OMB's High-Risk Program: Comments on the Status Reported in the
President's Fiscal Year 1995 Budget (Letter Report, 09/20/94,
GAO/AIMD-94-136).

GAO examined the Office of Management and Budget's (OMB) update of its
high-risk program, as presented in the President's fiscal year 1995
budget submission. For the 1995 budget submission, OMB decided to delete
26 areas from the program. GAO disagrees with OMB's deletion decision in
three areas--contract administration controls at the Defense Department,
the Energy Department's weapons complex reconfiguration, and staffing at
the Bureau of Prisons. Of the 84 active areas on OMB's high-risk list,
GAO disagrees with OMB's progress assessment for three areas--the
Federal Employees Health Benefits Program, Superfund program controls,
and financial management at the Treasury Department.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-94-136
     TITLE:  OMB's High-Risk Program: Comments on the Status Reported in 
             the President's Fiscal Year 1995 Budget
      DATE:  09/20/94
   SUBJECT:  Risk management
             Presidential budgets
             Budget authority rescission
             Atomic energy defense activities
             Internal controls
             Financial management
             Health services administration
             Environment evaluation
             Personnel recruiting
             Contract administration
IDENTIFIER:  Army General Fund
             Defense Business Operations Fund
             DOE Capability Assurance Program
             Federal Employees Health Benefits Program
             Superfund Accelerated Cleanup Model
             Superfund Program
             EPA National Priorities List
             EPA Alternative Remedial Contract Strategy
             Customs Service Air Interdiction Program
             Customs Service Marine Interdiction Program
             OMB High Risk Program
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Government Operations, House of
Representatives

September 1994

OMB'S HIGH-RISK PROGRAM - COMMENTS
ON THE STATUS REPORTED IN THE
PRESIDENT'S FISCAL YEAR 1995
BUDGET

GAO/AIMD-94-136

OMB's High-Risk Program


Abbreviations
=============================================================== ABBREV

  ARCS - Alternative Remedial Contracting Strategy
  BOP - Bureau of Prisons
  DOD - Department of Defense
  DOE - Department of Energy
  EPA - Environmental Protection Agency
  FEHBP - Federal Employees Health Benefits Program
  FHA - Federal Housing Administration
  GAO - General Accounting Office
  GNMA - Government National Mortgage Association
  NPL - National Priorities List
  OIG - Office of Inspector General
  OMB - Office of Management and Budget
  OPM - Office of Personnel Management
  O&M - Operations and Maintenance
  VA - Department of Veterans Affairs

Letter
=============================================================== LETTER


B-249317

September 20, 1994

The Honorable John Conyers
Chairman, Committee on
 Government Operations
House of Representatives

Dear Mr.  Chairman: 

This report responds to your request that we examine the Office of
Management and Budget's (OMB) update of its high-risk program, as
presented in the President's fiscal year 1995 budget submission.\1
You specifically asked whether we agree with OMB's

  decision to delete 26 areas from the program and

  progress assessments on the 84 areas in the program at the
     beginning of 1994. 

Appendix I contains background information on OMB's high-risk program
and our scope and methodology for this review. 

The President's fiscal year 1995 budget submission discussed 26 areas
OMB deleted from its high-risk program and 84 active areas.  For the
26 deleted areas, we agree with OMB's deletion decision in 8 areas,
disagree in 3 areas, and have no basis for evaluating the deletion
decision for 15 areas.  Appendix II identifies those areas with which
we agree, disagree, or have no basis to agree or disagree with OMB's
deletion decision. 

Of the 84 active areas on OMB's high-risk list, we agree with OMB's
progress assessment for 64 areas, disagree for 3 areas, and have no
basis for evaluating the assessment for 17 areas. 

The following sections discuss the six areas where we disagree with
OMB's deletion decision or its assessment.  We obtained the
information presented under the "High-Risk Area" and "Progress
Reported" captions from the President's fiscal year 1995 budget
submission.  The "GAO Evaluation" section provides the rationale and
support for our disagreement with OMB's deletion decision or
assessment. 


--------------------
\1 An earlier GAO review of OMB's high-risk program, which was also
conducted at your request, resulted in a report entitled OMB's High
Risk Program:  Benefits Found But Greater Oversight Needed
(GAO/AFMD-92-63, August 6, 1992). 


   AREAS IN WHICH GAO DISAGREES
   WITH OMB'S DELETION DECISION
------------------------------------------------------------ Letter :1

For 3 of the 26 areas OMB deleted from its high-risk list, the
corrective actions to date do not warrant OMB's deletion decision. 
The results of GAO, inspector general, and/or agency reviews have
shown that significant problems remain in each of these areas and,
until OMB and the agencies can demonstrate that efforts to address
these problems have been effective, the areas should remain part of
OMB's high-risk program. 


      DEPARTMENT OF DEFENSE--
      CONTRACT ADMINISTRATION
      CONTROLS
---------------------------------------------------------- Letter :1.1

High-Risk Area:  Contract administration controls over Department of
Defense (DOD) property in the possession of private contractors are
inadequate. 

Progress Reported:  In the budget submission, OMB reported that DOD
has made significant progress in strengthening control and
accountability over its contractors.  Corrective actions cited
include increasing control over contractor access to the DOD property
management system, which, according to the budget, resulted in better
monitoring of contractor reutilization and disposal of property. 
Also, the budget submission stated that DOD has implemented new
regulations, guidance, and training programs to increase its
administrative control over contractor use of DOD property. 

GAO Evaluation:  While DOD has taken some actions, inadequate
controls over DOD property in the possession of private contractors
is a long-standing problem that has not been corrected to the point
that it should be deleted from OMB's high-risk program. 

In July 1993, we testified\2 that our financial audit of the
Department of the Army, conducted in response to the Chief Financial
Officers Act of 1990, showed that the Army had not established
property accountability and controls over $7.4 billion in government
material and equipment furnished to contractors.  Similarly, our
financial audit of the Department of the Air Force showed that the
Air Force had paid over $630 million for communications satellites
stored by contractors that were not on the Air Force's financial or
property management records. 

The Secretary of Defense's most recent Federal Managers' Financial
Integrity Act report, issued in March 1994, acknowledged material
property accountability and financial control deficiencies concerning
government equipment and material furnished to contractors.  The
report stated that these and other problems ".  .  .  adversely
impact the ability of the Department to maintain physical control
over real and personal property."

Most recently, in June 1994, the Army Audit Agency reported\3

that the Army had made little progress in improving financial
accountability for government furnished property.  The audit agency
reported that the Army relied upon contractor-reported balances as
the source for financial reporting, but that these balances were not
segregated between the Army General Fund and the Defense Business
Operations Fund.  Also in June 1994, regarding this same issue, the
DOD Inspector General reported\4 that the Army could not account for
the difference between the $16.7 billion contractors reported as
government material furnished to them and the combined amount of
$10.7 billion for government furnished material shown in the Army's
General Fund and Defense Business Operations Fund financial
statements.  The Inspector General's report concluded that such
laxity in controls can subject the assets to loss. 

The Inspector General also found that the Air Force reported $112
million in loaned assets and $848 million in assets at contractor
repair facilities.  Those assets, however, were not recorded
correctly in the general ledger accounts and could not be reconciled
to the accountable records.  For example, one loan agreement showed
44 assets valued at $24 million; however, the loan officers'
accounting records indicated 24 loaned assets valued at about $13
million, and the loan agreement folder had documentation supporting
22 loaned assets valued at $12 million. 

The corrective actions cited by OMB in the President's fiscal year
1995 budget submission, including the establishment of regulations
and guidance, may be necessary first steps in strengthening controls
in this area, but it is premature to delete the area from the
high-risk list.  All too often, our work has shown that DOD's
well-intentioned regulations and guidelines simply are not followed. 
For example, 2 years ago we reported\5 that, while, according to DOD,
procedures were in place for contractors to report any excess
materials, at least five contractors had held excess material for
several years and DOD's lack of knowledge of items held by one
contractor caused a $500,000 loss to the government. 


--------------------
\2 Financial Management:  DOD Has Not Responded Effectively to
Serious, Long-standing Problems (GAO/T-AIMD-93-1, July 1, 1993). 

\3 Audit of the Army's FY 93 Financial Statements:  Audit Opinion,
U.S.  Army Audit Agency, Audit Report HQ 94-450, June 30, 1994. 

\4 Consolidated Statement of Financial Position of the Defense
Business Operations Fund for FY 1993, Department of Defense, Office
of Inspector General, Audit Report No.  94-161, June 30, 1994. 

\5 Financial Management:  Army Conventional Ammunition Production Not
Effectively Accounted For or Controlled (GAO/AFMD-92-57, August 31,
1992). 


      DEPARTMENT OF ENERGY--
      WEAPONS COMPLEX
      RECONFIGURATION
---------------------------------------------------------- Letter :1.2

High-Risk Area:  The Department of Energy's (DOE) weapons complex
must be reconfigured as policy decisions are made on reducing the
nuclear weapons arsenal. 

Progress Reported:  In the budget submission, OMB reported that,
since DOE does not have a current requirement to produce nuclear
weapons, it now has sufficient time to reconfigure the weapons
complex to meet future national security requirements.  According to
the budget, DOE has acted to ensure that it can produce tritium if
needed.  Further, it states that DOE has implemented the Capability
Assurance Program to ensure that DOE maintains the necessary
research, development, testing, and production technologies essential
to maintaining the current stockpile, providing safety and
reliability to the stockpile, and designing and producing new
warheads should national security requirements so dictate. 

GAO Evaluation:  Weapons complex reconfiguration is a costly and
continuing problem for DOE.  The progress cited by OMB does not
provide a basis for removing the area from its high-risk program. 
The magnitude of efforts needed in this area is demonstrated in DOE's
fiscal year 1995 budget request which includes $5.2 billion for
National Security--almost 30 percent of DOE's budget request. 

In the tritium supply area, for example, OMB stated, in commenting on
a draft of this report, that "There are several options (including
some that could be accomplished in less than five years) for
producing additional tritium when it is needed." However, DOE's
tritium supply strategy is currently focused on 4 long-range tritium
production alternatives, each of which will take 12 to 15 years to
complete.  Further, preliminary design and construction cost
estimates for two of these alternatives, the heavy-water reactor and
the high-temperature reactor, are $4.8 billion and $5.3 billion,
respectively.  While DOE states that, in the event of a national
emergency, a tritium producing target could be placed in an existing
light-water reactor within 5 years, the Department currently has no
plan for implementing such a contingency operation nor does it have
an agreement with any utility for the use of a reactor.\6

Further, OMB does not address several additional major elements of
this high-risk area including DOE's lack of capabilities for
dismantling retired weapons and for storing weapons grade materials
such as plutonium.  For example, although DOE has scheduled a number
of disassemblies at its Pantex facility, which is located in Texas,
over the next 10 years, it faces several problems, including a
shortage of disassembly technicians and problems with the adequacy of
facilities for, and the environmental impact of, storing large
amounts of plutonium at that facility.  These problems could reduce
its capability to disassemble nuclear weapons.  According to DOE
officials, because of these problems, the numbers and types of
weapons planned for disassembly will continue to change and the
prospect for meeting the disassembly schedule over the next several
years is not good.\7

Until DOE can demonstrate that it has adequately addressed the
significant problems within this high-risk area, including not only
the future tritium supply, but dismantling of nuclear weapons,
disposal of excess plutonium, and decisions on what nuclear defense
facilities and/or operations should be restarted, OMB should continue
to report on the status of this area as part of its high-risk
program. 


--------------------
\6 See Nuclear Materials:  Nuclear Arsenal Reductions Allow
Consideration of Tritium Production Options (GAO/RCED-93-189, August
17, 1993); Nuclear Weapons Complex:  Major Safety, Environmental and
Reconfiguration Issues Facing DOE (GAO/T-RCED-92-31, February 25,
1992); Nuclear Weapons Complex:  Issues Surrounding Consolidating Los
Alamos and Lawrence Livermore National Laboratories
(GAO/T-RCED-92-98, September 24, 1992); and Nuclear Weapons Complex: 
GAO's Views on Reconfiguring the Complex (GAO/T-RCED-92-49, April 1,
1992). 

\7 See Nuclear Weapons:  Safety, Technical, and Manpower Issues Slow
DOE's Disassembly Efforts (GAO/RCED-94-9, October 20, 1993). 


      DEPARTMENT OF JUSTICE--
      BUREAU OF PRISONS STAFFING
---------------------------------------------------------- Letter :1.3

High-Risk Area:  The Bureau of Prisons (BOP) has inadequate staff to
operate and manage prisons. 

Progress Reported:  The budget submission reported that BOP's efforts
to recruit, develop, and retain sufficient staff have been
successful, as evidenced by the fact that the ratio of BOP staff to
inmates was reduced from 1:3.9 in 1990 to 1:3.2 in 1993.  It also
stated that BOP is addressing medical staff recruitment and
retention, which continue to present some difficulty, and that
forecasts for 1995 through 1997 indicate that there are sufficient
numbers of qualified candidates for most of BOP's present and future
needs. 

GAO Evaluation:  While improvements have been made in the recruitment
and retention of prison operating personnel, BOP continues to
struggle with the recruitment and retention of qualified health care
staff.  Our work has shown that significant shortages of nurses,
physician assistants, and psychiatrists in several locations have
often led to quality of care problems. 

In a recent study, we found that inmates with special needs,
including women, psychiatric patients, and patients with chronic
illnesses, were not receiving all of the health care they needed at
the medical referral centers we visited.  This situation existed
because there were insufficient numbers of physician and nursing
staff to perform required clinical and other related tasks.  This
understaffing resulted in physicians not always having enough time to
supervise physician assistants, who provided the bulk of the primary
care given to inmates, and nurses not having sufficient time to
provide individual and group counseling to psychiatric patients. 
This in turn has resulted in some patients' conditions not improving
and in other patients being left at risk of serious deterioration.\8

As BOP proceeds with its plans to acquire additional medical
facilities, at locations such as Carswell Air Force Base, and as it
continues adding prisons to house the expanding inmate population,
its medical staffing problems are likely to worsen. 

BOP's continuing problems in recruiting and retaining medical staff
is recognized by OMB in the budget submission.  Because of the
seriousness of these problems and the uncertainty of BOP's ability to
fully address them in the future, we believe that this issue should
remain on OMB's high-risk list. 


--------------------
\8 See Bureau of Prisons Health Care:  Inmates' Access to Health Care
Is Limited by Lack of Clinical Staff (GAO/HEHS-94-36, February 10,
1994). 


   AREAS WHERE PROGRESS IS
   OVERSTATED
------------------------------------------------------------ Letter :2

For three of OMB's active high-risk areas, we disagree with its
progress rating of "1," which indicates that the agency made
significant progress in correcting the high-risk problems.  Because
of the magnitude of continuing problems in each of these areas, we
believe that rating is too high. 


      OFFICE OF PERSONNEL
      MANAGEMENT--
      FEDERAL EMPLOYEES HEALTH
      BENEFITS PROGRAM
---------------------------------------------------------- Letter :2.1

High-Risk Area:  The Federal Employees Health Benefits Program
(FEHBP) has inadequate internal control standards and oversight of
insurance carrier operations. 

Progress Reported:  The budget submission reported that FEHBP
management control standards and the oversight of insurance carriers'
performance require strengthening.  It identified problems in six
areas (insurance contract administration, enrollment and premium
reconciliation, administrative sanctions, audit resolution, defective
pricing of community rated plans, and insurance audit cycles), and
stated that progress is evident in each area.  The progress reported
generally includes actions such as the implementation of regulations,
institution of a pilot program, and development of performance
standards. 

GAO Evaluation:  Implementing regulations, conducting pilot programs,
and developing performance standards can all represent valuable steps
toward the resolution of the problems in this high-risk area. 
However, until implementation results have been tested and shown to
be successful, an unacceptable degree of uncertainty about the
resolution of the problems will remain. 

A related issue is the problems that persist in one key area--lengthy
insurance audit cycles--which have a significant effect on OPM's
ability to fully resolve this high-risk area.  Office of Inspector
General (OIG) insurance audits generally focus on the allowability of
contract charges and the recovery of appropriate credits, the
effectiveness of carriers' claims adjudication systems, and the
adequacy of internal controls to ensure proper contract charges and
benefit payments.  Because of long cycles

  audit reports are not being made available to program officials for
     use in identifying major internal control weaknesses and other
     problem areas that need to be corrected programwide;

  OPM's ability to negotiate the most favorable contract terms is
     inhibited because audit information available to negotiators is
     outdated; and

  OPM cannot make timely reviews of the costs charged to FEHBP in
     order to determine unallowable costs for recovery. 

GAO has recommended that the insurance audit cycle be reduced to a 3
to 5-year time frame, and the OIG developed a plan to do so.  As an
initial step toward this goal, the OIG added two staff members to the
"fee-for-service" plan audit teams by the beginning of fiscal year
1993.  The OIG projected that this would reduce the average audit
cycle to about 11 years in the short term and to about 9 years after
the new staff gain experience.  However, the OIG has subsequently
reported that "With additional staffing increments not available in
fiscal year 1994 and not expected in fiscal year 1995, we do not
anticipate being able to reduce the cycle to what we consider an
acceptable level."

Reallocation of OIG resources to this area was another possible way
to reduce the audit cycle.  However, the OIG's semiannual report to
the Congress for the period ending September 30, 1993, stated that ". 
.  .  reallocation of our resources from other audit activities to
insurance audits is not an option available.  .  .  ."

Because of the importance of the audit function to FEHBP operations,
OMB should not assess progress in this high-risk area as significant
until the OIG further reduces the insurance audit cycle. 


      ENVIRONMENTAL PROTECTION
      AGENCY--
      SUPERFUND PROGRAM CONTROLS
---------------------------------------------------------- Letter :2.2

High-Risk Area:  The Superfund program lacks adequate controls to
ensure timely cleanup of National Priorities List (NPL) sites and
consistent management of the Alternative Remedial Contracting
Strategy (ARCS) contracts. 

Progress Reported:  The budget submission showed that EPA reported
significant improvement in accelerating cleanup of Superfund NPL
sites--cleanups increased from 63 in 1991 to a total of over 200 by
September 1993.  It stated that EPA has standardized the remedy
selection process with the use of presumptive remedial guidance and
the implementation of the Superfund Accelerated Cleanup Model.  The
budget also cited progress in ARCS contract management, with Regional
Management Teams overseeing implementation of the Administrator's
Task Force Report recommendations. 

GAO Evaluation:  EPA still faces an enormous site cleanup task.  On
average, it takes about a decade to clean up a site.  In the 14-year
history of the Superfund program, construction of the selected
cleanup remedy has been completed at 224 NPL sites.  The NPL
currently consists of over 1,300 sites and an additional inventory of
about 5,500 sites need to be evaluated to determine if they should be
added to the NPL. 

Because many of the efforts cited in the budget to strengthen EPA's
contract management weaknesses and speed up the Superfund cleanup
process are relatively current, it is premature for OMB to conclude
that they have been effective in correcting the cited problems. 

We continue to have concerns with the criteria used in evaluating
sites and in starting cleanups.  While the timely cleanup of areas on
the NPL is important, other factors (such as cleaning up the most
dangerous sites first) are also important, and EPA does not
adequately consider them.  For example, our recent reports\9 noted
that, in 1989, EPA established a policy and subsequently issued
guidance to its regions on addressing the worst sites first. 
However, EPA's regions appear to have done little to implement the
policy.  Considerations such as the level of effort required to
evaluate sites--not the risk posed to human health and the
environment--determine which sites the regions evaluate first for
inclusion on the NPL and which sites they begin cleaning up first. 

Although EPA's actions to date and next steps, as reported by OMB,
represent steps in the right direction, for reasons discussed above,
they do not currently warrant a "significant progress" assessment. 


--------------------
\9 Superfund:  Reauthorization and Risk Prioritization Issues
(GAO/T-RCED-94-250, June 24, 1994) and Relative Risk in Superfund
(GAO/RCED-94-233R, June 17, 1994). 


      DEPARTMENT OF THE TREASURY--
      FINANCIAL MANAGEMENT
---------------------------------------------------------- Letter :2.3

High-Risk Area:  At Customs, the Operations and Maintenance (O&M)
Account of the Air and Marine Interdiction Programs lacks adequate
internal controls. 

Progress Reported:  In the budget submission, OMB reported that a
review of the account balances of the Air and Marine program for
Customs resulted in recommendations for corrective action, including
improved tracking of obligations and expenditures associated with
interagency agreements and related contracts.  It also stated that
these recommendations, as well as others from a joint
Treasury/Customs task force for improving accounting policies and
procedures, were incorporated into a Customs corrective action plan
and implemented, and that Treasury's Office of Inspector General is
verifying the implementation of the recommendations. 

GAO Evaluation:  While Customs took several significant steps to
improve its internal control structure and its ability to report more
reliable financial information for fiscal year 1993, our recent
attempt to audit Customs' fiscal year 1993 financial statements\10
revealed that internal control weaknesses relating to O&M account
activity still existed during fiscal year 1993. 

In one area, for example, Customs has established a system for
reviewing obligations pertaining to open interagency agreements,
including some relating to O&M account activity.  However, as of
April 1994, the agency was still reviewing open agreements for 1989. 
Those for 1990 to the present remain to be reviewed.  Further, we
found that Customs could not support $54 million of amounts recorded
as due from other agencies under interagency agreements because it
did not follow the procedures it had developed to monitor detailed
accounts receivable activity.  For example, Customs did not reconcile
its interagency agreement register--which was established to provide
a detailed listing of outstanding interagency agreements and track
receivable activity--to the central accounting records. 

In another area, we found that Customs continued to lack adequate
oversight over the contractor that manages its aircraft parts
inventory.  Customs minimal involvement in the acquisition, receipt,
issuance, and inventorying of aircraft parts increases the potential
for inventory to be stolen, destroyed, or temporarily diverted
without detection.  Also, Customs' reimbursements of more than $42
million to the contractor could include O&M account costs for
services that were never actually rendered because the responsible
Customs official approved payments without verifying the validity of
the charges by comparing them to the goods or services received. 

Until Customs' corrective actions result in the development of more
meaningful and reliable financial management information and the
establishment a stronger internal control structure, an assessment
that indicates that Customs has made significant progress will
overstate actual conditions. 


--------------------
\10 Financial Audit:  Examination of Customs' Fiscal Year 1993
Financial Statements (GAO/AIMD-94-119, June 15, 1994) and Financial
Audits:  CFO Implementation at IRS and Customs (GAO/T-AIMD-94-164,
July 28, 1994). 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :3

OMB commented on a draft of this report.  (See appendix III.) In that
draft, we disagreed with OMB's deletion decisions and assessments for
seven areas.  After considering its comments, we continue to disagree
with OMB's decisions in six areas because the risks remain
unacceptably high and/or not enough time has passed to permit an
evaluation of the effectiveness of the corrective actions taken. 

Based on OMB's comments, we dropped our disagreement with its
decision to delete health care facilities construction planning
process problems at the Department of Veterans Affairs (VA). 
However, we continue to believe that VA should develop a strategic
approach to its acquisition of health delivery capacity because of
its potential entry as a major managed care provider in a reformed
health care system.  If VA facilities are to compete as managed care
plans under a national program, they would likely need to develop the
capability to service women veterans and veterans' dependents, either
in their own facilities or through contracts with community
facilities or sharing agreements with military facilities. 

If you have any questions on the above information or would like to
discuss any of the areas further, please contact me at (202)
512-3406. 

Sincerely yours,

George H.  Stalcup
Associate Director, Financial
 Integrity Issues


BACKGROUND, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

BACKGROUND

OMB began its high-risk program in 1989 as part of the
administration's ongoing effort to improve the management of federal
agencies and programs.  The program's intent is to focus attention
and resources on eliminating major risks that warrant top-level
agency and congressional attention.  For the past 5 years, the
President's budget submission has included a report on the progress
made in addressing problems in high-risk areas and has identified
high-risk areas being added to and deleted from the program. 
Inclusion of the updated list in the budget helps ensure attention to
these matters and provides a tool for public accountability. 

OMB's annual assessment of each area is based on its evaluations of
agency-reported efforts to correct the problems.  The President's
fiscal year 1995 budget submission showed that OMB deleted ("D"
rating) 25 areas from its high-risk list, stating that the agencies
had made sufficient progress in correcting the problems.  OMB also
dropped one additional area (Single Audit Issues) from the list ".  . 
.  because unilateral action by the agency [the Department of Labor]
to correct the problem is not feasible."

For the 84 active areas, the budget submission showed

  22 areas rated "1," which indicates that the agency has made
     significant progress in correcting the problems, as evidenced by
     concrete, measurable accomplishments;

  47 areas rated "2," which means that the agency has undertaken a
     serious effort to eliminate or reduce the risk to an acceptable
     level but cannot prove that the risk has been reduced or the
     problem solved;

  8 areas rated "3," which indicates that OMB has reservations about
     the adequacy of agency progress and/or plans; and

  7 areas added to the program and identified with an "A" in the
     budget's assessment column. 

SCOPE AND METHODOLOGY

To evaluate the appropriateness of OMB's decision to delete 26 areas
from the high-risk program and its assessment of the 84 active
high-risk areas, we compared the progress reported in the budget with
the results of our prior and current audit work.  As requested by
your office, we did not initiate any new audits to evaluate OMB's
deletion decisions or assessments. 

Based on the results of the above, we either

  agreed that the assessment and progress cited reasonably
     represented the status of agency actions to correct the
     problems;

  disagreed because the assessment and progress cited overstated
     agency progress in correcting the problems; or

  concluded that our audit work in the specific high-risk area, if
     any, is not sufficient or current enough to permit an evaluation
     of the reasonableness of OMB's assessment or progress
     discussion. 

Our work was performed in accordance with generally accepted
government auditing standards from March through June 1994. 


GAO'S EVALUATION OF OMB'S
ASSESSMENTS OF AREAS IT DELETED
FROM THE HIGH-RISK PROGRAM
========================================================== Appendix II

We reviewed the information presented in the President's fiscal year
1995 budget submission for each of the 26 areas OMB deleted from its
high-risk program.  This table shows where we agree, disagree, or
have no basis to agree or disagree with OMB's deletion decision. 



                          Table II.1
           
               GAO Positions on OMB's Deletion
                          Decisions

                                              Disagr  No
OMB's high-risk area                Agree     ee      basis
----------------------------------  --------  ------  ------
Commerce: Computer site security                      X
is weak.

Defense: Contract administration              X
controls over DOD property in
private contractor possession is
inadequate.

Defense: Management, reporting,                       X
and budgetary controls over
contracted advisory and assistance
services need strengthening.

Education: Security of computer                       X
systems is inadequately reviewed.

Energy: The weapons complex must              X
be reconfigured as policy
decisions are made on reducing the
nuclear weapons arsenal.

Energy: Reimbursable work controls  X
need improvement.

Health and Human Services:          X
Medicaid management systems are
inadequate to estimate Medicaid
costs accurately.

Health and Human Services:                            X
Insufficient financial controls
and inattention to management led
to weaknesses in the Indian Health
Service program.

Housing and Urban Development:                        X
Manufactured housing loans made by
the Federal Housing Administration
(FHA) have excessive claims
against the Government National
Mortgage Association's (GNMA)
mortgage-backed securities
program. GNMA has suffered losses
due to poor underwriting
practices, collateral
depreciation, and limited FHA
indemnification.

Interior: Insular governments lack  X
adequate financial management.

Interior: Long-standing             X
deficiencies exist in the
management of Bureau of Indian
Affairs school facilities and dam
safety.

Justice: Not all prisons comply                       X
with fire and/or hazardous waste
disposal codes.

Justice: Inadequate staff exist to            X
operate and manage prisons.

Labor: Federal equity in real                         X
property held by State Employment
Security Agencies is at risk due
to inadequate federal oversight
and guidance on the acquisition,
use, and disposition of real
property.

Labor: Financial systems and                          X
operations are inadequate.

Labor: The Single Audit Act is not  X
effective in safeguarding Job
Training Partnership Act federal
funds.

State: Rehabilitation and           X
maintenance of real property
overseas is inadequate.

State: Management of the overseas                     X
security program is inadequate.

Veterans Affairs: Veterans                            X
Benefits Administration
compensation and pension benefit
overpayments exist.

Veterans Affairs: The health care   X
facilities construction planning
process lacks design and
performance standards.

Veterans Affairs: The internal      X
management controls program is
weak.

Agency for International                              X
Development: Automated systems
which contain sensitive
information are not adequately
protected from disasters.

Federal Emergency Management                          X
Agency: The internal control
program is not fully developed and
implemented.

National Labor Relations Board:                       X
The accounting system is poor.

Securities and Exchange                               X
Commission: The Commission lacks a
long-term disaster recovery plan
for computer operations.

United States Soldiers' and                           X
Airmens' Home: Financial
management controls are weak and
financial management data are
poor.
------------------------------------------------------------



(See figure in printed edition.)Appendix III
COMMENTS FROM THE OFFICE OF
MANAGEMENT AND BUDGET
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV