[Congressional Record Volume 141, Number 34 (Thursday, February 23, 1995)]
[Senate]
[Pages S3066-S3068]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                  RELEASE OF GAO HIGH RISK LIST REPORT

 Mr. GLENN. Mr. President, the General Accounting Office [GAO] 
has just released its second series of reports which identify the 
Federal program areas they consider most vulnerable to waste, fraud, 
abuse, and mismanagement--placing hundreds of billions of taxpayer 
dollars at risk.
  GAO began its high-risk program in 1990, with much encouragement on 
my behalf as the then-chairman of the Committee on Governmental 
Affairs. Its purpose was to highlight problems that were costing the 
Government--meaning U.S. taxpayers--billions of dollars.
  In 1992, GAO issued a series of reports that outlined the problems, 
root causes, and needed actions for each of the areas designated as 
high-risk. At that time, some agencies were beginning to address their 
high risks but progress was minimal and the task ahead was daunting.
  Under my leadership, the Committee on Governmental Affairs strongly 
supported GAO's high-risk effort. We worked with them as well as agency 
heads to address problems resulting from a lack of accountability and 
weak management controls. We also labored hard to provide the necessary 
oversight and follow-up legislation, on a bipartisan basis, to finally 
begin addressing these major problems and start a concentrated and 
systemic approach to governmentwide management.
  Efforts like strengthening and expanding the Inspectors General Act 
to detect and prevent fraud, waste, and abuse. Or the Chief Financial 
Officers [CFO] Act of 1990, which is forcing Federal agencies to 
establish formal financial management structures, including a chief 
financial officer, and that for the very first time in our Nation's 
history will produce audited financial statements for certain accounts 
and programs. Just last year, we also passed the Government Management 
Reform Act [GMRA] which, among other things, will require--beginning 
with fiscal year 1997--an audited financial statement on programs and 
operations for the Government as a whole.
  Also, I was pleased to work with Senator Roth, our new committee 
chairman with a long interest in these areas, to pass the 1993 
Government Performance and Results Act [GPRA]. This legislation 
mandates that Federal agencies develop performance measurement systems 
so that we can begin to determine how these programs are working, 
whether they meet their objectives, and what return and value we are 
getting for our money.
  Another important bipartisan effort is our committee's continuing 
work to reauthorize the Paperwork Reduction Act. As in the last 
Congress, our committee has reported out legislation to reauthorize and 
improve the act. We are now waiting action by the full Senate, which we 
are sure will duplicate last year's unanimous vote in favor of the 
legislation. Our bill strengthens the Act's paperwork clearance 
requirements. It also gives new focus to the Act's information 
resources management [IRM] provisions. The IRM reforms are critically 
important and will help agencies address the information technology 
risks highlighted in GAO's new report.
  One other area here deserves attention, that is comprehensive 
procurement reform legislation, the Federal Acquisition Streamlining 
Act [FASA] of 1994, which was passed due to the efforts of myself and 
several other Members on both sides of the aisle. it significantly 
streamlines the procurement process, saving time and taxpayer dollars, 
through the revision and consolidation of acquisition states to bring a 
dose of common sense and reality into our acquisition process.
  I do believe that as these laws become more fully implemented, as 
well as integrated, we will have come a long way toward finally getting 
control of the creature we call ``government.'' These measures will, 
unlike any previous laws we have passed, improve the performance of 
Federal programs and allow us to use financial and budgetary 
information to better chart the course of Government expenditures.
  But, as this GAO series shows, we are not there yet. In fact, we have 
quite a ways to go.
  That is not to say there is not any good news the taxpayers can be 
thankful for. On the contrary, there is.
  For example, according to GAO, 5 out of the 18 previously designated 
high risk areas have made enough progress as a result of this 
concentrated effort to be taken off the list. The Bank Insurance Fund, 
for instance, went from being in the red, that is from having a 
negative fund balance to a $17.5 billion surplus since the last report. 
The dramatic turnaround was caused by the combination of an improving 
economy, legislative actions, and agency and industry reforms.
  Congressional actions also played a key role in reducing the risks 
posed by the Resolution Trust Corporation 
[[Page S3067]]  [RTC] and the Pension Benefit Guaranty Corporation 
[PBGC], thereby enabling those agencies to be removed from the high-
risk program.
  There is still a bit of more good news from which taxpayers can take 
some justifiable relief. According to GAO's report, 10 of the 13 areas 
that remain on its high-risk list have meaningful improvement 
initiatives underway. Because so many of these initiatives are in the 
earliest stages of implementation and will require continued commitment 
and resolve to see them through, it is premature to declare any 
victories. But there is some hope: The high-risk program experience 
clearly shows that focusing on high-risk problems prompts long-needed 
improvement actions.
  And hope will be needed because, notwithstanding the improvements 
cited and areas removed, GAO'S high-risk list has grown. In its new 
series, GAO has categorized its 20 current high-risk areas into 6 broad 
categories that represent the Government's most critical problems.
  These categories cover almost all of the Government's $1.25 trillion 
revenue collection efforts and hundreds of billions of dollars in 
expenditures. They represent areas where the Government is carelessly 
and needlessly losing billions of dollars and missing huge 
opportunities to achieve its objectives at less cost and with better 
service delivery.
  Let us take a look at them.
  First, accountability and cost-effective management is not provided 
for in Department of Defense [DOD] programs. DOD spending for 1995 is 
estimated at $270 billion, 18 percent of the total Federal budget and 
about half of all discretionary funds. Yet DOD cannot accurately 
account for how it spends its funds or for the $1 trillion in assets it 
has worldwide.
  GAO cites four areas particularly vulnerable: financial management 
systems, practices, and procedures; contract management; the weapons 
systems acquisition process, and inventory management. Because these 
areas are so broad and the weaknesses so pervasive, DOD's entire budget 
can be considered at-risk. Some egregious examples of Defense problems 
include:
  Vendors who have been paid $29 billion in disbursements that cannot 
be matched against purchase invoices to determine if these payments 
were proper.
  A former Navy officer received $3 million in fraudulent payments for 
over 100 false invoice claims, and approximately $8 million in Army 
payroll payments were made to unauthorized persons, including 6 ghost 
soldiers and 76 deserters.
  Contractors themselves--not DOD--detected and returned to the 
Pentagon $957 million in overpayments during fiscal year 1994 alone.
  DOD, with $80 billion a year at stake, has not yet solved pervasive 
problems in its weapons systems acquisition process, including 
unreliable cost data, unrealistic schedule estimates, and unaffordable 
program plans.
  DOD, even after disposing of $43 billion in unneeded inventory over 
the past 3 years, still holds unnecessary items valued at $36 billion, 
or 47 percent of its current inventory.
  Second, revenue owed to the Government is not collected and accounted 
for.
  The Internal Revenue Service [IRS] and the Customs Service [USCS] 
currently collect $1.25 trillion annually, but neither agency can say 
how much more is owed to the Government and ought to be collected. The 
inability to adequately estimate what is due the Government could be 
costing the Government billions of dollars.
  A 1992 IRS estimate put unreported taxes--the so-called tax gap--at 
$127 billion; however, IRS admits that this estimate was not based on 
current, complete data. In addition, both IRS and Customs remain unable 
to accurately account for amounts that have been collected. GAO 
considers four revenue collection areas to be high-risk: IRS financial 
management; IRS tax receivables; IRS filing fraud, and Customs Service 
financial management. Examples of revenue collection problems include:
  Over $90 billion of transactions were not posted to taxpayer 
accounts.
  Delinquent taxes receivable nearly doubled from $87 billion to $156 
billion between 1990 and 1994, while annual collections of delinquent 
taxes declined from $25.5 billion to $23.5 billion.
  During the first 6 months of 1994, IRS identified nearly 35,000 
fraudulent paper returns and 24,000 fraudulent electronic returns--
increases of 151 percent and 51 percent, respectively, over the same 
period 1 year before. While IRS admits to losing tens of millions of 
dollars to detected fraud schemes, some estimates indicate undetected 
fraud could be costing the Government billions of dollars.
  Serious problems remain in the seized asset program at the Customs 
Service, placing tons of illegal drugs and millions of dollars in cash 
and other property vulnerable to theft and misappropriation. In just 
one case, thieves broke into a Customs facility and stole 356 pounds of 
cocaine.
  The Customs Service has not implemented the controls, systems, and 
processes to ensure that carriers, importers, and their agents comply 
with trade laws, or that important trade statistics are reliable.
  Third, multibillion-dollar investments in information technology do 
not provide an adequate return.
  The Government has spent more than $200 billion on information 
management systems during the last 12 years. Yet, successful automation 
projects are the exception rather than the rule. As a result, critical 
financial, program, and management information systems remain largely 
incompatible, costly to operate and maintain, and woefully inadequate 
in meeting current users' needs.
  GAO has chosen four multibillion dollar information technology 
initiatives--there are evidently other projects with similar 
difficulties available to chose from--to add to its high-risk list 
because these particular ones have experienced past failures, involve 
complex technology, or are critical to agencies' missions. These 
projects do not just have financial implications. Rather, they impact 
the very health and safety of all Americans--the air traffic control 
system and the national weather system, for example.
  The $36 billion air traffic control modernization project has been 
plagued by failures and critical components have had to be canceled, 
replaced, and/or restructured.
  After spending $2.5 billion of its estimated $8 billion cost, IRS' 
tax system modernization [TSM] initiative still doesn't have the 
necessary business and technical foundation to achieve the systems' 
goals and objectives. To persuade IRS of the need to develop an overall 
plan for the modernization, Congress reduced IRS' fiscal year 1995 
budget request by $339 million.
  DOD is spending some $3 billion annually on its corporate information 
management [CIM] initiative even though it has yet to examine the 
business processes being automated for reengineering opportunities.
  The National Weather Service modernization project has more than 
doubled in cost to $4 billion and its completion is estimated to be 4 
years behind schedule.
  Fourth, Medicare claims fraud and abuse is widespread.
  Last year the Government spent over $440 million a day, or $162 
billion, on Medicare. Only the costs for DOD, Social Security, and 
interest on the debt are higher. And it is estimated that Medicare 
spending will more than double by the year 2003 to more than $389 
billion.
  While no one, including GAO, has been able to quantify exactly how 
much of Medicare spending is attributable to fraud and abuse, health 
care experts have estimated that 10 percent of national health spending 
is lost to such practices. Even if the number were lower--say 8 or 6 
percent--when applied to $162 billion, that amount is devastating. And 
it will become even more devastating as the program grows. The Health 
Care Financing Administration [HCFA] is aware that health care scams 
and abusive practices plague Medicare, but the exploitation continues. 
For example:
  Medicare has been charged rates as high as $600 per hour for speech 
and occupational therapy, though therapists' salaries range from under 
$20 to $32 per hour.
  One shell company, which existed solely for the purpose of billing--
and bilking--Medicare, added about $135,000 in administrative costs to 
the cost of therapy services in 1 year.
  [[Page S3068]] Medicare has paid health maintenance organizations 
[HMO's] from 6 to 28 percent more than it would have spent had those 
same beneficiaries remained in the fee-for-service sector.
  A national psychiatric hospital chain, charged with fraudulently 
increasing its reimbursements, in 1994 paid over $300 million in the 
largest settlement to the Federal Government for health care fraud.
  Fifth, loan program losses are too high.
  The Federal Government has become the Nation's largest source of 
credit. It obligated almost $23 billion in new direct loans and 
guaranteed $204 billion in new non-Federal lending last year. Now, 
whether you agree with the Government's role as a banker or not, you 
have to agree that the Government is not doing a good job of minimizing 
its losses on its loan and guarantees.
  The Office of Management and Budget [OMB] has estimated that of the 
$241 billion owed the Government for direct loans and claims paid on 
defaulted guaranteed loans, $50 billion is delinquent and at risk of 
loss. GAO's high risk program concentrates on three lending programs:
  Farm loan programs have become a continuous source of credit for many 
borrowers and have had a high rate of loan defaults, resulting in the 
loss of over $6 billion of taxpayers' money from 1991 through 1994. In 
addition, its outstanding loan portfolio still contains nearly $5 
billion in delinquent debt.
  Student financial aid programs have been successful in providing 
money for postsecondary education but have been costly, nearly $25 
billion in losses in the guaranteed student loan program alone with 
$2.4 billion in losses just last year.
  The Department of Housing and Urban Development [HUD], which ensures 
some $400 billion in housing loans, guarantees more than $400 billion 
in outstanding securities, and spends $25 billion a year on housing 
programs, is at risk because of fundamental management weaknesses.
  Sixth. The management of Federal contracts at civilian agencies needs 
improvement.
  Civilian agencies spend tens of billions of dollars per year on 
contracts, yet they often don't get what they pay for or they reimburse 
contractors for unallowable or unreasonable costs. According to GAO, at 
the heart of contracting problems, there is a lack of senior-level 
management attention. GAO has focused on three contracting areas:
  The Department of Energy [DOE] spends about $15 billion annually 
through management and operating contracts but has failed to protect 
the Government's interests. DOE did not require its contractors to 
prepare auditble financial statements nor did it audit, every 5 years 
as is required, the net expenditures reports contractors did prepare.
  The National Aeronautics and Space Administration [NASA] spends about 
$12 billion to $13 billion each year--90 percent of its funding--on 
contracts, but with poor oversight. In addition, NASA has traditionally 
assumed virtually all risks related to contract costs and results. This 
has led to frequent funding increases, schedule delays, and performance 
problems on many of NASA's large space projects.
  Contract management problems in the multibillion-dollar Environmental 
Protection Agency [EPA] Superfund hazardous waste cleanup program have 
provided contractors too little incentive to control costs. A recent 
review of three contractors showed that all three billed the Government 
for entertainment, tickets for sporting events, or alcoholic beverage 
costs that were not allowable. But contractors are probably not too 
worried about what they bill. As of August 1994, there were 528 
unfilled requests for audits of Superfund contractor costs.
  These are just the highlights of GAO's new high-risk list. They show 
what we're up against if we are to achieve real and measurable progress 
in the battle against Government waste and mismanagement. While this 
series indicates that with a concerted and committed effort it is 
possible to correct and rectify program weaknesses--putting less 
taxpayer dollars at risk--it also reveals what happens when systems are 
deficient or administrators are less than vigilant, or both.
  Only with a continuing and persistent effort can we in Congress, 
working with the administration and GAO, attack these problems, one by 
one, case by case. If we are ever to restore people's faith in 
Government--and its overall credibility--it has to be done, and done 
quickly. As I have in the past, I will pledge my best efforts with the 
eventual hope that, one day, there will be no high-risk list at all. I 
urge my colleagues to work together to accomplish this goal.


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