Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue
Gao ID: GAO-11-318SP March 1, 2011This 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. 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. 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. Nevertheless, considering the amount of program dollars involved in the issues we have identified, even limited adjustments could result in significant savings.
GAO-11-318SP, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue
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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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