidating common functions could increase 
efficiency and result in projected savings ranging from $281 million 
to $460 million annually; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Department of Defense (DOD), including the 
Office of the Assistant Secretary for Health Affairs, the Army, the 
Navy, and the Air Force; 
Page: 13. 

Mission: Defense; 
Areas identified: 3. Opportunities exist for consolidation and 
increased efficiencies to maximize response to warfighter urgent needs; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: At least 31 entities within DOD; 
Page: 18. 

Mission: Defense; 
Areas identified: 4. Opportunities exist to avoid unnecessary 
redundancies and improve the coordination of counter-improvised 
explosive device efforts; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: The services and other components within DOD; 
Page: 23. 

Mission: Defense; 
Areas identified: 5. Opportunities exist to avoid unnecessary 
redundancies and maximize the efficient use of intelligence, 
surveillance, and reconnaissance capabilities; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Multiple intelligence organizations within 
DOD; 
Page: 26. 

Mission: Defense; 
Areas identified: 6. A departmentwide acquisition strategy could 
reduce DOD's risk of costly duplication in purchasing Tactical Wheeled 
Vehicles; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: DOD, including Army and Marine Corps; 
Page: 31. 

Mission: Defense; 
Areas identified: 7. Improved joint oversight of DOD's prepositioning 
programs for equipment and supplies may reduce unnecessary duplication; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: DOD including Air Force, Army, and Marine 
Corps; 
Page: 34. 

Mission: Defense; 
Areas identified: 8. DOD business systems modernization: opportunities 
exist for optimizing business operations and systems; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: About 2,300 investments across DOD; 
Page: 38. 

Mission: Economic development; 
Areas identified: 9. The efficiency and effectiveness of fragmented 
economic development programs are unclear; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: USDA, Department of Commerce (Commerce), 
Housing and Urban Development (HUD), and the Small Business 
Administration (SBA); 80 programs involved; 
Page: 42. 

Mission: Economic development; 
Areas identified: 10. The federal approach to surface transportation 
is fragmented, lacks clear goals, and is not accountable for results; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Five agencies within the Department of 
Transportation (DOT); over 100 programs involved; 
Page: 48. 

Mission: Economic development; 
Areas identified: 11. Fragmented federal efforts to meet water needs 
in the U.S.-Mexico border region have resulted in an administrative 
burden, redundant activities, and an overall inefficient use of 
resources; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: USDA, Commerce's Economic Development 
Administration, Environmental Protection Agency (EPA), Department of 
Health and Human Services' (HHS) Indian Health Service, Department of 
the Interior's (Interior) Bureau of Reclamation, HUD, and the U.S. 
Army Corps of Engineers; 
Page: 52. 

Mission: Energy; 
Areas identified: 12. Resolving conflicting requirements could more 
effectively achieve federal fleet energy goals; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: A number of agencies, including the 
Department of Energy (Energy) and the General Services Administration 
(GSA) play a role overseeing the governmentwide requirements; 
Page: 55. 

Mission: Energy; 
Areas identified: 13. Addressing duplicative federal efforts directed 
at increasing domestic ethanol production could reduce revenue losses 
by up to $5.7 billion annually; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: EPA and the Department of the Treasury; 
Page: 59. 

Mission: General government; 
Areas identified: 14. Enterprise architectures: key mechanisms for 
identifying potential overlap and duplication; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Governmentwide; 
Page: 62. 

Mission: General government; 
Areas identified: 15. Consolidating federal data centers provides 
opportunity to improve government efficiency and achieve significant 
cost savings; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Twenty-four federal agencies; 
Page: 66. 

Mission: General government; 
Areas identified: 16. Collecting improved data on interagency 
contracting to minimize duplication could help the government leverage 
its vast buying power; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Governmentwide; 
Page: 70. 

Mission: General government; 
Areas identified: 17. Periodic reviews could help identify ineffective 
tax expenditures and redundancies in related tax and spending 
programs, potentially reducing revenue losses by billions of dollars; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Governmentwide; 
Page: 75. 

Mission: Health; 
Areas identified: 18. Opportunities exist for DOD and VA to jointly 
modernize their electronic health record systems; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: DOD and the Department of Veterans Affairs 
(VA); 
Page: 79. 

Mission: Health; 
Areas identified: 19. VA and DOD need to control drug costs and 
increase joint contracting whenever it is cost-effective; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: DOD and VA; 
Page: 82. 

Mission: Health; 
Areas identified: 20. HHS needs an overall strategy to better 
integrate nationwide public health information systems; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Multiple agencies, led by HHS; 
Page: 88. 

Mission: Homeland security/Law enforcement; 
Areas identified: 21. Strategic oversight mechanisms could help 
integrate fragmented interagency efforts to defend against biological 
threats; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: USDA, DOD, Department of Homeland Security 
(DHS), HHS, Interior, and others; more than two dozen presidentially 
appointed individuals with responsibility for biodefense; 
Page: 92. 

Mission: Homeland security/Law enforcement; 
Areas identified: 22. DHS oversight could help eliminate potential 
duplicating efforts of interagency forums in securing the northern 
border; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: DHS and other federal law enforcement 
partners; 
Page: 96. 

Mission: Homeland security/Law enforcement; 
Areas identified: 23. The Department of Justice plans actions to 
reduce overlap in explosives investigations, but monitoring is needed 
to ensure successful implementation; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Department of Justice's Federal Bureau of 
Investigation and Bureau of Alcohol, Tobacco, Firearms and Explosives; 
Page: 101. 

Mission: Homeland security/Law enforcement; 
Areas identified: 24. TSA's security assessments on commercial 
trucking companies overlap with those of another agency, but efforts 
are under way to address the overlap; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: DHS's Transportation Security Administration 
(TSA) and DOT; 
Page: 105. 

Mission: Homeland security/Law enforcement; 
Areas identified: 25. DHS could streamline mechanisms for sharing 
security-related information with public transit agencies to help 
address overlapping information; Federal agencies and programs where 
duplication, overlap, or fragmentation may occur: Three information-
sharing mechanisms funded by DHS and TSA; 
Page: 111. 

Mission: Homeland security/Law enforcement; 
Areas identified: 26. FEMA needs to improve its oversight of grants 
and establish a framework for assessing capabilities to identify gaps 
and prioritize investments; Federal agencies and programs where 
duplication, overlap, or fragmentation may occur: DHS's Federal 
Emergency Management Agency (FEMA); 17 programs involved; 
Page: 116. 

Mission: International affairs; 
Areas identified: 27. Lack of information sharing could create the 
potential for duplication of efforts between U.S. agencies involved 
in development efforts in Afghanistan; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Principally DOD and the U.S. Agency for 
International Development; 
Page: 120. 

Mission: International affairs; 
Areas identified: 28. Despite restructuring, overlapping roles and 
functions still exist at State's Arms Control and Nonproliferation 
Bureaus; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Two bureaus within the Department of State 
(State); 
Page: 123. 

Mission: Social services; 
Areas identified: 29. Actions needed to reduce administrative overlap 
among domestic food assistance programs; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: USDA, DHS, and HHS; 18 programs involved; 
Page: 125. 

Mission: Social services; 
Areas identified: 30. Better coordination of federal homelessness 
programs may minimize fragmentation and overlap; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Seven federal agencies, including Department 
of Education (Education), HHS, and HUD; over 20 programs involved; 
Page: 129. 

Mission: Social services; 
Areas identified: 31. Further steps needed to improve cost-
effectiveness and enhance services for transportation-disadvantaged 
persons; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: USDA, DOT, Education, Interior, HHS, HUD, 
Department of Labor (Labor), and VA; 80 programs involved; 
Page: 134. 

Mission: Training, employment, and education; 
Areas identified: 32. Multiple employment and training programs: 
providing information on colocating services and consolidating 
administrative structures could promote efficiencies; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Education, HHS, and Labor, among others; 44 
programs involved; 
Page: 140. 

Mission: Training, employment, and education; 
Areas identified: 33. Teacher quality: proliferation of programs 
complicates federal efforts to invest dollars effectively; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: Ten agencies including DOD, Education, 
Energy, National Aeronautics and Space Administration, and the 
National Science Foundation; 82 programs involved; 
Page: 144. 

Mission: Training, employment, and education; 
Areas identified: 34. Fragmentation of financial literacy efforts 
makes coordination essential; 
Federal agencies and programs where duplication, overlap, or 
fragmentation may occur: More than 20 different agencies; about 56 
programs involved; 
Page: 151. 

Source: GAO analysis based on areas addressed in Section I of this 
report. 

[End of table] 

[End of section] 

Fragmented Food Safety System Has Caused Inconsistent Oversight, 
Ineffective Coordination, and Inefficient Use of Resources: 

Why GAO Is Focusing on This Area: 

The fragmented federal oversight of food safety has caused 
inconsistent oversight, ineffective coordination, and inefficient use 
of resources. Fifteen federal agencies collectively administer at 
least 30 food related laws. Budget obligations for the two primary 
food safety agencies--the Food and Drug Administration (FDA) and the 
U.S. Department of Agriculture's (USDA) Food Safety and Inspection 
Service (FSIS)--totaled over $1.6 billion in fiscal year 2009. USDA is 
responsible for the safety of meat, poultry, processed egg products, 
and catfish and FDA is responsible for virtually all other food, 
including seafood. Three major trends also create food safety 
challenges: (1) a substantial and increasing portion of the U.S. food 
supply is imported, (2) consumers are eating more raw and minimally 
processed foods, and (3) segments of the population that are 
particularly susceptible to food-borne illnesses, such as older adults 
and immune-compromised individuals, are growing. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

For more than a decade, GAO has reported on the fragmented nature of 
federal food safety oversight. The 2010 nationwide recall of more than 
500 million eggs due to Salmonella contamination highlights this 
fragmentation. FDA is generally responsible for ensuring that shell 
eggs, including eggs at farms such as those where the outbreak 
occurred, are safe, wholesome, and properly labeled and FSIS is 
responsible for the safety of eggs processed into egg products. In 
addition, while USDA's Agricultural Marketing Service sets quality and 
grade standards for the eggs, such as Grade A, it does not test the 
eggs for microbes such as Salmonella. Further, USDA's Animal and Plant 
Health Inspection Service helps ensure the health of the young chicks 
that are supplied to egg farms, but FDA oversees the safety of the 
feed they eat. 

Oversight is also fragmented in other areas of the food safety system. 
For example, the 2008 Farm Bill assigned USDA responsibility for 
catfish, thus splitting seafood oversight between USDA and FDA. In 
September 2009, GAO also identified gaps in food safety agencies’ 
enforcement and collaboration on imported food. Specifically, the 
import screening system used by the Department of Homeland Security’s 
Customs and Border Protection (CBP) does not notify FDA’s or FSIS’s 
systems when imported food shipments arrive at U.S. ports. Without 
access to time-of-arrival information, FDA and FSIS may not know when 
shipments that require examinations arrive at the port, which could 
increase the risk that unsafe food could enter U.S. commerce. GAO 
recommended that the CBP Commissioner ensure that CBP’s new 
screening system communicates time-of-arrival information to FDA’s and 
FSIS’s screening systems and GAO continues to monitor their actions. 

Actions Needed and Potential Financial or Other Benefits: 

GAO has made numerous recommendations intended to address the 
fragmented federal oversight of the nation's food supply. One key 
recommendation in October 2001 was to reconvene the President's 
Council on Food Safety, which disbanded earlier that year. In 
response, the President created the Food Safety Working Group in 2009 
to coordinate federal efforts and develop goals to make food safer. 
Through the working group, which is co-chaired by the Secretaries of 
Health and Human Services and Agriculture, federal agencies have begun 
collaborating in certain areas that cross regulatory jurisdictions-- 
improving produce safety, reducing Salmonella contamination, and 
developing food safety performance measures. However, as a 
presidentially appointed working group its future is uncertain, and 
the experience of the Council on Food Safety, which disbanded less 
than 3 years after it was created, illustrates that this type of 
approach can be short lived. In addition, developing a results-
oriented governmentwide performance plan for food safety, 
commissioning a detailed analysis of alternative organizational 
structures, and enacting comprehensive risk-based food safety 
legislation could help address fragmentation. In January 2007, GAO 
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. In July 2009, the Food Safety 
Working Group issued its key findings--a set of goals and actions for 
improving food safety. While the key findings are mission based and 
offer a cross-agency perspective, they are not fully results oriented. 
Further, the working group has not provided information about the 
resources that are needed to achieve its goals. As a next step, the 
Director of the Office of Management and Budget, in consultation with 
the federal agencies that have food safety responsibilities, should 
develop a governmentwide performance plan for food safety that 
includes results-oriented goals and performance measures and a 
discussion of strategies and resources. Without a governmentwide 
performance plan for food safety, decision makers do not have a 
comprehensive picture of the federal government's performance on this 
crosscutting issue. In addition, the federal government does not 
formulate an overall budget for food safety, making it difficult for 
Congress to monitor the federal resources allocated to federal food 
safety oversight. 

GAO, in October 2001, suggested that Congress consider commissioning 
the National Academy of Sciences or a blue ribbon panel to conduct a 
detailed analysis of alternative food safety organizational 
structures. A detailed analysis has yet to be commissioned and GAO 
reiterated its suggestion to Congress in February 2011. GAO and other 
organizations have identified alternative organizational structures 
that could be analyzed in more detail, including: 

* a single food safety agency, either housed within an existing agency 
or established as an independent entity, that assumes responsibility 
for all aspects of food safety at the federal level; 

* a single food safety inspection agency that assumes responsibility 
for food safety inspection activities, but not other activities, under 
an existing department, such as USDA or FDA; 

* a data collection and risk analysis center for food safety that 
consolidates data collected from a variety of sources and analyzes it 
at the national level to support risk-based decision making; and: 

* a coordination mechanism that provides centralized, executive 
leadership for the existing organizational structure, led by a central 
chair who would be appointed by the president and have control over 
resources. 

GAO, the National Academy of Sciences, and others have also suggested 
that Congress enact comprehensive risk-based food safety legislation. 
In May 2004, GAO reported that such legislation can provide the 
foundation for focusing federal oversight and resources on the most 
important food safety problems from a public health perspective. New 
food safety legislation that was signed into law in January 2011 
strengthens a major part of the food safety system and expands FDA's 
oversight authority. However, the law does not apply to the federal 
food safety system as a whole and GAO reiterated its suggestion for 
comprehensive, risk-based food safety legislation in February 2011. 
The European Union adopted comprehensive food safety legislation in 
2004 intended to create a single, transparent set of food safety rules. 

Although reducing fragmentation in federal food safety oversight is 
not expected to result in significant cost savings, new costs may be 
avoided by preventing further fragmentation, as illustrated by the 
approximately $30 million for fiscal years 2011 and 2012 that USDA 
officials had said they would have to spend developing and implementing 
the agency’s new congressionally mandated catfish inspection program. 
Subsequently, no funding was proposed for the program in the 
President’s fiscal year 2012 budget because of the need for considerable 
stakeholder engagement and regulatory development before its adoption and 
implementation. In addition, GAO has reported that user fees are means 
of financing federal services that can be designed to reduce the burden 
on tax payers and promote economic efficiency and equity. The Congressional 
Budget Office has estimated that if FSIS charged user fees, federal 
revenues would increase by $902 million in fiscal year 2011 and could 
offset inspection costs. FDA has proposed user fees in its fiscal year 
2011 congressional budget request that it estimates could increase revenues 
by almost $194 million and could enable the agency to expand its food 
safety efforts. 

GAO recognizes that reorganizing federal food safety responsibilities 
is a complex process. Further, GAO's work on other agency mergers and 
transformations indicates that reorganizing food safety could have 
short-term disruptions and transition costs. However, reducing 
fragmentation and overlap could result in a number of nonfinancial 
benefits. GAO reported in March 2004 that integrating food safety 
oversight can create synergy and economies of scale and can provide 
more focused and efficient efforts to protect the nation's food 
supply. In June 2008, GAO also reported that other countries that 
reorganized their food safety systems have experienced additional 
benefits, such as improved public confidence in the systems. For 
example, GAO reported that industry and consumer stakeholders 
generally had positive views of the reorganized food safety systems 
and said that transparency had improved. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. In addition, GAO reviewed relevant food safety 
reports and legislation, and interviewed officials from USDA, FDA, and 
the Office of Management and Budget. GAO also collected and analyzed 
information about the Food Safety Working Group, its activities, and 
its plan for food safety, as well as alternative organizational 
structures for food safety oversight. 

Related GAO Products: 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-11-278]. Washington, D.C.: February 
16, 2011. 

Live Animal Imports: Agencies Need Better Collaboration to Reduce the 
Risk of Animal-Related Diseases. [hyperlink, 
http://www.gao.gov/products/GAO-11-9]. Washington, D.C.: November 8, 
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. 

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

Oversight of Food Safety Activities: Federal Agencies Should Pursue 
Opportunities to Reduce Overlap and Better Leverage Resources. 
[hyperlink, http://www.gao.gov/products/GAO-05-213]. Washington, D.C.: 
March 30, 2005. 

Food Safety and Security: Fundamental Changes Needed to Ensure Safe 
Food. [hyperlink, http://www.gao.gov/products/GAO-02-47T]. Washington, 
D.C.: October 10, 2001. 

Area Contact: 

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

[End of section] 

Realigning DOD's Military Medical Command Structures and Consolidating 
Common Functions Could Increase Efficiency and Reduce Costs: 

Why GAO Is Focusing on This Area: 

Department of Defense (DOD) components provide health care to over 9.6 
million eligible beneficiaries, including U.S. military personnel, 
retirees, and their family members. With more than 130,000 military 
and government medical professionals, a large network of private 
health care providers, 59 DOD hospitals, and hundreds of clinics 
worldwide, DOD's collective Military Health System (MHS) manages more 
than 200,000 medical visits and fills more than 300,000 prescriptions 
per day. Additionally, the MHS is an important source for education, 
military medical training, and research and development. However, MHS 
costs have more than doubled from $19 billion in fiscal year 2001 to 
$49 billion in 2010 and are expected to increase to over $62 billion 
by 2015. Studies by GAO and others over many years have identified 
opportunities to gain efficiencies and save costs by consolidating 
administrative, management, and clinical functions. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

The responsibilities and authorities for DOD's military health system 
are distributed among several organizations within DOD with no central 
command authority or single entity accountable for minimizing costs 
and achieving efficiencies. Under the MHS's current command structure, 
the Office of the Assistant Secretary of Defense for Health Affairs, 
the Army, the Navy, and the Air Force each has its own headquarters 
and associated support functions, such as information technology, 
human capital management, financial activities, and contracting. 
Additionally, the three services each have Surgeons General to oversee 
their deployable medical forces and operate their own health care 
systems. Moreover, while the Assistant Secretary of Defense for Health 
Affairs controls the Defense Health Program budget, this office does 
not directly supervise the services' medical personnel. 

In 2005, GAO identified DOD's health care system as an example of a 
key challenge facing the U.S. government in the 21st century as well 
as an area in which DOD could achieve economies of scale and improve 
delivery by combining, realigning, or otherwise changing selected 
support functions. In 2001, a RAND Corporation study on reorganizing 
the MHS uncovered at least 13 studies since the 1940s that had 
addressed military health care organization. All but three of those 
studies had either favored a unified system or recommended a stronger 
central authority to improve coordination among the services. However, 
DOD has taken limited actions to date to consolidate common 
administrative, management, and clinical functions within its MHS. 

In 2005, DOD formed a working group to develop an implementation plan 
for a joint medical command. This group in 2006 developed and 
evaluated several reorganization alternatives to promote effectiveness 
and efficiency in its medical command structure by increased sharing 
of resources, use of common operating processes, and reduction in 
duplicative functions and organizations. One alternative would have 
established a unified medical command similar to DOD's unified 
transportation command; the second alternative would have established 
two separate commands--one to provide operational/deployable medicine 
and another to provide beneficiary care through military hospitals and 
contracted providers; and a third alternative would have designated 
one of the military services to provide all health care services 
across DOD. 

Because of an inability to obtain a consensus among the services on 
which alternative to implement, the Under Secretary of Defense for 
Personnel and Readiness and the Assistant Secretary of Defense for 
Health Affairs presented a new concept which, in November 2006, the 
Deputy Secretary of Defense approved. This chosen concept directed 
seven smaller scale, incremental reorganization efforts designed to 
minimize duplicative layers of command and control where possible; 
reduce redundant efforts, personnel, and expenses; and leverage 
efficiencies through combining common service support functions being 
performed within each of the services, such as finance, information 
management and technology, human capital management, support, and 
logistics. However, the concept left the existing command structures 
of the three services' medical departments over all military treatment 
facilities essentially unchanged. In updating its previous reviews, 
GAO found that DOD officials have made varying levels of progress in 
implementing four of the seven incremental steps. 

More specifically, DOD is taking actions to (1) create a command, 
control, and management structure in DOD's base realignment and 
closure (BRAC) markets (National Capital Area and San Antonio); (2) 
realign command and control of the Joint Medical Education Training 
Center in San Antonio; (3) colocate the Military Health System and 
service medical headquarters; and (4) consolidate all medical research 
and development under the Army Medical Research and Material Command. 
Progress on these actions has been facilitated by the fact that three 
of them are related to BRAC recommendations made in 2005 that DOD must 
complete by the BRAC statutory deadline of September 2011. According 
to officials, DOD has not implemented actions to (1) establish a Joint 
Military Health Service Directorate under Assistant Secretary of 
Defense for Health Affairs; (2) consolidate command and control in 
other locations with more than one DOD component providing military 
health care services; and (3) realign current TRICARE Management 
Activity to focus on health plan management. The Office of the 
Assistant Secretary of Defense for Health Affairs has not provided 
guidance on how and when to accomplish the three remaining steps, and 
officials indicated that further action is not likely to occur until 
the results of a broader, ongoing DOD-wide organizational and 
efficiency assessment is completed. 

For the three BRAC-related steps under way, DOD's BRAC budget 
reporting [Footnote 6] indicates a net annual savings of $275 million 
after full implementation. However, DOD medical officials have 
expressed uncertainty as to whether these savings will be achieved 
because of changes that occurred within the MHS since the BRAC 
decision was made. For example, they point out that the care of 
casualties from operations in Iraq and Afghanistan and the 
congressional direction to provide "world class health care" in the 
National Capital Region have all significantly increased MHS costs. 

Finally, GAO reported in July 2010 that DOD would benefit from 
enhanced collaboration among the services in their medical personnel 
requirements determination processes and recommended that DOD 
identify, develop, and implement cross-service medical personnel 
standards for common capabilities. The report made recommendations to 
each of the services to improve their medical personnel requirements 
determination processes. That report also recognized that while each 
of the services has unique operational medical capabilities, the day-
to-day operations at military treatment facilities are very similar 
across the services and could be more collaboratively managed, and 
that DOD should identify the common medical capabilities that are 
shared across the services in their military treatment facilities that 
would benefit from the development of cross-service medical personnel 
standards. DOD replied that developing cross-service standards in 
specific medical functional areas where there is measurable benefit 
makes good sense, and the services generally agreed with the need for 
improvements to their respective requirements determination processes. 

Actions Needed and Potential Financial and Other Benefits: 

To reduce duplication in its command structure and eliminate redundant 
processes that add to growing defense health care costs, DOD could 
take action to further assess alternatives for restructuring the 
governance structure of the military health care system. In 2007, GAO 
recommended that DOD needed to demonstrate a sound business case for 
proceeding with its chosen concept, including an analysis of benefits, 
costs, and risks of implementing that choice. Although not explicitly 
stated, such an analysis, to be complete, would require analyzing 
other alternatives such as a unified medical command. These analyses 
have not been conducted, and GAO's ongoing review will seek to 
determine the extent to which DOD has developed an approach for 
implementing the remaining actions in its chosen concept. Without such 
actions, DOD is not in a sound position to assure the Secretary of 
Defense and Congress that it made an informed decision in implementing 
its chosen concept over other alternatives or whether it will have the 
desired impact on DOD's MHS or achieve anticipated results. 

In 2006, if DOD and the services had chosen to implement one of the 
three other alternatives studied by the DOD working group, a May 2006 
report by the Center for Naval Analyses showed DOD could have achieved 
significant savings. GAO's adjustment of those projected savings from 
2005 into 2010 dollars indicates those savings could range from $281 
million to $460 million annually depending on the alternative chosen 
and numbers of military, civilian, and contractor positions 
eliminated. The report largely focused on personnel as the primary 
source of potential savings or costs.[Footnote 7] However, the report 
indicated that these savings would require a long and potentially 
costly transition period to be realized. Additionally, the report 
stated that DOD's ability to realize the potential savings depended 
crucially on clear command and control to make the necessary changes. 

In his selection of the chosen option in 2006, the Deputy Secretary of 
Defense acknowledged that implementing the chosen concept may not 
achieve the estimated level of savings of implementing a unified 
medical structure but believed minimum annual savings of about $200 
million ($221 million in 2010 dollars) was a realistic goal. 
Additionally, significant cost avoidance from improved performance 
once changes had been implemented was anticipated. For example, in 
September 2010, DOD officials told GAO that they had identified about 
$30 million in annual savings from the reduction in contract medical 
staff among the newly established joint hospitals in the National 
Capital Region--one of the seven incremental steps of the chosen 
concept. Additionally, officials believe the colocation of the medical 
headquarters will provide improved collaboration and opportunities for 
consolidating their operations where possible. 

Framework for Analysis: 

The information contained in this analysis is based on the GAO reports 
listed below as well as work updating the extent to which DOD has (1) 
conducted a cost benefit analysis of its chosen concept and (2) 
implemented its 2006 chosen concept. To do this, GAO obtained, 
reviewed, and discussed with DOD officials any analyses performed 
related to the chosen concept or other alternatives subsequently 
considered. Additionally, GAO reviewed DOD documents, policies, 
directives, briefings, and concept papers related to DOD's 2006 chosen 
concept, as well as GAO's prior findings and recommendations 
associated with this effort. In meetings with officials from OSD, the 
services' medical departments, and other relevant offices, GAO 
obtained, analyzed, and discussed documents related to the status, 
costs, and results of the seven steps in the chosen concept. In 
obtaining oral comments, DOD officials said that they generally agreed 
with the facts and findings in this analysis. 

Related GAO Products: 

Military Personnel: Enhanced Collaboration and Process Improvements 
Needed for Determining Military Treatment Facility Medical Personnel 
Requirements. [hyperlink, http://www.gao.gov/products/GAO-10-696]. 
Washington, D.C.: July 29, 2010. 

Defense Health Care: DOD Needs to Address the Expected Benefits, 
Costs, and Risks for Its Newly Approved Medical Command Structure. 
[hyperlink, http://www.gao.gov/products/GAO-08-122]. Washington, D.C.: 
October 12, 2007. 

Defense Health Care: Tri-Service Strategy Needed to Justify Medical 
Resources for Readiness and Peacetime Care. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-10]. Washington, D.C.: 
November 3, 1999. 

Area Contact: 

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

[End of section] 

Opportunities Exist for Consolidation and Increased Efficiencies to 
Maximize Response to Warfighter Urgent Needs: 

Why GAO Is Focusing on This Area: 

Forces in Iraq and Afghanistan have faced significant risks of mission 
failure and loss of life due to rapidly changing enemy threats. In 
response, the Department of Defense (DOD) established urgent needs 
processes to rapidly develop, modify, and field new capabilities, such 
as intelligence, surveillance, and reconnaissance (ISR) technology, 
and counter-improvised explosive devices (IED) systems. GAO identified 
at least 31 entities that play a role in DOD's urgent needs processes 
and has estimated funding for addressing urgent needs through those 
entities to be at least $76.9 billion, since 2005. 

GAO has identified challenges with the department's fragmented 
guidance and GAO and others have raised concerns about the numbers and 
roles of the various entities and processes involved and the potential 
of overlap and duplication. With the shift in priority for overseas 
operations from Iraq to Afghanistan--a theater that may pose more 
complex long-term challenges--deployed or soon-to-deploy units will 
likely continue to request critical capabilities to help them 
accomplish their missions. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Over the past two decades, the fulfillment of urgent needs has evolved 
as a set of complex processes within the Joint Staff, the Office of 
the Secretary of Defense, each of the military services, and the 
combatant commands to rapidly develop, equip, and field solutions and 
critical capabilities to the warfighter. DOD's experience with the 
rapidly evolving threats in Iraq and Afghanistan has led to the 
expanded use of existing urgent needs processes, the creation of new 
policies, and establishment of new organizations to manage urgent 
needs and to expedite the development of solutions to address them. 
However, DOD has not comprehensively evaluated opportunities for 
consolidation across the department, even though concerns have been 
raised by the Defense Science Board, GAO, and others about the numbers 
and roles of the various entities and processes involved and the 
potential of overlap and duplication. For example, the Defense Science 
Board, in July and September 2009 reports, found that DOD has done 
little to adopt urgent needs as a critical, ongoing DOD institutional 
capability essential to addressing future threats, and has provided 
recommendations to the department about potential consolidations. Many 
DOD and military service officials stated that higher-level senior 
leadership needs to take decisive action to evaluate the breadth of 
DOD's urgent needs activities to determine what opportunities may 
exist for reducing unnecessary duplication in staff, information 
technology, support, and funding. 

Additionally, GAO found that overlap exists among urgent needs 
entities in the roles they play as well as the capabilities for which 
they are responsible. For example: 

* There are numerous places for the warfighter to submit a request for 
an urgently needed capability. Warfighters may submit urgent needs, 
depending on their military service and the type of need, to one of 
the following different entities: Joint Staff J/8, Army Deputy Chief 
of Staff G/3/5/7, Army Rapid Equipping Force, Navy Fleet Forces 
Command or Commander Pacific Fleet, Marine Corps Deputy Commandant for 
Combat Development and Integration, Air Force Major Commands, Special 
Operations Requirements and Resources, or the Joint IED Defeat 
Organization. These entities then validate the submitted urgent need 
request and thus allow it to proceed through their specific process. 

* Multiple entities reported a role in responding to similar types of 
urgently needed capabilities. GAO identified eight entities focused on 
responding to ISR capabilities, five entities focused on responding to 
counter-IED capabilities, and six entities focused on responding to 
communications, command and control, and computer technology. In some 
cases, duplication of efforts may have occurred--see related summaries 
in this report on the subjects of intelligence, surveillance, and 
reconnaissance systems and counter-improvised explosive devices. 

The department is hindered in its ability to identify key 
improvements, including consolidation to reduce any overlap, 
duplication, or fragmentation because it lacks a comprehensive 
approach to manage and oversee the breadth of its urgent needs 
efforts. Specifically, DOD does not have a comprehensive, DOD-wide 
policy that establishes a baseline and provides a common approach for 
how all joint and military service urgent needs are to be addressed--
including key activities of the process such as validation, execution, 
or tracking. For example, the Joint Staff, the Joint IED Defeat 
Organization, the military services, and the Special Operations 
Command have issued their own guidance that varies in terms of the key 
activities associated with processing and meeting urgent needs--
including how an urgent needs statement is generated by the 
warfighter, validated as an urgent requirement, and tracked after a 
solution is provided. Furthermore, DOD does not have visibility over 
the full range of its urgent needs efforts. For example, DOD cannot 
readily identify the cost of its departmentwide urgent needs efforts, 
which is at least $76.9 billion[Footnote 8] since 2005 based on GAO's 
analysis. Additionally, DOD does not have a comprehensive tracking 
system, a set of universal metrics, and a senior-level focal point to 
lead the department's efforts to fulfill validated urgent needs 
requirements. Without DOD-wide guidance and a focal point to lead its 
efforts, DOD risks having duplicative, overlapping, and fragmented 
efforts, which can result in avoidable costs. 

Actions Needed and Potential Financial or Other Benefits: 

In the absence of a comprehensive DOD evaluation, GAO's March 2011 
report identified and analyzed several options, aimed at potential 
consolidations and increased efficiencies in an effort intended to 
provide ideas for the department to consider in streamlining its 
urgent needs entities and processes. These options include the 
following: 

* Consolidate into one entity, within the Office of the Secretary of 
Defense, all the urgent needs processes of the services and DOD, while 
keeping at the services' program offices the development of solutions. 

* Consolidate entities that have overlapping mission or capability 
portfolios regarding urgent needs solutions. 

* Establish a gatekeeper within each service to oversee all key 
activities to fulfill a validated urgent needs requirement. 

* Consolidate within each service any overlapping activities in the 
urgent needs process. 

The options GAO identified are not meant to be exhaustive or mutually 
exclusive. Rather, DOD would need to perform its own analysis, 
carefully weighing the advantages and disadvantages of options it 
identifies to determine the optimal course of action. Additionally, it 
must be recognized that many entities involved in the fulfillment of 
urgent needs have other roles as well. However, until DOD performs 
such an evaluation, it will remain unaware of opportunities for 
consolidation and increased efficiencies in the fulfillment of urgent 
needs. 

GAO's March 2011 report recommended that the department develop 
comprehensive guidance that, among other things, creates a focal point 
to lead its urgent needs efforts. Additionally, GAO recommended that 
DOD's Chief Management Officer evaluate potential options for 
consolidation to reduce overlap, duplication, and fragmentation and 
take appropriate action. DOD concurred with these recommendations. 
This is an issue that may warrant continuing congressional oversight. 
Timely and effective actions on these recommendations should improve 
DOD's ability to address urgent warfighter needs in the most efficient 
and cost-effective manner by minimizing the risks of duplication, 
overlap, and fragmentation. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products below. 

Related GAO Products: 

Warfighter Support: DOD's Urgent Needs Processes Need a More 
Comprehensive Approach and Evaluation for Potential Consolidation. 
[hyperlink, http://www.gao.gov/products/GAO-11-273]. Washington, D.C.: 
March 1, 2011. 

Warfighter Support: Improvements to DOD's Urgent Needs Processes Would 
Enhance Oversight and Expedite Efforts to Meet Critical Warfighter 
Needs. [hyperlink, http://www.gao.gov/products/GAO-10-460]. 
Washington, D.C.: April 30, 2010. 

Warfighter Support: Actions Needed to Improve Visibility and 
Coordination of DOD's Counter-Improvised Explosive Device Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-10-95]. Washington, D.C.: 
October 29, 2009. 

Warfighter Support: Challenges Confronting DOD's Ability to Coordinate 
and Oversee Its Counter-Improvised Explosive Devices Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-10-186T]. Washington, 
D.C.: October 29, 2009. 

Defense Management: More Transparency Needed over the Financial and 
Human Capital Operations of the Joint Improvised Explosive Device 
Defeat Organization. [hyperlink, 
http://www.gao.gov/products/GAO-08-342]. Washington, D.C.: March 6, 
2008. 

Defense Logistics: Lack of a Synchronized Approach between the Marine 
Corps and Army Affected the Timely Production and Installation of 
Marine Corps Truck Armor. [hyperlink, 
http://www.gao.gov/products/GAO-06-274]. Washington, D.C.: June 22, 
2006. 

Defense Logistics: Several Factors Limited the Production and 
Installation of Army Truck Armor during Current Wartime Operations. 
[hyperlink, http://www.gao.gov/products/GAO-06-160]. Washington, D.C.: 
March 22, 2006. 

Defense Logistics: Actions Needed to Improve the Availability of 
Critical Items during Current and Future Operations. [hyperlink, 
http://www.gao.gov/products/GAO-05-275]. Washington, D.C.: April 8, 
2005. 

Defense Logistics: Preliminary Observations on the Effectiveness of 
Logistics Activities during Operation Iraqi Freedom. [hyperlink, 
http://www.gao.gov/products/GAO-04-305R]. Washington, D.C.: December 
18, 2003. 

Area Contact: 

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

[End of section] 

Opportunities Exist to Avoid Unnecessary Redundancies and Improve the 
Coordination of Counter-Improvised Explosive Device Efforts: 

Why GAO Is Focusing on This Area: 

Improvised explosive devices (IED) continue to be the number one 
threat to U.S. troops. IED incidents in Afghanistan numbered 1,128 in 
the month of May 2010--a 120 percent increase over the prior year. In 
addition to Afghanistan incidents, the IED threat is increasingly 
expanding throughout the globe with over 300 IED events per month 
worldwide, according to the Joint IED Defeat Organization (JIEDDO). 
The Department of Defense (DOD) created this organization in 2006, 
reporting directly to the Deputy Secretary of Defense, to lead and 
coordinate all of DOD's counter-IED efforts. While Congress has 
appropriated over $17 billion to JIEDDO through fiscal year 2010 to 
address the IED threat, other DOD components, including the Armed 
Services, have devoted at least $1.5 billion to develop their own 
counter-IED solutions. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

DOD created JIEDDO to lead and coordinate all of DOD's counter-IED 
efforts, but many of the organizations engaged in the counter-IED- 
defeat effort prior to the creation of JIEDDO have continued to 
develop, maintain, and expand their own IED-defeat capabilities. GAO 
has preliminarily identified several instances in which DOD entities 
operate independently and may have developed duplicate counter-IED 
capabilities. For example, both the Army and the Marine Corps continue 
to develop their own counter-IED mine rollers with full or partial 
JIEDDO funding. The Marine Corps' mine roller per unit cost is about 
$85,000 versus a cost range of $77,000 to $225,000 per unit for the 
Army mine roller. However officials disagree about which system is 
most effective, and DOD has not conducted comparative testing and 
evaluation of the two systems. Additionally, JIEDDO does not 
adequately involve the Services in its process to select initiatives. 
For example, the Navy developed a directed energy technology to fill a 
critical theater capability gap, yet JIEDDO later underwrote the Air 
Force's development of the same technology for use in a different 
system. However, the Air Force has now determined that its system will 
not meet requirements and has deferred fielding it pending further 
study. This may have a negative impact on the continued development of 
this technology by the Navy or others for use in theater. For example, 
according to DOD officials, during the recent testing of the Air 
Force's system, safety concerns were noted unique to that system that 
may limit warfighters' willingness to accept the technology. 

Eliminating unnecessary duplication and enabling effective 
coordination in counter-IED efforts is hindered, in part, because 
neither JIEDDO nor any other DOD organization has full visibility over 
all of DOD's counter-IED efforts. GAO has recommended that DOD 
establish a DOD-wide database for all counter-IED initiatives to 
establish comprehensive visibility, however, DOD has yet to develop 
such a tool. According to DOD officials, DOD had initiated a database--
the Technology Matrix--to establish a comprehensive list of counter- 
IED efforts and the organizations sponsoring these efforts; however, 
DOD has not required its various organizations involved in developing 
counter-IED solutions to use this database nor otherwise taken action 
to ensure these organizations provide information to JIEDDO on their 
respective counter-IED efforts. Therefore, the database has not been 
as comprehensive as intended. To date, DOD's senior leadership has not 
taken adequate action to facilitate improved visibility, coordination, 
and authority for JIEDDO to address these shortcomings. This lack of 
leadership attention may be another key factor contributing to the 
lack of full visibility and effective coordination of the wide range 
of counter-IED measures conducted throughout DOD. Consequently, DOD 
components and the Services continue to pursue counter-IED efforts 
independent of one another that may be redundant or overlapping. 

Actions Needed and Potential Financial or Other Benefits: 

DOD has taken steps to address several of GAO's prior recommendations 
regarding the improvement of its counter-IED programs, such as 
revising JIEDDO's process for evaluating and implementing counter-IED 
solutions. However, 5 years after its coordination efforts began 
through JIEDDO, DOD has still not achieved full visibility over all of 
its counter-IED investments and resources nor has it required 
comprehensive data from all DOD components and the Services to enable 
effective coordination. JIEDDO has encountered difficulty obtaining 
information on all counter-IED efforts, in part, because according to 
JIEDDO officials, the Services and components are not inclined to 
share this information. Therefore, DOD's senior leadership, to include 
the Deputy Secretary of Defense, should consider what actions the 
department can take to assure that JIEDDO can centrally collect 
information and coordinate efforts and whether it should enhance 
JIEDDO's tools to ensure all information on DOD-wide counter-IED 
programs is centrally collected and evaluated to limit unnecessary 
duplication, overlap, and fragmentation. DOD leadership should also 
take a more active role to ensure investment decisions of each of the 
individual counter-IED activities are consistent with DOD's 
overarching counter-IED goals and objectives and that they are pursued 
in a coordinated and efficient manner. 

Framework for Analysis: 

The information contained in this analysis is based on prior GAO 
products below, as well as GAO's ongoing work on DOD's counter-IED 
efforts. As part of this ongoing work GAO will comprehensively 
identify, to the extent possible, all counter-IED organizations and 
efforts within DOD, and collect quantitative data on these efforts 
such as the funds invested and the number of persons engaged in these 
efforts. Using these data, GAO will evaluate the nature and extent of 
any overlap or duplication, as well as the potential for 
consolidation, improved coordination, or other efficiencies. GAO is 
also evaluating DOD's progress in improving visibility over all 
counter-IED efforts. 

Related GAO Products: 

Warfighter Support: DOD's Urgent Needs Processes Need a More 
Comprehensive Approach and Evaluation for Potential Consolidation. 
[hyperlink, http://www.gao.gov/products/GAO-11-273]. Washington, D.C.: 
March 1, 2011. 

Warfighter Support: Actions Needed to Improve Visibility and 
Coordination of DOD's Counter-Improvised Explosive Device Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-10-95]. Washington, D.C.: 
October 29, 2009. 

Warfighter Support: Challenges Confronting DOD's Ability to Coordinate 
and Oversee Its Counter-Improvised Explosive Devices Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-10-186T]. Washington, 
D.C.: October 29, 2009. 

Defense Management: More Transparency Needed over the Financial and 
Human Capital Operations of the Joint Improvised Explosive Device 
Defeat Organization. [hyperlink, 
http://www.gao.gov/products/GAO-08-342]. Washington, D.C.: March 6, 
2008. 

Defense Logistics: Lack of a Synchronized Approach between the Marine 
Corps and Army Affected the Timely Production and Installation of 
Marine Corps Truck Armor. [hyperlink, 
http://www.gao.gov/products/GAO-06-274]. Washington, D.C.: June 22, 
2006. 

Defense Logistics: Several Factors Limited the Production and 
Installation of Army Truck Armor during Current Wartime Operations. 
[hyperlink, http://www.gao.gov/products/GAO-06-160]. Washington, D.C.: 
March 22, 2006. 

Defense Logistics: Actions Needed to Improve the Availability of 
Critical Items during Current and Future Operations. [hyperlink, 
http://www.gao.gov/products/GAO-05-275]. Washington, D.C.: April 8, 
2005. 

Defense Logistics: Preliminary Observations on the Effectiveness of 
Logistics Activities during Operation Iraqi Freedom. [hyperlink, 
http://www.gao.gov/products/GAO-04-305R]. Washington, D.C.: December 
18, 2003. 

Area Contact: 

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

[End of section] 

Opportunities Exist to Avoid Unnecessary Redundancies and Maximize the 
Efficient Use of Intelligence, Surveillance, and Reconnaissance 
Capabilities: 

Why GAO Is Focusing on This Area: 

To plan and execute military operations in Iraq and Afghanistan, 
military commanders depend on intelligence, surveillance, and 
reconnaissance (ISR) systems to collect, process, and disseminate 
timely and accurate information on adversaries' capabilities and 
vulnerabilities. The Department of Defense's (DOD) ISR enterprise 
consists of multiple intelligence organizations that individually plan 
for, acquire, and operate manned and unmanned airborne, space-borne, 
maritime, and ground-based ISR systems. The success of ISR systems at 
providing key information has led to increased demand, and DOD 
continues to invest in ISR programs. For example, DOD requested about 
$6.1 billion in fiscal year 2010 for unmanned aircraft programs alone. 
DOD is further examining its airborne ISR budget needs for fiscal year 
2012 and beyond. Further, GAO has reported since 2005 that ISR 
activities are not integrated and efficient; effectiveness may be 
compromised by lack of visibility into operational use of ISR assets; 
and agencies could better collaborate in the acquisition of new 
capabilities. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

ISR activities cut across services and defense agencies, and no single 
entity at the departmental level has responsibility, authority, and 
control over investments to prioritize resources to meet joint 
priority requirements. The ISR enterprise exhibits extensive, 
structural fragmentation with a high number of separate organizations 
sharing the same roles. For example, multiple ISR organizations 
conduct strategic planning, budgeting, and data analysis across 
intelligence disciplines. Although DOD has designated the Under 
Secretary of Defense for Intelligence to manage ISR investments as a 
departmentwide portfolio, the Under Secretary of Defense for 
Acquisition, Technology, and Logistics has been designated to lead the 
task force responsible for oversight of issues related to the 
management and acquisition of unmanned aircraft systems that collect 
ISR data. In addition, as the ISR portfolio manager, the Under 
Secretary of Defense for Intelligence has only advisory authority and 
cannot direct the services or agencies to make changes in their 
investment plans. 

Further, two key factors make tracking DOD's ISR spending difficult. 
First, funding for DOD's ISR capabilities can come from several 
sources, including the Military Intelligence Program, the National 
Intelligence Program, and service budgets. Second, each service 
maintains or develops its own requirements process, budget, and 
strategic plans. For example, each service identifies its requirements 
and prioritizes spending for its equipment and personnel needs, and 
tracks and accounts for ISR funding differently. 

The Secretary of Defense has identified ISR as an area of scrutiny for 
potential cost savings in the military intelligence program budget, 
which totals $27 billion in spending for fiscal year 2010 including 
ISR capabilities and personnel. In addition, the National Intelligence 
Program budget of $53.1 billion includes some resources for DOD ISR 
activities. Since 1988, GAO has reported on the potential for 
duplication and fragmentation in DOD's unmanned ISR systems. Service- 
driven requirements and funding processes continue to hinder 
integration and efficiency and contribute to unnecessary duplication 
in addressing warfighter needs. Although several unmanned aircraft 
systems have achieved some commonality among the airframes they use, 
most are pursuing service-unique subsystems and components. The lack 
of collaboration and commonality among the services has led to 
duplicative costs for designing and manufacturing ISR systems, and has 
resulted in inefficiencies in the contracting and acquisition 
processes. For example in 2005, the Army initiated a development 
program with the same contractor for a variant of the Air Force 
Predator estimated to cost nearly $570 million, although the Predator 
was already successfully providing capabilities to the warfighter. 
Similarly, in 2009 GAO reported that, although the Navy expected to 
save time and money by using the Air Force's existing Global Hawk 
airframe, the Navy also planned to spend over $3 billion to develop 
maritime surveillance capabilities. Conversely, the Marine Corps 
avoided the cost of initial system development and was able to quickly 
deliver a useful capability to the warfighter by choosing to procure 
existing Army Shadow systems rather than developing its own unmanned 
aircraft. 

DOD has established numerous organizations and initiatives intended to 
integrate the determination of requirements, development, acquisition, 
and operation of ISR systems to address joint and service-specific 
needs, but these efforts have not had the desired effect of minimizing 
fragmentation and overlap in its ISR enterprise. For example, although 
the Under Secretary of Defense for Intelligence, as capability 
portfolio manager, updated the congressionally directed ISR 
Integration Roadmap, the Roadmap does not represent a comprehensive 
ISR architecture to guide service investments to meet joint needs. For 
example, the Roadmap does not enable comparison and tradeoffs between 
intelligence platforms and capabilities. In addition, the Joint 
Requirements Oversight Council, which is charged with validating 
requirements and approving proposals for new capabilities to meet 
joint capability gaps, has been generally ineffective in ensuring that 
the services collaborate in developing capabilities for joint 
requirements. 

In 2010, the Joint Staff launched a decision support tool intended to 
catalog existing airborne ISR capabilities and validate new 
requirements. This tool could help DOD prioritize investments in new 
programs and make tradeoffs among capabilities that could result in 
cost savings, but it is uncertain whether the effort will receive 
funding for expanding the database to include other ISR assets and 
improve functionality. Meanwhile, DOD continues to invest in ISR 
capabilities that may not be the most efficient or effective use of 
resources. Further, although DOD has invested heavily in capabilities 
to collect ISR data, it has not invested proportionally in the 
capabilities that would enable it to process and use the information. 
Weaknesses in the military services' ability to process and securely 
share ISR data have led to gaps in or duplicative collection efforts 
and contributed to continuing warfighter demands for ISR assets to 
support their missions. 

Actions Needed and Potential Financial or Other Benefits: 

DOD has taken steps to improve ISR management, but these actions have 
not had the desired effect. To develop a more fully integrated 
approach to minimizing fragmentation, overlap, and duplication in its 
ISR enterprise, DOD could align DOD-wide strategic goals, identify 
performance measures, and establish linkages between ISR acquisition 
plans and strategic goals to inform investment decisions. 

Since 2005, GAO has identified challenges with DOD's ISR enterprise 
and made a number of recommendations to assist DOD in improving its 
ISR management and reducing unnecessary duplication and overlap. DOD 
has taken some positive steps to address GAO's recommendations, such 
as recent military service efforts to acquire some common unmanned 
aircraft and sensors and develop performance measures, but its efforts 
are limited and have not yet improved its ability to integrate ISR 
requirements generation, development and acquisition, or utilization. 
In keeping with GAO's previous recommendations, DOD could take several 
actions to develop a more fully integrated approach to minimize 
fragmentation, overlap, and duplication in its ISR enterprise. 
Specifically, DOD could do the following: 

* Develop an integrated ISR architecture, including manned and 
unmanned systems, to align DOD-wide strategic goals. 

* Continue to develop tools--such as the Joint Staff's decision 
support tool--and performance measures to inform investment decisions. 

* Establish linkages between ISR acquisition plans and strategic goals 
to better inform investment decisions. 

* Develop and enforce commonality and interoperability standards for 
sharing of ISR data and establish timelines for implementation. 

Increased integration of DOD's ISR enterprise could improve 
efficiencies, reduce redundancies and avoid duplication of similar 
development initiatives, possibly saving production and life-cycle 
costs and improve the interoperability among systems. Although the 
department has begun to take some initial steps in this area, until 
all participants in the defense enterprise successfully share ISR 
information, inefficiencies will hamper the effectiveness of efforts 
to support the warfighter, and ISR data collection efforts may be 
unnecessarily duplicative. In addition, comprehensive data on its ISR 
enterprise, including resources and performance measures to assess the 
effectiveness of ISR assets, could better position DOD to make trade- 
offs among ISR capabilities. 

Framework for Analysis: 

In addition to obtaining information from the reports listed below, 
GAO reviewed documentation related to DOD's funding for ISR through 
the Military Intelligence Program and analyzed planned ISR investments 
in DOD's Future Years Defense Program Fiscal Years 2012-2015. GAO also 
assessed the ISR Integration Roadmap against strategic planning and 
legislative criteria, and reviewed the Joint Staff's ISR assessment 
tool. In addition, GAO conducted interviews with officials from the 
offices of DOD's Under Secretary of Defense for Intelligence, the 
Joint Staff, the military services, the Defense Intelligence Agency, 
the National Geospatial Intelligence Agency, and the National Security 
Agency. 

Related GAO Products: 

Defense Acquisitions: DOD Could Achieve Greater Commonality and 
Efficiencies among Its Unmanned Aircraft Systems. [hyperlink, 
http://www.gao.gov/products/GAO-10-508T]. Washington, D.C.: March 23, 
2010. 

Intelligence, Surveillance, and Reconnaissance: Establishing Guidance, 
Timelines, and Accountability for Integrating Intelligence Data Would 
Improve Information Sharing. [hyperlink, 
http://www.gao.gov/products/GAO-10-265NI]. Washington, D.C.: January 
22, 2010. 

Defense Acquisitions: Opportunities Exist to Achieve Greater 
Commonality and Efficiencies among Unmanned Aircraft Systems. 
[hyperlink, http://www.gao.gov/products/GAO-09-520]. Washington, D.C.: 
July 30, 2009. 

Unmanned Aircraft Systems: Additional Actions Needed to Improve 
Management and Integration of DOD Efforts to Support Warfighter Needs. 
[hyperlink, http://www.gao.gov/products/GAO-09-175]. Washington, D.C.: 
November 14, 2008. 

Intelligence, Surveillance, and Reconnaissance: DOD Can Better Assess 
and Integrate ISR Capabilities and Oversee Development of Future ISR 
Requirements. [hyperlink, http://www.gao.gov/products/GAO-08-374]. 
Washington, D.C.: March 24, 2008. 

Unmanned Aircraft Systems: Advance Coordination and Increased 
Visibility Needed to Optimize Capabilities. [hyperlink, 
http://www.gao.gov/products/GAO-07-836]. Washington, D.C.: July 11, 
2007. 

Unmanned Aircraft Systems: New DOD Programs Can Learn from Past 
Efforts to Craft Better and Less Risky Acquisition Strategies. 
[hyperlink, http://www.gao.gov/products/GAO-06-447]. Washington, D.C.: 
March 15, 2006. 

Area Contact: 

For additional information about this area, contact Davi M. D'Agostino 
at (202) 512-5431 or dagostinod@gao.gov. 

[End of section] 

A Departmentwide Acquisition Strategy Could Reduce DOD's Risk of 
Costly Duplication in Purchasing Tactical Wheeled Vehicles: 

Why GAO Is Focusing on This Area: 

The Department of Defense (DOD) spends billions of dollars each year 
to procure tactical wheeled vehicles, such as several types of Mine 
Resistant Ambush Protected vehicles. Tactical wheeled vehicles are 
used to transport people, weapons, and cargo. The advent of improvised 
explosive devices has had a significant effect on designing tactical 
wheeled vehicles for survivability. DOD is in the process of acquiring 
two new armored designs--the Mine Resistant Ambush Protected All 
Terrain Vehicle, and the Joint Light Tactical Vehicle. The estimated 
total acquisition cost for the Mine Resistant Ambush Protected All 
Terrain Vehicle is about $12.5 billion. The military services expect 
to have a variety of tactical wheeled vehicles in use at any given 
time. Since 2008, GAO has identified tactical wheeled vehicle 
procurement as being at risk for duplication, and in 2009 GAO 
recommended that DOD develop a unified acquisition strategy. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

DOD's acquisition of two similar tactical wheeled vehicles--the Mine 
Resistant Ambush Protected vehicle, including an All Terrain variant, 
and eventually the Joint Light Tactical Vehicle--creates a risk of 
unplanned overlap in capabilities that could increase acquisition 
costs significantly. The Mine Resistant Ambush Protected All Terrain 
vehicle contractor was expected to complete deliveries in November 
2010. According to program officials, the vehicles fielded so far 
appear to be performing well. Development efforts for the Joint Light 
Tactical Vehicle, with an expected initial acquisition of over 60,000 
vehicles, are still ongoing. While acquisition costs for the Joint 
Light Tactical Vehicle are yet to be determined, a low-end estimate is 
$18.5 billion. The cost per unit, including mission equipment, could 
be over $800,000 each. 

To date, the services have not considered using the vehicles in the 
Mine Resistant Ambush Protected family--with the exception of some 
vehicles planned for use by route clearance, explosives ordinance 
disposal, and medical evacuation units--to offset the need for or 
replace other tactical wheeled vehicles. Currently, the services 
consider Mine Resistant Ambush Protected vehicles to be mainly 
additive to their fleets. Given the high potential cost of the Joint 
Light Tactical Vehicle, reducing the number of units acquired could 
offer substantial savings, albeit with potential performance 
tradeoffs. To illustrate, a 5 percent reduction in Joint Light 
Tactical Vehicle quantities could save nearly $2.5 billion, assuming a 
unit cost of $800,000. 

DOD does not have a unified tactical wheeled vehicle strategy that 
considers timing, capabilities, affordability, and sustainability. DOD 
stated in 2009 that it would create a unified plan for tactical 
wheeled vehicle investment decisions. The plan would be a 
comprehensive strategy compatible with Army and Marine Corps equipping 
strategies. As of January 2011, the Army had completed and released 
its updated tactical wheeled vehicle strategy, the Marine Corps had 
not yet completed its updated strategy, and DOD had not yet issued a 
timetable for completing a unified, departmentwide strategy. 

With the Army and Marine Corps facing decisions about whether to 
repair, upgrade, or replace older tactical vehicles, it is important 
to fully assess the requirements and cost for buying and maintaining 
all classes of tactical wheeled vehicles from the dual perspectives of 
mission need and affordability. The services need to know what 
capabilities the Joint Light Tactical Vehicle will have, the scope and 
cost of any recapitalization of other vehicles or production effort, 
and the sustainment cost of placing the Mine Resistant Ambush 
Protected family of vehicles in their force structures. The services 
have expressed concern about their ability to fund operations and 
support costs for tactical wheeled vehicles in the future. 

Actions Needed and Potential Financial or Other Benefits: 

DOD could save both acquisition and support costs through a 
departmentwide tactical wheeled vehicle strategy that considers costs 
and benefits of the Joint Light Tactical Vehicle compared to other 
tactical wheeled vehicle options. 

To help the agency assess the affordability of these acquisitions and 
their implications for competing demands within the department, DOD 
needs to complete its planned DOD-wide tactical wheeled vehicle 
strategy to determine: 

* what capabilities Joint Light Tactical Vehicle will have, 

* the scope and cost of any recapitalization of other vehicles or 
production effort, and: 

* the sustainment cost of placing the Mine Resistant Ambush Protected 
family of vehicles in their force structures. 

In addition, as GAO recommended in November 2010, DOD should include 
in the strategy a cost-benefit analysis that could minimize the 
collective acquisition and support costs of the various tactical 
wheeled vehicle programs and reduce the risk of unplanned overlap or 
duplication. Such a cost-benefit analysis should provide an estimate 
of dollar savings for various options for offsetting Joint Light 
Tactical Vehicle quantities in favor of recapitalizing existing 
vehicles. 

Any potential offsets between Mine Resistant Ambush Protected vehicles 
and Joint Light Tactical Vehicles, to the extent that they are 
supported by cost-benefit analyses, could save both acquisition and 
support costs. Simply reducing the number of Joint Light Tactical 
Vehicles DOD procures could result in billions of dollars in cost 
savings. For instance, a reduction of just 5 percent would save $2.5 
billion, assuming a unit cost of $800,000. In addition to saving 
initial procurement costs, reducing tactical wheeled vehicle 
acquisition quantities has the potential to reduce future operational 
and maintenance costs. 

DOD concurred with GAO's recommendations and said that the Joint Light 
Tactical Vehicle program will conduct an analysis of alternatives that 
explores potential offsets to planned acquisition quantities, 
including those related to the replacement of Mine Resistant Ambush 
Protected vehicles. In addition, as a part of DOD's planned analysis 
of alternatives to the Joint Light Tactical Vehicle, the Army and 
Marine Corps have stated they will explore the implications, including 
maintenance and lifecycle cost benefits, of acquiring a Joint Light 
Tactical Vehicle family of vehicles as a part of a mixed vehicle fleet. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

Defense Acquisitions: Issues to Be Considered as DOD Modernizes Its 
Fleet of Tactical Wheeled Vehicles. [hyperlink, 
http://www.gao.gov/products/GAO-11-83]. Washington, D.C.: November 5, 
2010. 

Defense Acquisitions: Department of Defense Needs a Unified Strategy 
for Balancing Investments in Tactical Wheeled Vehicles. [hyperlink, 
http://www.gao.gov/products/GAO-09-968R]. Washington, D.C.: September 
28, 2009. 

Rapid Acquisition of Mine Resistant Ambush Protected Vehicles. 
[hyperlink, http://www.gao.gov/products/GAO-08-884R]. Washington, 
D.C.: July 15, 2008. 

Area Contact: 

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

[End of section] 

Improved Joint Oversight of DOD's Prepositioning Programs May Reduce 
Unnecessary Duplication: 

Why GAO Is Focusing on This Area: 

The Department of Defense (DOD) prepositions equipment and supplies 
worth billions of dollars, including major items such as combat 
vehicles, rations, medical supplies, and repair parts at strategic 
locations around the world. Both afloat and ashore, prepositioning 
enables DOD to field combat-ready forces in days, rather than the 
weeks it would take if equipment had to be moved from the United 
States to the locations of conflicts. Prepositioned equipment can also 
be used to support security cooperation, deterrence, multilateral 
training exercises, and humanitarian assistance or disaster relief. 

The Air Force, Army, and Marine Corps have drawn on their 
prepositioned stocks to support military operations in Iraq and 
Afghanistan, increasing the opportunities to gain efficiencies in 
rebuilding these stocks. Since 2005, GAO has identified challenges 
regarding DOD's prepositioned stocks and made numerous recommendations 
related to strategic planning, requirements determination, inventory 
management, and other issues. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Although the services are expected to operate in a joint environment, 
some prepositioning activities are fragmented among the services, with 
the potential for unnecessary duplication. For example, the Army's and 
Air Force's transportable base equipment, including mobile housing and 
dining facilities, illustrates an instance in which the services 
separately fund and manage prepositioned equipment that has been used 
interchangeably among the services. Since 2005, GAO has reported that 
the lack of a departmentwide approach to prepositioning potentially 
misses opportunities to achieve greater efficiencies by reducing 
unnecessary duplication. Greater efforts toward a departmentwide 
approach to prepositioning that ensures the services' plans to spend 
billions of dollars to rebuild prepositioned stocks accurately reflect 
DOD's current and future needs could help prevent unnecessary 
duplication and expenditures. 

While prior GAO recommendations and DOD's own instruction indicate the 
need for a departmentwide approach to prepositioning, the department 
still does not have such an approach. In 2008 DOD published an 
instruction on prepositioned stocks directing the development of 
overarching strategic guidance on prepositioning. However, as of 
September 2010 DOD's guidance contained little information related to 
prepositioned stocks. As a result, the services' individual plans and 
priorities for rebuilding their prepositioned stocks may continue to 
be implemented without a clear understanding of how these plans fit 
together to meet evolving defense goals. DOD has estimated that as of 
the end of fiscal year 2009, such replenishment will take about 8 
years and cost an estimated $6.1 billion. GAO has reported that, as 
the rebuilding progresses, without the development and implementation 
of departmentwide guidance that includes planning and funding 
priorities linking current and future needs and desired responsiveness 
of DOD's prepositioned stocks, the services may not be able to make 
fully informed decisions that would support the effective and 
efficient achievement of national military objectives. 

Organizational challenges that have hindered DOD's joint oversight of 
its prepositioned stocks further illustrate the lack of a 
departmentwide approach to prepositioning. DOD's 2008 instruction on 
prepositioned stocks formalized the establishment of a joint 
prepositioning working group. According to the federal standards for 
internal control, federal agencies are to employ internal control 
activities, such as reviews by managers, to help ensure that an 
organization's directives are carried out and resources are 
effectively and efficiently used. However, as GAO recently reported, 
the working group has had a limited focus, such as information 
sharing, and has not conducted the wider range of tasks the working 
group was directed to perform, such as addressing joint issues 
concerning requirements for prepositioned stocks, developing 
recommendations for improved processes, and making recommendations 
that balance limited resources against operational risk during budget 
and program reviews. If performed, these tasks could produce cost 
savings. 

Actions Needed and Potential Financial or Other Benefits: 

Joint, departmental, and service components within DOD are in the 
process of undertaking or have completed five major reviews, which may 
have the potential to identify areas of needed enhancements to the 
management of prepositioning activities. Nevertheless, without 
overarching guidance and the organizational means to institutionalize 
the results of these efforts, their impact may be limited. Therefore, 
as GAO recently recommended, the Secretary of Defense should take the 
following actions to enhance joint oversight of DOD's prepositioning 
programs: 

* Direct the Office of the Undersecretary of Defense for Policy to 
develop strategic guidance that includes planning and resource 
priorities, linking the department's current and future needs for 
prepositioned stocks to evolving national defense objectives. 

* Direct the Undersecretary of Defense for Acquisition, Technology, 
and Logistics, in coordination with the Chairman of the Joint Chiefs 
of Staff, to strengthen DOD's joint oversight of its prepositioned 
stocks through such actions as clarifying lines of authority and 
reporting between the joint prepositioning working group and other 
components within DOD. 

* Direct the Chairman of the Joint Chiefs of Staff and the Secretaries 
of the military services to synchronize at a DOD-wide level, as 
appropriate, the services' prepositioning programs so that they 
include updated requirements and maximize efficiency in managing 
prepositioned assets and activities across the department to reduce 
unnecessary duplication. 

In November 2010 DOD concurred with GAO's recommendations, but 
insufficient time has passed to assess progress in implementing them. 
Also, information is not available on the extent of potential savings 
that may result from the integration of elements of the services' 
prepositioning programs. Any actual savings would be dependent upon 
specific steps taken. However, implementing joint management for the 
staging and maintenance of prepositioned equipment stored on ships; 
consolidating elements common among the services' programs, such as 
expeditionary base and fuel transfer equipment; and leveraging the 
Defense Logistics Agency to manage some prepositioned repair parts are 
some steps that service officials believe may reduce costs. 

Framework for Analysis: 

This analysis draws on information contained in the GAO products 
listed below and in a classified report that GAO issued in February 
2011. For this analysis, GAO excluded all information associated with 
certain details that DOD identified as being classified or sensitive 
in nature, which must be protected from public disclosure. Although 
the information contained in this analysis omits classified and 
sensitive information, these omissions addressed other issues and have 
no bearing on the findings, conclusions, and recommendations stated 
above. GAO plans to issue a full unclassified version of its report 
and conduct future work on DOD's prepositioned stocks in response to 
its annual reporting mandate. 

Related GAO Products: 

Defense Logistics: Department of Defense's Annual Report on the Status 
of Prepositioned Materiel and Equipment Can Be Further Enhanced to 
Better Inform Congress. [hyperlink, 
http://www.gao.gov/products/GAO-10-172R]. Washington, D.C.: November 
4, 2009. 

Defense Logistics: Department of Defense's Annual Report on the Status 
of Prepositioned Materiel and Equipment Can Be Enhanced to Better 
Inform Congress. [hyperlink, http://www.gao.gov/products/GAO-09-147R]. 
Washington, D.C.: December 15, 2008. 

Force Structure: Restructuring and Rebuilding the Army Will Cost 
Billions of Dollars for Equipment but the Total Cost Is Uncertain. 
[hyperlink, http://www.gao.gov/products/GAO-08-669T]. Washington, 
D.C.: April 10, 2008. 

Military Readiness: Impact of Current Operations and Actions Needed to 
Rebuild Readiness of U.S. Ground Forces. [hyperlink, 
http://www.gao.gov/products/GAO-08-497T]. Washington, D.C.: February 
14, 2008. 

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

Defense Logistics: Army and Marine Corps Cannot Be Assured That 
Equipment Reset Strategies Will Sustain Equipment Availability While 
Meeting Ongoing Operational Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-07-814]. Washington D.C.: September 
19, 2007. 

Defense Logistics: Improved Oversight and Increased Coordination 
Needed to Ensure Viability of the Army's Prepositioning Strategy. 
[hyperlink, http://www.gao.gov/products/GAO-07-144]. Washington, D.C.: 
February 15, 2007. 

Defense Logistics: Better Management and Oversight of Prepositioning 
Programs Needed to Reduce Risk and Improve Future Programs. 
[hyperlink, http://www.gao.gov/products/GAO-05-427]. Washington, D.C.: 
September 6, 2005. 

Area Contact: 

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

[End of section] 

DOD Business Systems Modernization: Opportunities Exist for Optimizing 
Business Operations and Systems: 

Why GAO Is Focusing on This Area: 

Delivering modernized business systems is at the heart of the 
Department of Defense (DOD) efforts to transform its business 
operations. These systems include timeworn and duplicative systems 
that support DOD business operations such as civilian personnel, 
finance, health, logistics, military personnel, procurement, and 
transportation. Since 1995, GAO has designated the department's 
business systems modernization efforts as high risk. One key to 
effectively modernizing DOD's multibillion dollar systems environment 
is ensuring that business system investments comply with an 
enterprisewide strategic blueprint, commonly called an enterprise 
architecture. For DOD's business systems modernization, it is 
developing and using a federated business enterprise architecture 
(BEA), which is a coherent family of parent and subsidiary 
architectures, to help modernize its nonintegrated and duplicative 
business operations and the systems that support them. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

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. As GAO has previously reported, DOD's business systems 
environment has been characterized by (1) little standardization, (2) 
multiple systems performing the same tasks, (3) the same data stored 
in multiple systems, and (4) manual data entry into multiple systems. 
According to DOD, one purpose of the federated BEA is to identify and 
provide for sharing common applications and systems across the 
department and the components and promote interoperability and data 
sharing among related programs. Because DOD spends over $10 billion 
each year on its business systems and related information technology 
infrastructure, the potential for identifying and avoiding the costs 
associated with duplicative functionality across its business system 
investments is significant. 

To accomplish this, DOD has developed an automated tool to map each 
system's functionality to the BEA operational activities and business 
functions that the system supports. Using an enterprise architecture 
in this way offers significant dollar savings potential, as it 
provides an authoritative frame of reference against which to analyze 
proposed investments and collect the information needed to identify 
where a given investment may overlap with other investments and thus 
unnecessary duplication of effort can be avoided. However, GAO has 
previously found that much remains to be done in extending and 
developing DOD's BEA and ensuring that disciplined management controls 
are applied at the institutional and program-specific levels. Without 
sufficient rigor in its business systems modernization, GAO found that 
DOD programs were at increased risk of being defined and implemented 
in a way that does not sufficiently ensure interoperability and avoid 
duplication and overlap. To adequately ensure that DOD business system 
investments are defined and implemented within the context of the 
federated BEA, GAO recommended in August 2008 that DOD use the program-
specific data in its architecture compliance tool to identify and 
analyze potential overlap and duplication and thus take advantage of 
opportunities for reuse and consolidation among programs. DOD agreed 
and stated that it plans to update its investment review board process 
guidance to require use of program-specific data for certification 
decisions on business systems compliance with the BEA. However, it has 
yet to establish a date for doing so. 

More broadly, GAO has recommended steps DOD needs to take to further 
improve its business systems modernization efforts. At the 
institutional level: 

* the supporting component architectures need to be developed and 
aligned with the corporate architecture to complete the federated 
business enterprise architecture, 

* DOD business system investments need to be defined and implemented 
within the context of its federated business enterprise architecture, 
and: 

* the investment process needs to evolve and be institutionalized at 
all levels of the organization. 

Furthermore, DOD needs to ensure that its business system programs and 
projects are managed with integrated institutional controls and that 
they consistently deliver benefits and capabilities on time and within 
budget. 

Between 2005 and 2008, GAO reported that DOD made progress 
implementing key institutional modernization management controls in 
response to GAO recommendations as well as to statutory requirements. 
For example, the department had continued to develop updates to its 
BEA that addressed important elements related to statutory 
requirements and best practices that GAO previously identified as 
missing. In addition, DOD defined and began implementing 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, additional actions are still needed. 

Actions Needed and Potential Financial or Other Benefits: 

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. 

Because of these limitations, DOD programs continue to be at increased 
risk of being defined and implemented in a way that does not 
sufficiently ensure interoperability and avoid duplication and 
overlap, which are both goals of the BEA and the department's related 
investment management approach. If these limitations are addressed, 
DOD and its components could have a sufficient basis for knowing if 
its business system programs have been defined to effectively and 
efficiently support corporate business operations. Congress can play a 
critical role by continuing to provide focus and oversight. 

At the request of the Senate Armed Services Committee, GAO is 
initiating two engagements focusing on (1) the status and progress of 
the military departments' enterprise architecture programs and (2) 
prior GAO 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. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
reports listed below. 

Related GAO Products: 

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. 

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. 

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 Systems Modernization: Maintaining Effective Communication Is 
Needed to Help Ensure the Army's Successful Deployment of the Defense 
Integrated Military Human Resources System. [hyperlink, 
http://www.gao.gov/products/GAO-08-927R]. Washington, D.C.: September 
8, 2008. 

DOD Business Systems Modernization: Planned Investment in Navy Program 
to Create Cashless Shipboard Environment Needs to Be Justified and 
Better Managed. [hyperlink, http://www.gao.gov/products/GAO-08-922]. 
Washington, D.C.: September 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. 

Area Contact: 

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

[End of section] 

Efficiency and Effectiveness of Fragmented Economic Development 
Programs Are Unclear: 

Why GAO Is Focusing on This Area: 

Economic development programs that are administered efficiently and 
effectively can contribute to the well-being of the nation's economy 
at the least cost to taxpayers. Absent a common definition for 
economic development, GAO has previously developed a list of nine 
activities most often associated with economic development. These 
activities include: planning and developing strategies for job 
creation and retention, developing new markets for existing products, 
building infrastructure by constructing roads and sewer systems to 
attract industry to undeveloped areas, and establishing business 
incubators to provide facilities for new businesses' operations. 

GAO is currently examining 80 economic development programs at four 
agencies--the Departments of Commerce (Commerce), Housing and Urban 
Development (HUD), and Agriculture (USDA); and the Small Business 
Administration (SBA)--to assess potential for overlap in the design of 
the programs, the extent to which the four agencies collaborate to 
achieve common goals, and the extent to which the agencies have 
developed measures to determine the programs' effectiveness. Funding 
provided for these 80 programs in fiscal year 2010 amounted to $6.5 
billion, of which about $3.2 billion was for economic development 
efforts, largely in the form of grants, loan guarantees, and direct 
loans. Some of these 80 programs can fund a variety of activities, 
including those focused on noneconomic development activities, such as 
rehabilitating housing and building community parks. This analysis 
presents the preliminary findings of GAO's ongoing work in conjunction 
with findings from its prior work. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Preliminary results of GAO's ongoing work involving 80 economic 
development programs at four agencies--Commerce, HUD, SBA, and USDA-- 
indicate that the design of each of these fragmented programs appears 
to overlap with that of at least one other program in terms of the 
economic development activities that they are authorized to fund. For 
example, as shown in the table below, the four agencies administer a 
total of 52 programs that can fund "entrepreneurial efforts," which 
includes helping businesses to develop business plans and identify 
funding sources. 

Table: Overlap and Fragmentation Among Selected Agencies Authorized to 
Fund Economic Development Activities: 

Activity: Entrepreneurial efforts; 
Programs by agency: 
Commerce: 9; 
HUD: 12; 
SBA: 19; 
USDA: 12; 
Total: 52. 

Activity: Infrastructure; 
Programs by agency: 
Commerce: 4; 
HUD: 12; 
SBA: 1; 
USDA: 18; 
Total: 35. 

Activity: Plans and strategies; 
Programs by agency: 
Commerce: 7; 
HUD: 13; 
SBA: 13; 
USDA: 6; 
Total: 39. 

Activity: Commercial buildings; 
Programs by agency: 
Commerce: 4; 
HUD: 12; 
SBA: 4; 
USDA: 7; 
Total: 27. 

Activity: New markets; 
Programs by agency: 
Commerce: 6; 
HUD: 10; 
SBA: 6; 
USDA: 6; 
Total: 28. 

Activity: Telecommunications; 
Programs by agency: 
Commerce: 3; 
HUD: 11; 
SBA: 2; 
USDA: 10; 
Total: 26. 

Activity: Business incubators; 
Programs by agency: 
Commerce: 5; 
HUD: 12; 
SBA: 0; 
USDA: 3; 
Total: 20. 

Activity: Industrial parks; 
Programs by agency: 
Commerce: 5; 
HUD: 11; 
SBA: 0; 
USDA: 3; 
Total: 19. 

Activity: Tourism; 
Programs by agency: 
Commerce: 5; 
HUD: 10; 
SBA: 0; 
USDA: 4; 
Total: 19. 

Source: GAO: 

Note: Numbers of programs by agency do not total to 80 since an 
individual program may fund several activities. 

[End of table] 

GAO's prior work going back more than 10 years also identified 
potential overlap and fragmentation in economic development programs 
and found that many of the programs were differentiated by legislative 
or regulatory restrictions that targeted funding on the basis of 
characteristics such as geography, income levels, and population 
density (rural or urban). 

While some of the 80 programs GAO is currently assessing fund several 
of the nine economic development activities, almost 60 percent of the 
programs (46 of 80) fund only one or two activities. These smaller, 
narrowly scoped programs appear to be the most likely to overlap 
because many of them can only fund the same limited types of 
activities. For example, narrowly scoped programs comprise 21 of the 
52 programs that fund entrepreneurial efforts. Moreover, most of these 
21 programs target similar geographic areas. 

To address issues arising from potential overlap and fragmentation in 
economic development programs, GAO has previously identified 
collaborative practices agencies should consider implementing in order 
to maximize the performance and results of federal programs that share 
common outcomes. These practices include leveraging physical and 
administrative resources, establishing compatible policies and 
procedures, monitoring collaboration, and reinforcing agency 
accountability for collaborative efforts through strategic or annual 
performance plans. Preliminary findings from GAO's ongoing work show 
that Commerce, HUD, SBA, and USDA appear to have taken actions to 
implement some of the collaborative practices, such as defining and 
articulating common outcomes, for some of their related programs. 
However, the four agencies have offered little evidence so far that 
they have taken steps to develop compatible policies or procedures 
with other federal agencies or search for opportunities to leverage 
physical and administrative resources with their federal partners. 
Moreover, GAO is finding that most of the collaborative efforts 
performed by program staff on the front line that GAO has been able to 
assess to date have occurred only on a case-by-case basis. As a 
result, it appears that the agencies do not consistently monitor or 
evaluate these collaborative efforts in a way that allows them to 
identify areas for improvement. GAO reported in September 2008 that 
the main causes for limited agency collaboration include few 
incentives to collaborate and no guide for agencies to rely on for 
consistent and effective collaboration. In GAO's ongoing work, USDA 
and SBA officials also stated that certain statutory authorities may 
impede their ability to collaborate. In failing to find ways to 
collaborate more, agencies may miss opportunities to leverage each 
other's unique strengths to more effectively promote economic 
development, in addition to inefficiently using the taxpayer dollars 
set aside for that purpose. 

In addition, a lack of information on program outcomes is a current 
and long-standing concern. This information is needed to determine 
whether this potential overlap and fragmentation is resulting in 
ineffective or inefficient programs. More specifically: 

* Commerce's Economic Development Administration (EDA), which 
administers eight of the programs GAO is currently reviewing, 
continues to rely on a potentially incomplete set of variables and 
self-reported data to assess the effectiveness of its grants. The 
incomplete set of variables that the agency relies on to estimate the 
effectiveness of EDA program grants may lead to inaccurate claims 
about program results, such as the number of jobs created. Moreover, 
EDA staff request documentation or conduct site visits to validate the 
self-reported data provided by grantees only in limited instances. GAO 
first reported on this issue in March 1999 and issued a subsequent 
report in October 2005. In response to a recommendation GAO made in 
2005, EDA issued revised operational guidance in December 2006 that 
included a new methodology that regional offices are to use to 
calculate estimated jobs and private sector investment attributable to 
EDA projects. However, GAO's ongoing work found that the agency still 
primarily relies on grantee self-reported data and conducts a limited 
number of site visits to assess the accuracy of the data. While 
acknowledging these findings, EDA officials stated that they do employ 
other verification and validation methods in lieu of site visits. 
These methods include reviews to ensure the data are consistent with 
regional trends and statistical tests to identify outliers and 
anomalies. GAO plans to assess the quality and adequacy of these 
methods as part of its ongoing work. 

* The USDA's Office of Rural Development, which administers 31 of the 
programs GAO is reviewing, has yet to implement the USDA Inspector 
General's (IG) 2003 recommendation related to ensuring that data exist 
to measure the accomplishments of one of its largest rural business 
programs--the Business and Industry loan program, which cost 
approximately $53 million to administer in fiscal year 2010. USDA 
officials stated that they have recently taken steps to address the 
open recommendation, including requiring staff to record actual jobs 
created rather than estimated jobs created, but according to an IG 
official it is too early to tell whether their actions will fully 
address the recommendation. 

* HUD does not track long-term performance outcome measures for its 
Section 108 program because the agency continues to lack a reporting 
mechanism to capture how program funds are used, an issue the Office 
of Management and Budget (OMB) reported on in 2007. Moreover, OMB also 
found in 2007 that the program's impact and effectiveness in 
neighborhoods remained unknown. 

* SBA has not yet developed outcome measures that directly link to the 
mission of its Historically Underutilized Business Zones (HUBZone) 
program, nor has the agency implemented its plans to conduct an 
evaluation of the program based on variables tied to its goals. GAO 
reported in June 2008 that while SBA tracks a few performance 
measures, such as the number of small businesses approved to 
participate in the program, the measures do not directly link to the 
program's mission. While SBA continues to agree that evaluating 
program outcomes is important, to date the agency has not yet 
committed resources for such an evaluation. 

Without quality data on program outcomes, these agencies lack key 
information that could help them better manage their programs. In 
addition, such information would enable congressional decision makers 
and others to make decisions to better realign resources, if 
necessary, and to identify opportunities for consolidating or 
eliminating some programs. 

Actions Needed and Potential Financial or Other Benefits: 

Preliminary findings of ongoing GAO work have identified several areas 
that could benefit from continued attention. 

* Agencies need to further utilize promising practices for enhanced 
collaboration. GAO first made this recommendation to SBA and USDA in 
September 2008, but these agencies have taken only limited steps to 
fully address GAO's concerns. The actions that the four agencies 
should consider include seeking more opportunities for resource-
sharing across economic development programs with shared outcomes, and 
identifying ways to leverage each program's strengths to improve their 
existing collaborative efforts. Continuing to explore the extent to 
which these agencies collaborate could help identify promising 
practices that may result in more effective and efficient delivery of 
economic development programs to distressed areas. 

* Agencies need to collect accurate and complete data on program 
outcomes and use the information to assess each program's 
effectiveness. In June 2008 GAO made a similar recommendation to SBA 
about its HUBZone program, but the agency has taken limited action 
thus far. 

Additional work to assess progress in collaboration and evaluation 
could identify areas for improvement, consolidation, or elimination. 
Further, programs that are designed to target similar economic 
development activities, locations, and applicants may not be adding 
unique value, and more analysis is needed by the agencies and OMB to 
determine the actual amount of duplicative spending. 

The above are actions that could be taken by agencies to address 
fragmentation and overlap, and increase program efficiencies across 
the multiple agencies, which support economic development efforts. 
However, given the long-standing nature of these issues, GAO also 
believes that increased attention and oversight by OMB and Congress 
are warranted to ensure needed actions are taken. 

Framework for Analysis: 

The information contained in this analysis is based on the GAO 
products listed below, as well as GAO's ongoing work following up on 
the recommendations from those products, and the preliminary results 
of GAO's ongoing evaluation of economic development programs at four 
federal agencies. For the most recent work, GAO gathered new 
information related to, for example, program missions, targeted 
populations, and funding provided for the programs. The data on 
program funds were self-reported by agency officials. The data were 
determined to be sufficiently reliable for the purposes of this 
review. For this review, GAO focused on USDA, Commerce, HUD, and SBA. 
GAO met with officials from each of the agencies to discuss each of 
the programs and the program missions. Because SBA officials view all 
of their programs as being related to economic development, GAO 
included all SBA programs in this review. Using the Catalog of Federal 
Domestic Assistance and other agency documents, GAO identified 80 
federal programs administered by the four agencies that could fund 
economic development activities. GAO did not include tax credit 
programs aimed at economic development in this review. For information 
on how tax programs can contribute to duplication, see the section of 
this report entitled "Periodic Reviews Could Help Identify Ineffective 
Tax Expenditures and Redundancies in Related Tax and Spending 
Programs." 

Related GAO Products: 

Rural Economic Development: Collaboration between SBA and USDA Could 
Be Improved. [hyperlink, http://www.gao.gov/products/GAO-08-1123]. 
Washington, D.C.: September 18, 2008. 

Small Business Administration: Additional Actions Are Needed to 
Certify and Monitor HUBZone Businesses and Assess Program Results. 
[hyperlink, http://www.gao.gov/products/GAO-08-643]. Washington, D.C.: 
June 17, 2008. 

Rural Economic Development: More Assurance Is Needed That Grant 
Funding Information Is Accurately Reported. [hyperlink, 
http://www.gao.gov/products/GAO-06-294]. Washington, D.C.: February 
24, 2006. 

Economic Development Administration: Remediation Activities Account 
for a Small Percentage of Total Brownfield Grant Funding. [hyperlink, 
http://www.gao.gov/products/GAO-06-7]. Washington, D.C.: October 27, 
2005. 

Economic Development: Multiple Federal Programs Fund Similar Economic 
Development Activities. [hyperlink, 
http://www.gao.gov/products/GAO/RCED/GGD-00-220]. Washington, D.C.: 
September 29, 2000. 

Economic Development: Observations Regarding the Economic Development 
Agency's May 1998 Final Report on Its Public Works Program. 
[hyperlink, http://www.gao.gov/products/GAO/RCED-99-11R]. Washington, 
D.C.: March 23, 1999. 

Area Contact: 

For additional information about this area, contact William B. Shear 
at (202) 512-4325 or shearw@gao.gov. 

[End of section] 

The Federal Approach to Surface Transportation Is Fragmented, Lacks 
Clear Goals, and Is Not Accountable for Results: 

Why GAO Is Focusing on This Area: 

The nation's surface transportation system is critical to the economy 
and affects the daily life of most Americans. The Department of 
Transportation (DOT) currently administers scores of surface 
transportation programs costing over $58 billion annually. The cost to 
repair and upgrade roads, bridges, and other infrastructure so they 
can safely and reliably meet current and future demands is estimated 
in the hundreds of billions of dollars. However, large increases in 
federal expenditures for transportation in recent years have not 
commensurately improved system performance. Proposals to reauthorize 
the surface transportation program--which expired in September 2009 
and has been extended until March 2011--have recommended consolidating 
or eliminating some of these programs. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

The current federal approach to surface transportation was established 
in 1956 to build the Interstate Highway System, but has not evolved to 
reflect current national priorities and concerns. Over the years, in 
response to changing transportation, environmental, and societal 
goals, federal surface transportation programs grew in number and 
complexity to encompass broader goals, more programs, and a variety of 
program approaches and grant structures. This variety of approaches 
and structures did not result from a specific rationale or plan, but 
rather an agglomeration of policies and programs established over half 
a century without a well-defined overall vision of the national 
interest and federal role in our surface transportation system. This 
has resulted in a fragmented approach as five DOT agencies with 6,000 
employees administer over 100 separate programs with separate funding 
streams for highways, transit, rail, and safety functions. This 
fragmented approach impedes effective decision making and limits the 
ability of decision makers to devise comprehensive solutions to 
complex challenges. For example, the federal government largely lacks 
mechanisms for aiding projects that span multiple jurisdictions and 
implementing projects that involve more than one state or local 
sponsor or multiple transportation modes. 

At the core of this fragmentation is the fact that federal goals and 
roles for the program are unclear or may conflict with other federal 
priorities, programs lack links to the performance of the 
transportation system or of the grantees, and programs do not use the 
best tools to target investments in transportation to the areas of 
greatest benefit. For example, the federal government lacks a 
comprehensive national strategy that defines its role in freight 
transportation projects, even though enhancing freight mobility is 
viewed as a top transportation priority. Furthermore, efforts to spur 
economic development through highway construction may conflict with 
efforts to improve air quality, and motor fuel taxes that encourage 
fuel consumption to finance highways may conflict with reducing carbon 
emissions. The largest highway, transit, and safety grant programs 
distribute funds through formulas that are typically not linked to 
performance and, in many cases, have only an indirect relationship to 
needs. As a result, it is difficult to assess the impact of funding on 
achieving transportation goals. The federal aid highway program, in 
particular, distributes about $40 billion a year to the states through 
complicated formulas that are ultimately overridden by provisions that 
return federal fuel excise tax revenues to their state of origin. Once 
DOT apportions funds, states have wide latitude to select their own 
projects and considerable flexibility to reallocate their funds among 
highway and transit programs. While these provisions give states the 
discretion to pursue their own priorities, the provisions may impede 
the targeting of federal funds toward specific national goals and 
objectives. To some extent, the federal aid highway program functions 
as a cash-transfer general-purpose grant program, rather than as a 
tool for pursuing a cohesive national transportation policy. 

Actions Needed and Potential Financial or Other Benefits: 

A fundamental re-examination and reform of the nation's surface 
transportation policies is needed. Since 2004, GAO has made several 
recommendations and matters for congressional consideration to address 
the need for a more goal-oriented approach to surface transportation, 
introduce greater performance and accountability for results, and 
break down modal stovepipes. Also, GAO has identified a number of 
principles that can help guide a fundamental re-examination and reform 
of the nation's surface transportation policies that recognizes 
emerging national and global imperatives--such as reducing the 
nation's dependence on foreign fuel sources and minimizing the effect 
of transportation systems on global climate. These principles include 
ensuring the federal role is defined based on identified areas of 
national interest and goals, incorporating accountability for results 
by entities receiving federal funds, employing the best tools and 
approaches to emphasize return on targeted federal investment, and 
ensuring fiscal sustainability. 

Applying these principles to a re-examination and reform of surface 
transportation programs would potentially result in a more clearly 
defined federal role in relation to other levels of government and 
thus a more targeted federal role focused around evident national 
interests. Where national interests are less evident--for example, 
where the economic benefits are more locally focused or there are 
varying regional preferences--other stakeholders could assume more 
responsibility, and some functions could potentially be assumed by the 
states or other levels of government. This would then result in a more 
streamlined federal program approach and enhance the efficient 
delivery of programs and services. 

From the standpoint of state and local governments, re-examination and 
reform of the federal approach could reduce the administrative 
expenses states face complying with myriad federal statutory and 
regulatory requirements. For example, in May 2009, GAO reported that 
consolidating the application processes for three federal transit 
programs that provide funding for transportation-disadvantaged 
populations could reduce the administrative burden for states and 
transit agencies applying for these funds. However, GAO has reported 
that estimates from the states on the costs of complying with some 
federal requirements are not available. 

Congressional reauthorization of surface transportation programs 
presents an opportunity to address GAO recommendations and matters for 
congressional consideration that have not been implemented in large 
part because the current multiyear authorization for surface 
transportation programs expired in 2009, and existing programs have 
been funded since then through temporary extensions. Several reform 
proposals have been introduced, which indicate that some of GAO's more 
recent recommendations and matters for congressional consideration are 
gaining traction. In its 2008 report, the National Surface 
Transportation Policy and Revenue Study Commission, established by 
Congress, recommended that federal surface transportation investments 
be carefully aligned with defined national interests through a 
comprehensive performance-based approach. In a bipartisan "blueprint" 
for reauthorization, the leadership of the House Transportation and 
Infrastructure Committee proposed redefining the federal role and 
restructuring programs by consolidating or eliminating more than 75 
programs. The American Recovery and Reinvestment Act of 2009 helped 
break down modal barriers by establishing a $1.5 billion discretionary 
grant program that placed increased emphasis on integrated solutions 
to transportation challenges and provided an unprecedented ability for 
proposed projects that cut across modes of transportation to compete 
for federal funding. 

Framework for Analysis: 

The information contained in this analysis is based on previously 
issued work listed in the following related GAO products. 

Related GAO Products: 

Surface 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 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. 

Federal Transit Administration: Progress and Challenges in 
Implementing and Evaluating the Job Access and Reverse Commute 
Program. [hyperlink, http://www.gao.gov/products/GAO-09-496]. 
Washington, D.C.: May 21, 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.: Feb. 6, 
2009. 

Federal-Aid Highways: Federal Requirements for Highways May Influence 
Funding Decisions and Create Challenges, but Benefits and Costs Are 
Not Tracked. [hyperlink, http://www.gao.gov/products/GAO-09-36]. 
Washington, D.C.: December 12, 2008. 

Surface Transportation Programs: Proposals Highlight Key Issues and 
Challenges in Restructuring the Programs. [hyperlink, 
http://www.gao.gov/products/GAO-08-843R]. Washington, D.C.: July 29, 
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. 

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. 

Intermodal Transportation: DOT Could Take Further Actions to Address 
Intermodal Barriers. [hyperlink, 
http://www.gao.gov/products/GAO-07-718]. Washington, D.C.: June 20, 
2007. 

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

Area Contact: 

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

[End of section] 

Fragmented Federal Efforts to Meet Water Needs in the U.S.-Mexico 
Border Region Have Resulted in an Administrative Burden, Redundant 
Activities, and an Overall Inefficient Use of Resources: 

Why GAO Is Focusing on This Area: 

Meeting the drinking water and wastewater needs of rural areas, 
particularly areas such as the U.S.-Mexico border region, can be 
difficult. More than 90 percent of public water supply systems and 70 
percent of wastewater systems throughout the United States serve 
communities with populations fewer than 10,000, usually in rural 
areas. The lack of access to safe drinking water and sanitation 
systems can pose risks to human health and the environment, including 
the risk of waterborne illnesses. In 2009, GAO found that seven 
federal agencies active in the border region--the Environmental 
Protection Agency (EPA), the U.S. Department of Agriculture (USDA), 
the Department of Housing and Urban Development (HUD), the U.S. Army 
Corps of Engineers, the Indian Health Service, the Economic 
Development Administration (EDA), and the Department of the Interior's 
Bureau of Reclamation--obligated at least $1.4 billion from fiscal 
years 2000 through 2008 to fund numerous projects in the region. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Key federal agencies recognized more than a decade ago that 
coordinated policies and procedures would improve federal efforts to 
deliver water and wastewater systems to rural areas, including those 
in the U.S.-Mexico border region; however, overall these programs 
remain uncoordinated and fragmented, and their delivery continues to 
be inefficient and ineffective. The U.S.-Mexico border region is 
predominately rural in nature, and federal agencies can find it 
difficult to meet the needs of residents in this region. Specifically, 
the remoteness of some communities can make it challenging to identify 
residents in need of water and wastewater services, communities may 
not have the institutional capacity to identify solutions to address 
their water and wastewater needs, and rural areas typically lack 
adequate funds for constructing and upgrading water supply and 
wastewater treatment facilities. Overcoming differences in agency 
missions and cultures, as well as program differences resulting from 
separate mandates and project eligibility requirements, add to the 
complexity of meeting these communities' water and wastewater needs. 

In December 2009, GAO found that federal efforts to meet drinking 
water and wastewater needs in the border region have been ineffective, 
in part, because most of the seven federal agencies that provide 
assistance have not comprehensively assessed the needs of the region. 
Federal agencies have assembled some data and conducted limited 
studies of drinking water and wastewater conditions in the border 
region, but the resulting patchwork of data does not provide a 
comprehensive assessment of the region's needs. Without a 
comprehensive needs assessment, federal agencies cannot target 
resources toward the most urgent needs or provide assistance to 
communities that do not have the technical or financial resources to 
initiate a proposal for assistance. Instead, GAO found that most 
federal programs generally provide funds to those communities with the 
ability to initiate projects and seek assistance, which may not be the 
ones with the greatest need. Only one agency--the Indian Health 
Service--had collected data on water and wastewater conditions for 
each tribal reservation in the region, enabling it to select projects 
that target the greatest need. 

In addition, GAO found that the key agencies have not developed 
coordinated policies and procedures for selecting water and wastewater 
projects, resulting in an administrative burden, duplication of 
efforts, and inefficient use of resources. Specifically, most programs 
have different applications and application processes for water or 
wastewater projects, different requirements for engineering and 
environmental reports, and different deadlines for submitting 
applications. Because most federal programs require separate 
documentation to meet similar requirements and the agencies do not 
consistently coordinate in selecting projects, applicants can 
experience increased costs and delays in project completion. For 
example, a public utility engineer in Texas said that one applicant 
trying to expand water service to a particular area paid $30,000 more 
in fees because the engineer had to complete two separate sets of 
engineering documentation for EPA and USDA. Also, because most federal 
programs have no process by which to coordinate and share information 
on projects they have selected for funding, GAO found examples where 
agencies made inefficient use of limited resources. For example, GAO 
found a case where HUD provided a utility in Hudspeth County, Texas, 
over $860,000 in grant funds from 2004 to 2006 to extend water 
distribution and waste collection lines for residents of a community. 
However, through September 2009, the distribution lines remained 
unused because the utility did not have enough water to serve the 
additional households. The utility intended to use funding from USDA 
to construct a new well, but the funding obligated by the agency was 
not enough to cover project costs. Three years after the HUD funds 
were provided to construct the distribution lines, the utility had not 
been able to obtain additional assistance from federal agencies to 
construct the well. 

Actions Needed and Potential Financial or Other Benefits: 

To improve program coordination for rural water and wastewater 
infrastructure in the U.S.-Mexico border region, GAO suggested in 
December 2009 that Congress may wish to consider requiring federal 
agencies to establish an interagency mechanism or process, such as a 
task force on water and wastewater infrastructure, in the border 
region. GAO also suggested that Congress could direct a group or task 
force to conduct certain activities. Specifically, GAO suggested that 
a task force, in partnership with state and local officials, should 
leverage collective resources to identify needs within the border 
region and establish compatible and coordinated polices across 
relevant agencies, such as a coordinated process for the selection of 
projects, and standardize applications, environmental review 
requirements, and engineering requirements to the extent possible. 
Such activities would help to ensure that a comprehensive needs 
assessment for the region is completed and that coordination in other 
areas occurs. Although such coordination and uniformity will not 
likely result in significant cost savings for the federal government, 
these activities, if implemented, could improve the effectiveness of 
federal water and wastewater programs and result in more efficient use 
of funds provided to the border region. Most of the cost savings would 
likely be realized by the communities and utilities that would benefit 
from federal agencies establishing a uniform application and 
coordinated funding cycles. While these actions have not yet been 
taken, a bill introduced in the House of Representatives in March 2010 
would have established a Southwest Border Region Water Task Force with 
specific responsibilities such as assessing the water needs of 
communities in the region and reporting to Congress every 6 months on 
its progress. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. 

Related GAO Product: 

Rural Water Infrastructure: Improved Coordination and Funding 
Processes Could Enhance Federal Efforts to Meet Needs in the U.S.-
Mexico Border Region. [hyperlink, 
http://www.gao.gov/products/GAO-10-126]. Washington, D.C.: December 
18, 2009. 

Area Contact: 

For additional information about this area, contact Dave Trimble at 
(202) 512-3991 or trimbled@gao.gov. 

[End of section] 

Resolving Conflicting Requirements Could More Effectively Achieve 
Federal Fleet Energy Goals: 

Why GAO Is Focusing on This Area: 

The federal government's vehicle fleet has over 600,000 civilian and 
nontactical military vehicles and consumes over 963,000 gallons of 
petroleum-based fuel per day. In fiscal year 2009, the federal 
government spent approximately $1.9 billion on procuring new vehicles. 
According to General Services Administration (GSA) officials, the 
governmentwide fleet is used to support of a variety of missions and 
consists of approximately 60 percent trucks, buses, and ambulances; 
fewer than 40 percent are passenger vehicles including passenger vans 
and sport utility vehicles. 

The federal government's goals to reduce reliance on petroleum fuel 
and the negative impacts of greenhouse gas (GHG) emissions have led 
Congress and the Administration to prioritize the acquisition of 
alternative fuel vehicles (AFV) by federal agencies. The following 
federal laws and executive orders have set requirements and goals for 
acquiring alternative-fuel and plug-in hybrid electric vehicles, 
increasing use of alternative fuels and reducing petroleum 
consumption: Energy Policy Act (EPAct) of 1992, EPAct of 2005, the 
Energy Independence and Security Act of 2007, Executive Order 13423, 
and Executive Order 13514. These laws and executive orders affect over 
20 agencies. A number of federal agencies play a role in overseeing 
and implementing these requirements including, the Department of 
Energy (DOE) and GSA. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

In light of multiple and sometimes conflicting statutes and a lack of 
performance measures, fleet managers often lack the flexibility and 
tools to meet the goal of reducing the federal fleet's use of 
petroleum and its GHG emissions. Congress and the Administration have 
defined a set of energy requirements for the federal fleet through 
statutes and executive orders. However, these statutes and orders were 
enacted and issued in a piecemeal fashion and represent a fragmented 
rather than integrated approach to meeting key national goals. 
Specifically, the requirements and priorities to increase use of 
alternative fuels, reduce petroleum use, and reduce GHG emissions, 
compel fleet managers to resolve the following conflicts: 

* Increase the use of alternative fuels vs. the unavailability of 
alternative fuels. Agencies are required to increase alternative fuel 
use, although most alternative fuels are not yet widely available. 
Thus, agencies have been purchasing primarily flex-fueled AFVs, those 
that can operate on E85--a blend of up to 85 percent ethanol and 
petroleum--or petroleum. However, since E85 was only available at 1 
percent of U.S. fueling stations in 2009, agencies are requesting 
waivers from the requirement to use alternative fuels. According to 
DOE, in 2010, approximately 55 percent of flex-fueled AFVs received a 
waiver. Further, some fleet operators indicated they use petroleum 
without a waiver when alternative fuels are available because it is 
either more convenient, less expensive, or both. 

* Acquire AFVs vs. reduce petroleum consumption. Agencies are required 
to purchase AFVs, but this requirement may, in some cases, undermine 
the requirement to reduce petroleum consumption. Virtually every 
agency has succeeded in acquiring more AFVs, but there have been only 
modest reductions in petroleum use and modest increases in alternative 
fuel use, due to the lack of available alternative fuels. As 
previously stated, the lack of available alternative fuels results in 
agencies using petroleum to fuel AFVs. In areas where alternative 
fuels are not available, purchasing more fuel efficient non-AFVs could 
reduce petroleum consumption more than purchasing AFVs.[Footnote 9] 

* Reduce GHG emissions vs. acquire AFVs. Under existing law, according 
to DOE, some vehicles with the lowest GHG emissions do not qualify as 
AFVs; and according to GSA, some AFVs emit more GHG emissions than 
some petroleum-fueled vehicles. Thus, by procuring a new vehicle with 
low GHG emissions the agency may meet the requirement to reduce GHG 
emissions, but not the requirement to purchase AFVs for its fleet. 

* Use plug-in hybrid vehicles vs. reduce electricity consumption in 
federal facilities. Other conflicts exist between fleet energy goals 
and the federal government energy goals. Agencies are encouraged to 
acquire plug-in hybrids for their fleets when they become publicly 
available; however, this could conflict with other requirements that 
encourage agencies to reduce electricity consumption in federal 
facilities. Thus, if an agency acquires plug-in vehicles they may meet 
the requirement, but this may lead to increased electricity 
consumption.[Footnote 10] 

Because fleet managers have to follow these conflicting and narrowly 
defined requirements, they do not always have the flexibility to make 
procurement decisions that would maximize the reduction in petroleum 
use and GHG emissions. 

GAO has previously recommended that federal agencies propose 
legislative changes to resolve conflicts and set priorities for the 
requirements. DOE and GSA are working with stakeholders to develop 
proposed legislation that would create broader requirements targeted 
at fleet efficiency. These changes could streamline the federal fleet 
requirements to focus broadly on the reduction of petroleum use and 
GHG emissions. DOE has provided the results of these efforts to the 
Office of Management and Budget to inform their work. 

A broader, performance-based approach, as DOE and GSA propose, would 
provide federal agencies--subject to these laws and executive orders-- 
greater flexibility to make procurement decisions that would maximize 
the reduction in petroleum use and GHG emissions. GAO has found that 
results-oriented organizations strive to ensure that their day-to-day 
activities move them closer to accomplishing their goals. Further, GAO 
has reported that performance-based measures should cover multiple 
priorities, support decision making by providing useful information, 
and be limited to a few vital measures. Interviews and meetings with 
DOE, GSA officials and other fleet managers indicate that such broad 
goals and related performance measures would provide agencies greater 
flexibility to achieve the requirements of reduced petroleum use, 
decreased GHG emissions, or any other requirement defined in statute. 
For example, GSA officials indicated that a simple mandate to reduce 
petroleum consumption and GHG emissions by increasing fleet 
efficiency--rather than by narrowly defining the vehicle or fuel type--
would provide agency fleet managers with a rational target and allow 
them to use a variety of available options to attain it. 

Actions Needed and Potential Financial or Other Benefits: 

Changes in existing laws could streamline the requirements and provide 
fleet managers with more flexibility in meeting goals. DOE, in 
consultation with GSA and other appropriate agencies and 
organizations, has taken steps to implement GAO's prior recommendation 
to propose legislative changes that resolve conflicts and set 
priorities for agencies by providing proposed legislative changes to 
OMB. This is an important step in addressing the issue of conflicting 
and narrowly defined requirements. In addition to helping agencies set 
priorities, these proposals could inform Congress and agencies on how 
to potentially resolve conflicting requirements by developing 
performance-based goals and related measures which could provide 
agencies with greater flexibility allowing them to optimize strategies 
and meet broader goals. If properly developed, performance-based goals 
and measures would support fleet managers' decision making by 
providing a few key measures that help managers balance the priorities 
of the fleet requirements. 

Framework for Analysis: 

The information contained in this analysis is based primarily on 
previously issued work listed in the related GAO products below. 
Interviews with and documentation from GSA and DOE, as well as 
attendance at and discussions during fleet operators' meetings, 
together provided updated information. 

Related GAO Products: 

Federal Energy and Fleet Management: Plug-in Vehicles Offer Potential 
Benefits, but High Costs and Limited Information Could Hinder 
Integration into the Federal Fleet. [hyperlink, 
http://www.gao.gov/products/GAO-09-493]. Washington, D.C.: June 9, 
2009. 

Federal Energy Management: Agencies Are Acquiring Alternative Fuel 
Vehicles but Face Challenges in Meeting Other Fleet Objectives. 
[hyperlink, http://www.gao.gov/products/GAO-09-75R]. Washington, D.C.: 
October 22, 2008. 

U.S. Postal Service: Vulnerability to Fluctuating Fuel Prices Requires 
Improved Tracking and Monitoring of Consumption Information. 
[hyperlink, http://www.gao.gov/products/GAO-07-244]. Washington, D.C.: 
February 16, 2007. 

Area Contact: 

For additional information about this area, contact Susan Fleming at 
(202) 512-2834 or flemings@gao.gov. 

[End of section] 

Duplicative Federal Efforts Directed at Increasing Domestic Ethanol 
Production Cost Billions Annually: 

Why GAO Is Focusing on This Area: 

Congress supported domestic ethanol production through a $5.4 billion 
tax credit program in 2010. The Volumetric Ethanol Excise Tax Credit 
(VEETC or the ethanol tax credit), a 45-cent-per-gallon federal tax 
credit, is provided to fuel blenders that purchase and blend ethanol 
with gasoline. Congress also supported domestic ethanol production 
through a renewable fuel standard (RFS or the fuel standard) that 
applies to transportation fuels used in the United States. First 
enacted in 2005 and expanded in 2007, the fuel standard generally 
requires overall transportation fuels in the United States to contain 
certain volumes of biofuels, such as ethanol and biodiesel. The fuel 
standard generally requires rising use of ethanol and other biofuels, 
from 12.95 billion gallons in 2010 to 36 billion gallons in 2022. At 
present, the fuel standard is largely met from conventional biofuels-- 
defined as ethanol derived from corn starch--which made up 12 billion 
gallons of the 12.95 billion gallon fuel standard for 2010. Of the 36 
billion gallon total required for 2022, 15 billion gallons can come 
from conventional biofuels. The other 21 billion gallons are to come 
from advanced biofuels such as ethanol made from the cellulose of 
plants. To meet the RFS, the Departments of Agriculture and Energy are 
developing advanced biofuels that use cellulosic feedstocks, such as 
corn stover and switchgrass. The Environmental Protection Agency 
administers the RFS. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

The ethanol tax credit and the renewable fuel standard can be 
duplicative in stimulating domestic production and use of ethanol, and 
can result in substantial loss of revenue to the Treasury. If 
reauthorized and left unchanged, the VEETC's annual cost to the 
Treasury in forgone revenues could grow from $5.4 billion in 2010 to 
$6.75 billion in 2015, the year the fuel standard requires 15 billion 
gallons of conventional biofuels. The ethanol tax credit was recently 
extended at 45-cents-per-gallon through December 31, 2011, in the Tax 
Relief, Unemployment Insurance Reauthorization, and Job Creation Act 
of 2010 (Pub. L. No. 111-312). However, as GAO reported in August 
2009, given the requirements of the fuel standard, the ethanol tax 
credit is largely unneeded today to ensure demand for domestic ethanol 
production. 

Since the 1970s the federal government has provided increasing levels 
of support to the domestic ethanol industry. The Energy Tax Act of 
1978, among other things, provided tax incentives designed to 
stimulate the production of ethanol for blending with gasoline. These 
tax incentives were restructured in 2005 as the Volumetric Ethanol 
Excise Tax Credit. In addition, the Energy Policy Act of 2005 created 
the RFS, which established increasing annual floors for the amount of 
renewable fuels to be blended into U.S. transportation fuels. The act 
generally required transportation fuels in the United States to 
contain 4 billion gallons of renewable fuels, such as ethanol and 
biodiesel, in 2006 and 7.5 billion gallons in 2012. The Energy 
Independence and Security Act of 2007 expanded the RFS by 
substantially increasing its annual biofuel volume requirements, 
including up to 9 billion gallons of conventional corn starch ethanol 
in 2008 and up to 15 billion gallons of conventional corn starch 
ethanol in 2015. To offset the advantage foreign ethanol producers may 
gain from the ethanol tax credit, a 54-cent-per-gallon tariff is 
placed on imported ethanol. 

Both the ethanol tax credit and the fuel standard create demand for 
domestic ethanol production. Fuel blenders receive the ethanol tax 
credit for each gallon of ethanol they combine with gasoline and sell, 
yet they are also required under the fuel standard to acquire and 
blend specified volumes of ethanol with gasoline. As GAO reported in 
August 2009, the ethanol tax credit was important in helping to create 
a profitable corn starch ethanol industry when the industry had to 
fund investment in new facilities, but it is less important now for 
sustaining the industry because most of the capital investment in corn 
starch ethanol refineries has already been made. As of January 2010, 
the domestic corn starch ethanol industry had 13 billion gallons of 
refining capacity with an additional 1.4 billion gallons under 
construction, according to the Renewable Fuels Association. This 
domestic refining capacity is nearing the effective fuel standard 
limit of 15 billion gallons per year for conventional ethanol 
beginning in 2015. 

Importantly, the fuel standard is now at a level high enough to ensure 
that a market for domestic ethanol production exists in the absence of 
the ethanol tax credit and may soon itself be at a level beyond what 
can be consumed by the nation's existing vehicle infrastructure. The 
ethanol content in gasoline available for most vehicles is 10 percent. 
This 10 percent limitation results in an upper bound of about 15 
billion gallons of ethanol that can be blended into the nation's fuel 
pool. While EPA recently allowed newer vehicles to use gasoline that 
contains up to 15 percent ethanol this fuel is not yet readily 
available. 

Actions Needed and Potential Financial or Other Benefits: 

The VEETC will cost $5.7 billion in forgone revenues in 2011. Because 
the fuel standard allows increasing annual amounts of conventional 
biofuels through 2015, which ensures a market for a conventional corn 
starch ethanol industry that is already mature, Congress may wish to 
consider whether revisions to the ethanol tax credit are needed. 
Options could include the following: 

* Maintain the VEETC at current levels. 

* Allow the VEETC to expire at the end of 2011. 

* Reduce the VEETC as Congress did in the 2008 Farm Bill, when the 
ethanol tax credit was reduced from 51 cents to 45 cents per gallon. 

* Phase out the VEETC over a number of years. 

* Modify the VEETC to counteract fluctuations in other commodities 
that can influence ethanol production, such as changes in crude oil 
prices. For instance, the ethanol tax credit could increase when crude 
oil prices are low and decrease when crude oil prices are high. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. In addition, information on the Tax Relief, 
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 
and information on tax expenditure estimates and domestic ethanol 
refining capacity were updated from more recent sources. 

Related GAO Product: 

Biofuels: Potential Effects and Challenges of Required Increases in 
Production and Use. [hyperlink, 
http://www.gao.gov/products/GAO-09-446]. Washington, D.C.: August 25, 
2009. 

Area Contact: 

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

[End of section] 

Enterprise Architectures: Key Mechanisms for Identifying Potential 
Overlap and Duplication: 

Why GAO Is Focusing on This Area: 

An enterprise architecture is a modernization blueprint that is used 
by organizations to describe their current state and a desired future 
state and to leverage information technology (IT) to transform 
business and mission operations. In light of the importance of 
developing well-defined enterprise architectures, GAO recently issued 
a seven-stage enterprise architecture management maturity framework 
that defines actions needed to effectively manage an architecture 
program. The alternative, as GAO's work has shown, is the perpetuation 
of the kinds of operational environments that burden most agencies 
today, where a lack of integration among business operations and the 
IT resources supporting them leads to systems that are duplicative, 
poorly integrated, and unnecessarily costly to maintain. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Historically, federal agencies have struggled with operational 
environments characterized by a lack of integration among business 
operations and IT resources supporting them. A key to successfully 
leveraging IT for organizational transformation is having and using an 
enterprise architecture--or modernization blueprint--as an 
authoritative frame of reference against which to assess and decide 
how individual system investments are defined, designed, acquired, and 
developed. The development, implementation, and maintenance of 
architectures are widely recognized as hallmarks of successful public 
and private organizations, and their use is required by the Clinger- 
Cohen Act of 1996 and the Office of Management and Budget. 

GAO's experience has shown that attempting to modernize (and maintain) 
IT environments without an architecture to guide and constrain 
investments results in organizational operations and supporting 
technology infrastructures and systems that are duplicative, poorly 
integrated, unnecessarily costly to maintain and interface, and unable 
to respond quickly to shifting environmental factors. For example, 
GAO's reviews of enterprise architecture management at federal 
agencies, such as the Department of Homeland Security and the Federal 
Bureau of Investigation, as well as reviews of critical agency 
functional areas, such as Department of Defense financial management, 
logistics management, combat identification, and business systems 
modernization have continued to identify the absence of complete and 
enforced enterprise architectures, which in turn has led to agency 
business operations, systems, and data that are duplicative, 
incompatible, and not integrated; these conditions have either 
prevented agencies from sharing data or forced them to depend on 
expensive, custom-developed system interfaces to do so. 

GAO's framework provides a standard yet flexible benchmark against 
which to determine where the enterprise stands in its progress toward 
the ultimate goal: having a continuously improving enterprise 
architecture program that can serve as a featured decision support 
tool when considering and planning large-scale organizational 
restructuring or transformation initiatives. In addition, it also 
provides a basis for developing architecture management improvement 
plans, as well as for measuring, reporting, and overseeing progress in 
implementing these plans. 

In August 2006, GAO reported on its work in applying its prior 
framework across 27 major federal departments and agencies. This work 
showed that the state of enterprise architecture development and 
implementation varied considerably across departments and agencies, 
with some having more mature architecture programs than others. 
However, overall, most departments and agencies were not where they 
needed to be, particularly with regard to their approaches to 
assessing each investment's alignment with the enterprise architecture 
and measuring and reporting on enterprise architecture results and 
outcomes. 

Accordingly, GAO made recommendations to departments and agencies that 
are aimed at improving the content and use of their respective 
architectures. Nonetheless, while some progress has been made, more 
time is needed for agencies to fully realize the value of having well- 
defined and implemented architectures. Such value can be derived from 
realizing cost savings through consolidation and reuse of shared 
services and elimination of antiquated and redundant mission 
operations, enhancing information sharing through data standardization 
and system integration, and optimizing service delivery through 
streamlining and normalization of business processes and mission 
operations. 

Actions Needed and Potential Financial or Other Benefits: 

If managed effectively, enterprise architectures can be a useful 
change management and organizational transformation tool. The 
conditions for effectively managing enterprise architecture programs 
are contained in GAO's enterprise architecture management maturity 
framework. To advance the state of enterprise architecture development 
and use in the federal government, senior leadership in the 
departments and agencies need to demonstrate their commitment to this 
organizational transformation tool, as well as ensure that the kind of 
management controls embodied in GAO's framework are in place and 
functioning. Collectively, the majority of the departments and 
agencies' architecture efforts can still be viewed as a work in 
progress with much remaining to be accomplished before the federal 
government as a whole fully realizes their transformational value. 
Moving beyond this status will require most departments and agencies 
to overcome significant obstacles and challenges, such as 
organizational parochialism and cultural resistance, inadequate 
funding, and the lack of top management understanding and skilled 
staff. One key to doing so continues to be sustained organizational 
leadership. As GAO's work has demonstrated, without such 
organizational leadership, the benefits of enterprise architecture 
will not be fully realized. 

In GAO's prior work, most departments and agencies reported they 
expect to realize the benefits from their respective enterprise 
architecture programs, such as improved alignment between their 
business operations and the IT that supports these operations and 
consolidation of their IT infrastructure environments, which can 
reduce the costs of operating and maintaining duplicative 
capabilities, sometime in the future. What this suggests is that the 
real value in the federal government from developing and using 
enterprise architectures remains largely unrealized. GAO's framework 
recognizes that a key to realizing this potential is effectively 
managing department and agency enterprise architecture programs. 
However, knowing whether benefits and results are in fact being 
achieved requires having associated measures and metrics. In this 
regard, it is important for agencies to satisfy the core element 
associated with measuring and reporting enterprise architecture 
results and outcomes. Examples of results and outcomes to be measured 
include costs avoided through eliminating duplicative investments or 
by reusing common services and applications and improved mission 
performance through re-engineered business processes and modernized 
supporting systems. GAO's work has shown that over 50 percent of the 
departments and agencies assessed had yet to fully satisfy this 
element. On the other hand, some have reported they are addressing 
this element and have realized significant financial benefits. For 
example, the Department of the Interior has demonstrated that it is 
using its enterprise architecture to modernize agency IT operations 
and avoid costs through enterprise software license agreements and 
hardware procurement consolidation. These architecture-based decisions 
have resulted in financial benefits of at least $80 million. This 
means that the departments and agencies can demonstrate achievement of 
expected benefits, to include costs avoided through eliminating 
duplicative investments, if enterprise architecture results and 
outcomes are measured and reported. The Office of Management and 
Budget can play a critical role by continuing to oversee the 
development and use of enterprise architecture efforts, to include the 
measurement and reporting of enterprise architecture results and 
outcomes across the federal government. 

GAO plans to follow up with those departments and agencies that 
reported having satisfied the element associated with measuring and 
reporting return on enterprise architecture results and outcomes to 
identify associated dollar savings resulting from elimination of 
duplicative investments. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
reports listed below. 

Related GAO Products: 

Organizational Transformation: A Framework for Assessing and Improving 
Enterprise Architecture Management (Version 2.0). [hyperlink, 
http://www.gao.gov/products/GAO-10-846G]. Washington, D.C.: August 
2010. 

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

Information Technology: A Framework for Assessing and Improving 
Enterprise Architecture Management, version 1.1. [hyperlink, 
http://www.gao.gov/products/GAO-03-584G]. Washington, D.C.: April 2003. 

Area Contact: 

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

[End of section] 

Consolidating Federal Data Centers Provides Opportunity to Improve 
Government Efficiency: 

Why GAO Is Focusing on This Area: 

The federal government's demand for information technology (IT) is 
ever-increasing. Over time, this increasing demand has led to a 
dramatic rise in the number of federal data centers (defined as data 
processing and storage facilities over 500 square feet with strict 
availability requirements)--and a corresponding increase in 
operational costs. The growth in the number of federal data centers, 
many offering similar services and resources, has resulted in overlap 
and duplication among the centers. 

In February 2010, the Office of Management and Budget (OMB) launched 
the Federal Data Center Consolidation Initiative to guide federal 
agencies in developing and implementing data center consolidation 
plans. OMB plans to oversee the agencies' plans and measure their 
progress. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

In recent years, as federal agencies modernized their operations, put 
more of their services online, and increased their information 
security profiles, they have demanded more computing power and data 
storage resources. According to OMB, the number of federal data 
centers grew from 432 in 1998 to more than 2,000 in 2010. These data 
centers often house similar types of equipment and provide similar 
processing and storage capabilities. These factors have led to 
concerns associated with the provision of redundant capabilities, the 
underutilization of resources, and the significant consumption of 
energy. 

Operating such a large number of centers places costly demands on the 
government. In 2010, the Federal Chief Information Officer (CIO) 
reported that operating and maintaining such redundant infrastructure 
investments was costly, inefficient, and unsustainable, and had a 
significant impact on energy consumption. While the total annual 
federal spending associated with data centers has not yet been 
determined, the Federal CIO has found that operating data centers is a 
significant cost to the federal government, including hardware, 
software, real estate, and cooling costs. For example, according to 
the Environmental Protection Agency, the electricity cost to operate 
federal servers and data centers across the government is about $450 
million annually. According to the Department of Energy, data center 
spaces can consume 100 to 200 times as much electricity as standard 
office spaces. Reported server utilization rates as low as 5 percent 
and limited reuse of these data centers within or across agencies 
lends further credence to the need to restructure federal data center 
operations to improve efficiency and reduce costs. 

In February 2010, OMB and the Federal CIO announced the Federal Data 
Center Consolidation Initiative and outlined four high-level goals: 

* Promote the use of Green IT by reducing the overall energy and real 
estate footprint of government data centers. 

* Reduce the cost of data center hardware, software, and operations. 

* Increase the overall IT security posture of the government. 

* Shift IT investments to more efficient computing platforms and 
technologies. 

As part of this initiative, OMB directed federal agencies to prepare 
an inventory of their data center assets and a plan for consolidating 
these assets by August 30, 2010, and to begin implementing them in 
fiscal year 2011. In October 2010, OMB reported that all of the 
agencies submitted their plans. OMB plans to monitor agencies' 
progress through annual reports and has established a goal of closing 
800 of the over 2,100 federal data centers by 2015. 

Data center consolidation makes sense economically and as a way to 
achieve more efficient IT operations, but challenges exist. For 
example, agencies face challenges in ensuring the accuracy of their 
inventories and plans, providing upfront funding for the consolidation 
effort long before any cost savings accrue, integrating consolidation 
plans into fiscal year 2012 agency budget submissions (as required by 
OMB), establishing and implementing shared standards (for storage, 
systems, security, etc.), establishing reimbursement mechanisms to 
fund the centralized operations, overcoming cultural resistance to 
such major organizational changes, and maintaining current operations 
during the transition to consolidated operations. Mitigating these and 
other challenges will require commitment from the agencies and 
continued oversight by OMB and the Federal CIO. 

Actions Needed and Potential Financial or Other Benefits: 

Moving forward, it will be important for individual agencies to move 
quickly to correct any missing items in their plans, establish sound 
baselines so that progress and efficiencies can be measured, begin 
their consolidation efforts, track their progress, and report to OMB 
on their progress over time. It will also be important for OMB to work 
with agencies to establish goals and targets for consolidation (both 
in terms of cost savings and reduced data centers), maintain strong 
oversight of the agencies' efforts, and look for consolidation 
opportunities across agencies. Doing so will more fully address 
unnecessary overlap and duplication, and could achieve further 
operational improvements, efficiencies, and financial benefits. 

As part of their individual consolidation plans, each federal 
department and agency was expected to estimate cost savings over time. 
In ongoing work, GAO reviewed 15 of the 24 agencies' consolidation 
plans. In these plans, agencies provided the following information on 
estimated savings: 

* Seven agencies estimated savings totaling over $369 million between 
fiscal years 2011 and 2015; however, actual savings may be even higher 
because three of these agencies' estimates were only partial 
estimates. They included expected energy savings but not savings from 
other sources, such as facilities or equipment reductions. 

* Two agencies reported that net savings would not accrue until fiscal 
years 2017 and 2018, respectively. 

* Six agencies did not provide estimated cost savings; however, two of 
these agencies suggested that they plan to develop cost-benefit 
analyses in the future. 

Although some agencies reported that it was too soon to estimate cost 
savings because they are just beginning to plan to consolidate and 
other agencies noted that near-term savings were offset by 
consolidation costs, the opportunity for long-term savings is 
significant. In October 2010, a council of chief executive officers 
representing technical industry companies estimated that the federal 
government could save $150 billion to $200 billion over the next 
decade, primarily through data center and server consolidation. 

GAO has ongoing work reviewing the Federal Data Center Consolidation 
Initiative as well as federal agencies' efforts to develop and 
implement consolidation plans. 

Framework for Analysis: 

As part of an ongoing review of the Federal Data Center Consolidation 
Initiative, GAO analyzed 15 of 24 federal agencies' data center 
consolidation plans and inventories to identify plans and anticipated 
cost savings, and discussed challenges to the consolidation initiative 
with those agencies. GAO also met with agency officials to discuss 
data center consolidation initiatives at OMB, the Agency for 
International Development, the Department of Agriculture, the 
Department of Defense, the Department of Energy, the Department of 
Homeland Security, the Department of the Interior, the Department of 
Labor, the Department of State, the Department of the Treasury, the 
Environmental Protection Agency, the National Aeronautics and Space 
Administration, the Nuclear Regulatory Commission, the Small Business 
Administration, the Department of Commerce, the Department of 
Education, the Department of Health and Human Services, the Department 
of Housing and Urban Development, the Department of Justice, the 
Department of Transportation, the Department of Veterans Affairs, the 
General Services Administration, the National Science Foundation, the 
Office of Personnel Management, and the Social Security Administration. 

Related GAO Products: 

Information Security: Governmentwide Guidance Needed to Assist 
Agencies in Implementing Cloud Computing. [hyperlink, 
http://www.gao.gov/products/GAO-10-855T]. Washington, D.C.: July 1, 
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. 

Social Security Administration: Effective Information Technology 
Management Essential for Data Center Initiative. [hyperlink, 
http://www.gao.gov/products/GAO-09-662T]. Washington, D.C.: April 28, 
2009. 

Area Contact: 

For additional information about this area, contact David Powner at 
(202) 512-9286 or pownerd@gao.gov. 

[End of section] 

Improved Data on Interagency Contracting Needed to Minimize 
Duplication and Better Leverage the Government's Buying Power: 

Why GAO Is Focusing on This Area: 

Interagency and agencywide contracting was responsible for at least 
$54 billion of the approximately $540 billion that was obligated 
governmentwide for goods and services in fiscal year 2009. Interagency 
contracting is a process by which one agency either uses another 
agency's contract directly or obtains contracting support services 
from another agency. In agencywide contracting, sometimes called 
enterprisewide contracting, a component within an agency awards a 
contract for use by all components of that agency. Both contracting 
methods are intended to leverage the government's buying power and 
provide cost savings. By providing a simplified, expedited, and lower 
cost method of procurement, they can help agencies save both time and 
administration costs. However, unjustified duplication among available 
contracts can result in increased costs to the government. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Agencies have created numerous interagency and agencywide contracts 
using existing statutes, the Federal Acquisition Regulation, and 
agency-specific policies. The creation of these contracts is based on 
a number of rationales, including avoiding user fees that would be 
paid for using another agency's contract, allowing for cost-
reimbursement contracts, and gaining more control over procurement 
actions within the agencies. With the proliferation of these 
contracts, however, there is a risk of unintended duplication and 
inefficiency. Billions of taxpayer dollars flow through interagency 
and agencywide contracts, but the federal government does not have a 
clear, comprehensive view of which agencies use these contracts and if 
they are being utilized in an efficient and effective manner. Without 
this information, agencies may be unaware of existing contract options 
that could meet their needs and may be awarding new contracts when use 
of an exiting contract would suffice. The government, therefore, might 
be missing opportunities to better leverage its vast buying power. 

Government contracting officials and representatives of vendors have 
expressed concerns about potential duplication among the interagency 
and agencywide contracts across government, which they said can result 
in increased procurement costs, redundant buying capacity, and an 
increased workload for the acquisition workforce. Some vendors stated 
they offer similar products and services on multiple contracts and 
that the effort required to be on multiple contracts results in extra 
costs to the vendor, which they pass to the government through 
increased prices. Some vendors stated that the additional cost of 
being on multiple contracts ranged from $10,000 to $1,000,000 per 
contract due to increased bid and proposal and administrative costs. 
One vendor stated that General Services Administration contracts 
compete with agencywide contracts, and from industry's perspective, 
this has introduced redundant buying capacity. 

For several years the General Service Administration's Federal 
Acquisition Service and its Inspector General have reported that 
unnecessary duplication exists within the Multiple Award Schedule 
(MAS) program. Similarly, the January 2007 Report of the Acquisition 
Advisory Panel identified several problems regarding interagency 
contracting. In particular, the report noted that too many choices 
without information related to the performance and management of these 
contracts make the cost-benefit analysis and market research needed to 
select an appropriate acquisition contract impossible. Such problems 
persist, as GAO reported in April 2010. 

GAO has identified two overriding factors that hamper the government's 
ability to realize the strategic value of using interagency and 
agencywide contracts: (1) the lack of consistent governmentwide policy 
on the creation, use, and costs of awarding and administering some 
contracts; and (2) long-standing problems with the quality of 
information on interagency and agencywide contracts in the federal 
procurement data system. Both factors may have contributed to 
unnecessary duplication. 

In April 2010, GAO recommended that the Office of Management and 
Budget (OMB), which has governmentwide procurement policy 
responsibilities, establish a policy framework for establishing some 
types of interagency contracts and agencywide contracts, including a 
requirement to conduct a sound business case. GAO also recommended 
that OMB take steps to improve the data on interagency contracts 
including updating existing data on interagency and agencywide 
contracts, ensuring that departments and agencies accurately record 
this data, and assessing the feasibility of creating and maintaining a 
centralized database of interagency and agencywide contracts. This 
database would allow contracting officers to identify and make 
informed decisions on available contracts. GAO's recommendations were 
consistent with provisions in the 2009 National Defense Authorization 
Act, which directed that the Federal Acquisition Regulation be amended 
to require that certain interagency contracts entered into by an 
executive agency be supported by a business case analysis and all 
interagency contracting be supported by a written determination that 
the approach is the best procurement alternative. An interim 
regulation addressing the legislation was issued in December 2010. 

OMB has taken some steps to improve interagency contracting and 
related data. It reported in August 2010 that agencies are working to 
improve their internal management controls, such as making 
determinations that using another agency's contract is in the best 
interest of the government. In addition to the recent interim 
regulation, OMB reported that it planned to issue overarching guidance 
that would address the need for agencies to prepare business cases 
describing the need for a new multiagency or agencywide contract, 
the value added by its creation, and the agency's suitability to serve 
as an executive agent. According to OMB, the upcoming guidance will 
require agencies to address the anticipated impact that a proposed 
multiagency contract will have on the government's ability to leverage 
its buying power--such as how it differs from an existing contract and 
the basis for concluding that it will offer greater value than an 
existing contract. This business case analysis also will require the 
agency to evaluate the cost of awarding and managing the contract and 
compare this cost to the likely fees that would be incurred if the 
agency used an existing contract or sought out acquisition assistance. 

While the interim regulation and OMB's plans concerning a requirement 
for agencies to submit business cases for new multiagency or 
agencywide contracts constitute steps forward, in the absence of 
better data regarding the universe of such contracts, agencies may 
face challenges in evaluating the value of existing contracts. GAO has 
reported numerous times over the years on issues related to the 
quality of the government's data on contracts. In that regard, OMB 
reports that it has a new effort under way to improve contract 
information in the Federal Procurement Data System-Next Generation 
(FPDS-NG), the current federal government database for information and 
data on all federal contracts. OMB also is discussing options for 
creating a clearinghouse of existing interagency and agencywide 
contracts. 

In OMB's announcement of its planned guidance, it noted that progress 
has been insufficient on the issue of contract duplication and 
concerns remain that agencies are duplicating each other's contracting 
efforts and creating redundant contracting capacity. Until controls to 
address the issue of duplication are fully implemented, the government 
will continue to miss opportunities to take advantage of the 
government's buying power through more efficient and more strategic 
contracting. At the same time, the added workload for the acquisition 
workforce and procurement costs for vendors, which result in higher 
prices for the government, will continue until this problem is 
addressed. 

Actions Needed and Potential Financial or Other Benefits: 

To realize the benefits of using interagency and agencywide contracts, 
OMB and the General Services Administration will need to fully 
implement the steps they are taking to address identified shortcomings 
in the management of interagency contracting. The procuring agencies 
will have to play their parts as well. In particular, despite numerous 
GAO recommendations over the years, improvements are still needed 
regarding the accuracy of the federal contracts database in order to 
determine whether the contracts are being used in an efficient and 
effective manner. Continued congressional oversight of this issue is 
warranted. 

Requiring business case analyses for new multiagency and agencywide 
contracts and ensuring agencies have access to up-to-date and accurate 
data on the available contracts will promote the efficient use of 
interagency and agencywide contracting and, by reducing the costs 
associated with duplicate contracts, help the government better 
leverage its purchasing power when buying commercial goods and 
services. 

Framework for Analysis: 

The information contained in this analysis has been based on the 
related products list below, with updates provided through the OMB 
Report to Congress from August 2010 and an interview with OMB 
officials. GAO determined that the data it used were sufficiently 
reliable for its purposes. 

Related GAO Products: 

Contracting Strategies: Better Data and Management Needed to Leverage 
Value of Interagency and Enterprisewise Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-10-862T]. Washington, D.C.: June 30, 
2010. 

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 Contracting: Observations on the Government's Contracting Data 
Systems. [hyperlink, http://www.gao.gov/products/GAO-09-1032T]. 
Washington, D.C.: September 29, 2009. 

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

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

Department of Homeland Security: Better Planning and Assessment Needed 
to Improve Outcomes for Complex Service Acquisitions. [hyperlink, 
http://www.gao.gov/products/GAO-08-263]. Washington, D.C.: April 22, 
2008. 

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

A Call For Stewardship: Enhancing the Federal Government's Ability to 
Address Key Fiscal and Other 21st Century Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-08-93SP]. Washington, D.C.: December 
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. 

Contract Management: Opportunities to Improve Pricing of GSA Multiple 
Award Schedules Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-05-229]. Washington, D.C.: February 
11, 2005. 

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

Contract Management: Guidance Needed to Promote Competition for 
Defense Task Orders. [hyperlink, 
http://www.gao.gov/products/GAO-04-874]. Washington D.C.: July 30, 
2004. 

Area Contact: 

For additional information about this area, contact John Needham at 
(202) 512-4841 or needhamjk1@gao.gov. 

[End of section] 

Periodic Reviews Could Help Identify Ineffective Tax Expenditures and 
Redundancies in Related Tax and Spending Programs: 

Why GAO Is Focusing on This Area: 

According to the sum of U.S. Department of the Treasury estimates for 
fiscal year 2009, almost $1 trillion in federal revenue was forgone 
due to tax exclusions, credits, deductions, deferrals, and 
preferential tax rates--legally known as tax expenditures. The revenue 
that the government forgoes is viewed by many analysts as spending 
channeled through the tax system. Similar to spending programs, tax 
expenditures represent a substantial federal commitment in a wide 
range of mission areas. For fiscal year 2009, the U.S. Department of 
the Treasury listed a total of 173 tax expenditures, some of which 
were of the same magnitude or larger than related federal spending for 
some mission areas. Like mandatory spending programs such as Medicare, 
many tax expenditures are governed by eligibility rules and formulas 
that provide benefits to those who are eligible and wish to 
participate. Since 1994, GAO has recommended greater scrutiny of tax 
expenditures. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Tax expenditures, if well designed and effectively implemented, can be 
an effective tool to further federal goals, such as encouraging 
economic development in disadvantaged areas, financing higher 
education, and stimulating research and development. However, tax 
expenditures can contribute to mission fragmentation and program 
overlap, thus creating the potential for duplication. Moreover, some 
tax expenditures may be ineffective at achieving their social or 
economic purposes. Tax expenditures do not compete overtly with other 
priorities in the annual budget, and spending embedded in the tax code 
is effectively funded before discretionary spending is considered. 
Many tax expenditures are not subject to congressional 
reauthorization. Therefore, Congress lacks the opportunity to 
regularly review their effectiveness. Periodic reviews could help 
identify redundancy in related tax and spending programs and determine 
how well specific tax expenditures work to achieve their goals and how 
their benefits and costs compare to those of programs with similar 
goals. 

In the case of higher education, the federal government offers seven 
tax expenditures and nine spending programs--grant and loan programs 
authorized by Title IV of the Higher Education Act of 1965--to help 
students and their families pay for postsecondary education. In 2005, 
the number of tax filers claiming a higher education tax credit or 
tuition deduction surpassed the number of Title IV aid recipients. 
Perhaps due to the multiple, complex tax provisions, hundreds of 
thousands of taxpayers in 2005 failed to claim tax incentives or did 
not claim the most advantageous tax benefit. Simplifying the tax, 
grant, and loan programs may reduce complexities in higher education 
financing, including reducing the number of eligible taxpayers that do 
not claim tax benefits. However, GAO reported in 2008 that Congress 
had received little information about the roles and effectiveness of 
the tax and Title IV programs. 

To date, the Office of Management and Budget (OMB) has not used its 
budget and performance review processes to systematically review tax 
expenditures and promote integrated reviews of related tax and 
spending programs. 

Past GAO reviews of specific tax expenditures have identified options 
to improve their design and better target resources. For example, in 
2010, GAO suggested that Congress modify the Research Tax Credit to 
reduce windfalls to taxpayers for research spending they would have 
done anyway. GAO also suggested that Congress convert at least part of 
the New Markets Tax Credit to a grant program to increase the amount 
of federal subsidy reaching businesses in impoverished, low-income 
communities. 

Data availability has been a challenge in assessing tax expenditure 
performance. In the case of the Empowerment Zone, Enterprise 
Community, and Renewal Community programs, the lack of tax benefit 
data limits the ability of the Department of Housing and Urban 
Development (HUD) and the Department of Agriculture to evaluate the 
overall mix of grant and tax programs to revitalize selected urban and 
rural communities. In response to GAO recommendations, HUD and the 
Internal Revenue Service (IRS) collaborated to share data on some 
program tax credits. However, the IRS data do not tie the program tax 
incentives to specific designated communities, making it difficult to 
assess the impact of the tax benefits. 

Actions Needed and Potential Financial or Other Benefits: 

Coordinated reviews of tax expenditures with related federal spending 
programs could help policymakers reduce overlap and inconsistencies 
and direct scarce resources to the most effective or least costly 
methods to deliver federal support. 

In 2005, GAO recommended that the Director of the Office of Management 
and Budget in consultation with the Secretary of the Treasury take 
specific actions to ensure that policymakers have necessary 
information to exercise scrutiny of tax expenditures: 

* Present tax expenditures in the budget together with related outlay 
programs. 

* Develop and implement a framework for conducting performance reviews 
of tax expenditures. This includes (1) outlining leadership 
responsibilities and coordination among agencies with related 
responsibilities; (2) setting a review schedule; (3) identifying 
review methods and ways to address the lack of credible tax 
expenditure performance information; and (4) identifying resources 
needed for tax expenditure reviews. 

* Develop guidance on incorporating tax expenditures in agencies' 
strategic plans and performance reports. 

* Require that tax expenditures be included in Executive Branch budget 
and performance review processes. 

The Executive Branch had made little progress in implementing similar 
recommendations that GAO made in 1994, and, OMB, citing methodological 
and conceptual issues, disagreed with GAO's 2005 recommendations. 
However, in its fiscal year 2012 budget guidance, OMB instructed 
agencies, where appropriate, to analyze how to better integrate tax 
and spending policies that have similar objectives and goals. Such 
analysis could be useful in identifying redundancies. 

Improving tax expenditure performance or eliminating tax expenditures 
could reduce revenue losses, potentially by billions of dollars. For 
example, improved designs may enable individual tax expenditures to 
achieve better results for the same revenue loss or the same results 
with less revenue loss. Also, reductions in revenue losses from 
eliminating ineffective or redundant tax expenditures could be 
substantial depending on the size of the eliminated provisions. 
Whether and how much federal revenues would increase from improving 
tax expenditures' performance or eliminating them also would depend on 
whether and how much Congress might adjust overall tax rates as tax 
expenditure inefficiencies are addressed. GAO believes that tax 
expenditure performance is an area that would benefit from enhanced 
congressional scrutiny as Congress considers ways to address the 
nation's long-term fiscal imbalance. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below and GAO's work following up on the 
recommendations from those products. 

Related GAO Products: 

Revitalization Programs: Empowerment Zones, Enterprise Communities, 
and Renewal Communities. [hyperlink, 
http://www.gao.gov/products/GAO-10-464R]. Washington, D.C.: March 12, 
2010. 

New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in 
Low-Income Communities, but Could Be Simplified. [hyperlink, 
http://www.gao.gov/products/GAO-10-334]. Washington, D.C.: January 29, 
2010. 

Tax Policy: The Research Tax Credit's Design and Administration Can Be 
Improved. [hyperlink, http://www.gao.gov/products/GAO-10-136]. 
Washington, D.C: November 6, 2009. 

Higher Education: Multiple Higher Education Tax Incentives Create 
Opportunities for Taxpayers to Make Costly Mistakes. [hyperlink, 
http://www.gao.gov/products/GAO-08-717T]. Washington, D.C.: May 1, 
2008. 

21st Century Challenges: How Performance Budgeting Can Help. 
[hyperlink, http://www.gao.gov/products/GAO-07-1194T]. Washington, 
D.C.: September 20, 2007. 

Empowerment Zone and Enterprise Community Program: Improvements 
Occurred in Communities, but the Effect of the Program is Unclear. 
[hyperlink, http://www.gao.gov/products/GAO-06-727]. Washington, D.C.: 
September 22, 2006. 

Government Performance and Accountability: Tax Expenditures Represent 
a Substantial Federal Commitment and Need to Be Reexamined. 
[hyperlink, http://www.gao.gov/products/GAO-05-690]. Washington, D.C.: 
September 23, 2005. 

Student Aid and Postsecondary Tax Preferences: Limited Research Exists 
on Effectiveness of Tools to Assist Students and Families through 
Title IV Student Aid and Tax Preferences. [hyperlink, 
http://www.gao.gov/products/GAO-05-684]. Washington, D.C.: July 29, 
2005. 

Community Development: Federal Revitalization Programs Are Being 
Implemented, but Data on the Use of Tax Benefits Are Limited. 
[hyperlink, http://www.gao.gov/products/GAO-04-306]. Washington, D.C.: 
March 5, 2004. 

Tax Policy: Tax Expenditures Deserve More Scrutiny. [hyperlink, 
http://www.gao.gov/products/GAO/GGD/AIMD-94-122]. Washington, D.C.: 
June 3, 1994. 

Area Contact: 

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

[End of section] 

Opportunities Exist for DOD and VA to Jointly Modernize Their 
Electronic Health Record Systems: 

Why GAO Is Focusing on This Area: 

The Departments of Defense (DOD) and Veterans Affairs (VA) operate two 
of the nation's largest health care systems, providing health care to 
9.6 million active duty service members and their beneficiaries and 6 
million veterans at estimated annual costs of about $49 billion and 
$48 billion, respectively. Although they have identified many common 
health care business needs, both departments have spent large sums of 
money to develop and operate electronic health record systems that 
they rely on to create and manage patient health information. 
Furthermore, the departments have each begun multimillion dollar 
modernizations of their electronic health record systems. 
Specifically, DOD has obligated approximately $2 billion over the 13-
year life of its Armed Forces Health Longitudinal Technology 
Application (AHLTA) and requested $302 million in fiscal 2011 year 
funds for a new system. For its part, VA reported spending almost $600 
million from 2001 to 2007 on eight projects as part of its Veterans 
Health Information Systems and Technology Architecture (VistA) 
modernization. In April 2008, VA estimated an $11 billion total cost 
to complete the modernization by 2018. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Although DOD and VA have many common health care business needs, the 
departments have begun separate modernizations of their electronic 
health record systems. Reduced duplication in this area could save 
system development and operation costs while supporting higher-quality 
health care for service members and veterans. 

In May 2010, the departments identified 10 areas--inpatient 
documentation, outpatient documentation, pharmacy, laboratory, order 
entry and management, scheduling, imaging and radiology, third-party 
billing, registration, and data sharing--in which they have common 
business needs. Moreover, the results of a 2008 study conducted for 
the departments found that over 97 percent of functional requirements 
for an inpatient electronic health record system are common to both 
departments. Nevertheless, DOD has initiated an effort called the EHR 
(Electronic Health Record) Way Ahead to modernize AHLTA. At the same 
time, VA has begun a separate effort to modernize VistA. 

The departments' distinct modernization efforts are due in part to 
barriers they face to jointly addressing their common health care 
system needs. These barriers stem from weaknesses in three key 
information technology (IT) management areas: strategic planning, 
enterprise architecture, and investment management. First, the 
departments have not articulated explicit plans, goals, and time 
frames for jointly addressing the health IT requirements common to 
their electronic health record systems. For example, DOD's and VA's 
joint strategic plan, which is intended to describe the departments' 
coordination and sharing efforts, does not discuss how or when the 
departments propose to identify and develop joint health IT solutions, 
and department officials have not yet determined whether the IT 
capabilities developed for the new Federal Health Care Center can or 
will be implemented at other DOD and VA medical facilities. Second, 
although DOD and VA have taken steps toward developing and maintaining 
elements of a joint health architecture, such as a description of 
business processes and supporting technologies, it is not being used 
to guide the departments' health IT modernization efforts. For 
example, the departments have not defined how they intend to 
transition from their current architecture to a planned future state. 
Third, DOD and VA have not established a joint process for selecting 
IT investments based on criteria that consider cost, benefit, 
schedule, and risk elements, which would help to ensure that the 
chosen solution meets their common health IT needs and provides better 
value and benefits to the government as a whole. Without these key 
management capabilities in place, DOD and VA are impeded in 
identifying and implementing efficient and effective IT solutions to 
jointly address their common needs and achieving the seamless, 
comprehensive access to information that is necessary to optimally 
treat patients as they transition from servicemember to veteran status. 

Actions Needed and Potential Financial or Other Benefits: 

GAO's recent work identified several actions that the Secretaries of 
Defense and Veterans Affairs could take to overcome barriers that DOD 
and VA face in modernizing their electronic health record systems to 
jointly address their common health care business needs, including the 
following: 

* Revise the departments' joint strategic plan to include information 
discussing their electronic health record system modernization efforts 
and how those efforts will address the departments' common health care 
business needs. 

* Further develop the departments' joint health architecture to 
include their planned future state and transition plan from their 
current state to the next generation of electronic health record 
capabilities. 

* Define and implement a process, including criteria that considers 
costs, benefits, schedule, and risks, for identifying and selecting 
joint IT investments to meet the departments' common health care 
business needs. 

Officials from both DOD and VA agreed with these recommendations. GAO 
will continue to monitor their progress on this important issue. 

Efforts by the departments to jointly identify and develop common IT 
solutions to address their mutual health care needs could result in 
system development and operation cost savings while supporting higher- 
quality health care for service members and veterans. Although the 
financial benefit of reducing duplication in this area is to be 
determined, a joint approach to electronic health record modernization 
should not only result in cost savings, it should also improve the 
departments' ability to share health information, which in turn can 
optimize the quality of health care the departments provide to service 
members and veterans. 

Framework for Analysis: 

The information contained in this analysis is based on findings from 
GAO's recent report on DOD and VA electronic health record system 
modernizations and the other products listed below. 

Related GAO Products: 

Electronic Health Records: DOD and VA Should Remove Barriers and 
Improve Efforts to Meet Their Common System Needs. [hyperlink, 
http://www.gao.gov/products/GAO-11-265]. Washington, D.C.: February 2, 
2011. 

Information Technology: Opportunities Exist to Improve Management of 
DOD's Electronic Health Record Initiative. [hyperlink, 
http://www.gao.gov/products/GAO-11-50]. Washington, D.C.: October 6, 
2010. 

Information Technology: Management Improvements Are Essential to VA's 
Second Effort to Replace Its Outpatient Scheduling System. [hyperlink, 
http://www.gao.gov/products/GAO-10-579]. Washington, D.C.: May 27, 
2010. 

Electronic Health Records: DOD and VA Interoperability Efforts Are 
Ongoing; Program Office Needs to Implement Recommended Improvements. 
[hyperlink, http://www.gao.gov/products/GAO-10-332]. Washington D.C.: 
January 28, 2010. 

Veterans Affairs: Health Information System Modernization Far from 
Complete; Improved Project Planning and Oversight Needed. [hyperlink, 
http://www.gao.gov/products/GAO-08-805]. Washington, D.C.: June 30, 
2008. 

Area Contact: 

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

[End of section] 

VA and DOD Need to Control Drug Costs and Increase Joint Contracting 
Whenever it is Cost Effective: 

Why GAO Is Focusing on This Area: 

The Department of Veterans Affairs (VA) and the Department of Defense 
(DOD) spent about $11.4 billion on prescription drugs for 
beneficiaries in fiscal year 2009. Reflecting national trends, VA and 
DOD drug expenditures have risen significantly. Since the early 1980s, 
Congress has urged the departments to achieve greater efficiencies 
through increased collaboration. Therefore, VA and DOD have attempted 
to restrain pharmacy costs by jointly contracting for some drugs to 
obtain discounts from drug manufacturers. In 2001, GAO recommended 
that VA and DOD jointly procure all brand name and generic drugs for 
which such procurement was clinically appropriate and cost-effective 
and report to Congress annually on their joint drug procurement 
efforts. VA and DOD agreed with GAO's recommendations. Also, GAO 
testified that addressing differences in their health care systems 
could increase joint contracting for brand name drugs, which make up a 
smaller share of the departments' drug volume than generic drugs but 
account for a far higher share of expenditures. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

As GAO previously recommended, from fiscal year 2002 through 2005, VA 
and DOD increased joint procurement of brand name and generic drugs. 
However, GAO found that by fiscal year 2009, joint national 
contracts[Footnote 11] for prescription drugs accounted for only a 
small proportion of VA and DOD spending on prescription drugs. 
Specifically, in fiscal year 2009, VA spent about $3.7 billion and DOD 
spent about $7.7 billion on prescription drugs, while spending under 
joint national contracts represented about 5 percent and less than 1 
percent of those totals, respectively. As the following bar chart 
shows, although VA and DOD spending on joint national contracts 
increased from $183 million on 76 contracts in fiscal year 2002 to 
$560 million on 84 contracts in fiscal year 2005, it decreased by 
fiscal year 2009 to $214 million on 67 contracts.[Footnote 12] 

Figure: VA and DOD Joint National Contracts and Spending: 

[Refer to PDF for image: stacked vertical bar graph] 

Year: 2002; 
Spending on Joint National Contracts: VA: $116 million; 
Spending on Joint National Contracts: DOD: $67 million; 
Total: $183 million; 
Total Joint National Contracts: 76. 

Year: 2003; 
Spending on Joint National Contracts: VA: $207 million; 
Spending on Joint National Contracts: DOD: $104 million; 
Total: $311 million; 
Total Joint National Contracts: 85. 

Year: 2004; 
Spending on Joint National Contracts: VA: $367 million; 
Spending on Joint National Contracts: DOD: $140 million; 
Total: $507 million; 
Total Joint National Contracts: 81. 

Year: 2005; 
Spending on Joint National Contracts: VA: $422 million; 
Spending on Joint National Contracts: DOD: $138 million; 
Total: $560 million; 
Total Joint National Contracts: 84. 

Year: 2006; 
Spending on Joint National Contracts: VA: $301 million; 
Spending on Joint National Contracts: DOD: $163 million; 
Total: $464 million; 
Total Joint National Contracts: 78. 

Year: 2007; 
Spending on Joint National Contracts: VA: $308 million; 
Spending on Joint National Contracts: DOD: $82 million; 
Total: $390 million; 
Total Joint National Contracts: 65. 

Year: 2008; 
Spending on Joint National Contracts: VA: $187 million; 
Spending on Joint National Contracts: DOD: $37 million; 
Total: $224 million; 
Total Joint National Contracts: 59. 

Year: 2009; 
Spending on Joint National Contracts: VA: $193 million; 
Spending on Joint National Contracts: DOD: $21 million; 
Total: $214 million; 
Total Joint National Contracts: 67. 

Sources: VA and DOD. 

[End of figure] 

With regard to brand name drugs--which account for more than 80 
percent of VA's and DOD's total drug spending--VA and DOD had no joint 
national contracts for brand name drugs in 2002, had three in 2003, 
four in 2004 and 2005, three in 2006, two in 2007, and none in 2008 or 
2009. VA and DOD have attributed significant cost avoidance[Footnote 
13] to their joint contracting efforts; for example, VA estimated 
about $666 million in cost avoidance in fiscal year 2005 alone. These 
cost avoidance estimates have declined significantly as joint contract 
spending has decreased. 

VA and DOD officials attributed the decline in joint contracting since 
2005 primarily to the elimination of joint contracting for brand name 
drugs due to a change to DOD's drug procurement process which occurred 
as a result of its implementation of its uniform formulary.[Footnote 
14],[Footnote 15] Prior to DOD's implementation of its uniform 
formulary process, a VA contracting officer offered formulary 
placement to a drug manufacturer in connection with the award of a 
brand name drug joint contract, taking into account clinical reviews 
conducted by the relevant VA and DOD committees.[Footnote 16] By 
statute, responsibility for DOD's uniform formulary is vested under 
the Secretary of Defense, and by DOD regulation the Director of DOD's 
TRICARE Management Activity is responsible for formulary placement 
decisions.[Footnote 17] VA and DOD officials told us that DOD's 
uniform formulary process therefore precludes DOD from participating 
in a VA-led joint contract that offers formulary placement as part of 
the contracting process. According to VA and DOD, they can still 
jointly contract for generic drugs because these contracts do not 
usually require formulary addition.[Footnote 18] In 2001, GAO reported 
that a DOD uniform formulary could increase joint contracting 
opportunities because the larger the departments' formularies, the 
greater the chance they would overlap and provide opportunities to 
jointly procure brand name drugs. However, DOD's formulary process 
appears to have limited rather than increased joint contracting 
opportunities. VA data confirm that the decline in spending under 
joint national contracts since 2005 can be largely attributed to the 
elimination of joint contracting for costly brand name drugs. VA data 
show that spending under joint national contracts for generic drugs 
has remained relatively constant between fiscal years 2005 and 2009, 
fluctuating between $175 million and $196 million, while VA spending 
under joint national contracts for brand name drugs declined over this 
period, from $232 million in 2005 to $0 in 2008 and 2009. 

In addition, officials told us that joint contracting is not available 
for a large segment of drug spending. Specifically, DOD does not 
contract, jointly or on its own, for drugs dispensed through retail 
pharmacies. In fiscal year 2009, DOD officials reported $5.8 billion 
in retail pharmacy drug spending, none of which currently presents a 
joint contracting opportunity. 

Despite the limits to joint contracting, VA and DOD officials said 
they are independently achieving cost savings in other ways. VA 
officials told us that VA obtains equally good prices working 
independently as it does when it jointly contracts with DOD, and 
consequently VA officials believe VA is not missing any savings 
opportunities by not jointly contracting with DOD for brand name 
drugs. VA officials told us they do not think additional joint 
contracting could lead to increased cost savings for VA. Additionally, 
DOD officials said that while joint contracting has declined, their 
uniform formulary process has been more effective at producing 
savings, citing $926 million in cost avoidance in fiscal year 2007. 
[Footnote 19] 

Actions Needed and Potential Financial or Other Benefits: 

While VA and DOD officials assert they are independently achieving 
significant drug cost savings, the departments' spending on brand-name 
drugs has been increasing, totaling almost $10 billion dollars in 
fiscal year 2009, or about 85 percent of the approximately $11.4 
billion in total drug spending that year. Since it is unclear whether 
substantial cost savings could be realized if the departments resumed 
joint contracting for brand name drugs, VA and DOD should analyze 
whether greater cost savings could be achieved through joint 
contracting for brand name drugs than are currently achieved through 
their independent strategies, and determine whether it would be cost- 
effective to take steps to resume joint contracting for brand name 
drugs. Regardless of whether joint contracting for brand name drugs is 
practicable, the departments face continued challenges in controlling 
increasing drug costs, and should make finding drug savings a 
priority. For example, GAO previously recommended that DOD identify, 
implement, and monitor efforts to control retail pharmacy spending, an 
area for which drug spending is increasing and cannot be controlled 
through joint contracting efforts.[Footnote 20] DOD agreed with this 
recommendation. The departments should also continue their efforts to 
jointly contract for generic drugs, and look for opportunities to 
increase joint contracting efforts as generic versions of existing 
brand name drugs become available. Officials noted, for example, that 
generic versions of drugs for reducing cholesterol and controlling 
asthma may become available within a few years. 

VA and DOD provided comments on GAO's draft analysis of this issue. VA 
stated that it would explore whether cost savings might be possible if 
it resumed joint contracting for brand name drugs, and agreed that the 
departments should continue and potentially increase joint contracting 
for generic drugs. DOD concurred with the draft and offered additional 
contextual information. For example, DOD noted that while its retail 
pharmacy network remains the largest and most costly component of its 
pharmacy benefit, the agency has received a total of over $960 million 
in federal pricing discounts[Footnote 21] on purchases made through 
retail pharmacies in fiscal years 2009 and 2010.[Footnote 22] 

Framework for Analysis: 

The information contained in this analysis is based in part on the 
related GAO products listed below. In addition, to determine the 
factors that contributed to the decline in joint contracting since 
2005, GAO interviewed VA and DOD pharmacy and procurement officials 
and obtained and reviewed relevant documents, including articles and 
reports to Congress related to VA's and DOD's pharmacy management 
systems. GAO also reviewed VA and DOD drug spending and joint 
contracting data from 2002 through 2009 and determined that the data 
were sufficiently reliable for use in this report. 

Related GAO Products: 

Prescription Drugs: Overview of Approaches to Control Prescription 
Drug Spending in Federal Programs. [hyperlink, 
http://www.gao.gov/products/GAO-09-819T]. Washington, D.C.: June 24, 
2009. 

DOD Pharmacy Program: Continued Efforts Needed to Reduce Growth in 
Spending at Retail Pharmacies. [hyperlink, 
http://www.gao.gov/products/GAO-08-327]. Washington, D.C.: April 4, 
2008. 

DOD Pharmacy Benefits Program: Reduced Pharmacy Costs Resulting from 
the Uniform Formulary and Manufacturer Rebates. [hyperlink, 
http://www.gao.gov/products/GAO-08-172R]. Washington, D.C.: October 
31, 2007. 

Mail Order Pharmacies: DOD's Use of VA's Mail Pharmacy Could Produce 
Savings and Other Benefits. [hyperlink, 
http://www.gao.gov/products/GAO-05-555]. Washington, D.C.: June 22, 
2005. 

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 
Buying and Mailing Out Drugs. [hyperlink, 
http://www.gao.gov/products/GAO-01-588]. Washington, D.C.: May 25, 
2001. 

DOD and VA Health Care: Jointly Buying and Mailing Out Pharmaceuticals 
Could Save Millions of Dollars. [hyperlink, 
http://www.gao.gov/products/T-HEHS-00-121]. Washington, D.C.: May 25, 
2000. 

Area Contact: 

For additional information about this area, contact Randall B. 
Williamson at (202) 512-7114 or williamsonr@gao.gov. 

[End of section] 

HHS Needs an Overall Strategy to Better Integrate Nationwide Public 
Health Information Systems: 

Why GAO Is Focusing on This Area: 

Public health functions in the United States--such as disease 
surveillance and emergency detection and response--are conducted by 
public health officials from 59 state and territorial health 
departments; more than 3,000 local health departments; over 180,000 
clinical laboratories; and multiple federal agencies. As the federal 
point of contact for public health initiatives, the Department of 
Health and Human Services (HHS) is responsible for coordinating 
nationwide efforts to detect and respond to disease outbreaks and 
other public health emergencies. Because of the many participants 
involved, the identification and management of public health 
emergencies call for effective communication and collaboration across 
all levels of government and the private sector. In addition, 
officials at HHS and other federal, state, and local agencies 
recognize the need to improve the use of information technology to 
collect, analyze, and share data that can be used to enhance 
nationwide public health situational awareness--that is, public 
knowledge of key health-related events and the availability of medical 
and emergency response resources. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

HHS has taken steps over the past decade to improve the ability of 
public health entities to electronically collect, analyze, and share 
information that supports early event detection and emergency response 
operations, but the department's initiatives have been undertaken 
without the strategic planning needed to coordinate and integrate the 
priorities, goals, and objectives of various related initiatives. HHS 
officials have identified at least 25 information technology systems 
that are key to the department's efforts to support public health 
situational awareness. In fiscal year 2009, reported costs for 
developing and implementing these systems were approximately $40 
million. Additionally, other federal, state, local, and tribal public 
health entities throughout the country have expended scarce resources 
to develop and implement numerous other systems for conducting public 
health functions within their own jurisdictions. 

HHS has also defined data and other technical standards intended to 
better enable public health entities throughout the nation to develop 
and implement interoperable systems for collecting, analyzing, and 
sharing data. However, the department has not developed and 
implemented an overall strategy that defines goals, objectives, and 
priorities and that integrates related strategies to achieve the 
unified electronic nationwide situational awareness capability 
required by the Pandemic and All-Hazards Preparedness Act.[Footnote 
23] Rather, HHS and the public health community have developed and 
implemented information systems to enhance public health situational 
awareness in an often stove-piped fashion, focusing on specific public 
health functions. Therefore, public health entities are limited in 
their ability to electronically collect, analyze, and share 
information needed to enhance public health situational awareness and 
improve the effectiveness of their efforts to prepare for and respond 
to public health emergencies. 

In December 2006, the Pandemic and All-Hazards Preparedness Act 
mandated that the Secretary of HHS, in collaboration with state, 
local, and tribal public health entities, develop and implement a 
strategic plan for the establishment of an electronic network of 
interoperable systems to enhance nationwide public health situational 
awareness. GAO's December 2010 report on HHS's efforts to establish an 
electronic network for enhancing nationwide situational awareness of 
public health emergencies found that the Secretary of HHS had not 
developed and delivered a strategic plan within 180 days of the 
mandate as required (i.e., by June 16, 2007). Without an overall 
strategic plan that defines requirements for establishing and 
evaluating the capabilities of existing and planned information 
systems implemented throughout the public health community, HHS cannot 
be assured that its resources are being effectively used to provide a 
unified electronic nationwide public health situational awareness 
capability. Further, absent more effective planning, HHS runs the risk 
of expending additional funds for continued fragmented efforts without 
realizing the mandated goal. 

Actions Needed and Potential Financial or Other Benefits: 

GAO's December 2010 report recommended that the Secretary of HHS 
develop and implement a strategic plan that defines goals, objectives, 
and priorities for establishing an electronic public health 
situational awareness network. Such a plan should include performance 
measures for evaluating capabilities of existing and planned 
information systems. Additionally, the strategic plan should integrate 
related strategies and information technology initiatives within HHS 
for sharing information among federal, state, local, and tribal 
entities. In responding to the report, HHS stated that a complete 
strategy for health and public health situational awareness will be 
developed and incorporated into the Biennial Implementation Plan for 
the National Health Security Strategy, which will identify actions to 
be accomplished in the next 2 years. The department added that it 
intends to release this first biennial plan in early 2011. As 
discussed in GAO's report, developing a strategic plan that integrates 
the goals, objectives, and priorities of related strategies will be 
essential to establishing cohesiveness of HHS's related information 
technology initiatives, therefore better ensuring the success of the 
department's efforts to support and enhance nationwide public health 
situational awareness. To what extent future savings may be expected 
from this effort are unclear, but more effective planning has the 
potential to ensure more cost-effective efforts in the future. 

GAO expects to complete additional work in the future assessing HHS's 
progress toward developing and implementing an overall strategic plan 
for establishing and evaluating an electronic network of systems that 
meets the information-sharing requirements for enhanced nationwide 
public health situational awareness defined by law. 

Framework for Analysis: 

The information contained in this analysis is based on the GAO 
products listed below. 

Related GAO Products: 

Public Health Information Technology: Additional Strategic Planning 
Needed to Guide HHS's Efforts to Establish Electronic Situational 
Awareness Capabilities. [hyperlink, 
http://www.gao.gov/products/GAO-11-99]. Washington, D.C.: December 17, 
2010. 

Biosurveillance: Efforts to Develop a National Biosurveillance 
Capability Need a National Strategy and a Designated Leader. 
[hyperlink, http://www.gao.gov/products/GAO-10-645]. Washington, D.C.: 
June 30, 2010. 

Biosurveillance: Developing a Collaboration Strategy Is Essential to 
Fostering Interagency Data and Resource Sharing. [hyperlink, 
http://www.gao.gov/products/GAO-10-171]. Washington, D.C.: December 
18, 2009. 

Health Information Technology: More Detailed Plans Needed for the 
Centers for Disease Control and Prevention's Redesigned BioSense 
Program. [hyperlink, http://www.gao.gov/products/GAO-09-100]. 
Washington, D.C.: November 20, 2008. 

Information Technology: Federal Agencies Face Challenges in 
Implementing Initiatives to Improve Public Health Infrastructure. 
[hyperlink, http://www.gao.gov/products/GAO-05-308]. Washington, D.C.: 
June 10, 2005. 

Combating Terrorism: Evaluation of Selected Characteristics in 
National Strategies Related to Terrorism. [hyperlink, 
http://www.gao.gov/products/GAO-04-408T]. Washington, D.C.: February 
3, 2004. 

Bioterrorism: Information Technology Strategy Could Strengthen Federal 
Agencies' Abilities to Respond to Public Health Emergencies. 
[hyperlink, http://www.gao.gov/products/GAO-03-139]. Washington, D.C.: 
May 30, 2003. 

Area Contact: 

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

[End of section] 

Strategic Oversight Mechanisms Could Help Integrate Fragmented 
Interagency Efforts to Defend against Biological Threats: 

Why GAO Is Focusing on This Area: 

A catastrophic biological event, such as a terrorist attack with a 
weapon of mass destruction or a naturally occurring pandemic, could 
cause mass casualties, weaken the economy, damage public morale, and 
threaten national security. Biodefense includes measures to prevent, 
detect, respond to, and recover from harm or damage caused by 
microorganisms or biological toxins to humans, animals, or the food 
supply. In January 2010, the bipartisan Commission on the Prevention 
of Weapons of Mass Destruction Proliferation and Terrorism (now known 
as the WMD Center), which was established by the Implementing 
Recommendations of the 9/11 Commission Act (Pub. L. No. 110-53, § 
1851), gave the nation a failing grade in its efforts to enhance 
capabilities for rapid response to prevent biological attacks from 
inflicting mass casualties. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

According to the head of the WMD Center, there are more than two dozen 
presidentially appointed individuals with some responsibility for 
biodefense. In addition, numerous federal agencies, encompassing much 
of the federal government, have some mission responsibilities for 
supporting biodefense activities. However, there is no individual or 
entity with responsibility, authority, and accountability for 
overseeing the entire biodefense enterprise. 

According to Homeland Security Presidential Directive 10, published in 
April 2004, successful implementation of the nation's biodefense 
enterprise requires optimizing critical cross-cutting functions such 
as information management and communications, research and 
development, and acquisition. In 2004, GAO reported that interagency 
and intergovernmental activities can benefit from the leadership of a 
single entity with sufficient time, responsibility, authority, and 
resources needed to provide assurance that the federal programs are 
well coordinated, and that gaps and duplication in capabilities are 
avoided. GAO also reported in 2001 that complex interagency and 
intergovernmental efforts can benefit from developing a national 
strategy. 

Biodefense is organized into four pillars--threat awareness, 
prevention and protection, surveillance and detection, and response 
and recovery--and multiple federal agencies have some biodefense 
responsibilities within them, as shown in the figure below. Each of 
these pillars comprise numerous activities--such as controlling access 
to dangerous biological agents used in research--that generally 
require coordination across federal departments as well as with state, 
local, and international governments, and the private sector. 
Deterrence of bioterrorism rests upon the ability of the nation to 
mitigate the effects of an attack. According to the WMD Center's 
January 2010 report, Prevention of WMD Proliferation and Terrorism 
Report Card, there is no national plan to coordinate federal, state, 
and local efforts following a bioterror attack, and the United States 
lacks the technical and operational capabilities required for an 
adequate response. The report goes on to say that these technical and 
operational capabilities are each links in a chain, critical to the 
strength of the attack response, and that weakness in any capability 
leads to a diminished response, and diminished effectiveness in 
deterring an attack. 

Figure: Pillars of Biodefense and Examples of Associated Federal 
Departments: 

[Refer to PDF for image: illustration] 

Pillar: Threat awareness; 
Associated Federal Departments: 
* Department of Homeland Security; 
* Federal Bureau of Investigation; 
* Intelligence Community; 
* Department of Health and Human Services. 

Pillar: Prevention and protection; 
Associated Federal Departments: 
* Department of Health and Human Services; 
* Department of Agriculture; 
* Department of Health and Human Services; 
* Department of Defense. 

Pillar: Surveillance and detection; 
Associated Federal Departments: 
* Department of Health and Human Services; 
* Department of Agriculture; 
* Department of the Interior; 
* Department of Homeland Security. 

Pillar: Response and recovery; 
Associated Federal Departments: 
* Department of Homeland Security; 
* Department of Health and Human Services; 
* Department of Agriculture; 
* Department of Defense. 

Source: GAO analysis of Homeland Security Presidential Directive 10. 

[End of figure] 

GAO's past work has highlighted fragmentation in the surveillance and 
detection pillar, which indicates the need for strategic oversight 
mechanisms--such as a national strategy and a focal point--across the 
entire biodefense enterprise. In June 2010, GAO reported that an 
activity in the surveillance and detection pillar known as 
biosurveillance is fragmented and that the decision makers responsible 
for developing a national biosurveillance capability are spread across 
multiple agencies and departments, as it is with the rest of the 
biodefense enterprise. Yet, strategic oversight mechanisms, such as a 
focal point or national strategy, had not been established to 
coordinate and lead efforts across the multiple federal departments 
with biosurveillance responsibilities. GAO recommended that the 
Homeland Security Council, which was established to serve as a 
mechanism for ensuring coordination of federal homeland security- 
related activities and development of homeland security policies, 
should direct the National Security Staff to establish a focal point 
and charge this focal point with the responsibility for developing a 
national biosurveillance strategy. The National Security Staff did not 
comment on these recommendations. 

While some high-level biodefense strategies have been developed, there 
is no broad, integrated national strategy that encompasses all 
stakeholders with biodefense responsibilities that can be used to 
guide the systematic identification of risk, assessment of resources 
needed to address those risks, and the prioritization and allocation 
of investment across the entire biodefense enterprise. Further, 
neither the Office of Management and Budget nor the federal agencies 
account for biodefense spending across the entire federal government. 
As a result, the federal government does not know how much is being 
spent on this critical national security priority. However, a private 
sector analysis of the fiscal year 2011 federal budget for civilian 
biodefense estimates that the U.S. biodefense effort will total $6.48 
billion across 8 of the more than 12 federal agencies with biodefense 
responsibilities. GAO's work noted that having a strategy in place to 
guide development of a national biosurveillance capability could 
potentially help agencies address challenges that are complex, 
inherent to building capabilities that cross mission areas and 
agencies, and not easily resolved--challenges that are also present in 
the larger biodefense enterprise. A national strategy could define the 
scope of the problems to be addressed, and in turn could lead to 
specific objectives and activities for tackling those problems, better 
allocation and management of resources, clarification of roles and 
responsibilities, and, finally, to integration of a biodefense 
strategy with other related preparedness and response strategies. In 
addition, because responsibilities and resources are dispersed across 
a number of federal agencies, the nation's biodefense enterprise could 
benefit from designated leadership--a focal point--that provides 
leadership for the interagency community. 

Actions Needed and Potential Financial or Other Benefits: 

Because none of the departments has authority over the entire 
biodefense enterprise, the Homeland Security Council should consider 
establishing a focal point to coordinate federal biodefense 
activities, including biosurveillance, consistent with GAO's previous 
recommendation for the Council to establish a focal point for 
biosurveillance. The overarching biodefense enterprise would benefit 
from strategic oversight mechanisms, including a focal point such as a 
national biodefense coordinator and a national strategy, to ensure 
efficient, effective, and accountable results. Reduced fragmentation 
in the biodefense enterprise could enhance assurance that the nation 
is prepared to prevent, detect, and respond to biological attacks with 
potentially devastating consequences in terms of loss of life, 
economic damage, and decreased national security. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. GAO also has work under way on threat and risk 
assessments and countermeasure development, which focuses on issues of 
integration and coordination across multiple agencies and expects to 
report on its results in spring 2011. 

Related GAO Products: 

Biosurveillance: Efforts to Develop a National Biosurveillance 
Capability Need a National Strategy and Designated Leader. [hyperlink, 
http://www.gao.gov/products/GAO-10-645]. Washington, D.C.: June 30, 
2010. 

Combating Terrorism: Evaluation of Selected Characteristics in 
National Strategies Related to Terrorism. [hyperlink, 
http://www.gao.gov/products/GAO-04-408T]. Washington, D.C.: February 
3, 2004. 

Combating Terrorism: Selected Challenges and Recommendations. 
[hyperlink, http://www.gao.gov/products/GAO-01-822]. Washington D.C.: 
September 20, 2001. 

Area Contact: 

For additional information about this area, contact William O. Jenkins 
at (202) 512-8777 or jenkinswo@gao.gov. 

[End of section] 

DHS Oversight Could Help Eliminate Potential Duplicating Efforts of 
Interagency Forums in Securing the Northern Border: 

Why GAO Is Focusing on This Area: 

The Department of Homeland Security (DHS) has primary responsibility 
for securing the nearly 4,000 miles that comprise the U.S.-Canadian 
border from Washington state to Maine. DHS components, in 
collaboration with other federal, state, local, tribal, and Canadian 
law enforcement partners, are responsible for securing this border, 
which involves coordination and the leveraging of scarce resources 
through interagency forums. In December 2010, GAO reported on overlap 
and potential duplication among two of these forums--the Integrated 
Border Enforcement Team (IBET) and the Border Enforcement Security 
Task Force (BEST). These forum members meet to share information on 
coordination of cross-border law enforcement efforts, among other 
activities, to enhance bi-national border security. IBET members focus 
on national security, organized crime, and other criminal activity 
between ports of entry; BEST members work to identify, disrupt, and 
dismantle organizations seeking to exploit border vulnerabilities. DHS 
components, such as U.S. Customs and Border Protection, U.S. 
Immigration and Customs Enforcement, and the U.S. Coast Guard, along 
with Canadian law enforcement partners participate in 24 IBETs (which 
are part of 15 regions across the northern border) and 3 BESTs (led by 
Immigration and Customs Enforcement) that have been established across 
the northern border. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

In December 2010, GAO reported on northern border interagency 
coordination and highlighted concerns about mission overlap and 
potential duplication of effort between the BEST and IBET interagency 
forums. For example, of the 13 partners GAO interviewed that operate 
within two jurisdictions where two BEST and four IBET interagency 
forums are located, more than half of these partners cited concerns 
about mission overlap between these two forums that could result in 
duplication of effort. Specifically, these partners expressed concern 
that some BEST activities to investigate and interdict cross-border 
illegal activity duplicated IBET efforts to conduct the same 
activities because, among other factors, smuggling rings and other 
criminal organizations do not limit their activities by geographic 
area. 

Overlap and potential duplication of effort between the BEST and IBET 
may also exist when these interagency forums are established in the 
same location, as has been done in at least two jurisdictions where 
BEST and IBET forums are located. DHS officials stated that decisions 
to establish interagency forums are made, in part, by DHS components 
participating in the forums based on their work requirements. 
Specifically, the Immigration and Customs Enforcement headquarters 
program manager stated that the agency sponsored the establishment of 
BEST interagency forums along the northern border because of the need 
for additional Immigration and Customs Enforcement investigative 
resources, and that the locations were identified on the basis of the 
agency's investigative workload requirements, but that analyses of 
whether the existing IBETs established in these areas could be used 
for these investigative purposes were not a factor. 

Moreover, in an April 2007 report, the DHS Inspector General reported 
that it was not clear how a BEST would operate differently from IBETs 
and that care should be taken to avoid duplication of efforts with 
IBETs on the northern border. In 2009, IBET members convened an 
interagency working group to study the interaction between the IBET 
and BEST.[Footnote 24] This group raised concerns about mission 
overlap and duplication of effort between the two interagency forums 
and identified the need for a vision that clearly defines IBET-BEST 
roles and responsibilities, as well the framework for their routine 
interaction and collaboration. According to DHS officials, in November 
2010, DHS, the Department of Justice, and Canadian officials 
established another working group to evaluate best practices of 
existing interagency forums, including the IBET and BEST, to improve 
U.S.-Canadian border enforcement efforts.[Footnote 25] However, as of 
December 2010 it is too soon to tell whether this effort will address 
the recommendation made by the previous working group. 

In December 2010, GAO reported that DHS does not provide guidance or 
oversight to its components to establish or assess the results of 
interagency forums across northern border locations. GAO has 
previously reported that federal agencies can enhance and sustain 
their collaborative efforts by, in part, developing mechanisms to 
monitor their results. DHS officials stated that DHS is developing 
processes to provide department-level oversight of those forums; 
however, DHS has not provided documentation to support its plans, and 
thus the scope and the time frames for finalizing this effort are 
unclear. Completing such guidance and processes for oversight could 
better position DHS to identify areas of duplication and determine if 
existing forums could be modified or consolidated to leverage its 
resources more efficiently in conducting border security operations. 

DHS intends to outline a vision for interagency coordination with an 
emphasis on partnerships, including the Canadian government, through 
its northern border strategy scheduled to be issued in calendar year 
2011.[Footnote 26] In addition, in November 2010, the Secretary of 
Homeland Security directed DHS components to develop a new approach to 
better integrate northern border enforcement efforts. Until DHS 
clearly defines IBET-BEST roles and responsibilities, aligns its 
resources, and ensures accountability through oversight, DHS risks 
hindering collaborative relationships with its partners and lacks 
reasonable assurance that resources are deployed efficiently and 
effectively to secure the northern border. 

DHS is also working to establish a mechanism to identify and report on 
the benefits achieved through its participation in the IBET-BEST 
interagency forums, but has not maintained comprehensive data on the 
costs of these forums to help it ascertain whether the benefits 
obtained outweigh the costs. For example, Immigration and Customs 
Enforcement officials maintained information on that agency's 
participation in two of three northern border BEST locations and 
estimated its costs for IBET locations.[Footnote 27] However, DHS 
could not provide information on the costs incurred by other federal, 
state, local, tribal, and international agencies that participate in 
BEST or IBET. The interagency group studying these forums raised 
concerns about law enforcement agencies gathering the resources 
necessary to participate in the increasing number of these forums. By 
leading efforts to develop a framework for identifying both its and 
its partners' costs for participating in each forum, DHS would be 
better positioned to evaluate the need for and success of both forums. 

Actions Needed and Potential Financial or Other Benefits: 

Ongoing DHS oversight of the interagency forums could help prevent 
duplication of efforts. DHS headquarters officials report that 
policies governing DHS coordination efforts are under development and 
that Immigration and Customs Enforcement and Customs and Border 
Protection have deployed personnel to key northern border locations to 
improve collaboration and facilitate timely information sharing. 
However, DHS does not currently provide guidance or oversight to its 
components to establish or assess the results of interagency forums--
which include both IBET and BEST interagency forums--across northern 
border locations to help ensure that forums established in the same 
locations do not duplicate activities. Accordingly, GAO recommended in 
December 2010 that DHS provide guidance and oversight for interagency 
forums to help prevent duplication of effort and help efficiently 
utilize personnel resources to strengthen DHS's coordination efforts 
along the northern border. By implementing this recommendation, DHS 
could help prevent duplication and identify whether existing forums 
can be modified or consolidated to better leverage scarce resources 
and more efficiently conduct border security operations. Moreover, as 
DHS establishes a mechanism for determining the benefits of 
participating in the IBET and BEST interagency forums, DHS could lead 
efforts to develop a framework for identifying the costs incurred by 
all partners participating in each forum. Doing so could help DHS 
evaluate the success of these forums and the need for both the IBETs 
and BESTs. 

Framework for Analysis: 

The information contained in this analysis was based on GAO's December 
2010 report as well as selected updates obtained from September 2010 
through February 2011, including cost data related to Immigration and 
Customs Enforcement and Customs and Border Protection's participation 
in IBET and BEST for fiscal year 2010. GAO interviewed relevant agency 
officials responsible for overseeing the accuracy of these data and 
determined they were sufficiently reliable for purposes of this report. 

Related GAO Products: 

Border Security: Enhanced DHS Oversight and Assessment of Interagency 
Coordination Is Need for the Northern Border. [hyperlink, 
http://www.gao.gov/products/GAO-11-97]. Washington, D.C.: December 17, 
2010. 

Border Security: Additional Actions Needed to Better Ensure a 
Coordinated Federal Response to Illegal Activity on Federal Lands. 
[hyperlink, http://www.gao.gov/products/GAO-11-177]. Washington, D.C.: 
November 18, 2010. 

Area Contact: 

For additional information about this area, contact Richard M. Stana 
at (202) 512-8777 or stanar@gao.gov. 

[End of section] 

The Department of Justice Plans Actions to Reduce Overlap in 
Explosives Investigations, but Monitoring Is Needed to Ensure 
Successful Implementation: 

Why GAO Is Focusing on This Area: 

In fiscal year 2009, the Bureau of Alcohol, Tobacco, Firearms and 
Explosives (ATF) and the Federal Bureau of Investigation (FBI), both 
components of the Department of Justice (Justice), initiated over 
1,600 cases involving explosives incidents such as actual or attempted 
bombings with improvised explosive devices. Since 2004, Justice has 
taken actions intended to address duplication and overlap in the areas 
of explosives investigations jurisdiction, training, information 
sharing and use of databases, and laboratory forensic analysis. 
However, a 2009 report from Justice's Inspector General found there 
has been little progress since 2004 in addressing overlap and 
duplication. In response to the Inspector General's report, in August 
2010, the Acting Deputy Attorney General issued a protocol for 
assigning lead agency jurisdiction in explosives investigations. The 
memorandum accompanying the protocol directed the ATF and FBI to take 
actions to conduct assessments of its explosives operations and make 
recommendations by November 1, 2010, for consolidating and eliminating 
redundancies, where appropriate. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

GAO has reviewed actions planned by Justice to reduce overlap and 
duplication and improve explosives investigation coordination between 
the ATF and FBI. GAO found that the actions Justice is proposing 
should address most of these issues, but additional monitoring by 
Congress and agency personnel could help ensure that plans to address 
these long-standing challenges are fully implemented and successful 
since Justice did not follow through on past efforts to achieve these 
same objectives. GAO has reported that federal agencies can enhance 
and sustain their collaborative efforts by creating the means to 
monitor and evaluate their efforts to identify areas for improvement. 
In his August 2010 memorandum directed to ATF and FBI, the Deputy 
Attorney General highlighted four areas of explosives investigations 
where duplication and redundant efforts needed to be addressed: 
jurisdiction, explosives training, shared explosives databases, and 
laboratories. 

Jurisdiction. The Deputy Attorney General noted that defining lead 
agency jurisdiction over explosives investigations has been a 
persistent problem for Justice; led to confusion among federal, state, 
and local law enforcement; and resulted in duplication of effort 
between ATF and FBI. GAO's ongoing work on law enforcement 
coordination found that disputes have occurred over the past 5 years 
between the agencies regarding jurisdiction of explosives 
investigations and there is potential overlap. For example, Justice 
had designated FBI as the lead agency for incidents related to 
domestic terrorism but had not defined the term, so ATF and FBI have 
had disputes about when an incident would be related to terrorism, 
and, therefore, under FBI's jurisdiction. A 2009 Inspector General 
report found that, despite Justice's attempts to coordinate explosives 
investigations and activities, the components have developed separate 
and conflicting approaches to these investigations. The August 2010 
directive attempted to resolve the dispute regarding jurisdiction by 
citing a definition for both "International Terrorism" and "Domestic 
Terrorism," and outlining factors associated with an explosive 
incident that indicate a presumptive nexus to terrorism. The directive 
also intended to clarify roles and responsibilities in all other 
explosives jurisdiction matters. However, it is too soon to know to 
what extent the directive will resolve the dispute. 

Explosives training. ATF and FBI continue to separately operate their 
own explosives-training facilities and programs, both of which are 
located at the Redstone Arsenal in Huntsville, Alabama, resulting in 
potential duplication.[Footnote 28] Regarding facilities, for example, 
the FBI's Hazardous Devices School trains and certifies federal, 
state, and local bomb technicians and bomb squads. Similarly, ATF's 
National Center for Explosives Training and Research offers explosives 
courses to ATF and state and local law enforcement personnel. 
Regarding programs, both components offer post-blast explosives 
training.[Footnote 29] According to ATF and FBI data, the cost of the 
training facilities in fiscal year 2010 totaled $11.0 million and $7.5 
million, respectively.[Footnote 30] In August 2010, the Deputy 
Attorney General directed the components to provide a joint plan to 
consolidate training programs with recommendations for consolidating 
and eliminating redundancies. Justice officials said the components 
submitted a plan in November 2010 that proposed consolidating post- 
blast training programs and curricula beginning in the spring of 2011, 
which is consistent with the Deputy Attorney General's directive. 
Justice officials also stated that both components concluded they 
should continue to operate separate explosives-training facilities 
because of the high demand and wait lists for explosives courses 
offered at each facility. By continually monitoring the need to 
support both facilities, Justice's ability to determine that its 
resources are being used effectively could be strengthened. 

Shared explosives database. In 2009, Justice's Inspector General 
reported that ATF and FBI have not effectively consolidated and 
maintained one distinct explosives incident reporting database, as 
directed by the Attorney General. Also, the Inspector General found 
that although FBI had discontinued use of its database that compiles 
information on explosives incidents and transferred its historical 
data into ATF's Bomb and Arson Tracking System,[Footnote 31] FBI had 
not subsequently input any additional explosives incident information. 
In addition, ATF had not consistently reported all its explosives 
incidents to the Bomb and Arson Tracking System. Taken together, these 
omissions undermined the components' ability to accurately determine 
trends in explosives incidents. In response to the August 2010 
protocol, according to Justice officials, the components have 
developed and plan to implement information-sharing procedures in 
early 2011 to ensure that FBI bomb technicians and state and local 
bomb squads have access to and report explosives incidents to the 
reporting system. By monitoring implementation of this plan, Justice 
would be better positioned to obtain feedback for improving both 
policy and operational effectiveness. 

Explosives laboratories. Both ATF and FBI have laboratories that 
perform forensic analysis of explosives evidence. Specifically, ATF 
operates laboratories in Maryland, Georgia, and California, while FBI 
uses its Virginia laboratory for forensic analysis. For fiscal year 
2010, ATF reported the cost to operate its three laboratories was 
$11.2 million,[Footnote 32] and FBI reported the cost to conduct 
analysis at its laboratory was $6.6 million.[Footnote 33] In 2004, the 
Attorney General required Justice to establish a Lab Board to examine 
its available laboratory resources and workloads, analyze demands, and 
make recommendations to the Deputy Attorney General on the most 
productive allocation of resources. While Justice established the Lab 
Board, its Inspector General found no record of a report or 
recommendations. In August 2010, the Deputy Attorney General directed 
the Lab Board to reconvene to develop recommendations by November 1, 
2010, for further integration of Justice's laboratory capabilities, 
among other things. According to Justice officials, the components 
submitted a progress report in November 2010 that outlines areas they 
believed could produce operational efficiencies and better 
coordination. These areas include the adoption of a common laboratory 
information management system and coordinated training of laboratory 
personnel. By continually monitoring these actions, Justice's ability 
to ensure that the components follow through on these areas to better 
coordinate and integrate laboratory resources could be enhanced. 

Actions Needed and Potential Financial or Other Benefits: 

Continually monitoring these efforts can help key decision makers 
within the agencies, as well as clients and stakeholders, obtain 
feedback for improving policy and operational effectiveness. Justice, 
ATF, and FBI officials have planned or begun actions to reduce 
duplication and overlap, and achieve efficiencies, which Justice 
officials stated are responsive to the Deputy Attorney General's 
directives. These actions represent positive steps that, if 
implemented effectively, should lead to more efficient approaches to 
explosives investigations and related activities such as training, 
information sharing, and forensic analysis. However, given that the 
components did not fully follow through on past efforts to achieve 
these same objectives, by continually monitoring the components' 
actions, Congress and Justice would be better positioned to ensure 
that the plans have their intended effect and are enforced. 

Framework for Analysis: 

The information contained in this analysis is based on GAO's ongoing 
work for the Chairman of the House Judiciary Committee on law 
enforcement coordination and recent Inspector General reports and 
internal efforts at Justice to address the Inspector General's 
recommendations to improve explosives-related coordination between ATF 
and FBI. GAO interviewed representatives from the Deputy Attorney 
General's Office, FBI, and ATF to discuss actions planned or under way 
to remedy duplication and overlap in explosives-related operations. 
GAO also obtained and analyzed fiscal year 2010 cost data from the 
components, and assessed the data sources. GAO found the components' 
cost data reliable for the purposes of this report. 

Related GAO Product: 

No GAO products related to this issue have previously been published. 

Area Contact: 

For additional information about this area, contact Eileen R. Larence 
at (202) 512-8777 or larencee@gao.gov. 

[End of section] 

Transportation Security Administration's Security Assessments on 
Commercial Trucking Companies Overlap with Those of Another Agency, 
but Efforts Are Under Way to Address Overlap: 

Why GAO Is Focusing on This Area: 

Terrorist attacks on transportation systems in Moscow and Mumbai 
caused significant loss of life and highlighted the vulnerability of 
surface transportation systems to terrorist attacks. The 
Transportation Security Administration (TSA), within the Department of 
Homeland Security (DHS), is the primary federal agency responsible for 
securing the nation's transportation system. GAO has previously 
reported that TSA has taken actions to improve transportation 
security, but additional actions could enhance its efforts, such as 
consistently coordinating security assessments. GAO made 
recommendations to improve TSA's coordination with stakeholders, 
including other DHS entities and federal agencies. Likewise, the 
Administration's Surface Transportation Security Priority Assessment 
highlighted the need for federal entities to coordinate their security 
assessment activities given that TSA's security assessment 
responsibilities overlap with those of other federal agencies, such as 
the Department of Transportation (DOT). The report recommended, among 
other things, an integrated federal approach for conducting security 
assessments to produce more thorough risk-based evaluations. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

GAO has found that TSA and DOT do not have a process in place to share 
information on the results of their security programs, and 
stakeholders in the commercial trucking industry have expressed 
concerns about a lack of coordination between the two agencies. 
Specifically, TSA's security assessments for hazardous material 
trucking companies overlapped with efforts conducted by DOT's Federal 
Motor Carrier Safety Administration (FMCSA), and as a result, 
government resources were not being used effectively. After GAO 
discussed this overlap with TSA in January 2011, TSA officials stated 
that, moving forward, they intend to only conduct reviews on trucking 
companies that are not covered by FMCSA's program, which, if 
implemented as intended, GAO projects could save more than $1 million 
over the next 5 years. However, it will be important for TSA and FMCSA 
to continue efforts to improve data sharing and coordination to help 
prevent future overlap in security reviews, as well as continue 
efforts toward the long-term goal of TSA assuming full regulatory 
responsibility from FMCSA for commercial trucking security, thereby 
reducing fragmentation. 

In February 2009, GAO reported that TSA and FMCSA have similar 
security review programs for hazardous material trucking companies. 
TSA conducts corporate security reviews (TSA review)--voluntary in-
person reviews of a trucking company's security practices and plans. 
[Footnote 34] FMCSA, which has primary responsibility for commercial 
trucking safety, conducts security contact reviews (FMCSA review)--
mandatory in-person reviews that enforce the Pipeline and Hazardous 
Materials Safety Administration's regulations on hazardous material 
trucking companies' security plans. In 2010, GAO continued to identify 
considerable overlap between TSA's and FMCSA's security reviews. For 
example, nearly half (43 percent) of the 95 questions in a TSA review 
were either "somewhat similar" or "substantially or entirely similar" 
to one or more of the questions in an FMCSA review, and almost all (92 
percent) of the 48 questions that comprise an FMCSA review were either 
"somewhat similar" or "substantially or entirely similar" to one or 
more of the questions in a TSA review.[Footnote 35] In addition, 
officials from both agencies agreed that there are similarities 
between the two reviews. Furthermore, 71 of the 200 TSA reviews 
performed from fiscal years 2006 through 2010 by TSA staff on 
hazardous material trucking companies were conducted on companies that 
had received an FMCSA review during the same period; of these, 31 were 
conducted less than 2 years after the FMCSA review.[Footnote 36] The 
Implementing Recommendations of the 9/11 Commission Act of 2007 
requires that DOT consult with DHS to limit, to the extent 
practicable, duplicative reviews of hazardous material security plans. 
[Footnote 37] 

In February 2009, GAO recommended that TSA establish a process to 
strengthen coordination with the commercial vehicle industry, 
including ensuring that the roles and responsibilities of industry and 
government are fully defined and clearly communicated. DHS concurred 
with this recommendation and has taken steps to address it. However, 
in August and September 2010, officials from three industry 
associations GAO interviewed continued to express concerns about 
overlap between TSA's and FMCSA's security reviews and a lack of 
coordination between the two agencies. Moreover, in July 2010, the 
Office of Management and Budget advised TSA to work with DOT to 
implement an integrated federal approach for security assessments and 
take advantage of existing information to avoid redundancy. 

Actions Needed and Potential Financial or Other Benefits: 

By taking action to reduce or eliminate overlap in hazardous material 
security reviews and improve data sharing and coordination, TSA and 
FMCSA could use their resources more effectively and improve the 
relationship between the federal government and industry stakeholders. 
TSA and FMCSA officials have stated that TSA's long-term plan is to 
develop security regulations for hazardous material trucking companies 
to replace the existing security regulations FMCSA enforces, which 
they believe would address the overlap between the two agencies' 
security reviews. These officials added that once TSA develops 
regulations, the agencies plan to work together to eliminate FMCSA's 
security-related regulatory responsibilities so that it can focus 
solely on safety issues while TSA focuses on security issues. However, 
TSA is in the early stages of the rulemaking process, which TSA 
officials believe may take up to 3 years. Until the rulemaking is 
completed and TSA is able to assume full responsibility for commercial 
trucking security, it will be important for TSA and FMCSA to continue 
efforts to delineate their respective security roles and reduce 
fragmentation. 

Until TSA issues security regulations to replace the existing 
regulations enforced by FMCSA, GAO has identified two potential 
options for improving data sharing and coordination to address the 
overlap of TSA's and FMCSA's security reviews in the short term; in 
addition, TSA proposed a third option that GAO believes, if 
implemented as intended, should also address existing overlap in the 
short term: 

(1) Improve interagency coordination by sharing each other's schedules 
for conducting future security reviews, and avoid scheduling reviews 
on hazardous material trucking companies that have recently received, 
or are scheduled to receive, a review from the other agency. TSA and 
FMCSA considered this option worthy of pursuit, and in October 2010 
they signed an interagency agreement to coordinate with each other 
when scheduling their respective security reviews. The agreement is 
intended to eliminate duplicate visits to the same trucking company 
that occur within 2 years of each other. However, it is too early to 
assess the results from this effort. 

(2) Enable TSA to access the full results of past FMCSA reviews through 
an existing DOT Web portal. This increased access could enable TSA to 
leverage security information on the thousands of hazardous material 
trucking companies that have received FMCSA reviews without having to 
conduct a TSA review on them, thereby efficiently increasing the 
agency's knowledge of industry security. TSA has spent $400,000 since 
February 2010 to access the Web portal, and according to FMCSA, TSA 
already has access to data on FMCSA reviews through the portal. 
However, although the portal does include some data related to FMCSA 
reviews (such as the dates and recipients of past reviews), it does 
not contain the full results of these reviews, which TSA officials 
agreed would be beneficial. DOT officials who administer the portal 
stated that adding this information to the portal and granting TSA 
access to it most likely would be relatively straightforward, but 
doing so would require a request and cooperation from both TSA and 
FMCSA. TSA officials added that they were unsure whether future budget 
constraints would allow continued funding for TSA access to the portal. 

(3) Discontinue conducting the voluntary TSA reviews on hazardous 
material trucking companies, thereby enabling TSA to increase its 
security efforts in other areas. For example, TSA could seek to 
improve security practices among nonhazardous material trucking 
companies, as these entities are not subject to the FMCSA security 
reviews. TSA officials stated in January 2011 that they intend to 
pursue this option, which, if implemented as intended, should 
eliminate the short-term overlap between FMCSA and TSA commercial 
trucking security assessments. However, as stated previously, GAO 
believes it will be important for TSA and FMCSA to continue efforts to 
improve data sharing and coordination to help prevent future overlap 
in security reviews, as well as continue efforts toward the long-term 
goal of TSA assuming full regulatory responsibility from FMCSA for 
commercial trucking security, thereby reducing fragmentation. 

Reducing overlap between TSA's and FMCSA's security reviews could 
result in cost savings. TSA's total spending on the 71 reviews it 
conducted from fiscal years 2006 through 2010 on companies that had 
also received an FMCSA review during the same period was about 
$268,000. TSA's spending on the 31 reviews that occurred less than 2 
years after an FMCSA review at the same company was about $120,000. 
Extrapolating from data from prior years, GAO estimated that, over the 
next 5 years, avoiding TSA reviews conducted on companies less than 2 
years after an FMCSA review could save approximately $164,000; 
avoiding TSA reviews on companies that receive an FMCSA review during 
the same 5-year period could save approximately $373,000; and 
eliminating all TSA reviews on hazardous material trucking companies 
could save over $1 million.[Footnote 38] Reducing overlap between the 
two agencies' security reviews could also improve their relationship 
with the commercial trucking industry. As industry observes more 
coordination among federal agencies, trucking companies may be more 
willing to participate in voluntary security initiatives and share 
information with federal stakeholders. 

Framework for Analysis: 

The information contained in this analysis is based on a previously 
issued report, noted below, and recent efforts to update that work. To 
update that information and identify continuing issues related to 
overlap in commercial trucking security assessments, GAO interviewed 
officials from TSA, FMCSA, and other agencies, as well as officials 
from three key industry groups that represent a large portion of the 
trucking industry.[Footnote 39] GAO also reviewed prior reports and 
relevant documentation, including DHS/DOT interagency agreements and 
examples of completed TSA and FMCSA security reviews. To estimate the 
amount of overlap in trucking company security assessments, GAO 
compared the 95 questions in TSA's hazardous material corporate 
security review protocol with the 48 questions in FMCSA's security 
contact review protocol and assessed their similarity using three 
categories: substantially or entirely similar, somewhat similar, and 
not at all or slightly similar.[Footnote 40] To determine the extent 
to which TSA's and FMCSA's security reviews were conducted on the same 
companies, GAO analyzed TSA and FMCSA data on reviews conducted from 
fiscal years 2006 through 2010. GAO reviewed the data for obvious 
errors and spoke with knowledgeable officials to determine that the 
data were sufficiently reliable for the purposes of its review. GAO 
estimated the cost of overlapping security reviews on hazardous 
material trucking companies by using TSA data on (1) the number of TSA 
reviews conducted from fiscal years 2006 through 2010 and (2) the 
staff time, estimated staff salaries, and estimated travel costs 
associated with conducting these reviews. Cost estimates do not 
include indirect costs, such as general administrative costs. GAO 
estimated the potential financial savings associated with eliminating 
overlapping security reviews by (1) estimating the average annual 
number of reviews, and (2) multiplying by the estimated cost of 
conducting a review. GAO reviewed the data for obvious errors and 
spoke with knowledgeable TSA officials to determine that the data were 
sufficiently reliable to provide a general indication of costs and 
potential savings. 

Related GAO Product: 

Commercial Vehicle Security: Risk-Based Approach Needed to Secure the 
Commercial Vehicle Sector. [hyperlink, 
http://www.gao.gov/products/GAO-09-85]. Washington, D.C.: February 27, 
2009. 

Area Contact: 

For additional information about this area, contact Steve Lord at 
(202) 512-4379 or lords@gao.gov. 

[End of section] 

DHS Could Streamline Mechanisms for Sharing Security-Related 
Information with Public Transit Agencies to Help Address Overlapping 
Information: 

Why GAO Is Focusing on This Area: 

Since January 2005, GAO has identified sharing terrorism-related 
information as a high-risk area because the federal government 
continues to face challenges with its information-sharing efforts. To 
facilitate information sharing with the public transit industry, the 
Department of Homeland Security (DHS) and the Transportation Security 
Administration (TSA) created and funded various mechanisms. For 
example, the publicly funded but privately operated public transit 
analysis center and the public transit subportal on DHS's information 
network were established to serve as the primary mechanisms for 
sharing security threats and other types of security-related 
information with public transit agencies. In March 2010, TSA also 
introduced its portal on DHS's information network to share 
information with the transportation industry. However, in September 
2010, GAO reported that public transit agencies receive similar 
security-related information from multiple sources and recommended 
that DHS establish time frames for its working group to assess 
opportunities to streamline information-sharing mechanisms to reduce 
any unneeded overlap. DHS concurred and has begun taking steps to 
address this recommendation, but has not provided specifics on the 
extent to which its actions will reduce overlap. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

GAO identified the potential for overlap between three information- 
sharing mechanisms that DHS funds and uses to communicate security- 
related information with public transit agencies, which could 
unnecessarily complicate those agencies' efforts to discern relevant 
information and take appropriate actions to enhance transportation 
security. While a certain amount of redundancy is understandable and 
can be beneficial if it occurs as part of a management strategy to 
provide better customer service delivery, GAO found that this 
potential for overlap could overwhelm public transit agencies with 
similar information. According to a key TSA transportation strategy 
document, a streamlined and effective system to share transit and 
passenger rail information is needed to facilitate information sharing 
among the federal government and public and private stakeholders. 

In September 2010, GAO reported that public transit agencies received 
similar security-related information from a variety of sources, 
including the three discussed below. Specifically, GAO reported that: 

* According to the American Public Transportation Association, which 
co-sponsors the public transit analysis center, this mechanism is 
intended to be a one stop shop for public transit agencies' 
information needs. This mechanism received a total of $1.2 million 
during fiscal years 2009 and 2010 from TSA. 

* TSA officials stated that the agency intends for the public transit 
portal on DHS's information network to be the primary mechanism for 
sharing such information with public transit agencies. DHS could not 
provide cost data for the operation of this specific portal because, 
according to DHS officials, the department does not break out the 
costs associated with maintaining individual portals on its 
information network. However, DHS reported that for fiscal years 2009 
and 2010, the department expended $62 million on its information 
network--which includes the public transit portal--and its estimated 
lifecycle costs are $451 million. 

* According to TSA officials, TSA's portal on DHS's information 
network was established to serve as a collaborative information-
sharing platform for all transportation modes, including public 
transit.[Footnote 41] In September 2010, TSA told GAO that for fiscal 
years 2009 and 2010, it applied $2.5 million to its portal on DHS's 
information network, primarily on developing and organizing data for 
all transportation modes. 

GAO's survey of 96 U.S. public transit agencies, representing about 91 
percent of total 2008 public transit ridership, highlighted the 
variety of mechanisms used by public transit agencies to obtain 
security-related information. Twenty-four of the 80 transit agencies 
that responded to the survey provided comments in favor of 
consolidating existing information-sharing mechanisms to reduce the 
volume of similar information they receive. 

GAO reported in 2007 and 2009 that effective information sharing 
continues to be a challenge for the federal government. Similarly, the 
Administration's March 2010 Surface Transportation Security Priority 
Assessment recommended that TSA take steps to improve the 
effectiveness of information flow. In August 2010, the Office of 
Management and Budget (OMB) added DHS's information network to its 
list of high-priority information technology projects, indicating that 
this mechanism is at risk of failure and requires additional 
oversight. According to the Federal Chief Information Officer, in 
order to justify future funding for these technology projects, 
agencies will need to, among other things, define deliverables and 
outcomes and put in place a strong governance structure. Projects that 
do not meet such criteria will not be continued. DHS officials have 
indicated that they are working with OMB to address OMB's concerns, 
but have not provided GAO with information related to the specific 
actions that DHS has taken. 

Actions Needed and Potential Financial or Other Benefits: 

Taking steps to streamline information sharing with public transit 
agencies could reduce the volume of similar information public transit 
agencies receive, making it easier for them to discern relevant 
information and take appropriate actions to enhance security. 
Government and private sector stakeholders are participating in an 
information-sharing working group to review how information-sharing 
mechanisms might be streamlined to reduce the volume of overlapping 
information public transit agencies receive. In September 2010, GAO 
recommended that TSA establish time frames for this working group to 
develop options for improving its information-sharing efforts with 
public transit agencies. In October 2010, TSA reported that the 
working group had agreed upon a consolidated product for sharing 
security-related information with public transit agencies. In January 
2011, TSA reported that the working group had established a proposed 
time frame for piloting and implementing this product. However, TSA 
did not provide specifics on the extent to which this product will 
reduce overlap among existing information-sharing mechanisms. Thus, it 
is too early to tell whether GAO's recommendation has been fully 
addressed. 

GAO's review of the costs associated with maintaining the public 
transit analysis center, the public transit portal on DHS's 
information network, and the TSA portal on DHS's information network 
found that the department continues to face challenges collecting and 
reporting useful financial management information. According to DHS 
officials, the department does not break out the costs associated with 
maintaining individual portals on its information network--including 
the public transit portal and TSA's portal--and therefore could not 
provide GAO with a reliable estimate of the potential cost savings 
resulting from consolidating the public transit portal on DHS's 
information network with the public transit analysis center or the TSA 
portal on DHS's information network. Developing such cost data could 
assist the department in determining how to best allocate its limited 
resources to provide public transit agencies with quality security-
related information. 

Moreover, by assessing the various mechanisms available to public 
transit agencies and the information they provide, and identifying 
opportunities to streamline these mechanisms, DHS could identify and 
implement ways to more efficiently share security-related information, 
which would allow public transit officials to more quickly obtain 
security-related information and thereby enhance transit agencies' 
efforts to secure their transportation systems. In doing so, DHS could 
develop and track verifiable cost data specific to each of its 
information-sharing mechanisms as part of TSA's streamlining and 
financial management efforts. Developing such baseline cost data could 
assist TSA in identifying potential cost savings resulting from the 
consolidation of these mechanisms and provide opportunities for the 
agency to better allocate its information-sharing resources. 

DHS officials stated that conducting a cost comparison of the public 
transit portal on DHS's information network, TSA's portal on this 
network, and the public transit analysis center would not result in a 
meaningful comparison because DHS's information-sharing mechanism 
costs are distributed across several transportation sectors, including 
public transit, while the costs for the public transit analysis center 
are applied to a specific sector. Additionally, TSA officials stated 
that TSA's portal on DHS's information network was not designed to 
compete with the public transit analysis center or the public transit 
subportal on DHS's information network since TSA's portal shares 
information with all transportation modes. GAO recognizes that TSA's 
portal was designed to share information with all transportation 
modes, including public transit. However, GAO believes that to the 
extent possible, TSA should consider ways to reduce any unneeded 
overlap of information sharing for the public transit industry 
regardless of the mechanisms used to share such information. 
Furthermore, GAO continues to believe that developing and tracking 
verifiable cost data specific to each information-sharing mechanism as 
it relates to services provided to the public transit sector could 
assist TSA in identifying potential cost savings resulting from 
consolidating such mechanisms. 

Framework for Analysis: 

The information contained in this analysis is based on GAO's September 
2010 report on federal efforts to share security-related information 
with public transit agencies. In addition, this analysis contains 
updated information obtained from September 2010 through January 2011. 
GAO reviewed DHS's cost data for completeness and accuracy and 
determined the data were reliable for the purposes of this analysis. 

Related GAO Products: 

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. 

Interagency Collaboration: Key Issues for Congressional Oversight of 
National Security Strategies, Organizations, Workforce, and 
Information Sharing. [hyperlink, 
http://www.gao.gov/products/GAO-09-904SP]. Washington, D.C.: September 
25, 2009. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January 22, 
2009. 

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

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

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

Area Contact: 

For additional information about this area, contact Steve Lord at 
(202) 512-4379 or lords@gao.gov. 

[End of section] 

FEMA Needs to Improve Its Oversight of Grants and Establish a 
Framework for Assessing Capabilities to Identify Gaps and Prioritize 
Investments: 

Why GAO Is Focusing on This Area: 

From fiscal year 2002 through 2010, Congress appropriated over $34 
billion for homeland security preparedness grant programs to enhance 
the ability of state, territory, local, and tribal governments to 
prevent, protect against, respond to, and recover from terrorist 
attacks and other disasters, according to the Congressional Research 
Service. The number of preparedness grant programs Federal Emergency 
Management Agency (FEMA) administers has grown from 8 in 2002 to 17 in 
2010 as the result of congressional and executive branch actions. A 
number of FEMA's preparedness grant programs fund common eligible 
recipients (such as state homeland security agencies) for similar-
broad purposes. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

FEMA does not compare and coordinate grant applications across its 
preparedness programs to identify potential duplication. In addition, 
FEMA has not established measurable goals or performance measures for 
preparedness capabilities to identify gaps to assist in effectively 
prioritizing national investments through preparedness grant programs. 

The Department of Homeland Security (DHS) Inspector General reported 
in March 2010 that FEMA's application process for its preparedness 
grant programs did not promote effectiveness and efficiency because 
FEMA did not compare and coordinate grant applications across 
preparedness programs to identify and mitigate potential duplications 
(for example, planning and interoperable communications are two 
activities that can be funded by almost all of the programs reviewed 
by the Inspector General); the report recommended FEMA do so.[Footnote 
42] The report also cited barriers at the legislative, departmental, 
and state levels that impede FEMA's ability to coordinate these 
programs, such as annual appropriation laws that may contain 
congressional earmarks dedicating funds toward specific grant 
projects. The report made two other recommendations for improving 
grant management, and FEMA concurred, saying the agency had efforts 
under way that will help to address the report's findings. Until FEMA 
evaluates grant applications across grant programs, FEMA cannot 
ascertain whether or to what extent multiple funding requests are 
being submitted for similar purposes. 

In October 2006, the Post-Katrina Emergency Management Reform Act 
charged FEMA with leading the nation in developing a national 
preparedness system.[Footnote 43] The act requires FEMA to develop a 
national preparedness system and assess preparedness capabilities-- 
capabilities needed to respond effectively to disasters--to determine 
the nation's preparedness capability levels and the resources needed 
to achieve desired capability levels.[Footnote 44] In a report to 
Congress in March 2009, FEMA identified, among other things, the need 
for federal agencies to work jointly to develop national standards for 
describing the functionality and performance characteristics of 
preparedness resources and capabilities for use by relevant homeland 
security grant programs to enable cross-program coordination and 
assessment.[Footnote 45] 

In October 2010, GAO reported that FEMA had not developed measurable 
national preparedness capability requirements to provide a framework 
for these assessments. In January 2011, FEMA reported that the 
Administrator had established a strategic priority, referred to as 
"Whole of Community" that identified a series of requirements or core 
capabilities, to ensure response and recovery actions are driven by 
the needs of the affected community in the event of a catastrophic 
disaster. As a result, FEMA is planning to generate measurable 
national preparedness capability requirements, and evaluation criteria 
(e.g., in terms of speed, effectiveness, and efficiency, among other 
factors) that are to provide a comprehensive framework for guiding 
investments and assessing readiness. Until FEMA has done so, it cannot 
operationalize and implement its approach for assessing local, state, 
and federal preparedness capabilities to identify gaps for 
prioritizing investments in national preparedness. According to 
program officials, FEMA's efforts to define a framework within which 
its capability assessments can be effectively applied rely on the 
results of two key efforts: the recommendations of the October 2010 
report of the congressionally mandated Local, State, Tribal and 
Federal Preparedness Task Force, and planned revisions to Homeland 
Security Presidential Directive-8.[Footnote 46] If the problems 
regarding preparedness grant applications and capabilities are not 
addressed, FEMA could spend billions of dollars without the ability to 
identify duplication of effort and prioritize the development and 
maintenance of the most important preparedness capabilities. 

On October 12, 2010, Congress enacted the Redundancy Elimination and 
Enhanced Performance for Preparedness Grants Act.[Footnote 47] The act 
calls for the FEMA administrator to identify redundant reporting 
requirements for recipients of certain grants and regularly report to 
Congress on efforts to eliminate identified redundancies; submit a 
plan for developing performance metrics for the grants; and conduct an 
assessment of the grant programs. In January 2011, FEMA reported that 
it is reviewing its grant programs and application processes to 
identify operational redundancies and is working with DHS to 
consolidate grant programs where activities are allowable under 
multiple grants. FEMA also stated that the agency is working with the 
National Academy of Public Administration to develop a plan by 
December 2011, for developing quantifiable performance measures and 
metrics to assess the effectiveness of preparedness grant programs. 
While these are positive steps, it is too early to determine their 
effectiveness in eliminating redundancies, increasing efficiency in 
administering FEMA's grant programs, and assessing the effectiveness 
of preparedness grant programs. 

Actions Needed and Potential Financial or Other Benefits: 

GAO has not previously made recommendations in this area, but to 
identify and address any unnecessary overlap and duplication, as well 
as to achieve operational improvements, efficiencies, and associated 
financial benefits, FEMA could benefit from examining its grant 
programs and coordinating its application process to eliminate or 
reduce redundancy among grant recipients and program purposes. FEMA's 
actions in response to the Redundancy Elimination and Enhanced 
Performance for Preparedness Grants Act may help FEMA measure and 
assess the performance of its grants programs and achieve efficiencies 
and savings in administering these programs. However, FEMA's actions 
in response to this act are still ongoing, thus it is too early to 
assess their effectiveness. 

In addition, Congress may wish to consider limiting preparedness grant 
funding to maintaining existing capabilities (as determined by FEMA) 
until FEMA completes a national preparedness assessment of capability 
gaps at each level based on tiered, capability-specific performance 
objectives to enable prioritization of grant funding. According to 
FEMA officials, the administration is planning to issue a revision of 
Homeland Security Presidential Directive-8 (no issue date has been 
set); the revision will significantly affect FEMA's national 
preparedness policies and plans. 

Once FEMA has completed a comprehensive, measurable, national 
preparedness assessment of capability gaps, as described above, FEMA 
could identify the potential costs for establishing and maintaining 
those capabilities at each level, and determine what capabilities 
federal agencies should provide. Accordingly, Congress may wish to 
consider limiting the use of federal preparedness grant programs to 
fund only projects that support the development of identified, 
validated, and documented capability gaps. 

Framework for Analysis: 

The information contained in this analysis is based on GAO's review of 
agency reports and other sources well as the related GAO products 
listed below. GAO determined that the data it used were sufficiently 
reliable for its purposes. 

At the request of the House Homeland Security Committee, GAO has a 
review under way examining FEMA's management of selected homeland 
security grants and potential duplication and expects to issue a 
report in 2011. 

Related GAO Products: 

FEMA Has Made Limited Progress in Efforts to Develop and Implement a 
System to Assess National Preparedness Capabilities. [hyperlink, 
http://www.gao.gov/products/GAO-11-51R]. Washington, D.C., October 29, 
2010. 

National Preparedness: FEMA Has Made Progress, but Needs to Complete 
and Integrate Planning, Exercise, and Assessment Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-09-369]. Washington, D.C.: April 30, 
2009. 

Area Contact: 

For additional information about this area, contact William O. Jenkins 
Jr. at (202) 512-8757 or jenkinswo@gao.gov. 

[End of section] 

Lack of Information Sharing Could Create the Potential for Duplication 
of Efforts between U.S. Agencies Involved in Development Efforts in 
Afghanistan: 

Why GAO Is Focusing on This Area: 

The United States has appropriated over $16 billion since fiscal year 
2002 for development efforts in Afghanistan, implemented by the U.S. 
Agency for International Development (USAID) and the Department of 
Defense (DOD). USAID, through its assistance program, and DOD, through 
its Commander's Emergency Response Program (CERP), have implemented 
development projects focusing on similar initiatives, such as 
improving Afghanistan's road, water, and other infrastructure sectors. 
This line of effort is an integral part of the U.S. integrated 
civilian-military campaign plan focused on countering insurgents in 
Afghanistan and requires extensive interagency coordination and 
information sharing. There is a potential for duplication of agencies' 
efforts. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Agencies involved in the implementation of development projects in 
Afghanistan--principally USAID and DOD--have not adopted a centralized 
data system that tracks all U.S. government-funded Afghan development 
efforts and is accessible by all relevant agencies. GAO has made 
recommendations for such action and agencies have concurred with those 
recommendations. Without a centralized data system to improve 
visibility of individual development projects, the U.S. government may 
not be able to fully leverage available resources and risks 
duplicating efforts and wasting taxpayer dollars, as a result of 
fragmented or overlapping efforts. 

Maintaining an accessible data system that promotes interagency 
information sharing is particularly important in an environment such 
as Afghanistan, where several agencies are involved in similar 
development efforts that are dispersed throughout the country. In a 
review of U.S.-funded road projects in Afghanistan, GAO reported in 
July 2008 that, despite CERP guidance requiring DOD to provide CERP-
funded project information to a USAID-maintained database, DOD had not 
done so. As a result, a comprehensive database of all U.S.-funded road 
projects in Afghanistan did not exist. Moreover, DOD officials said 
that because of missing documentation and frequent staff rotation, 
they did not know where some CERP-funded roads were built. GAO 
recommended that information on DOD's CERP-funded road projects be 
included in a USAID-maintained database, and DOD concurred. 

However, in a May 2009 report that reviewed DOD's coordination of CERP-
funded projects in Afghanistan with USAID, GAO found that, while the 
two agencies had mechanisms in place to facilitate coordination, they 
lacked a common database accessible to all parties involved in 
development efforts in Afghanistan. GAO noted that DOD used a 
classified database--Combined Information Data Network Exchange--to 
track CERP-funded projects, while USAID used a database called GeoBase 
to track its development projects. GAO further noted that in early 
2009, USAID officials were granted access to the unclassified portion 
of DOD's database, but DOD officials did not have access to USAID's 
GeoBase database at the time. 

Subsequently, in late 2009 USAID initiated a new database system, 
known as Afghan Info, to replace GeoBase. According to USAID, Afghan 
Info is intended to provide a comprehensive and transparent 
interagency picture of how project implementers use foreign assistance 
resources to support U.S. objectives in Afghanistan. USAID officials 
said they would like the Afghan Info system designated as the official 
system for data on U.S. assistance activities in Afghanistan, subject 
to Ambassador-level approval. However, GAO's review of U.S. 
development efforts in Afghanistan's water sector completed in 
November 2010 found that a centralized database that contains 
information on all U.S.-funded development projects, including 
information on water sector projects, still did not exist. Each agency 
continues to maintain its own project tracking system that identifies 
agency-specific information on water projects in Afghanistan. 

A USAID official responsible for developing the Afghan Info database 
noted that Afghan Info did not include data from any other agency, 
aside from unclassified quarterly CERP data that DOD began providing 
to USAID in February 2010. This official also did not know whether the 
system was being used to coordinate water sector development in 
Afghanistan. Moreover, senior DOD officials told GAO they were not 
familiar with the Afghan Info system or the data it contained. For its 
CERP-related data, DOD continues to use the Combined Information Data 
Network Exchange, which was not intended as a platform for interagency 
coordination. Agency officials have acknowledged that having access to 
project data from other agencies would contribute to better project 
planning, eliminate potential overlap, and allow agencies to leverage 
each other's resources more effectively. 

Actions Needed and Potential Financial or Other Benefits: 

To enhance interagency coordination and to help ensure there is no 
overlap or duplication and to increase accountability for use of 
agency funds, USAID, in consultation with DOD and other relevant U.S. 
agencies, should consider designating Afghan Info or some other 
database as the centralized U.S. government database for U.S. 
development efforts in Afghanistan. This database should, among other 
things, ensure that the information in the database (1) captures all 
agency development efforts and (2) is accessible to all U.S. 
government agencies involved in U.S.-funded development projects in 
Afghanistan. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products identified below. 

Related GAO Products: 

Afghanistan Development: U.S. Efforts to Support Afghan Water Sector 
Increasing but Improvements Needed in Project Planning, Coordination, 
and Management. [hyperlink, http://www.gao.gov/products/GAO-11-138]. 
Washington, D.C.: November 15, 2010. 

Military Operations: Actions Needed to Improve Oversight and 
Interagency Coordination for the Commander's Emergency Response 
Program in Afghanistan. [hyperlink, 
http://www.gao.gov/products/GAO-09-615]. Washington, D.C.: May 18, 
2009. 

Afghanistan Reconstruction: Progress Made in Constructing Roads, but 
Assessments for Determining Impact and a Sustainable Maintenance 
Program Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-08-689]. Washington, D.C.: July 8, 
2008. 

Area Contact: 

For additional information about this area, contact Charles Michael 
Johnson at (202) 512-7331 or johnsoncm@gao.gov. 

[End of section] 

Despite Restructuring, Overlapping Roles and Functions Still Exist at 
State's Arms Control and Nonproliferation Bureaus: 

Why GAO Is Focusing on This Area: 

State assumed direct responsibility for arms control, 
nonproliferation, and disarmament issues in 1999 and established three 
bureaus to perform these missions. In 2004, the Department of State 
(State) Inspector General (IG) concluded that State's three-bureau 
structure for conducting arms control and nonproliferation policy--the 
bureaus for Arms Control (AC), Nonproliferation (NP), and Verification 
and Compliance (VC)--did not adequately address post-September 11 
challenges, including possible terrorist use of weapons of mass 
destruction. The IG also noted that State had yet to formalize the 
responsibilities of the three bureaus in its Foreign Affairs Manual 
(FAM), which sets out agency organization and functions. Between late 
2005 and early 2006, State created a new two-bureau structure--the 
bureaus for International Security and Nonproliferation (ISN) and 
Verification, Compliance and Implementation (VCI)--to better address 
these issues and improve efficiency. In July 2009, GAO documented 
continuing problems with the department's reorganization of these 
bureaus. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

GAO's 2009 review of the reorganization of State bureaus responsible 
for nonproliferation activities found that the lack of clear guidance 
in the FAM contributed to past and current overlap problems among the 
AC, NP, and VC bureaus (referred to as T bureaus). Despite previous 
reorganization efforts, the fragmentation, overlap, and redundancies 
continue to exist among the T bureaus. This may be due somewhat to the 
lack of clear guidance in the department's FAM. 

In 2004, the State IG identified a number of areas of overlap among 
the T bureaus. The overlap included multiple bureau reporting channels 
for some U.S. international conference representatives and treaty 
negotiators, and unclear and conflicting demarcation of 
responsibilities between AC and NP for their South Asia and North 
Korea issues. State's objectives of the 2006 reorganization were to 
eliminate overlap among the bureaus, missions, and issues; reduce 
bureaucratic inefficiencies and top-heavy management; and enable the 
department to better focus on post-September 11 challenges. 

State officials noted that the reorganization undertaken in 2006 
addressed some organizational redundancies. Specifically, State 
reduced the number of offices, functions, and staff slots when it 
merged its three-bureau structure for conducting arms control and 
nonproliferation policy into a two-bureau structure. However, a May 
2006 State study on workforce allocation conducted after the 
reorganization found that mission redundancies persisted for chemical 
weapons, missile defense and space policy, nuclear nonproliferation, 
and bioterrorism issues among 14 offices and functions of the new ISN 
and VCI bureaus. 

GAO's 2009 review of the reorganization found that the lack of clear 
guidance in the FAM contributed to past and current overlap problems 
among the T bureaus. As a result, concerns about mission overlaps 
persist; State employees stated that some offices remain overworked 
while others are underworked. The section of the manual detailing the 
roles and responsibilities of these bureaus had never been drafted and 
approved since the 1999 incorporation of the Arms Control and 
Disarmament Agency into State and the creation of the AC, NP, and VC 
bureaus. A State official on the panel responsible for assigning roles 
and missions under the new two-bureau structure stated that their 
deliberations were hindered by the lack of an up-to-date FAM. The 
department agreed with GAO's 2009 recommendation that it delineate the 
roles and responsibilities for the ISN and VCI bureaus and add them to 
the FAM. On October 1, 2010, State announced a new reorganization of 
its arms control and nonproliferation functions, with the goal of 
improving and revitalizing efforts to enhance U.S. national security 
by effectively addressing global nuclear, chemical, biological, and 
conventional weapons threats. However, as of January 2011, State has 
not modified the FAM. 

Actions Needed and Potential Financial or Other Benefits: 

State should implement GAO's recommendations to (1) formally delineate 
in the FAM the roles of the two new bureaus, and (2) direct that key 
transformation practices and steps be incorporated into the FAM. 
Implementing these recommendations could reduce personnel and other 
overhead costs by helping the T bureaus address the multiple mission 
redundancies identified among the offices and functions of the new ISN 
and VCI bureaus. The fiscal year 2010 appropriations for the ISN and 
VCI bureaus were $48.9 million and $31.0 million, respectively. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
product identified below. 

Related GAO Product: 

State Department: Key Transformation Practices Could Have Helped in 
Restructuring Arms Control and Nonproliferation Bureaus. [hyperlink, 
http://www.gao.gov/products/GAO-09-738]. Washington, D.C.: July 15, 
2009. 

Area Contact: 

For additional information about this area, contact Joseph Christoff 
at (202) 512-8979 or christoffj@gao.gov. 

[End of section] 

Actions Needed to Reduce Administrative Overlap among Domestic Food 
Assistance Programs: 

Why GAO Is Focusing on This Area: 

The federal government spent more than $62.5 billion on 18 domestic 
food and nutrition assistance programs in fiscal year 2008. Programs' 
spending ranged from $4 million for the smallest program to more than 
$37 billion for the largest. These programs help ensure that millions 
of low-income individuals have consistent, dependable access to enough 
food for an active, healthy life. Programs provide nutrition 
assistance in a variety of forms, ranging from agricultural 
commodities to prepared meals to vouchers or other targeted benefits 
used in commercial food retail locations. The U.S. Department of 
Agriculture's (USDA) Food and Nutrition Service oversees most of these 
programs--including the five largest. The Department of Homeland 
Security (DHS) and the Department of Health and Human Services (HHS) 
also fund food assistance programs. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Domestic food and nutrition assistance is provided through a 
decentralized system of primarily 18 different federal programs that 
shows signs of overlap and inefficient use of resources. In addition 
to USDA, HHS, DHS, and multiple state and local government and 
nonprofit organizations work together to administer a complex network 
of programs and providers. GAO has found that some of these programs 
provide comparable benefits to similar or overlapping populations. For 
example, individuals eligible for groceries through the Commodity 
Supplemental Food Program are also generally eligible for groceries 
through the Emergency Food Assistance Program and for targeted 
benefits that are redeemed in authorized stores through the largest 
program, the Supplemental Nutrition Assistance Program (SNAP--formerly 
the Food Stamp Program). The availability of multiple programs with 
similar benefits helps ensure that those in need have access to 
nutritious food, but can also increase administrative costs, which 
account for approximately a tenth to more than a quarter of total 
costs among the largest of these programs. In addition, GAO's previous 
work has shown that overlap among programs can lead to inefficient use 
of federal funds, duplication of effort, and confusion among those 
seeking services. 

These 18 programs were created individually by Congress over the past 
several decades to address a variety of emerging needs, such as 
targeting benefits to groups at high risk of malnutrition or hunger. 
Agency officials and local providers have indicated that the multiple 
food assistance programs work together and provide various points of 
entry to the system to help increase access to food for vulnerable or 
target populations. Those officials and providers told us that, since 
no one program alone is intended to meet a household's full 
nutritional needs, the variety of food assistance programs can help 
households fill gaps and address the specific needs of individual 
members. 

Despite the potential benefits of varied points of entry, program 
rules related to determining eligibility often require the collection 
of similar information by multiple entities. For example, six 
programs--the National School Lunch Program, the School Breakfast 
Program, the Fresh Fruit and Vegetable Program, the Summer Food 
Service Program, the Special Milk Program, and the Child and Adult 
Care Food Program--all provide food to eligible children in settings 
outside the home, such as at school, day care, or summer day camps. 
Most of the 18 programs have specific and often complex legal 
requirements and administrative procedures that federal, state, and 
local organizations follow to help manage each program's resources. 
According to previous GAO work and state and local officials, rules 
that govern these and other nutrition assistance programs often 
require applicants who seek assistance from multiple programs to 
submit separate applications for each program and provide similar 
information verifying, for example, household income. This can create 
unnecessary work for both providers and applicants and may result in 
the use of more administrative resources than needed. 

Moreover, not enough is known about the effectiveness of many of these 
programs. Research suggests that participation in 7 of the 18 
programs--including the Special Supplemental Nutrition Program for 
Women, Infants, and Children (WIC), the National School Lunch Program, 
the School Breakfast Program, and SNAP--is associated with positive 
health and nutrition outcomes consistent with programs' goals, such as 
raising the level of nutrition among low-income households, 
safeguarding the health and well-being of the nation's children, and 
strengthening the agricultural economy. Yet little is known about the 
effectiveness of the remaining 11 programs because they have not been 
well studied. As part of its broader recommendation GAO suggested that 
USDA consider which of the lesser-studied programs need further 
research, and USDA agreed to consider the value of examining potential 
inefficiencies and overlap among smaller programs: 

Actions Needed and Potential Financial or Other Benefits: 

Actions to address food assistance programs' overlap and 
inefficiencies are needed to better leverage government resources. 
Provided such actions are balanced with the program goals of serving 
eligible vulnerable and low-income individuals and the need to 
maintain program integrity, creating efficiencies could put these 
agencies in a position to better assist program participants while 
decreasing administrative burdens. In April 2010, GAO recommended that 
USDA identify and develop methods for addressing potential 
inefficiencies and reducing unnecessary overlap among its smaller food 
assistance programs while ensuring that those who are eligible receive 
the assistance they need. These methods could include conducting a 
study as a first step; convening a group of experts; identifying which 
of the lesser-studied programs need further research and taking steps 
to fill the research gap; or identifying and piloting proposed 
changes. To date, USDA has not taken action on this recommendation. 

One of the possible methods for reducing program inefficiencies would 
entail USDA broadening its efforts to simplify, streamline, or better 
align eligibility procedures and criteria across programs to the 
extent that it is permitted by law. For example, the Child Nutrition 
and WIC Reauthorization Act of 2004 requires sharing of data between 
SNAP and the National School Lunch Program (NSLP) to allow automatic 
eligibility for NSLP without further application. According to USDA 
officials, by the 2008-2009 school year, 78 percent of local 
educational agencies directly certified SNAP-participant children for 
free school meals, which increased administrative efficiency and 
reduced improper payments. While privacy concerns and incompatible 
data systems pose challenges, expanding these efforts across programs 
could further improve efficiency. Because the legislative and 
regulatory eligibility criteria for the various entitlement programs 
are not identical, with some more stringent than others, changes to 
better align eligibility criteria could result in either fewer or more 
eligible individuals. Nevertheless, such efforts could result in 
sizable administrative cost savings since, as noted earlier, they are 
a large part of program costs. 

Options such as consolidating or eliminating overlapping programs also 
have the potential to reduce administrative costs but may not reduce 
spending on benefits unless fewer individuals are served as a result. 
For example, in fiscal years 2007, 2008, and 2009, USDA proposed 
eliminating the Commodity Supplemental Food Program, which targets low-
income pregnant women, children, and persons age 60 or over, but 
Congress continued to fund the program. USDA viewed this program as 
duplicative of other programs, and eliminating the program would have 
yielded close to $140 million savings in fiscal year 2008. However, 
according to agency officials, because the program is targeted to 
particularly vulnerable groups, elimination of the program would 
likely increase enrollment in programs such as WIC, reducing overall 
savings. As part of any effort to significantly change the nutrition 
assistance benefit delivery system, care must be taken to understand 
the likely effects on target populations. Nevertheless, GAO believes 
opportunities exist for reducing costs and improving the efficiency of 
nutrition assistance programs. 

Framework for Analysis: 

The information contained in this analysis builds upon prior GAO work, 
which is cited below. 

Related GAO Products: 

Domestic Food Assistance: Complex System Benefits Millions, but 
Additional Efforts Could Address Potential Inefficiency and Overlap 
among Smaller Programs. [hyperlink, 
http://www.gao.gov/products/GAO-10-346]. Washington, D.C.: April 15, 
2010. 

School Meal Programs: Experiences of the States and Districts That 
Eliminated Reduced-price Fees. [hyperlink, 
http://www.gao.gov/products/GAO-09-584]. Washington, D.C.: July 17, 
2009. 

Food Stamp Program: Options for Delivering Financial Incentives to 
Participants for Purchasing Targeted Foods. [hyperlink, 
http://www.gao.gov/products/GAO-08-415]. Washington, D.C.: July 30, 
2008. 

Department of Agriculture, Food and Nutrition Service: Special 
Supplemental Nutrition Program for Women, Infants and Children (WIC): 
Revisions in the WIC Food Packages. [hyperlink, 
http://www.gao.gov/products/GAO-08-358R]. Washington, D.C.: December 
17, 2007. 

Nutrition Education: USDA Provides Services through Multiple Programs, 
but Stronger Linkages among Efforts Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-04-528]. Washington, D.C.: April 27, 
2004. 

Federal Food Safety and Security System: Fundamental Restructuring Is 
Needed to Address Fragmentation and Overlap. [hyperlink, 
http://www.gao.gov/products/GAO-04-588T]. Washington, D.C.: March 30, 
2004. 

Food Stamp Program: Steps Have Been Taken to Increase Participation of 
Working Families, but Better Tracking of Efforts Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-04-346]. Washington, D.C.: 
March 5, 2004. 

Area Contact: 

For additional information about this area, contact Kay Brown (202) 
512-7215 or brownke@gao.gov. 

[End of section] 

Better Coordination of Federal Homelessness Programs May Minimize 
Fragmentation and Overlap: 

Why GAO Is Focusing on This Area: 

According to the Department of Housing and Urban Development (HUD), 
approximately 643,000 individuals and persons in families experienced 
homelessness on a single night in January 2009. Multiple federal 
programs provide assistance targeted to those experiencing 
homelessness or more broadly assist low-income populations. GAO 
reported that in 2009 federal agencies spent about $2.9 billion on 
over 20 programs targeted to address the various needs of persons 
experiencing homelessness. Some federal programs may offer similar 
types of services and serve similar populations, potentially leading 
to overlap or fragmentation. 

In June 2010, GAO recommended that the Departments of Education, 
Health and Human Services (HHS), and HUD develop a common vocabulary 
to better coordinate homeless services. GAO also recommended in July 
2010 that HUD and HHS consider more formally linking their housing and 
supportive services programs. The agencies concurred with these 
recommendations and to date have taken some actions to address them. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Several federal agencies provide a range of programs that offer not 
only housing assistance but also supportive services to those 
experiencing homelessness and to those at risk of becoming homeless, 
but coordination of these programs varies by program and agency. A 
number of federal programs are specifically targeted to address issues 
related to homelessness while other mainstream programs that are 
generally designed to help low-income individuals by providing housing 
assistance and services such as health care, job training, and food 
assistance may also serve those experiencing homelessness or at risk 
of becoming homeless. In some cases, different agencies may be 
offering similar types of services to similar populations. For 
example, GAO reported in July 2010 that at least seven federal 
agencies administered more than 20 programs that provide some type of 
shelter or housing assistance. Similarly, five agencies administered 
programs that deliver food and nutrition services, and four agencies 
administered programs that provide health services including mental 
health services and substance abuse treatment. This range of programs 
has resulted in a fragmented service system. Fragmentation and overlap 
in some of these programs may be due in part to their legislative 
creation as separate programs under the jurisdiction of several 
agencies.[Footnote 48] Moreover, additional programs have since 
developed incrementally over time to address the specific needs of 
certain segments of the population. Nevertheless, this fragmentation 
can create difficulties for people in accessing services as well as 
administrative burdens for providers who must navigate various 
application requirements, selection criteria, and reporting 
requirements. Fragmentation of programs across federal agencies has 
also resulted in differing methods for collecting data on those 
experiencing homelessness. In part because of the lack of 
comprehensive data collection requirements, the data have limited 
usefulness. Complete and accurate data are essential for understanding 
and meeting the needs of those who are experiencing homelessness and 
to prevent homelessness from occurring. 

Coordination among targeted homelessness programs and with other 
mainstream programs that support individuals or families experiencing 
homelessness includes agencies working together on program guidance 
and prevention strategies. In July 2010, GAO reported that agencies 
had taken some steps toward improved coordination and that the U.S. 
Interagency Council on Homelessness (USICH) has provided a renewed 
focus on such coordination. However, the lack of federal coordination 
was still viewed by some local service providers as an important 
barrier to the effective delivery of services to those experiencing 
homelessness. Without more formal coordination of federal programs to 
specifically include the linking of supportive services and housing, 
federal efforts to address homelessness may remain fragmented and not 
be as effective as they could be. 

Actions Needed and Potential Financial or Other Benefits: 

Federal agencies have taken some positive steps to improve 
coordination of programs that benefit those experiencing homelessness 
and reduce overlap and fragmentation but more needs to be done. In 
2010, the 19 members and staff of USICH, including the Departments of 
Education, HUD, and HHS, worked collaboratively to develop a plan--the 
Federal Strategic Plan to Prevent and End Homelessness. The plan is an 
important first step that recognizes that to prevent and end 
homelessness, targeted and mainstream programs including housing, 
health, education, and human services must be coordinated. Consistent 
with recent GAO recommendations, a key plan objective is to increase 
collaborative planning and better target initiatives to populations 
that need support across multiple systems. 

In keeping with GAO's previous recommendations and the plan's 
objective to increase coordination, it will be important for the 
federal agencies that have adopted the plan to develop implementation 
plans that include but are not limited to a project schedule, resource 
allocation, outreach measures, and a performance measurement strategy 
to evaluate their progress. The plan recognizes that collection, 
analysis, and reporting of quality, timely data on homelessness are 
essential for targeting interventions, tracking results, strategic 
planning, and resource allocation. As noted above, currently each 
federal program generally has distinct data requirements. The plan 
acknowledges that a common data standard and uniform performance 
measures across all federal programs that are targeted at homelessness 
would facilitate greater understanding and simplify local data 
management. Consistent with the plan, representatives with USICH noted 
that agencies are taking steps to improve and coordinate data, 
specifically citing the December 2010 announcement by the Department 
of Veterans Affairs to participate in Homeless Information Management 
Systems over the next 12 months.[Footnote 49] The formal coordination 
among agencies outlined in this plan may minimize fragmentation of 
federal programs and help address gaps in supportive services while 
linking housing and supportive services. The linking of these services 
is considered to be important for effectively delivering assistance to 
those experiencing homelessness. 

Implementation challenges could hamper efforts to increase agency 
coordination as outlined in the plan. For example, according to 
representatives with USICH, agencies may face challenges in 
coordinating plans, programs, and activities because of individual 
agency regulations that could prohibit sharing budgetary or other 
predecisional program information. Nevertheless, to facilitate 
interagency coordination, the plan encourages identifying and removing 
barriers to working together and seeking opportunities to conduct data 
matches and share data on those experiencing homelessness. It also 
indicates agencies at the state and local levels could review budget 
processes to determine if avenues exist for recognizing savings across 
partners and seek opportunities for engaging congressional committees 
jointly on issues related to preventing and ending homelessness. 
Despite these potential challenges, it is important for agencies to 
improve collaborative efforts as outlined in the plan. Given the 
importance of these issues, GAO believes that coordination of targeted 
and mainstream federal programs could benefit from increased Office of 
Management and Budget and congressional oversight. 

GAO plans to examine further the extent to which these programs have 
been evaluated on their efficiency and effectiveness and the potential 
benefits of consolidating or eliminating federal programs that deliver 
services to those experiencing homelessness. GAO also plans to 
evaluate what other options may more fully address fragmentation and 
overlap and achieve operational improvements, efficiencies, or 
financial savings. 

Framework for Analysis: 

GAO reviewed prior reports, listed below, about federal agencies that 
provide homelessness assistance. GAO also obtained information from 
representatives of the U.S. Interagency Council on Homelessness as 
well as national policy and advocacy organizations that deal with 
issues of homelessness. 

Related GAO Products: 

Rural Homelessness: Better Collaboration by HHS and HUD Could Improve 
Delivery of Services in Rural Areas. [hyperlink, 
http://www.gao.gov/products/GAO-10-724]. Washington, D.C.: July 20, 
2010. 

Homelessness: A Common Vocabulary Could Help Agencies Collaborate and 
Collect More Consistent Data. [hyperlink, 
http://www.gao.gov/products/GAO-10-702]. Washington, D.C.: June 30, 
2010. 

Homelessness: Improving Coordination and Client Access to Programs. 
[hyperlink, http://www.gao.gov/products/GAO-02-485T]. Washington, 
D.C.: March 6, 2002. 

Homelessness: Barriers to Using Mainstream Programs. [hyperlink, 
http://www.gao.gov/products/GAO/RCED-00-184]. Washington, D.C.: July 
6, 2000. 

Homelessness: Coordination and Evaluation of Programs Are Essential. 
[hyperlink, http://www.gao.gov/products/GAO/RCED-99-49]. Washington, 
D.C.: February 26, 1999. 

Area Contact: 

For additional information about this area, contact Alicia Puente 
Cackley at (202) 512-8678 or cackleya@gao.gov. 

[End of section] 

Further Steps Needed to Improve Cost-Effectiveness and Enhance 
Services for Transportation-Disadvantaged Persons: 

Why GAO Is Focusing on This Area: 

Millions of Americans are unable to provide their own transportation 
or have difficulty accessing public transportation. Individuals who 
are "transportation disadvantaged" may include people who are elderly, 
have disabilities, or low incomes. In 2003, GAO reported that eight 
federal departments had 62 programs providing transportation services 
to this population. At that time, GAO was unable to identify spending 
on transportation services for more than half of these programs. 
However, spending for 29 programs totaled more than $2 billion in 
fiscal year 2001. 

Following GAO's recommendation to increase federal agency 
participation, a 2004 Executive Order expanded the existing 
Interagency Transportation Coordinating Council on Access and Mobility 
to include 10 federal agencies and charged it with promoting 
interagency cooperation and establishing mechanisms to minimize 
program duplication and overlap. A 2004 GAO report found that some 
federal agencies were developing guidance and technical assistance for 
transportation coordination as recommended by GAO, and the 
Coordinating Council had launched the "United We Ride" transportation 
coordination initiative. These actions notwithstanding, program 
overlap and fragmentation continue today. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Agencies providing transportation services to transportation- 
disadvantaged persons often provide similar services to similar client 
groups, leading to potential duplication and service inefficiencies 
when coordination does not occur. Interagency forums for coordination 
at the federal, state, and local levels have expanded in recent years, 
but participation has varied among federal departments and program 
requirements have not been aligned to facilitate coordination. To 
improve cost-effectiveness and transportation services, federal 
departments should facilitate coordination by identifying and 
assessing programs, collecting information on expenditures, and 
developing or disseminating guidance and policies. 

GAO and others have reported that the variety of federal programs 
providing transportation services to the transportation disadvantaged 
has resulted in fragmented services that can be difficult for clients 
to navigate and narrowly focused programs that may result in service 
gaps. Further, services can be costly because of inconsistent, 
duplicative, and often restrictive program rules and regulations. 

* GAO identified 80 existing federal programs in eight departments 
that provided funding for transportation services for the 
transportation disadvantaged in fiscal year 2010 (see table).[Footnote 
50] 

* Programs may provide bus tokens, transit passes, taxi vouchers, or 
mileage reimbursement, for example, to transportation-disadvantaged 
persons for trips to access government services (such as job-training 
programs), the grocery store, medical appointments, or for other 
purposes. 

As in prior work, GAO could not determine the total amount spent, 
because agencies often do not separately track transportation costs 
from other program costs. However, GAO obtained fiscal year 2009 
funding information for 23 programs, which spent an estimated total of 
$1.7 billion on transportation services that year. Further, the 
Medicaid program in the Department of Health and Human Services spent 
$704 million in fiscal year 2010--the first year for which such 
information was available. 

Table: Number of Programs GAO Identified That Provide Transportation 
Services to Transportation-disadvantaged Persons, by Federal 
Department, as of October 2010: 

Federal department: Agriculture; 
Number of programs identified: 2. 

Federal department: Education; 
Number of programs identified: 11. 

Federal department: Health and Human Services; 
Number of programs identified: 30. 

Federal department: Housing and Urban Development; 
Number of programs identified: 11. 

Federal department: Interior; 
Number of programs identified: 7. 

Federal department: Labor; 
Number of programs identified: 9. 

Federal department: Transportation; 
Number of programs identified: 7. 

Federal department: Veterans Affairs; 
Number of programs identified: 3. 

Federal department: Total[A]; 
Number of programs identified: 80. 

Source: Federal departments and GAO analysis of the Catalog of Federal 
Domestic Assistance (October 2010). 

[A] The Corporation for National and Community Service--an independent 
federal agency--also funds three programs that provide transportation 
services. 

[End of table] 

The Interagency Transportation Coordinating Council on Access and 
Mobility--the venue charged with promoting interagency coordination-- 
has developed an action plan and a policy statement to encourage and 
facilitate coordination, but action by federal departments-- 
individually and in concert--will be necessary to better coordinate 
programs and eliminate duplication and fragmentation at the federal 
level. For example, because neither the Coordinating Council nor most 
federal departments have an inventory of existing programs providing 
transportation services or their expenditures, they lack the 
information to identify opportunities to improve the efficiency and 
service of their programs through coordination. Available information 
is outdated and incomplete. Additionally, departments have not aligned 
program requirements. For instance, a 2009 report by the National 
Resource Center for Human Service Transportation Coordination found 
that three federal departments providing transportation services--the 
departments of Health and Human Services, Labor, and Education--had 
yet to coordinate their planning processes or requirements with the 
Department of Transportation.[Footnote 51] GAO found that these steps 
still had not occurred as of the end of 2010. These departments 
account for 50 of the 80 existing programs identified. 

With limited interagency coordination and direction at the federal 
level, the "United We Ride" initiative and the Federal Transit 
Administration (FTA) have encouraged state and local coordination. For 
example, certain FTA transit programs require that projects selected 
for grant funding be derived from locally developed, coordinated 
public transit-human service transportation plans.[Footnote 52] The 
National Conference of State Legislatures reported in 2010 that 25 
states had created councils to improve coordination among state and 
local grantees.[Footnote 53] Some states also have regional or local 
councils. These councils are generally responsible for identifying 
available transportation services, conducting needs assessments, and 
determining how gaps should be filled. However, participation by non- 
FTA grantees--which is optional--has varied, limiting these efforts. 

Actions Needed and Potential Financial or Other Benefits: 

Federal coordination of transportation services can lead to economic 
benefits, such as funding flexibility, reduced costs or great 
efficiency, and increased productivity, as well as improved customer 
service and enhanced mobility, as GAO and others have reported. To 
realize these benefits, GAO now suggests departments undertake actions 
in two key areas to help identify opportunities to eliminate 
duplication and fragmentation and improve coordination: 

* Program information. To reduce fragmentation, overlap, and 
duplication, federal departments on the Coordinating Council should 
identify and assess their transportation programs and related 
expenditures and work with other departments to identify potential 
opportunities for additional coordination such as the use of one-call 
centers, transportation brokerages, or shared resources, among other 
options. The Coordinating Council should develop the means for 
collecting and sharing this information by establishing agency roles 
and responsibilities and developing a strategy to reinforce 
cooperation. 

* Policies and guidance. Federal departments also have more work to do 
in developing and disseminating policies and grantee guidance for 
coordinating transportation services. This is important because state 
and local grantees typically look to their administrating departments 
for guidance on issues such as coordination. Some stakeholders 
indicated that policies for cost sharing among programs still need to 
be developed. Another noted that some coordination policies, such as 
vehicle sharing among service providers, could be better disseminated. 

In 2003, GAO discussed three potential options to overcome obstacles 
to the coordination of transportation for the transportation 
disadvantaged, two of which would require substantial statutory or 
regulatory changes and include potential costs: making federal program 
standards more uniform or creating some type of requirement or 
financial incentive for coordination. As a result, at that time GAO 
recommended expanding the Coordinating Council and better 
disseminating guidance. Subsequently, the Coordinating Council was 
expanded and several coordination initiatives were launched, and 
progress has been made in coordination efforts, particularly at the 
state and local level. However, to assure that coordination benefits 
are realized, Congress may want to consider requiring key programs to 
participate in coordinated planning. 

Framework for Analysis: 

GAO reviewed prior work listed below on the coordination of 
transportation services and the Job Access and Reverse Commute 
program. GAO interviewed department officials with the FTA and United 
We Ride and contacted the Departments of Agriculture, Education, 
Health and Human Services, Housing and Urban Development, the 
Interior, Justice, Labor, and Veterans Affairs. GAO also spoke with 
the National Resource Center for Human Service Transportation 
Coordination, the National Council on Disability, American Association 
of Retired Persons, American Association of State Highway and 
Transportation Officials, and Project ACTION, and reviewed relevant 
reports. Finally, GAO searched the Catalog of Federal Domestic 
Assistance for 2010 to confirm that programs identified in 2003 still 
exist and offer transportation services and to identify new programs 
funding these services. Program information was verified with 
department officials, who provided spending data. 

Related GAO Products: 

Federal Transit Administration: Progress and Challenges in 
Implementing and Evaluating the Job Access and Reverse Commute 
Program. [hyperlink, http://www.gao.gov/products/GAO-09-496]. 
Washington, D.C.: May 21, 2009. 

Transportation Disadvantaged: Progress in Implementing the New Freedom 
Program Has Been Limited, and Better Monitoring Procedures Would Help 
Ensure Program Funds Are Used as Intended. [hyperlink, 
http://www.gao.gov/products/GAO-07-999R]. Washington, D.C.: July 19, 
2007. 

Transportation-Disadvantaged Populations: Actions Needed to Clarify 
Responsibilities and Increase Preparedness for Evacuations. 
[hyperlink, http://www.gao.gov/products/GAO-07-44]. Washington, D.C.: 
December 22, 2006. 

Federal Transit Administration: Progress Made in Implementing Changes 
to the Job Access Program, but Evaluation and Oversight Processes Need 
Improvement. [hyperlink, http://www.gao.gov/products/GAO-07-43]. 
Washington, D.C.: November 17, 2006. 

Disaster Preparedness: Preliminary Observations on the Evacuation of 
Vulnerable Populations due to Hurricanes and Other Disasters. 
[hyperlink, http://www.gao.gov/products/GAO-06-790T]. Washington, 
D.C.: May 18, 2006. 

Transportation-Disadvantaged Seniors: Efforts to Enhance Senior 
Mobility Could Benefit from Additional Guidance and Information. 
[hyperlink, http://www.gao.gov/products/GAO-04-971]. Washington, D.C.: 
August 30, 2004. 

Transportation-Disadvantaged Populations: Federal Agencies Are Taking 
Steps to Assist States and Local Agencies in Coordinating 
Transportation Services. [hyperlink, 
http://www.gao.gov/products/GAO-04-420R]. Washington, D.C.: February 
24, 2004. 

Transportation-Disadvantaged Populations: Some Coordination Efforts 
Among Programs Providing Transportation Services, but Obstacles 
Persist. [hyperlink, http://www.gao.gov/products/GAO-03-697]. 
Washington, D.C.: June 30, 2003. 

Transportation-Disadvantaged Populations: Many Federal Programs Fund 
Transportation Services, but Obstacles to Coordination Persist. 
[hyperlink, http://www.gao.gov/products/GAO-03-698T]. Washington, 
D.C.: May 1, 2003. 

Area Contact: 

For additional information about this area, contact David Wise at 
(202) 512-2834 or wised@gao.gov. 

[End of section] 

Multiple Employment and Training Programs: Providing Information on 
Colocating Services and Consolidating Administrative Structures Could 
Promote Efficiencies: 

Why GAO Is Focusing on This Area: 

Federally funded employment and training programs play an important 
role in helping job seekers obtain employment. In fiscal year 2009, 47 
programs spent about $18 billion to provide services, such as job 
search and job counseling, to program participants. Most of these 
programs are administered by the Departments of Labor, Education, and 
Health and Human Services (HHS). 

GAO has previously issued reports on the number of programs that 
provide employment and training services and overlap among them. In 
the 1990s, GAO issued a series of reports that identified program 
overlap and possible areas of resulting inefficiencies. In 2000 and 
2003, GAO identified programs for which a key program goal was 
providing employment and training assistance and tracked the 
increasing number of programs. GAO recently updated information on 
these programs, found overlap among them, and examined potential 
duplication among three selected large programs--HHS's Temporary 
Assistance for Needy Families (TANF) and the Department of Labor's 
Employment Service and Workforce Investment Act (WIA) Adult programs. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Forty-four of the 47 federal employment and training programs GAO 
identified, including those with broader missions such as multipurpose 
block grants, overlap with at least one other program in that they 
provide at least one similar service to a similar population. Some of 
these overlapping programs serve multiple population groups. Others 
target specific populations, most commonly Native Americans, veterans, 
and youth. Even when programs overlap, they may have meaningful 
differences in their eligibility criteria or objectives, or they may 
provide similar types of services in different ways. 

GAO examined the TANF, Employment Service, and WIA Adult programs for 
potential duplication and found they provide some of the same services 
to the same population through separate administrative structures. 
Although the extent to which individuals receive the same services 
from these programs is unknown due to limited data, GAO found these 
programs maintain parallel administrative structures to provide some 
of the same services, such as job search assistance, to low-income 
individuals (see following table). It should be noted that employment 
is only one aspect of the TANF program, which also provides a wide 
range of other services, including cash assistance. At the state 
level, the TANF program is typically administered by the state human 
services or welfare agency, while the Employment Service and WIA Adult 
programs are typically administered by the state workforce agency and 
provided through one-stop centers. Agency officials acknowledged that 
greater efficiencies could be achieved in delivering services through 
these programs, but said factors such as the number of clients that 
any one-stop center can serve and one-stop centers' proximity to 
clients, particularly in rural areas, could warrant having multiple 
entities provide the same services. 

Figure: Selected Employment and Training Services Provided by the 
Employment Service, TANF, and WIA Adult Programs, Fiscal Year 2009: 

[Refer to PDF for image: illustrated table] 

Program name: Employment Service/Wagner-Peyser Funded Activities (DOL); 
Employment counseling and assessment: Secondary service; 
Development of job opportunities: Primary service; 
Job readiness skills training: Primary service; 
Job referrals: Primary service; 
Job search or job placement activities: Primary service. 

Program name: Temporary Assistance for Needy Families (HHS); 
Employment counseling and assessment: Secondary service; 
Development of job opportunities: Primary service; 
Job readiness skills training: Secondary service; 
Job referrals: Secondary service; 
Job search or job placement activities: Secondary service. 

Program name: WIA Adult Program (DOL); 
Employment counseling and assessment: Primary service; 
Development of job opportunities: Primary service; 
Job readiness skills training: Primary service; 
Job referrals: Primary service; 
Job search or job placement activities: Primary service. 

Source: GAO survey of agency officials. 

Note: DOL = Department of Labor. 

[End of figure] 

Colocating services and consolidating administrative structures may 
increase efficiencies and reduce costs, but implementation can be 
challenging. Some states have colocated TANF employment and training 
services in one-stop centers where Employment Service and WIA Adult 
services are provided. Three states--Florida, Texas, and Utah--have 
gone a step further by consolidating the agencies that administer 
these programs, and state officials said this reduced costs and 
improved services, but they could not provide a dollar figure for cost 
savings. States and localities may face challenges to colocating 
services, such as limited office space. In addition, consolidating 
administrative structures may be time consuming and any cost savings 
may not be immediately realized. 

An obstacle to further progress in achieving greater administrative 
efficiencies is that little information is available about the 
strategies and results of such initiatives. In addition, little is 
known about the incentives that states and localities have to 
undertake such initiatives and whether additional incentives are 
needed. 

Actions Needed and Potential Financial or Other Benefits: 

To facilitate further progress by states and localities in increasing 
administrative efficiencies in employment and training programs, GAO 
recommended in 2011 that the Secretaries of Labor and HHS work 
together to develop and disseminate information that could inform such 
efforts. This should include information about state initiatives to 
consolidate program administrative structures and state and local 
efforts to colocate new partners, such as TANF, at one-stop centers. 
Information on these topics could address challenges faced, strategies 
employed, results achieved, and remaining issues. As part of this 
effort, Labor and HHS should examine the incentives for states and 
localities to undertake such initiatives, and, as warranted, identify 
options for increasing such incentives. Labor and HHS agreed that they 
should develop and disseminate this information. HHS noted that it 
lacks legal authority to mandate increased TANF-WIA coordination or 
create incentives for such efforts. 

To the extent that colocating services and consolidating 
administrative structures reduce administrative costs, funds could 
potentially be available to serve more clients or for other purposes. 
For the TANF program alone, GAO estimated that states spent about $160 
million to administer employment and training services in fiscal year 
2009. According to a Department of Labor official, the administrative 
costs for the WIA Adult program were at least $56 million in program 
year 2009. Officials told GAO they do not collect data on the 
administrative costs associated with the Employment Service program, 
as they are not a separately identifiable cost in the legislation. 
Labor officials said that, on average, the agency spends about $4,000 
for each WIA Adult participant who receives training services. In 
periods of budgetary constraints, it is all the more important that 
resources are used effectively. Depending on the reduction in 
administrative costs associated with colocation and consolidation, 
these funds could be used to train potentially hundreds or thousands 
of additional individuals. 

Framework for Analysis: 

The information contained in this analysis is based on GAO products 
listed below. GAO did not conduct a legal review in order to determine 
the programs, their requirements, or goals. 

Related GAO Products: 

Multiple Employment and Training Programs: Providing Information on 
Colocating Services and Consolidating Administrative Structures Could 
Promote Efficiencies. [hyperlink, 
http://www.gao.gov/products/GAO-11-92]. Washington, D.C.: January 13, 
2011. 

Multiple Employment and Training Programs: Funding and Performance 
Measures for Major Programs. [hyperlink, 
http://www.gao.gov/products/GAO-03-589]. Washington, D.C.: April 18, 
2003. 

Multiple Employment and Training Programs: Overlapping Programs 
Indicate Need for Closer Examination of Structure. [hyperlink, 
http://www.gao.gov/products/GAO-01-71]. Washington, D.C.: October 13, 
2000. 

Area Contact: 

For additional information about this area, contact Andrew Sherrill at 
(202) 512-7215 or sherrilla@gao.gov. 

[End of section] 

Teacher Quality: Proliferation of Programs Complicates Federal Efforts 
to Invest Dollars Effectively: 

Why GAO Is Focusing on This Area: 

In fiscal year 2009, the federal government spent over $4 billion 
specifically to improve the quality of our nation's 3 million teachers 
through numerous programs across the government. Teacher quality can 
be enhanced through a variety of activities, including training, 
recruitment, and curriculum and assessment tools. In turn, these 
activities can influence student learning and ultimately improve the 
global competitiveness of the American workforce in a knowledge-based 
economy. Prior GAO reports have noted that sustained coordination 
among key federal education programs could enhance state efforts to 
improve teacher quality. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Federal efforts to improve teacher quality have led to the creation 
and expansion of a variety of programs across the federal government; 
however, there is no governmentwide strategy to minimize 
fragmentation, overlap, or duplication among these many programs. 
Specifically, GAO identified 82 distinct programs designed to help 
improve teacher quality, either as a primary purpose or as an 
allowable activity, administered across 10 federal agencies. Many of 
these programs share similar goals. For example, 9 of the 82 programs 
support improving the quality of teaching in science, technology, 
engineering, and mathematics (STEM subjects) and these programs alone 
are administered across the Departments of Education, Defense, and 
Energy; the National Aeronautics and Space Administration; and the 
National Science Foundation. Further, in fiscal year 2010, the 
majority (53) of the programs GAO identified supporting teacher 
quality improvements received $50 million or less in funding and many 
have their own separate administrative processes. 

The proliferation of programs has resulted in fragmentation that can 
frustrate agency efforts to administer programs in a comprehensive 
manner, limit the ability to determine which programs are most cost- 
effective, and ultimately increases program costs. For example in the 
Department of Education (Education), eight different offices 
administer over 60 of the federal programs supporting teacher quality 
improvements, primarily in the form of competitive grants. Education 
officials believe that federal programs have failed to make 
significant progress in helping states close achievement gaps between 
schools serving students from different socioeconomic backgrounds, 
because, in part, federal programs that focus on teaching and learning 
of specific subjects are too fragmented to help state and district 
officials strengthen instruction and increase student achievement in a 
comprehensive manner. While Education officials noted, and GAO 
concurs, that a mixture of programs can target services to underserved 
populations and yield strategic innovations, the current programs are 
not structured in a way that enables educators and policymakers to 
identify the most effective practices to replicate. According to 
Education officials, it is typically not cost-effective to allocate 
the funds necessary to conduct rigorous evaluations of small programs; 
therefore, small programs are unlikely to be evaluated. Finally, it is 
more costly to administer many separately authorized federal programs 
because each program has its own policies, applications, award 
competitions, reporting requirements, and, in some cases, federal 
evaluations. 

While all of the 82 federal programs GAO identified support teacher 
quality improvement efforts, several overlap in that they share more 
than one key program characteristic. For example, teacher quality 
programs may overlap if they share similar objectives, serve similar 
target groups, or fund similar activities. GAO previously reported 
that 23 of the programs administered by Education in fiscal year 2009 
had improving teacher quality as a specific focus, which suggested 
that there may be overlap among these and other programs that have 
teacher quality improvements as an allowable activity. When looking 
across a broader set of criteria, GAO found that 14 of the programs 
administered by Education overlapped with another program with regard 
to allowable activities as well as shared objectives and target groups 
(see table). For example, the Transition to Teaching program and 
Teacher Quality Partnership Grant program can both be used to fund 
similar teacher preparation activities through institutions of higher 
education for the purpose of helping individuals from non-teaching 
fields become qualified to teach. 

Figure: Areas of Overlap among Selected Programs Administered by 
Education That Support Teacher Quality Improvement: 

[Refer to PDF for image: illustrated table] 

Objective: Improve Education in Specific Subjects; 
Even Start[A]: [Check]; 
Striving Readers[A]: [Check]; 
Mathematics and Science Partnerships[A]: [Check]; 
Improving Teacher Quality State Grants[A]: [Empty]; 
Title I, Part A: [Empty]; 
School Improvement Grants: [Empty]; 
Transition to Teaching[A]: [Empty]; 
Advanced Certification or Advanced Credentialing[A]: [Empty]; 
Teacher Quality Partnership Grants[A]: [Empty]; 
Language Resource Centers: [Check]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Check]; 
Teach for America[A]: [Empty]. 

Objective: Improve Education in General; 
Even Start[A]: [Check]; 
Striving Readers[A]: [Check]; 
Mathematics and Science Partnerships[A]: [Check]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Check]; 
School Improvement Grants: [Check]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Check]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Check]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Check]; 
Teach for America[A]: [Check]. 

Objective: Improve Education for Special Populations; 
Even Start[A]: [Check]; 
Striving Readers[A]: [Check]; 
Mathematics and Science Partnerships[A]: [Empty]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Check]; 
School Improvement Grants: [Check]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Check]; 
Teacher Quality Partnership Grants[A]: [Empty]; 
Language Resource Centers: [Empty]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Check]. 

Target Group: Current Teachers; 
Even Start[A]: [Check]; 
Striving Readers[A]: [Check]; 
Mathematics and Science Partnerships[A]: [Check]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Check]; 
School Improvement Grants: [Check]; 
Transition to Teaching[A]: [Empty]; 
Advanced Certification or Advanced Credentialing[A]: [Check]; 
Teacher Quality Partnership Grants[A]: [Empty]; 
Language Resource Centers: [Check]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Empty]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Check]; 
Teach for America[A]: [Empty]. 

Target Group: Prospective Teachers; 
Even Start[A]: [Empty]; 
Striving Readers[A]: [Empty]; 
Mathematics and Science Partnerships[A]: [Empty]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Empty]; 
School Improvement Grants: [Empty]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Empty]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Empty]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Check]. 

Target Group: Other Education Professionals; 
Even Start[A]: [Check]; 
Striving Readers[A]: [Check]; 
Mathematics and Science Partnerships[A]: [Empty]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Check]; 
School Improvement Grants: [Check]; 
Transition to Teaching[A]: [Empty]; 
Advanced Certification or Advanced Credentialing[A]: [Empty]; 
Teacher Quality Partnership Grants[A]: [Empty]; 
Language Resource Centers: [Check]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Empty]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Empty]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Empty]. 

Activity[B]: Teacher Preparation; 
Even Start[A]: [Empty]; 
Striving Readers[A]: [Empty]; 
Mathematics and Science Partnerships[A]: [Empty]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Empty]; 
School Improvement Grants: [Empty]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Empty]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Empty]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Check]. 

Activity[B]: Professional Development; 
Even Start[A]: [Check]; 
Striving Readers[A]: [Check]; 
Mathematics and Science Partnerships[A]: [Check]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Check]; 
School Improvement Grants: [Check]; 
Transition to Teaching[A]: [Empty]; 
Advanced Certification or Advanced Credentialing[A]: [Empty]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Check]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Check]; 
Teach for America[A]: [Empty]. 

Activity[B]: Recruitment or Retention; 
Even Start[A]: [Empty]; 
Striving Readers[A]: [Empty]; 
Mathematics and Science Partnerships[A]: [Check]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Check]; 
School Improvement Grants: [Check]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Check]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Empty]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Check]. 

Activity[B]: Certification or Licensure; 
Even Start[A]: [Empty]; 
Striving Readers[A]: [Empty]; 
Mathematics and Science Partnerships[A]: [Empty]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Empty]; 
School Improvement Grants: [Empty]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Check]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Empty]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Check]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Empty]. 

Activity[B]: Induction or Mentoring; 
Even Start[A]: [Empty]; 
Striving Readers[A]: [Empty]; 
Mathematics and Science Partnerships[A]: [Empty]; 
Improving Teacher Quality State Grants[A]: [Check]; 
Title I, Part A: [Empty]; 
School Improvement Grants: [Empty]; 
Transition to Teaching[A]: [Check]; 
Advanced Certification or Advanced Credentialing[A]: [Empty]; 
Teacher Quality Partnership Grants[A]: [Check]; 
Language Resource Centers: [Empty]; 
Teachers for a Competitive Tomorrow Program: Baccalaureate[A]: [Check]; 
Teachers for a Competitive Tomorrow: Masters[A]: [Empty]; 
Foreign Language Assistance Program[A]: [Empty]; 
Teach for America[A]: [Check]. 

Source: GAO analysis of Department of Education documents and 
interviews. 

Note: The 14 programs shown in the table are a subset of over 60 
Education programs supporting teacher quality improvement either 
specifically or as an allowable activity. Specifically, although Title 
I, Part A, School Improvement Grants, and Even Start allow program 
funds to be used for teacher quality activities, this is not their 
primary focus. The 14 programs presented above overlapped with at 
least 1 other program across objective, target group, and activity. 

[A] Education has proposed consolidating this program under a broader 
program in its proposal for the reauthorization of the Elementary and 
Secondary Education Act of 1965. 

[B] This is not an exhaustive list of activities allowed under these 
programs, but rather the activities GAO determined were most relevant 
for the purposes of this analysis. 

[End of figure] 

Although there is overlap among these programs, several factors make 
it difficult to determine whether there is unnecessary duplication. 
First, when similar teacher quality activities are funded through 
different programs and delivered by different entities, some overlap 
can occur unintentionally, but is not necessarily wasteful. For 
example, a local school district could use funds from the Foreign 
Language Assistance program to pay for professional development for a 
teacher who will be implementing a new foreign language course, and 
this teacher could also attend a summer seminar on best practices for 
teaching the foreign language at a Language Resource Center. Second, 
by design, individual teachers may benefit from federally funded 
training or financial support at different points in their careers. 
Specifically, the teacher from this example could also receive teacher 
certification through a program funded by the Teachers for a 
Competitive Tomorrow program. Further, both broad and narrowly 
targeted programs exist simultaneously, meaning that the same teacher 
who receives professional development funded from any one or more of 
the above three programs might also receive professional development 
that is funded through Title I, Part A. The actual content of these 
professional development activities may differ though, since the 
primary goal of each program is different. In this example, it would 
be difficult to know whether the absence of any one of these programs 
would make a difference in terms of the teacher's ability to teach the 
new language effectively. 

In past work, GAO and Education's Inspector General have concluded 
that improved planning and coordination could help Education better 
leverage expertise and limited resources, and to anticipate and 
develop options for addressing potential problems among the multitude 
of programs it administers. Generally, GAO has reported that 
uncoordinated program efforts can waste scarce funds, confuse and 
frustrate program customers, and limit the overall effectiveness of 
the federal effort. However, given the large number of teacher quality 
programs and the extent of overlap, it is unlikely that improved 
coordination alone can fully mitigate the effects of the fragmented 
and overlapping federal effort. 

Actions Needed and Potential Financial or Other Benefits: 

In 2009, GAO recommended that the Secretary of Education work with 
other agencies as appropriate to develop a coordinated approach for 
routinely and systematically sharing information that can assist 
federal programs, states, and local providers in achieving efficient 
service delivery. Coordination is essential to ensure that programs do 
not work at cross-purposes, do not repeat mistakes, and do not engage 
in wasteful duplication of services. Education has established working 
groups to help develop more effective collaboration across Education 
offices, and has reached out to other agencies to develop a framework 
for sharing information on some teacher quality activities, but it has 
noted that coordination efforts do not always prove useful and cannot 
fully eliminate barriers to program alignment, such as programs with 
differing definitions for similar populations of grantees, which 
create an impediment to coordination. 

Congress could help eliminate some of these barriers through 
legislation, particularly through the pending reauthorization of the 
Elementary and Secondary Education Act of 1965 and other key education 
bills. Specifically, to minimize any wasteful fragmentation and 
overlap among teacher quality programs, Congress may choose either to 
eliminate programs that are too small to evaluate cost-effectively or 
combine programs serving similar target groups into a larger program. 
Education has already proposed combining 38 programs into 11 programs 
in its reauthorization proposal, which could allow the agency to 
dedicate a higher portion of its administrative resources to 
monitoring programs for results and providing technical assistance. 
Congress might also include legislative provisions to help Education 
reduce fragmentation, such as by giving broader discretion to the 
agency to move resources away from certain programs. Congress could 
provide Education guidelines for selecting these programs. For 
example, Congress could allow Education discretion to consolidate 
programs with administrative costs exceeding a certain threshold or 
failing to meet performance goals, into larger or more successful 
programs. Finally, to the extent that overlapping programs continue to 
be authorized, they could be better aligned with each other in a way 
that allows for comparison and evaluation to ensure they are 
complementary rather than duplicative. 

Framework for Analysis: 

The information contained in this analysis is based in part on issued 
GAO products listed below. Additionally, it is based on recent GAO 
analysis of overlap among teacher quality programs among a broad range 
of 82 federal programs that support teacher quality efforts directly 
as a primary purpose, or as an allowable activity. GAO reviewed 
programs that it had previously identified as teacher quality programs 
and refined the initial list of programs based on a keyword search of 
the Catalog of Federal Domestic Assistance (CFDA) for programs that 
included "teacher quality," "teacher training," or "professional 
development" in their descriptions. GAO then reviewed agency Web 
sites, budget documents, and other information to verify that these 
programs support teacher quality improvements directly or allowed 
funds to be used to support teacher quality improvements. Education 
verified that the 63 programs that they administer and that GAO 
identified as supporting teacher quality improvement did so either 
directly or as an allowable activity; GAO did not ask other agencies 
to verify other programs on the list. 

To specifically identify potential fragmentation and overlap among 
these programs, GAO reviewed the CFDA descriptions and other 
documentation to determine if programs had similar objectives, served 
similar target groups, and provided similar types of assistance. For 
purposes of this report, GAO focused on Education programs, which 
further narrowed the list of potentially overlapping programs to 14. 
GAO then interviewed responsible program officials to obtain more 
detailed information about each of these programs. GAO also 
interviewed Education officials to determine if progress had been made 
in addressing previous recommendations aimed at improving coordination 
among agencies administering teacher quality programs, and to obtain 
information about the potential impact of consolidating or eliminating 
programs that GAO identified as being potentially duplicative. 

Related GAO Products: 

English Language Learning: Diverse Federal and State Efforts to 
Support Adult English Language Learning Could Benefit from More 
Coordination. [hyperlink, http://www.gao.gov/products/GAO-09-575]. 
Washington, D.C.: July 29, 2009. 

Teacher Preparation: Multiple Federal Education Offices Support 
Teacher Preparation for Instructing Students with Disabilities and 
English Language Learners, but Systematic Departmentwide Coordination 
Could Enhance This Assistance. [hyperlink, 
http://www.gao.gov/products/GAO-09-573]. Washington, D.C.: July 20, 
2009. 

Teacher Quality: Sustained Coordination among Key Federal Education 
Programs Could Enhance State Efforts to Improve Teacher Quality. 
[hyperlink, http://www.gao.gov/products/GAO-09-593]. Washington, D.C.: 
July 6, 2009. 

No Child Left Behind Act: Education Actions Could Improve the 
Targeting of School Improvement Funds to Schools Most in Need of 
Assistance. [hyperlink, http://www.gao.gov/products/GAO-08-380]. 
Washington, D.C.: February 29, 2008. 

Teacher Quality: Approaches, Implementation, and Evaluation of Key 
Federal Efforts. [hyperlink, http://www.gao.gov/products/GAO-07-861T]. 
Washington, D.C.: May 17, 2007. 

No Child Left Behind Act: States Face Challenges in Measuring Academic 
Growth that Education's Initiatives May Help Address. [hyperlink, 
http://www.gao.gov/products/GAO-06-661]. Washington, D.C.: July 17, 
2006. 

Troops-to-Teachers: Program Brings More Men and Minorities to the 
Teaching Workforce, but Education Could Improve Management to Enhance 
Results. [hyperlink, http://www.gao.gov/products/GAO-06-265]. 
Washington, D.C.: March 1, 2006. 

No Child Left Behind Act: Improved Accessibility to Education's 
Information Could Help States Further Implement Teacher Qualification 
Requirements. [hyperlink, http://www.gao.gov/products/GAO-06-25]. 
Washington, D.C.: November 21, 2005. 

Higher Education: Activities Underway to Improve Teacher Training, but 
Reporting on These Activities Could Be Enhanced. [hyperlink, 
http://www.gao.gov/products/GAO-03-6]. Washington, D.C.: December 11, 
2002. 

Early Education and Care: Overlap Indicates Need to Assess 
Crosscutting Programs. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-78]. Washington, D.C.: April 
28, 2000. 

Federal Education Funding: Multiple Programs and Lack of Data Raise 
Efficiency and Effectiveness Concerns. [hyperlink, 
http://www.gao.gov/products/GAO/T-HEHS-98-46]. Washington, D.C.: 
November 6, 1997. 

Area Contact: 

For additional information about this area, contact George Scott at 
(202) 512-7215 or scottg@gao.gov. 

[End of section] 

Fragmentation of Financial Literacy Efforts Makes Coordination 
Essential: 

Why GAO Is Focusing on This Area: 

Improving financial literacy is essential to ensuring consumers' 
economic well-being and security. Poor money management and financial 
decision making can lower a family's standard of living and interfere 
with crucial long-term goals, such as buying a home and financing 
retirement. Financial literacy has broader public policy implications 
as well. For example, financial markets work best when consumers 
understand how financial services providers and products work and know 
how to choose among them. Federal financial literacy programs and 
resources are spread widely among many different federal agencies, 
raising concerns of potential duplication or fragmentation. 

What GAO Has Found to Indicate Duplication, Overlap, or Fragmentation: 

Federal financial literacy activities are fragmented across multiple 
agencies, with more than 20 different federal agencies providing about 
56 programs related to financial literacy. This increases the risk of 
inefficiency and highlights the need for strong coordination of these 
efforts. Federally funded financial literacy programs cover a number 
of topics (such as saving for retirement and avoiding fraudulent 
practices), target a range of audiences (such as schoolchildren, 
prospective homeowners, and investors), and include a variety of 
delivery mechanisms (such as classroom curricula, print materials, Web 
sites, broadcast media, and individual counseling). To streamline 
federal efforts in this area and improve coordination, Congress 
created the multiagency Financial Literacy and Education Commission 
(the Commission) in 2003. It charged the Commission with, among other 
things, developing a national strategy to promote financial literacy 
and education, coordinating federal efforts, and identifying--and 
proposing means of eliminating--areas of overlap and duplication. 

GAO recommended in 2006 that the Commission use an unbiased, third- 
party evaluator to examine the extent of overlap and duplication among 
federal financial literacy activities. In response, the Treasury 
Department, which staffs and chairs the Commission and coordinates its 
activities, contracted for two studies, both of which found limited 
evidence of overlap and duplication. Staff at four federal agencies 
and two research institutions that GAO spoke with noted that even when 
different agencies' programs appeared similar, closer inspection can 
reveal important differences in such elements as the target audience 
or the specific content. 

However, with 20 different agencies playing a role in financial 
education, federal financial literacy efforts clearly are fragmented. 
There are some advantages to having multiple federal agencies involved 
in financial literacy--for example, agencies can focus their efforts 
on the particular subject matter or target audiences for which they 
have expertise. At the same time, fragmentation across agencies can 
also make it difficult to develop a coherent global approach for 
identifying gaps and needs and for rationally allocating overall 
resources. In part to encourage a more coordinated approach to federal 
financial literacy resources, Congress mandated the Commission to 
develop a national strategy. However, as GAO has reported, the 2006 
National Strategy for Financial Literacy largely was descriptive 
rather than strategic; generally did not include a plan for 
implementation; and only partially addressed or defined elements such 
as performance measures, resource needs, and roles and 
responsibilities. In December 2010, the Commission released a new 
national strategy, which identifies five action areas--policy, 
education, practice, research, and coordination--as well as a series 
of goals and related objectives intended to help guide financial 
literacy efforts over the next 3 to 5 years. The Commission stated 
that in 2011 it will release an implementation plan for how the 
Commission, its members, and other organizations can best incorporate 
the new strategy into their activities and initiatives. As that 
implementation plan is developed, GAO believes that one of its goals 
should be to address the fragmentation of federal financial literacy 
efforts. 

Fragmentation across federal agencies has the potential to result in 
inefficient, uncoordinated, or redundant use of resources. In the case 
of financial literacy programs, there are numerous funding streams and 
little good data on the amount of federal funds devoted to financial 
literacy. Financial literacy efforts are not necessarily organized as 
separate budget line items or cost centers within federal agencies and 
there is no estimate of overall federal spending for financial 
literacy and education, according to the Department of the Treasury. 
The Commission was charged with coordinating federal resources, but 
GAO has noted in the past that the Commission faces significant 
challenges in its role as a centralized focal point: it is composed of 
many agencies, but it has no independent budget and no legal authority 
to compel member agencies to take any action. 

Actions Needed and Potential Financial or Other Benefits: 

GAO has identified several possible steps that could be taken to 
address fragmentation in federal financial literacy efforts: 

* Improve coordination among federal agencies. Because of the 
crosscutting nature of financial literacy, it would be difficult, if 
not impossible, for one agency alone to address the issue, but 
coordination among agencies is clearly essential. In prior work, GAO 
has identified barriers to coordinating programs and initiatives 
across the federal government, which can include competing missions, 
concerns about protecting resources, and a lack of clearly articulated 
roles and responsibilities. The Commission should enhance its efforts 
to coordinate federal activities, such as by exploring further 
opportunities to strengthen its role as a central clearinghouse for 
federal financial literacy resources. 

* Delineate roles for two key financial education offices. In 2010, 
Congress enacted legislation creating an Office of Financial Education 
within the new Bureau of Consumer Financial Protection. This office is 
charged with duties that are in some ways similar to those of the 
separate Office of Financial Education and Financial Access within the 
Department of the Treasury. The respective offices will need to 
coordinate their roles and activities closely to avoid unnecessary 
overlap and make the most productive use of their respective resources. 

* Foster public-private partnerships. Given the wide array of state, 
local, nonprofit, and private organizations providing financial 
literacy programs, it is essential to leverage private sector 
resources and coordinate federal activities with resources at the 
community level. The Commission should build on progress it has made 
in recent years in promoting such partnerships. Federal collaboration 
with state and local governments may be particularly important given 
the critical role that school districts can play in improving 
financial literacy among young people. 

* Measure outcomes and focus resources accordingly. Federal financial 
literacy resources should be focused on those agencies and programs 
with the most expertise and best track records. The Commission and the 
Bureau of Consumer Financial Protection could potentially play a role 
in developing or disseminating a standard set of evaluation tools or 
benchmarks that would help assess which federal initiatives have the 
most effective outcomes. 

The potential monetary savings to coordinating or consolidating 
financial literacy efforts is unknown. As noted earlier, there is no 
estimate of overall federal spending for financial literacy and 
education, and most federal agencies do not have an estimate for 
spending on "financial literacy" per se. However, streamlining federal 
financial literacy resources would have other benefits--it would make 
the best use of scarce resources and focus efforts on programs and 
initiatives that have been shown to be most effective in improving the 
financial literacy of the American people. 

Framework for Analysis: 

The information contained in this analysis builds upon prior GAO work, 
which is cited below. To supplement that work, GAO reviewed two 
studies on federal financial literacy resources that were conducted by 
private entities and commissioned by the Department of the Treasury. 
GAO also conducted interviews with staff at four federal agencies and 
two research organizations. 

Related GAO Products: 

Financial Literacy and Education Commission: Progress Made in 
Fostering Partnerships, but National Strategy Remains Largely 
Descriptive Rather Than Strategic. [hyperlink, 
http://www.gao.gov/products/GAO-09-638T]. Washington, D.C.: April 29, 
2009. 

Financial Literacy and Education Commission: Further Progress Needed 
to Ensure an Effective National Strategy. [hyperlink, 
http://www.gao.gov/products/GAO-07-100]. Washington, D.C.: December 4, 
2006. 

Highlights of a GAO Forum: The Federal Government's Role in Improving 
Financial Literacy. [hyperlink, 
http://www.gao.gov/products/GAO-05-93SP]. Washington, D.C.: November 
15, 2004. 

Area Contact: 

For additional information about this area, contact Alicia Puente 
Cackley at (202) 512-8678 or cackleya@gao.gov. 

[End of section] 

Section II: Other GAO-Identified Cost-Saving and Revenue-Enhancing 
Areas: 

Table 2 provides 47 areas for consideration where the government can 
achieve cost savings or enhance revenue collections. The table 
includes the estimated cost savings or additional revenues, if 
available. In many cases, there is sufficient information to show that 
if actions are taken to address individual issues summarized in Table 
2, financial benefits ranging from tens of millions to tens of 
billions of dollars annually may be realized. In other cases, however, 
estimates for savings or revenues would depend upon the nature and 
scope of congressional and executive branch decisions, or additional 
programmatic data may be needed. Following the table are summaries for 
each of the areas listed. Each of the summaries contains a "Framework 
for Analysis" providing the methodology used to conduct the work and a 
list of related GAO products for further information. 

Table 2: Federal agencies and programs where cost saving or revenue 
enhancement opportunities may exist: 

Mission: Agriculture; 
Areas identified: 35. Reducing some farm program payments could result 
in savings from $800 million over 10 years to up to $5 billion 
annually; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of Agriculture; 
Page: 159. 

Mission: Defense; 
Areas identified: 36. DOD should assess costs and benefits of overseas 
military presence options before committing to costly personnel 
realignments and construction plans, thereby possibly saving billions 
of dollars; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of Defense (DOD); 
Page: 164. 

Mission: Defense; 
Areas identified: 37. Total compensation approach is needed to manage 
significant growth in military personnel costs; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: DOD; 
Page: 169. 

Mission: Defense; 
Areas identified: 38. Employing best management practices could help 
DOD save money on its weapon systems acquisition programs; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: DOD; 
Page: 173. 

Mission: Defense; 
Areas identified: 39. More efficient management could limit future 
costs of DOD's spare parts inventory; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: DOD, including the military services and Defense 
Logistics Agency; 
Page: 178. 

Mission: Defense; 
Areas identified: 40. More comprehensive and complete cost data can 
help DOD improve the cost-effectiveness of sustaining weapon systems; 
Federal agencies and programs where cost-saving or revenue- 
enhancement options may exist: DOD; 
Page: 182. 

Mission: Defense; 
Areas identified: 41. Improved corrosion prevention and control 
practices could help DOD avoid billions in unnecessary costs over time; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: DOD's Office of Corrosion Policy and Oversight; 
Page: 186. 

Mission: Economic development; 
Areas identified: 42. Revising the essential air service program could 
improve efficiency and save over $20 million annually; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of Transportation; 
Page: 190. 

Mission: Economic development; 
Areas identified: 43. Improved design and management of the universal 
service fund as it expands to support broadband could help avoid cost 
increases for consumers; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Federal Communications Commission; 
four programs involved; 
Page: 194. 

Mission: Economic development; 
Areas identified: 44. The Corps of Engineers should provide Congress 
with project-level information on unobligated balances; 
Federal agencies and programs where cost-saving or revenue- 
enhancement options may exist: U.S. Army Corps of Engineers; 
Page: 198. 

Mission: Energy; 
Areas identified: 45. Improved management of federal oil and gas 
resources could result in approximately $1.75 billion over 10 years; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of the Interior's Bureau of Land 
Management, Bureau of Ocean Energy Management, Regulation and 
Enforcement, and Office of Natural Resources Revenue; 
Page: 200. 

Mission: General government; 
Areas identified: 46. Efforts to address governmentwide improper 
payments could result in significant cost savings; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: About 20 federal agencies; over 70 programs 
involved; 
Page: 205. 

Mission: General government; 
Areas identified: 47. Promoting competition for the over $500 billion 
in federal contracts can potentially save billions of dollars over 
time; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Governmentwide; 
Page: 211. 

Mission: General government; 
Areas identified: 48. Applying strategic sourcing best practices 
throughout the federal procurement system could save billions of 
dollars annually; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Governmentwide; 
Page: 215. 

Mission: General government; 
Areas identified: 49. Adherence to new guidance on award fee contracts 
could improve agencies' use of award fees and produce savings; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Several agencies, including DOD and the National 
Aeronautics and Space Administration; 
Page: 219. 

Mission: General government; 
Areas identified: 50. Agencies could realize cost savings of at least 
$3 billion by continued disposal of unneeded federal real property; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Governmentwide, including DOD, General Services 
Administration (GSA), and Department of Veterans Affairs; 
Page: 222. 

Mission: General government; 
Areas identified: 51. Improved cost analyses used for making federal 
facility ownership and leasing decisions could save tens of millions 
of dollars; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Primarily GSA, the central leasing agent for most 
agencies; 
Page: 226. 

Mission: General government; 
Areas identified: 52. The Office of Management and Budget's IT 
Dashboard reportedly has already resulted in $3 billion in savings and 
can further help identify opportunities to invest more efficiently in 
information technology; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Governmentwide; 
Page: 230. 

Mission: General government; 
Areas identified: 53. Increasing electronic filing of individual 
income tax returns could reduce IRS's processing costs and increase 
revenues by hundreds of millions of dollars; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of the Treasury's (Treasury) Internal 
Revenue Service (IRS); 
Page: 234. 

Mission: General government; 
Areas identified: 54. Using return on investment information to better 
target IRS enforcement could reduce the tax gap; 
for example, a 1 percent reduction would increase tax revenues by $3 
billion; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 238. 

Mission: General government; 
Areas identified: 55. Better management of tax debt collection may 
resolve cases faster with lower IRS costs and increase debt collected; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 241. 

Mission: General government; 
Areas identified: 56. Broadening IRS's authority to correct simple tax 
return errors could facilitate correct tax payments and help IRS avoid 
costly, burdensome audits; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 244. 

Mission: General government; 
Areas identified: 57. Enhancing mortgage interest information 
reporting could improve tax compliance; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 248. 

Mission: General government; 
Areas identified: 58. More information on the types and uses of 
canceled debt could help IRS limit revenue losses on forgiven mortgage 
debt; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 251. 

Mission: General government; 
Areas identified: 59. Better information and outreach could help 
increase revenues by tens or hundreds of millions of dollars annually 
by addressing overstated real estate tax deductions; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 254. 

Mission: General government; 
Areas identified: 60. Revisions to content and use of Form 1098-T 
could help IRS enforce higher education requirements and increase 
revenues; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 258. 

Mission: General government; 
Areas identified: 61. Many options could improve the tax compliance of 
sole proprietors and begin to reduce their $68 billion portion of the 
tax gap; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 260. 

Mission: General government; 
Areas identified: 62. IRS could find additional businesses not filing 
tax returns by using third-party data, which show such businesses have 
billions of dollars in sales; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 264. 

Mission: General government; 
Areas identified: 63. Congress and IRS can help S corporations and 
their shareholders be more tax compliant, potentially increasing tax 
revenues by hundreds of millions of dollars each year; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 267. 

Mission: General government; 
Areas identified: 64. IRS needs an agencywide approach for addressing 
tax evasion among the at least 1 million networks of businesses and 
related entities; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 270. 

Mission: General government; 
Areas identified: 65. Opportunities exist to improve the targeting of 
the $6 billion research tax credit and reduce forgone revenue; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Treasury and IRS; 
Page: 273. 

Mission: General government; 
Areas identified: 66. Converting the new markets tax credit to a grant 
program may increase program efficiency and significantly reduce the 
$3.8 billion 5-year revenue cost of the program; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Treasury; 
Page: 276. 

Mission: General government; 
Areas identified: 67. Limiting the tax-exempt status of certain 
governmental bonds could yield revenue; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Treasury; 
Page: 279. 

Mission: General government; 
Areas identified: 68. Adjusting civil tax penalties for inflation 
potentially could increase revenues by tens of millions of dollars per 
year, not counting any revenues that may result from maintaining the 
penalties' deterrent effect; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 281. 

Mission: General government; 
Areas identified: 69 IRS may be able to systematically identify 
nonresident aliens reporting unallowed tax deductions or credits; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: IRS; 
Page: 284. 

Mission: General government; 
Areas identified: 70. Tracking undisbursed balances in expired grant 
accounts could facilitate the reallocation of scarce resources or the 
return of funding to the Treasury; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Governmentwide; 
Page: 286. 

Mission: Health; 
Areas identified: 71. Preventing billions in Medicaid improper 
payments requires sustained attention and action by CMS; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of Health and Human Services' Centers 
for Medicare & Medicaid Services (CMS); 
Page: 289. 

Mission: Health; 
Areas identified: 72. Federal oversight over Medicaid supplemental 
payments needs improvement, which could lead to substantial cost 
savings; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: CMS; 
Page: 293. 

Mission: Health; 
Areas identified: 73. Better targeting of Medicare's claims review 
could reduce improper payments; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: CMS; 
Page: 296. 

Mission: Health; 
Areas identified: 74. Potential savings in Medicare's payments for 
health care; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: CMS; 
Page: 300. 

Mission: Homeland security/Law enforcement; 
Areas identified: 75. DHS's management of acquisitions could be 
strengthened to reduce cost overruns and schedule and performance 
shortfalls; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Department of Homeland Security (DHS); 
Page: 306. 

Mission: Homeland security/Law enforcement; 
Areas identified: 76. Improvements in managing research and 
development could help reduce inefficiencies and costs for homeland 
security; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: DHS; 
Page: 311. 

Mission: Homeland security/Law enforcement; 
Areas identified: 77. Validation of TSA's behavior-based screening 
program is needed to justify funding or expansion; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Transportation Security Administration (TSA); 
Page: 316. 

Mission: Homeland security/Law enforcement; 
Areas identified: 78. More efficient baggage screening systems could 
result in about $470 million in reduced TSA personnel costs over the 
next 5 years; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: TSA; 
Page: 320. 

Mission: Homeland security/Law enforcement; 
Areas identified: 79. Clarifying availability of certain customs fee 
collections could produce a one-time savings of $640 million; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: DHS's Customs and Border Protection (CBP); 
Page: 324. 

Mission: Income security; 
Areas identified: 80. Social Security needs data on pensions from 
noncovered earnings to better enforce offsets and ensure benefit 
fairness, resulting in estimated $2.4-$2.9 billion savings over 10 
years; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: Social Security Administration; 
Page: 326. 

Mission: International affairs; 
Areas identified: 81. Congress could pursue several options to improve 
collection of antidumping and countervailing duties; 
Federal agencies and programs where cost-saving or revenue-enhancement 
options may exist: CBP; 
Page: 330. 

Source: GAO analysis based on areas addressed in Section II of this 
report. 

[End of table] 

[End of section] 

Reducing Some Farm Program Payments Could Result in Substantial 
Savings: 

Why GAO Is Focusing on This Area: 

Between 2005 and 2009, the U.S. Department of Agriculture (USDA) spent 
an average of about $15 billion annually on programs to support farm 
income, assist farmers after disasters, and conserve natural 
resources. Under one of these federal farm programs, USDA provides 
fixed annual payments--called direct payments--to farmers based on a 
farm's history of crop production. Direct payments were most recently 
reauthorized in the Food, Conservation, and Energy Act of 2008, which 
will expire in 2012 without future action. 

GAO has shown that taxpayer dollars can be saved with strengthened 
oversight of farm program payments, including direct payments. For 
example, GAO reported in October 2008 that USDA provided farm program 
payments to thousands of individuals with incomes exceeding income 
eligibility caps. GAO has also shown that USDA's oversight and 
enforcement of program rules is not always effective. For example, in 
July 2007, GAO reported that USDA paid $1.1 billion in such payments 
to more than 170,000 deceased individuals, and in April 2004 GAO 
reported that USDA provided such payments to people who may have had 
only limited involvement in farming because the agency lacks 
sufficient management controls. Since then, USDA has taken some 
actions in response to GAO's recommendations. 

What GAO Has Found Indicating Potential for Cost Saving: 

Reducing or eliminating direct payments to farmers--particularly those 
to large farming operations--could achieve cost savings of as much as 
$5 billion annually. In contrast to other major farm programs, which 
compensate farmers for declines in price or lost crops, direct 
payments go to farmers regardless of risk factors. Direct payments are 
calculated using a formula that considers the crop and production 
history and the number of acres planted during certain years in the 
past on a farm. Generally, a percentage of the acres that were planted 
is multiplied by a set payment rate for the crop that was planted. 
[Footnote 54] For 2009 through 2011, this percentage is 83.3 percent, 
and for 2012, it will be 85 percent. Although a farmer's direct 
payments are based on the historical production of a particular crop, 
the farmer has almost complete flexibility in deciding which crops to 
plant and whether to plant any crops at all. To be eligible for such a 
payment, a farmer's average nonfarm income (over the preceding 3 tax 
years) can be no more than $500,000, or average farm income no more 
than $750,000. Direct payments are limited to $40,000 per person per 
year; however, a farm can receive multiple payments depending on its 
ownership structure. For example, a husband and wife operating a farm 
together can collect up to $80,000 annually, and a partnership with 10 
partners can collect up to $400,000 annually. 

In light of the following observations made by GAO and others, the 
need for direct payments should be reconsidered: 

* Farmers receive direct payments even in years of record farm income. 
Although direct payments were established after a period of relatively 
lower farm income in the early 1990s, USDA reported that the top 5 
earnings years since the payments began have occurred after 2004, 
attesting to the profitability of farming in this decade. Furthermore, 
USDA estimated farm income was about $82 billion in 2010--up by $19 
billion, or 31 percent, from 2009--which would be the third-highest 
level ever recorded for U.S. farming. 

* Direct payments are concentrated among the largest recipients 
because they are tied to land and paid on a per-acre basis. About 62 
percent of farm program payments--including direct payments--went to 
the largest 12 percent of farms in 2008, according to USDA. Similarly, 
GAO found that in 2009, 305 farm operations each received $200,000 or 
more in direct payments, in part because they were structured so that 
five or more partners or members of a farm business were eligible to 
receive the payments. Noting this concentration of payments, the 
Office of Management and Budget (OMB) and others have cited direct 
payments for failing to target the payments to those who need them the 
most, including small farmers. 

* Recipients of farm program payments have higher incomes, on average, 
than other tax filers. When farm programs were first established, 
farmers had lower incomes on average than other Americans, but now the 
opposite may be true--particularly for those receiving program 
payments. In 2008, GAO reported that individuals who receive program 
payments, including direct payments, are more than twice as likely to 
have higher incomes as other tax filers. For example, in examining the 
more than 138 million federal tax returns filed for 2006, GAO found 
that 4.6 percent of individuals receiving program payments reported 
adjusted gross income of between $200,000 and $500,000, whereas 2.3 
percent of other tax filers reported income at this level. 

* Direct payments may compound challenges for beginning farmers. GAO 
reported in September 2007 that beginning farmers face multiple 
challenges, including a need for funds to purchase farmland. With an 
aging farmer population in the United States, USDA set a goal of 
increasing assistance to beginning farmers, but direct payments may 
instead compound the challenges beginning farmers face. According to 
USDA studies, these payments result in higher prices to buy or rent 
land because in some cases the payments go directly to landowners-- 
resulting in increased land value--and in other cases the payments go 
to tenants, prompting landlords to increase rental rates. Furthermore, 
because direct payments are linked to a farm's number of acres, large 
farms can use these payments to expand their operations, but higher 
land values make it difficult for beginning farmers to do so, as OMB 
and others have noted. 

* Direct payments were expected to be transitional. According to the 
Conference Report to the 1996 farm bill, direct payments were 
established to help farmers make a transition to planting decisions on 
the basis of market signals rather than government programs. 
Accordingly, the payments were scheduled to decrease over time and 
expire in 2002. However, subsequent farm bills have continued these 
payments. 

* Direct payments may no longer be needed to comply with trade 
agreements. Proponents of direct payments say they help the United 
States meet its commitments under international trade agreements, 
which set ceilings on government payments classified as trade-
distorting. Unlike other farm program payments, direct payments do not 
depend on current market prices, so the World Trade Organization 
generally considers them to be non-trade distorting and the United 
States does not count them against the international restrictions. As 
a result, other farm program payments can be provided with a reduced 
risk of exceeding the ceilings. However, according to economists, this 
advantage has become less relevant recently because high crop prices, 
which are expected to continue through the foreseeable future, have 
kept farm program payments well below the ceiling on trade-distorting 
payments. 

Actions Needed and Potential Savings: 

Recognizing current budget constraints, the National Commission on 
Fiscal Responsibility and Reform,[Footnote 55] the Debt Reduction 
Taskforce,[Footnote 56] the administration, Members of Congress, GAO, 
and some farming groups have proposed options to reduce or eliminate 
direct payments. For example, Congress may wish to consider the 
following three. To reduce direct payments, the administration and 
others have proposed lowering payment or income eligibility limits. 
They argue that lower limits leave payments intact for recipients of 
smaller payments or with smaller incomes and could therefore still 
help smaller and beginning farmers. On the other hand, critics say, 
focusing on payment limits may be ineffective because farmers may 
develop methods to avoid being restricted by the limits. GAO 
previously reported that many farmers structure their operations to 
avoid payment limits and that USDA has not consistently enforced 
eligibility requirements, bringing into question the effectiveness of 
both types of limits. 

Congress may also wish to consider reducing the portion of a farm's 
acres eligible for direct payments. In 2009, GAO reported that 
reducing the portion of eligible acres to 80 percent from 83.3 percent 
might save millions of dollars annually.[Footnote 57] Further reducing 
the portion of eligible acres to 75 percent could save millions more 
each year. Such an across-the-board reduction would affect all 
recipients. Moreover, Congress may wish to consider terminating the 
payments. Some agriculture organizations, including the National 
Farmers Union and the Iowa Farm Bureau, have recommended phasing out 
or terminating the payments altogether and using the savings to 
bolster other farm programs. 

GAO has identified the following potential for cost savings: 

* about $800 million over 10 years by reducing payment and income 
eligibility limits for a very small portion of recipients, according 
to the administration's estimate in its budget for fiscal year 2011; 

* about $600 million annually by reducing the portion of acres used to 
calculate payments to 75 percent, according to GAO's estimate; or: 

* about $5 billion annually by terminating or phasing out the payments. 

Framework for Analysis: 

To update information on the number of farms receiving direct payments 
of $200,000 or more, GAO used data from USDA's Producer Payment 
Reporting System and determined that the data were sufficiently 
reliable for its purposes. To estimate the potential savings from 
reducing the portion of acres used to calculate direct payments and 
from terminating the payments, GAO used the most recent budget figures 
from the Congressional Budget Office. Other information in this 
analysis is primarily based on the related GAO products listed below. 

Related GAO Products: 

Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent 
Payments to Individuals Who Exceed Income Eligibility Limits. 
[hyperlink, http://www.gao.gov/products/GAO-09-67]. Washington, D.C.: 
October 24, 2008. 

Beginning Farmers: Additional Steps Needed to Demonstrate the 
Effectiveness of USDA Assistance. [hyperlink, 
http://www.gao.gov/products/GAO-07-1130]. Washington, D.C.: September 
18, 2007. 

Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent 
Improper Payments to Estates and Deceased Individuals. [hyperlink, 
http://www.gao.gov/products/GAO-07-818]. Washington, D.C.: July 9, 
2007. 

Farm Program Payments: USDA Needs to Strengthen Regulations and 
Oversight to Better Ensure Recipients Do Not Circumvent Payment 
Limitations. [hyperlink, http://www.gao.gov/products/GAO-04-407]. 
Washington, D.C.: April 30, 2004. 

Area Contact: 

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

[End of section] 

DOD Should Assess Costs and Benefits of Overseas Military Presence 
Options Before Committing to Costly Personnel Realignments and 
Construction Plans: 

Why GAO Is Focusing on This Area: 

Overseas presence provides operational capabilities and demonstrates a 
commitment to our allies. In addition to the costs of supporting 
ongoing combat operations, the Department of Defense (DOD) spends 
billions of dollars annually on its network of installations around 
the world. For example, according to data provided by the military 
services, between fiscal years 2006 and 2009 the military services 
obligated $17.2 billion for the installations they manage in Europe. 
These obligations do not include funds obligated by other DOD 
organizations that use those facilities, overseas contingency funding, 
or personnel costs. Further, the military services estimated a 
requirement of $24 billion through fiscal year 2015 to build, operate, 
and maintain these installations. In light of current fiscal 
challenges facing the country, questions have arisen about the 
magnitude of overseas basing projects and costs, and whether DOD's 
planned investments support a coherent and affordable strategy. GAO's 
prior work has shown that DOD has taken positive steps to improve its 
planning for overseas infrastructure, but continues to devote 
insufficient attention to costs or analysis of alternatives. 

What GAO Has Found Indicating Potential for Cost Saving: 

Having U.S. troops stationed overseas provides benefits, such as 
deterring aggression against U.S. allies, but permanent stationing may 
come at significantly higher costs than other alternative approaches 
such as deploying domestically stationed forces when needed. GAO's 
work since 2006 has found a systemic lack of cost information used to 
inform DOD's planning for its overseas infrastructure. As a 
consequence, DOD and Congress lack reasonable assurance that overseas 
presence is being planned and implemented in a cost-effective and 
financially sustainable way. Reliable and complete cost estimates are 
critical to allow analyses of alternatives and oversight by decision 
makers. 

Since 2008, DOD has taken steps to develop regional plans for its 
overseas infrastructure, but department guidance regarding these 
posture plans has not required comprehensive cost information to 
support this emerging process. Recognizing the considerable costs 
involved with stationing forces overseas, in August 2010 the Secretary 
of Defense identified DOD's overseas presence as an area for review. 
Among other concerns, the Secretary of Defense questioned the growth 
in the number of general and flag officers across the department, 
highlighting that the U.S. European Command maintains four-star 
service component headquarters more than 20 years after the end of the 
Cold War and the vast majority of their fighting forces have departed 
from the region. Recent GAO reports have identified several evolving 
elements of DOD's global infrastructure, which have the potential to 
cost--or possibly save--the department billions of dollars depending 
on decisions DOD and Congress make. For each of these decisions, 
reliable, complete cost data will be invaluable to the ability of 
decision makers to choose among available options. For example: 

* Plans to reduce forces in Europe are being reconsidered. DOD 
recently held up the planned return of two Army brigades from Germany 
pending an announcement of the North Atlantic Treaty Organization's 
strategic concept as well as the results of ongoing U.S. assessments 
of the global defense posture. GAO's work has shown that leaving these 
two brigades in Europe could cost DOD between $1 billion and $2 
billion over 10 years compared to bringing the forces back to the 
United States. In addition, the Army plans to continue to invest in a 
new Army headquarters in Germany even though the Secretary of Defense 
has questioned the size of U.S. European Command and its associated 
service component commands, and DOD may ultimately return some forces 
to the United States. U.S. European Command and service officials 
noted that forward military presence in Europe provides important but 
difficult-to-quantify benefits, including commitment to the North 
Atlantic Treaty Organization. Recognizing this, in September 2010, GAO 
recommended that DOD reassess its alternatives for Europe, weighing 
the costs of the presence against its perceived benefits to ensure DOD 
takes a cost-effective course of action. DOD officials agreed with 
this recommendation and noted that certain actions have already been 
undertaken, and DOD is currently conducting a broad review of the 
European theater. 

* Efforts to establish military presence in Africa have met with 
concerns. DOD has few facilities in Africa, but Camp Lemonnier in 
Djibouti houses a 2,000-person joint task force as well as supports 
other U.S. and multinational missions such as building the security 
capacity of partner states, at a cost of about $238 million in 2010. 
However, as GAO reported in April 2010, the task force's future is 
uncertain because it relies on overseas contingency operations 
appropriations. Moreover, the task force's original war-fighting 
mission has evolved to civil affairs missions like drilling water 
wells and building schools, and needs to be reassessed. Efforts to 
date have not always yielded the intended results or were sometimes 
poorly coordinated with other U.S. agencies. It is uncertain where DOD 
will ultimately place a headquarters for U.S. Africa Command, which it 
designated as being fully operational in 2008. DOD had planned to 
locate the headquarters in Africa but stepped back from those plans 
after some African nations raised concerns. The command currently 
occupies temporary facilities in Stuttgart, Germany, and has postponed 
its decision on a permanent headquarters until 2012. 

* Substantial costs are anticipated for enduring locations in Iraq, 
Afghanistan, and other locations in southwest Asia. Supporting the 
continuing operations in Iraq and Afghanistan is DOD's priority, and 
its regional presence includes installations in Kuwait, Bahrain, and 
Qatar, among other nations. While DOD has made progress executing the 
drawdown, challenges remain that could impact DOD's ability to close 
bases in Iraq as planned. GAO has begun work to examine how much DOD's 
presence in the region will cost moving forward relative to the 
potential benefits and what other alternatives to current plans may 
exist. 

* Large and costly realignment is being undertaken in Asia. DOD has 
several major initiatives under way in the Pacific region that 
represent a significant restructuring and transformation of the U.S. 
military presence in Asia. For example, DOD plans to increase the U.S. 
military presence on Guam from about 15,000 in 2009 to more than 
39,000 by 2020, which will increase the current island population by 
about 14 percent over those years. GAO has previously reported that 
the reported costs for these and other posture initiatives may be 
significantly understated. GAO is examining the scope, magnitude, 
management, and costs associated with DOD posture initiatives in Asia, 
as well as the extent to which DOD has incorporated cost and benefit 
analysis into its decision-making process. GAO plans to report the 
results of its analysis in early 2011. 

GAO has made recommendations since 2006 that DOD gather more 
comprehensive cost data and report it to Congress; in general, DOD has 
generally agreed with these recommendations but has yet to implement 
them in full. As a result, initiatives are proceeding without 
assurance that the efforts are being undertaken in a cost-effective 
way. 

Actions Needed and Potential Savings: 

Given the significant resources being dedicated to building and 
maintaining DOD's global presence, DOD needs to ensure it is routinely 
assessing the benefits of its overseas presence relative to the cost 
of maintaining that presence. Specifically, DOD should conduct a 
comprehensive reassessment of its overseas presence, including the 
costs and benefits of various alternatives. 

To address the specific regional issues in Europe and Africa, GAO has 
issued a number of recommendations that DOD generally agreed with 
including reassessing: 

* plans in Europe, including the costs and benefits of keeping Army 
brigades in Germany and the appropriateness of building a new Army 
headquarters given the potential changes in force structure; and: 

* missions of the combined joint task force in Djibouti as well as 
identifying the projected costs for the task force and, in concert 
with DOD or the Navy, developing a realistic funding plan for the task 
force's sustainability. 

The financial stakes are high for DOD, since according to DOD data the 
department has obligated billions of dollars annually to build and 
maintain its global network of installations. A thorough consideration 
of alternatives and an assessment of their costs and benefits could 
help DOD shape its future overseas investments and ensure long-term 
affordability. Savings or cost avoidances would be dependent upon the 
nature of changes made to DOD's plans and how DOD implements its 
chosen options. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

Defense Management: Additional Cost Information and Stakeholder Input 
Needed to Assess Military Posture in Europe. [hyperlink, 
http://www.gao.gov/products/GAO-11-131. Washington, D.C.: February 3, 
2011. 

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. 

Defense Management: Improved Planning, Training, and Interagency 
Collaboration Could Strengthen DOD's Efforts in Africa. [hyperlink, 
http://www.gao.gov/products/GAO-10-794]. Washington, D.C.: July 28, 
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. 

Defense Management: DOD Needs to Determine the Future of Its Horn of 
Africa Task Force. [hyperlink, 
http://www.gao.gov/products/GAO-10-504]. Washington, D.C.: April 15, 
2010. 

Defense Infrastructure: Guam Needs Timely Information from DOD to Meet 
Challenges in Planning and Financing Off-Base Projects and Programs to 
Support a larger Military Presence. [hyperlink, 
http://www.gao.gov/products/GAO-10-90R]. Washington, D.C.: November 
13, 2009. 

Force Structure: Actions Needed to Improve DOD's Ability to Manage, 
Assess, and Report on Global Defense Posture Initiatives. [hyperlink, 
http://www.gao.gov/products/GAO-09-706R]. Washington, D.C.: July 2, 
2009. 

Defense Management: Actions Needed to Address Stakeholder Concerns, 
Improve Interagency Collaboration, and Determine Full Costs Associated 
with the U.S. Africa Command. [hyperlink, 
http://www.gao.gov/products/GAO-09-181]. Washington, D.C.: February 
20, 2009. 

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

Area Contact: 

For additional information about this area, contact John Pendleton at 
(404) 679-1816 or pendletonj@gao.gov or Brian Lepore at (202) 512-4523 
or leporeb@gao.gov. 

[End of section] 

Total Compensation Approach Is Needed to Manage Significant Growth in 
Military Personnel Costs: 

Why GAO Is Focusing on This Area: 

Over the years, the Department of Defense's (DOD) military 
compensation system has become an increasingly complex and piecemeal 
addition of pays, allowances, and benefits costing over $200 billion 
each year. Pay and benefits are important tools used by DOD to 
recruit, retain, and motivate sufficient numbers--approximately 1.4 
million active duty and 1.2 million reservists--of qualified people. 
In recent years, Congress has taken steps to fund enhanced 
compensation and benefit programs for active duty and reserve 
personnel at a time when many military personnel are spending months 
or years away from home, often in harm's way. DOD leaders have 
expressed concern about growing personnel costs and their effect on 
other important investments, such as recapitalizing equipment and 
infrastructure. 

In 2005 and in 2007, GAO found that the cost for military compensation 
was significantly increasing, and the total cost for compensation was 
not transparent because it was spread across different budgets within 
DOD. GAO recommended that DOD improve the transparency of compensation 
costs and assess the appropriateness of its compensation system. 

What GAO Has Found Indicating Potential for Cost Saving: 

DOD and Congress have expanded military pay and benefits using a 
piecemeal approach rather than a total compensation approach that 
could help to balance the appropriateness, affordability, and 
sustainability of personnel-related costs. GAO has estimated that the 
federal government's total compensation costs for active duty 
servicemembers increased about 32 percent, using fiscal year 2008 
constant dollars, from $143.8 billion in fiscal year 2000 to $189.4 
billion in fiscal year 2008. Also, GAO found that using fiscal year 
2008 constant dollars, the federal government's total estimated 
compensation for reserve and national guard members grew over 31 
percent from about $17.8 billion in fiscal year 2001 to nearly $23.5 
billion in fiscal year 2008. Basic pay alone, the largest component of 
active duty military compensation, has increased from $45 billion to 
$50.1 billion between fiscal years 2000 and 2008. In addition to basic 
pay, DOD expends billions of dollars each year to recruit, retain, and 
motivate its personnel using other pays and benefits. For instance, in 
fiscal year 2008, for active duty servicemembers, DOD spent $17.1 
billion on non-taxable housing allowances; $6.4 billion on special and 
incentive pays, such as enlistment and re-enlistment bonuses; $10.9 
billion on health care for active duty servicemembers and their 
dependents[Footnote 58]; and $31.4 billion on retirement pay and 
retiree health care. 

Much of the increase in basic pay in recent years has been driven by 
concerns that military basic pay was not equivalent to civilian (or 
private sector) pay, without taking into consideration other types of 
compensation beyond basic pay. GAO reported in April 2010 that studies 
done by the Congressional Budget Office and the Center for Naval 
Analyses concluded that when pay and some benefits are taken into 
account, military compensation compares favorably to civilian 
compensation when considering personnel of similar age and education 
level. GAO also reported that when comparing military and civilian 
compensation, it is reasonable to take into account other types of 
compensation than basic pay. For example, according to DOD, in 2010 
the basic allowance for housing for an O-5 (i.e., a lieutenant 
colonel) with dependents living in the Washington, D.C., metro area is 
approximately $2,900 a month. In addition, recent growth of total 
compensation has been driven by the costs for deferred compensation, 
primarily attributed to enhanced health care benefits, and DOD 
officials anticipate significant continued growth in health care costs 
because of these expansions in coverage. 

DOD has sponsored some efforts to assess its military personnel 
compensation strategy, such as the 10th Quadrennial Review of Military 
Compensation, which was released in 2008, but these reviews have not 
been comprehensive, and the department does not know the extent to 
which the current mix of pays and benefits is best suited to meet its 
human capital goals. Further, GAO's work has shown that DOD is unable 
to demonstrate the efficiency and effectiveness of these changes in 
meeting its recruiting and retention goals because it does not have 
performance measures for its compensation system. Without performance 
measures, DOD cannot determine the return on its compensation 
investment or make fact-based choices on how its compensation 
resources should be allocated. 

Actions Needed and Potential Savings: 

Using a total compensation approach in making decisions about military 
pay and benefits would provide DOD with an important tool for more 
efficiently and effectively managing its human-capital-related costs. 
Assessing the mix of pay and benefits and developing a comprehensive 
compensation strategy could enable DOD to more effectively recruit and 
retain a highly qualified force with the right skills in sufficient 
numbers to carry out its mission while minimizing unnecessary cost 
increases. GAO has recommended in the past that DOD (1) assess the 
affordability and sustainability of its military compensation system, 
as well as the reasonableness and appropriateness of the allocation to 
cash and benefits, and whether changes in the allocation are needed to 
more efficiently achieve recruiting and retention goals; and (2) 
establish a clear compensation strategy that includes performance 
measures to evaluate the efficiency of compensation in meeting 
recruiting and retention goals and use of data from the performance 
measures to monitor the effectiveness of compensation and assess what 
mix of compensation will be most efficient in the future. 

DOD concurred with GAO's recommendation to assess the affordability 
and sustainability of its military compensation system and stated that 
it is engaged in multiple simultaneous efforts to assess the 
overarching strategy. GAO acknowledges that DOD has sponsored and 
engaged in a number of studies looking at aspects of compensation, 
such as the Quadrennial Review of Military Compensation, but the 
department has not taken a total compensation approach to assessing 
compensation. 

DOD partially concurred with GAO's recommendation to establish a clear 
compensation strategy noting that it has consistently communicated its 
approach to Congress in congressional testimony. GAO continues to 
assert that with a total compensation strategy the department would be 
in a better position to make business case arguments for or against 
changes to its compensation system, and provide fact-based evidence 
regarding the efficiency of the allocation of cash, noncash, or 
deferred compensation. 

GAO's prior work has indicated that compensation areas should have 
closer scrutiny in terms of continued need and the potential to reduce 
unnecessary costs. For example, GAO reported in 2006 and 2009 
instances of excessive payments of enlistment and re-enlistment 
bonuses (types of special and incentive pays) to servicemembers in 
occupations that exceeded their authorized levels while other 
occupations were underfilled. GAO recommended that DOD, among other 
things, assess reasons occupations are over-or underfilled and justify 
use of financial incentives for overfilled occupations. As a result of 
GAO's findings and recommendations, DOD developed a more rigorous 
approach to managing and overseeing its recruiting and retention 
bonuses leading to savings totaling $947.3 million. More broadly, DOD 
could recognize long-term cost avoidance by addressing in a 
compensation strategy what types of compensation are effective and not 
incurring costs for compensation that may not be effective in helping 
the department achieve its recruiting and retention goals. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products listed below. 

Related GAO Products: 

Questions for the Record Related to Military Compensation. [hyperlink, 
http://www.gao.gov/products/GAO-10-803R]. Washington, D.C.: June 3, 
2010. 

Military Personnel: Military and Civilian Pay Comparisons Present 
Challenges and Are One of Many Tools in Assessing Compensation. 
[hyperlink, http://www.gao.gov/products/GAO-10-561R]. Washington, 
D.C.: April 1, 2010. 

Military Personnel: Reserve Component Servicemembers on Average Earn 
More Income While Activated. [hyperlink, 
http://www.gao.gov/products/GAO-09-688R]. Washington, D.C.: June 23, 
2009. 

Military Personnel: Army Needs to Focus on Cost-Effective Use of 
Financial Incentives and Quality Standards in Managing Force Growth. 
[hyperlink, http://www.gao.gov/products/GAO-09-256]. Washington, D.C.: 
May 4, 2009. 

Military Personnel: DOD Needs to Establish a Strategy and Improve 
Transparency over Reserve and National Guard Compensation to Manage 
Significant Growth in Cost. [hyperlink, 
http://www.gao.gov/products/GAO-07-828]. Washington, D.C.: June 20, 
2007. 

Military Personnel: DOD Needs to Improve the Transparency and Reassess 
the Reasonableness, Appropriateness, Affordability, and Sustainability 
of Its Military Compensation System. [hyperlink, 
http://www.gao.gov/products/GAO-05-798]. Washington, D.C.: July 19, 
2005. 

Area Contact: 

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

[End of section] 

Employing Best Management Practices Could Help DOD Save Money on Its 
Weapon Systems Acquisitions: 

Why GAO Is Focusing on This Area: 

Over the next 5 years, the Department of Defense (DOD) expects to 
invest almost $343 billion (in fiscal year 2011 dollars) on the 
development and procurement of major defense acquisition programs. 
Defense acquisition programs usually take longer, cost more, and 
deliver fewer quantities and capabilities than DOD originally planned. 
For several decades, Congress and DOD have taken steps to improve the 
acquisition of major weapon systems, yet some program outcomes 
continue to fall short of what was agreed to when the programs 
started. With the prospect of slowly growing or flat defense budgets 
for the foreseeable future, DOD must get better value for its weapon 
system spending and find ways to deliver needed capability to the 
warfighter for less than it has spent in the past. 

What GAO Has Found Indicating Potential for Cost Saving: 

Increasing combat demands and fiscal constraints make it critical for 
DOD to ensure that its weapon systems investments not only meet the 
needs of the warfighter but make the most efficient use of available 
resources. Over the last several years, GAO's work has highlighted a 
number of underlying systemic causes for cost growth and schedule 
delays in weapon programs. At the strategic level, DOD's processes for 
identifying warfighter needs, allocating resources, and managing 
acquisitions, which together define its weapon system investment 
strategy, are often not fully aligned. For example, the department 
often fails to balance the competing needs of the warfighter and 
commits to more programs than available resources can support. At the 
program level, GAO's work has shown that DOD's culture and environment 
often allow programs to start with too many unknowns, such as entering 
the acquisition process without a full understanding of requirements; 
cost and schedule estimates based on overly optimistic assumptions; 
and insufficient knowledge about the maturity of technology, the 
completeness and the performance of the design, and predictability of 
manufacturing processes when decisions are made to move forward into 
the next phase of the acquisition process. Poor outcomes in DOD's 
weapon system programs reverberate across the entire federal 
government as every additional dollar spent on acquiring weapon 
systems is less money available for other priorities. 

Since fiscal year 2000, DOD has significantly increased the number of 
major defense acquisition programs and its overall investment in them. 
From that time to the present, acquisition outcomes in some cases 
continued to fall short of what was agreed to when the programs 
started. In most cases, the programs GAO assessed failed to deliver 
capabilities when promised--often forcing the department to spend 
additional funds on maintaining legacy systems. In March 2009, GAO 
reported that programs experienced, on average, a 22-month delay in 
delivering initial capabilities to the warfighter. Continued cost 
growth in such acquisitions results in less funding being available 
for other DOD priorities and programs. Schedule delays prevent timely 
delivery of critical capabilities to the warfighter. 

GAO has reported that greater adherence to proven management practices 
at key phases of the acquisition process can reduce weapon system 
costs, help contain pressures for increased funding, and better 
address critical warfighter needs. Early systems engineering, ideally 
beginning before a program is initiated and a business case is set, is 
critical to designing a system that meets requirements within 
available resources. In addition, an analysis of alternatives can help 
ensure that new programs have a sound, executable business case and 
represent a cost-effective solution to meeting warfighters' needs. 
Another key step in the process involves managing requirements 
changes, which if minimized, could decrease the amount of cost growth 
experienced by acquisition programs. Finally, more prototyping early 
in programs could help DOD ensure that a system's proposed design can 
meet performance requirements. 

Additionally, DOD requirements continue to be driven primarily by the 
individual services with little involvement from the combatant 
commands, which are largely responsible for planning and carrying out 
military operations. By continuing to rely on capability proposals 
that lack a joint perspective, DOD may be losing opportunities to 
improve joint warfighting capabilities and reduce the duplication of 
capabilities in some areas. 

DOD has demonstrated a strong commitment, at the highest levels, to 
address the management of its weapon system acquisitions, and has 
started to reprioritize and rebalance its weapon system investments. 
In 2009 and 2010, the Secretary of Defense proposed canceling or 
significantly curtailing certain weapon programs, such as the Army's 
Future Combat System Manned Ground Vehicle 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 therefore has an opportunity to pursue knowledge-based 
acquisition strategies on the new programs. In addition, DOD plans 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. 

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. 

Congress passed a number of acquisition reforms in the Weapon Systems 
Acquisition Reform Act of 2009 to emphasize and increase oversight and 
reporting on cost estimating, early systems engineering, developmental 
testing, and technology maturity for major weapon system programs. 
Since then, DOD has begun to implement a revised acquisition policy 
based on these congressional reforms to address these and other areas 
of acquisition risk. 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. 

Actions Needed and Potential Savings: 

DOD can take steps to maximize its use of taxpayer dollars by 
improving its business operations, including the acquisition process. 
By employing best management practices at all phases of its weapon 
system acquisition process--including early systems engineering, 
analyzing alternatives, managing changes in system requirements, and 
more prototyping early in programs development testing--DOD could 
achieve significant cost savings. While activities, such as early 
prototyping, require upfront investments, the knowledge gained can 
help products proceed more quickly and smoothly through development 
into production, thereby lowering the costs to develop them. 

While DOD's acquisition policies and process may be improving, fiscal 
pressures continue to build. In addition to the federal government's 
long-term fiscal challenges, DOD faces its own near-and long-term 
fiscal pressures as it attempts to balance competing demands, 
including ongoing operations in Afghanistan and Iraq, initiatives to 
grow and modernize the force, and increasing personnel and health care 
costs. DOD's fiscal year 2010 budget request started the process of 
reprioritizing acquisition dollars to meet warfighters' most pressing 
needs, but the department must still address the overall affordability 
of its weapon system investments. 

As DOD competes for resources in a constrained fiscal environment, it 
can not afford to miss opportunities to achieve greater efficiencies 
and free up resources for higher-priority needs. Because of the 
complexity and magnitude of the challenges facing DOD in transforming 
its business operations, it will need strong and sustained leadership, 
as well as sound strategic planning to guide and integrate its 
efforts. Ultimately, DOD still needs to do a better job planning and 
executing programs on a day-to-day basis to achieve better outcomes. 
Critical to achieving successful outcomes is establishing and 
sustaining knowledge-based, realistic program baselines. Without 
realistic baselines, there is no foundation for accurately measuring 
the knowledge and health of programs. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

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: 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. 

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

Defense Acquisitions: Managing Risk to Achieve Better Outcomes. 
[hyperlink, http://www.gao.gov/products/GAO-10-374T]. Washington, 
D.C.: January 20, 2010. 

Maximizing DOD's Potential to Face New Fiscal Challenges and 
Strengthen Interagency Partnerships. [hyperlink, 
http://www.gao.gov/products/GAO-10-359CG]. Washington, D.C.: January 
6, 2010. 

Defense Acquisitions: Many Analyses of Alternatives Have Not Provided 
a Robust Assessment of Weapon System Options. [hyperlink, 
http://www.gao.gov/products/GAO-09-665]. Washington, D.C.: September 
24, 2009. 

Defense Acquisitions: Measuring the Value of DOD's Weapon Programs 
Requires Starting with Realistic Baselines. [hyperlink, 
http://www.gao.gov/products/GAO-09-543T]. Washington, D.C.: April 1, 
2009. 

Defense Acquisitions: Assessments of Selected Weapon Programs. 
[hyperlink, http://www.gao.gov/products/GAO-09-326SP]. Washington, 
D.C.: March 30, 2009. 

Defense Acquisitions: DOD Must Prioritize Its Weapon System 
Acquisitions and Balance Them with Available Resources. [hyperlink, 
http://www.gao.gov/products/GAO-09-501T]. Washington, D.C.: March 18, 
2009. 

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

Defense Acquisitions: 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: Better Weapon Program Outcomes Require 
Discipline, Accountability, and Fundamental Changes in the Acquisition 
Environment. [hyperlink, http://www.gao.gov/products/GAO-08-782T]. 
Washington, D.C.: June 3, 2008. 

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

Best Practices: Successful Application to Weapon Acquisitions Requires 
Changes in DOD's Environment. [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-98-56]. Washington, D.C.: 
February 24, 1998. 

Area Contact: 

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

[End of section] 

More Efficient Management Could Limit Future Costs of DOD's Spare 
Parts Inventory: 

Why GAO Is Focusing on This Area: 

The military services and the Defense Logistics Agency (DLA) purchase 
spare parts to keep military equipment ready and operating. At the end 
of fiscal year 2009, the Department of Defense (DOD) reported that the 
total value of its inventory of over 4 million spare parts and other 
support items--not including weapons systems and other primary 
equipment--was more than $90 billion. GAO has identified weaknesses in 
DOD's inventory management practices, including problems in accurately 
forecasting demand for spare parts. At a time when U.S. military 
forces and materiel are in high demand and the nation and military 
face long-term fiscal challenges, it is critical that DOD demonstrate 
good stewardship over the billions of dollars invested in its spare 
parts inventory while continuing to supply warfighters with the right 
items at the right time. 

What GAO Has Found Indicating Potential for Cost Saving: 

DOD can enhance efficiencies in the management of its spare parts 
inventory and potentially achieve significant cost avoidance in the 
future by aligning inventory levels more closely with current needs 
and projected demand. DOD has made some improvement in recent years 
but continues to consistently have higher levels of inventory than 
needed to meet current needs (called the requirements objective) plus 
projected demands over the next 2 years. DOD inventory data show that 
much of the inventory that is beyond current needs and projected 
demand is either retention stock (stock that is considered inactive 
but is being held for possible future use or for other reasons) or 
potential reutilization stock (stock that has been identified as 
"excess" and may be disposed of). These data include both on-hand 
inventory and on-order inventory that is not yet in DOD's possession. 
Some inventory items may be in such low demand that current supplies 
could last for decades. Acquiring large amounts of inventory for which 
actual demand is much lower than expected reduces the amount of 
funding available for other current military needs. 

In a series of reports issued from 2007 to 2010, GAO analyzed spare 
parts inventory managed by the Air Force, the Navy, the Army, and DLA 
and identified factors contributing to higher-than-needed inventory 
levels. Most recently, GAO reviewed DLA inventory levels and reported 
in 2010 that DLA, over a period of 3 fiscal years, averaged $1 billion 
of inventory annually in potential reutilization stock. DOD policy 
requires that its components minimize investment in inventory while 
also providing inventory needed to support requirements, but several 
factors were causing DLA to order and stock parts that did not align 
with current needs and projected demand. These factors often occur in 
the initial stages of the inventory process when acquisition decisions 
are being made. 

* First, DLA's ability to determine how many parts to buy is hindered 
by inaccurate estimates of customers' future demand for parts--known 
as demand forecasting--as well as by other challenges such as 
unresolved problems with accurately estimating lead times needed to 
acquire parts. 

* Second, DLA has initiatives that show promise for reducing the 
acquisition and retention of unneeded parts, but these initiatives do 
not appear to be achieving their full potential. DLA continues to face 
difficulties closing gaps in providing accurate, timely data to 
inventory managers to better inform purchase decisions, as well as 
modifying or canceling planned purchases that may no longer be needed. 

* Finally, DLA is not tracking the overall cost efficiency of its 
inventory management processes. 

GAO identified similar issues in its prior reviews of spare parts 
inventory managed by the Air Force, the Navy, and the Army. In all 
three of those reviews, the predominant reason for mismatches between 
inventory levels and needs was changes in demand. In addition, Army 
data revealed substantial amounts of inventory deficits, where 
quantities of on-hand and on-order spare parts were not sufficient to 
meet current requirements. In prior reports, GAO also has addressed 
other aspects of inventory management, including problems with asset 
visibility, lead times for acquiring parts, and managing retention 
stocks. 

Actions Needed and Potential Savings: 

GAO has identified a number of areas where DOD could improve the 
efficiency of its inventory management, while maintaining effective 
supply support for warfighter requirements. Since GAO's work has 
consistently shown that the greatest opportunities to minimize 
investment in unneeded inventory are at the initial stages of the 
inventory management process when acquisition decisions are being 
made, DOD could limit future costs by focusing its efforts on better 
managing on-order inventory, with a view toward reducing on-order 
inventory levels that are not needed for current needs or projected 
demand. For example, GAO found in its review of DLA inventory that the 
agency could benefit from efforts to (1) identify and evaluate planned 
purchases of spare parts that, if carried out, might result in the 
potential procurement of unneeded parts, and (2) take action to modify 
or cancel these planned purchases. Also, GAO has recommended that DOD 
address systemic weaknesses in demand forecasting, revise management 
practices to incorporate flexibility needed to minimize the impact of 
demand fluctuations, and track the cost efficiency of its inventory 
management processes. DOD has generally concurred with these 
recommendations. 

Recent legislative action underscores the need for DOD to address 
inventory management weaknesses. Specifically, Section 328 of the 
National Defense Authorization Act for Fiscal Year 2010 required the 
Secretary of Defense to submit a comprehensive plan for improving the 
inventory management systems of the military departments and DLA, with 
the objective of reducing the acquisition and storage of inventory 
that is excess to requirements. The act directed DOD to address eight 
areas of inventory management. DOD submitted its plan to Congress in 
November 2010. 

DOD states in its plan that it has already reduced unneeded inventory 
and that further reductions are possible. DOD has reported, for 
example, that $10.3 billion (11 percent) of its secondary inventory 
has been designated as excess and categorized for potential reuse or 
disposal. The plan cites a number of improvement efforts and 
establishes two broad goals for reducing (1) the value of on-order 
potential reutilization stock as a percentage of total obligated on- 
order dollars and (2) the value of on-hand potential reutilization 
stock as a percentage of total inventory value. DOD's plan is an 
important step in improving inventory management practices; however, 
successful implementation will be challenging and will require 
sustained oversight by DOD as well as collaboration among the services 
and DLA. 

Framework for Analysis: 

To assess the potential for DOD to achieve cost savings by better 
aligning inventory levels with requirements, GAO relied on its prior 
work. 

Related GAO Products: 

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.: January 7, 2011. 

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

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

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

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

Area Contact: 

For additional information about this area, contact Jack E. Edwards at 
(202) 512-8246 or edwardsj@gao.gov. 

[End of section] 

More Comprehensive and Complete Cost Data Can Help DOD Improve the 
Cost-Effectiveness of Sustaining Weapon Systems: 

Why GAO Is Focusing on This Area: 

The Department of Defense (DOD) spends billions of dollars each year 
to sustain its weapon systems. After a weapon system is developed, 
tested, and produced, it enters the operating and support (O&S) phase 
of its life cycle. O&S costs can account for 70 percent or more of the 
total ownership costs over a system's lifetime and include the direct 
and indirect costs for spare parts, fuel, maintenance, personnel, 
support facilities, and training. GAO's work has shown that weapon 
systems may experience O&S cost growth after they are acquired due to 
various factors such as lower than expected reliability, obsolete 
replacement parts, and increased usage. If agency budgets tighten, the 
continued burden of O&S cost growth could affect DOD's ability to 
afford other priorities. 

In an effort to improve weapon system support and reduce costs in the 
late 1990s, DOD began to use a support strategy known as performance- 
based logistics (PBL). Unlike more traditional support arrangements, 
which involve the purchase of individual support elements (such as 
parts), PBL arrangements involve the purchase of performance outcomes 
such as weapon system availability. 

What GAO Has Found Indicating Potential for Cost Saving: 

DOD can improve the cost-effectiveness of sustaining individual weapon 
systems, potentially saving billions of dollars, by enhancing its 
effort to collect, retain, and analyze more comprehensive and accurate 
O&S cost data, including cost data for PBL arrangements. In the 
absence of key information on O&S costs for its major weapon systems, 
DOD may not be well equipped to analyze, manage, and reduce these 
costs. DOD estimated that costs for supporting its weapon systems 
amounted to at least $132 billion in fiscal year 2008, but the 
department does not know total O&S costs associated with its systems. 

GAO reviewed seven aviation weapon systems and reported in 2010 that 
DOD lacked life-cycle O&S cost estimates and complete historical data 
on actual O&S costs, which are needed to effectively track and analyze 
the growth of these costs. Life-cycle cost estimates are developed to 
support decisions at key acquisition milestones and, under GAO's 
guidance for cost-estimating best practices, the thorough 
documentation and retention of these estimates are also essential for 
use in preparing future cost estimates. However, current DOD 
acquisition and cost-estimating guidance does not specifically address 
requirements for the retention of life-cycle O&S cost estimates and 
supporting documentation. 

Additionally, GAO found problems with incomplete and inaccurate data 
in the services' cost visibility data systems designated as the 
authoritative sources for historical data on actual O&S costs. DOD has 
issued guidance that includes a recommendation regarding the types of 
historical data on actual O&S costs that the services could collect 
for their weapon systems, but this suggestion is not mandatory. 
Although O&S costs for the seven systems GAO reviewed had grown, it 
was unclear how much of the growth was unexpected without more 
complete cost information. 

While DOD has moved toward PBL as its preferred strategy to support 
weapon systems, GAO reviewed PBL arrangements for selected weapon 
systems in 2008 and found that the ability of these arrangements to 
reduce costs remained unclear. According to a department assessment in 
2009, about 20 percent of weapon systems were being supported under 
PBL arrangements. GAO found that many DOD program offices that 
implemented PBL arrangements lack detailed support cost data. 
Additionally, various other factors--such as the lack of business case 
analyses to compare the costs and benefits of PBL against other weapon 
system support options--further limited an evaluation of the costs of 
this support strategy. At the time GAO conducted its review, it found 
that neither DOD nor the services required detailed cost reporting for 
PBL arrangements. Also, GAO reported that business case analyses were 
inconsistently used for PBL decision making because DOD did not 
require that the analyses be conducted and updated or provide specific 
criteria to guide their development. 

Actions Needed and Potential Savings: 

DOD currently has a number of initiatives to improve weapon system 
support and better manage and reduce weapon system O&S costs. For 
example, DOD has indicated its intent to focus more attention on O&S 
cost requirements and weapon system reliability during the acquisition 
process. DOD is also working to implement the recommendations made in 
an internal November 2009 assessment of weapon system product support. 
The assessment identified weaknesses in O&S cost management and 
recommended a number of corrective actions, such as (1) establishing 
an O&S affordability requirement, including linking O&S budgets to 
readiness; (2) developing and implementing an affordability process 
with all DOD stakeholders (such as the financial and program 
management communities); and (3) increasing the visibility of O&S 
costs and their drivers across the supply chain. Regarding PBL, the 
Air Force now requires program managers to conduct business case 
analyses, thereby comparing the costs and benefits of PBL against 
other support options, and Air Force interim guidance, issued in 2009, 
also directs detailed cost reporting for contractor logistics support 
arrangements, which often include PBL arrangements. DOD also included 
a broad cost reporting requirement for certain programs in acquisition 
guidance and is developing additional guidance for the collection of 
more comprehensive cost data from PBL support providers. However, this 
guidance and DOD's other initiatives are either not yet implemented or 
too recent for GAO to evaluate their impact. 

While DOD has taken some positive steps, more remains to be done to 
improve the collection, retention, and analysis of O&S cost data--
steps that would significantly enhance DOD's ability to manage and 
potentially reduce O&S costs. GAO recommended in July 2010 that the 
department take the following actions: 

* Revise guidance to specifically require the retention of life-cycle 
O&S cost estimates for major weapon systems, as well as the supporting 
documentation used to develop these estimates. These estimates and 
supporting documentation, if retained, could provide a benchmark for 
subsequent cost analysis of the weapon systems, enable identification 
of major cost drivers, and aid in improving cost estimates for future 
systems. 

* Identify the cost elements needed to track and assess actual O&S 
costs for effective cost analysis and program management for major 
weapon systems, and require the collection of these elements in the 
services' O&S cost visibility data systems. Collecting complete data 
would put the services in a good position to track costs over time, 
compare costs with previous estimates, and determine whether and why 
cost growth is occurring. 

* Require the services to periodically update life-cycle O&S cost 
estimates for major weapon systems after these systems are acquired, 
which would enhance DOD's ability to compare actual performance to 
planned or expected results. 

DOD concurred or partially concurred with these and other related 
recommendations, noting that the department is committed to 
strengthening its O&S data availability as well as its use of O&S 
estimates in the governance process for major defense acquisition 
programs. 

With regard to PBL, GAO recommended in December 2008 that the 
department (1) require program offices to collect and report detailed 
support cost data for their PBL arrangements; (2) revise guidance to 
require the development of PBL business case analyses to better 
support the decision-making process on the use of these arrangements; 
and (3) define the elements to be included in these analyses so they 
are comprehensive and sound. 

These actions would generate more detailed cost data and improve the 
analyses of PBL arrangements to determine if they are the most cost- 
effective approach to supporting weapon systems. DOD concurred or 
partially concurred with these and other related recommendations but 
has not yet implemented all corrective actions. 

The lack of complete and reliable O&S cost data makes it difficult to 
determine the full extent of potential savings on weapon system O&S 
costs. However, based on DOD's estimate that it spent at least $132 
billion in fiscal year 2008 on weapon system support alone, for every 
1 percent reduction in costs, there would be an annual cost savings of 
$1.3 billion. As an illustration of the potential for significant cost-
savings, a goal of reducing support costs by 5 percent over a period 
of time would translate to annual cost savings of approximately $6.6 
billion. More ambitious O&S cost reduction goals would potentially 
result in greater cost savings. 

Framework for Analysis: 

To assess the potential for DOD to achieve savings by reducing its O&S 
costs, GAO relied on the prior work below. 

Related GAO Products: 

Defense Management: DOD Needs Better Information and Guidance to More 
Effectively Manage and Reduce Operating and Support Costs of Major 
Weapon Systems. [hyperlink, http://www.gao.gov/products/GAO-10-717]. 
Washington, D.C.: July 20, 2010. 

Defense Logistics: Improved Analysis and Cost Data Needed to Evaluate 
the Cost-effectiveness of Performance Based Logistics. [hyperlink, 
http://www.gao.gov/products/GAO-09-41]. Washington, D.C.: December 19, 
2008. 

Defense Management: DOD Needs to Demonstrate That Performance-Based 
Logistics Contracts Are Achieving Expected Benefits. [hyperlink, 
http://www.gao.gov/products/GAO-05-966]. Washington, D.C.: September 
9, 2005. 

Best Practices: Setting Requirements Differently Could Reduce Weapon 
Systems' Total Ownership Costs. [hyperlink, 
http://www.gao.gov/products/GAO-03-57]. Washington, D.C.: February 11, 
2003. 

Area Contact: 

For additional information about this area, contact Jack E. Edwards at 
(202) 512-8246 or edwardsj@gao.gov. 

[End of section] 

Improved Corrosion Prevention and Control Practices Could Help DOD 
Avoid Billions in Unnecessary Costs: 

Why GAO Is Focusing on This Area: 

The Department of Defense (DOD) estimates that corrosion costs the 
department over $23 billion each year. Corrosion--the unintended 
destruction or deterioration of a material due to interaction with the 
environment--affects military readiness. According to a 2009 study, 
corrosion was responsible for taking up to 16 percent of military 
assets, most notably aircraft, out of action. Corrosion also creates 
safety hazards. GAO reported in 2007 that the Army attributed over 50 
aircraft accidents and 12 fatalities to corrosion since 1985. 
Corrosion takes such varied forms as rusting; pitting; calcium or 
other mineral buildup; degradation from exposure to ultraviolet light; 
and mold, mildew, and other organic decay. It negatively affects all 
military assets, including equipment and infrastructure. In 2003, DOD 
created the Office of Corrosion Policy and Oversight (Corrosion 
Office), which is responsible for the prevention and mitigation of 
corrosion. Since 2008, the Director of the Corrosion Office reports 
directly to the Under Secretary of Defense for Acquisition, Technology 
and Logistics. 

What GAO Has Found Indicating Potential for Cost Saving: 

Corrosion, if left unchecked, can degrade the readiness and safety of 
equipment and facilities and can result in substantial, sometimes 
avoidable, costs. The Defense Science Board Task Force estimated in a 
2004 report that 30 percent of corrosion costs could be avoided 
through proper investment in prevention and mitigation of corrosion 
during design, manufacture, and sustainment. Using fiscal year 2006 
data, DOD's Corrosion Office estimated that approximately a quarter of 
the $80 billion in annual expenses to maintain its ships, aircraft, 
strategic missiles, and ground combat and tactical vehicles is spent 
for corrosion-related concerns. DOD also spends about $10 billion 
annually to maintain about 577,000 buildings and structures, with 
about $1.9 billion of that amount spent for corrosion-related 
concerns. According to DOD, increased corrosion prevention and control 
efforts are needed to adequately address the wide-ranging and 
expensive effects of corrosion on equipment and infrastructure. 
However, DOD did not fund about one-third of acceptable corrosion 
projects for fiscal years 2005 through 2010. Also, military 
departments have not validated the cost-effectiveness of many of the 
previously funded corrosion projects. 

To target funding toward corrosion prevention and control, DOD 
established a separate program element and line item within its 
budget. Among other things, the Corrosion Office uses much of that 
budget to fund projects designed to develop and test new technologies. 
To receive Corrosion Office funding, the military departments submit 
project proposals that are evaluated by a panel of experts assembled 
by the Director of the Corrosion Office. The Corrosion Office 
currently funds up to $500,000 per project, and the military 
departments pledge complementary funding for each project they 
propose. The level of military department funding and the estimated 
return on investment are two of the criteria used to evaluate the 
projects proposals. For fiscal years 2005 through 2010, the Corrosion 
Office judged 271 corrosion prevention and control projects to be 
acceptable for funding. However, DOD funded $129 million (63 percent) 
of the $206 million that was needed to fund those 271 projects. 

During the 6 years that the Corrosion Office has been funding 
corrosion projects, the average estimated return on investment for 
those projects has been 50:1. DOD is currently asking the military 
departments to validate the actual return on investment for the 
projects funded in fiscal year 2005 compared to the original 
estimates. To date, validations have been completed for 10 of the 28 
corrosion projects funded in that fiscal year. Nine of the 10 projects 
were facilities projects with a validated return on investment of 
11:1. Weapons projects have been estimated to have higher returns on 
investment (67:1 average), but these estimates have not been validated 
by the military departments. Also, none of those estimates have been 
independently validated. 

Actions Needed and Potential Savings: 

If the corrosion prevention and control projects accepted from fiscal 
years 2005 through 2010 had been fully funded, DOD potentially could 
have avoided $3.6 billion in corrosion-related costs--assuming those 
projects achieved the same level of cost-effectiveness as was 
estimated for all accepted projects in those years. In April 2010, GAO 
reported that the corrosion requirements for the fiscal year 2011 
budget identified $12 million for projects, leaving an unfunded 
requirement of about $35 million. If fully funded, that $35 million 
could result in a potential cost avoidance of $418 million. Similarly, 
by underfunding all of its estimated corrosion prevention and control 
requirements, DOD may be missing an opportunity for additional cost 
avoidance totaling $1.4 billion. 

However, these calculations are highly contingent on the accuracy of 
estimated return on investment data provided by the Corrosion Office, 
much of which have not been validated by the military departments or 
an independent entity. GAO has recommended that the Corrosion Office 
ensure that return on investment estimates for funded corrosion 
prevention and control projects are validated. If the Corrosion Office 
wishes to convince DOD and congressional decision makers that more 
fully funding its corrosion prevention programs could provide such a 
significant return on investment, the Corrosion Office needs to 
complete the validation of return on investment estimates in order to 
demonstrate the costs and benefits of its corrosion prevention and 
control projects. 

Framework for Analysis: 

GAO is required by law to report annually on DOD's corrosion 
prevention and control budget submission and on the corrosion report 
that accompanies defense budget materials. GAO has also done other 
work on corrosion issues. This analysis is based on GAO's previously 
published work in that area from 2003 through 2010. 

Related GAO Products: 

Defense Management: DOD Has a Rigorous Process to Select Corrosion 
Prevention Projects, but Would Benefit from Clearer Guidance and 
Validation of Returns on Investment. [hyperlink, 
http://www.gao.gov/products/GAO-11-84]. Washington, D.C.: December 8, 
2010. 

Defense Management: Observations on Department of Defense and Military 
Service Fiscal Year 2011 Requirements for Corrosion Prevention and 
Control. [hyperlink, http://www.gao.gov/products/GAO-10-608R]. 
Washington, D.C.: April 15, 2010. 

Defense Management: Observations on the Department of Defense's Fiscal 
Year 2011 Budget Request for Corrosion Prevention and Control. 
[hyperlink, http://www.gao.gov/products/GAO-10-607R]. Washington, 
D.C.: April 15, 2010. 

Defense Management: Observations on DOD's Fiscal Year 2010 Budget 
Request for Corrosion Prevention and Control. [hyperlink, 
http://www.gao.gov/products/GAO-09-732R]. Washington, D.C.: June 1, 
2009. 

Defense Management: Observations on DOD's Analysis of Options for 
Improving Corrosion Prevention and Control through Earlier Planning in 
the Requirements and Acquisition Processes. [hyperlink, 
http://www.gao.gov/products/GAO-09-694R]. Washington, D.C.: May 29, 
2009. 

Defense Management: Observations on DOD's FY 2009 Budget Request for 
Corrosion Prevention and Control. [hyperlink, 
http://www.gao.gov/products/GAO-08-663R]. Washington, D.C.: April 15, 
2008. 

Defense Management: High-Level Leadership Commitment and Actions Are 
Needed to Address Corrosion Issues. [hyperlink, 
http://www.gao.gov/products/GAO-07-618]. Washington, D.C.: April 30, 
2007. 

Defense Management: Additional Measures to Reduce Corrosion of 
Prepositioned Military Assets Could Achieve Cost Savings. [hyperlink, 
http://www.gao.gov/products/GAO-06-709]. Washington, D.C.: June 14, 
2006. 

Defense Management: Opportunities Exist to Improve Implementation of 
DOD's Long-Term Corrosion Strategy. [hyperlink, 
http://www.gao.gov/products/GAO-04-640]. Washington, D.C.: June 23, 
2004. 

Defense Management: Opportunities to Reduce Corrosion Costs and 
Increase Readiness. [hyperlink, 
http://www.gao.gov/products/GAO-03-753]. Washington, D.C.: July 7, 
2003. 

Defense Infrastructure: Changes in Funding Priorities and Strategic 
Planning Needed to Improve the Condition of Military Facilities. 
[hyperlink, http://www.gao.gov/products/GAO-03-274]. Washington, D.C.: 
February 19, 2003. 

Area Contact: 

For additional information about this area, contact Jack E. Edwards at 
(202) 512-8246 or edwardsj@gao.gov. 

[End of section] 

Revising the Essential Air Service Program Could Improve Efficiency 
and Reduce Costs: 

Why GAO Is Focusing on This Area: 

Since 1978, the Essential Air Service (EAS) program, administered by 
the Department of Transportation, has subsidized air service to 
eligible communities. In 2010, the program supported air service to 
about 150 communities nationally. The EAS program was originally 
established as a 10-year transitional program to ease communities into 
a deregulated aviation environment. The cost of this program has risen 
as subsidies to air carriers and the number of communities being 
served have increased. Over the years GAO has expressed concerns that 
rising costs may jeopardize the EAS program's long-term viability. 

What GAO Has Found Indicating Potential for Cost Saving: 

Revising the EAS program and re-examining the need for air service 
across the country could increase program efficiency and reduce costs. 
In fiscal year 2009, Congress appropriated $136.2 million for the EAS 
program, and in 2010 increased this amount to $200 million.[Footnote 
59] Costs could continue to increase for a number of reasons; for 
example, some eligible communities may lose existing unsubsidized air 
service and obtain EAS subsidies. GAO has previously reported on 
issues related to the EAS program, including the following: 

Eligibility criteria are dated and not well targeted. Eligibility for 
the program was set in 1978 and largely based on communities that had 
or could have scheduled air service at that time; thus eligibility may 
bear little relation to current demand for air service. Communities 
have been added and removed from EAS funding, but the approach to 
determining EAS eligibility has remained the same and affects the cost 
of the program. For example, EAS currently uses distance to medium-and 
large-hub airports as a basis for eligibility. Past GAO analyses have 
shown that if eligibility criteria considered the distance to small-
hub airports, in addition to the current criteria of distance to 
medium-and large-hub airports, and used a 125 mile distance instead of 
the current 70 miles, fewer communities would be eligible for EAS. In 
addition, because communities located near each other are eligible for 
EAS flights, in some regions duplicate federal subsidies are paid to 
air carriers when a single subsidy could provide air service. 
Communities and states have been reticent to select one regional 
airport to serve needs for a greater region because they do not want 
to give up the service for which they are eligible. 

Operating requirements are inefficient. The program has operating 
requirements that are inefficient and increase costs. For example, 
legislation mandates that airlines use larger aircraft when smaller, 
less expensive to operate, aircraft could in some instances meet 
passenger demand.[Footnote 60] In addition, the program requires a 
certain number of flights, regardless of passenger demand. Past GAO 
analyses have shown that most EAS flights operate with aircraft that 
are largely empty--some EAS airports operate with fewer than five 
passengers per day. In fiscal year 2008, the percentage of available 
seats filled by passengers was 37 percent on EAS flights. 

Alternative transportation options could be more cost-effective in 
some cases. Some communities have not been able to generate sufficient 
demand to justify costly air service, resulting in rising per-
passenger subsidies. Because potentially cost-effective alternatives, 
such as bus service to other airports, are not used, subsidies may be 
higher than necessary to link these communities to the nation's 
passenger aviation system. 

Actions Needed and Potential Savings: 

Congress may wish to consider fundamentally re-examining the design 
and efficiency of the EAS program. GAO has reported on several 
potential solutions to these issues facing the EAS program that 
Congress and the Department of Transportation may wish to consider. 
All have drawbacks, but they present the opportunity for the 
government to target and use funds more efficiently. 

* Updating eligibility criteria and targeting service. Changing the 
program criteria to target more remote communities would result in 
savings. In 2006 GAO found that about $24 million could be saved 
annually if service were terminated at airports that were within 125 
highway miles of a medium-or large-hub airport. Under this approach, 
more remote communities would have remained eligible for EAS, but less 
remote communities receiving subsidized service would have been 
ineligible. In addition, changing program criteria to consolidate 
subsidized air service to one regional airport could help reduce the 
number of EAS locations served while maintaining regional connections 
to the nation's air transportation system. However, this potential 
solution is controversial at the local level, in part because 
regionalizing service would require some communities to give up their 
own service for potentially improved service at a less convenient 
regional facility: 

* Revising operating requirements to improve efficiency. Revising 
operating requirements to better match capacity with community use 
could improve efficiency and save federal subsidies. Air carriers 
could reduce unused capacity by using smaller aircraft, for example, 
by using 9-seat aircraft in place of the 19-seat aircraft typically 
used, or reducing the number of flights. This would improve the 
efficiency of the program, but it would also create challenges, since 
smaller aircraft may not be suitable for certain routes, such as those 
in mountainous areas that require pressurized cabins. Similarly, 
reducing the number of flights would mean passengers have fewer 
options from which to choose. However, as discussed below, passengers 
could potentially have additional transportation options if given 
other means of transportation to alternative airports. 

* Assessing multimodal solutions to provide communities alternatives 
to EAS. Other means of transportation might be more cost-effective and 
practical than EAS subsidies for intercity transportation for small 
communities that may have limited demand for air service due to the 
proximity of other airports or limited population. This could include 
potentially more cost-effective bus service to hub airports or on- 
demand air service on small aircraft, usually called air taxi service. 
While communities may be concerned about losing existing scheduled air 
service, assessing multimodal alternatives could maintain access to 
the aviation system at a lower cost. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products below. 

Related GAO Products: 

National Transportation System: Options and Analytical Tools to 
Strengthen DOT's Approach to Supporting Communities' Access to the 
System. [hyperlink, http://www.gao.gov/products/GAO-09-753]. 
Washington, D.C.: July 17, 2009. 

Commercial Aviation: Programs and Options for Providing Air Service to 
Small Communities. [hyperlink, 
http://www.gao.gov/products/GAO-07-793T]. Washington, D.C.: April 25, 
2007. 

Commercial Aviation: Programs and Options for the Federal Approach to 
Providing and Improving Air Service to Small Communities. [hyperlink, 
http://www.gao.gov/products/GAO-06-398T]. Washington, D.C.: September 
14, 2006. 

Federal Aviation Administration: Reauthorization Provides 
Opportunities to Address Key Agency Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-03-653T]. Washington, D.C.: April 10, 
2003. 

Commercial Aviation: Issues Regarding Federal Assistance for Enhancing 
Air Service to Small Communities. [hyperlink, 
http://www.gao.gov/products/GAO-03-540T]. Washington, D.C.: March 11, 
2003. 

Commercial Aviation: Factors Affecting Efforts to Improve Air Service 
at Small Community Airports. [hyperlink, 
http://www.gao.gov/products/GAO-03-330]. Washington, D.C.: January 17, 
2003. 

Options to Enhance the Long-Term Viability of the Essential Air 
Service Program. [hyperlink, http://www.gao.gov/products/GAO-02-997R]. 
Washington, D.C. August 30, 2002. 

Area Contact: 

For additional information about this area, contact Gerald Dillingham 
at (202) 512-2834 or dillinghamg@gao.gov. 

[End of section] 

Improved Design and Management of the Universal Service Fund As It 
Expands to Support Broadband Could Help Avoid Cost Increases for 
Consumers: 

Why GAO Is Focusing on This Area: 

The policy that Americans should enjoy "universal" access to 
affordable communications services has existed since the 1930s. In 
2009, the nation's Universal Service Fund (Fund), managed by the 
Federal Communications Commission (FCC), disbursed roughly $7.3 
billion to subsidize telephone and other communications services 
through four programs. The High Cost program subsidizes companies 
serving rural and high-cost areas. The Low-Income, E-rate, and Rural 
Health Care programs subsidize telephone bills and communications 
services for low-income consumers, schools and libraries, and rural 
health care providers, respectively. The National Broadband Plan, 
released in March 2010 by an FCC task force, calls for modifying the 
Fund to support greater deployment of more expensive broadband 
technologies. Universal Service Fund programs are funded through 
mandatory payments from companies providing telecommunications 
services--payments usually passed along to consumers as a line item 
fee on their telephone bill. Fund disbursements have more than tripled 
since beginning in 1998. GAO has reported the need for improved 
management practices in each of the four programs. 

What GAO Has Found Indicating Potential for Cost Saving: 

GAO has examined each of the Fund's programs and concluded that 
proposals to modify them to support greater deployment of more 
expensive broadband technologies without re-examining the purpose, 
design, and management of the programs could increase disbursements 
from the Fund and the costs borne by consumers. FCC's design of Fund 
programs, including the High Cost and Low-Income programs having no 
limits on disbursements, have allowed disbursements to grow 
significantly over time. For example, due to increased program 
participation, Low-Income support payments for 2010 are estimated to 
reach approximately $1.4 billion--a 36 percent single-year increase 
over 2009. In September 2010, FCC indexed the E-rate program's $2.25 
billion annual funding cap to inflation, which will lead to increases 
in that program's expenditures. Using each program to support greater 
broadband deployment will further increase the upward pressure on 
spending. 

Figure: Total Fiscal Year Disbursements from the Four Universal 
Service Fund Programs: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 1998; 
Amount: $2.3 billion. 

Fiscal year: 1999; 
Amount: $3.3 billion. 

Fiscal year: 2000; 
Amount: $4.0 billion. 

Fiscal year: 2001; 
Amount: $4.9 billion. 

Fiscal year: 2002; 
Amount: $5.1 billion. 

Fiscal year: 2003; 
Amount: $5.6 billion. 

Fiscal year: 2004; 
Amount: $5.7 billion. 

Fiscal year: 2005; 
Amount: $6.3 billion. 

Fiscal year: 2006; 
Amount: $6.8 billion. 

Fiscal year: 2007; 
Amount: $7.0 billion. 

Fiscal year: 2008; 
Amount: $7.3 billion. 

Fiscal year: 2009; 
Amount: $7.4 billion. 

Source: GAO presentation of FCC data. 

[End of figure] 

In February 2005, GAO raised concerns with the unusual structure that 
FCC established for the Fund that has caused FCC to struggle over the 
years with identifying the fiscal and accountability requirements that 
apply to the Fund. These concerns included the extent to which FCC has 
delegated some functions to the Universal Service Administrative 
Company (USAC)--the not-for-profit corporation that FCC appointed as 
the permanent administrator of the Fund. In response to GAO's concerns 
that USAC was operating and disbursing funds under less explicit 
federal ties than many other federal programs, FCC established a 
memorandum of understanding with USAC in 2007. However, concerns about 
FCC's design and structure of the Fund remain, including the Fund 
being outside of Congress' annual appropriations oversight process. 

In its management of the Fund, FCC has not undertaken a data-driven 
approach to overseeing the four programs. For example, GAO found in 
its November 2010 report on the Rural Health Care program that FCC 
never conducted a comprehensive needs assessment to learn how the 
program can best target the telecommunications needs of rural health 
care providers. Proper needs assessments are crucial to the effective 
design and assessment of programs. If FCC had obtained data through a 
needs assessment, it may have been able to articulate a clearer vision 
for the program, more accurately ascertain why some rural health care 
providers do not participate in the program, and better ensure that 
FCC's programmatic changes achieved the intended results. Using data- 
based assessments would supplement the information gained through 
FCC's regulatory procedures and enhance FCC's ability to manage Fund 
programs. 

Finally, GAO has found that FCC lacks performance goals and measures 
for all four Fund programs. Results-oriented organizations establish a 
strong foundation for successful program management through setting 
performance goals to clearly define desired outcomes and developing 
performance measures that are linked to the program goals. GAO has 
recommended over the years that FCC establish performance goals and 
measures for all of the Universal Service Fund programs and FCC has 
generally agreed with these recommendations. However, FCC has made 
only partial progress toward implementing performance goals and 
measures in each of the four programs. 

Actions Needed and Potential Savings: 

The National Broadband Plan recommends shifting Universal Service Fund 
support from legacy voice technologies to supporting a broadband 
platform that enables many applications, including voice. However, two 
of the programs remain uncapped and FCC has not adequately addressed 
the Fund's continued growth. GAO's work illustrates the need for a 
broader rethinking of the vision, size, structure, and goals of the 
Universal Service Fund, coupled with management improvements by FCC 
that will address GAO's recommendations. For example, FCC conducting 
comprehensive needs assessments would be a good first step toward 
designing programs that properly target broadband needs. Establishing 
clear performance goals and measures for the programs will allow FCC 
to better determine the proper amount of funding for each program, 
target the funding to meet the needs of the intended beneficiaries, 
and conduct needed program evaluations. FCC and USAC have noted they 
will work together to respond to recent GAO recommendations regarding 
improving internal controls and other oversight mechanisms. Beyond 
GAO's previous recommendations, Congress may also wish to give the 
Fund increased attention since it falls outside of the annual 
appropriations process. These actions would help ensure stronger 
governmental accountability over the Fund in the future and help avoid 
continued cost increases for rate payers. 

Framework for Analysis: 

This analysis is based on the work conducted for the products listed 
below, as well as a review of the March 2010 National Broadband Plan 
and FCC's recent proposed rulemakings and orders related to 
implementation of Universal Service Fund reform. 

Related GAO Products: 

Telecommunications: FCC's Performance Management Weaknesses Could 
Jeopardize Proposed Reforms of the Rural Health Care Program. 
[hyperlink, http://www.gao.gov/products/GAO-11-27]. Washington, D.C.: 
November 17, 2010. 

Telecommunications: Improved Management Can Enhance FCC Decision 
Making for the Universal Service Fund Low-Income Program. [hyperlink, 
http://www.gao.gov/products/GAO-11-11]. Washington, D.C.: October 28, 
2010. 

Telecommunications: FCC Should Assess the Design of the E-rate 
Program's Internal Control Structure. [hyperlink, 
http://www.gao.gov/products/GAO-10-908]. Washington, D.C.: September 
29, 2010. 

Telecommunications: Long-Term Strategic Vision Would Help Ensure 
Targeting of E-rate Funds to Highest-Priority Uses. [hyperlink, 
http://www.gao.gov/products/GAO-09-253]. Washington, D.C.: March 27, 
2009. 

Telecommunications: FCC Needs to Improve Performance Management and 
Strengthen Oversight of the High-Cost Program. [hyperlink, 
http://www.gao.gov/products/GAO-08-633]. Washington, D.C.: June 13, 
2008. 

Telecommunications: Greater Involvement Needed by FCC in the 
Management and Oversight of the E-Rate Program. [hyperlink, 
http://www.gao.gov/products/GAO-05-151]. Washington, D.C.: February 9, 
2005. 

Telecommunications: Federal and State Universal Service Programs and 
Challenges to Funding. [hyperlink, 
http://www.gao.gov/products/GAO-02-187]. Washington, D.C.: February 4, 
2002. 

Schools and Libraries Program: Actions Taken to Improve Operational 
Procedures Prior to Committing Funds. [hyperlink, 
http://www.gao.gov/products/GAO/RCED-99-51]. Washington, D.C.: March 
5, 1999. 

Telecommunications: FCC Lacked Authority to Create Corporations to 
Administer Universal Service Programs. [hyperlink, 
http://www.gao.gov/products/GAO/T-RCED/OGC-98-84]. Washington, D.C.: 
March 31, 1998. 

Area Contact: 

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

[End of section] 

The Corps of Engineers Should Provide Congress With Project-Level 
Information on Unobligated Balances: 

Why GAO Is Focusing on This Area: 

The U.S. Army Corps of Engineers (Corps) is the world's largest public 
engineering, design, and construction management agency. The Corps 
provides vital public engineering services in peace and war to 
strengthen the nation's security, energize the economy, and reduce 
risks from disasters. 

Congress provides the Corps with "no-year" appropriations--that is, 
funds that are available for obligation until expended--so funding may 
be carried over to subsequent fiscal years. For example, if the Corps 
obligates $40 million of a $50 million appropriation, the $10 million 
that was not obligated is available for use in subsequent years. 

In fiscal year 2010 the Corps' civil works program received about $5.7 
billion to plan, construct, operate, and maintain hundreds of water 
resource projects. However, the budget presentation does not provide 
information on the amount of unobligated balances that remain 
available for each project. Such project-level information would help 
congressional decision makers make appropriations and oversight 
decisions informed by the availability of existing resources. 

What GAO Has Found Indicating Potential for Cost Saving: 

The budget presentation for the Corps lacks transparency on key 
elements of the President's budget request. Specifically, it does not 
include information on how much remains available for specific 
projects that could potentially offset new funding requests for 
projects. For example, a Sabine-Neches Waterway project in Texas had 
about $31 million in unobligated balances from its fiscal year 2009 
allocation that remained available to offset its fiscal year 2010 
request. Consequently, Congress has not been able to consider the full 
level of resources available for projects when making its 
appropriations decisions. Corps review boards routinely review whether 
projects are meeting financial milestones, so unobligated balance 
information is available. Although a senior Corps budget official told 
GAO that detailed project-level information--such as remaining 
balances--would not be available until after budget materials are 
submitted to Congress, the Corps would be able to provide timely 
information before final appropriations decisions are made. 

Actions Needed and Potential Savings: 

To ensure that all relevant information is considered during 
congressional deliberations, GAO recommended in April 2010--and the 
Department of Defense agreed--that the Corps provide Congress with 
information on estimated project-level unobligated balances as a 
supplement to its budget presentation. GAO expects to follow up at a 
later date to assess the implementation of this recommendation. 
Although GAO cannot quantify the potential savings, this information 
would enable Congress to consider how much of the previous year's 
funding remains available to offset new funding requests. 

Framework for Analysis: 

The information contained in this analysis is based on the previously 
issued report cited below. 

Related GAO Product: 

Army Corps of Engineers: Budget Formulation Process Emphasizes 
Agencywide Priorities, but Transparency of Budget Presentation Could 
Be Improved. [hyperlink, http://www.gao.gov/products/GAO-10-453]. 
Washington, D.C.: April 2, 2010. 

Area Contact: 

For additional information about this area, contact Denise Fantone at 
(202) 512-4997 or fantoned@gao.gov or Anu K. Mittal at (202) 512-3841 
or mittala@gao.gov. 

[End of section] 

Ensuring the Federal Government Receives Fair Market Value for Its Oil 
and Gas Resources Could Enhance Federal Revenues: 

Why GAO Is Focusing on This Area: 

The Department of the Interior (Interior) collected approximately $40 
billion in oil and gas revenues from company bids for new oil and gas 
leases, annual rents on existing leases, and royalties paid on oil and 
gas sold from federal leases in fiscal years 2008 through 2010. 
Interior's Bureau of Land Management (BLM) manages onshore oil and gas 
leases, and its Bureau of Ocean Energy Management, Regulation and 
Enforcement (BOEMRE) manages offshore leases. Interior's Office of 
Natural Resources and Revenue (ONRR) is responsible for collecting 
revenues associated with oil and gas produced from onshore and offshore 
leases. 

GAO has reviewed Interior's oil and gas management and revenue 
collection and found in September 2008 that Interior has not routinely 
evaluated its federal oil and gas revenue collection system. By not 
evaluating this system, Interior is unable to state whether current 
revenue policies ensure that the federal government is receiving a 
fair return on the production and sale of oil and gas produced from 
federal leases. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Revising Interior's federal oil and gas revenue collection system 
represents an opportunity to collect substantial additional revenues 
from the development of federal oil and gas resources. In fiscal year 
2010, Interior estimated that increasing both rental rates for non- 
producing oil and gas leases and onshore oil and gas royalty rates 
would generate over $1.7 billion over 10 years. 

A considerable body of legislation governs Interior's authority and 
obligations to manage resources on federal lands and within federal 
waters. For example, under the Outer Continental Shelf Lands Act 
[Footnote 61] and the Federal Land Policy and Management Act,[Footnote 
62] Interior must ensure the United States receives fair market value 
on the development of its oil and gas resources. The federal 
government receives payment for the development of oil and gas 
resources on federal lands and waters in potentially three ways. 
First, to obtain federal leases, companies generally must pay the 
federal government an amount--called a bonus bid--determined through a 
competitive auction. Second, after the lease is awarded, companies 
must pay rent to hold the land. Onshore, for example, the rental rate 
is generally between $1.50 and $2 per acre per year. Third, after 
production begins, the companies must accurately measure the oil and 
gas volumes and pay royalties to Interior based on a percentage of the 
cash value of oil and gas produced and sold. The royalty rates for 
onshore leases are generally 12.5 percent, while royalty rates for 
offshore leases in the Gulf of Mexico generally range from 12.5 
percent to 18.75 percent. 

In October 2008, GAO reported that Interior does less to encourage 
development of oil and gas on federal leases than some states and 
private landowners. Moreover, some of the tools that states and 
private landowners use may also result in increased revenues. For 
example, four of the eight states GAO reviewed increase rental rates 
over time on nonproducing oil and gas leases to (1) encourage faster 
development of oil and gas resources--on which royalties are due, and 
(2) increase revenues from nonproducing leases. While Interior 
officials stated that rental rates for a 10-year onshore federal lease 
increased from $1.50 per acre per year for the first 5 years to $2 per 
acre per year for years 6 through 10, states GAO reviewed typically 
increased rental rates to a greater extent. For example, one state 
increases the rental rate from $5 per acre per year to $25 per acre 
per year if the lease is not developed by the end of the third year. 

In September 2008, GAO reported that Interior had not conducted a 
comprehensive evaluation of the oil and gas revenue system in over 25 
years and that it did not have a system in place to evaluate whether 
the federal system is in need of reassessment. At the time, GAO also 
reported that Interior collected lower levels of revenues for oil and 
gas production than do some resource owners, including other countries 
and some U.S. states. For example, GAO reported that federal revenues 
for oil and gas produced in the Gulf of Mexico were lower than 93 out 
of 104 resource owners. In addition, the lack of price flexibility in 
royalty rates--automatic adjustment of these rates to changes in oil 
and gas prices or other market conditions--and the inability to change 
fiscal terms on existing leases put pressure on Interior and Congress 
to change royalty rates in the past on an ad hoc basis with 
consequences that could amount to billions of dollars of foregone 
revenue. For example, special lower royalty rates--referred to as 
royalty relief--granted on leases issued in the deep water 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 $21 billion to $53 billion in lost revenue to the federal 
government, compared with what it would have received without these 
provisions. GAO's 2008 User Fee Design Guide also notes the importance 
of regular fee reviews to determine whether a fee needs to be 
adjusted. User fees represent a charge to readily identifiable users 
of a government service or benefit above and beyond what is normally 
available to the general public. Further, fee reviews can facilitate 
effective communication and provide opportunity for stakeholder input. 
GAO has previously reported that such communication with stakeholders 
can provide feedback that could affect the outcome of changes in fees 
and program implementation. 

In 2010, GAO issued two reports that found 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. In March 2010, GAO reported that Interior's 
measurement regulations and procedures for oil and gas measurement 
were insufficient for providing reasonable assurance that oil and gas 
were being measured accurately. As a result, there is a risk that the 
government is not receiving all the oil and gas royalties it is due. 
Additionally, GAO 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). This vented and flared gas contributes to greenhouse gases 
and represents lost royalties. It is also important to consider the 
costs of verification and validation in the context of the benefits 
likely to be realized. GAO's User Fee Design Guide discusses the 
importance of striking a balance between ensuring compliance and 
minimizing the administrative costs of collection. 

Interior has begun to address these issues. For example, in January 
2007, Interior announced that it was raising the royalty rate for new 
deep water leases in the Gulf of Mexico from 12.5 percent to 16.7 
percent. At that time, Interior estimated that the increased royalty 
rate of 16.7 percent for new deepwater offshore Gulf of Mexico leases 
would increase revenue from royalty payments by $4.5 billion over 20 
years. Interior also estimated that the increase in royalty rates 
would decrease the amount companies would bid for the rights to 
explore for and develop oil and gas on affected leases as well as 
reduce the amount of oil and gas ultimately produced in affected 
areas, but that in net, the increase in revenue would be greater than 
the reductions associated with lower bids and production. Furthermore, 
in response to GAO's October 2008 report, Interior stated in 2010 that 
the administration would propose legislation to impose a fee on new 
nonproducing oil and gas leases to encourage energy development on 
both onshore and offshore leases. To date, such a fee has not come 
into effect. However, in an April 12, 2010, press release, Interior 
stated that it is undertaking a study in response to GAO's September 
2008 report, which it expects to complete in 2011. The purpose of the 
study is 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. 
Given the significant financial stakes, there may be opposition from 
the oil and gas industry. Interior may also face significant 
difficulties designing and implementing an entirely new revenue 
collection system, given its recent struggles to successfully oversee 
oil and gas production. Finally, while Interior agreed with the 
recommendations from both reports issued in 2010 addressing 
improvements to its oversight of the measurement of oil and gas 
produced from federal leases, it has not yet implemented these 
recommendations. 

Actions Needed and Potential Revenue: 

To encourage companies to diligently develop oil and gas leases, 
ensure that the government obtains a fair return on oil and gas 
produced from federal leases, and for Interior to have reasonable 
assurance that oil and gas produced from federal oil and gas leases is 
being measured accurately: 

* Congress may need to take action to authorize or encourage Interior 
to revise its rental fee structure for nonproducing leases. 

* Interior should complete its study examining how other oil and gas 
resource owners select fiscal parameters for leasing and adjusting oil 
and gas royalty rates and use that information to adjust, as 
appropriate, its royalty rates to a level that ensures the government 
a fair return. In doing so it should ensure opportunities for 
substantive, two-way communication with program stakeholders. 

* Depending on the results of the study, Congress may wish to provide 
additional guidance or take additional actions to enable Interior to 
change how it oversees federal lands and waters and the revenues 
derived from production of oil and gas there. 

* Interior should implement GAO's recommendations from prior reports 
addressing a variety of oil and gas measurement factors. 

According to Interior, increasing the rental fee for onshore 
nonproducing leases to $4 per acre per year would generate $760 
million over 10 years. While the total additional revenue generated by 
adjusting both onshore and offshore royalty rates is uncertain, a 2010 
Interior estimate of increasing onshore royalty rates projects 
additional federal revenues of $1 billion over 10 years. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

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. 

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. 

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: Litigation over Royalty Relief Could Cost the 
Federal Government Billions of Dollars. [hyperlink, 
http://www.gao.gov/products/GAO-08-792R]. Washington, D.C.: June 5, 
2008. 

Federal User Fees: A Design Guide. [hyperlink, 
http://www.gao.gov/products/GAO-08-386SP]. Washington, D.C.: May 29, 
2008. 

Oil and Gas Royalties: A Comparison of the Share of Revenue Received 
from Oil and Gas Production by the Federal Government and Other 
Resource Owners. [hyperlink, http://www.gao.gov/products/GAO-07-676R]. 
Washington, D.C.: May 1, 2007. 

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

Area Contact: 

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

[End of section] 

Recent Efforts to Address Governmentwide Improper Payments Could 
Result in Significant Cost Savings: 

Why GAO Is Focusing on This Area: 

Reported estimated improper payments governmentwide have steadily 
increased over the past decade from an estimated $20 billion in 2000 
to approximately $125 billion in 2010. An improper payment is defined 
as any payment that should not have been made or that was made in an 
incorrect amount (including overpayments and underpayments) under 
statutory, contractual, administrative, or other legally applicable 
requirements. Reported improper payments also include payments for 
which insufficient or no documentation was found. GAO's work has 
demonstrated that improper payments continue to be a long-standing, 
widespread, and significant problem in the federal government. 

What GAO Has Found Indicating Potential for Cost Saving: 

For fiscal year 2010, about 20 federal agencies reported estimated 
improper payments for over 70 programs totaling about $125.4 billion, 
for a governmentwide error rate of about 5.5 percent. According to 
GAO's analysis of those agencies' fiscal year 2010 Performance and 
Accountability Reports (PAR) or Agency Financial Reports (AFR), the 
majority of reported estimated improper payments for fiscal year 2010 
is accounted for by the following 10 programs: 

Table: 

Program: Medicare Fee-for-Service; 
Agency: Health and Human Services; 
FY 2010 estimated improper payments: $34.3 billion; 
Primary cause(s)[A]: Medically unnecessary services and insufficient 
documentation. 

Program: Medicaid; 
Agency: Health and Human Services; 
FY 2010 estimated improper payments: $22.5 billion; 
Primary cause(s)[A]: Insufficient or no documentation provided for 
conducting medical review and cases that were either ineligible or 
their eligibility status could not be determined. 

Program: Unemployment Insurance; 
Agency: Labor; 
FY 2010 estimated improper payments: $17.5 billion; 
Primary cause(s)[A]: Eligibility errors, errors in handling separation 
issues, and claimants who have returned to work and continue to claim 
benefits. 

Program: Earned Income Tax Credit; 
Agency: Treasury; 
FY 2010 estimated improper payments: $16.9 billion; 
Primary cause(s)[A]: High turnover of eligible claimants, confusion 
among eligible claimants, complexity of the law, structure of the 
program, unscrupulous return preparers, and fraud. 

Program: Medicare Advantage; 
Agency: Health and Human Services; 
FY 2010 estimated improper payments: $13.6 billion; 
Primary cause(s)[A]: Insufficient supporting documentation, and errors 
in the transfer of data and payment calculations. 

Program: Supplemental Security Income; 
Agency: Social Security Administration; 
FY 2010 estimated improper payments: $4.8 billion; 
Primary cause(s)[A]: Incorrect computations, misapplication of an 
income or resource exclusion, and inadequate verification of accounts 
and wages. 

Program: Old Age Survivors' and Disability Insurance; 
Agency: Social Security Administration; 
FY 2010 estimated improper payments: $3.2 billion; 
Primary cause(s)[A]: Computation errors; nonverification of earnings, 
income or work status; and incorrect processing of applications or 
payments. 

Program: Supplemental Nutrition Assistance; 
Agency: Agriculture; 
FY 2010 estimated improper payments: $2.2 billion; 
Primary cause(s)[A]: Incomplete or inaccurate reporting of income by 
participants and incorrect eligibility determination by caseworkers. 

Program: National School Lunch; 
Agency: Agriculture; 
FY 2010 estimated improper payments: $1.5 billion; 
Primary cause(s)[A]: Verification and authentication errors including 
inadequate documentation and fraud or misrepresentation by 
participants. 

Program: Pell Grants; 
Agency: Education; 
FY 2010 estimated improper payments: $1 billion; 
Primary cause(s)[A]: Verification errors[B]. 

Source: GAO: 

[A] As reported by the agencies. 

[B] Primary causes were provided by the Department of Education and 
were not reported in the AFR. 

[End of table] 

Agencies have made progress in reducing improper payments, and, in 
some programs, they have reported reducing the rate of improper 
payments. For example, the Department of Health and Human Services 
(HHS) reported that the fiscal year 2010 Head Start program's 
estimated improper payments decreased by $90 million--or 1.3 percent 
of total program outlays--from the estimated amount reported for 
fiscal year 2009. HHS reported that it reduced improper payments 
errors by issuing additional guidance for employees on verifying 
income eligibility and developing a standard template form to help 
guide grantees in the enrollment process. In another example, the 
Department of Agriculture reported reductions from fiscal year 2009 to 
fiscal year 2010 for seven of its programs, including the Marketing 
Assistance Loan Program which had a reduction in improper payments of 
about $50 million--or 1.75 percent of total program outlays. The 
agency reported actions taken to reduce improper payments, which 
include providing additional training and instruction on improper 
payment control procedures, and integrating the employee's individual 
performance results related to reducing improper payments into annual 
performance ratings. 

Nonetheless, the federal government still faces challenges in 
determining the full extent to which improper payments occur, and in 
ensuring appropriate actions are being taken to reduce them. For 
example, three agencies have not reported on the extent of improper 
payments for seven risk-susceptible programs with significant amounts 
of outlays. Most notably, HHS has yet to report a comprehensive 
improper payment estimate amount for the Medicare Prescription Drug 
Benefit program, which had about $59 billion in outlays in fiscal year 
2010. However, HHS expects to report a comprehensive estimate for this 
program in fiscal year 2011. In addition, it is not always clear 
whether agencies are identifying the root cause or the underlying 
internal control weaknesses that caused the payment error in order to 
determine the appropriate corrective action. 

To help reduce improper payments, the President issued (1) Executive 
Order 13520, Reducing Improper Payments, in November 2009, focused on 
increasing transparency and accountability for reducing improper 
payments, and creating incentives to reduce improper payments; (2) a 
Presidential Memorandum in March 2010 that expands agency efforts to 
recapture improper overpayments;[Footnote 63] and (3) a Presidential 
Memorandum in June 2010, directing that a Do Not Pay List be 
established to prevent improper payments from being made to ineligible 
recipients. Moreover, in July 2010, Congress passed the Improper 
Payments Elimination and Recovery Act (IPERA) to enhance reporting and 
recouping of improper payments. These actions further heightened 
awareness of the need to reduce improper payments and eliminate waste, 
fraud, and abuse in federal programs. In addition, the President has 
set goals, as part of the Accountable Government Initiative, for 
federal agencies to reduce overall improper payments by $50 billion 
and recapture at least $2 billion in improper contract payments and 
overpayments to health providers, by the end of 2012. 

Under the Executive Order, the Office of Management and Budget 
established a Web site [hyperlink, http://www.paymentaccuracy.gov] to 
enhance transparency and accountability, and designated 14 high-error 
programs to focus attention on the programs that significantly 
contribute to the federal government's improper payments.[Footnote 64] 
The Web site contains important information on the programs' senior 
accountable officials responsible for efforts to reduce improper 
payments; current, targeted, and historical estimated rates of 
improper payments; why they occur; and what agencies are doing to 
reduce and recover them. For example, the Web site reported a current 
improper payment rate for HHS's Medicare Fee-for-Service program of 
10.5 percent for fiscal year 2010 and a reduction target for fiscal 
year 2013 of 5.8 percent. 

IPERA established additional requirements related to manager 
accountability, recovery auditing, compliance and noncompliance 
determinations and reporting, and an opinion on internal controls over 
improper payments. For example, IPERA repealed a previous recovery 
audit requirement and enacted a new, broader requirement for agencies 
to conduct recovery audits for those programs with at least $1 million 
in total program outlays, where cost-effective. Final guidance on 
expanding payment recapture audits is expected to be issued under 
IPERA implementing guidance, in early 2011. 

Actions Needed and Potential Savings: 

GAO views these efforts as positive steps toward improving 
transparency over, and reducing, improper payments; however, it is too 
soon to determine whether the activities called for in Executive Order 
13520, the Presidential Memoranda, and IPERA will achieve their goals 
of reducing improper payments while continuing to ensure that federal 
programs serve and provide access to intended beneficiaries. 
Identifying the nature, extent and underlying causes of improper 
payments is an essential prerequisite to taking action to reduce them. 
Moreover, corrective actions needed to reduce improper payments vary 
across specific entities and programs. Until the federal government 
has implemented effective processes to determine the full extent to 
which improper payments occur and to reasonably assure that 
appropriate actions are taken across entities and programs to 
effectively recover and reduce improper payments, the federal 
government will not have reasonable assurance that the use of taxpayer 
funds is adequately safeguarded. 

In addition, the level of importance the agencies and the 
administration place on the efforts to implement the requirements 
established by IPERA, the Executive Order, and other guidance will be 
a key factor in determining their overall effectiveness in reducing 
improper payments and ensuring that federal funds are used efficiently 
and for their intended purposes. If fully and successfully 
implemented, the requirements will provide additional transparency, 
improve oversight and accountability, and should help to reduce the 
federal government's vulnerability to improper payments in the future. 
Continuous congressional oversight is key to determining whether these 
recent efforts are effective in reducing improper payments. 
Congressional efforts to monitor agencies will be essential to ensure 
they are taking action to fully implement these legislative 
requirements to improve accountability, achieve targeted goals, and 
reduce overall improper payments. 

Framework for Analysis: 

This analysis is based on agency-reported information in their fiscal 
year 2010 Performance Accountability and Agency Financial Reports, as 
well as previous GAO reports. 

Related GAO Products: 

Medicare Recovery Audit Contracting: Lessons Learned to Address 
Improper Payments and Improve Contractor Coordination and Oversight. 
[hyperlink, http://www.gao.gov/products/GAO-10-864T]. Washington, 
D.C.: July 15, 2010. 

Medicare Fraud, Waste, and Abuse: Challenges and Strategies for 
Preventing Improper Payments. [hyperlink, 
http://www.gao.gov/products/GAO-10-844T]. Washington, D.C.: June 15, 
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]. 
Washington, D.C.: April 14, 2010. 

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. 

Improper Payments: Significant Improvements Needed in DOD's Efforts to 
Address Improper Payment and Recovery Auditing Requirements. 
[hyperlink, http://www.gao.gov/products/GAO-09-442]. Washington, D.C.: 
July 29, 2009. 

Improper Payments: Responses to Posthearing Questions Related to 
Eliminating Waste and Fraud in Medicare and Medicaid. [hyperlink, 
http://www.gao.gov/products/GAO-09-838R]. Washington, D.C.: July 20, 
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. 

Improper Payments: Responses to Posthearing Questions Related to 
Status of Agencies' Efforts to Address Improper Payment and Recovery 
Auditing Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-08-819R]. Washington, D.C.: June 20, 
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. 

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. 

Improper Payments: Responses to Posthearing Questions Related to 
Agencies' Progress in Addressing Improper Payment and Recovery 
Auditing Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-07-834R]. Washington, D.C.: May 30, 
2007. 

Improper Payments: Agencies' Efforts to Address Improper Payment and 
Recovery Auditing Requirements Continue. [hyperlink, 
http://www.gao.gov/products/GAO-07-635T]. Washington, D.C.: March 29, 
2007. 

Improper Payments: Posthearing Responses on a December 5, 2006, 
Hearing to Assess the Improper Payments Information Act of 2002. 
[hyperlink, http://www.gao.gov/products/GAO-07-533R]. Washington, 
D.C.: February 27, 2007. 

Area Contact: 

For additional information about this area, contact Kay Daly at (202) 
512-9312 or dalykl@gao.gov. 

[End of section] 

Promoting Competition for Federal Contracts Can Produce Savings: 

Why GAO Is Focusing on This Area: 

Competition is a cornerstone of the federal acquisition system and a 
critical tool for achieving the best possible return on what has grown 
to become an annual investment of about $540 billion. The benefits of 
competition in acquiring goods and services from the private sector 
are well established. Competitive contracts can save money, improve 
contractor performance, and promote accountability for results. 

Federal agencies generally are required to award contracts 
competitively, but a substantial amount of federal money is being 
obligated on noncompetitive contracts annually. Full and open 
competition, defined as allowing all responsible sources to submit 
proposals, is the required method for federal agencies to award 
contracts, unless an exception applies. For example, full and open 
competition is not required under urgent circumstances, or when the 
required goods or services are available from only one source. Full 
and open competition also may not be required for contracts below 
certain dollar values or some contracts awarded under small business 
programs, such as the 8(a) small business development program of the 
Small Business Administration (SBA). 

What GAO Has Found Indicating Potential for Cost Saving: 

Although some agency decisions to forego competition may be justified, 
GAO has found that when federal agencies decide to open their 
contracts to competition, they frequently realize savings. For 
example, the Department of State (State) awarded a noncompetitive 
contract for installation and maintenance of technical security 
equipment at U.S. embassies in 2003. In response to a GAO 
recommendation, State subsequently competed this requirement, and in 
2007 it awarded contracts to four small businesses for a total savings 
of over $218 million. In another case, GAO found in 2006 that the Army 
had awarded noncompetitive contracts for security guards, but later 
spent 25 percent less for the same services when the contracts were 
competed. 

Federal agencies obligated approximately $170 billion on 
noncompetitive contracts in fiscal year 2009 alone. While there has 
been some fluctuation over the years, the percentage of obligations 
under noncompetitive contracts recently has been in the range of 31 
percent to over 35 percent. GAO reported in July 2010 that 
circumstances precluding competition included the government's lack of 
access to a contractor's proprietary data, which may be needed by 
other contractors in order to compete, or in some cases its reliance 
on a particular contractor's expertise. In other instances, agencies 
have used the competition exception allowed for the SBA's section 8(a) 
business development program, which provides agencies with an easy and 
fast method to award contracts without using full and open 
competition. Congress created the 8(a) program to help small 
disadvantaged businesses access the federal procurement market and 
eventually compete successfully in the U.S. economy. But there have 
been concerns about the lack of competition in the program, such as 
large, sole-source contracts awarded to 8(a) firms owned by Alaska 
Native Corporations, which have special advantages in the 8(a) 
program. In response to those concerns, legislation now requires 
agencies to provide more scrutiny of noncompetitive contracts over $20 
million awarded under SBA's 8(a) program. 

Another issue involves the extent of competition actually achieved. 
Specifically, the government obligates billions of dollars every year 
on procurements categorized as competitive even though only one offer 
was received. There is currently no requirement for agencies to assess 
the reasons why only one offer was received. GAO reported that the 
government's requirements can influence the number of offers received 
under competitive solicitations. For example, when existing contracts 
expire and are opened to competition, the new contract's requirements 
may be written so restrictively that they are geared toward the holder 
of the current contract. GAO has recommended that the Office of 
Federal Procurement Policy (OFPP) determine whether the regulations 
should be amended to require agencies to evaluate the circumstances 
leading to only one offer being received and to identify additional 
steps that can be taken to increase the likelihood that multiple 
offers will be submitted in the future. The OFPP Administrator agreed 
with GAO's recommendation. 

GAO work also shows that agencies do not always use a competitive 
process when establishing or using blanket purchase agreements (BPA) 
under the General Services Administration's schedules program. These 
are agreements agencies put in place in advance of known requirements, 
which then may be used to order goods or services quickly when 
specific needs arise. Agencies have frequently entered into BPAs with 
just one vendor, even though multiple vendors could satisfy agency 
needs. And even when agencies entered into BPAs with multiple vendors, 
GAO has found that agencies have not always held subsequent 
competitions among those vendors for orders under the BPAs, even 
though such competitions at the ordering level are required. GAO 
recommended that OFPP consider amending the regulations to clarify 
this requirement, and OFPP agreed. By not consistently promoting 
competition, federal government agencies have not taken advantage of 
opportunities for significant cost savings. 

Actions Needed and Potential Savings: 

The Office of Management and Budget (OMB), the executive agency that 
oversees the federal procurement process, has provided additional 
guidance for agencies to promote competition in contracting, and 
improve the effectiveness of their competition practices. In July 
2009, OMB called for agencies to reduce obligations under new contract 
actions that are awarded using high-risk contracting authorities by 10 
percent in fiscal year 2010. These high-risk contracts include, among 
other considerations, those that are awarded noncompetitively and 
those that are structured as competitive but for which only one offer 
is received. While sufficient data are not yet available to determine 
whether this goal was met, GAO is currently reviewing the agencies' 
savings plans to identify steps taken toward that goal, and will 
continue to monitor the progress agencies make toward achieving this 
and any subsequent goals set by OMB. Further, OMB has challenged 
agencies to take immediate action to aggressively seek deeper 
discounts on BPAs. 

In addition to legislation and guidance, promoting competition in 
contracting to the greatest extent possible requires overcoming 
conventional thinking. For example, because program officials have an 
essential role in the acquisition process, it is important that these 
officials, not just contracting officers, actively promote 
competition. This means not insisting on retaining incumbent 
contractors even when competition is possible. Keeping an incumbent 
contractor in place without competition simply because the contractor 
is doing a good job, or resisting legitimate suggestions that 
competition be used even though it may take longer, could result in 
missed opportunities for savings. 

By more consistently promoting competition in contracts, federal 
agencies would have greater opportunities to take advantage of the 
effectiveness of the marketplace and potentially achieve billions of 
dollars in cost savings. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products listed below. 

Related GAO Products: 

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. 

Recovery Act: Contracting Approaches and Oversight Used by Selected 
Federal Agencies and States. [hyperlink, 
http://www.gao.gov/products/GAO-10-809]. Washington, D.C.: July 10, 
2010. 

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. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January 22, 
2009. 

Department of State Contract for Security Installation at Embassies. 
[hyperlink, http://www.gao.gov/products/GAO-07-34R]. Washington, D.C.: 
November 8, 2006. 

Contract Management: Increased Use of Alaska Native Corporations' 
Special 8(a) Provisions Calls for Tailored Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-06-399]. Washington, D.C.: April 27, 
2006. 

Contract Security Guards: Army's Guard Program Requires Greater 
Oversight and Reassessment of Acquisition Approach. [hyperlink, 
http://www.gao.gov/products/GAO-06-284]. Washington, D.C.: April 3, 
2006. 

Area Contact: 

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

[End of section] 

Applying Strategic Sourcing Best Practices throughout the Federal 
Procurement System Could Produce Significant Savings: 

Why GAO Is Focusing on This Area: 

Since 2002, spending on federal contracts has more than doubled to 
about $540 billion in 2009, consuming a significant share of agencies' 
discretionary budgets. Because procurement at federal departments and 
agencies generally is decentralized, the federal government is not 
fully leveraging its aggregate buying power to obtain the most 
advantageous terms and conditions for its procurements. 

In the private sector, however, an approach called strategic sourcing 
has been used since the 1980s to reduce procurement costs at companies 
with large supplier bases and high procurement costs. Strategic 
sourcing is a process sometimes led by a central procurement 
organization that improves purchasing activities by moving a company 
away from numerous individual procurements to a broader aggregate 
approach. Leading companies GAO reviewed in 2002 found they could save 
billions of dollars and improve the quality of the products and 
services received by using strategic sourcing. 

Bringing about such changes was not easy, but the strategic sourcing 
best practices of leading companies GAO studied can serve as a 
framework to guide federal strategic sourcing efforts. 

What GAO Has Found Indicating Potential for Cost Saving: 

The federal government could save billions of dollars annually by 
leveraging its enormous buying power. Like the federal government, 
major companies in the private sector rely on products and services 
from numerous suppliers, and many have struggled with methods to 
better manage their purchasing. GAO has reported that to reduce costs, 
improve productivity, and more effectively procure products and 
services, many companies have adopted a strategic sourcing approach--
centralizing and reorganizing their procurement operations to get the 
best value for the company as a whole. The federal government could do 
the same and realize significant savings as a result. 

The leading companies GAO studied in 2002 made a number of dramatic 
changes to the way they managed procurement and found that these 
changes, in turn, resulted in significant cost savings and other 
improvements. These changes generally began with a corporate decision 
by top leaders to pursue a strategic procurement approach. This 
approach involved a range of activities--from developing a better 
picture of what the company was spending on various types of supplies 
and services, to taking an enterprisewide approach to procurement, to 
developing new ways of doing business. Specifically, once top leaders 
committed to taking a strategic approach, the companies took a hard 
look at how much they were spending on products and services and from 
whom. By using this "spend analysis" to arm themselves with knowledge, 
the companies identified opportunities to leverage their buying power, 
reduce costs, and better manage their suppliers. The companies also 
instituted a series of structural, process, and role changes aimed at 
moving away from a fragmented procurement process to a more efficient 
and effective enterprisewide process. 

Applying a strategic sourcing approach in the private sector clearly 
has paid dividends. Studies have reported significant cost savings for 
some companies of 10 percent to 20 percent of their total procurement 
costs. For example, GAO identified one 2002 survey of 147 companies in 
22 industries that indicated a strategic sourcing approach produced 
savings of more than $13 billion in the year 2000 alone. Saving even 
10 percent of total federal procurement spending would produce more 
than $50 billion in savings annually. 

Since 2005, the Office of Management and Budget (OMB) has encouraged 
agencies to coordinate their buys through Federal Strategic Sourcing 
Initiative (FSSI) interagency procurement vehicles[Footnote 65] 
awarded by the General Services Administration. In addition, some 
agencies have awarded agencywide (also referred to as enterprisewide) 
contracts awarded under strategic sourcing programs within an 
individual federal department or agency. In July 2010, OMB's 
congressional testimony on the status of improvements to federal 
acquisition cited examples of what progress is being achieved under 
agency strategic sourcing efforts. Under the FSSI effort for example, 
a team of agencies selected office products in late 2009 as a 
promising strategic sourcing opportunity to combine buying power for 
about $250 million in requirements. This office products initiative is 
expected to reduce costs at these agencies by as much as 20 percent, 
for a total savings of almost $200 million over the next 4 years. 
Further, an agencywide initiative at the Department of Homeland 
Security--which accounted for $14.3 billion in contract spending in 
2009--is expected to save $87 million during the next 6 years for a 
standardized suite of discounted desktop operating systems, e-mail, 
and office automation products. 

These results demonstrate the potential to achieve significant savings 
through the use of strategic sourcing approaches. The starting point 
for such efforts, however, is having good data on current spending. 
But according to an April 2010 GAO report, OMB and agencies cannot be 
sure the government is fully leveraging its buying power because of 
the lack of comprehensive, reliable data to effectively manage and 
oversee an important segment of total procurement spending: 
interagency and agencywide contracts. That is, the total number of and 
sales volume of these contracts are unknown because the federal 
government's official procurement database does not fully capture this 
information. To provide better transparency and a coordinated 
approach, GAO has recommended that OMB ensure that departments and 
agencies accurately record these contracts in the procurement data 
system. The President has called on OMB to issue governmentwide 
guidance on improving the effectiveness of government acquisition. In 
response, OMB's 2009 guidance calls on agencies to increase their 
participation in strategic sourcing initiatives that will leverage 
federal buying power. Because these types of contracts are now being 
used as part of the governmentwide strategic sourcing initiative, 
improved knowledge will help identify additional opportunities for 
savings and ensure that these contracts are being used in an efficient 
and effective manner. 

Actions Needed and Potential Savings: 

Acquisition leaders across the government need to more fully embrace 
the strategic sourcing initiative beginning with collecting, 
maintaining, and analyzing data on current procurement spending. Then, 
agencies have to conduct assessments of acquisition and supply chain 
functions to initiate enterprisewide transformations. Only then will 
they be able to fully implement strategic sourcing programs that drive 
immediate and long-term efficiencies. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products listed below with updates provided by more recent OMB 
testimony. GAO determined that the data it used were sufficiently 
reliable for its purposes. 

Related GAO Products: 

Streamlining Government: Opportunities Exist to Strengthen OMB's 
Approach to Improving Efficiency. [hyperlink, 
http://www.gao.gov/products/GAO-10-394]. Washington, D.C.: May 7, 2010. 

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. 

U.S. Postal Service: Purchasing Changes Seem Promising, but Ombudsman 
Revisions and Continued Oversight Are Needed. [hyperlink, 
http://www.gao.gov/products/GAO-06-190]. Washington, D.C.: December 
15, 2005. 

Amtrak Management: Systemic Problems Require Actions to Improve 
Efficiency, Effectiveness, and Accountability. [hyperlink, 
http://www.gao.gov/products/GAO-06-145]. Washington, D.C.: October 4, 
2005. 

Homeland Security: Successes and Challenges in DHS's Efforts to Create 
an Effective Acquisition Organization. [hyperlink, 
http://www.gao.gov/products/GAO-05-179]. Washington, D.C.: March 29, 
2005. 

Best Practices: Using Spend Analysis to Help Agencies Take a More 
Strategic Approach to Procurement. [hyperlink, 
http://www.gao.gov/products/GAO-04-870]. Washington, D.C.: September 
16, 2004. 

Opportunities for Congressional Oversight and Improved Use of Taxpayer 
Funds: Budgetary Implications of Selected GAO Work. [hyperlink, 
http://www.gao.gov/products/GAO-04-649]. Washington, D.C.: May 7, 2004. 

Contract Management: High-Level Attention Needed to Transform DOD 
Services Acquisition. [hyperlink, 
http://www.gao.gov/products/GAO-03-935]. Washington, D.C.: September 
10, 2003. 

Opportunities for Oversight and Improved Use of Taxpayer Funds: 
Examples from Selected GAO Work. [hyperlink, 
http://www.gao.gov/products/GAO-03-1006]. Washington, D.C.: August 1, 
2003. 

Best Practices: Improved Knowledge of DOD Service Contracts Could 
Reveal Significant Savings. [hyperlink, 
http://www.gao.gov/products/GAO-03-661]. Washington, D.C.: June 9, 
2003. 

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services. [hyperlink, 
http://www.gao.gov/products/GAO-02-230]. Washington, D.C.: January 18, 
2002. 

Area Contact: 

For additional information about this area, contact John Needham at 
(202) 512-4841 or needhamjk1@gao.gov. 

[End of section] 

Adherence to New Guidance on Award Fee Contracts Could Improve 
Agencies' Use of Award Fees and Produce Savings: 

Why GAO Is Focusing on This Area: 

GAO has reported that several major agencies spent over $300 billion 
from fiscal year 2004 through fiscal year 2008 on contracts that 
included monetary incentives known as award fees. The purpose of these 
incentives is to motivate enhanced contractor performance. In 2005, 
however, GAO found that the Department of Defense (DOD) paid billions 
of dollars in award fees regardless of acquisition outcomes. In 2007, 
GAO found significant disconnects between program results and fees 
paid at the National Aeronautics and Space Administration. In 2009, 
GAO reported that five agencies had paid more than $6 billion in award 
fees, but were not consistently following award fee guidance and did 
not have methods for evaluating the effectiveness of an award fee as a 
tool for improving contractor performance. 

What GAO Has Found Indicating Potential for Cost Saving: 

GAO has identified three primary issues related to the use of award 
fees that, if addressed, could improve the use of these incentives and 
produce savings. Specifically, (1) award fees are not always linked to 
acquisition outcomes, (2) award fee payments are made despite 
unsatisfactory contract performance, and (3) contractors have been 
permitted to earn previously unearned award fees in subsequent 
evaluation periods, a practice known as "rollover," where unearned 
award fees are transferred from one evaluation period to a subsequent 
period, thus allowing contractors additional opportunities to earn 
previously unearned fees. GAO has made recommendations to address 
these issues, several of which have been reflected in revised Office 
of Management and Budget (OMB) guidance and in amendments to the 
Federal Acquisition Regulation, effective October 2010. The key to 
improving the use of these fees, however, will be whether agencies 
change their practices to conform to the revised policies. 

Although required by OMB guidance since 2007, GAO reported in 2009 
that award fees were not always linked to acquisition outcomes. But 
when efforts are made to do so, savings can be achieved. For example, 
the Joint Strike Fighter program created metrics for areas such as 
software performance, warfighter capability, and cost control that 
were previously assessed using less-defined criteria. By using metrics 
to assess performance, the Joint Strike Fighter program paid an 
estimated $29 million less in fees in the 2 years since the policy 
changed than it might have when applying the former criteria. 

As GAO previously reported, OMB guidance directed agencies to ensure 
that no award fee should be paid for performance that does not meet 
contract requirements or is judged to be unsatisfactory. GAO found in 
practice the guidance was not always followed. Specifically, GAO 
reported in 2009 that programs across the agencies reviewed used 
evaluation tools that could allow contractors to earn award fees 
without performing at a level that is acceptable to the government 
under the terms of the contract. For example, a Department of Energy 
research contract allowed the contractor to earn up to 84 percent of 
the award fee for performance that was defined as not meeting 
expectations. In addition, GAO found two Department of Health and 
Human Services contracts, including a contract for Medicare claims 
processing, in which it was possible for the contractor to receive at 
least 49 percent of the award fee for unsatisfactory performance. Some 
programs within DOD, by contrast, have prohibited award fee payments 
for unsatisfactory performance. For example, GAO found that the Air 
Force saved $10 million on a contract for a satellite program by not 
paying an award fee to a contractor with unsatisfactory performance. 

DOD guidance on award fees since 2006 has been that the practice of 
rollover should be limited to exceptional circumstances to avoid 
compromising the integrity of the award fee process. GAO found that 
based on contracts reviewed in 2005, DOD rolled over an average of 51 
percent of the total unearned fees. For example, the contractor for 
the F-22 Raptor received over 90 percent of the award fee, including 
fee paid in subsequent evaluation periods, even though the program's 
cost and schedule targets had to be revised 14 times. By later 
limiting rollover, GAO estimated in 2009 that DOD would save over $450 
million on 8 programs from April 2006 through October 2010. A DOD 
Inspector General report in 2010, however, indicates that rollover is 
still being used. The recent amendments to the Federal Acquisition 
Regulation now prohibit rollover of unearned award fees. 

Actions Needed and Potential Savings: 

Recent changes to the Federal Acquisition Regulation and practices on 
award fees are encouraging: 

* Amendments to the Federal Acquisition Regulation in 2010 have 
prohibited the practices of rollover of unearned award fees and 
awarding fees to contractors that have performed unsatisfactorily. 
Some agencies are updating and disseminating guidance that could 
increase the pace and success rate of implementing these new 
regulations. 

* Further, agencies such as DOD are increasing the likelihood that 
award fees would be better linked to acquisition outcomes by 
implementing key practices. For example, DOD is implementing a peer 
review process for contracts over a certain dollar threshold that 
includes examining the plan for administering award fees. 

* However, sustained progress in the use of award fees will require 
that contracting agencies adhere to the recent changes to the Federal 
Acquisition Regulation. Enhanced oversight by OMB and Congress may be 
useful as well. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

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. 

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. 

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

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

Defense Acquisitions: DOD Wastes Billions of Dollars through Poorly 
Structured Incentives. [hyperlink, 
http://www.gao.gov/products/GAO-06-409T]. Washington, D.C.: April 5, 
2006. 

Defense Acquisitions: DOD Has Paid Billions in Award and Incentive 
Fees Regardless of Acquisition Outcomes. [hyperlink, 
http://www.gao.gov/products/GAO-06-66]. Washington, D.C.: December 19, 
2005. 

Area Contact: 

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

[End of section] 

Agencies Could Realize Cost Savings by Disposal of Unneeded Federal 
Real Property: 

Why GAO Is Focusing on This Area: 

The federal real property portfolio is vast and diverse. In fiscal 
year 2009, the federal inventory included over 3 billion square feet 
of building space and over 900,000 assets. The Departments of Defense 
and Veterans Affairs, the U.S. Postal Service, and General Services 
Administration (GSA) hold the majority of federally owned and leased 
space. 

The Office of Management and Budget (OMB) is responsible for reviewing 
agencies' progress on federal real property management and chairs the 
Federal Real Property Council, which includes representatives from the 
major property-holding agencies. Congressional committees that provide 
oversight of this area include the Senate Environment and Public 
Works, Senate Homeland Security and Governmental Affairs, House 
Transportation and Infrastructure, House Oversight and Government 
Reform, and appropriations committees. 

GAO designated management of federal real property as a high-risk area 
in 2003 due to problems with excess and underutilized property, among 
other things. 

What GAO Has Found Indicating Potential for Cost Saving: 

Many federal agencies hold real property they do not need, including 
property that is excess or underutilized.[Footnote 66] Disposing of 
these properties presents potential governmentwide cost savings by 
generating sales proceeds, reducing maintenance and operating costs, 
and avoiding rent costs by ending leases. According to data from the 
Federal Real Property Profile, a central database, in fiscal year 
2009, agencies reported 45,190 underutilized buildings, an increase of 
1,830 such buildings from the previous fiscal year. These figures are 
conservative, as they do not include the U.S. Postal Service, a major 
property holder that does not report to the Federal Real Property 
Profile. Excess and underutilized properties present significant 
potential risks to federal agencies because they are costly to 
maintain. For example, in fiscal year 2009, agencies reported 
underutilized buildings accounted for $1.66 billion in annual 
operating costs. Excess properties also represent a lost opportunity 
to generate sales revenue for the federal government. Many assets are 
no longer effectively aligned with, or responsive to, agencies' 
changing missions. In April 2007 GAO reported that technological 
advances have changed the way the public interacts with the federal 
government, and this change will have significant implications for the 
type and location of property needed in the 21st century. 

In 2004, Executive Order 13327 established the Federal Real Property 
Council and required senior real property officers to, among other 
things, develop and implement an agency asset management plan, 
identify and categorize all real property owned and leased by their 
agency, and prioritize actions needed to improve the operational and 
financial management of the agency's real property inventory.[Footnote 
67] According to OMB officials, a governmentwide initiative started 
under the executive order focused on disposing of unneeded assets. In 
a June 2010 Presidential Memorandum to federal agencies, the 
administration established a new target of saving $3 billion through 
disposals and other methods by the end of fiscal year 2012. However, 
federal agencies continue to face obstacles to disposing of unneeded 
property, such as competing stakeholder interests. For example, the 
U.S. Postal Service has faced resistance to facility closures and 
consolidations because of concerns of how these actions might affect 
jobs, service, and communities as GAO reported in April 2010. Legal 
and budgetary limitations also have implications for real property 
decisions. For example, as GAO reported in April 2007, federal 
agencies are required by law to assess and pay for any environmental 
cleanup that may be needed before disposing of a property--a process 
that may require years of study and result in significant costs, and 
in some cases, may exceed the costs of continuing to maintain the 
excess property in a shut-down status. If the government does not 
address the issue of excess and underutilized property, the costs to 
maintain these properties will continue to rise, putting the 
government at risk for lost dollars and missed opportunities. 

Actions Needed and Potential Savings: 

The recent Presidential Memorandum's targeted $3 billion in savings 
related to property disposals and other methods represents another 
step in realigning the federal portfolio to agencies' missions and 
needs. However, OMB could assist agencies in meeting this target by 
implementing GAO's April 2007 recommendation of developing an action 
plan to address key problems associated with disposing of unneeded 
real property, including reducing the effect of competing stakeholder 
interests on real property decisions. OMB agreed with the 
recommendation but has yet to fully implement it. 

The cost savings for real property disposals are not limited to a one- 
time savings or income. Once a lease is ended, the government 
continues to save the rent payments from that property indefinitely. 
As GAO reported in June 2010, operations and maintenance costs 
typically represent from 60 percent to 85 percent of the costs of a 
facility over its lifetime, while design and construction costs 
represent about 5 percent to 10 percent of these costs. Thus, once the 
government disposes of an owned property, it avoids costs related to 
operations and maintenance that would have otherwise continue to 
accrue, eventually representing approximately 10 times the design and 
construction costs of the property. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. In addition, to update existing information on 
this topic, GAO staff interviewed federal government officials from 
OMB and real property-holding agencies (Departments of Defense, 
Homeland Security, Energy, the Interior, State, and Veterans Affairs; 
U.S. Postal Service; and GSA), and analyzed governmentwide and agency-
level real property plans and reports. 

Related GAO Products: 

Federal Real Property: The Government Faces Challenges to Disposing of 
Unneeded Buildings. [hyperlink, 
http://www.gao.gov/products/GAO-11-370T]. Washington, D.C.: February 
10, 2011. 

Federal Courthouse Construction: Better Planning, Oversight, and 
Courtroom Sharing Needed to Address Future Costs. [hyperlink, 
http://www.gao.gov/products/GAO-10-417]. Washington, D.C.: June 21, 
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. 

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. 

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. 

Federal Real Property: DHS Has Made Progress, but Additional Actions 
Are Needed to Address Real Property Management and Security 
Challenges. [hyperlink, http://www.gao.gov/products/GAO-07-658]. 
Washington, D.C.: June 22, 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. 

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

Federal Real Property: Most Public Benefit Conveyances Used as 
Intended, but Opportunities Exist to Enhance Federal Oversight. 
[hyperlink, http://www.gao.gov/products/GAO-06-511]. Washington, D.C.: 
June 21, 2006. 

Federal Real Property: Further Actions Needed to Address Long-standing 
and Complex Problems. [hyperlink, 
http://www.gao.gov/products/GAO-05-848T]. Washington, D.C.: June 22, 
2005. 

Federal Real Property: Vacant and Underutilized Properties at GSA, VA, 
and USPS. [hyperlink, http://www.gao.gov/products/GAO-03-747]. 
Washington, D.C.: August 19, 2003. 

VA Health Care: Improved Planning Needed for Management of Excess Real 
Property. [hyperlink, http://www.gao.gov/products/GAO-03-326]. 
Washington, D.C.: January 29, 2003. 

Area Contact: 

For additional information about this area, contact David Wise at 
(202) 512-5731 or wised@gao.gov. 

[End of section] 

Improved Cost Analyses Used for Making Federal Facility Ownership and 
Leasing Decisions Could Lead to Cost Savings Governmentwide: 

Why GAO Is Focusing on This Area: 

Federal building ownership is often more cost-effective than leasing 
to meet long-term space needs, and its increased use could save 
millions of dollars over the period used. Federal agencies rely 
extensively on leasing, and leased about 289 million square feet of 
buildings in 2008. The General Services Administration (GSA), the 
central leasing agent for most agencies, leases more than 8,000 assets 
and now leases more space than it owns. 

The Office of Management and Budget (OMB) is responsible for reviewing 
agencies' progress on real property management and chairs the Federal 
Real Property Council, which includes representatives from major 
property-holding agencies. Congressional committees that provide 
oversight of this area include the Senate Committee on Environment and 
Public Works, Senate Homeland Security and Governmental Affairs, House 
Transportation and Infrastructure, House Oversight and Government 
Reform, and appropriations committees. 

GAO added managing federal real property to its high-risk list in 2003 
due in part to costly leasing. 

What GAO Has Found Indicating Potential for Cost Saving: 

GAO's work over the years has repeatedly shown that building ownership 
often costs less than operating leases, especially for long-term space 
needs. 

* In December 1989, GAO found that GSA could have saved $12 billion 
over 30 years by constructing instead of leasing real property in 43 
projects. 

* In July 1995, GAO found that 55 of 73 GSA proposed operating leases 
cost $700 million more than construction over 30 years. 

* In January 2008, GAO found that decisions to lease selected federal 
properties were not always driven by cost-effectiveness 
considerations. Four of seven GSA leases GAO analyzed were more costly 
than construction by $83.3 million based on 30-year net present value 
calculations. For example, the decision to lease the Federal Bureau of 
Investigation's field office in Chicago, Illinois, instead of 
constructing a building the government would own, was estimated to 
cost about $40 million more over 30 years. GSA officials stated that 
limited availability of upfront capital and security considerations, 
among other reasons, prevented ownership at that time. 

While federal ownership is less expensive than leasing in many cases, 
in certain situations it is not. For example, in 2008, GAO found that 
for three of seven GSA leases it analyzed, leasing was less costly 
than construction by $35 million over 30 years. Agency operational 
requirements such as immediate space needs, security requirements, or 
desire for flexibility as well as short-term or small space needs are 
also situations where leasing is often preferred by agencies and may 
be economically advantageous over ownership. 

Federal budget scorekeeping rules require the full cost of 
construction to be recorded upfront in the budget, whereas only the 
annual lease payments plus cancellation costs need to be recorded for 
operating leases. As a result, leases appear less expensive in any 
single year when compared to new construction even though they 
generally are more costly over time. GAO has raised the scorekeeping 
issue as a challenge that needs to be addressed in several reports and 
testimonies over the past 20 years. According to GSA officials, 
constraints on capital funding influence their ability to pursue 
ownership as a realistic option in many cases. If not addressed, GAO 
expects continued reliance on leasing at a potentially high cost over 
the long term. 

The Federal Real Property Profile, a real property inventory, is an 
important tool available to track governmentwide trends on real 
property management, including leasing. Updated annually, it includes 
information helpful to measuring overall volume as well as annual 
operating costs of leased versus owned properties, among other factors. 

Actions Needed and Potential Savings: 

OMB has not yet implemented GAO's recommendation, made in April 2007 
and January 2008, to develop a strategy to reduce agencies' reliance 
on costly leasing where ownership would result in long-term savings. 
Such a strategy could identify the conditions under which leasing is 
an acceptable alternative, include an analysis of real property budget 
scoring issues, and provide an assessment of viable alternatives. This 
strategy would inform future decision making on this difficult issue. 
As GAO reported in January 2008, implementation challenges such as 
obtaining consensus on specific changes to scoring rules are expected. 
Efforts to resolve the leasing challenge could benefit from input from 
Federal Real Property Council and stakeholders, including Congress. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below, interviews with federal government officials at 
OMB and major property holding agencies including GSA, and analysis of 
governmentwide and agency-level real property plans and reports. 

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. 

Federal Real Property: An Update on High Risk Issues. [hyperlink, 
http://www.gao.gov/products/GAO-09-801T]. Washington, D.C.: July 15, 
2009. 

Government Printing Office: Issues Faced in Obtaining a New Facility. 
[hyperlink, http://www.gao.gov/products/GAO-09-392R]. Washington, 
D.C.: February 20, 2009. 

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. 

General Services Administration: Improvements Needed in Managing 
Delegated Authority of Real Property Activities. [hyperlink, 
http://www.gao.gov/products/GAO-07-1000]. Washington, D.C.: September 
5, 2007. 

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

GSA Leasing: Initial Implementation of the National Broker Services 
Contracts Demonstrates Need for Improvements. [hyperlink, 
http://www.gao.gov/products/GAO-07-17]. Washington, D.C.: January 31, 
2007. 

Federal Real Property: NIH Has Improved Its Leasing Process, but Needs 
to Provide Congress with Information on Some Leases. [hyperlink, 
http://www.gao.gov/products/GAO-06-918]. Washington, D.C.: September 
8, 2006. 

Federal Real Property: Further Actions Needed to Address Long-standing 
and Complex Problems. [hyperlink, 
http://www.gao.gov/products/GAO-05-848T]. Washington, D.C.: June 22, 
2005. 

General Services Administration: Factors Affecting the Construction 
and Operating Costs of Federal Buildings. [hyperlink, 
http://www.gao.gov/products/GAO-03-609T]. Washington, D.C.: April 2, 
2003. 

General Services Administration: Opportunities for Cost Savings in the 
Public Buildings Area. [hyperlink, 
http://www.gao.gov/products/GAO/T-GGD-95-149]. Washington, D.C.: July 
13, 1995. 

Public Buildings: Budget Scorekeeping Prompts Difficult Decisions. 
[hyperlink, http://www.gao.gov/products/GAO/T-AIMD/GGD-94-43]. 
Washington, D.C.: October 28, 1993. 

Federal Office Space: Increased Ownership Would Result in Significant 
Savings. [hyperlink, http://www.gao.gov/products/GAO/GGD-90-11]. 
Washington, D.C.: December 22, 1989. 

Area Contact: 

For additional information about this area, contact David Wise at 
(202) 512-2834 or wised@gao.gov. 

[End of section] 

OMB's IT Dashboard Can Further Help Identify Opportunities to Invest 
More Efficiently in Information Technology: 

Why GAO Is Focusing on This Area: 

Each year the federal government spends billions of dollars on 
information technology (IT) investments; federal spending on IT has 
risen to an estimated $79 billion for fiscal year 2011. Over the past 
several years, GAO has reported and testified on the Office of 
Management and Budget's (OMB) initiatives to highlight troubled IT 
projects, justify investments, and use project management tools. Given 
the importance of transparency, oversight, and management of the 
government's IT investments, in June 2009 OMB established a public Web 
site, referred to as the IT Dashboard, that provides detailed 
information on about 800 investments at 27 federal agencies, including 
ratings of their performance against cost and schedule targets. The 
public dissemination of this information is intended to allow OMB; 
other oversight bodies, including Congress; and the general public to 
hold agencies accountable for results and performance. 

What GAO Has Found Indicating Potential for Cost Saving: 

In July 2010, GAO reported that OMB's Dashboard had increased 
transparency and oversight, but that improvements were needed for the 
Dashboard to more fully realize its potential as a management and cost-
savings tool. Specifically, the cost and schedule ratings on the 
Dashboard were not always accurate for the investments that GAO 
reviewed. GAO found that four of the eight selected investments had 
notable discrepancies in either cost or schedule ratings. For example, 
the Dashboard indicated that one investment had a less-than-5-percent 
cost variance for every month from July 2009 through January 2010. 
However, GAO's analysis showed that this investment had a cost 
performance variance from 10 percent to less than 15 percent in 
December 2009 through January 2010. In another case, an investment on 
the Dashboard reported that it has been less than 30 days behind 
schedule since July 2009. Investment data that GAO examined, however, 
showed that the investment was behind schedule by 30 days to almost 90 
days from September to December 2009. 

A primary reason for the data inaccuracies was that while the 
Dashboard was intended to represent near real-time performance 
information, the cost and schedule ratings did not take into 
consideration current performance. As a result, the ratings were based 
on outdated information. For example, cost ratings for each of the 
investments were based on data from 2 months to almost 2 years old. 
Another issue with the ratings stemmed from the wide variation in the 
number of milestones agencies reported, which was partly because OMB's 
guidance was too general. Having too many milestones can mask 
performance problems because the performance of each milestone (dated 
and recent) was equally averaged into the ratings. This means that 
investments that performed well during previously completed milestones 
can maintain ratings that reflect good performance, even if they begin 
to perform poorly. Conversely, having too few milestones limits the 
amount of information available to rate performance, allowing agencies 
to potentially distort their ratings. 

GAO also assessed whether the data on the Dashboard were being used as 
a tool to improve the management of IT investments. Officials at three 
of the five agencies in GAO's review stated they were not using the 
Dashboard to manage their investments because they already had 
existing means to do so; officials at the other two agencies indicated 
they were using the Dashboard to supplement their existing management 
processes. The Federal Chief Information Officer stated that the 
Dashboard greatly improved oversight capabilities compared to 
previously used mechanisms and that it has increased the 
accountability of agencies' chief information officers and established 
much-needed visibility. OMB officials indicated they had relied on the 
Dashboard as a management tool, including using investment trend data 
to identify and address performance issues and to select investments 
for a TechStat session--a review of selected IT investments between 
OMB and agency leadership that is led by the Federal Chief Information 
Officer. According to OMB, as of December 2010, 58 TechStat sessions 
have been held with federal agencies. Additionally, OMB officials 
stated that, as a result of these sessions, 11 investments have been 
reduced in scope and 4 have been canceled. For example, TechStats on: 

* the Department of Housing and Urban Development's Transformation 
Initiative investment resulted in the reduction of projects from 29 to 
7 and the limit of fiscal year 2010 funds for these 7 priority 
projects to $85.7 million (from $138 million); and: 

* the National Archives and Records Administration's Electronic 
Records Archives investment resulted in six corrective action steps, 
including halting fiscal year 2012 development funding pending the 
completion of a strategic plan. 

To better ensure that the Dashboard provides meaningful ratings and 
accurate investment data, GAO recommended that OMB report on the 
effect of planned changes to the Dashboard to improve the accuracy of 
ratings and to provide guidance to agencies to standardize milestone 
reporting. OMB agreed with these recommendations and initiated work to 
update the Dashboard to factor the performance of ongoing milestones 
into cost and schedule ratings. 

Finally, GAO has work under way to evaluate the data provided by the 
Dashboard in order to determine the extent to which agencies may be 
investing in projects in the same line of business. GAO is also 
reviewing OMB's current approach to identifying and acting on such 
duplicative investments. 

Actions Needed and Potential Savings: 

According to the Federal Chief Information Officer, use of the 
Dashboard as a management and oversight tool has already resulted in a 
$3 billion budget reduction. OMB's planned improvements to the 
Dashboard, along with full implementation of GAO's recommendations (as 
discussed above) and the possible identification of duplicative 
investments, have the potential to result in further significant 
savings. Additional opportunities for potential cost savings exist 
with the use of the Dashboard by executive branch agencies to identify 
and make decisions about poorly performing investments, as well as its 
continued use by congressional committees to support critical 
oversight efforts. 

Framework for Analysis: 

The information above is based on ongoing work on the Dashboard and 
related GAO products listed below. 

Related GAO Products: 

Information Technology: OMB's Dashboard Has Increased Transparency and 
Oversight, but Improvements Needed. [hyperlink, 
http://www.gao.gov/products/GAO-10-701]. Washington, D.C.: July 16, 
2010. 

Information Technology: Management and Oversight of Projects Totaling 
Billions of Dollars Need Attention. [hyperlink, 
http://www.gao.gov/products/GAO-09-624T]. Washington, D.C.: April 28, 
2009. 

Information Technology: OMB and Agencies Need to Improve Planning, 
Management, and Oversight of Projects Totaling Billions of Dollars. 
[hyperlink, http://www.gao.gov/products/GAO-08-1051T]. Washington, 
D.C.: July 31, 2008. 

Information Technology: Further Improvements Needed to Identify and 
Oversee Poorly Planned and Performing Projects. [hyperlink, 
http://www.gao.gov/products/GAO-07-1211T]. Washington, D.C.: September 
20, 2007. 

Information Technology: Improvements Needed to More Accurately 
Identify and Better Oversee Risky Projects Totaling Billions of 
Dollars. [hyperlink, http://www.gao.gov/products/GAO-06-1099T]. 
Washington, D.C.: September 7, 2006. 

Information Technology: Agencies and OMB Should Strengthen Processes 
for Identifying and Overseeing High Risk Projects. [hyperlink, 
http://www.gao.gov/products/GAO-06-647]. Washington, D.C.: June 15, 
2006. 

Information Technology: OMB Can Make More Effective Use of Its 
Investment Reviews. [hyperlink, 
http://www.gao.gov/products/GAO-05-276]. Washington, D.C.: April 15, 
2005. 

Area Contact: 

For additional information about this area, contact David A. Powner at 
(202) 512-9286 or pownerd@gao.gov. 

[End of section] 

Increasing Electronic Filing of Individual Income Tax Returns Could 
Reduce IRS's Processing Costs and Ultimately Increase Enforcement 
Revenue: 

Why GAO Is Focusing on This Area: 

The Internal Revenue Service (IRS) received more than 130 million 
individual income tax returns during the 2010 filing season. The 
percentage of returns filed electronically has increased from 52 
percent in 2005 to 71 percent in 2010. However, in 2010, IRS still 
processed 40 million tax returns filed on paper--some of which must be 
filed on paper due to their complexity or required supplemental 
documentation. Electronic filing benefits taxpayers by reducing 
processing errors and expediting their refunds. It also benefits IRS 
because no transcription of tax data is necessary, unlike for returns 
filed on paper. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Increasing electronic filing would reduce IRS's return processing 
costs and increase revenue by facilitating enforcement. As noted in 
GAO's December 2010 report, IRS estimated savings of $3.10 per return 
for returns filed electronically versus paper in fiscal year 2009. 
Millions of dollars in processing costs could therefore be avoided by 
encouraging electronic filing. Based on GAO's prior reports from 2007 
to 2010, IRS has three opportunities to increase electronic filing of 
individual income tax returns: 

Require tax software identification numbers: As noted in GAO's 
February 2009 report, having a more complete software identification 
number would allow IRS to better target its research of ways to 
promote electronic filing. IRS now requires software identification 
numbers for returns prepared using software and then printed and 
submitted on paper, but does not have plans to transcribe this 
information. More comprehensive information about tax software 
versions used to prepare both electronically-filed and paper returns 
would help inform research into how the pricing and attributes of 
different software products affect taxpayers' willingness to use 
software and file electronically. 

Prevent rejects of electronically filed returns: As noted in GAO's 
September 2009 report, IRS could also increase electronic filing by 
working with taxpayers and their representatives to reduce the number 
of rejected returns. As tax returns are received electronically, IRS 
begins a series of automated checks to verify basic information (such 
as Social Security numbers) and then rejects returns containing 
errors. If a return is rejected, IRS sends an electronic notice with 
one or more error codes explaining why the return was rejected, and 
how the error can be corrected and the return resubmitted. However, 
some codes are very general and cover multiple issues, while others 
are so narrow that they are rarely used. Frustrated taxpayers may 
simply print and mail their returns to IRS without making corrections 
leaving IRS to identify and correct the errors and process the paper 
returns, thereby losing the benefits of electronic filing. 

Require bar coding: As noted in GAO's November 2007 report, IRS could 
require that tax software vendors encode relevant information in a bar 
code that would be embedded on all paper returns printed from tax 
software and mailed, as several states already do. IRS could then scan 
the bar code to obtain electronic information such as a taxpayer's 
Social Security number and address from the return. While not as 
beneficial as electronic filing, bar coding would still provide 
efficiencies over data transcription and enable more information to be 
available electronically. In December 2010, IRS reported that it is 
reviewing options to enhance current systems with bar code 
capabilities and developing detailed requirements and timetables. 

In keeping with efforts to increase the availability of electronic tax 
data for enforcement purposes, IRS could also increase the amount of 
tax data available electronically by increasing the amount of data 
from paper tax returns it transcribes into its computer databases. 
Currently, to control data-entry costs, IRS does not transcribe all 
data from paper tax returns into its computer databases, thus limiting 
information available electronically for enforcement purposes. As 
noted in GAO's November 2007 report, transcribing more or all return 
information, thus having it available electronically, could help IRS 
target audits on noncompliant taxpayers, avoid burdening compliant 
taxpayers with unnecessary audits, and make more productive use of 
IRS's audit resources. For example, in 2007 officials from one of 
IRS's enforcement programs (Automated Underreporter) estimated that 
having all tax return information available electronically would 
increase tax revenue annually by $175 million. 

Actions Needed and Potential Revenue: 

IRS generally agreed with GAO's prior recommendation to require a more 
complete software identification number, and said that it would do so 
by the 2010 filing season. IRS has taken some actions such as 
requiring a software identification number on printed returns but does 
not plan to transcribe this information. GAO continues to believe that 
if IRS were to collect more information via expanded software 
identification numbers on tax returns, such information could support 
research into how software affects electronic filing. GAO recognizes 
that there would be some offsetting costs. However, increasing 
electronic filing could lower total tax return processing costs by 
switching costly paper filing to more economical electronic filing. 

IRS agreed with GAO's prior recommendations to develop a reject 
prevention strategy, include external stakeholders in its reject 
working group, develop an action plan for that group, and provide 
clearer descriptions of why returns are being rejected. IRS has taken 
significant action to address these recommendations in conjunction 
with its ongoing research into advancing electronic filing. 

IRS agreed with GAO's prior recommendations that it should determine 
actions needed to require software vendors to include bar codes on 
printed individual income tax returns and the cost of those actions. 
While bar coded paper returns are still more expensive to process than 
electronically filed returns, states that require bar coding of 
returns report that greater electronic access to return data has 
allowed them to more easily verify information and improve 
enforcement. GAO continues to believe that bar coding of printed 
returns has the potential to reduce processing costs, facilitate 
access to taxpayer information, and improve compliance. IRS has 
conducted further research on the burden to IRS and software providers 
of requiring bar codes on printed returns as part of its ongoing 
studies to promote electronic filing. 

Finally, IRS agreed with GAO's prior recommendation that more 
comprehensive and easily accessible electronic return information 
would facilitate enforcement efforts and thus increase revenue 
collected from noncompliant taxpayers, and IRS is taking steps to 
study the issue. For example, IRS recently identified options to 
increase electronic filing, but has yet to define an overall strategy 
for doing so. As noted above, having more tax return information 
available electronically could increase revenues by at least hundreds 
of millions of dollars. 

GAO expects to continue assessing IRS's progress in addressing these 
issues. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below and GAO's work following up on the 
recommendations from those products. 

Related GAO Products: 

2010 Tax Filing Season: IRS's Performance Improved in Some Key Areas, 
but Efficiency Gains Are Possible in Others. [hyperlink, 
http://www.gao.gov/products/GAO-11-111]. Washington, D.C.: December 
16, 2010. 

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. 

Tax Administration: Many Taxpayers Rely on Tax Software and IRS Needs 
to Assess Associated Risks. [hyperlink, 
http://www.gao.gov/products/GAO-09-297]. Washington, D.C.: February 
25, 2009. 

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. 

Area Contact: 

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

[End of section] 

Using Return on Investment Information to Better Focus IRS Enforcement 
Could Increase Tax Compliance and Revenues: 

Why GAO Is Focusing on This Area: 

Taxpayers paid more than $2.3 trillion in federal taxes in fiscal year 
2009. However, the Internal Revenue Service (IRS) estimates that 
taxpayers failed to pay an additional $290 billion (based on a 2001 
estimate--the most recent available). Experts believe the current tax 
gap, or the difference between the amount of taxes owed and the amount 
paid voluntarily and timely, may be larger. IRS seeks to allocate its 
approximately $12 billion budget over several service and enforcement 
programs to maximize taxpayer compliance. IRS taxpayer services range 
from telephone, Web site, and in-person assistance to collaboration 
with paid tax preparers and tax software companies. Enforcement 
includes audits, a variety of computerized checks, as well as efforts 
targeting specific industries or types of taxpayers, such as those 
with offshore bank accounts. However, IRS has little information about 
either the relative effectiveness or costs of its service and 
enforcement programs. IRS has begun to estimate return on investment 
(ROI), which compares revenues collected as a result of such 
enforcement actions with the cost of collecting them, but use of ROI 
has been limited. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Increasing IRS's use of ROI and similar information, including 
developing actual ROI information after an enforcement program is 
implemented and comparing it to IRS's initial revenue projections, 
would provide a powerful tool for Congress and other budget decision 
makers, by identifying both cost savings within IRS and opportunities 
to cost-effectively reallocate resources to improve compliance and 
thereby bring in additional revenue for the federal government. 

Beginning in fiscal year 2008, IRS has provided ROI information about 
the projected costs and potential revenues of new enforcement 
initiatives in its budget justification. For example, in its fiscal 
year 2011 justification, IRS reported that its proposed new 
initiatives would cost $237 million and increase revenue collected 
from noncompliant taxpayers by a projected $2 billion. However, IRS 
provides projected ROI information for only its new enforcement 
initiatives--accounting for less than 2 percent of the IRS's fiscal 
year 2011 budget request. Further, although guidance from the Office 
of Management and Budget (OMB), GAO, and the Government Performance 
and Results Act of 1993 suggest the use of ROI information, IRS does 
not provide projected ROI information for any of its existing 
enforcement or service programs that would continue to be funded under 
the budget request. IRS also does not estimate the ROI actually 
realized by its programs. 

Citing GAO's June 2009 ROI recommendation in its fiscal year 2011 
committee report, the Senate Committee on Appropriations directed IRS 
to provide detailed information about actual costs, revenues, and ROI 
for its new enforcement initiatives. IRS officials have been 
considering options to collect actual ROI data to compare with 
projections, however, actual ROI data have as yet to be produced. ROI 
information is challenging to develop and should be supplemented with 
information on compliance costs for taxpayers and others. Further, it 
is difficult to isolate the effects of a particular program on 
taxpayer compliance and IRS lacks some data needed to make complete 
ROI estimates. However, even limited ROI information could help 
identify programs that are not justifying their cost or opportunities 
to reallocate resources to programs that have larger tax compliance 
and revenue impact per dollar spent. 

Similarly, IRS's fiscal year 2011 budget justification included 24 
legislative proposals from the Department of the Treasury aimed at 
reducing the tax gap and generating nearly $26 billion in additional 
revenue over the next 10 years. For example, two legislative proposals 
suggest increased information reporting requirements, which are 
estimated to result in more than $12 million in revenues, but there 
were no estimates of the upfront costs of these proposals, such as the 
cost of purchasing or modernizing information technology or training 
staff or increased costs to the private sector. OMB guidance suggest 
that agencies should provide estimates of the implementation costs 
associated with any proposed legislation in their budget 
justifications, but IRS has provided no such estimates for its 
proposals. As a result, it is difficult to determine whether the 
potential benefits of IRS's legislative proposals are worth the costs, 
or how long it will take for the agency to recoup any initial 
investments. 

Actions Needed and Potential Revenue: 

To help Congress and other budget decision makers better determine 
whether IRS's resources could be reallocated to collect more revenue 
and identify possible cost savings, and building on earlier 
recommendations, GAO believes that IRS should continue to increase its 
use of ROI information. IRS recognizes that this will require 
additional research to identify the impacts of specific programs 
including the effect on voluntary compliance by taxpayers. Once actual 
ROI statistics are developed for programs, and supplemented with 
compliance cost information, IRS could then compare results across 
programs. Actual ROI information could also be compared to initial ROI 
projections for a program to determine whether the anticipated results 
were actually achieved. The potential for cost savings and increased 
revenue that could result from more use of ROI information is 
significant. For example, if more effective utilization of IRS's 
existing resources reduced the tax gap by 1 percent, the additional 
tax revenue would be about $3 billion. 

Also, as GAO has previously recommended, IRS should also coordinate 
with the Department of the Treasury to provide Congress with 
preliminary cost estimates or descriptions of resource needs for 
legislative proposals in future budget justifications. Even though 
many of the 24 legislative proposals IRS submitted to Congress in its 
fiscal year 2011 budget justification are conceptual--and therefore 
developing precise cost estimates for them may be difficult--providing 
approximate costs or other information such as whether the proposal 
would involve significant systems, staff, or training expenses could 
help Congress evaluate the proposals. Without such information, 
Congress is left at a disadvantage when weighing the costs and 
benefits of competing proposals aimed at increasing the amount of 
federal tax revenue collected. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below and additional work following up on the 
recommendations from those products. 

Related GAO Products: 

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. 

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: Review of the Fiscal Year 2010 Budget 
Request. [hyperlink, http://www.gao.gov/products/GAO-09-754]. 
Washington, D.C.: June 3, 2009. 

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

Area Contact: 

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

[End of section] 

Better Management of IRS Debt Collection May Reduce Costs and Increase 
the Amount of Tax Revenue Collected from Individuals: 

Why GAO Is Focusing on This Area: 

The Internal Revenue Service (IRS) has recognized that each year 
individuals do not pay billions of dollars of their acknowledged tax 
debts, which include tax assessments as well as related penalty and 
interest charges that build up over the years. It is important for the 
IRS to pursue collection of unpaid tax debt to help ensure compliance 
and confidence in the tax system as well as to provide needed revenue 
for government operations. 

IRS has a three-phase strategy for resolving billions of dollars of 
individuals' unpaid tax debt. The first phase--referred to as the 
notice phase--involves mailing tax due notices to the taxpayers. The 
second and third phases--the telephone and in-person contact phases-- 
are more labor intensive and expensive. 

Used well, notices can help IRS collect or otherwise resolve many tax 
debts at relatively low cost while generating significant revenue. IRS 
generally sends up to four notices to solicit payment before taking 
other collection steps. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

The notice phase of IRS's three-phase tax collection approach is the 
least costly, and achieves billions in results annually but many 
billions more remain uncollected at the end of the phase. During 
fiscal year 2008, IRS sent approximately 22 million notices to 
individuals to try to collect around $129 billion in tax debts that 
had accumulated over the years. Through the use of notices, IRS 
obtained full or partial payments of close to $6 billion and moved 
about $41 billion of unpaid debts to the other, more costly collection 
phases during fiscal year 2008. 

Having clear program objectives linked with performance measures can 
help agencies identify risks to achieving a program's purpose and, if 
possible, improve program performance. Given that IRS relies on 
individual taxpayers to respond to its notices, being clear about what 
IRS expects and what outcomes are being achieved is especially 
important in order to gain insights on how to maximize performance. 

However, whether the notice phase is achieving optimum results is 
unclear because of the lack of objectives and performance measures for 
gauging its effectiveness. IRS has not documented its objectives or 
developed related measures to indicate how well the notice phase is 
performing. Nor has IRS documented clear responsibility for reviewing 
this performance compared to targets. IRS also lacks information on 
the full costs of collection notices. 

To make the best use of collection resources, IRS has developed 
business rules to dictate actions to be taken on individual tax debts. 
Based on certain dollar thresholds and other characteristics of 
individual tax debt cases, the business rules can vary the number and 
types of notices sent to taxpayers and determine whether unresolved 
cases will be sent for further collection action or further action 
will be deferred. However, IRS has not documented the business rules 
that govern notices sent to individuals. For its major rules, IRS 
lacks basic information on the rationale when the rules were 
established, how the rules are to work, and whether the rules work as 
intended. 

Without such information, IRS does not know whether its business rules 
are working as originally designed or achieve IRS's desired collection 
results at the least cost. With such controls over the notices sent to 
individuals that have federal tax debts, IRS would be better able to 
assure Congress and the taxpayers that it is using this collection 
phase to the greatest benefit. 

Actions Needed and Potential Revenue: 

As GAO recommended in September 2009, IRS needs to establish 
objectives and performance measures for the notice phase of its 
collection process for individual taxpayers as well as management 
responsibility for reviewing the performance of the notice phase. In 
addition, IRS needs to better document the business rules and their 
rationales, and periodically evaluate how well they are working. 

IRS has started to implement all of these actions. IRS has made the 
most progress in assigning responsibility for reviewing performance 
and documenting rationales for the business rules for some of the 
frequently issued collection notices. However, IRS must ensure that 
those with the responsibility for reviewing performance of the 
collection notice phase use outcome-focused performance measures that 
are clearly linked to documented objectives. Further, as GAO 
previously recommended, IRS must ensure that the business rules are 
not only better documented but are also periodically evaluated on how 
well they are doing what they were intended to do. GAO expects to 
evaluate IRS's progress in implementing all these actions. 

Better data and a more justifiable basis for sending notices or 
deciding to implement other enforcement actions will produce better 
decisions that avoid waste and possibly collect more tax debts sooner. 
Although data are not now readily available to estimate the revenue to 
be gained from taking these steps, improved performance in collecting 
more tax debts sooner could help reduce the tens of billions of 
dollars that are annually sent to the two more expensive tax debt 
collection phases; this amount was about $41 billion for fiscal year 
2008. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

Tax Debt Collection: IRS Needs to Better Manage the Collection Notices 
Sent to Individuals. [hyperlink, 
http://www.gao.gov/products/GAO-09-976]. Washington, D.C.: September 
30, 2009. 

Tax Debt Collection: IRS Has a Complex Process to Attempt to Collect 
Billions of Dollars in Unpaid Tax Debts. [hyperlink, 
http://www.gao.gov/products/GAO-08-728]. Washington, D.C.: June 13, 
2008. 

Area Contact: 

For additional information about this area, contact Michael Brostek 
(202) 512-9110 or brostekm@gao.gov. 

[End of section] 

Broadening IRS's Authority to Correct Simple Tax Return Errors Could 
Facilitate Correct Tax Payments and Help IRS Avoid Costly, Burdensome 
Audits: 

Why GAO Is Focusing on This Area: 

In 2009, IRS sent out more than 12 million math error notices. Math 
error notices result from cases of mathematical or other simple tax 
return errors where Congress has granted the Internal Revenue Service 
(IRS) math error authority (MEA), or the ability to assess tax or take 
other actions to correct such errors in limited circumstances. For 
example, when a taxpayer claims a credit amount exceeding a statutory 
limit, IRS uses MEA to fix the error during return processing. 

For almost a century, Congress has been expanding IRS's MEA on a case- 
by-case basis. However, because IRS can use MEA only in specifically 
authorized situations, it has been unable to timely use MEA in several 
notable instances where substantial numbers of taxpayers made similar 
easily correctable errors. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS's use of recent additions to MEA have efficiently corrected 
hundreds of thousands of taxpayer errors and ensured proper payments 
of tax. For example, in September 2009, GAO suggested that Congress 
consider providing IRS with additional MEA to help IRS enforce 
compliance with the First-Time Homebuyer Credit (FTHBC). In November 
2009, after learning about compliance problems with this tax credit 
that froze refunds and prompted civil and criminal investigations, 
Congress extended MEA to cover certain eligibility requirements for 
the FTHBC. As of July 2010, more than 3 million taxpayers have made 
more than $23 billion in FTHBC claims. Broader MEA has given IRS the 
ability to automatically verify those claims, correct errors where 
necessary, and deny approximately 350,000 erroneous claims in 2010 
alone, thus saving tax revenue and enabling IRS to use resources 
elsewhere. 

Similarly, in 2009, after finding more than $600 million of 
inappropriately claimed Hope credits for higher education (currently 
called the American Opportunity tax credit), both GAO and the Treasury 
Inspector General for Tax Administration suggested that Congress give 
IRS broader MEA. Specifically, GAO suggested that broader MEA be 
provided so IRS could use prior years' tax return information to 
automatically verify taxpayers' compliance with the limit on the 
number of years the Hope credit can be claimed. In the absence of this 
authority, IRS relies on audits to ensure compliance. However, audits 
may not be effective because they are labor-intensive, costly, and 
often do not yield high revenues. Consequently, IRS does relatively 
few audits on the millions of credits claimed. 

When using MEA, IRS need not follow its standard deficiency 
procedures, which allow taxpayers an appeal and petition to the Tax 
Court. Instead, IRS must only notify the taxpayer that it has 
identified the error and has made a change. While MEA helps IRS avoid 
costly audits, which are burdensome to taxpayers, the National 
Taxpayer Advocate and some in Congress are concerned that not 
following standard deficiency procedures might undermine taxpayer 
rights because IRS might use broad authority in situations where it 
does not know with a high degree of certainty that the taxpayer made 
an error. However, as discussed below, other steps could be taken to 
address this concern. 

Actions Needed and Potential Revenue: 

To ensure the proper amount of taxes are paid and help IRS avoid 
costly, burdensome audits, Congress many want to consider granting IRS 
broader math error authority, with appropriate safeguards against 
misuse of that authority, to correct errors during tax return 
processing. With broader MEA granted by Congress, IRS could take the 
steps necessary to ensure proper payment of taxes in many situations. 
Although the amount of increased revenues would depend on the nature 
of future MEA use, revenue increases could be substantial based on 
past uses. Such authority could also reduce taxpayers' burdens by 
giving IRS an alternative to more intrusive enforcement actions. 
Broader authority could take several forms. For instance, it could be 
granted for newly created or revised refundable credits. Refundable 
credits, which provide cash payments to taxpayers irrespective of the 
amount of their tax liabilities, are growing in popularity, and 
automatic authority could enable IRS to monitor low-dollar amounts on 
individual returns that would be too labor intensive and costly to 
audit. Or, authority could be granted for any situation where IRS 
could check for obvious noncompliance. Had such authority existed, IRS 
could have addressed FTHBC compliance issues more quickly. 

Controls may be needed to ensure MEA is properly used. For example, as 
GAO has previously reported, Congress could require IRS to submit a 
report on each proposed new use of MEA. The report could include how 
such use would meet Congress's standards or criteria for MEA use. The 
report could also describe IRS's or the National Taxpayer Advocate's 
assessment of any potential effect on taxpayer rights. Or, Congress 
could require a more informal procedure whereby IRS simply notifies a 
committee, such as the Joint Committee on Taxation, of its proposed 
MEA use and submits a report after such use is under way. 

Authorizing the use of MEA on a broader basis could have several 
benefits for IRS and taxpayers. It could: 

* enable IRS to correct all or nearly all returns with types of 
noncompliance for which IRS identifies with virtual certainty the 
noncompliance and the needed correction, not just those it can address 
through other enforcement means; 

* be low cost and less intrusive and burdensome to taxpayers than 
audits; 

* ensure that taxpayers who are noncompliant on a particular issue are 
more often treated alike, that is, that a greater portion of them are 
brought into compliance, not just those that IRS could otherwise 
address; 

* provide a taxpayer service as it would generally allow noncompliant 
taxpayers to receive their refunds faster than if IRS had to address 
the error through some other compliance mechanism, have their returns 
corrected without penalty and before interest is accrued, and avoid 
time-consuming interaction with IRS under its other programs for 
resolving noncompliance; 

* help ensure taxpayers receive the tax benefits for which they are 
eligible by identifying taxpayers underclaiming a tax benefit; 

* free up IRS resources to pursue other forms of noncompliance; and: 

* allow IRS to quickly address provisions arising from new and quickly 
moving initiatives, such as the American Recovery and Reinvestment Act 
of 2009, without waiting for new MEA to go through the legislative 
process. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products listed below and additional work following up on the 
recommendations from those products. 

Related GAO Products: 

Tax Administration: Usage and Selected Analyses of the First-Time 
Homebuyer Credit. [hyperlink, 
http://www.gao.gov/products/GAO-10-1025R]. Washington, D.C.: September 
2, 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. 

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. 

First-Time Homebuyer Tax Credit: Taxpayers' Use of the Credit and 
Implementation and Compliance Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-166T]. Washington, D.C.: October 
22, 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. 

Tax Administration: IRS's 2008 Filing Season Generally Successful 
Despite Challenges, although IRS Could Expand Enforcement during 
Returns Processing. [hyperlink, 
http://www.gao.gov/products/GAO-09-146]. Washington, D.C.: December 
12, 2008. 

Area Contact: 

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

[End of section] 

Enhancing Mortgage Interest Information Reporting Could Improve Tax 
Compliance: 

Why GAO Is Focusing on This Area: 

The Joint Committee on Taxation estimated that individual taxpayers' 
deductions of home mortgage interest reduced federal revenue by about 
$80 billion in 2009. Also, in its most recently completed 
comprehensive study of individual taxpayer compliance for 2001, the 
Internal Revenue Service (IRS) found that 12 percent to 14 percent of 
individual taxpayers deducting mortgage interest misreported deducted 
amounts. About half of taxpayers underreported the deduction while 
about half overreported. 

Subject to various limitations, taxpayers may deduct interest on home 
mortgages or mortgage refinancings. Additionally, taxpayers with 
rental real estate are ordinarily allowed to deduct mortgage interest 
expenses for their rental properties from their rental income. 

Lending institutions and other third parties are required to report to 
taxpayers and IRS on a Form 1098 Mortgage Interest Statement the 
amount of mortgage interest taxpayers paid during the year, if more 
than $600. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS has the opportunity to collect additional information about 
taxpayers' mortgages to help it determine whether taxpayers are 
deducting correct amounts of mortgage interest and identify the most 
productive cases to examine. Requiring expanded information on 
mortgage interest could also improve voluntary compliance, as 
taxpayers tend to more accurately report items that third parties 
report on information returns, such as Form 1098. 

Lending institutions are generally required to report on Form 1098 the 
amounts of mortgage interest taxpayers paid during the year, but the 
form does not include other items, such as (1) the address of the 
property secured by the mortgage to which the interest on the form 
relates, (2) outstanding mortgage debt balances on the property, and 
(3) an indicator of whether the mortgage interest is for a loan that 
was refinanced during the current year. 

Because a property address is not currently required on Form 1098, IRS 
cannot use an automated process to determine whether a taxpayer's 
deducted mortgage interest corresponds to a residence that is eligible 
for the deduction. For example, IRS cannot automatically determine if 
addresses reported on Form 1098 match the addresses that taxpayers 
list on their tax returns. Also, IRS is less able to determine if the 
interest reported on Form 1098 is for a property used for rental or 
personal purposes. 

Because Form 1098 shows the dollar amount of interest a taxpayer paid 
in a year but not the mortgage balance, IRS's computer-matching 
program comparing Form 1098 to tax returns cannot be used by itself to 
determine whether taxpayers claimed interest on mortgages in excess of 
the legal limitations. For example, taxpayers generally cannot deduct 
interest on mortgage debt exceeding $1.1 million. Also, because Form 
1098 does not show whether interest paid is from a refinanced 
mortgage, IRS cannot readily tell whether taxpayers are complying with 
rules specific to refinancing, such as the rule to amortize certain 
types of prepaid interest, or points. 

Actions Needed and Potential Revenue: 

To provide additional information that could further IRS efforts to 
identify taxpayers improperly deducting mortgage interest, GAO 
recommended in July 2009 that IRS revise Form 1098 to include 
information on the address of a property securing a mortgage, mortgage 
balances, and an indicator of whether the mortgage is for a current 
year refinancing. GAO also recommended, in August 2010, requiring 
mortgage-secured property addresses to be reported on other forms to 
help IRS detect taxpayers who fail to pay taxes on certain forgiven 
mortgage debt. With this additional information, IRS could check for 
noncompliance through its automated document-matching process, which 
is generally a less expensive enforcement action than conducting 
examinations. Additional information would also help IRS better select 
returns to examine. IRS agreed to study collecting additional 
information on Form 1098, stating it currently does not have enough 
data to support revisions. Because IRS has acknowledged it does not 
have information about taxpayers' mortgage debts to easily detect 
noncompliance, GAO believes that the recommended revisions to Form 
1098 would be cost-effective ways to provide IRS with additional 
useful information to help it detect noncompliance. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

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. 

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. 

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

Area Contact: 

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

[End of section] 

More Information on the Types and Uses of Canceled Debt Could Help IRS 
Limit Revenue Losses on Forgiven Mortgage Debt: 

Why GAO Is Focusing on This Area: 

The housing market downturn is resulting in billions of dollars of 
forgiven mortgage debt. In tax year 2008 (the most current data 
available), the Internal Revenue Service (IRS) estimates that 
individual taxpayers excluded $6.4 billion to $11.8 billion in 
forgiven mortgage debts on principal residences. While most forgiven 
debt is treated as a financial gain and included in taxable income, 
forgiven mortgage debt is, according to complex rules, sometimes 
excluded from taxable income. 

Through 2012, taxpayers may exclude forgiven mortgage debts from 
taxable income if the mortgage proceeds were used to buy, build, or 
substantially improve a principal residence. Forgiven mortgage amounts 
used for other purposes, including purchases of vacation or investment 
properties, would generally still be considered taxable income unless 
the taxpayer is bankrupt or insolvent. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Housing market data show the potential for significant revenue losses 
from failure to pay taxes on certain forgiven mortgage debt, but IRS 
is not collecting enough information to assess compliance. Complex 
rules governing forgiven mortgage debt may lead individual taxpayers 
to exclude such debt erroneously from taxable income. For example, 
only forgiven mortgage debts that were used to buy, build, or 
substantially improve a principal residence may be excluded from 
taxable income. However, in recent years many taxpayers cashed out 
equity from their primary residences and used the proceeds for 
personal consumption or to consolidate other debts--not to buy, build, 
or improve the home. In addition, taxpayers losing investment or 
vacation homes through foreclosure are still liable for taxes on 
forgiven mortgages secured by these properties. Vacation home and 
investment property purchases are estimated to be well over a quarter 
of all house purchases in recent years. Despite the financial hardship 
that leads to forgiven debt, recent housing market analyses suggest 
that thousands of taxpayers with forgiven mortgage debt not eligible 
for exclusion (debt forgiven on second homes or investment property) 
may be able to pay the taxes legally due on such debt. 

Current forms used to collect information from lenders and taxpayers 
on forgiven debts do not provide adequate information for IRS to 
assess compliance with the mortgage debt forgiveness provision. For 
example, neither lenders nor taxpayers are required to disclose the 
address of the secured property--potentially a key source of 
information for determining whether the property is the taxpayer's 
principal residence. Also, taxpayers with multiple forgiven debts only 
need to indicate the types of forgiven debts and the total amount to 
be excluded from income, but not the individual amounts of each 
forgiven debt. Without this information, it is difficult for the IRS 
to estimate the extent of noncompliance and determine whether 
additional resources for compliance are needed. 

Actions Needed and Potential Revenue: 

GAO, in its August 2010 report cited the need to obtain better 
information to determine the revenue losses due to incorrectly 
excluded mortgage debts, and recommended that IRS modify existing 
forms to capture more information from taxpayers and lenders about 
forgiven debt and any securing property. IRS initially agreed with 
most of GAO's recommendations but, after further analysis, indicated 
that making changes to the forms would not generate benefits that 
exceed the costs of doing so. However, GAO continues to believe that 
without first revising the associated forms, any review of a sample of 
tax returns using only currently available data risks understating the 
benefits of additional information reporting. GAO continues to 
recommend that by taking some relatively low-cost steps, including 
revising the associated forms, collecting more information from 
taxpayers and lenders, and using third-party data to determine whether 
taxpayers are correctly excluding mortgage debt from taxable income, 
IRS could determine how much additional revenue could be gained from 
refocusing its enforcement efforts. Since lenders already maintain 
property address records, reporting this additional information to IRS 
is not expected to impose significant burdens on lenders. Further, as 
GAO previously recommended, IRS should also determine if other 
available data would allow it to identify taxpayers with multiple 
homes. 

The potential for increased revenue from increased IRS enforcement 
related to forgiven mortgage debt is uncertain because IRS does not 
know the extent of noncompliance with the complex rules. Nonetheless, 
given the billions in forgiven mortgage debt annually, if only a small 
portion of the excluded amount is improperly avoiding taxation, the 
impact on revenue could be significant. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

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. 

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. 

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

Area Contact: 

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

[End of section] 

Better Information and Outreach Could Help Reduce Revenue Losses Due 
to Overstated Real Estate Tax Deductions: 

Why GAO Is Focusing on This Area: 

The Internal Revenue Service (IRS) estimated most recently for tax 
year 2001 that 9 million taxpayers misreported their federal 
deductions for local real estate taxes paid. Average overstated real 
estate tax deductions are small--$85 per overstatement in 2001--but 
the net overstatement, which generally would reduce taxes owed, was 
about $2.5 billion. IRS has not estimated how much these overstated 
deductions improperly reduced tax liabilities, but the annual total 
loss could be substantial. 

GAO first reported 17 years ago that taxpayers overstated the real 
estate tax deduction because real estate tax bills did not distinguish 
between deductible taxes and nondeductible user fees, and IRS 
education and enforcement activities were inadequate. GAO conducted a 
follow-up study in 2009 to determine whether taxpayers were continuing 
to overstate the deduction. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS can take several steps to help improve individual taxpayer 
compliance with the itemized deduction for real estate taxes and thus 
reduce associated revenue losses. Individuals who wish to comply in 
claiming a real estate tax deduction face challenges. The rules for 
deductibility can be complex as illustrated below. 

Figure: Determining What Qualifies As Deductible Is Complex: 

[Refer to PDF for image: illustration] 

Is the tax levied by a state, local, or foreign government? 
If yes: continue; 
If no: Nondeductible. 

Is the tax imposed on an interest in real property? 
If yes: continue; 
If no: Nondeductible. 

For what purpose is the tax levied? 
General public welfare: Deductible; 
Local benefits that tend to increase the value of the property[A]: 
Nondeductible. 

Increasing level of effort and knowledge may be required to determine 
deductibility of charges. 

Source: GAO analysis of Internal Revenue Code provisions. 

[A] Charges for the repair or maintenance of local benefits and 
associated interest are deductible. 

[End of figure] 

GAO estimated in 2009 that almost half of local governments nationwide 
included charges in 2007 on their real estate tax bills that were 
generally nondeductible (e.g., fees for trash and garbage pickup). 
About 78 percent of those local governments did not label such charges 
in a way that would alert individuals that their real estate tax bill 
might have nondeductible charges. GAO also estimated that taxpayers in 
Alameda, California, and Hennepin, Minnesota, counties[Footnote 68] 
collectively overstated their 2006 real estate tax deductions between 
$23 million and $46 million depending on the assumptions used in the 
estimation methodology. 

Local governments generally do not identify for taxpayers which 
charges on real estate tax bills are deductible because local 
collectors lack the expertise to identify which charges are federally 
deductible. Further, taxpayers with mortgages may receive information 
on real estate tax payments made on their behalf by mortgage 
servicers, but it does not identify deductible amounts. 

Tax preparation software and assistance from paid return preparers may 
not be sufficient to help taxpayers deduct qualified real estate 
taxes. Two of the three most frequently used tax preparation software 
programs for 2008 did not alert taxpayers that some charges on real 
estate tax bills may not be deductible.[Footnote 69] Paid tax return 
preparers invested limited time ensuring that taxpayers deducted 
qualified real estate taxes. 

IRS instructions and guidance for taxpayers on claiming the real 
estate tax deduction had explained the types of charges that can be 
deducted. However, they had not adequately informed taxpayers that 
they should check both real estate tax bills and local government 
resources to collect information about specific bill charges, which is 
needed to determine deductibility. 

When IRS examiners do audit the real estate tax deduction they usually 
do not focus on deductibility because they believe the effort required 
does not justify the likely small changes to taxes that may be due. 
Rather, they focus on whether the amounts deducted were actually paid. 
IRS's guidance to examiners does not require them to verify that the 
entire real estate tax deduction amount is deductible. Examiners are 
authorized to review many documents, but most of these documents 
verify whether payment was made rather than whether all of a payment 
is deductible. Finally, IRS does not know which local governments have 
large nondeductible charges on their real estate tax bills. 

Actions Needed and Potential Revenue: 

To help individual taxpayers comply in claiming the real estate tax 
deduction, GAO recommended in May 2009 that IRS instructions and 
guidance need to be strengthened and spotlight for taxpayers that the 
real estate tax bill may include nondeductible charges and that 
taxpayers need to check for such charges. GAO also recommended that 
IRS provide guidance on how to get information about which charges are 
nondeductible. IRS took steps in 2009 to improve its guidance in 
response to the recommendations, but the effects of the changes remain 
to be seen. 

To help individual taxpayers get the best information and assistance 
from third parties, GAO recommended that IRS reach out to local 
governments, mortgage servicers, and the tax preparation industry 
about clarifying information they provide to individual taxpayers on 
what is deductible, and/or providing alerts and disclaimers about 
nondeductible charges that are or may be on their real estate tax 
bill. In response to GAO's recommendations, IRS created a brochure in 
2010 for distribution to such third parties with information on what 
they can do to help clarify for taxpayers what is and is not 
deductible. 

As of December 2010, IRS still needs to take actions on other 
recommendations included in GAO's May 2009 report. For example: 

* To improve IRS examinations of the real estate tax deduction, 
examination guidance needs to clarify the type of evidence for 
verifying deductibility and to require examiners to ask taxpayers to 
substantiate deductions that appear to include nondeductible charges 
that are large, unusual, or questionable. 

* To support targeted efforts to improve compliance, IRS needs to 
develop a cost-effective means of identifying local governments with 
potentially large nondeductible charges on their real estate tax 
bills. IRS then should work with these local governments to identify 
charges that are nondeductible and work with the localities and other 
third parties to help taxpayers correctly claim the deduction. IRS 
should also use the information to target examinations covering the 
real estate tax deduction. 

Although no precise estimate is available of the potential increased 
revenues these actions might generate, a relatively modest reduction 
in total overstated deductions could generate tens or hundreds of 
millions of dollars annually.[Footnote 70] 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

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 Administration: Overstated Real Estate Tax Deductions Need to Be 
Reduced. [hyperlink, http://www.gao.gov/products/GAO/GGD-93-43]. 
Washington, D.C.: January 19, 1993. 

Area Contact: 

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

[End of section] 

Revisions to Content and Use of Form 1098-T Could Help IRS Enforce 
Higher Education Requirements and Increase Revenues: 

Why GAO Is Focusing on This Area: 

The Internal Revenue Service (IRS) faces challenges ensuring 
compliance with the eligibility requirements of the Hope and Lifetime 
Learning tax credits. Millions of taxpayers claim the credits to 
offset qualified postsecondary education expenses. For fiscal years 
2009 through 2013, taxpayers are estimated to claim Hope and Lifetime 
Learning credits totaling $27 billion and $13 billion respectively. 
These tax provisions are complicated and may lead taxpayers to claim 
either more or fewer benefits than they are entitled. 

IRS requires educational institutions to report on Form 1098-T 
information about qualifying educational expenses to taxpayers and 
IRS. However, the information reported by educational institutions and 
sent to the IRS and taxpayers (on Form 1098-T) is not easily 
comprehensible to taxpayers, nor is this information fully used by IRS 
in its compliance programs. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS does not make full use of information reported by educational 
institutions to taxpayers and IRS on Form 1098-T to identify and 
correct noncompliance with higher education tax benefits. In addition, 
revising the form to provide more complete information on qualified 
expenses could make it easier for taxpayers to use, which could also 
reduce noncompliance. IRS requires institutions to report on Form 1098-
T either (1) the amount of payments received or (2) the amount billed 
for qualified expenses. Many institutions report the amount billed and 
do not report payments, but the amount billed may not equal the amount 
that can be claimed as a credit. For example, the amount billed may 
not account for all scholarships or grants the student received. In 
such cases, the Form 1098-T may overstate the amount that can be 
claimed as a credit, confusing taxpayers. Conversely, if institutions 
are not providing information on other eligible items, such as books 
or equipment, taxpayers might be understating their claims. 

Because the amount billed may not be the amount taxpayers are eligible 
to claim as a credit, IRS does not compare tuition statement 
information to information reported on a tax return. However, IRS is 
missing opportunities to use some of the more basic information (for 
example, a student's Social Security number and a school's location) 
to verify eligibility for the credit. Using IRS's compliance computer- 
matching systems to automatically compare information on statements to 
taxpayers' claims could be a low-cost enforcement tool for IRS to 
verify certain aspects of taxpayers' eligibility for higher education 
credits. While changing the requirements for how higher educational 
institutions report qualified expenses on tuition statements would 
likely impose some burden on those institutions, the additional burden 
could be low because the institutions are already required to complete 
Form 1098-T. 

Actions Needed and Potential Revenue: 

Given that every year millions of taxpayers claim billions of dollars 
of credits for post-secondary education tuition expenses, even a small 
increase in compliance could increase revenue. To reduce taxpayer 
confusion and enhance compliance with the eligibility requirements for 
higher education benefits, GAO recommended in December 2009 that IRS 
(1) determine the feasibility of using current information reported on 
Form 1098-T in its compliance computer matching systems; and (2) 
revise Form 1098-T to improve the usefulness of information on 
qualifying education expenses. IRS agreed to consider the feasibility 
of using current information on Form 1098-T in its compliance 
programs, and develop a plan to address possible changes to that form 
but these actions have yet to be completed. GAO continues to believe 
these actions are needed since automatically matching readily 
available information has been a proven, low-cost way to improve 
compliance. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below and GAO's work following up on the 
recommendations from that product. 

Related GAO Product: 

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. 

Area Contact: 

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

[End of section] 

Many Options Could Improve the Tax Compliance of Sole Proprietors and 
Increase Revenues: 

Why GAO Is Focusing on This Area: 

The Internal Revenue Service (IRS) estimates that $68 billion of the 
$345 billion gross tax gap for 2001 was due to underreporting of 
federal income tax liabilities by self-employed owners of 
unincorporated businesses--also known as sole proprietors. An 
additional part of the tax gap was due to the noncompliance of some 
sole proprietors with employment tax laws. The federal tax gap is the 
difference between the amount of income and other federal taxes owed 
and the amount that is voluntarily and timely paid. The gap arises 
from taxpayers underreporting taxable income, underpaying known tax 
liabilities, and not filing required tax returns. 

Unlike wage and some investment income, sole proprietors' income is 
not subject to tax withholding and only a portion is subject to 
independent verification through third-party information reporting, 
such as those who pay sole proprietors for services rendered. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Because the sole proprietor tax gap is so large, successful efforts to 
reduce it could result in significant revenue increases. Key reasons 
for the sole proprietor tax gap are well known. Their income is not 
subject to withholding, and only a portion of it is subject to third- 
party information reporting. When used, third-party reports on 
payments made give IRS a powerful tool for verifying the tax 
compliance of payment recipients. 

A principal IRS compliance program--the Automated Underreporter 
Program (AUR)--has limited reach over sole proprietors. Under AUR, IRS 
computers match these third-party reports on payments made to 
taxpayers with the taxpayer's tax return in order to verify taxpayer 
compliance in reporting those payments as income. Currently, 
information reporting covers only about a quarter of sole proprietors' 
business gross receipts and very little of their expenses because of 
limited information reporting by third parties. Expanding information 
returns coverage would require IRS to identify other types of third 
parties who could file information reports about payments made to sole 
proprietors without imposing unacceptable burdens. 

IRS's other compliance program for a sole proprietor--the examination 
(audit) program--also has limited reach. Because most of sole 
proprietors' understated tax was in small amounts--half of the 
understatements were for about $900 or less--IRS examinations of their 
tax returns generally have yielded less revenue per IRS staff hour 
than those covering other categories of taxpayers, such as larger 
businesses. IRS spent substantial time on sole proprietor examinations 
in 2008, but examined about only 1 percent of the estimated 
noncompliant population. 

Without either examinations or AUR, IRS can not easily tell whether 
sole proprietors are reporting legitimate business losses that can be 
used to offset other taxable income. In a study for tax year 2001 
only, IRS estimated that 25 percent of all sole proprietors reported 
losses with an estimated 70 percent of those losses being fully or 
partially noncompliant with tax laws. Since examinations of sole 
proprietor tax returns are costly for IRS, require experienced IRS 
examiners to conduct, and are burdensome for the businesses, 
additional options need to be considered to improve sole proprietor 
tax compliance. 

Actions Needed and Potential Revenue: 

Because of the variety of challenges to addressing the sole proprietor 
tax gap, there is no single solution. However, a variety of actions 
are likely to help reduce that tax gap. 

GAO recommended in July 2007 that the Department of the Treasury's tax 
gap strategy cover sole proprietor compliance in detail while 
coordinating it with broader tax gap reduction efforts. Such a 
strategy could include a mix of numerous options. These options 
recognize that some solutions, such as a large increase in audits, are 
not likely to be cost-effective given the large number of sole 
proprietors and the relatively small amounts of noncompliance on 
average. Also, many of the options involve tradeoffs, both for sole 
proprietors and for IRS. The list of options includes helping: 

* sole proprietors keep better records of their income and expenses 
by, for example, requiring business bank accounts to be separated from 
personal accounts or targeting tax assistance on new businesses; 

* third parties comply with current information return filing 
requirements by, for example, providing an online portal for 
submissions or exempting first-time filers from penalties for being 
late; 

* IRS identify more unreported income and more overstated expense 
deductions through more detailed reporting of gross receipts on tax 
returns or matching of expense deductions claimed by a business with 
the information returns filed by the same business; 

* IRS collect unpaid taxes from sole proprietors through expanded 
withholding or denial of federal benefits to delinquent sole 
proprietors; and: 

* IRS more efficiently manage its limited resources through more 
automated audit selection processes, assessing additional data sharing 
with states, more targeted use of notices to taxpayers about 
compliance issues, and clearer policies on when to apply penalties. 

Furthermore, as GAO also recommended in September 2009, IRS should use 
its ongoing research efforts to develop a better understanding of the 
nature of sole proprietor noncompliance, including sole proprietors 
improperly claiming business losses. The high rate of noncompliance 
associated with claims of sole proprietor business losses suggests 
that limiting the ability of sole proprietors to use losses to offset 
tax on other income could present another option for reducing the sole 
proprietor tax gap. However, an indicator to target noncompliant 
losses without including compliant losses has not been identified. 
Absent such targeting, any policy change to limit all business losses 
would inevitably limit some legitimate businesses losses. 

IRS has taken actions to implement some of these options. As of 
January 2011, IRS has initiated, but not completed, studies on: 
compliance with third-party information reporting requirements, 
additional data sharing with the states, and identifying the extent of 
noncompliant sole proprietor losses. These studies are scheduled for 
completion through 2015. Following completion, IRS will assess the 
study results and identify whether changes should be recommended and 
made. GAO expects to assess IRS's progress in completing these actions. 

Because sole proprietors are responsible for almost one-fifth of the 
tax gap, the potential for raising substantial amounts of revenue by 
taking such incremental actions to improve sole proprietor tax 
compliance is significant. However, the revenue potential related to 
any of these actions has not been estimated. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

Tax Gap: Limiting Sole Proprietor Loss Deductions Could Improve 
Compliance but Would Also Limit Some Legitimate Losses. [hyperlink, 
http://www.gao.gov/products/GAO-09-815]. Washington, D.C.: September 
10, 2009. 

Tax Compliance: Opportunities Exist to Improve Tax Compliance of 
Applicants for State Business Licenses. [hyperlink, 
http://www.gao.gov/products/GAO-09-569]. Washington, D.C.: June 15, 
2009. 

Tax Gap: IRS Could Do More to Promote Compliance by Third Parties with 
Miscellaneous Income Reporting Requirements. [hyperlink, 
http://www.gao.gov/products/GAO-09-238]. Washington, D.C.: January 28, 
2009. 

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. 

Area Contact: 

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

[End of section] 

IRS Should Do More Evaluation and Use More Third-Party Data to Find 
Businesses Not Filing Tax Returns: 

Why GAO Is Focusing on This Area: 

Historically, the Internal Revenue Service (IRS) has identified 
several million businesses each year that may have failed to file tax 
returns--more than it can thoroughly investigate. IRS has had 
difficulty determining if these businesses that IRS identified are 
still active and thus required to file a tax return. As a result, IRS 
has pursued many inactive businesses, which has not been a productive 
use of its resources. In addition, IRS has had no estimate of the 
nonfiler population. Given the lack of data, IRS has neither a clear 
estimate of the revenue loss from businesses not filing required tax 
returns nor a clear basis for allocating resources to addressing this 
type of noncompliance. 

Recently, IRS has begun to use third-party information about payments 
between businesses and other available data as indicators of business 
activity. The intent is to prioritize cases with the most revenue 
potential, using just the third-party information that IRS already 
possesses. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS has the potential to increase the revenue it collects from 
noncompliant taxpayers by increasing the effectiveness of its business 
nonfiler program, but the efficiency and productivity of IRS's efforts 
to ensure compliance by business nonfilers have been hampered by a 
lack of data. IRS cannot develop a comprehensive estimate of the 
business nonfiling rate and associated revenue loss because it lacks 
sufficient data on the population of businesses. Absent such an 
estimate, IRS will have no basis to know what priority to give its 
business nonfiler program and whether resources should be reallocated 
from other enforcement efforts. 

IRS has not used private sector data that it could obtain to verify 
taxpayer statements about whether a business is active and a tax 
return should have been filed. A number of private companies maintain 
business activity data, such as data on a business's gross sales and 
number of employees, which could aid IRS in making these 
determinations. Dun and Bradstreet is one provider of such data. Its 
databases include information on business name, address, amount of 
sales, and number of employees. GAO's analysis of Dun and Bradstreet 
data showed they could be used to identify business activity that IRS 
was not aware of. For two states, GAO analyzed 2007 data on the 
businesses that IRS initially identified as potential nonfilers but 
later determined were not liable to file returns. Of these, GAO found 
7,688 businesses where IRS data indicated little or no business 
activity, but Dun and Bradstreet data showed business activity as 
measured by sales totaling $4.1 billion. 

GAO also performed a similar analysis using data on federal 
contractors. GAO found 13,852 businesses listed on the federal 
contractor registry--indicating likely business activity--even though 
IRS had determined they had no filing obligation. GAO did not 
determine which non-IRS data would be most useful nor did it examine 
the capacity of IRS's systems to use such data on a large scale. 

Until recently IRS also has not had a way to prioritize cases in its 
inventory. IRS modernized its business nonfiler program in 2009 by 
incorporating income and other data in its records indicating business 
activity. Active businesses, for example those with sales or 
employees, generally have an obligation to file a return. IRS's 
Business Master File Case Creation Nonfiler Identification Process now 
assigns each case a code based on these data. IRS uses the code to 
select cases to work with the goal of securing tax returns from 
nonfilers and collecting additional revenue. This is a significant 
modernization, but IRS lacks a formal plan to evaluate how well the 
codes are working. Absent evaluation, IRS will not know to what extent 
the initiative is successful and whether it has resulted in a better 
allocation of enforcement resources. 

Actions Needed and Potential Revenue: 

While potentially significant, the revenue gains that may be available 
through IRS actions to identify and pursue more business nonfilers 
cannot be quantified due to the lack of data on the size of the 
business nonfiler problem and the effectiveness of IRS's new process. 
As GAO recommended in its August 2010 report, to better allocate and 
use its enforcement resources, IRS should develop at least a partial 
estimate for the business nonfiler rate based on its existing 
inventory of cases. In addition, IRS should: 

* set a deadline for developing performance data on its business 
nonfiler efforts; 

* develop a plan for evaluating its new initiative including codes for 
selecting nonfiler cases to pursue; 

* better use income data and selection codes in verifying taxpayer 
statements about their filing requirements; and: 

* study the feasibility and cost-effectiveness of using non-IRS, 
private data to verify taxpayer statements. 

IRS has agreed to start reviewing or implementing these actions. As of 
December 2010, IRS has laid out planned implementation steps up 
through January 2013. The scope of GAO's recent work did not extend to 
analyzing IRS's capability to meet these implementation plans. The 
potential revenue significance merits GAO tracking of IRS's progress 
over the next few years. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product below. 

Related GAO Product: 

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. 

Area Contact: 

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

[End of section] 

Congress and IRS Can Help S Corporations and Their Shareholders Be 
More Tax Compliant: 

Why GAO Is Focusing on This Area: 

The number of S corporations--corporations with no more than 100 
shareholders that meet certain other requirements--has grown steadily 
in recent years, reaching around 4 million with over $400 billion in 
total net income. S corporation status provides liability protection 
to shareholders. 

S corporations' income gains and losses "pass through" to shareholders 
who are to report these passed-through amounts on their individual 
income tax returns. Shareholders are allowed to claim S corporation 
pass-through losses up to the amount of their basis in an S 
corporation (value of their investment). Shareholders are to track 
basis changes, which can arise from their actions, like new 
investments in the corporation, or S corporation actions, like 
reinvesting profits. 

S corporations can pay shareholders wages and make nonwage 
distributions, like dividends, but employment taxation only applies to 
the wages. The Internal Revenue Service (IRS) requires S corporations 
to pay reasonable wages to shareholders who perform services, and if 
they do not, employment taxes can be improperly avoided. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

According to IRS's most recent research, for tax years 2003 and 2004, 
68 percent of S corporation returns misreported net income. As a 
result, S corporations passed through an estimated $85 billion less 
taxable income to their shareholders than should have occurred. IRS's 
research did not cover how the shareholders treated this misreported S 
corporation income on their individual tax returns. However, applying 
the lowest individual income tax rate of 10 percent to this S 
corporation misreported amount suggests that S corporation 
shareholders could have underpaid their income taxes by $8.5 billion 
over those 2 years. IRS does not know the reasons for this 
misreporting, which could be intentional attempts to improperly lower 
tax liability for individual shareholders or unintentional errors due 
to confusion over what to report. 

Shareholders of S corporations are required to track their basis, but 
have made mistakes in that area. For fiscal years 2006 through 2008, 
IRS examiners found that shareholders, on average, claimed about 
$21,600 in losses that exceeded their basis in the S corporation. 
These overclaimed losses could reduce taxes on the taxpayers' other 
income. IRS views basis as a common issue on shareholder returns. In 
particular, shareholders of new S corporations are less likely to 
understand the requirement to track and calculate basis. One factor 
contributing to basis noncompliance is that S corporations are not 
required to calculate shareholder basis and report it to shareholders 
and IRS, even though S corporations have information that shareholders 
could use to calculate basis. In addition, IRS does not send new S 
corporations and their shareholders information alerting them to the 
necessary record-keeping requirements: 

Unlike other businesses, S corporations can improperly lower 
employment tax liabilities by paying shareholders who perform services 
less in wages and more through other means, like profit distributions. 
For tax years 2003 and 2004, IRS estimated that 13 percent of S 
corporations underpaid a net of $23.6 billion in wages. To illustrate 
the potential loss of revenue to the government, applying the maximum 
Federal Insurance Contributions Act tax rate of 15.3 percent to the 
net underpayment amount roughly equates to $3 billion in employment 
tax losses. The vagueness of federal tax law as well as IRS and 
Department of the Treasury guidance on determining adequate 
shareholder wages make employment tax evasion difficult to control. 
Nearly all of the stakeholder representatives GAO interviewed 
indicated that having clear and specific IRS guidance would be helpful 
for taxpayers and preparers. IRS has some training materials for its 
examiners that go beyond published guidance, but those materials are 
not available for S corporations. 

IRS examinations of S corporations' wage payments could be more 
effective. In the sample that GAO reviewed, when IRS examiners used 
tools like Bureau of Labor Statistics data on compensation, they 
tended to more frequently identify underpayment of wage income. IRS 
does not require use of such tools nor does IRS require its examiners 
to document the analysis done to support their compensation 
determinations or why an analysis was not done. 

Paid preparers had little impact on S corporation compliance as the 
overall misreporting rate was about the same whether or not an S 
corporation used a paid preparer. Some stakeholders GAO interviewed 
thought some preparers lacked the expertise needed to address S 
corporation tax issues. IRS has begun regulating all paid tax return 
preparers and could begin requiring preparers to pass competency 
examinations. This may be a way to improve preparers' ability to 
adequately handle S corporation returns. 

Actions Needed and Potential Revenue: 

As GAO reported in December 2009, to improve basis compliance, 
Congress could require S corporations to use information already 
available to them to calculate shareholders' basis as completely as 
possible and report it to shareholders and IRS. 

Furthermore, GAO recommended in December 2009 that IRS require 
examiners to document their compensation analyses and their use of 
comparable salary data when determining adequate shareholder 
compensation. IRS took steps by publishing an article in August 2010 
reminding examiners of the importance of addressing adequate 
shareholder compensation and the need to document such analysis. 

As of December 2010, IRS is considering or taking action on other 
recommendations included in GAO's December 2009 report, but none of 
them have been implemented. GAO recommended that IRS should evaluate 
options for improving paid tax return preparer performance, send 
additional guidance on S corporation requirements such as on basis 
calculations and adequate wage determinations to new S corporations, 
and provide more guidance to shareholders and tax preparers on 
determining adequate shareholder compensation. The effect of 
implementations should be improved tax compliance by S corporations 
and their shareholders. Although an estimate of potential revenue 
increases from improved compliance is not available, a small decrease 
in the billions of dollars of income and wage underreporting could 
increase tax revenues by hundreds of millions of dollars each year. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. 

Related GAO Product: 

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. 

Area Contact: 

For additional information about this area, contact Mike Brostek at 
(202) 512-9110 or brostekm@gao.gov. 

[End of section] 

IRS Needs an Agencywide Approach for Addressing Tax Evasion by 
Networks of Businesses and Related Entities: 

Why GAO Is Focusing on This Area: 

At least 1 million networks involving partnerships, trusts, 
corporations, and similar entities existed in the United States in tax 
year 2008. These networks can serve a variety of legitimate business 
purposes. However, transactions made among related entities within 
networks also can be used in tax evasion schemes to hide taxable 
income or shift expenses. Such schemes--such as the one described in 
the text box below--result in lost tax revenue and are difficult for 
the Internal Revenue Service (IRS) to identify, due to data 
limitations. 

IRS recognizes the risk from network-related tax evasion and is 
developing new tools and programs to better identify such evasion. 
These IRS efforts are in various stages of development, but their 
potential effectiveness in terms of cost savings or added revenue, is 
not known. However, GAO has identified the need for additional efforts 
to strengthen enforcement in the networks area and to assess progress. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS knows that many questionable tax shelters and abusive transactions 
rely on the links among commonly owned entities in a network, but it 
does not have estimates of the associated revenue loss in part because 
data do not exist on the population of networks. IRS generally 
addresses network-related tax evasion through its examination (audit) 
programs. These programs traditionally involve identifying a single 
return from a single tax year and routing the return to the IRS 
division that specializes in auditing that type of return. From a 
single return, examiners may branch out to review other entities if 
information on the original return appears suspicious. However, this 
traditional approach does not align well with how network tax evasion 
schemes work. Such schemes can cross multiple IRS divisions or require 
time and expertise that IRS may not have allocated at the start of an 
examination. A case of network tax evasion also may not be evident 
without looking at multiple tax years. 

[Text box: 
Network Scheme Example: Installment Sale Bogus Optional Basis 
Transaction (iBOB): 

An iBOB is an example of a network-related tax evasion scheme that 
shows how networks pose enforcement challenges for IRS. In an iBOB, a 
taxpayer uses multiple entities, all owned or controlled by the 
taxpayer, to artificially adjust the basis of an asset to evade 
capital gains taxes. The scheme can involve multiple transactions and 
take place over many tax years, making it difficult for IRS to detect. 
A short video illustrating the iBOB is available at [hyperlink, 
http://www.gao.gov/products/GAO-10-968]. End of text box] 

IRS is developing programs and tools that more directly address 
network tax evasion. One, called Global High Wealth Industry, selects 
certain high-income individuals and examines their network of entities 
as a whole to look for tax evasion. Another, yK-1, is a computerized 
visualization tool that shows the links between entities in a network. 
These efforts show promise. They represent new analytical approaches, 
have upper-management support, and cut across divisions and database 
boundaries. However, there are opportunities for more progress. For 
example, IRS has no agencywide strategy or goals for coordinating its 
network efforts. A strategy would include assessing of IRS's network 
tools and determining the value of incorporating more data into its 
network programs and tools--neither of which IRS has done. Without a 
strategy and assessments, IRS risks duplicating efforts and managers 
will not have information about the effectiveness of the new programs 
and tools that could inform resource allocation decisions. 

Actions Needed and Potential Revenue: 

GAO recommended in its September 2010 report that IRS create an 
agencywide strategy with goals to coordinate and plan its enforcement 
efforts on network tax evasion. The strategy should include assessing 
the effectiveness of network analysis tools to ensure that resources 
are being devoted to those that provide the largest return on 
investment; determining whether to increase access to IRS data or 
collect new data for network analysis; developing network analysis 
tools on a specific time schedule; and deciding how to manage network 
efforts across IRS. IRS should ensure that its staff understand the 
network tools and establish formal ways for users to interact with 
tool programmers and analysts to ensure that the network tools are 
easy to use and achieve goals. IRS agreed with GAO's recommendations 
and said it would make plans to take actions on them but it is too 
early to determine IRS's progress. 

Estimates are not available on the potential for increased tax 
revenues because IRS has not measured the potential impact of its 
network efforts on reducing tax noncompliance due to data limitations, 
but these efforts have significant potential, based on the number of 
networks that exist. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. 

Related GAO Product: 

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

Area Contact: 

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

[End of section] 

Opportunities Exist to Improve the Targeting of the Research Tax 
Credit and Make It More Cost-Effective: 

Why GAO Is Focusing on This Area: 

Since 1981, the research tax credit has provided significant subsidies 
(an estimated $6 billion for fiscal year 2011) to encourage business 
to invest in research and development. The credit, which has been a 
temporary provision since its inception, was most recently renewed at 
the end of 2010 and is scheduled to expire after December 31, 2011. 
The Department of the Treasury and the Internal Revenue Service play 
key roles in issuing guidance to clarify what types of spending 
qualify and ensuring that taxpayers adequately support their credit 
claims. 

Two factors--the definition of research expenses that qualify for the 
credit and the credit's design--are important in targeting the subsidy 
in a manner that increases the social benefits stimulated per dollar 
of tax revenue foregone. (This ratio of benefits to forgone revenue is 
a key measure of credit's cost-effectiveness.) The research credit has 
always been an incremental subsidy, meaning that taxpayers earn the 
credit only for qualified spending that exceeds a defined threshold, 
known as the base spending amount. The credit's design is most cost- 
effective when the base spending amount accurately reflects the amount 
of spending that a taxpayer would have done anyway (in the absence of 
the credit). 

The figure below compares the effects of a hypothetical incremental 
credit with a perfectly accurate base to a flat credit, which has no 
base spending amount. The flat credit gives the taxpayer 20 cents for 
every research dollar spent, while the incremental credit gives 20 
percent for only the amount of spending above what the taxpayer would 
have done anyway. 

Figure: A Comparison of an Incremental Credit with a Flat Credit: 

[Refer to PDF for image: illustration] 

A 20% flat credit (with no base): 

Qualified research spending: Spending on research that taxpayer would 
have done anyway: $1,000; 
Windfall credit (20% of $1,000): $200; 
Qualified research spending: Taxpayer’s marginal spending: $100; 
Marginal incentive (20% of $100): $20; 
Revenue cost: $220. 

An incremental 20% credit with a $1,000 base: 

Qualified research spending: Spending on research that taxpayer would 
have done anyway: $1,000; 
Windfall credit: none; 
Qualified research spending: Taxpayer’s marginal spending: $100; 
Marginal incentive (20% of $100): $20; 
Revenue cost: $20. 

Source: GAO. 

[End of figure] 

Both types of tax credit provide the same 20 percent reward for each 
additional dollar of qualified spending (referred to as "marginal 
incentive"). In each case that incentive encourages the taxpayer to 
increase spending for research by $100. However, the flat credit is 
less cost-effective for the government because it also gives the 
taxpayer a $200 windfall for conducting research that would have been 
done anyway. 

The difficulty in designing an incremental credit to be as cost- 
effective as the one in the figure is to develop rules for computing 
the base spending amount so that the base accurately represents what 
the taxpayer would have spent anyway. GAO testified as early as 1995 
that the computation method in place at that time had grown inaccurate 
and should be updated. An alternative approach for computing base 
spending (the alternative simplified credit) has been added but, the 
older computation option--commonly known as the regular credit--still 
has not been updated. 

What GAO Has Found Indicating Potential Cost Saving: 

The research tax credit, as currently designed, distributes incentives 
unevenly across taxpayers and provides many recipients with windfall 
benefits, earned for spending that they would have done anyway. The 
disparities in incentives can lead to an inefficient allocation of 
investment resources across businesses and the windfall benefits 
represent foregone tax revenue that does not contribute to the 
credit's objective. 

In November 2009 GAO estimated that, due to shortcomings in the 
computation of base spending, the research tax credit has provided 
some taxpayers with more than a 10 percent reduction in the cost of 
additional research, while providing other research-performing 
taxpayers with a disincentive to increase their research in the 
current year. Moreover, some taxpayers earned credits on as much as 50 
percent of their total research spending, even though the most 
favorable empirical estimates of the credit's stimulative effects 
suggest that less than 15 percent of that spending was actually new 
spending that they would not have done in the absence of the credit. 

An important cause of these problems is that, as GAO has previously 
reported, the base spending amount for the regular version of the 
credit is extrapolated from the amount of research spending that 
taxpayers did as long ago as the early 1980s. That base is a poor 
measure of the spending that a taxpayer would be doing now in the 
absence of the credit. The alternative credit option uses a more 
current spending history for computing the incremental credit, but it 
provides lower incentives for new research, even as some taxpayers can 
receive larger windfalls than they would get from the regular credit. 
[Footnote 71] 

Actions Needed and Potential Savings: 

Based on analyses of numerous design alternatives in its 2009 study, 
GAO found that the targeting of the research tax credit could be 
improved by eliminating the regular credit and adding a minimum base 
amount (equal to 50 percent of a taxpayer's current spending) to the 
method for computing the alternative credit. GAO found that an 
alternative simplified credit with this modification could provide the 
same average incentive to taxpayers as the current version of that 
credit, but at a lower revenue cost by reducing windfalls. Cost 
reductions exceeded 3 percent under most of the alternative 
assumptions GAO used in its 2009 analyses and exceeded 1.4 percent 
under all assumptions that GAO considered likely. 

The elimination of the regular credit not only would improve 
targeting, it would also significantly reduce compliance and 
administrative costs by eliminating the need for taxpayers to keep 
(and for IRS to review) records dating back to the 1980s. 

Framework for Analysis: 

The information contained in this analysis is based on the related 
products below. 

Related GAO Products: 

Tax Policy: The Research Tax Credit's Design and Administration Can Be 
Improved. [hyperlink, http://www.gao.gov/products/GAO-10-136]. 
Washington, D.C.: November 6, 2009. 

Tax Policy: Additional Information on the Research Tax Credit. 
[hyperlink, http://www.gao.gov/products/GAO/T-GGD-95-161]. Washington, 
D.C.: May 10, 1995. 

Area Contact: 

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

[End of section] 

Converting the New Markets Tax Credit to a Grant Program May Increase 
Program Efficiency and Reduce the Overall Cost of the Program: 

Why GAO Is Focusing on This Area: 

Federal tax revenue losses for the New Markets Tax Credit (NMTC) were 
over $700 million for 2010 according to the Department of the 
Treasury. Congress enacted the NMTC in 2000 as part of an ongoing 
effort to revitalize impoverished, low-income communities. The 
Treasury Department's Community Development Financial Institutions 
(CDFI) Fund awards tax credits to Community Development Entities 
(CDE), who sell the credits to investors to raise funds. Investors can 
claim a tax credit over 7 years totaling 39 percent of their 
investment in a CDE. Through fiscal year 2008, CDE reported investing 
about $12 billion in 2,111 projects located in all 50 states, the 
District of Columbia, and Puerto Rico. In December 2010, Congress 
extended the NMTC for tax year 2010 and 2011. However, the complexity 
of NMTC transaction structures appears to make it difficult to 
complete smaller projects and often results in less equity ending up 
in low-income community businesses--the beneficiaries of NMTC 
financing--than would be the case if the program were simplified. 

An alternative to the NMTC could be the use of a grant program, 
recognizing that Congress has turned to grant programs in similar 
cases. Such grants would eliminate the program's dependence on the 
market for tax credits and could reduce transaction costs. 

What GAO Has Found Indicating Potential for Cost Saving and Increasing 
Revenue: 

Replacing the tax credit with a grant likely would increase the equity 
that could be placed in low-income businesses and make the federal 
subsidy more cost-effective. When CDE sell credits to investors to 
raise additional funds, the price investors pay for the credits 
reflects market conditions and the investors' attitudes toward risk. 
According to CDE representatives GAO interviewed in 2009, when the 
demand for NMTCs was highest, before the housing market collapse and 
2008 credit crisis, the tax credits sold for $0.75 to $0.80 per 
dollar. Therefore, the federal subsidy intended to assist low-income 
businesses was reduced by 20 percent to 25 percent before any funds 
were made available to CDE. Representatives from CDE GAO interviewed 
also noted that with low demand for the tax credits, as was the case 
when GAO conducted its work during 2009, the credits generally sold 
for about $0.65 to $0.70 and have sold for as little as $0.50 or less. 
After accounting for CDE and other third-party fees, such as asset 
management and legal fees, about 50 percent to 65 percent of the 
federal subsidy generally reaches low-income businesses. 

In a grant program, these up-front reductions in the federal subsidy 
could be largely avoided. If the grant program is well designed and at 
least as effective as the credit in attracting private investment, it 
could save a significant portion of the estimated $3.8 billion five- 
year revenue cost of the current program. 

Congress has turned to grant programs in other cases where tax credits 
had formerly been used. For example, to fill funding gaps in Low-
Income Housing Tax Credit projects, under the American Recovery and 
Reinvestment Act of 2009, Congress offered the option of allowing 
state housing finance agencies to exchange Low-Income Housing Tax 
Credits for federal grants to subsidize low-income rental housing. 

However, CDFI officials were concerned that a grant may not channel a 
greater portion of the federal subsidy to intended recipients than the 
tax credit and a grant program could have administrative costs or 
other effects that would reduce its desirability. 

Actions Needed and Potential Savings and Revenue: 

As stated in its January 2010 report, GAO continues to believe that 
Congress should consider offering grants in lieu of credits to CDE if 
it extends the program again. Doing so would help ensure that the 
maximum amount of capital ends up in low-income community businesses. 
If it does so, Congress should require Treasury to gather appropriate 
data to assess whether and to what extent the grant program increases 
the amount of federal subsidy provided to low-income community 
businesses compared to the NMTC; how costs for administering the 
program incurred by the CDFI Fund, CDE, and investors would change; 
and whether the grant program otherwise affects the success of efforts 
to assist low-income communities. One option would be for Congress to 
set aside a portion of funds to be used as grants and a portion to be 
used as tax credit allocation authority under the current structure of 
the program to facilitate comparison of the two program structures. 
Such a study could help resolve uncertainties about the relative 
effectiveness of grants and the tax credit in promoting economic 
development. Although eliminating the tax credit would increase 
federal revenues, replacing the NMTC with a grant would introduce 
outlay costs. However, given that the federal subsidy to low-income 
community businesses was reduced by 20 percent to 25 percent up front 
even when the price paid by investors to claim NMTC was at its highest 
and transaction costs due to the credit's structure can be 
substantial, the grant could result in a similar amount of investment 
in low-income communities at a lower overall cost to the federal 
government. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. 

Related GAO Product: 

New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in 
Low-Income Communities, but Could be Simplified. [hyperlink, 
http://www.gao.gov/products/GAO-10-334]. Washington, D.C.: January 29, 
2010. 

Area Contact: 

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

[End of section] 

Limiting the Tax-Exempt Status of Certain Governmental Bonds Could 
Yield Revenue: 

Why GAO Is Focusing on This Area: 

Federal tax revenue losses for state and local tax-exempt bonds were 
about $28 billion in 2010, according to GAO's analysis of the 
Department of the Treasury's estimates. The loss occurs because 
taxpayers can exclude the bond interest from their federal taxable 
income. 

For federal tax purposes, tax-exempt bonds are classified as either 
governmental bonds or private activity bonds. In general, governmental 
bonds are used to build public capital facilities like roads and serve 
the general public interest. Private activity bonds, which can be 
either taxable or nontaxable depending on their purpose, provide 
financing to private businesses and are subject to restrictions that 
do not apply to governmental bonds. State and local governments have 
issued governmental bonds for facilities, such as sports stadiums, 
that are generally considered to be for private use but may serve some 
broader public purpose. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Tax-exempt bonds are sometimes used to fund facilities or activities 
that are private in nature, costing the federal government revenue 
losses for purposes that may not merit federal subsidies. State and 
local governments have broad discretion in deciding which activities 
and facilities to finance using tax-exempt bonds. When they issue 
governmental bonds for facilities and activities that are essentially 
private, such as for hotels and golf courses, they may indicate that 
the bonds serve a broader public purpose. For example, they may 
indicate there are benefits to the community that extend beyond the 
purpose of the facility being financed by the bonds or that the 
facilities provide certain services to those who would not otherwise 
be able to use them. GAO was asked to identify hotels and municipal 
golf courses funded with tax-exempt bonds and found 18 hotels financed 
from 2002 through 2006 and six golf courses that opened in 2005 that 
GAO could confirm had some tax-exempt bond financing. However, it is 
not clear whether facilities like hotels and golf courses always 
provide public benefits to federal taxpayers that extend beyond the 
purposes of the facilities. Since GAO's 2008 report, applicable laws 
that would limit the use of tax-exempt bond financing have not been 
changed. 

Members of Congress have recently shown interest in whether certain 
facilities providing benefits that are essentially private in nature, 
such as stadiums, should be financed with tax-exempt governmental 
bonds. However, similar attention has not been given to other types of 
facilities. 

Actions Needed and Potential Revenue: 

GAO continues to believe, as indicated in its February 2008 report, 
that as Congress considers whether tax-exempt governmental bonds 
should be used for professional sports stadiums that are generally 
privately used, it also should consider whether other privately used 
facilities, including hotels and golf courses, should continue to be 
financed with such bonds. How much additional federal revenue would be 
gained would depend on how broadly Congress applies new limitations. 
For instance, because wider-ranging limitations on governmental bonds 
would reduce the purposes for which such bonds may be issued, 
limitations that applied only to sports stadiums would raise less 
revenue than limitations that applied more broadly to include 
additional types of facilities, such as hotels and golf courses. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below and updated data on the amount of lost federal 
revenue each year. 

Related GAO Product: 

Tax Policy: Tax-Exempt Status of Certain Bonds Merits Reconsideration, 
and Apparent Noncompliance with Issuance Cost Limitations Should Be 
Addressed. [hyperlink, http://www.gao.gov/products/GAO-08-364]. 
Washington, D.C.: February 15, 2008. 

Area Contact: 

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

[End of section] 

Adjusting Civil Tax Penalties for Inflation Could Help Increase 
Collections and Deter Noncompliance: 

Why GAO Is Focusing on This Area: 

The Internal Revenue Code has over 150 civil penalties that 
potentially deter taxpayer noncompliance. A number of civil tax 
penalties have fixed dollar amounts--either a specific dollar amount, 
or a minimum or maximum amount--that are not indexed for inflation. 
Over time, the lack of indexing can decrease the real value of 
Internal Revenue Service (IRS) assessments and collections 
significantly. Further, not adjusting the fixed penalties also means 
they are not maintained at the level Congress initially believed was 
appropriate to deter noncompliance. Finally, not adjusting these 
penalties for inflation may lead to inconsistent treatment of 
otherwise equal taxpayers over time because taxpayers who were 
penalized when the amounts were originally set could effectively pay a 
higher penalty than taxpayers who were penalized many years later. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

GAO has long recommended the periodic adjustment of civil tax 
penalties for inflation and previously identified that almost all of 
the increased revenues from inflation-adjusting penalties would have 
come from 4 of the 22 penalties it reviewed. In recent years Congress 
has adjusted some penalties, but has not inflation-adjusted the 
majority of penalties GAO studied and has rarely required IRS to 
inflation-adjust penalties going forward. In resetting penalties since 
GAO's report, Congress has generally fully restored their value but 
one fell well below a full adjustment. GAO continues to believe that 
adjusting civil penalties for inflation could increase collections, 
help deter noncompliance, and better ensure consistent treatment of 
taxpayers over time. 

GAO found in August 2007 that adjusting civil tax penalty fixed-dollar 
amounts for inflation from 2000 to 2005 would have increased IRS 
collections by an estimated $38 million to $61 million per year based 
on a limited number of penalties GAO reviewed (see table below). 
Almost all of the estimated increase in collections would have been 
generated by four penalties: 

* failure to file tax returns, 

* failure to file correct information returns, 

* various penalties on returns by exempt organizations and by certain 
trusts, and: 

* failure to file partnership returns. 

Table: Estimated Increase in IRS Collections from Inflation-Adjusting 
of Penalties Assessed, 2000-2005: 

Assessment year: 2000; 
Increased collections after penalty adjustment: $38.2 million. 

Assessment year: 2001; 
Increased collections after penalty adjustment: $42.1 million. 

Assessment year: 2002; 
Increased collections after penalty adjustment: $47.9 million. 

Assessment year: 2003; 
Increased collections after penalty adjustment: $53.2 million. 

Assessment year: 2004; 
Increased collections after penalty adjustment: $61.0 million. 

Assessment year: 2005; 
Increased collections after penalty adjustment: $60.3 million. 

Source: GAO analysis of IRS data. 

[End of table] 

These increases would have resulted because some of the penalties were 
set decades earlier and had decreased significantly in real value--in 
some cases by over one-half. For example, by 2007, the failure-to-file-
tax-returns penalty decreased in real value by 53 percent since it had 
been set in 1982, and the failure-to-file-partnership-returns penalty 
decreased in real value by 64 percent since it had been set in 1979. 

Since August 2007, Congress has increased the amount of five fixed 
penalties, three of which--failure to file correct information 
returns, failure to file partnership returns, and failure to file tax 
returns--were among the four penalties GAO had previously found would 
increase IRS collections the most if they were inflation-adjusted. The 
adjustment to one of the five--failure to file tax returns--was about 
two-thirds short of the level needed to fully adjust for inflation 
since the penalty was set in 1982. The 2008 adjustment to the failure- 
to-file-tax-returns penalty moved it from $100 to $135 whereas a full 
adjustment would have been to $225. Recently, in 2010, Congress did 
act to require IRS to periodically inflation-adjust two penalties--one 
of which--the failure to file correct information returns--Congress 
had increased since 2007 and one--intentional failure to file a 
certain information return form--it had not. Those more recent 
requirements for inflation-adjusting were consistent with the intent 
of GAO's previously stated position that Congress should consider 
requiring IRS to periodically adjust fixed-penalty amounts for 
inflation. However, many fixed penalties have not been adjusted at all 
and only the two will be periodically inflation-adjusted in the future. 

According to GAO interviews with officials in the IRS offices that 
would be involved, the likely administrative burden associated with 
adjusting the fixed-dollar amounts of civil tax penalties for 
inflation on a regular basis would not be significant for IRS. 
Officials from the Office of Penalties, which has only a few staff, 
thought some additional staff might be needed to coordinate the 
necessary changes to forms, training materials, computer systems, and 
guidance, but not a significant increase. According to interviews with 
28 tax practitioners associated with four professional organizations, 
periodic inflation adjustments to civil penalties likely would not 
place a significant burden on practitioners. 

Actions Needed and Potential Revenue: 

In its August 2007 report, GAO said that Congress may want to consider 
requiring IRS to periodically adjust for inflation, and round 
appropriately, the fixed-dollar amounts of the civil penalties to 
account for the decrease in real value over time and so that penalties 
for the same infraction are consistent over time. Although Congress 
has increased the amount of some fixed penalties since GAO's report, 
only two penalties are to be adjusted for inflation on a periodic 
basis. Consequently, GAO continues to believe Congress should consider 
requiring IRS to periodically adjust all fixed penalties for 
inflation. Increased revenues potentially could be in the tens of 
millions of dollars per year, not counting any revenues that may 
result from maintaining the penalties' deterrent effect. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below and additional GAO work from January 2008 through 
January 2011 to follow up on any actions taken pursuant to that report. 

Related GAO Product: 

Tax Compliance: Inflation Has Significantly Decreased the Real Value 
of Some Penalties. [hyperlink, 
http://www.gao.gov/products/GAO-07-1062]. Washington, D.C.: August 23, 
2007. 

Area Contact: 

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

[End of section] 

IRS May Be Able to Systematically Identify Nonresident Aliens 
Reporting Unallowed Deductions or Credits: 

Why GAO Is Focusing on This Area: 

Every year, the United States receives millions of legal visits by 
foreign individuals, some of whom have income from a U.S. source or 
are engaged in a U.S. trade or business. Individuals who are neither 
U.S. citizens nor residents are known as nonresident aliens for tax 
purposes and may be required to file federal income tax returns to 
report their U.S.-source income. For 2007, individuals filed about 
634,000 nonresident alien income tax returns, reporting about $12.8 
billion in income and $2.5 billion in tax. 

Nonresident aliens' failure to comply with their tax requirements can 
contribute to the tax gap, which is the difference between the amount 
of taxes owed and the amount paid voluntarily and timely and was last 
estimated to be $345 billion. As it is for U.S. citizens and 
residents, the Internal Revenue Service (IRS) is responsible for 
ensuring that nonresident aliens comply with their tax obligations. 
IRS has not developed estimates for the extent of nonresident alien 
tax noncompliance because it often lacks information to distinguish 
between nonresident aliens and other filers. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

IRS may be missing an opportunity to identify more potentially 
noncompliant nonresident alien taxpayers because it does not 
systematically identify nonresidents filing the incorrect type of tax 
return. Nonresidents who file the individual tax return for U.S. 
citizens and residents (Form 1040) instead of the return for 
nonresidents (Form 1040NR) may claim credits or take deductions to 
which they are not entitled, such as the earned income credit, which 
may lead to reduced tax revenue. IRS has generally conducted face-to- 
face examinations of nonresident aliens through special projects that 
focus on particular types of taxpayers, such as individuals employed 
by foreign embassies or consulates and international organizations in 
the United States. Through its examinations, IRS has found that some 
nonresidents improperly file Form 1040 instead of Form 1040NR. 
However, IRS does not have a program to automatically identify 
taxpayers who may have made this type of error. 

IRS may be able to systematically identify nonresidents who improperly 
file Form 1040 instead of 1040NR. As with U.S. citizens and residents, 
nonresidents must have a taxpayer identification number in order to 
file a tax return. Nonresidents who do not qualify for a Social 
Security number but have a valid filing requirement may apply to IRS 
for a 9-digit individual tax identification number to use in lieu of a 
Social Security number in filing a tax return and are to indicate if 
they are resident or nonresident aliens, or a spouse or dependent of 
either, on their applications. 

If IRS were able to identify taxpayers who should have filed Form 
1040NR instead of Form 1040 by identifying tax returns filed with an 
individual tax identification number and using information from 
individual tax identification number applications, it may be able to 
cost-effectively address this form of noncompliance for some taxpayers 
and increase tax revenue. For example, IRS may be able to examine 
potentially noncompliant taxpayers through correspondence, which would 
be less time consuming, complex, and costly than the face-to-face 
examinations IRS has traditionally conducted for nonresident aliens. 
Without further study, IRS cannot know if systematically identifying 
and addressing nonresidents who filed an incorrect type of tax return 
would be cost-effective. 

Actions Needed and Potential Revenue: 

GAO recommended in April 2010 that IRS determine if creating an 
automated program to identify nonresident aliens who may have 
improperly filed Form 1040 instead of Form 1040NR would be a cost- 
effective means to improve compliance. IRS has formed a team to study 
the feasibility of such a program, which it plans to complete by 
December 2011. GAO plans to follow up on this issue to assess progress 
in completing the study as well as to identify potential revenue 
increases. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. 

Related GAO Product: 

Tax Compliance: IRS May Be Able to Improve Compliance for Nonresident 
Aliens and Updating Requirements Could Reduce Their Compliance Burden. 
[hyperlink, http://www.gao.gov/products/GAO-10-429]. Washington, D.C.: 
April 14, 2010. 

Area Contact: 

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

[End of section] 

Tracking Undisbursed Balances in Expired Grant Accounts Could 
Facilitate the Reallocation of Scarce Resources or the Return of 
Funding to the Treasury: 

Why GAO Is Focusing on This Area: 

According to Office of Management and Budget (OMB) estimates, federal 
grant awards to nonfederal entities, such as states and nonprofit 
organizations, increased from $300 billion in 2000 to over $500 
billion in 2009. If even a small fraction of the federal government's 
total grant funding is not spent in a prudent and timely fashion, it 
can prevent the reallocation of scarce resources or the return of 
funding to the United States Treasury. 

Undisbursed funding is funding the federal government has obligated 
through a grant agreement, but which the grantee has not entirely 
spent. An expired grant account is an agency-level account for which 
the period of availability to the grantee has ended. 

What GAO Has Found Indicating Potential for Cost Saving: 

The existence of unspent funds can hinder the achievement of national 
objectives in various ways, such as leaving projects incomplete or 
making federal funds more susceptible to improper spending or 
accounting as monitoring diminishes over time. Closeout procedures 
help ensure grantees have met all financial requirements, provided 
final reports, and that unused funds are de-obligated. However, past 
audits of federal agencies by GAO and Inspectors General, and 
agencies' annual performance reports have suggested grant management 
challenges, including failure to conduct grant closeouts and 
undisbursed balances, are a long-standing problem. The audits 
generally attributed the problems to inadequacies in awarding 
agencies' grant management processes, including regarding closeouts as 
a low management priority, inconsistent closeout procedures, poorly 
timed communications with grantees, or insufficient compliance or 
enforcement. 

GAO found that when federal agencies took corrective actions, there 
were improvements in grant closeouts and resolution of undisbursed 
funding. Using federal payment systems to track undisbursed funding in 
expired grant accounts and including the status of grant closeouts in 
annual performance reports could raise the visibility of the problem 
both within the agency and governmentwide, and lead to improvements in 
grant closeouts and reduce undisbursed balances. 

In August 2008, GAO reported that during calendar year 2006, about $1 
billion in undisbursed funding remained in expired grant accounts in 
the Department of Health and Human Services' Payment Management System 
(PMS)--the largest civilian grant payment system. In 2006, PMS made 
payments for about 70 percent of all federal grants awarded by nine 
federal departments and three other federal entities. The expired but 
still open grant accounts found in PMS were associated with thousands 
of grantees and over 325 different federal programs. While GAO has not 
updated this figure, it illustrates the potential financial benefits 
to be gained by improving oversight of undisbursed grant funding. 
Better tracking of grant accounts maintained in all federal payment 
systems could identify the expired grants with undisbursed balances 
and make funds available for other assistance projects or facilitate 
the return of these funds to the Treasury. GAO recommended that the 
Director of OMB instruct executive departments and independent 
agencies to annually track the amount of undisbursed grant funding 
remaining in expired grant accounts and report on the status and 
resolution of such funding in their annual performance plans and 
Performance and Accountability Reports (PAR). As of January 13, 2011, 
OMB had not issued governmentwide guidance regarding undisbursed 
balances in expired grant accounts. 

As an example of how agencies could be instructed to provide this 
information, section 537 of the Consolidated Appropriations Act of 
2010 (Public Law 111-117), signed into law on December 16, 2009, 
required that the Director of OMB instruct departments, agencies, and 
other entities receiving funds under the Commerce, Justice, Science 
and Related Agencies Act of 2010 to track undisbursed balances in 
expired grant accounts and include in its annual PARs details on the 
(1) actions the department, agency, or instrumentality will take to 
resolve such balances; (2) methods used to track such balances; (3) 
identification of balances that may be returned to the U.S. Treasury; 
and (4) the number of such accounts for the preceding 3 years. In 
October 2010, OMB issued the instructions to the federal entities 
funded by this appropriations act, as required. GAO reviewed available 
fiscal year 2010 PARs and found three entities reported they had 
undisbursed and/or unobligated balances remaining in expired grant 
accounts over the last 3 or 4 years. The most recent balances that 
these agencies reported were as follows: Department of Justice, fiscal 
year 2010--$2.9 million; National Aeronautics and Space Administration 
(NASA), fiscal year 2009--$58 million; and National Science 
Foundation, fiscal year 2010--$1.7 billion. Of these three agencies, 
only NASA grant accounts were included in the total undisbursed 
balances GAO reported in 2008. 

In a recent example of how to identify, resolve, and quantify the 
savings resulting from resolving undisbursed funding in expired grant 
accounts, the U.S. Department of Agriculture's Office of Inspector 
General reported in 2009 that the Agricultural Research Service (ARS) 
did not timely de-obligate unused funds from 32 of 121 cooperative 
agreements that expired in fiscal years 2005 and 2006. The inspector 
general cited GAO in recommending that the ARS de-obligate the $2.75 
million remaining on the 32 expired agreements to make the funds 
available for other research projects and prevent the potential misuse 
of funds. The ARS reported to the inspector general, in April 2009, 
that it had de-obligated the $2.75 million, as recommended. 

Actions Needed and Potential Savings: 

Better tracking of grant accounts maintained in all federal payment 
systems could identify the expired grants with undisbursed balances. 
Ongoing, systematic resolution of these undisbursed grant balances 
could potentially make these funds available for other assistance 
programs or facilitate the return of these funds to the Treasury. In 
August 2008, GAO recommended that OMB instruct all executive 
departments and independent agencies to track undisbursed balances in 
expired grant accounts and report on the resolution of this funding in 
their annual performance plan and PARs. While OMB has not issued 
governmentwide guidance regarding undisbursed balances in expired 
grant accounts, GAO continues to believe its recommendations should be 
implemented. 

Framework for Analysis: 

The analysis above was based on a prior GAO product, GAO-08-432, 
listed below. 

Related GAO Products: 

Telecommunications: Long-Term Strategic Vision Would Help Ensure 
Targeting of E-rate Funds to Highest-Priority Uses. [hyperlink, 
http://www.gao.gov/products/GAO-09-253]. Washington, D.C.: March 27, 
2009. 

Grants Management: Attention Needed to Address Undisbursed Balances in 
Expired Grant Accounts. [hyperlink, 
http://www.gao.gov/products/GAO-08-432]. Washington, D.C.: August 29, 
2008. 

Area Contact: 

For additional information about this area, contact Stanley J. 
Czerwinski at (202) 512-6520 or czerwinskis@gao.gov. 

[End of section] 

Preventing Billions in Medicaid Improper Payments Requires Sustained 
Attention and Action by the Centers for Medicare & Medicaid Services: 

Why GAO Is Focusing on This Area: 

In fiscal year 2009, the Medicaid program covered over 65 million 
people at a cost to the federal government and states, which share the 
cost of the program, of an estimated $381 billion. Medicaid is a 
federal-state program that consists of more than 50 distinct state- 
based programs that cover acute health care and long-term care 
services for certain low-income individuals, including children and 
persons who are aged or disabled. The Congressional Budget Office has 
estimated that, under the Patient Protection and Affordable Care Act, 
enacted in 2010, the cost of the Medicaid expansion will exceed $430 
billion from 2010 to 2019, with the federal government responsible for 
paying over 90 percent of these increased costs. 

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. States administer their respective 
programs' day-to-day operations, including processing and paying 
claims submitted by health care providers for services provided to 
Medicaid beneficiaries. Due to the size, growth, and diversity of the 
Medicaid program, rigorous fiscal oversight is necessary to prevent 
improper payments. 

What GAO Has Found Indicating Potential for Cost Saving: 

Improper payments to Medicaid providers that submit inappropriate 
claims can result in substantial financial losses to states and the 
federal government. The amount of improper payments in the Medicaid 
program is among the largest of all government programs. For fiscal 
year 2010, HHS estimated that 9.4 percent of Medicaid payments were 
improper, representing $22.5 billion in federal expenditures. Medicaid 
payments can be improper for various reasons, including payments made 
for which required documentation is missing or inadequate or payments 
on claims with errors. Improper payments also include payments for 
people who are not eligible for Medicaid or to providers who are 
barred from participating in the program. 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. For example, 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 that were barred, excluded, or both from federal health 
care programs, including Medicaid. 

State efforts to maximize federal reimbursement also can increase the 
risk of improper federal payments to states, to the extent states' 
efforts may inappropriately shift state costs to the federal 
government. In 2005, GAO reported that a growing number of states were 
using contingency-fee consultants--consultants employed under 
contracts whereby payments were contingent upon the consultant's 
performance--to maximize federal Medicaid reimbursement. States may 
employ consultants to serve valid Medicaid-related roles, such as 
adding needed staff or a particular expertise. However, in two states 
reviewed, GAO identified certain claims for federal funding from 
contingency-fee projects in five categories of Medicaid services that 
were problematic because they appeared to be inconsistent with CMS 
policy, were inconsistent with federal law, or undermined Medicaid 
fiscal integrity. GAO also found that CMS and state oversight of 
claims associated with contingency-fee projects was limited and 
recommended that CMS routinely require states to identify claims or 
projects developed by contingency-fee consultants. CMS recognizes that 
claims resulting from consultant revenue maximization projects are at 
higher risk of being inconsistent with certain federal Medicaid 
requirements, but as of the end of 2010 it had not established 
processes to routinely collect information enabling it to identify 
claims or projects developed by contingency-fee consultants to 
maximize federal reimbursement. Without adequate controls over 
improper payments and state maximization efforts, tens of billions of 
additional federal dollars are at risk as program expenditures grow. 

Actions Needed and Potential Savings: 

Sustained agency attention is needed to implement and oversee 
processes to prevent, identify, and recover improper payments and to 
reduce the billions of dollars that are annually lost to improper 
Medicaid payments. Both the executive branch and Congress have acted 
to curtail improper Medicaid payments, but challenges in preventing 
such payments remain. The issuance of Presidential Memoranda and a 
2009 Executive Order, Reducing Improper Payments, along with enactment 
of the Improper Payments Elimination and Recovery Act of 2010 (IPERA), 
are positive steps toward improving transparency and reducing improper 
payments. However, it is too soon to determine whether the activities 
called for in the Presidential Memoranda, Executive Order, and IPERA 
will achieve their goals of reducing improper payments. Further, the 
magnitude of the program's payment errors indicates that CMS and the 
states face significant challenges to address the program's 
vulnerabilities. In its 2009 report on top management and performance 
challenges facing HHS, the HHS Office of Inspector General reported 
multiple priorities related to Medicaid, including the need to ensure 
the integrity of payments to providers by ensuring they are 
appropriately enrolled and eligible to receive payments. CMS has taken 
steps to strengthen its financial oversight of Medicaid, but the 
agency can do more to address gaps in its oversight and financial 
management. 

GAO recommended in 2009 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's 
recommendations; however, guidance had not been issued as of the end 
of 2010. With regard to Medicaid claims related to state efforts to 
maximize federal reimbursements, GAO recommended that CMS improve its 
oversight of projects developed by consultants on a contingency-fee 
basis, in part by routinely requesting information on these projects 
and associated claims. CMS stated in 2010 that it was committed to 
fully assessing the basis for all claims, but indicated it did not 
plan to routinely request this information. GAO maintains that the 
high-risk nature of consultant-led maximization projects to shift 
state costs to the federal government by submitting claims for federal 
matching funds that are inconsistent with federal law or CMS policy, 
warrants their identification and close oversight. 

Framework for Analysis: 

The information contained in this analysis is based on work GAO has 
conducted over the past 5 years, ongoing work examining the federal 
government efforts to curtail improper payments, and recent work to 
update the status of recommendations. 

Related GAO Products: 

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. 

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. 

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 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. 

Area Contact: 

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

[End of section] 

Federal Oversight over Medicaid Supplemental Payments Needs 
Improvement: 

Why GAO Is Focusing on This Area: 

Strong federal oversight of Medicaid is warranted as the program 
continues to grow in size and cost, and GAO has had long-standing 
concern with the adequacy of federal oversight of state Medicaid 
supplemental payments. Each state administers a Medicaid program and 
covers a variety of health care services for low-income individuals. 
The federal government oversees states' Medicaid programs and, by a 
formula established in law, pays from half to more than three-fourths 
of each state's Medicaid expenditures. Subject to certain 
requirements, states establish Medicaid payment rates for providers 
and may make supplemental payments to providers, which are separate 
from and in addition to standard state Medicaid payment rates. States 
make two general types of supplemental payments. First, 
Disproportionate Share Hospital (DSH) payments are required under 
federal law to be made to hospitals that serve a large number of low-
income individuals and are designed to help offset hospitals' 
uncompensated costs for serving Medicaid and uninsured low-income 
individuals. Second, states often make non-DSH Medicaid supplemental 
payments, which are also funded in part with federal dollars, for 
example to help offset the costs of care provided to individuals 
covered by Medicaid. 

What GAO Has Found Indicating Potential for Cost Saving: 

Varied financing arrangements that states use to make Medicaid 
supplemental payments can inappropriately increase federal Medicaid 
matching payments. GAO found that, under certain financing 
arrangements, some states paid state or local government providers 
supplemental payments that greatly exceeded standard Medicaid rates, 
resulting in large matching payments from the federal government. Some 
states required providers to return most, or all, of the large 
supplemental payments to the state, which the states then used for 
other purposes. Such financing arrangements threaten the fiscal 
integrity of Medicaid's federal and state partnership because they 
effectively increase the federal Medicaid share above what is 
established by law, and there is no assurance that federal Medicaid 
funds are used for Medicaid purposes. 

The Centers for Medicare & Medicaid Services (CMS) within the 
Department of Health and Human Services--the agency that oversees 
Medicaid at the federal level--has taken action to curb inappropriate 
payments, but gaps in oversight remain. For example, in 2003, CMS 
began an initiative to closely review supplemental payment 
arrangements and required states to end those it found inappropriate; 
however, in 2008, GAO reported that CMS had not reviewed all 
arrangements to ensure that payments were appropriate and used for 
Medicaid purposes. In 2009, GAO found that ongoing federal oversight 
of supplemental payments was warranted, in part because in two of the 
four states reviewed the states did not comply with federal 
requirements to account for all Medicaid payments when calculating DSH 
payment limits for uncompensated hospital care. States calculate these 
limits to provide assurances that DSH payments to hospitals do not 
exceed individual hospitals' actual costs of providing services. For a 
small number of hospitals, the state calculation errors resulted in 
payments in excess of hospital limits. In two states, a state-operated 
hospital received combined Medicaid supplemental and standard Medicaid 
payments that exceeded the hospital's total operating costs by 3 
percent in one case and 6 percent in another. 

In 2011, under federal regulations, improved transparency and 
accountability requirements will become effective for state DSH 
payments, including standards for state calculations of DSH payment 
limits. Also, states will be required to report DSH payments on a 
facility basis and to obtain independent audits for their DSH payment 
reports and calculations. Under the Patient Protection and Affordable 
Care Act, reductions in federal DSH expenditures will occur in future 
years. At the same time, similar requirements are not in place for non-
DSH payments, which appear to be increasing. In 2006 states reported 
making $6.3 billion in non-DSH supplemental Medicaid payments, of 
which the federal share was $3.7 billion, but not all states were 
reporting their payments. By 2010, this amount had grown to $14 
billion, with a federal share $9.6 billion, however, according to CMS 
officials reporting was likely incomplete. Requirements for DSH 
supplemental payments, such as standards for calculating the amount of 
the payments and reporting of payments on a facility specific basis, 
do not apply to non-DSH supplemental payments. Further, processes have 
not been implemented to ensure that all supplemental payment 
arrangements are reviewed. 

Actions Needed and Potential Savings: 

In light of the magnitude of Medicaid supplemental payments and recent 
reported growth of non-DSH supplemental payments, along with past 
concerns about the inappropriateness of some supplemental payments, 
further action by CMS is warranted to ensure that these payments are 
appropriate and used for Medicaid purposes. Some key prior GAO 
recommendations aimed at improving federal oversight of supplemental 
payments have not been implemented. In particular, GAO has recommended 
that CMS establish uniform guidance for states that sets acceptable 
methods for calculating non-DSH payment amounts, require facility 
specific reporting of non-DSH supplemental payments, and develop a 
strategy to ensure all state supplemental payment arrangements have 
been reviewed by CMS. 

Given concerns associated with Medicaid supplemental payments, strong 
and sustained CMS oversight is necessary. Ensuring that the federal 
government provides matching funds only for appropriate supplemental 
payments could result in substantial costs savings. 

Framework for Analysis: 

The information contained in this analysis is based on work GAO has 
conducted over the past 15 years and recent work to update the status 
of prior recommendations and payment amounts. 

Related GAO Products: 

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: 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. 

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: State Financing Schemes Again Drive Up Federal Payments. 
[hyperlink, http://www.gao.gov/products/GAO/T-HEHS-00-193]. Washington 
D.C.: September 6, 2000. 

Medicaid: States Use Illusory Approaches to Shift Program Costs to 
Federal Government. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-94-133]. Washington D.C.: August 
1, 1994. 

Area Contact: 

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

[End of section] 

Better Targeting of Medicare's Claims Review Could Reduce Improper 
Payments: 

Why GAO Is Focusing on This Area: 

The Centers for Medicare & Medicaid Services (CMS)--the agency that 
administers Medicare--has estimated that improper payments for 
Medicare fee-for-service (FFS) were $34.3 billion in fiscal year 2010. 
Because the program's complexity and size make it vulnerable to 
billions of dollars in improper payments--over-and underpayments that 
should not have been made--GAO has designated it as a high-risk 
program. CMS and its contractors conduct activities to identify 
improper payments, including reviewing claims before and after 
payment. CMS contractors are also responsible for processing and 
paying approximately 4.5 million claims per work day, which makes the 
volume and cost to review the claims challenging. 

What GAO Has Found Indicating Potential for Cost Saving: 

Aspects of the Medicare program's design make it susceptible to 
improper payments and effective use of payment controls can help 
ensure that these improper payments are minimized. GAO found that 
improving automated review and better targeting of claims to review 
manually could help prevent improper payments. 

Medicare is designed to pay claims promptly and the number of claims 
it receives limits the amount of possible review. CMS is generally 
required to pay electronic claims between 14 and 30 days from the date 
of receipt and the program now pays 4.5 million claims each work day. 
The amount of program payments that are made with minimal review has 
made Medicare a target for fraud, waste, and abuse that can result in 
improper payments. Medicare requires that covered services be 
reasonable and medically necessary--and of course, be provided as 
claimed. Since it was first estimated in 1996, Medicare's improper 
payment rate has been in the billions of dollars each year, although 
efforts to improve the methodology used for the estimate have made 
current year estimates noncomparable to any made before 2009. Prior to 
1996, CMS had controls in place to try to minimize improper payments 
and beginning in fiscal year 1997, Congress provided funds 
specifically for CMS activities designed to ensure that claims are 
paid correctly. CMS allocates these funds to contractors that conduct 
a number of activities, including a limited amount of claims review, 
to help prevent or identify and address improper payments. 

Despite agency efforts, CMS still faces challenges in designing and 
implementing internal controls to effectively prevent or recoup 
improper payments and to prevent fraud, waste, and abuse. Previous GAO 
products identified some specific weaknesses in the area of claims 
review and made recommendations to implement key strategies related to 
automating and targeting claims review that are particularly important 
to helping prevent fraud, waste, and abuse, and ultimately, to 
reducing improper payments. The claims review weaknesses identified 
include: 

Prepayment review of claims did not identify atypical billing 
associated with fraud. Overall, less than 1 percent of Medicare's 
claims are subject to a medical record review by trained personnel--so 
having robust automated payment controls in place that can deny 
inappropriate claims or flag them for further review is critical. 
However, GAO has found weaknesses in this area. Specifically, in 2007, 
GAO found that contractors responsible for reviewing claims from 
suppliers of durable medical equipment, prosthetics, orthotics, and 
supplies did not have automated prepayment controls in place to 
identify questionable claims that might suggest fraud, such as those 
associated with atypically rapid increases in billing or for items 
unlikely to be prescribed in the course of routine quality medical 
care. 

Postpayment claims review was not focused on most vulnerable areas. 
Postpayment reviews are critical to identifying payment errors, 
recouping overpayments, or repaying underpayments. CMS's contractors 
have conducted limited postpayment reviews--for example, GAO reported 
in 2009 that the contractors paying claims for home health care 
conducted postpayment reviews on fewer than 700 of the more than 8.7 
million claims that they paid in fiscal year 2007. Further, GAO found 
they were not using evidence, such as findings from prepayment review, 
to target their postpayment review resources on providers with a 
demonstrated high risk of improper payments. 

Regular cross-checking of claims for home health services with the 
physicians listed as prescribing them was not always done. CMS does 
not routinely provide physicians responsible for authorizing home 
health care with information that would enable them to determine 
whether a home health agency (HHA) was billing for unauthorized care. 
In one instance, a CMS contractor identified overpayments in excess of 
$9 million after interviewing physicians whose names and signatures 
appeared on referrals for beneficiaries with high home health costs. 
Some physicians indicated their signatures had been forged or they had 
not realized the amount of care they had authorized. 

CMS's new national recovery audit contracting program, begun in March 
2009, added to postpayment efforts; but not for fraud-prone claims. 
Recovery audit contractors (RAC) review claims after payment, with 
reimbursement to them contingent on the improper over-and 
underpayments identified. According to CMS, because RACs are paid fees 
contingent on the dollar value of the improper payments identified, 
RACs have focused on high-dollar claims from inpatient hospital stays, 
not other services prone to improper payment, such as home health 
services. 

Actions Needed and Potential Savings: 

More targeted claims review could help reduce improper payments. While 
the potential for savings exists, the extent of savings realized would 
depend on the efforts taken to address weaknesses in the review 
process. 

GAO continues to believe that CMS should address these previously made 
recommendations: 

* In 2007, GAO recommended that CMS require its contractors to develop 
thresholds for unexplained increases in billing and use them to 
develop automated prepayment controls. CMS agreed with this 
recommendation in its comments on the report, but has not implemented 
it. The agency has added other prepayment controls to flag claims for 
services that were unlikely to be provided in the normal course of 
medical care. However, implementing GAO's recommendation and adding 
additional prepayment controls could enhance identification of 
improper claims before they are paid. 

* In 2009, GAO's report on home health services recommended that 
postpayment reviews be conducted on claims submitted by HHAs with high 
rates of improper billing identified through prepayment review. CMS 
did not indicate that it agreed or disagreed with this recommendation 
and has not implemented it. The agency stated that its contractors 
conduct pre-and postpayment reviews for HHAs with high utilization as 
resources allow. However, this might not lead to postpayment review of 
claims by HHAs with high rates of improper prepayment billing and GAO 
continues to believe that such reviews would be valuable. 

* The 2009 home health report also recommended that CMS require that 
physicians receive a statement of home health services beneficiaries 
received based on the physicians' certification. The agency agreed to 
consider this recommendation, but has not taken action. Such action 
could also be beneficial for other items and services susceptible to 
fraud and abuse that are often not directly billed by physicians, such 
as high-cost durable medical equipment, prosthetics, orthotics, and 
supplies. CMS indicated in 2010 that the Affordable Care Act included 
a section requiring a physician (or nonphysician working for or in 
collaboration with a physician) to document that a face-to-face 
encounter with the physician occurred before home health services can 
be implemented. However, the actual services provided could differ 
from what the initial ordering physician intended, and the initial 
documentation of a face-to-face encounter would not address that issue. 

In addition, as GAO pointed out in 2010 testimony on Medicare fraud, 
waste, and abuse, because the RACs are focusing on review of 
hospitals, other contractors' postpayment review activities could be 
more valuable if CMS directed these contractors to focus on services 
where RACs are not expected to focus their reviews, and where improper 
payments are known to be high, specifically home health services. 

The amount that could be saved from taking these actions has not been 
estimated and would depend on how they were implemented. 

Framework for Analysis: 

The information contained in this analysis is based on findings from 
the GAO reports listed below. 

Related GAO Products: 

Medicare Fraud, Waste, and Abuse: Challenges and Strategies for 
Preventing Improper Payments. [hyperlink, 
http://www.gao.gov/products/GAO-10-844T]. Washington, D.C.: June 15, 
2010. 

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. 

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. 

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: Improvements Needed to Address Improper Payments for Medical 
Equipment and Supplies. [hyperlink, 
http://www.gao.gov/products/GAO-07-59]. Washington, D.C.: January 31, 
2007. 

Area Contact: 

For additional information about this area, contact Kathleen King at 
(202) 512-7114 or kingk@gao.gov. 

[End of section] 

Potential Savings in Medicare's Payments for Health Care: 

Why GAO Is Focusing on This Area: 

Medicare expenditures are growing faster than the overall economy and 
are expected to continue to do so, leading to concerns about the 
program's long-term sustainability. Furthermore, it is widely 
recognized that Medicare's contribution to the nation's long-term 
fiscal shortfall is considerable. 

The primary drivers of increased Medicare spending are growth in the 
volume of services (the number of services provided per beneficiary) 
and the intensity of services (services' complexity and costliness). 
The behavior of physicians is particularly critical to attempts to 
control these increases, because physicians not only provide services, 
but also order services such as imaging studies and home oxygen. 

Medicare, which is administered by the Centers for Medicare & Medicaid 
Services (CMS), an agency of the Department of Health and Human 
Services (HHS), helps pay for hospital, physician, and other inpatient 
and outpatient services for about 38.7 million aged and 7.6 million 
disabled beneficiaries. According to the 2010 Medicare Trustees 
Report, about $336 billion was spent on health care (excluding 
Medicare's managed care and prescription drug spending for 
beneficiaries in those programs) in 2009. Medicare is funded primarily 
by tax revenues and beneficiaries' premiums. 

What GAO Has Found Indicating Potential for Cost Saving: 

Some Medicare spending for services provided and ordered by physicians 
may not be warranted, and Medicare's review of claims is not always 
sufficiently targeted and systematic. For example, the wide geographic 
variation in Medicare spending per beneficiary--unrelated to health 
status or outcomes--suggests that health needs alone do not determine 
spending. In other cases, such as home oxygen, Medicare simply 
overpays. Additionally, Medicare pays for portions of some services 
twice because it fails to take into account the extent to which 
services that are commonly furnished together overlap. 

GAO has reviewed four specific areas in which a potential for savings 
exists: 

* Physician practice patterns. Some private and public health care 
purchasers have initiated programs to identify inefficient physicians--
that is, physicians who provide and order a level of services that is 
excessive, given the patient's health status--and to encourage 
patients to receive their care from other, more efficient physicians. 
GAO profiled Medicare generalist physicians and identified those whose 
practices included a higher proportion of overly expensive patients 
(after adjusting for health status) than would occur by chance. GAO 
concluded that these physicians were likely to practice medicine 
inefficiently. GAO also profiled Medicare physicians in four 
specialties--cardiology, diagnostic radiology, internal medicine, and 
orthopedic surgery--and showed that expenditures for institutional 
services grew as the level of resource use increased. 

* Imaging services. From 2000 through 2006, expenditures for imaging 
services paid under the Medicare physician fee schedule more than 
doubled in nominal terms, increasing to about $14 billion. Spending on 
advanced imaging services such as CT scans, MRIs, and nuclear 
medicine, rose faster--17 percent per year--than spending on less 
complex services, such as ultrasound or X-ray. Although overall 
spending on imaging declined to $12.1 billion in 2007--primarily due 
to a cap imposed on certain imaging fees by the Deficit Reduction Act 
of 2005--utilization continued to increase. While much of this growth 
may be appropriate, several other trends--including a shift toward 
provision of imaging services in physicians' offices where there is 
less oversight, broader use of imaging by nonradiologists, and an 
almost eight-fold geographic variation in spending on in-office 
imaging in 2006--raise concerns that imaging services may be over 
utilized. 

* Home oxygen. In 2009, Medicare spent $2.15 billion to provide home 
oxygen for beneficiaries with conditions such as chronic pulmonary 
disease. GAO reported more than a decade ago that Medicare payment 
rates for home oxygen were significantly higher than those of the 
Department of Veterans Affairs, and the HHS Office of Inspector 
General has reported several times that oxygen payment rates were 
excessive. Congress has reduced or limited payments several times--
most recently in 2009. However, according to GAO's analysis, payment 
rates remain higher than those of some other national payers. 
Additionally, the average monthly Medicare payment for home oxygen per 
beneficiary in 2009 was up to 44 percent higher than suppliers' 
overall costs. Nearly all beneficiaries who receive home oxygen use a 
stationary oxygen concentrator and about two-thirds also use portable 
oxygen equipment. Although portable oxygen equipment typically 
requires refills, stationary concentrators do not.[Footnote 72] 
However, Medicare's bundled payment for stationary concentrators 
includes a payment for oxygen refills. Consequently, in 2008, in about 
one-third of instances in which Medicare paid for a stationary 
concentrator, it was also paying for oxygen refills that were not 
provided. 

* Physician payments. Medicare's physician fees may not always reflect 
efficiencies that occur when services are commonly furnished together. 
For example, certain portions of practice expenses such as a nurse's 
time preparing a patient for a medical procedure or a technician's 
time setting up the required equipment are incurred only once when 
services are provided together; and certain portions of physician work 
activities--such as reviewing the patient's medical record--occur only 
once when services are provided together, yet payment for these 
overlapping portions is generally included in the fee for each 
service, resulting in excessive payments by Medicare. CMS has 
implemented a multiple procedure payment reduction (MPPR) for certain 
imaging and surgical services when two or more related services are 
furnished together. Under the MPPR, the full fee is paid for the 
highest-price service and a reduced fee is paid for each subsequent 
service, but the policy has not been systematically applied to 
services commonly furnished together. Looking only at those services 
that had the greatest impact on Medicare expenditures, GAO identified 
areas, such as physical therapy, in which efficiencies for services 
commonly furnished together were not taken into account. 

Actions Needed and Potential Savings: 

GAO has reported that significant potential for savings exists by 
profiling physician practice patterns to encourage more efficient 
provision of health care services, introducing prior approval 
requirements and other front-end approaches to better manage the use 
of imaging services, reducing and restructuring payments for home 
oxygen, and reforming payments for physician services so that when two 
services overlap, only one payment is made for the overlapping portion. 

* Profiling physicians' practice patterns. GAO recommended in April 
2007 that CMS develop a profiling system to identify individual 
physicians with inefficient practice patterns and use the results to 
improve the efficiency of care financed by Medicare. Physicians play a 
central role in the generation of health care expenditures. About 20 
percent of services are provided by physicians. However, they 
influence up to 90 percent of spending by, for instance, referring 
patients to other physicians; admitting patients to hospitals, skilled 
nursing facilities, and hospices; and ordering services delivered by 
other health care providers, such as imaging studies, laboratory 
tests, and home health services. GAO found that providing feedback to 
physicians on their practice patterns is a promising step toward 
encouraging efficiency in Medicare. However, GAO noted that CMS would 
likely have to seek legislative changes to maximize the usefulness of 
profiling--for example, changes that would allow CMS to incentivize 
beneficiaries to select efficient providers. The Medicare Improvements 
for Patients and Providers Act of 2008 directed the Secretary of HHS 
to establish a confidential physician feedback program. The Patient 
Protection and Affordable Care Act[Footnote 73] expanded the program 
and also requires the Secretary of HHS to adjust payments to those 
physicians whose practice patterns promote both high-quality and the 
efficient use of health care services. The feedback program is in its 
early stages and potential savings to the $336 billion Medicare 
program will depend on implementation details. 

* Better management of imaging services. GAO recommended in June 2008 
that CMS examine the feasibility of adding more front-end management 
approaches, such as prior authorization, for imaging services. In this 
way, CMS might be able to improve its efforts to be a prudent 
purchaser of imaging services, which cost Medicare over $12 billion in 
2008. However, the Secretary of HHS has not implemented or examined 
the feasibility of these practices, saying in 2008 that it is 
concerned about administrative burden as well as the advisability of 
prior authorization for the Medicare program. It also questioned how 
prior authorization would fit within its current postpayment review 
program. Specific savings estimates are not available and would depend 
on the number of Medicare imaging services deemed inappropriate by 
additional front-end approaches. However, GAO continues to believe 
that additional front-end management would help Medicare become a more 
prudent purchaser of imaging services and could generate savings. 

* Reducing payments for home oxygen. GAO suggested in January 2011 
that Congress consider reducing Medicare home oxygen rates to align 
them more closely with the costs of supplying home oxygen. Congress 
has required the Secretary of HHS to institute competitive bidding for 
home oxygen and other durable medical equipment. Prices from the first 
round of competitive bidding took effect in nine geographic areas in 
January 2011. According to CMS, the bid prices for home oxygen and 
other durable medical equipment for 2011 are 32 percent less than 
Medicare paid in 2010. However, this payment reduction will result in 
a payment reduction only in the nine geographic areas. In 2011, the 
process to expand competitive bidding to an additional 91 areas is 
expected to begin. Eventually competitive bidding is expected to 
expand beyond these first 100 areas. Certain geographic areas, such as 
rural areas, are exempt from competitive bidding until 2015. It will 
be several years before competitive bids affect Medicare payments for 
home oxygen nationwide. Therefore, GAO continues to believe it would 
be appropriate for Congress to consider reducing Medicare home oxygen 
payment rates. 

* Reducing payments for overlapping physician services. In a July 2009 
report, GAO recommended that CMS systematically review services 
commonly furnished together and implement a MPPR to capture 
efficiencies, where appropriate, for these services, focusing on those 
services that have the greatest impact on Medicare spending. GAO 
identified several areas, including physical therapy, where an MPPR 
could be applied to reflect efficiencies in overlapping services. GAO 
also recommended in this report that CMS expand the scope of its MPPR 
by applying it to nonsurgical and nonimaging services, such as 
physical therapy, thereby saving an estimated $500 million. Further, 
GAO recommended that the MPPR be applied to the part of the payment 
that covers a physician's work; according to GAO's estimates, if that 
were done only for imaging it would result in savings of $175 million. 
CMS has taken some steps to implement GAO's recommendations, but GAO 
cannot estimate the full extent of savings if CMS were to 
systematically review services commonly furnished together and 
eliminate duplicate payments. Under a Medicare budget neutrality 
provision, savings obtained from any significant change in physician 
payments for a particular service or set of services are added to the 
total amount available for paying physicians and are redistributed. 
Therefore, GAO also suggested in this report that Congress exempt 
savings attributable to the implementation of policies that reflect 
efficiencies occurring when services are furnished together from the 
budget neutrality requirement. 

In summary, GAO has identified numerous opportunities for savings in 
Medicare, and CMS has taken actions to address several of them. 
However, many actions remain to be taken, which could increase 
efficiencies and reduce Medicare's spending. Increased congressional 
attention may be warranted in these areas. 

Framework for Analysis: 

The information contained in this analysis is based primarily on the 
following related GAO products, supplemented by the 2010 Medicare 
Trustees Report, the 2011 Proposed Rule for Medicare Physician 
Payment, the Patient Protection and Affordable Care Act, and data from 
CMS's Web site. 

Related GAO Products: 

Medicare Home Oxygen: Refining Payment Methodology Has Potential to 
Lower Program and Beneficiary Spending. [hyperlink, 
http://www.gao.gov/products/GAO-11-56]. Washington, D.C.: January 21, 
2011. 

Medicare: Per Capita Method Can Be Used to Profile Physicians and 
Provide Feedback on Resource Use. [hyperlink, 
http://www.gao.gov/products/GAO-09-802]. Washington, D.C.: September 
25, 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: Trends in Fees, Utilization, and Expenditures for Imaging 
Services before and after Implementation of the Deficit Reduction Act 
of 2005. [hyperlink, http://www.gao.gov/products/GAO-08-1102R]. 
Washington, D.C.: September 26, 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: Providing Systematic Feedback to Physicians on their 
Practice Patterns is a Promising Step Toward Encouraging Program 
Efficiency. [hyperlink, http://www.gao.gov/products/GAO-07-862T]. 
Washington, D.C.: May 10, 2007. 

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

Area Contact: 

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

[End of section] 

Department of Homeland Security's Management of Acquisitions Could Be 
Strengthened to Reduce Cost Overruns and Schedule and Performance 
Shortfalls: 

Why GAO Is Focusing on This Area: 

The Department of Homeland Security (DHS), established in 2003 through 
the consolidation of 22 agencies with disparate missions, has 
obligated billions of dollars annually to meet its expansive homeland 
security mission. DHS acquisitions represent hundreds of billions of 
dollars in lifecycle costs and support a wide range of missions and 
investments including Coast Guard ships and aircraft, border 
surveillance and screening equipment, nuclear detection equipment, and 
systems to track the department's financial and human resources. DHS 
has not effectively developed, acquired, and provided oversight of its 
complex investments, such as programs for securing the border and the 
nation's transportation systems, with many programs experiencing cost 
overruns and schedule and performance shortfalls. 

What GAO Has Found Indicating Potential for Cost Saving: 

DHS faces significant challenges in managing its acquisitions, 
including programs not meeting their cost, schedule, and performance 
expectations. Strengthening its acquisition management process would 
help DHS to deliver critical mission capabilities that meet identified 
needs on time and within budget, including helping to reduce the cost 
overruns and schedule delays that DHS continues to experience in many 
of the major acquisition programs GAO has reviewed. 

DHS acquisition spending has increased by 66 percent since fiscal year 
2004--from $8.5 billion in fiscal year 2004 to $14.2 billion in fiscal 
year 2009--and DHS's portfolio of complex acquisitions continues to 
expand. DHS has made progress in strengthening its acquisition 
management by, for example, implementing a revised acquisition 
management directive that includes more detailed guidance for programs 
to use in informing component and departmental decision making. 
However, most acquisition programs GAO has reviewed at the department 
have not met cost, schedule, and performance expectations.[Footnote 
74] In particular, most DHS acquisition programs reported cost growth 
from initial estimates. Further, most programs GAO reviewed 
experienced estimated or actual schedule delays in delivery of initial 
operating capability of an average of 12 months. As GAO reported in 
June 2010, weaknesses in the department's acquisition management 
process continue to hinder the department's ability to provide needed 
capabilities on time and within budget. For example: 

* DHS's senior-level Acquisition Review Board had not reviewed most of 
its major acquisition programs by the end of fiscal year 2009 and 
programs that had been reviewed had not consistently implemented 
action items identified as part of the review by established 
deadlines. GAO's prior work has shown that when these types of reviews 
are skipped or not fully implemented, programs move forward with 
little, if any, early department-level assessment of the programs' 
costs and feasibility, which contributes to poor cost, schedule, and 
performance outcomes. DHS acquisition oversight officials said that 
funding and staffing levels have limited the number of programs they 
can review. GAO recommended that DHS identify and align sufficient 
management resources to implement oversight reviews in a timely 
manner. DHS generally concurred with the recommendation, and, as of 
January 2011, has reported taking action to address it. For example, 
DHS reported that it has increased its acquisition management 
staffing, and plans to hire more staff to develop cost estimates. DHS 
also reported that it held 35 Acquisition Review Board meetings in 
fiscal year 2010 and plans to hold between 36 and 40 in fiscal year 
2011. In addition, DHS reported making progress in tracking and 
closing action items. These planned actions are positive steps and, if 
implemented effectively, could help strengthen DHS's acquisition 
review process. However, it is too early to tell what impact these 
planned actions will have on the department's review process. 

* DHS's acquisition review process has not informed DHS's annual 
budget process for funding major programs, and many major programs 
received funding without validation of mission needs and requirements, 
largely because department-level reviews were seldom conducted. DHS's 
Joint Requirements Council, which was responsible for validating 
program requirements, stopped meeting in 2006. GAO recommended that 
the department ensure that budget decisions are informed by the 
results of investment reviews including approved acquisition 
information and cost estimates and reinstate the Joint Requirements 
Council or establish another departmental oversight board to perform 
this function. DHS concurred with this recommendation and, as of 
January 2011, was planning to establish a council to analyze DHS 
mission and strategic requirements. DHS also reported it plans to 
better link the development of requirements to resource allocation and 
program management. Until these efforts are fully and effectively 
implemented, DHS may continue to experience difficulties in ensuring 
that resources are allocated to acquisition programs commensurate with 
their requirements. 

* DHS has not developed accurate cost estimates for most of its major 
acquisition programs. For example, the Coast Guard's Rescue 21 search 
and rescue system has experienced significant cost growth--by 131 
percent since the department's initial cost estimate in 2003--due to, 
among other things, underestimation of costs for program management, 
deployment, and operations and maintenance. GAO's work has shown that 
accurate cost estimates are critical to making funding decisions, 
evaluating resource requirements, and developing performance 
measurement baselines. DHS has reported that the department is working 
to address this concern by assisting programs in developing cost 
estimates and obtaining independent cost estimates for some high-risk 
programs. While these are positive steps, until accurate cost 
estimates are in place, DHS will be challenged in making informed 
funding decisions and assessing program performance. 

* Over half of the 15 programs GAO reviewed awarded contracts to 
initiate acquisition activities without component or department 
approval of documents essential to planning acquisitions, setting 
operational requirements, and establishing acquisition program 
baselines. For example, the Secure Flight program for comparing air 
passengers' information to terrorist watch lists did not have an 
approved program baseline until over 4 years after initiation of the 
acquisition, and U.S. Customs and Border Protection's program to 
modernize its computer application for disseminating data to support 
port-of-entry inspections did not have a component or department- 
approved baseline after more than 6 years. Further, the Federal 
Emergency Management Agency has not yet approved an acquisition 
program baseline or other key program documents for its Integrated 
Public Alert and Warning System, which was initiated in 2004, and DHS 
did not develop its lifecycle cost estimates until 2009. GAO's prior 
work has noted that without the development, review, and approval of 
these key documents, agencies are at risk of having poorly defined 
requirements that can negatively affect program performance and 
contribute to increased costs. In January 2011, DHS reported that it 
has begun to implement an initiative to assist programs with 
completing departmental approval of acquisition program baselines. 
However, it is too early to fully assess the impact of this planned 
initiative. 

Actions Needed and Potential Savings: 

GAO's work has highlighted the need for the department to improve its 
acquisition portfolio management and adhere to key acquisition 
management processes to help improve the department's ability to 
deliver major acquisition programs to meet critical mission needs on 
time and within budget. Ensuring that requirements and cost estimates 
are well defined upfront could help DHS make sure there is a more 
accurate picture of the total costs and needs for a program. Further, 
establishing and measuring performance against department-approved 
baselines and indicators would help ensure that the acquisition 
program is on track with regard to performance, schedule, and cost. As 
GAO has recommended, DHS needs to ensure that its investment decisions 
are transparent and documented; ensure that budget decisions are 
informed by the results of acquisition investment reviews, including 
acquisition information and cost estimates; identify and align 
sufficient management resources, such as acquisition staff, to 
implement oversight reviews in a timely manner; and review and 
validate acquisition programs' requirements. These actions, if 
implemented effectively, should help DHS identify and avoid the cost 
overruns and schedule delays that DHS acquisition programs have 
experienced. 

DHS is planning to address these challenges by, among other things, 
establishing an Investment Review Board to oversee activities of the 
Acquisition Review Board and the status of all acquisition 
investments; expanding its Acquisition Corps to provide trained 
procurement and program management professionals to manage DHS's most 
critical acquisition programs; and developing a tool to track 
programs' cost, schedule, and performance indicators. However, it is 
too early to tell what effect these planned changes will have on DHS's 
acquisition management. In addition, due to previously mentioned 
concerns about the accuracy of current cost estimates and DHS 
challenges in measuring against cost, schedule, and performance 
baselines, GAO is unable to quantify future savings at this time. 
Success in reducing acquisition cost overruns will depend on DHS's 
further implementation of key actions GAO has recommended for 
strengthening the department's acquisition management. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

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

Aviation Security: TSA Is Increasing Procurement and Deployment of the 
Advanced Imaging Technology, but Challenges to This Effort and Other 
Areas of Aviation Security Remain. [hyperlink, 
http://www.gao.gov/products/GAO-10-484T]. Washington, D.C.: March 17, 
2010. 

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. 

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

Area Contact: 

For additional information about this area, contact David Maurer at 
(202) 512-9627 or maurerd@gao.gov; John Hutton at (202) 512-7773 or 
huttonj@gao.gov; or David Powner at (202) 512-9286 or pownerd@gao.gov. 

[End of section] 

Improvements in Managing Research and Development Could Help Reduce 
Inefficiencies and Costs for Homeland Security: 

Why GAO Is Focusing on This Area: 

The federal government allocates billions of dollars for researching, 
developing, and testing technologies and other countermeasures to 
address chemical, biological, radiological, nuclear, and other threats 
facing the nation. The Department of Homeland Security's (DHS) Science 
and Technology Directorate (S&T) conducts research and development 
efforts to improve homeland security by, among other things, providing 
its federal, state, local, tribal, and territorial emergency responder 
customers with technology to help them achieve their missions. DHS's 
Domestic Nuclear Detection Office (DNDO) is charged with developing, 
acquiring, and deploying equipment to detect nuclear and radiological 
materials, supporting the efforts of DHS and other federal agencies. 
According to DHS documents, the total budget authority for S&T and 
DNDO was over $5.8 billion for fiscal years 2007 through 
2010.[Footnote 75] DHS has experienced challenges in managing its 
multibillion dollar research and development efforts, and GAO has 
identified problems with its testing and cost-benefit analyses efforts 
in this area. 

What GAO Has Found Indicating Potential for Cost Saving: 

In managing its multibillion dollar research and development efforts, 
DHS has experienced cost overruns and delays in the procurement and 
deployment of technologies and systems needed to meet critical 
homeland security needs. DHS could help reduce inefficiencies and 
costs in its research and development program by completing testing 
efforts before making acquisition decisions and including cost-benefit 
analyses in its research and development efforts. 

DHS has made acquisition decisions without completing testing efforts 
to ensure that the systems purchased met program requirements. GAO's 
prior work has shown that failure to resolve problems discovered 
during testing can sometimes lead to costly redesign and rework at a 
later date. Addressing such problems during the testing phase before 
moving to the acquisition phase can help agencies avoid future cost 
overruns. 

* In September 2010, GAO reported that DNDO was simultaneously engaged 
in the research and development phase while planning for the 
acquisition phase of its cargo advanced automated radiography system 
to detect certain nuclear materials in vehicles and containers at 
ports. DNDO pursued the deployment of the cargo advanced automated 
radiography system without fully understanding that it would not fit 
within existing inspection lanes at ports of entry and would slow down 
the flow of commerce through these lanes, causing significant delays. 
DHS spent $113 million on the program since 2005. DHS canceled the 
acquisition phase of the program in 2007. 

* In June 2010, GAO reported that three Coast Guard programs--the 
Maritime Patrol Aircraft, Response Boat-Medium, and Sentinel Class 
Patrol Boat--placed orders for or received significant numbers of 
units prior to completing testing, placing the Coast Guard at risk for 
needing to make expensive changes to the design of these vessels after 
production had begun if significant problems were identified during 
testing. Acquisition cost estimates for these three programs together 
totaled about $6.8 billion, according to Coast Guard data. 

* In October 2009, GAO reported that the Transportation Security 
Administration (TSA), within DHS, deployed explosives trace portals, a 
technology for detecting traces of explosives on passengers at airport 
checkpoints, even though TSA officials were aware that tests conducted 
during 2004 and 2005 on earlier models of the portals suggested the 
portals did not demonstrate reliable performance in an airport 
environment. TSA also lacked assurance that the portals would meet 
functional requirements in airports within estimated costs. In June 
2006, TSA halted deployment of the explosives trace portals because of 
performance problems, and the machines were more expensive to install 
and maintain than expected. GAO recommended that TSA ensure that tests 
are completed before deploying checkpoint screening technologies to 
airports. The agency concurred with the recommendation and has taken 
action to address it. For example, TSA has required more recent 
passenger checkpoint technologies to complete both laboratory tests 
and operational tests prior to their deployment. 

In addition, GAO's prior work has shown that cost-benefit analyses 
help congressional and agency decision makers assess and prioritize 
resource investments and consider potentially more cost-effective 
alternatives. However, DHS has not included cost-benefit analyses in 
its testing efforts and acquisition decision making. 

* In 2006, GAO recommended that DHS's decision to deploy next 
generation radiation detection equipment, or advanced spectroscopic 
portals, used to detect smuggled nuclear or radiological materials, be 
based on an analysis of both the benefits and costs--which GAO later 
estimated at over $2 billion--and a determination of whether any 
additional detection capability provided by the portals was worth 
their additional cost. DHS subsequently issued a cost-benefit 
analysis, but GAO reported that this analysis did not provide a sound 
analytical basis for DHS's decision to deploy the portals. In June 
2009 GAO reported that an updated cost-benefit analysis might show 
that DNDO's plan to replace existing equipment with advanced 
spectroscopic portals was not justified, particularly given the 
marginal improvement in detection of certain nuclear materials 
required of advanced spectroscopic portals and the potential to 
improve the current-generation portal monitors' sensitivity to nuclear 
materials, most likely at a lower cost. After spending more than $200 
million on the program, in February 2010 DHS announced that it was 
scaling back its plans for development and use of the portals 
technology. 

* In October 2009 GAO reported that TSA had not yet completed a cost- 
benefit analysis to prioritize and fund its technology investments for 
screening passengers at airport checkpoints. One reason that TSA had 
difficulty developing a cost-benefit analysis was that it had not yet 
developed lifecycle cost estimates for its various screening 
technologies. GAO reported that this information was important because 
it would help decision makers determine, given the cost of various 
technologies, which technology provided the greatest mitigation of 
risk for the resources that were available. GAO recommended that TSA 
develop a cost-benefit analysis. The agency has completed a lifecycle 
cost estimate and collected information for its checkpoint 
technologies, but has not yet completed any cost-benefit analysis. 

In January 2011, DHS reported that it plans to take additional actions 
to strengthen its research and development efforts. For example, DHS 
reported that it plans to establish a new model for managing 
departmentwide investments across their life cycles. DHS reported that 
S&T will be involved in each phase of the investment life cycle and 
will participate in new entities DHS is planning to create to help 
ensure that test and evaluation methods are appropriately considered 
as part of DHS's overall research and development investment 
strategies. According to DHS, S&T will help ensure that new 
technologies are properly scoped, developed, and tested before being 
implemented. In addition, DHS reported that the new entities it is 
planning to establish to strengthen management of the department's 
acquisition and investment review process will be responsible for, 
among other things, making decisions on research and development 
initiatives based on factors such as viability and affordability, and 
overseeing key acquisition decisions for major programs using baseline 
and actual data. 

Actions Needed and Potential Savings: 

GAO's work has highlighted the need for the department to strengthen 
its research and development efforts by ensuring that (1) testing 
efforts are completed before making acquisition decisions and (2) cost-
benefit analyses are conducted to reduce research and development 
inefficiencies and costs. The planned actions DHS reports it is taking 
or has under way to address management of its research and development 
programs are positive steps and, if implemented effectively, could 
help the department address many of these challenges. However, it is 
too early to fully assess the impact of these actions. 

GAO has reported that DHS could take further actions to improve its 
management of research and development efforts and reduce costs in 
procuring and deploying programs that have not been fully tested. For 
example, rigorously testing devices using actual agency operational 
tactics before making decisions on acquisition would help DHS reduce 
inefficiencies and costs. Further, conducting cost-benefit analyses as 
part of research, development, and testing efforts would help DHS and 
congressional decision makers better assess and prioritize investment 
decisions, including assessing possible program alternatives that 
could be more cost-effective. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. GAO has ongoing work for the Senate Committee 
on Homeland Security and Governmental Affairs reviewing the role that 
S&T has in conducting testing and evaluation of major acquisitions 
programs prior to implementation. 

Related GAO Products: 

Combating Nuclear Smuggling: Inadequate Communication and Oversight 
Hampered DHS Efforts to Develop an Advanced Radiography System to 
Detect Nuclear Materials. [hyperlink, 
http://www.gao.gov/products/GAO-10-1041T]. Washington D.C.: September 
15, 2010. 

Combating Nuclear Smuggling: DHS Has Made Some Progress but Not Yet 
Completed a Strategic Plan for Its Global Nuclear Detection Efforts or 
Closed Identified Gaps. [hyperlink, 
http://www.gao.gov/products/GAO-10-883T]. Washington D.C.: June 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. 

Aviation Security: DHS and TSA Have Researched, Developed, and Begun 
Deploying Passenger Checkpoint Screening Technologies, but Continue to 
Face Challenges. [hyperlink, http://www.gao.gov/products/GAO-10-128]. 
Washington, D.C.: October 7, 2009. 

Combating Nuclear Smuggling: Lessons Learned from DHS Testing of 
Advanced Radiation Detection Portal Monitors. [hyperlink, 
http://www.gao.gov/products/GAO-09-804T]. Washington, D.C.: June 25, 
2009. 

Combating Nuclear Smuggling: DHS Improved Testing of Advanced 
Radiation Detection Portal Monitors, but Preliminary Results Show 
Limits of the New Technology. [hyperlink, 
http://www.gao.gov/products/GAO-09-655]. Washington D.C.: May 21, 2009. 

Area Contact: 

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

[End of section] 

Validation of TSA's Behavior-Based Screening Program Is Needed to 
Justify Funding or Expansion: 

Why GAO Is Focusing on this Area: 

The terrorist attacks of September 11, 2001, highlighted the need to 
improve security within the nation's civil aviation system to deter 
persons seeking to repeat similar attacks on the nation's critical 
infrastructure. To enhance aviation security, the Department of 
Homeland Security's (DHS) Transportation Security Administration (TSA) 
began testing in October 2003 of its Screening of Passengers by 
Observation Techniques (SPOT) program to identify persons who may pose 
a risk to aviation security. In fiscal year 2010, about 3,000 Behavior 
Detection Officers were deployed to 161 airports at an annual cost of 
over $200 million. As highlighted in GAO's May 2010 report, TSA did 
not validate the science supporting the program or determine if 
behavior detection techniques could be successfully used across the 
aviation system to detect threats before deploying the SPOT program. 

What GAO Has Found Indicating Potential for Cost Saving: 

TSA has implemented and now seeks to expand a behavior screening 
program, which has not yet been validated. A validation study is 
underway, but questions exist regarding whether the study's 
methodology is sufficiently comprehensive to validate the SPOT 
program. The results of an independent assessment are needed to 
determine whether current validation efforts are sufficiently 
comprehensive to validate the program. 

After operationally testing behavioral detection screening started in 
October 2003, TSA created separate Behavior Detection Officer 
positions as part of the SPOT program beginning in fiscal year 2007. 
TSA designed SPOT to provide these officers with a means of 
identifying persons who may pose a potential security risk at TSA-
regulated airports by focusing on behaviors and appearances that 
deviate from an established baseline, and that may be indicative of 
stress, fear, or deception. Behavior Detection Officers have been 
selectively deployed to 161 of the 462 TSA-regulated airports in the 
United States. The conference report accompanying the fiscal year 2010 
DHS appropriations act provided that $211.9 million was for the SPOT 
program.[Footnote 76] The administration has requested $232 million 
for SPOT for fiscal year 2011, a $20.2 million (9.5 percent) increase 
over the current funding level. This increase would support a 
workforce increase from about 3,000 to 3,350 Behavior Detection 
Officers. 

As discussed in GAO's May 2010 report, TSA deployed SPOT nationwide 
before first determining whether there was a scientifically valid 
basis for using behavior and appearance indicators as a means for 
reliably identifying passengers who may pose a risk to the U.S. 
aviation system. According to TSA, SPOT was deployed before a 
scientific validation of the program was completed in response to the 
need to address potential threats, but was based upon scientific 
research available at the time regarding human behaviors. TSA 
officials also stated that no other large-scale U.S. or international 
screening program incorporating behavior-and appearance-based 
indicators has ever been rigorously scientifically validated. 

However, a 2008 report issued by the National Research Council of the 
National Academy of Sciences noted that an information-based program, 
such as a behavior detection program, should first determine if a 
scientific foundation exists and use scientifically valid criteria to 
evaluate its effectiveness before going forward. The report added that 
programs should have a sound experimental basis and that the 
documentation on the program's effectiveness should be reviewed by an 
independent entity capable of evaluating the supporting scientific 
evidence.[Footnote 77] Thus, and as recommended in GAO's May 2010 
report, an independent panel of experts could help DHS develop a 
comprehensive methodology to determine if the SPOT program is based on 
valid scientific principles that can be effectively applied in an 
airport environment for counterterrorism purposes. Specifically, GAO's 
May 2010 report recommended that the Secretary of Homeland Security 
convene an independent panel of experts to review the methodology of a 
validation study on the SPOT program being conducted by DHS's Science 
and Technology Directorate to determine whether the study's 
methodology is sufficiently comprehensive to validate the SPOT 
program. GAO recommended that this assessment include appropriate 
input from other federal agencies with expertise in behavior detection 
and relevant subject matter experts. DHS concurred and stated that its 
current validation study includes an independent review of the program 
that will include input from other federal agencies and relevant 
experts. According to DHS, this independent review is expected to be 
completed in February 2011. 

Actions Needed and Potential Savings: 

As discussed in GAO's May 2010 report, DHS has contracted with the 
American Institutes for Research to conduct its validation study. 
However, DHS's response to GAO's report did not describe how the 
review currently planned is designed to determine whether the study's 
methodology is sufficiently comprehensive to validate the SPOT 
program. As GAO noted in its report, research on other issues, such as 
determining the number of individuals needed to observe a given number 
of passengers moving at a given rate per day in an airport environment 
or the duration that such observation can be conducted by Behavior 
Detection Officers before observation fatigue affects effectiveness, 
could provide additional information on the extent to which SPOT can 
be effectively implemented in airports. Additional research could also 
help determine the need for periodic refresher training since research 
has not yet determined whether behavior detection is easily forgotten 
or can be potentially degraded with time or lack of use. Because such 
questions exist, using an independent panel of experts to assess the 
methodology of the study could provide DHS with additional assurance 
regarding whether the study's methodology is sufficiently 
comprehensive to validate the SPOT program. DHS stated that the 
ongoing independent review is being conducted by an independent panel 
of experts that includes a broad range of operational agencies and 
academia and will include, among other things, recommended additional 
studies that should be undertaken to more fully validate the science 
underlying the SPOT screening process. Moreover, DHS stated that its 
current effort to validate the science underlying SPOT includes three 
years of operational SPOT referral data and preliminary results 
indicate that it is supportive of SPOT. However, in May 2010, GAO 
reported weaknesses in TSA's process for maintaining operational data 
from the SPOT program database. Because of these data-related issues, 
GAO reported that meaningful analyses could not be conducted to 
determine if there is an association between certain behaviors and the 
likelihood that a person displaying certain behaviors would be 
referred to a law enforcement officer or whether any behavior or 
combination of behaviors could be used to distinguish deceptive from 
nondeceptive individuals. 

Congress may wish to consider limiting program funding pending receipt 
of an independent assessment of TSA's SPOT program. GAO identified 
potential budget savings of about $20 million per year if funding were 
frozen at current levels until validation efforts are complete. 
Specifically, in the near term, Congress could consider freezing 
appropriation levels for the SPOT program at the 2010 level until the 
validation effort is completed. Assuming that TSA is planning to 
expand the program at a similar rate each year, this action could 
result in possible savings of about $20 million per year, since TSA is 
seeking about a $20 million increase for SPOT in fiscal year 2011. 
Upon completion of the validation effort, Congress may also wish to 
consider the study's results--including the program's effectiveness in 
using behavior-based screening techniques to detect terrorists in the 
aviation environment--in making future funding decisions regarding the 
program. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
product listed below. 

Related GAO Product: 

Aviation Security: Efforts to Validate TSA's Passenger Screening 
Behavior Detection Program Underway, but Opportunities Exist to 
Strengthen Validation and Addresses Operational Challenges. 
[hyperlink, http://www.gao.gov/products/GAO-10-763]. Washington, D.C.: 
May 2010. 

Area Contact: 

For additional information about this area, contact Steve Lord at 
(202) 512-4379 or lords@gao.gov. 

[End of section] 

More Efficient Baggage Screening Systems Could Result in Substantial 
Reduction in Personnel Costs: 

Why GAO Is Focusing on This Area: 

The Transportation Security Administration's (TSA) Electronic Baggage 
Screening Program--which facilitates the development and deployment of 
checked baggage screening systems--is one of the largest acquisition 
programs in the Department of Homeland Security. According to TSA, 
over $8 billion has been made available for enhancing the screening of 
checked baggage transported on passenger aircraft since fiscal year 
2001. In fiscal year 2010, over $1 billion was made available to 
procure and install screening equipment. The Department of Homeland 
Security's fiscal year 2011 request amounts to $624 million for 
procurement and installation in fiscal year 2011.[Footnote 78] 

Through the Electronic Baggage Screening Program, TSA deploys baggage 
screening systems to best fit security needs and infrastructure at the 
462 airports at which TSA performs or oversees screening activities. 
TSA generally deploys equipment for screening checked baggage in one 
of two ways: (1) in-line baggage screening systems, which are 
integrated into the conveyor systems that sort and transport baggage 
for loading onto an aircraft and (2) stand-alone machines that are 
typically situated in airport lobbies. 

What GAO Has Found Indicating Potential for Cost Saving: 

GAO estimates that TSA could achieve up to $470 million in net savings 
based on reduced TSA staffing costs through the replacement or 
modification of existing systems with more efficient baggage screening 
systems at airports over the next 5 years, assuming that funding for 
procurement and installation under the Electronic Baggage Screening 
Program continues at TSA-projected levels.[Footnote 79] 

In March 2005, GAO reported that airports benefit from the 
installation of more efficient systems, such as in-line baggage 
screening systems, because these systems reduce the time needed for 
baggage screening and allow airports and TSA to streamline their 
operations. Moreover, a 2006 Aviation Security Advisory Committee 
study reported that modifying or replacing existing systems with more 
efficient systems could reduce the number of screener personnel 
required to operate these systems.[Footnote 80] In 2005, GAO also 
reported that TSA had not conducted a systematic, prospective analysis 
to determine at which airports it could achieve long-term savings and 
enhance efficiencies and security by installing more efficient in-line 
systems. GAO recommended, among other things, that TSA identify and 
prioritize the airports where the cost-savings benefits of optimizing 
baggage screening operations by replacing existing baggage screening 
systems with more efficient in-line systems are likely to exceed the 
estimated up-front investment costs of installing the systems, or 
where the systems are needed to address security risks. TSA concurred 
with this recommendation and published a plan to deploy more efficient 
systems for 250 airports. As of January 2011, TSA plans to complete 
its efforts to replace or modify systems at these airports by 2024. 
TSA officials have not provided GAO with information on its plans at 
the remaining airports. 

Replacing or modifying existing systems with more efficient systems 
results in net personnel cost savings to the extent all other costs, 
except for personnel--acquisition, installation, modification, and 
operations and maintenance costs--are relatively equal over time. 
Using TSA data on its planned average annual program budget rate of 
$448 million and estimated screener personnel costs, GAO estimates 
that if TSA continues to replace or modify older systems with more 
efficient systems, including in-line screening systems, it could 
reduce full-time equivalent baggage screener positions as a result of 
investments made in fiscal years 2011 through 2015. This reduction in 
personnel could result in up to $470 million in estimated net cost 
savings.[Footnote 81] These estimates are based on airport planning 
and acquisition costs for 250 airports provided by TSA that are 
subject to change but are illustrative of the potential magnitude of 
federal cost savings that could be achieved. More precise estimates 
could be developed as these plans are further developed and refined. 

Actions Needed and Potential Savings: 

By continuing to replace or modify older systems with more efficient 
solutions, including in-line screening systems, at its planned average 
annual program budget rate of $448 million,[Footnote 82] TSA could 
continue to eliminate baggage screener positions achieving up to $470 
million in estimated net costs savings over the next 5 years.[Footnote 
83] TSA agreed that the deployment of more efficient systems offers 
potential cost savings to the federal government. GAO will continue to 
assess these issues as part of its ongoing work examining more 
efficient checked baggage screening systems for the Senate Committee 
on Commerce, Science and Transportation. GAO plans to report on the 
final results of this review in 2011. 

Framework for Analysis: 

This analysis is based on GAO's preliminary observations from its 
ongoing work as well as information contained in the related GAO 
products listed below. To develop GAO's preliminary observations, GAO 
reviewed available documentation on TSA's checked baggage screening 
program, including TSA's estimated cost data for full-time equivalent 
screeners from fiscal year 2009 to fiscal year 2013; TSA's planned 
program budget data for continued installation of more efficient 
systems; and modification costs from fiscal years 2009 to fiscal years 
2010. GAO could not independently verify the reliability of all of 
this information, but it compared this information with other 
supporting documents, when available, to determine data consistency 
and reasonableness. On the basis of these efforts, GAO concluded that 
the data were sufficiently reliable for its purposes. 

Related GAO Products: 

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

Airport Finance: Observations on Planned Airport Development Costs and 
Funding Levels and the Administration's Proposed Changes in the 
Airport Improvement Program. [hyperlink, 
http://www.gao.gov/products/GAO-07-885]. Washington, D.C.: June 29, 
2007. 

Aviation Security: Cost Estimates Related to TSA Funding of Checked 
Baggage Screening Systems at Los Angeles and Ontario Airports. 
[hyperlink, http://www.gao.gov/products/GAO-07-445]. Washington, D.C.: 
March 30, 2007. 

Aviation Security: TSA Has Strengthened Efforts to Plan for the 
Optimal Deployment of Checked Baggage Screening Systems, but Funding 
Uncertainties Remain. [hyperlink, 
http://www.gao.gov/products/GAO-06-875T]. Washington, D.C.: June 29, 
2006. 

Aviation Security: Enhancements Made in Passenger and Checked Baggage 
Screening, but Challenges Remain. [hyperlink, 
http://www.gao.gov/products/GAO-06-371T]. Washington, D.C.: April 4, 
2006. 

Aviation Security: Systematic Planning Needed to Optimize the 
Deployment of Checked Baggage Screening Systems. [hyperlink, 
http://www.gao.gov/products/GAO-05-365]. Washington, D.C.: March 15, 
2005. 

Area Contact: 

For additional information about this area, contact Steve Lord at 
(202) 512-4379 or lords@gao.gov. 

[End of section] 

Clarifying Availability of Certain Customs Fee Collections Could 
Produce Savings: 

Why GAO Is Focusing on This Area: 

The U.S. Customs and Border Protection (CBP) collects user fees to 
recover certain costs incurred for processing, among other things, air 
and sea passengers; and various private and commercial land, sea, air, 
and rail carriers and shipments. These fees were created by the 
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and are 
deposited into the Customs User Fee Account. CBP also receives 
appropriations, including a Salaries and Expenses appropriation. To 
pay for certain expenses, it reimburses its salaries and expenses 
appropriation from its COBRA collections. 

GAO discovered that CBP has a $639.4 million unobligated balance in 
its Customs User Fee Account as a result of excess collections from a 
temporary fee increase and elimination of North American Free Trade 
Agreement (NAFTA) country exemptions from January 1, 1994, to 
September 30, 1997. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Clarifying the availability of unobligated balances in CBP's Customs 
User Fee Account could enable Congress to revise the agency's future 
appropriations, thereby producing a one-time savings of up to $640 
million. When the NAFTA Implementation Act was amended in 1993, in 
addition to authorizing a temporary increase in the COBRA user fees 
charged to passengers arriving in the United States from abroad on 
commercial vessels or aircraft from $5 to $6.50, the amendment also 
temporarily lifted the exemption for passengers arriving from Mexico, 
Canada and adjacent islands, and U.S. territories (other than Puerto 
Rico). The additional amounts collected due to these temporary 
adjustments, which expired in 1997, were deposited in the Customs User 
Fee Account and were available for reimbursement of inspection costs, 
including those related to passenger processing. These funds, which 
accumulated from January 1, 1994, to September 30, 1997, remain 
unobligated in the account. 

GAO first identified these unobligated balances in 2008. CBP officials 
stated at that time that although they formerly believed they needed 
additional authorization to spend these balances, it later appeared 
that the funds may be used as authorized by law. However, when GAO 
discussed these unobligated balances again in 2009 and 2010, CBP 
officials said they provided information on the excess collections to 
the Office of Management and Budget (OMB) and requested OMB's 
assistance multiple times to clarify the availability of these funds. 
They said OMB has not responded to their request. 

Actions Needed and Potential Revenue: 

GAO believes this is an issue that Congress may wish to address since 
these unobligated balances have remained in CBP's Customs User Fee 
account for more than 10 years. Congress could clarify the purposes 
for which the $640 million in unobligated balances is available and 
take action as appropriate. 

Framework for Analysis: 

This analysis is based on reviews of CBP's user fee accounts, which 
were provided to Congress as technical advice in a Budget 
Justification Review in the context of GAO's annual review of the 
President's annual budget request. GAO conducted that work in 
accordance with all sections of GAO's Quality Assurance Framework that 
were relevant to its objectives. The framework requires that GAO plan 
and perform the engagement to obtain sufficient and appropriate 
evidence to meet its stated objectives and to discuss any limitations 
in its work. GAO believes that the information and data obtained, and 
the analysis conducted, provide a reasonable basis for any findings 
and conclusions. 

Related GAO Products: 

There are no publicly available products related to this analysis. 

Area Contact: 

For additional information about this area, contact Susan Irving at 
(202) 512-8288 or irvings@gao.gov. 

[End of section] 

Social Security Needs Data on Pensions from Noncovered Earnings to 
Better Enforce Offsets and Ensure Benefit Fairness: 

Why GAO Is Focusing on This Area: 

The Social Security Administration (SSA) needs accurate information 
from state and local governments on retirees who receive pensions from 
employment not covered under Social Security. SSA needs this 
information to fairly and accurately apply the Government Pension 
Offset (GPO), which generally applies to spouse and survivor benefits, 
and the Windfall Elimination Provision (WEP), which applies to retired 
worker benefits. Information on receipt of pensions from noncovered 
employment is not available to SSA for many state and local pension 
benefits, even though it is for federal pension benefits from the 
federal Office of Personnel Management. The resulting disparity in the 
application of the provisions is a continuing source of confusion and 
frustration for affected workers. Providing information on the receipt 
of state and local noncovered pension benefits to SSA via tax data 
could help the agency more accurately and fairly administer the GPO 
and WEP and could save nearly $3 billion over 10 years, according to 
estimates by the Office of Management and Budget. 

Social Security covers about 96 percent of all U.S. workers; the vast 
majority of the remaining 4 percent are public employees who work for 
federal, state, and local government. In the case of state and local 
government employees, about one-fourth, or about 7 million, have jobs 
that are not covered by Social Security. Although these workers do not 
pay Social Security taxes on their noncovered government earnings, 
they may still be eligible for Social Security benefits through their 
spouses' or their own earnings from other jobs that Social Security 
does cover. Social Security's GPO and WEP provisions attempt to take 
noncovered employment into account when calculating the Social 
Security benefits. However, these provisions have been difficult to 
administer because SSA does not have the pension data it needs to 
perform these calculations accurately. 

One of Social Security's most fundamental principles is that benefits 
reflect the earnings on which workers have paid Social Security taxes. 
At the same time, Social Security helps ensure that its beneficiaries 
have adequate incomes. Social Security's benefit provisions 
redistribute income in a variety of ways--from those with higher 
lifetime earnings to those with lower ones and from those without 
dependents to those with dependents. Such distributional effects 
depend, to a great extent, on the universal and compulsory nature of 
the program. Noncovered employment has unintended effects on these 
distributional outcomes. Accordingly, Social Security uses the GPO and 
WEP to take noncovered employment into account. 

The GPO provides an offset for spouses with noncovered earnings that 
is similar to an offset that applies, in effect, to spouses with 
covered earnings. Under Social Security's benefit provisions, workers 
may be entitled to (1) retired worker benefits based on their own 
covered earnings or to (2) spouse or survivor benefits based on their 
spouses' covered earnings. However, they are not entitled to receive 
both, only the higher of the two. In effect, spouses with covered 
earnings are subject to an offset equal to 100 percent of their spouse 
or survivor benefits if their retired worker benefits are higher. 
Similarly, the GPO reduces the Social Security spousal benefit for 
workers who also receive a worker's pension from noncovered employment. 

The WEP provides an offset to retired worker benefits and accounts for 
the fact that workers with noncovered pensions have higher lifetime 
earnings than the covered earnings on which their benefits are 
calculated. Social Security's benefit formula replaces a relatively 
higher proportion of wages for low earners than for high earners, 
which helps ensure adequate retirement incomes. Workers with lengthy 
careers in noncovered employment appear on SSA's records as low 
earners even when they are not because those records do not reflect 
noncovered earnings. Without the WEP, Congress was concerned that the 
design of the Social Security benefit formula provided unintended 
windfall benefits to workers who had spent most of their careers in 
noncovered employment. 

What GAO Has Found Indicating Potential for Cost Saving: 

In an April 1998 report, GAO found that SSA did not have the 
information it needed on beneficiaries' receipt of state and local 
noncovered pensions, even though it did have such information for 
federal pension benefits. As a result, a disparity in the application 
of the provisions existed. GAO recommended that SSA work with the 
Internal Revenue Service (IRS) to revise the reporting of pension 
information on IRS Form 1099R, so that SSA would be able to identify 
people receiving a pension from noncovered employment, especially in 
state and local governments. However, IRS did not believe it could 
make the recommended change without new legislative authority. In May 
2003, June 2005, and November 2007, GAO suggested that Congress 
consider giving IRS the authority to collect the information that SSA 
needs on government pension income. The Senate Finance Committee 
proposed a version of the Social Security Protection Act of 2004 that 
contained such a provision, but this provision was not included when 
the final version of the bill was passed and signed into law. 

Critics of the GPO and WEP contend that the provisions are inaccurate 
and often unfair. For example, critics of the GPO contend that the 
reduction is imprecise and could be based on a more rigorous formula. 
According to an analysis conducted by the Congressional Research 
Service, the GPO formula slightly overestimates the benefit reduction 
that some individuals (particularly higher earners) would otherwise 
receive if they worked in Social Security-covered employment, and 
greatly underestimates the reduction that others (particularly lower 
earners) would receive. In the case of the WEP, opponents argue that 
the formula adjustment is an arbitrary and inaccurate way to estimate 
the value of the windfall and causes a relatively larger benefit 
reduction for lower-paid workers. However, accounting for such effects 
of differences in lifetime earnings would involve having complete 
records of noncovered earnings, which SSA does not have. In contrast, 
to implement the current provisions, SSA only needs to determine 
whether a beneficiary is receiving a pension based on noncovered 
earnings. 

Extending mandatory coverage for all state and local workers has been 
proposed among other options for addressing Social Security's long-
term financial deficit. While this would eventually make the GPO and 
WEP offsets obsolete, they would still be needed for many years to 
come for existing employees and beneficiaries. 

Actions Needed and Potential Savings: 

GAO continues to believe that it is important to apply these laws 
consistently and equitably. Specifically, GAO continues to suggest 
that Congress consider giving IRS the authority to collect the 
information that SSA needs on government pension income to administer 
the GPO and WEP provisions accurately and fairly. 

The President's 2011 budget's proposals for terminations, reductions, 
and savings contains a provision that would address the need for more 
complete and accurate information on noncovered state and local 
pensions, and it estimates savings of $2.9 billion over 10 years. The 
Congressional Budget Office's 2009 Budget Options, Volume 2, has a 
similar provision and estimates savings of $2.4 billion over 10 years. 

Framework for Analysis: 

The information contained in this analysis is based on the related GAO 
products listed below. 

Related GAO Products: 

Social Security Administration: Management Oversight Needed to Ensure 
Accurate Treatment of State and Local Government Employees. 
[hyperlink, http://www.gao.gov/products/GAO-10-938]. Washington, D.C.: 
September 29, 2010. 

Social Security: Issues Regarding the Coverage of Public Employees. 
[hyperlink, http://www.gao.gov/products/GAO-08-248T]. Washington, 
D.C.: November 6, 2007. 

Social Security: Coverage of Public Employees and Implications for 
Reform. [hyperlink, http://www.gao.gov/products/GAO-05-786T]. 
Washington, D.C.: June 9, 2005. 

Social Security Reform: Answers to Key Questions. [hyperlink, 
http://www.gao.gov/products/GAO-05-193SP]. Washington, D.C.: May 2, 
2005. 

Social Security: Issues Relating to Noncoverage of Public Employees. 
[hyperlink, http://www.gao.gov/products/GAO-03-710T]. Washington, 
D.C.: May 1, 2003. 

Social Security: Congress Should Consider Revising the Government 
Pension Offset "Loophole." [hyperlink, 
http://www.gao.gov/products/GAO-03-498T]. Washington, D.C.: February 
27, 2003. 

Social Security: Implications of Extending Mandatory Coverage to State 
and Local Employees. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-98-196]. Washington, D.C.: August 
18, 1998. 

Social Security: Better Payment Controls for Benefit Reduction 
Provisions Could Save Millions. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-98-76]. Washington, D.C.: April 
30, 1998. 

Federal Workforce: Effects of Public Pension Offset on Social Security 
Benefits of Federal Retirees. [hyperlink, 
http://www.gao.gov/products/GAO/GGD-88-73]. Washington, D.C.: April 
27, 1988. 

Area Contact: 

For additional information about this area, contact Charles Jeszeck at 
(202) 512-7215 or jeszeckc@gao.gov. 

[End of section] 

Congress Could Pursue Several Options to Improve Collection of 
Antidumping and Countervailing Duties: 

Why GAO Is Focusing on This Area: 

In March 2008 GAO reported that, as of September 2007, U.S. Customs 
and Border Protection (CBP) has been unable to collect more than $600 
million owed in antidumping and countervailing duties imposed to 
remedy injurious unfair foreign trade practices. These include duties 
imposed on products exported to the United States at unfairly low 
prices (i.e., dumped) and duties on products exported to the United 
States that were subsidized by foreign governments. In addition to the 
substantial amount of lost revenue, the uncollected duties cause 
concern that the U.S. government has not fully remedied the unfair 
trade practices. 

What GAO Has Found Indicating Potential for Enhancing Revenue: 

Since 2005 GAO has reported several times on the U.S. government's 
inability to collect substantial amounts of antidumping and 
countervailing duties and in 2008 proposed a variety of options for 
improving the system for collecting these duties. Two key components 
of the antidumping and countervailing duty system have received 
particular attention. One key component of the system is its 
retrospective nature, which means that--though importers pay estimated 
duties at the time of importation--final duties are not assessed until 
after products enter the country. Another component is the "new 
shipper" review process that allows new manufacturers or exporters to 
petition for their own separate antidumping and countervailing duty 
rate. Despite other efforts by Congress and CBP, these components of 
the system have not been addressed and the collection of antidumping 
and countervailing duties remains a problem. While there are a variety 
of factors that affect the amount of antidumping and countervailing 
duties assessed, in 2008 GAO comprehensively reviewed the $613 million 
in uncollected antidumping and countervailing duties and identified 
the key factors contributing to the collections problems, including: 

* Retrospective component of the antidumping and countervailing duty 
system. Under the current retrospective system, importers pay the 
estimated amount of antidumping and countervailing duties when 
products enter the United States, but the final amount of duties owed 
is not determined until later. This creates a risk that the government 
will be unable to collect the full amount owed, which can be 
substantially more than the original estimate. In 2008 GAO reported 
that when they increased--because of some large increases--duty rates 
rose an average of 62 percentage points, and some increases exceeded 
200 percentage points. The long time lags between the initial entry of 
a product and the final assessment of duties heightens the risk that 
the government will be unable to collect the full amount owed. In 2008 
GAO found that, on average, this process took more than 3 years, 
though in one instance it took more than 18 years. During this time, 
importers may disappear, cease business operations, or declare 
bankruptcy, which creates challenges to the government's ability to 
collect antidumping and countervailing duties owed. 

* "New shipper" reviews. Under current law, "new shippers" 
(manufacturers/exporters whose costs were not previously reviewed) can 
request that the government conduct a review to establish an 
individual antidumping and countervailing duty rate. However, U.S. law 
does not specify a minimum amount of exports or number of transactions 
that a company must make to be eligible for a new shipper review, and 
according to Department of Commerce (Commerce) officials, they do not 
have the legislative authority to create any such requirement. As a 
result, a shipper can be assigned an individual duty rate based on a 
very minimal amount of exports, and can intentionally set a high price 
for this small amount of initial exports. This creates the possibility 
that companies may be able to get a low (or 0 percent) initial 
antidumping duty rate, which will subsequently rise when the exporter 
lowers its price, and puts the government in the position of having to 
collect additional duties. In 2008 GAO found that importers purchasing 
from companies undergoing "new shipper reviews" accounted for 
approximately 40 percent of the uncollected antidumping and 
countervailing duties as of fiscal year 2007. 

Actions Needed and Potential Revenue: 

In March 2008 GAO identified several options for Congress to consider 
for improving the collection of antidumping and countervailing duties. 
GAO also indicated that these options have both potential advantages 
and disadvantages. By adjusting features of the antidumping or 
countervailing duty system that create the risk that companies can 
evade paying duties, Congress could further protect government 
revenue, while also minimizing incentives for companies to pursue 
unfair trade practices. For example, Congress could: 

* Eliminate the retrospective component of the U.S. antidumping and 
countervailing duty system. U.S. law could be changed to eliminate the 
retrospective component of the U.S. antidumping and countervailing 
duty system and, instead, treat the antidumping and countervailing 
duties assessed at the time the product enters the country as final. 
If the antidumping or countervailing duty rate is changed, it is 
applied only to future imports and has no effect on the amount of 
duties owed for previous imports. Other countries GAO reviewed did not 
determine their final antidumping and countervailing duties by 
calculating actual amount of duties owed after products enter the 
country. In 2008 GAO found that while each country's antidumping and 
countervailing duty system operates differently, major U.S. trading 
partners such as Canada, Australia, and the European Union have 
antidumping and countervailing duty systems that are not retrospective. 

* Adjust requirements for new shipper reviews. Congress could choose 
to provide Commerce the discretion to require companies applying for a 
new shipper review to have a greater volume of imports before 
establishing an individual antidumping and countervailing duty rate. 
According to Commerce officials, this could help mitigate the risks 
posed by establishing an antidumping and countervailing duty rate 
based on one shipment. 

Following GAO's 2008 report, Congress mandated that the Department of 
Commerce review the relative advantages and disadvantages of 
prospective and retrospective antidumping and countervailing duty 
systems. In November 2010 Commerce released its report which, in 
addition to discussing the likely effects of each type of system on 
duty collection, also highlighted the administrative burden the 
current retrospective system places on both Commerce and CBP. This 
suggests the continuing need for action to reform the system for the 
collection of antidumping and countervailing duties. 

Framework for Analysis: 

The information contained in this analysis is based on findings from 
the GAO reports listed below. 

Related GAO Products: 

Agencies Believe Strengthening International Agreements to Improve 
Collection of Antidumping and Countervailing Duties Would Be Difficult 
and Ineffective. [hyperlink, http://www.gao.gov/products/GAO-08-876R]. 
Washington, D.C.: July 24, 2008. 

Antidumping and Countervailing Duties: Congress and Agencies Should 
Take Additional Steps to Reduce Substantial Shortfalls in Duty 
Collection. [hyperlink, http://www.gao.gov/products/GAO-08-391]. 
Washington, D.C.: March 26, 2008. 

International Trade: Customs' Revised Bonding Policy Reduces Risk of 
Uncollected Duties, but Concerns about Uneven Implementation and 
Effects Remain. [hyperlink, http://www.gao.gov/products/GAO-07-50]. 
Washington, D.C.: Oct.18, 2006. 

International Trade: Issues and Effects of Implementing the Continued 
Dumping and Subsidy Offset Act. [hyperlink, 
http://www.gao.gov/products/GAO-05-979]. Washington, D.C.: Sept. 26, 
2005. 

Area Contact: 

For additional information about this area, contact Loren Yager at 
(202) 512-4347 or YagerL@gao.gov. 

[End of section] 

Appendix I: List of Congressional Addressees: 

The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate: 

The Honorable Kent Conrad:
Chairman:
The Honorable Jeff Sessions:
Ranking Member:
Committee on the Budget:
United States Senate: 

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 Harold Rogers:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Committee on Appropriations:
House of Representatives: 

The Honorable Paul Ryan:
Chairman:
The Honorable Chris Van Hollen:
Ranking Member:
Committee on the Budget:
House of Representatives: 

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

The Honorable Scott Brown:
United States Senate: 

The Honorable Tom Coburn: 
United States Senate: 

The Honorable Claire McCaskill: 
United States Senate: 

The Honorable Mark R. Warner: 
United States Senate: 

[End of section] 

Appendix II: Objectives, Scope, and Methodology: 

Section 21 of Public Law 111-139, enacted in February 2010, requires 
GAO to conduct routine investigations to identify federal programs, 
agencies, offices, and initiatives with duplicative goals and 
activities within departments and governmentwide. This provision also 
requires GAO to report annually to Congress on its findings, including 
the cost of such duplication, and recommendations for consolidation 
and elimination to reduce duplication and specific rescissions 
(legislation canceling previously enacted budget authority) that 
Congress may wish to consider. As agreed with the key congressional 
committees, our objectives in this report are to (1) identify federal 
programs or functional areas where unnecessary duplication, overlap, 
or fragmentation exists, the actions needed to address such 
conditions, and the potential financial and other benefits of doing 
so; and (2) highlight opportunities for additional potential savings 
or increased revenues.[Footnote 84] 

For the purposes of our analysis, we considered "duplication" to occur 
when two or more agencies or programs are engaged in the same 
activities or provide the same services to the same beneficiaries. We 
used the term "overlap" when multiple agencies or programs have 
similar goals, engage in similar activities or strategies to achieve 
them, or target similar beneficiaries. We used the term 
"fragmentation" to refer to those circumstances in which more than one 
federal agency (or more than one organization within an agency) is 
involved in the same broad area of national need. The presence of 
fragmentation and overlap can suggest the need to look closer at the 
potential for unnecessary duplication. However, determining whether 
and to what extent programs are actually duplicative requires 
programmatic information that is often not readily available. In 
certain instances in this report, we use the term "potential 
duplication" to include duplication, overlap, or fragmentation. 

To identify federal programs or functional areas where unnecessary 
duplication, overlap, or fragmentation exists, we reviewed GAO's 
ongoing and previously completed work. In some instances, issues 
related to potential for duplication, overlap, or fragmentation were 
identified from GAO's body of work[Footnote 85] specifically examining 
these issues across government. This body of work included GAO's 
reviews of a variety of federal programs, such as those related to 
training, employment, and education and social services. In other 
instances, we drew examples of potential duplication, overlap, or 
fragmentation from our ongoing audits and evaluations not specifically 
focused on these issues but where they were identified as challenges 
to the efficient and effective operation of certain federal programs 
or activities we reviewed. While our report includes examples where 
duplication, overlap, or fragmentation can hinder program performance 
and cause inefficiencies, we recognize that there could be instances 
where some degree of program duplication, overlap, or fragmentation 
may be warranted due to the nature or magnitude of the federal effort. 

We also considered the work of other agencies such as the Office of 
Management and Budget and the Congressional Budget Office. While the 
work of other agencies informed our selection of specific areas for 
this year's report, we only included issues where we had current work 
or could update prior work within our reporting time frames. 
Therefore, this report is not a comprehensive survey of all government 
programs where unnecessary duplication, overlap, or fragmentation may 
exist. Rather, this report highlights a number of federal programs and 
activities where GAO's work indicates these issues exist. Each issue 
area contained in Sections I and II of this report lists the relevant 
GAO reports and publications upon which it is based. Those prior 
reports contain additional information on GAO's supporting work and 
methodologies. For issues based on GAO work that has not yet been 
published or those that update prior GAO work, we provide additional 
information on the methodologies used in that ongoing work or update 
in the Framework for Analysis section of the issue area. 

To identify the actions needed to address unnecessary duplication, 
overlap, or fragmentation, we reviewed and updated prior GAO work and 
recommendations and in some cases completed ongoing work or conducted 
new work to identify what additional actions agencies may need to take 
and Congress may wish to consider. In some instances, the long-
standing nature or significance of certain issues, especially those 
that transcended more than one agency, led us to suggest the potential 
need for heightened congressional oversight. To identify the potential 
financial and other benefits that might result from actions addressing 
duplication, overlap, or fragmentation, we reviewed and updated prior 
GAO work and conducted ongoing work with a specific focus on the 
potential for cost savings. In some cases, we had sufficient 
information to show that if actions are taken to address the 
individual issues summarized in this report, opportunities for 
financial benefits ranging from the tens of millions to several 
billion dollars annually might be realized. Estimating the benefits 
that could result from eliminating unnecessary duplication, overlap, 
or fragmentation was not possible in some cases because information 
about the extent of unnecessary duplication among certain programs is 
not available. Further, the financial benefits that can be achieved 
from eliminating duplication, overlap, or fragmentation were not 
always quantifiable in advance of congressional and executive branch 
decision making, and information was not readily available on program 
performance, the level of funding devoted to overlapping programs, or 
the implementation costs and time frames that might be associated with 
program consolidations or terminations. 

In light of the long-term fiscal imbalances that the federal 
government faces, we highlighted other opportunities for potential 
cost saving or revenue enhancements in addition to those associated 
with duplication, overlap, or fragmentation. Specifically, we reviewed 
and updated the existing groupings of major cost-saving opportunities 
that had previously been identified and summarized on GAO's Web site, 
[Footnote 86] drawn from our past reviews of government programs at 
high risk of fraud, waste, abuse, and mismanagement or in need of 
restructuring. Similar to the duplication, overlap, and fragmentation 
work, we also reviewed our ongoing and recently completed work to 
determine whether the existing areas could be updated within the 
reporting time frames for this report, and we identified additional 
opportunities for consideration in areas where we had updated 
information available. We provided estimates of the cost savings or 
revenue enhancements, where available. At the beginning of each 
section, we include tables listing the areas for consideration, 
including information on the agencies and programs[Footnote 87] 
involved and cost savings or revenue enhancements, if available. 

We will continue to examine issues related to duplication, overlap, 
and fragmentation in our ongoing work. In our future mandated annual 
reports, we will look at additional federal programs to identify 
further instances of duplication, overlap, or fragmentation as well as 
highlight additional opportunities to reduce the cost of government 
operations or increase revenues to the government. Likewise, we will 
continue to monitor developments in the areas we have already 
identified. Issues of duplication, overlap, or fragmentation also may 
be addressed in our routine audit work during the year and will be 
summarized in our mandated annual reports as appropriate. 

This report is based substantially upon ongoing audits and previously 
completed GAO products, which were conducted in accordance with 
generally accepted government auditing standards (GAGAS), or with 
GAO’s Quality Assurance Framework, as appropriate. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. In one instance GAGAS 
did not apply to the work we did to identify the revenue enhancement 
opportunity pertaining to unobligated balances in the U.S. Customs 
and Border Protection’s Customs User Fee Account. This work reviewed 
the agency’s justification for certain estimates in the President’s 
annual budget request to Congress rather than an audit and was 
performed in accordance with all relevant sections of GAO’s Quality 
Assurance Framework. The framework requires that we plan and perform 
the engagement to obtain sufficient and appropriate evidence to meet 
our stated objectives and to discuss any limitations in our work. 
We believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions 
in this product. For issues being reported on for the first time, 
GAO sought comments from the agencies involved and incorporated their 
comments, as appropriate. We briefed the Office of Management and 
Budget on a draft of this report. We conducted the work for the 
overall report from February 2010 through February 2011. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-139, § 21, 124 Stat. 29 (2010), 31 U.S.C. § 712 
Note. 

[2] GAO, The Federal Government's Long-Term Fiscal Outlook: Fall 2010 
Update, [hyperlink, http://www.gao.gov/products/GAO-11-201SP] 
(Washington, D.C.: Nov. 15, 2010). Additional information on the 
federal fiscal outlook, federal debt, and the outlook for the state 
and local government sector is available at: [hyperlink, 
http://www.gao.gov/special.pubs/longterm/]. 

[3] The mandate calling for this report also asked GAO to identify 
specific areas where Congress may wish to cancel budget authority it 
has previously provided--a process known as rescission. To date, GAO's 
work has not identified a basis for proposing specific funding 
rescissions. 

[4] Pub. L. No. 111-352, 124 Stat. 3866 (2011). 

[5] Pub. L. No. 103-62, 107 Stat. 285 (1993). 

[6] DOD is required by section 2907 of the Defense Base Closure and 
Realignment Act of 1990, Pub. L. No. 101-510 (as amended by section 
2831(b) of Pub. L. No. 109-163 (2006) and section 2711 of Pub. L. No. 
110-417 (2008)) to, among other reporting requirements, estimate the 
total expenditures required and cost savings to be achieved by each 
closure and realignment. To calculate DOD's expected BRAC annual 
savings, GAO used dollar amounts obtained from DOD's budget submission 
for fiscal year 2011. 

[7] The Center for Naval Analyses categorized the potential savings 
into the following 10 areas: health care operations; comptroller 
operations; information management and information technologies; 
education and training; research and development; logistics; strategic 
planning; human capital management; force health protection and 
environmental health; and general headquarters. 

[8] Estimate is based on funding data provided by urgent needs-related 
entities responding to our data collection instrument and includes 
funding for processing of urgent needs as well as development of 
solutions and some acquisition costs. 

[9] According to DOE, agencies may acquire low-GHG-emitting vehicles 
and consider them AFVs when alternative fuels are not available. 
However, agencies have found very few low-GHG options exist that meet 
mission requirements. 

[10] DOE has identified a reporting approach that would allow fleet 
electricity use to be subtracted from facility electricity use. 

[11] Joint national contracts are one of the strategies used by VA and 
DOD to obtain discounts on drugs from manufacturers beyond those that 
might otherwise be available to federal purchasers. 

[12] The Veterans Benefits and Health Care Improvement Act of 2000 
included a provision encouraging VA and DOD to increase their level of 
cooperation in the procurement and management of prescription drugs. 
Pub. L. No. 106-419, § 223, 114 Stat. 1822, 1845 (2000). 

[13] VA and DOD generally calculate the cost avoidance attributable to 
joint contracting efforts by determining the difference between actual 
costs under the joint contract pricing and estimated costs they would 
have incurred had the joint contract pricing not been in place. 

[14] Formularies are lists of medications that health care 
organizations encourage or require providers to prescribe for 
patients. By concentrating their purchases on particular drugs, 
organizations can negotiate with manufacturers to secure better 
prices. Likewise, manufacturers have a strong interest in having their 
drugs listed on formularies in order to capture greater market shares 
for their drugs. VA and DOD each has had centralized formularies since 
1997, but DOD implemented its current uniform formulary in fiscal year 
2005. 

[15] DOD was required by the National Defense Authorization Act for 
Fiscal Year 2000 to establish a uniform formulary. Pub. L. No. 106-65, 
§ 701, 113 Stat. 512, 677-80 (1999). Neither the act nor the 
accompanying reports addressed joint contracting with VA, and it is 
not clear whether or not Congress considered the matter when passing 
the uniform formulary requirement. 

[16] For VA these committees are the VA Pharmacy Benefits Management 
Strategic Healthcare Group, Medical Advisory Panel, and Veterans 
Integrated Service Network Formulary Leaders Committee. For DOD, this 
committee is the Pharmacy & Therapeutics Committee. 

[17] TRICARE is DOD's regionally structured health care program for 
active duty personnel and their dependents, eligible National Guard 
and Reserve servicemembers and their dependents, and retirees and 
their dependents and survivors. 

[18] Typically, a generic drug being considered for a joint national 
contract would already be included on VA's and DOD's formularies. For 
generic drug joint contracts, one manufacturer is selected from a 
group of manufacturers who make the same generic drug. In contrast, a 
joint contract for a brand name drug would typically involve selection 
of one brand name drug from a group of drugs that were determined to 
be therapeutic alternatives, with the selected drug being placed on 
the formularies. 

[19] For more information about uniform formulary cost savings, see 
GAO, DOD Pharmacy Benefits Program: Reduced Pharmacy Costs Resulting 
from the Uniform Formulary and Manufacturer Rebates, [hyperlink, 
http://www.gao.gov/products/GAO-08-172R] (Washington, D.C.: Oct. 31, 
2007). 

[20] See GAO, DOD Pharmacy Program: Continued Efforts Needed to Reduce 
Growth in Spending at Retail Pharmacies, [hyperlink, 
http://www.gao.gov/products/GAO-08-327] (Washington, D.C.: Apr. 4, 
2008). 

[21] The National Defense Authorization Act for Fiscal Year 2008 
required that federal pricing arrangements be applied to drugs 
dispensed at retail pharmacies as of January 28, 2008. See Pub. L. No. 
110-181, § 703, 122 Stat. 3, 188 (codified at 10 U.S.C. § 1074g(f)). 

[22] DOD reported federal pricing discounts received through July 31, 
2010. 

[23] Pub. L. No. 109-417 (Dec. 19, 2006). 

[24] Eight agencies were represented on the IBET/BEST working group, 
including Canada's Royal Canadian Mounted Police and the Canada Border 
Services Agency and U.S. agencies including Customs and Border 
Protection, Immigration and Customs Enforcement, the Coast Guard, and 
the Department of Justice. The findings of this working group were 
published in a final report. DHS, IBET/BEST Interaction Final Report 
(Washington, D.C., April 2009). 

[25] This working group consists of the representatives from the same 
agencies that served on the 2009 interagency working group, which 
include DHS, Department of Justice, and Canadian law enforcement 
agencies, according to DHS officials. 

[26] According to DHS officials, in addition to emphasizing the 
importance of its partners, this strategy is to guide efforts to deter 
and prevent illicit smuggling and trafficking along the northern 
border. 

[27] Specifically, in 2010, Immigration and Customs Enforcement's 
costs ranged from approximately $1.5 million to $6.3 million per BEST 
location and from almost $480,000 to about $2 million per IBET 
location (dedicated personnel, facilities, and equipment). Since IBET 
positions are created out of the responsible Immigration and Customs 
Enforcement office's base funding, all costs associated with these 
programs are estimated since each responsible Immigration and Customs 
Enforcement office has to shift resources from one program to another. 
Customs and Border Protection does not track its costs of 
participating in either forum, but a Customs and Border Protection 
official responsible for patrolling the border estimated that its 
fiscal year 2010 cost averaged $100,000 for one BEST location and 
$182,000 for IBET. 

[28] FBI also operates the Secure Training Facility and Vehicle-Borne 
Improvised Explosives Device Training Facility as part of the 
Hazardous Devices School in Alabama. 

[29] Post-blast explosives training teaches methods and processes for 
investigating explosives scenes. 

[30] $7.4 million of ATF's cost were for construction. 

[31] The Bomb and Arson Tracking System is intended to be Justice's 
single source for reporting and sharing explosives incident 
information. 

[32] According to ATF, the laboratory costs include explosives, arson, 
and firearms forensic analysis. 

[33] According to FBI, the costs for explosives forensic analysis does 
not include Laboratory Division employees who perform forensic 
analysis on improvised-explosive-device-related submissions. 

[34] TSA also conducts corporate security reviews on nonhazardous 
material trucking companies, as well as entities in other 
transportation modes. GAO excluded these other reviews from its 
analysis. 

[35] For the purposes of this analysis, the term "substantially or 
entirely similar" refers to questions for which a trucking company 
would likely provide the same or mostly the same information. The term 
"somewhat similar" refers to questions for which a trucking company 
would likely provide some of the same information, but would likely 
also provide additional or different information for one of the 
questions. 

[36] TSA reviews were also conducted by state inspectors in five 
states, primarily Missouri. However, TSA was unable to provide 
comprehensive data for these reviews, and as a result GAO excluded 
them from its analysis. 

[37] Pub. L. No. 110-53, § 1555, 121 Stat. 266, 475 (2007) (codified 
at 6 U.S.C. § 1205). 

[38] All estimated costs are reported in 2010 dollars and based on TSA 
estimates of the staff time, staff salaries, and travel costs 
associated with conducting TSA reviews. While eliminating some or all 
TSA reviews could result in cost savings, it may also result in the 
loss of some security information, since TSA reviews do not completely 
duplicate FMCSA reviews. Additionally, GAO identified 84 FMCSA reviews 
from fiscal years 2006 through 2010 on trucking companies that had 
also received a TSA review during the same time period. Of these FMCSA 
reviews, 21 were conducted less than 2 years after a TSA review. 
However, FMCSA was unable to provide cost estimates for its security 
reviews, so GAO could not calculate the cost associated with this 
overlap. Moreover, FMCSA conducted more than 9,000 reviews during the 
same period, and less than 1 percent of these reviews overlapped with 
a TSA review. 

[39] These three stakeholder groups were the American Trucking 
Associations, the Commercial Vehicle Safety Alliance, and the Owner- 
Operator Independent Drivers Association. 

[40] GAO categorized each question based on its assessment of the 
similarity of the information that trucking companies would likely 
provide in response to that question. Specifically, if GAO determined 
that, in response to a TSA review question, a company would likely 
provide the same or mostly the same information as it would in 
response to an FMCSA review question (and vice versa), those questions 
were considered "substantially or entirely similar." If GAO determined 
that a company would likely provide some of the same information in 
response to a TSA review question as it would in response to an FMCSA 
review question (and vice versa)--but would likely also provide 
additional or different information for one of the questions that 
likely would not be provided for the other--those questions were 
considered "somewhat similar." If GAO determined that a company would 
likely provide mostly or completely different information in 
responding to a TSA review question relative to an FMCSA review 
question (and vice versa), those questions were considered "not at all 
or slightly similar." 

[41] The six transportation modes include aviation, maritime, public 
transit, highway, freight rail, and pipeline. 

[42] The Inspector General reviewed 13 preparedness grant programs; 
see Department of Homeland Security Office of Inspector General, 
Efficacy of DHS Grant Programs, OIG-10-69 (Washington, D.C., Mar. 22, 
2010). 

[43] Pub. L. No. 109-295, § 644, 120 Stat. 1355, 1425 (2006) (codified 
at 6 U.S.C. § 744). The Act defines capability as "the ability to 
provide the means to accomplish one or more tasks under specific 
conditions and to specific performance standards." Id. at 641, 120 
Stat. at 1424 (codified at 6 U.S.C. § 741). 

[44] Pub. L. No. 109-295, § 649, 120 Stat. 1355, 1428 (2006) (codified 
at 6 U.S.C. § 749). 

[45] FEMA, Grant Programs Directorate, Interagency Report on 
Preparedness Grant Programs, Report to Congress (Washington, D.C., May 
2009). 

[46] The Local, State, Tribal and Federal Preparedness Task Force is a 
group of experts charged with assessing the state of the nation's 
disaster preparedness and making recommendations to the Secretary of 
Homeland Security about ways to build preparedness in communities 
across America. The Task Force is composed of 35 members of federal, 
state, local and tribal governments. 

[47] Pub. L. No. 111-271, 124 Stat. 2852 (2010). 

[48] Many federal programs providing services to persons experiencing 
homelessness were created by the McKinney-Vento Homeless Assistance 
Act, Pub. L. No. 100-77 (1987). The act, enacted originally as the 
Stewart B. McKinney Homeless Assistance Act, was renamed in 2000. Pub. 
L. No. 106-400. The act originally consisted of 15 programs providing 
a range of services to persons experiencing homelessness, including 
emergency shelter, transitional housing, job training, primary health 
care, education, and some permanent housing. 

[49] The Homeless Management Information System (HMIS) is a software 
application designed to record and store information on the 
characteristics and service needs of those experiencing homelessness. 
HUD and other planners and policymakers at the federal, state, and 
local levels can use aggregate HMIS data to obtain information about 
the extent and nature of homelessness over time. Specifically, HMIS 
can be used to produce an unduplicated count of homeless persons, 
understand patterns of service use, and measure the effectiveness of 
homeless programs. 

[50] Two new programs in the Departments of Agriculture and Housing 
and Urban Development have not yet awarded grants, but will have 
transportation as an eligible use of funds. These have not been 
included in the count of programs. 

[51] See Report to the Secretary of Transportation, National Resource 
Center for Human Service Transportation Coordination (March 2009). 

[52] See Formula grants for special needs of elderly individuals and 
individuals with disabilities, 49 U.S.C. § 5310(d)(2)(B); Job Access 
and Reverse Commute formula grants, 49 U.S.C. § 5316(g)(3); New 
Freedom Program, 49 U.S.C. § 5317(f)(3). 

[53] National Conference of State Legislatures, State Human Service 
Transportation Coordinating Councils: An Overview and State Profiles 
(Denver, Colo., February 2010). 

[54] Specifically, the formula uses a percentage of the average number 
of acres planted during 1998 through 2001 and multiplies it by a set 
payment rate and the historical crop yield for a farm. The percentage 
and payment rates for each crop are specified in legislation commonly 
referred to as farm bills passed by Congress roughly every 5 years. 

[55] The National Commission on Fiscal Responsibility and Reform was 
established under Executive Order 13531 (Feb. 18, 2010). It issued The 
Moment of Truth: Report of the National Commission on Fiscal 
Responsibility and Reform (Washington, D.C., December 2010). 

[56] Led by former Senate Budget Committee Chairman Pete Domenici and 
former White House Budget Director Alice Rivlin, the Debt Reduction 
Task Force issued Restoring America's Future: Reviving the Economy, 
Cutting Spending and Debt, and Creating a Simple, Pro-Growth Tax 
System (Washington, D.C., Nov. 17, 2010). 

[57] See [hyperlink, 
http://www.gao.gov/highrisk/opportunities/natural_resources/strengthenin
g-integrity-and-efficiency-of-federal-farm-programs.php]. 

[58] This is an estimated costs for providing active duty 
servicemembers and their dependents health care. It does not include 
costs such as medical personnel salaries or construction costs of 
medical facilities. However, a more comprehensive medical cost for DOD 
is the Unified Medical Budget, which for fiscal year 2010 was about 
$50 billion. This cost includes military medical personnel costs, 
construction cost of any medical facilities, operation and maintenance 
funds, procurement funds, and research and development funds. 

[59] These amounts include the $50 million EAS receives each year 
through a permanent, indefinite appropriation. 

[60] Communities currently may waive their guarantee of larger 
aircraft. 

[61] Pub. L. No. 83-212, 67 Stat. 462 (1953) (codified as amended at 
43 U.S.C. §§ 1331-1356a). 

[62] Pub. L. No. 94-579, 90 Stat. 2743 (1976) (codified as amended at 
43 U.S.C. §§ 1701-1784). 

[63] Payment recapture audits, also called recovery audits, are 
conducted to identify and reclaim payments made in error. 

[64] The 14 high-error programs designated by the Office of Management 
and Budget for fiscal year 2010 include: Medicare Fee-for-Service; 
Medicaid; Unemployment Insurance; Medicare Advantage; Supplemental 
Security Income; Retirement, Survivors, and Disability Insurance; 
Supplemental Nutrition Assistance Program; National School Lunch 
Program; Rental Housing Assistance Programs; Federal-Aid Highway 
Program, Highway Planning and Construction; Children's Health 
Insurance Program; Earned Income Tax Credit; High Cost Program of the 
Universal Service Fund; and Medicare Prescription Drug Benefit. The 
Children's Health Insurance Program, High Cost Program of the 
Universal Service Fund, and Medicare Prescription Drug Benefit 
programs did not report improper payment error rates and amounts for 
fiscal year 2010. 

[65] The FSSI was launched in 2005 to strategically source across 
federal agencies and create a strategic sourcing community of 
practice. The FSSI is led by the General Services Administration, in 
partnership with the Department of Treasury, with active participation 
by more than 20 federal agencies. FSSI contracts have been made for 
office products, domestic delivery services, and wireless device 
ordering and expense management services. 

[66] "Excess property" has been determined by the controlling federal 
agency as not required to meet the agency's needs. "Not utilized 
property" is property not occupied for the agency's current purposes. 
"Underutilized property" is property that is used only at irregular 
periods or is used for purposes that can be satisfied with only a 
portion of the property. 

[67] Executive Order 13327 applies to 24 executive branch departments 
and agencies but not to the U.S. Postal Service, which is an 
independent establishment in the executive branch. 

[68] GAO initially selected 5 of the 41 counties with the largest 
property revenue for its review based on criteria such as the presence 
of generally nondeductible items on their tax bills. However, GAO 
limited its analysis to 2 of the 5 counties due to practical 
limitations with the data from the counties. 

[69] These software firms did make changes to their programs to better 
inform taxpayers what qualifies as deductible real estate taxes in 
response to discussions with GAO for its May 2009 report. 

[70] For example, IRS's most recent estimate for 2001 indicated that 
5.5 million taxpayers overstated their deductions collectively by $5 
billion. A 1-percent to 10-percent reduction in this amount would have 
reduced overstatements by $50 million to $500 million. The resulting 
actual tax revenue savings would be much less depending on factors 
such as the tax rate for these noncompliant taxpayers. 

[71] As the figure comparing basic hypothetical credit designs above 
illustrates, the rate of incentive and the amount of windfall a credit 
provides are independent of each other. 

[72] Stationary oxygen concentrators are electrically powered machines 
that extract oxygen from the air. 

[73] The Patient Protection and Affordable Care Act was signed by the 
President in March 2010. 

[74] GAO reviewed 15 DHS major acquisition programs for which cost, 
schedule, and performance data were available. 

[75] GAO determined total budget authority for S&T and DNDO based on 
DHS's Monthly Budget Execution Reports for fiscal years 2007 through 
2010. GAO has not independently verified amounts in the reports. 

[76] H.R. Rep. 111-298, at 77 (2009) (Conf. Rep.). 

[77] A study performed by the JASON program office raised similar 
concerns. The JASON program office is an independent scientific 
advisory group that provides consulting services to the U.S. 
government on matters of defense science and technology. 

[78] From this amount, TSA also plans to support its Security 
Technology Integrated Program, Advanced Surveillance Program, and 
other programs related to the operation and integration of security 
technologies. 

[79] Net savings account for differences in acquisition, modification, 
installation, and operation and maintenance costs between existing 
systems replaced with more efficient systems at airports. 

[80] The committee, comprised of government and private sector 
representatives, examines areas of civil aviation security to develop 
recommendations for improving aviation security methods, equipment, 
and procedures. 

[81] GAO estimates that these cost savings are equivalent to up to 
approximately 10,400 cumulative full-time equivalent screener 
positions resulting from investments for fiscal years 2011 through 
2015. To calculate these estimated cost savings, GAO computed an 
average return on investment by determining the projected 5-year 
savings TSA could realize by replacing or modifying baggage systems at 
individual airports in 2009 and comparing the savings to funding made 
available to TSA in fiscal year 2009 for procurement and installation 
of the systems. First, GAO calculated the present value of estimated 
full-time equivalent savings across a 5-year period (i.e., fiscal 
years 2009 through 2013) which totaled about $117 million in fiscal 
year 2009. The $117 million assumes differences in acquisition, 
modification, installation, and operation and maintenance costs 
between existing systems, and more efficient systems at airports 
continue to be relatively equal. This assumption is based on TSA's 
analysis conducted in 2004 and 2005, which was the most recent 
analysis available. GAO reviewed and reported on this analysis in its 
March 2005 report. Second, GAO divided the cost savings by the $544 
million in funding made available for procurement and installation in 
fiscal year 2009 (excluding any carry-over balances from prior fiscal 
years and funds appropriated through the American Recovery and 
Reinvestment Act). Thus, the average return on TSA's investment or the 
ratio of cost savings as a share of investment is $117/$544 million, 
or about 0.21. GAO multiplied this ratio (0.21) by TSA's planned 
future program budget for replacing or modifying baggage systems for 
fiscal year 2011 through fiscal year 2015 (assuming TSA receives 
funding at anticipated levels) to estimate the resulting net cost 
savings. However, the 0.21 ratio may not necessarily continue into the 
future depending on changing costs and circumstances. To calculate the 
average annual program budget, GAO used information TSA provided on 
its planned annual program budget on acquisition and planning costs 
for fiscal years 2011 through 2014. GAO did not have information on 
TSA's planned annual program budget for fiscal year 2015. 

[82] TSA's Office of Security Technology, Acquisition Review Board 
presentation, November 5, 2009. 

[83] Anticipated cost savings may be reduced as TSA diverts funding 
to, for example, recapitalize existing baggage screening systems for 
sustained operations. 

[84] To date, this work has not identified a basis for proposing 
specific funding rescissions. 

[85] For example, see GAO, Managing for Results: Using the Results Act 
to Address Mission Fragmentation and Program Overlap, GAO-AIMD-97-146 
(Washington, D.C.: Aug. 29, 1997); Managing for Results: Barriers to 
Interagency Coordination, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-00-106] (Washington, D.C.: Mar. 
29, 2000); and 21ST Century Challenges: Reexamining the Base of the 
Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO-05-325SP] (Washington, D.C.: February 
2005). 

[86] See [hyperlink, http://www.gao.gov/highrisk/opportunities/]. 

[87] To provide the most current information, we cited only those 
programs that were identified in GAO reports published in 2008 or 
later. 

[End of section] 

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