Homeland Security: Applying Risk Management Principles to Guide  
Federal Investments (07-FEB-07, GAO-07-386T).			 
                                                                 
Since the terrorist attacks of September 11, 2001, and the	 
subsequent creation of the Department of Homeland Security (DHS),
the federal government has provided DHS with more than $130	 
billion in budget authority to make investments in homeland	 
security. However, as GAO has reported, this federal financial	 
assistance has not been guided by a clear risk-based strategic	 
plan that fully applies risk management principles. This	 
testimony discusses the extent to which DHS has taken steps to	 
apply risk management principles to target federal funding for	 
homeland security investments (1) in making grant allocations,	 
(2) in funding transportation and port security enhancements, (3)
in other DHS mission areas, and (4) at a strategic level across  
DHS. This testimony summarizes previous GAO work in these areas. 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-386T					        
    ACCNO:   A65664						        
  TITLE:     Homeland Security: Applying Risk Management Principles to
Guide Federal Investments					 
     DATE:   02/07/2007 
  SUBJECT:   Agency missions					 
	     Allocation (Government accounting) 		 
	     Budget outlays					 
	     Critical infrastructure				 
	     Emergency preparedness				 
	     Federal funds					 
	     Grant administration				 
	     Grants						 
	     Homeland security					 
	     Internal controls					 
	     Investment planning				 
	     Investments					 
	     Port security					 
	     Program management 				 
	     Risk assessment					 
	     Risk management					 
	     Strategic planning 				 
	     Terrorism						 
	     Transportation security				 
	     DHS Urban Area Security Initiative 		 

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GAO-07-386T

   

     * [1]Summary
     * [2]Background
     * [3]DHS's Use of a Risk Management Approach to Guide Investments

          * [4]DHS Uses a Risk-Based Approach in Distributing Urban Area Se
          * [5]Fiscal Year 2006 Grant Process
          * [6]Fiscal Year 2007 Process

     * [7]DHS's Use of a Risk Management Approach for Transportation S
     * [8]DHS's Progress in Using a Risk Management Approach in Making

          * [9]Coast Guard Progress Reflects Historical Focus on Risk Manag
          * [10]ODP's Progress in Risk Management Reflected Its More Recent
          * [11]Lack of IAIP Progress in Risk Management Reflects In Part It

     * [12]DHS Use of Risk Management in Making Investments in Other Mi
     * [13]DHS Has Not Provided Guidance for a Coordinated Risk Managem

          * [14]DHS Has Identified the Need for a Risk-based Approach, but E
          * [15]Over the Long-Term, More Work Remains to Be Done in Carrying

     * [16]Concluding Observations
     * [17]Contact and Staff Acknowledgments
     * [18]GAO's Mission
     * [19]Obtaining Copies of GAO Reports and Testimony

          * [20]Order by Mail or Phone

     * [21]To Report Fraud, Waste, and Abuse in Federal Programs
     * [22]Congressional Relations
     * [23]Public Affairs

Testimony before the Subcommittee on Homeland Security, Committee on
Appropriations, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EST

Wednesday, February 7, 2007

HOMELAND SECURITY

Applying Risk Management Principles to Guide Federal Investments

Statement of William O. Jenkins, Jr., Director Homeland Security and
Justice Issues

GAO-07-386T

Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to participate in today's hearing to discuss
the Department of Homeland Security's (DHS) efforts to apply risk
management principles to its investments in homeland security. The
terrorist attacks of September 11, 2001, introduced our nation to threats
posed by enemies very different from those the nation has faced
before--terrorists such as al Qaeda, willing and able to attack us in our
cities and homes. These new enemies used tactics designed to take
advantage of our nation's vulnerabilities, many of which reflect our
relatively open society and individual freedoms. The consequences of those
attacks have been far reaching and unprecedented. In addition, events such
as the tsunami that struck Indonesia and Sri Lanka, and Hurricanes Katrina
and Rita reminded our nation of the need to consider all potential
risks--natural, accidental, and man-made. Assessing and responding to
these threats, vulnerabilities, and consequences are the fundamental
elements of a risk management approach.1 While simple to state in
principal, applying risk management is difficult in practice, in part
because assessing threats is an uncertain process due to limited
historical data on which to assess the probability of various types of
risk. A risk management approach entails a continuous process of
mitigating risk through a series of actions, including setting strategic
goals and objectives, assessing risk, evaluating alternatives, selecting
initiatives to undertake, and implementing and monitoring those
initiatives.

In the years since the 9/11 attacks, the nation has begun confronting the
nation's risks at the federal, state, local, and private levels. At home,
the Congress enacted legislation creating DHS and strengthening other
security measures in law enforcement and border and transportation
security. Since September 11, 2001, and the subsequent creation of DHS,
the federal government has provided the department with more than $130
billion in budget authority to make investments in homeland security.
However, as we have reported, these investments have not been guided by a
clear risk-based strategic plan that applies risk management principles.

As the Comptroller General and the Secretary of DHS have previously
testified, we cannot afford to protect everything against all
threats--choices must be made about how best to allocate available
resources given the risks we face. While risk-based allocation
decisionmaking is still evolving, GAO has proposed a systematic risk
management approach for allocating resources that reflects an assessment
of threats, vulnerabilities, and the potential consequences of terrorist
attacks and other risks. In assessing the challenges faced by the nation
for the 21st Century, the Comptroller General has asked the question,
"What criteria should be used to target federal funding for homeland
security in order to maximize results and mitigate risk within available
resource levels?"

1GAO, Homeland Security: A Risk Management Approach Can Guide Preparedness
Efforts, [24]GAO-02-208T (Washington, D.C.: Oct. 31, 2001).

Today, I am here to discuss the extent to which DHS has taken steps to
apply risk management principles to target federal funding for homeland
security investments (1) in making homeland security grant allocations,
(2) in funding transportation security enhancements, (3) in funding port
security enhancements, (4) in other DHS mission areas, and (5) at a
strategic level across the department.

My comments are based on GAO's historical body of work on risk management
principles, including:

           o Strategic Budgeting: Risk Management Principles Can Help DHS
           Allocate Resources to Highest Priorities, [25]GAO-05-357T ,
           February 15, 2005; and
           o Homeland Security: A Risk Management Approach Can Guide
           Preparedness Efforts, [26]GAO-02-208T , October 31, 2001.

In addition, my testimony draws on issued GAO reports and testimonies
addressing DHS's use of risk management to make homeland security
investments in specific mission areas, for example:

           o Homeland Security Grants: Observations on Process DHS Used to
           Allocate Funds to Selected Urban Areas, [27]GAO-07-381R , February
           7, 2007;
           o Passenger Rail Security Enhanced Federal Leadership Needed to
           Prioritize and Guide Security Efforts, [28]GAO-07-225T , January
           18, 2007; and
           o Risk Management: Further Refinements Needed to Assess Risks and
           Prioritize Protective Measures at Ports and Other Critical
           Infrastructure, [29]GAO-06-91 , December 15, 2005.

This work was conducted according to generally accepted government
auditing standards.

Summary

Risk management, a strategy for helping policymakers make decisions about
assessing risk, allocating resources, and taking actions under conditions
of uncertainty, has been endorsed by Congress, the President, and
Secretary of DHS as a way to strengthen the nation against possible
terrorist attacks. DHS has called for using risk-based approaches to
prioritize its resource investments, and for developing plans and
allocating resources in a way that balances security and freedom. The
purpose of risk management is not to eliminate all risks; that is an
impossible task. Rather, given limited resources, risk management is a
structured means of making informed trade-offs and choices about how to
use available resources effectively and monitoring the effect of those
choices. Risk management is a continuous process. It includes the
assessment of threats, vulnerabilities, and consequences, with actions
taken to reduce or eliminate one or more of these elements of risk. Risk
management includes a feedback loop that continually incorporates new
information, such as changing threats or the effect of actions taken to
reduce or eliminate identified threats, vulnerabilities, and/or
consequences. Thus, risk is not a static concept. Because we have
imperfect information for assessing risks, there is a degree of
uncertainty in the information used for risk assessments (e.g., what the
threats are and how likely are they to be realized). As a result, it is
inevitable that assumptions and policy judgments must be used in risk
analysis and management. It is important that key decisionmakers
understand the basis for those assumptions and policy judgments and their
effect on the results of the risk analysis and the resource decisions
based on that analysis. Full adoption of a risk management framework is
essential for DHS to assess risk by determining which elements of risk
should be addressed in what ways within available resources. A risk
management approach can also inform decisions on setting relative homeland
security priorities and making spending decisions. To do so, DHS must
carefully weigh the benefit of homeland security endeavors and allocate
resources where the benefit of reducing risk is worth the additional cost.
The results of DHS risk management efforts in specific areas varies.

Grant Allocations: Today, we issued a report, listed above, on DHS's use
of risk assessments in distributing the Urban Area Security Initiative
(UASI) grants. In that report, we describe how DHS's use of risk
management principles has evolved over 4 years of investing millions of
dollars at the state and local level to enhance homeland security. During
this period, DHS has provided about $14 billion in federal funding to
states, localities, and territories through its grants under the Homeland
Security Grant Program (HSGP).2 From fiscal year 2003 through 2005, DHS
used an approach for assessing risk based largely on indicators such as
population density combined with threat assessments. For fiscal year 2006,
DHS adopted a more sophisticated risk assessment approach to determine
both (1) which UASI areas were eligible for funding, based on their
potential risk relative to other areas, and (2) in conjunction with a new
effectiveness assessment, the amount of funds awarded to eligible areas.
As described by DHS officials, the fiscal year 2007 grant process included
substantial changes to the 2006 risk assessment model, simplifying its
structure, reducing the number of variables considered, and incorporating
the intelligence community's assessment of threats for all candidate urban
areas, which was used to assign the areas to one of four tiers, according
to their relative threat, with Tier I being those at highest threat. In
fiscal years 2006 and 2007, the risk assessment process has been used to
assess threat, vulnerability, and the consequences of various types of
successful attacks for each urban area assessed. One difference in 2007 is
that DHS considered most areas of the country equally vulnerable to
attack, given the freedom of movement within the United States. It focused
its analysis on the expected impact and consequences of successful attacks
occurring in specific areas of the country, given their population,
population density, and assets. The risk assessment process is not
perfect, is evolving, and of necessity involves professional judgments,
such as assigning the weights to be used for specific factors in the risk
assessment model. Although DHS has made progress in developing a method of
assessing relative risk among urban areas, DHS officials have said that
they cannot yet assess how effective the actual investments from grant
funds are in enhancing preparedness and mitigating risk because they do
not yet have the metrics necessary to do so.

Transportation Security: Regarding the use of risk management approaches
to guide investments in transportation security, we reported last month
that DHS and the Transportation Security Administration (TSA) have taken
steps to apply risk management principles to all modes of transportation
with varying degrees of progress. However, our work for that report also
showed that both DHS and TSA should take additional steps to help ensure
that the risk management efforts under way clearly and effectively
identify priority areas for security-related investments in rail and other
transportation modes. TSA has not yet completed its methodology for
determining how the results of threat, vulnerability, and criticality (the
severity of the consequences that may follow a successful attack)
assessments will be used to identify and prioritize risks to passenger
rail and other transportation sectors, including air cargo, general
aviation, and commercial airports. Until the overall risk to the entire
transportation sector is identified, TSA will not be able to determine
where and how to target limited resources to achieve the greatest security
gains. Once risk assessments have been completed, it will be critical to
be able to compare assessment results across all transportation modes and
make informed, risk-based investment trade-offs. It is important that DHS
complete its framework to help ensure that risks to all sectors can be
analyzed and compared in a consistent way.

2Prior to fiscal year 2003, funding to urban areas was provided under the
Nunn-Lugar-Domenici Domestic Preparedness Program, which was administered
by the Department of Defense starting in fiscal year 1997, and later the
Department of Justice during fiscal years 2001 and 2002. Other grants
under the HSGP include the State Homeland Security Program, Law
Enforcement Terrorism Prevention Program, and Citizen Corps Program, among
others.

Port Security: In 2005, we reported on the risk management approaches used
by three DHS components responsible for port security and critical
infrastructure --the Coast Guard and two other DHS components that were
within the Office for Domestic Preparedness (ODP) and the Information
Analysis and Infrastructure Protection Directorate (IAIP) prior to DHS's
August 2005 Second-Stage Review and departmental reorganization. We found
that the Coast Guard had made the most progress in establishing a
foundation for using a risk management approach; its next challenge was to
further refine and enhance its approach. Specifically, we noted that the
Coast Guard had made the greatest progress in conducting risk
assessments--that is, evaluating individual threats, the degree of
vulnerability, and the consequences of a successful attack. These
assessments, however, were limited in their reliability and completeness,
and we concluded that better coordination would be needed with the
intelligence community so that analysts could develop models that better
assess the relative probability of various threat scenarios. Our report
also noted that ODP had made progress in applying risk management to the
port security grant program, but like the Coast Guard, it also faced
challenges across all phases of the risk management framework. For
example, ODP had set broad risk management goals and had placed more
emphasis on using risk-based data in its assessments, but at the time, it
lacked performance measures showing what specific outcomes the program
aimed to achieve and it still faced challenges in such matters as
comparing grant applications across ports. Finally, IAIP--which had the
broadest risk management responsibilities of the three components and
faced the greatest challenges at the time of our review--had made the
least progress in carrying out its complex risk management activities. Its
efforts were aligned with high-level strategic goals, but ways to measure
performance in achieving these goals were not yet developed. We found IAIP
was not as far along as ODP and the Coast Guard in conducting risk
assessments, and while IAIP provided input to ODP for its risk assessment
efforts, IAIP's risk assessment responsibilities spanned much broader
sectors of the nation's infrastructure than seaports alone, making its
assessment activities more difficult.3

Other mission areas: We have also assessed DHS's risk management efforts
across a number of other mission areas in the years since the Department
was established--including border security, immigration enforcement,
immigration services, critical infrastructure protection, and science and
technology--and found varying degrees of consideration and application of
risk management principles in DHS's investments in homeland security. For
example, we identified several problems with the process DHS uses to
assess the risks posed by each of the visa waiver countries' continued
participation in the program and concluded in a 2006 report that DHS had
not taken critical steps to mitigate the risk of the use of stolen
passports from visa waiver countries. In the area of immigration
enforcement, we recommended in 2006 that DHS conduct comprehensive threat,
vulnerability, and consequence risk assessments of the customs and
immigration systems to identify the types of violations with the highest
probability of occurrence and most significant consequences in order to
guide resource allocation. Regarding immigration services, we reported in
2006 that United States Citizenship and Immigration Services had not yet
developed a comprehensive risk management approach to identify the types
of immigration benefits that are most vulnerable to fraud and the
consequences of their exploitation. In terms of critical infrastructure,
we reported in October 2006 that DHS guidance does not require
sector-specific critical infrastructure protection plans to address how
the risk assessments are being performed or how the most critical assets
are being protected. We have also assessed DHS's efforts to protect
critical information systems infrastructure and reported in September 2006
that DHS had initiated efforts to fulfill 13 key cybersecurity
responsibilities, but it had not fully addressed any of them. We have made
numerous recommendations in this area over the last several years,
including several which focus on the need to conduct threat and
vulnerability assessments, develop a strategic analysis and warning
capability for identifying potential cyber attacks, and protect
infrastructure control systems. Finally, in the area of science and
technology, we recommended in 2004 that DHS complete strategic plans for
transportation security research and development programs and conduct risk
assessments for all modes of transportation to guide research and
development investment decisions. These and other related reports are
listed in appendix I.

3There are 17 sectors identified in the Interim National Infrastructure
Protection Plan: agriculture, public health and healthcare, drinking water
and wastewater treatment systems, energy, banking and finance, national
monuments and icons, defense industrial base, information technology,
telecommunications, chemical, transportation systems, emergency services,
postal and shipping, dams, government facilities, commercial facilities,
and nuclear reactors, materials, and waste.

Strategic Application of Risk Management Principles: Although DHS has made
varying degrees of progress in developing risk assessments and risk
management approaches for specific programs, it has not comprehensively
implemented a risk management approach across the department as a whole--a
difficult task. Homeland Security Presidential Directive 7 (HSPD-7)
directed the Secretary of the Department of Homeland Security (DHS) to
establish uniform policies, approaches, guidelines, and methodologies
integrating federal infrastructure protection and risk management
activities. However, no further direction or guidance as to the course of
action has been forthcoming. As our 2006 report on risk management at
ports and other critical infrastructure concluded, as DHS's individual
components begin to mature in their risk management efforts, the need for
consistency and coherence becomes even greater. Without it, the prospects
increase for efforts to fragment, clash, and work at cross purposes.
Efforts to establish guidance to coordinate a risk-based approach across
DHS components has been hampered by organizational restructuring. The
challenges that remain are substantial and will take time, leadership, and
attention to resolve. This is particularly true when risk management is
viewed strategically--that is with a view that goes beyond assessing what
the risks are, to the integration of risk into annual budget and program
review cycles.

Background

Risk management has been widely practiced for years in areas such as
insurance, construction, and finance. By comparison, its application in
homeland security is relatively new--much of it coming in the wake of the
terrorist attacks of September 11--and it is a difficult task with little
precedent. The goals for using it in homeland security include informing
decisions on ways to reduce the likelihood that an adverse event will
occur, and mitigate the negative impact of and ensure a speedy recovery
from those that do. Achieving these goals involves making decisions about
what the nation's homeland security priorities should be--for example,
what the relative security priorities should be among seaports, airports,
and rail--and basing spending decisions on where scarce resources will do
the most good at narrowing gaps in security.

Homeland security is a broad term with connotations resulting from the
September 11 attacks and other connotations resonating from the disaster
created by Hurricane Katrina in August 2005. Risk management has
applications for deliberate attacks of terror and natural disasters, such
as hurricanes and earthquakes. My statement today examines the approach
used by DHS to deal with both of these areas.

Risk management has received widespread support as a tool that can help
inform decisions on how to protect the homeland. The Homeland Security Act
of 2002 requires DHS to carry out a comprehensive assessment of risk
related to vulnerabilities of critical infrastructure and key resources,
notably (1) the risk posed by different forms of terrorist attacks, (2)
the probability that different forms of an attack might succeed, and (3)
the feasibility and efficacy of countermeasures to deter or prevent such
attacks.4 Two congressionally chartered commissions--the 9/11 Commission
and the Gilmore Commission--support the use of data on risks to help
inform resource allocation decisions. The President has issued policies
directing the heads of seven major departments or agencies to assess
risks. These policies have made DHS responsible for the national effort at
protecting critical infrastructure and they call on DHS to establish
uniform policies, approaches, guidelines, and methodologies for
integrating risk management within and across federal departments and
agencies. In addition, risk management is one of the target capabilities
DHS has established to measure state and local emergency preparedness and
make homeland security investments in achieving the National Preparedness
Goal. DHS's "Target Capabilities List" identifies risk management as one
of four common capabilities for incident management--prevention,
protection, response and recovery--for major events.

While there is widespread support for the use of risk management in
homeland security programs, doing so is a complex task that has few
precedents and until recently, little specific guidance. To provide a
basis for examining efforts at carrying out risk management, we developed
a framework for risk management based on best practices and other
criteria. The framework is divided into five phases: (1) setting strategic
goals and objectives, and determining constraints; (2) assessing the
risks; (3) evaluating alternatives for addressing these risks; (4)
selecting the appropriate alternatives; and (5) implementing the
alternatives and monitoring the progress made and the results achieved
(see figure 1). We used this framework to examine many of the programs
that I discuss later in this statement. The application of risk management
to homeland security is relatively new and the framework will likely
evolve as processes mature and lessons are learned.

46 U.S.C. 201(d)(1), (2).

Figure 1: Risk Management Framework

Guidance is also important when agencies integrate a concern for risk into
the annual cycle of program and budget review. Doing so within an agency
is a difficult task in that traditional ways of reviewing budgets and
programs often rely on program data that call for continuing or expanding
a program without examining the relative risks that are addressed with the
funds that are expended. Shifting organizations toward this nexus of using
risk-based data as part of annual management review cycles will take time,
attention, and leadership. Even in agencies where much progress has been
made in developing risk management techniques, integrating disparate
systems such as risk management with budget and program management remains
a long-term challenge.

Risk management approaches have been applied to DHS's investments in state
and local homeland security through the Homeland Security Grant Program
(HSGP). The HSGP includes the Urban Area Security Initiative (UASI), the
State Homeland Security Program, Law Enforcement Terrorism Prevention
Program, and Citizen Corps Program. In fiscal year 2007, DHS has been
appropriated funds to provide over $1.6 billion in federal funding to
states, localities, and territories through the HSGP to prevent, protect
against, respond to, and recover from acts of terrorism or other
catastrophic events.

DHS components also use risk management principles to varying degrees to
allocate funding to implement their homeland security missions. Key
homeland security missions and the associated departmental agencies and
organizations include

           o Emergency preparedness and response: The Federal Emergency
           Management Agency (FEMA) prepares the nation for all hazards and
           coordinates the federal response and recovery efforts following
           any incident that requires federal support to state and local
           emergency responders. Under the statutorily mandated FEMA
           reorganization that is to take effect by March 31, 2007, FEMA is
           to include the Office of Grants and Training, which is responsible
           for allocating homeland security grants to states and localities,
           including the UASI and State Homeland Security grants. In
           addition, FEMA will be the responsible for implementing the
           National Preparedness Goal and other programs that are designed to
           enhance the nation's prevention, protection, response and recovery
           capabilities.
           o Transportation Security: The Transportation Security
           Administration (TSA) is responsible for security for all modes of
           transportation and, while TSA's efforts have historically focused
           on aviation security due to the events of 9/11, increasing
           attention has been paid to surface transportation security as a
           result of more recent international terrorist attacks.
           o Maritime security: The United States Coast Guard (USCG) is the
           lead federal agency for maritime homeland security. Key objectives
           of the nation's maritime security strategy are to prevent
           terrorist attacks and criminal or hostile acts, protect
           maritime-related population centers and critical infrastructures,
           minimize damage and expedite recovery, and safeguard the ocean and
           its resources.5

5Department of Homeland Security, The National Strategy for Maritime
Security, September 2005.

           o Border Security: U.S. Customs and Border Protection (CBP) was
           created to protect the nation's borders in order to prevent
           terrorists and terrorist weapons from entering or exiting the
           United States while facilitating the flow of legitimate trade and
           travel.
           o Immigration Enforcement: Immigration and Customs Enforcement
           (ICE) was established to enforce immigration and customs laws and
           to protect the United States against terrorist attacks.
           o Immigration Services: U.S. Citizenship and Immigration Services
           (USCIS) is responsible for the administration of immigration and
           naturalization adjudication functions and establishing immigration
           services policies and priorities. USCIS provides immigration
           benefits to people who are entitled to stay in the United States
           on a temporary or permanent basis.
           o Critical infrastructure and key assets protection: The
           Directorate for Preparedness6 is responsible for establishing
           uniform policies, approaches, guidelines, and methodologies to
           help ensure that critical infrastructure is protected, and using a
           risk management approach to coordinate protection efforts. The
           Directorate works with state, local, and private-sector partners
           to identify threats, determine vulnerabilities, and target
           resources where risk is greatest, thereby safeguarding our
           borders, seaports, bridges and highways, and critical information
           systems. The National Cyber Security Division is charged with
           identifying, analyzing, and reducing cyber threats and
           vulnerabilities, disseminating threat warning information,
           coordinating incident response, and providing technical assistance
           in continuity of operations and recovery planning.
           o Science and Technology: The Directorate for Science and
           Technology (S&T Directorate) is the primary research and
           development arm of DHS. Its mission is to provide federal, state
           and local officials with the technology and capabilities to
           protect the homeland.

Since 2004, Congress has appropriated over $100 billion for DHS's homeland
security efforts. For example, Congress has appropriated more than $30
billion in fiscal years 2006 and 2007 for some of the key components and
agencies GAO has reviewed, as shown in table 1.

6Under the DHS reorganization that is to take effect on March 31, 2007,
the Directorate for Preparedness is to become the National Protection and
Program Directorate whose responsibilities are to include both
infrastructure protection and risk management and analysis.

Table 1: DHS Appropriation Amounts for selected components for Fiscal
Years 2006 and 2007 (Dollars in Millions)

                                          Fiscal year 2006   Fiscal year 2007 
DHS component/agency                              total              total 
Citizenship and Immigration                        $114               $182 
Services                                                                   
Customs and Border Protection                     6,749              8,035 
Federal Emergency Management Agency               8,986              2,511 
Immigration and Customs Enforcement               3,483              3,958 
Preparedness Directorate                          4,056              4,018 
Science and Technology Directorate                1,487                973 
Transportation Security                           3,866              3,628 
Administration                                                             
U.S. Coast Guard                                  8,056              8,316 
Total for selected components                   $36,797           $31, 621 

Source: Congressional Research Service, RL33428, Homeland Security
Department: FY2007 Appropriations (Washington, D.C.; Nov. 17, 2006).

As the Comptroller General has repeatedly stated, our nation's fiscal
policy is on an unsustainable course. Long-term budget simulations by GAO,
the Congressional Budget Office (CBO), and others show that, over the long
term, we face a large and growing structural deficit due primarily to
known demographic trends and rising health care costs. Continuing on this
unsustainable fiscal path will gradually erode, if not suddenly damage,
our economy, our standard of living, and ultimately our national security.
DHS is responsible for ensuring that the nation's annual investments of
billions of dollars are targeted to the most efficient and effective uses
using a sound, comprehensive risk management approach.

DHS's Use of a Risk Management Approach to Guide Investments through the
Homeland Security Grant Allocation Process Is Evolving

DHS Uses a Risk-Based Approach in Distributing Urban Area Security Initiative
Grants

Today, we issued a report on DHS's use of risk management in distributing
the Urban Area Security Initiative (UASI) grants. For fiscal years 2006
and 2007, DHS has used risk assessments to identify urban areas that faced
the greatest potential risk, and were therefore eligible to apply for the
UASI grant, and based the amount of awards to all eligible areas primarily
on the outcomes of the risk assessment and a new effectiveness assessment.
Starting in fiscal year 2006, DHS made several changes to the grant
allocation process, including modifying its risk assessment methodology,
and introducing an assessment of the anticipated effectiveness of
investments. DHS combined the outcomes of these two assessments to make
funding decisions (see fig. 2.)

Figure 2: Overview of DHS's UASI Grant Determination Process in Fiscal
Year 2006

DHS used different risk assessment methodologies for the 2006 and 2007
UASI grant process, reflecting the evolving nature of its risk assessment
approach. It is important to note that our understanding of the process is
based principally on DHS officials' description of their process,
including briefings, and limited documentation on the details on the
actual data used and the methodology's application.

Fiscal Year 2006 Grant Process

For fiscal year 2006, DHS's risk assessment included the three components
we have identified as essential elements of an effective risk management
approach--threat, vulnerability, and consequences--to estimate the
relative risk of successful terrorist attacks to urban areas. DHS assessed
risk from two perspectives, based on specific locations (asset-based) and
based on areas of the country (geographic risk). To estimate asset risk,
DHS assessed the intent and capabilities of an adversary to successfully
attack an asset type, such as a chemical plant, dam, or commercial
airport, using different attack scenarios (e.g., nuclear explosion or
vehicle-borne improvised explosive device). DHS assessed geographic risk
by approximating the threat, vulnerability, and consequences considering
general geographic characteristics--mostly independent of the area's
assets--using counts of data, such as reports of suspicious incidents, the
number of visitors from countries of interest, and population. In DHS's
view, the estimates of asset-based risk and geographic risk are
complementary and provided a "micro- and macro-" perspective of risk,
respectively.

Because of data limitations and the inherent uncertainties in risk
assessment, DHS officials had to apply policy and analytic judgments. For
example, DHS made judgments about how to weight asset and geographic risk,
how to identify the urban boundaries it used to estimate risk, and what
data were sufficient to use in its risk estimates. DHS used this risk
assessment to identify the eligibility cut point, which determined the
number of urban areas that could apply for UASI funding in fiscal year
2006 and defined high-risk urban areas. According to DHS officials, the
DHS Secretary selected a point that resulted in 35 eligible urban areas,
which accounted for 85 percent of total related risk.

DHS also implemented a competitive process to evaluate the anticipated
effectiveness of proposed homeland security investments by using peer
reviewers--homeland security professionals from fields such as law
enforcement and fire service. The peer reviewers scored the investments
using criteria, such as regionalization, sustainability, and impact. For
fiscal year 2006, DHS required urban areas to submit investment
justifications as part of their grant application to assess the
anticipated effectiveness of the various risk mitigation investments urban
areas proposed. Reviewers on each panel assigned scores for six investment
justifications, which were averaged to determine a final effectiveness
score for each urban area. The criteria reviewers used to score the
investment justifications included:

           o relevance to the interim National Preparedness Goal,
           o relevance to state and local homeland security plans,
           o anticipated impact,
           o sustainability, and
           o regionalism.

The risk and effectiveness scores did not automatically translate into
funding amounts, but rather, the scores were used in conjunction with
final decisions on allocation amounts made by the Secretary of Homeland
Security. To prioritize the allocation of funds DHS used the combined
scores to assign eligible urban areas into four categories: Category
I--higher risk, higher effectiveness; Category II--higher risk, lower
effectiveness; Category III--lower risk, higher effectiveness; and
Category IV--lower risk, lower effectiveness. DHS officials gave Category
I the highest funding priority and Category IV the lowest funding
priority. For fiscal year 2006, once the amounts for each category were
decided, DHS used a formula to determine the grant award for each urban
area, giving the risk score a weight of 2/3 and the effectiveness score a
weight of 1/3. The final funding decision resulted in 70 percent of UASI
funding going to "higher risk" candidates in Categories I and II. DHS
extended eligibility to an additional 11 "sustainment" urban areas that
participated in the program in fiscal year 2005, but did not make the
eligibility threshold in the 2006 risk assessment process.

One concern we identified during our review was that DHS had limited
knowledge of how changes to its risk assessment methods, such as adding
asset types and using additional or different data sources, affected its
risk estimates. As a result, DHS had a limited understanding of the
effects of the judgments made in estimating risk that influenced
eligibility and allocation outcomes in fiscal year 2006. DHS leadership
could make more informed policy decisions if provided with alternative
risk estimates and funding allocations resulting from analyses of varying
data, judgments, and assumptions. The Office of Management and Budget
(OMB) offers guidelines for treatment of uncertainty in a number of
applications, including the analysis of government investments and
programs. These guidelines call for the use of sensitivity analysis to
gauge what effects key sources of uncertainty have on outcomes. According
to OMB, assumptions should be varied and outcomes recomputed to determine
how sensitive analytical results are to such changes.7 By applying these
guidelines decisionmakers are better informed about how sensitive outcomes
are to key sources of uncertainty. While DHS has indicated that it has
performed some analyses, at this date it has not provided us with details
on the extent of these analyses, how they were used, or how much they
cost.

Fiscal Year 2007 Process

The fiscal year 2007 process, as described by DHS officials, represents a
continuing evolution in DHS's approach to its risk methodology for grant
allocation. DHS officials said they will to continue to use the risk and
effectiveness assessments to inform final funding decisions. For fiscal
year 2007, DHS officials described changes that simplified the risk
methodology, integrated the separate analyses for asset-based and
geographic-based risk, and included more sensitivity analysis in
determining what the final results of its risk analysis should be. DHS
officials said the primary goal was to make the process more transparent
and more easily understood, focusing on key variables and incorporating
comments from a variety of stakeholders regarding the fiscal year 2006
process. For the 2007 grant cycle, DHS no longer estimated asset-based and
geographic risk separately, considered most areas of the country equally
vulnerable to a terrorist attack, given freedom of movement within the
nation, and focused on the seriousness of the consequences of a successful
terrorist attack. As shown in figure 3, the maximum risk score possible
for a given area was 100. Threat to people and places accounted for a
maximum 20 points, and vulnerability and consequences for a maximum 80
points. In the fiscal year 2007 process the intelligence community for the
first time assessed threat information for multiple years (generally, from
September 11, 2001, forward) for all candidate urban areas and gave the
Office of Grants and Training a list that grouped these areas into one of
four tiers. Tier I included those at highest threat, relative to the other
areas, and tier IV included those at lowest threat relative to the others.

7Office of Management and Budget, Circular A-94: Guidelines and Discount
Rates for Benefit-Cost Analysis of Federal Programs, (Washington, D.C.:
October 29, 1992)10-11.

Figure 3: DHS's UASI Risk Assessment Methodology for Fiscal Year 2007

Source: Department of Homeland Security, Office of Grants and Training.

Note: DIB is Defense Industrial Base.

According to DHS officials, the greatest concern was the impact of an
attack on people, including the economic and health impacts of an attack.
Also of concern was the quantity and nature of nationally critical
infrastructure within each of the 168 urban areas assessed. In assessing
threat, vulnerability and consequences, DHS specifically wanted to capture
key land and sea points of entry into the United States, and the location
of defense industrial base facilities and nationally critical
infrastructure facilities. The approximately 2,100 critical infrastructure
assets included in the risk assessment were selected on the basis of
analysis by DHS infrastructure protection analysts, sector specific
agencies, and the states. These assets included some 129 defense
industrial base assets. Assets were grouped into two tiers: (1) those that
if attacked could cause major national or regional impacts similar to
those from Hurricane Katrina or 9/11, and (2) highly consequential assets
with potential national or regional impacts if attacked. Tier II included
about 660 assets identified by state partners and validated by sector
specific agencies. On the basis of Office of Infrastructure Protection
analysis, Tier I assets were weighted using an average value three times
as great as Tier II assets.

Throughout this process, a number of policy judgments were necessary,
including what variables to include in the assessment, the points to be
assigned to each major variable (e.g., threat, the population index,
economic index, national infrastructure index, and the national security
index) with an eye toward how these judgments affected outcomes. DHS
officials noted that such judgments were the subject of extensive
discussions, including among high-level officials. In addition, DHS
officials said that they conducted more sensitivity analyses than was
possible in the fiscal year 2006 process. DHS officials noted that because
expert judgment was applied to the data and fewer variables were used in
the current model, it was possible to track the effect of different
assumptions and values on the ranking of individual urban areas. However,
we have limited understanding of the sensitivity analyses that DHS
conducted for the fiscal year 2006 and 2007 risk assessments because DHS
has not provided us documentation on what analyses were conducted, how
they were conducted, how they were used, and how they affected the final
risk assessment scores and relative rankings.

Finally, DHS officials said that the effectiveness assessment process will
be consistent with last year's process, although enhancements will be made
based on feedback received; however, no final decision has been made on
the weights to be given to risk and effectiveness for the allocation of
the fiscal year 2007 grants. One modification to the effectiveness
assessment will provide urban areas the opportunity to include investments
that involve multiple regions. This can potentially earn an extra 5
percent to 8 percent on their final score. In addition, DHS may convene
separate peer review panels to assess proposed investments for these
multi-regional investments. DHS has also offered applicants a mid-year
review where applicants can submit their draft applications to DHS to
obtain comments, guidance, or address questions that the grant may pose
(such as little or unclear information on the anticipated impact of the
investment on preparedness). As in the 2006 process, DHS officials have
said that they cannot assess how effective these investments, once made,
are in mitigating risk.

DHS's Use of a Risk Management Approach for Transportation Security Investments
Can Be Strengthened

Our past work examining TSA found that this DHS component has undertaken
numerous initiatives to strengthen transportation security, particularly
in aviation, and their efforts should be commended. However, we found that
TSA could strengthen its risk-based efforts to include conducting
systematic analysis to prioritize its security investments.8 Although TSA
has implemented risk-based efforts with many of its programs and
initiatives, we have found--because of circumstances beyond TSA's control
and a lack of planning--that TSA has not always conducted the systematic
analysis needed to inform its decision-making processes and to prioritize
security enhancements. For example, we found that TSA has not always
conducted needed assessments of threats, vulnerabilities, and criticality
in allocating its resources, and has not fully assessed alternatives that
could be pursued to achieve efficiencies and potentially enhance security.
Such planning could guide TSA in moving forward in its allocation of
transportation resources both within aviation and across all
transportation modes.9

Much of our work in the area of transportation security has focused on
aviation and rail security, and our reviews have identified the need for a
greater focus on, and application of, a risk management approach to guide
investments in enhancing air cargo, general aviation, commercial airport,
and passenger rail transportation security.

           o Air Cargo Security: In October 2005, we reported that TSA had
           taken initial steps toward applying a risk-based management
           approach to address air cargo security.10 In that report, we noted
           that, in November 2003, TSA completed an air cargo strategic plan
           that outlined a threat-based, risk management approach to secure
           the air cargo system by, among other things, targeting elevated
           risk cargo for inspection. TSA also completed an updated threat
           assessment in April 2005. However, we found that TSA had not yet
           established a methodology and schedule for completing assessments
           of air cargo vulnerabilities and critical assets--two crucial
           elements of a risk-based management approach without which TSA may
           not be able to appropriately focus its resources on the most
           critical security needs.

           o General Aviation Security: In reporting on efforts to enhance
           general aviation security in 2004, we found that TSA had not
           conducted an overall systematic assessment of threats to, or
           vulnerabilities of, general aviation to determine how to better
           prepare against terrorist threats.11 TSA had conducted limited
           vulnerability assessments at selected general aviation airports
           based on specific security concerns or requests by airport
           officials. TSA reported its intentions to implement a risk
           management approach to better assess threats and vulnerabilities
           of general aviation aircraft and airports and, as part of this
           approach, was developing an outline vulnerability self-assessment
           tool to be completed by individual airport managers. However, we
           noted limitations to the use of the self-assessment tool, and TSA
           had not yet developed a plan with specific milestones to implement
           the assessment, thereby making it difficult to monitor the
           progress of its efforts.

           o Commercial Airport Access Control and Perimeter Security: In
           June 2004, we reported that TSA had not yet developed a plan to
           prioritize expenditures to ensure that funds provided have the
           greatest impact in improving the security of the commercial
           airport system. Through funding of a limited number of security
           enhancements, TSA had helped to improve perimeter and access
           control security at some airports. However, we concluded that,
           without a plan to consider airports' security needs
           systematically, TSA could not ensure that the most critical
           security needs of the commercial airport system were identified
           and addressed in a priority order.12 We will initiate work later
           this year to assess the steps TSA has taken to better prioritize
           its homeland security investments in this area.

           o Surface Transportation Security: As we reported last month,
           DHS's Office of Grants and Training has developed and conducted
           risk assessments of passenger rail systems to identify and protect
           rail assets that are vulnerable to attack, such as stations and
           bridges.13 TSA has also begun to conduct risk assessments,
           including a threat assessment of mass transit and passenger rail
           and assessments of individual critical rail assets. While TSA has
           begun to establish a methodology for determining how to analyze
           and characterize the risks identified, the agency has not
           completed a comprehensive risk assessment of the U.S. passenger
           rail system. Until TSA completes this effort, the agency will be
           limited in its ability to prioritize passenger rail assets and
           help guide security investment decisions about protecting them.
           Similarly, TSA has not yet conducted threat and vulnerability
           assessments of other surface transportation assets, which may
           adversely affect its ability to adopt a risk-based approach for
           prioritizing security initiatives within and across all
           transportation modes.

8GAO, Transportation Security: Systematic Planning Needed to Optimize
Resources, [30]GAO-05-824T (Washington, D.C.: June 29, 2005).

9GAO, Passenger Rail Security: Enhanced Federal Leadership Needed to
Prioritize and Guide Security Efforts, [31]GAO-06-181T (Washington, D.C.:
Oct. 20, 2005) p.12; Passenger Rail Security: Enhanced Federal Leadership
Needed to Prioritize and Guide Security Efforts [32]GAO-07-225T
(Washington, D.C.: Jan. 18, 2007).

10GAO, Aviation Security: Federal Action Needed to Strengthen Domestic Air
Cargo Security, [33]GAO-06-76 (Washington, D.C.: Nov. 2004).

11GAO, General Aviation Security: Increased Federal Oversight Is Needed,
but Continued Partnership with the Private Sector Is Critical to Long-Term
Success, [34]GAO-05-144 (Washington, D.C.: Nov. 2004.)

12 GAO, Aviation Security: Further Steps Needed to Strengthen the Security
of Commercial Airport Perimeters and Access Control, [35]GAO-04-728
(Washington D.C.: June 2004) 16,18.

13 GAO, Passenger Rail Security Enhanced Federal Leadership Needed to
Prioritize and Guide Security Efforts, [36]GAO-07-225T (Washington, D.C.:
Jan. 18, 2007).

DHS's Progress in Using a Risk Management Approach in Making Port Security
Investments Can Be Linked to Each of Three Component's Organizational Maturity
and Task Complexity

In December 2005, we reported that three DHS components responsible for
port security or infrastructure protection varied considerably in their
progress in developing a sound risk management framework for homeland
security.14 Our work reviewed the risk management approaches used by three
DHS components prior to DHS's Second Stage Review and departmental
reorganization:

           o the Coast Guard, the lead federal agency for the security of the
           nation's ports;
           o Office of Domestic Preparedness (ODP), the former DHS component
           responsible for administering federal homeland security assistance
           programs for states and localities, including the port security
           grant program, and
           o the Information Analysis and Infrastructure Protection
           Directorate (IAIP), the former DHS component responsible for,
           among other things, identifying and assessing current and future
           threats to the homeland, mapping those threats against known
           vulnerabilities, and offering advice on preventive and protective
           action. This DHS component was responsible for cataloging key
           critical infrastructure, then analyzing various characteristics to
           prioritize this infrastructure, including those located at ports,
           for the entire nation.15

We found at that time that the varied progress reflected, among other
things, each component's organizational maturity and the complexity of its
task (see table 2). The Coast Guard, which was furthest along, is the
component of longest standing, being created in 1915, while IAIP had came
into being with the creation of the Department of Homeland Security in
2003. We found that IAIP had made the least progress. This DHS component
was not only a new component but also has the most complex task:
addressing not just ports but all types of infrastructure. Those DHS
components that had a relatively robust methodology in place for assessing
risks at ports were the Coast Guard and, what was at the time the Office
for Domestic Preparedness (ODP), who awarded grants for port security
projects. IAIP was still developing its methodology and had several
setbacks in completing the task. We found that all three components had
much left to do. In particular, each component was limited in its ability
to compare and prioritize risks. The Coast Guard and ODP were able to do
so within a port but not between ports, and at that time, IAIP did not
demonstrate that it could compare and prioritize risks either within or
between all infrastructure sectors.

14 GAO, Risk Management: Further Refinements Needed to Assess Risks and
Prioritize Protective Measures at Ports and Other Critical Infrastructure,
[37]GAO-06-91 (Washington, D.C.; Dec. 15, 2006).

15 ODP and the Infrastructure Protection part of the former IAIP
Directorate are now components in the Preparedness Directorate.

Table 2: DHS Component Degree of Progress Implementing a Risk Management
Framework by Organization Characteristics and Complexity of Task

Progress in Risk Management Is Affected by Organizational Maturity and
Complexity of Risk Management Task
DHS component and      Organizational            Complexity of risk        
degree of progress     characteristics           management task           
Coast Guard: furthest  Long-standing component;  Difficult: must be able   
along in developing a  risk management activity  to prioritize risks not   
risk management        began before September 11 only within ports but     
framework              attacks                   among them                
Office for Domestic    Relatively new component  Difficult: for grant      
Preparedness: not as   transferred from          purposes, must be able to 
far along, but recent  Department of Justice to  prioritize risks not only 
steps are good         Department of Homeland    within ports but among    
                          Security in 2003          them                      
Information Analysis   New component established Extremely difficult: must 
and Infrastructure     with creation of          be able to prioritize     
Protection             Department of Homeland    risks not only among      
Directorate: least far Security                  ports but among all       
along                                            sectors of the nation's   
                                                    critical infrastructure   

Source: GAO.

Coast Guard Progress Reflects Historical Focus on Risk Management Efforts

The Coast Guard was furthest along among the three components, reflecting
in part where it stood in relationship to all three of these factors. It
had been at the task the longest of the three components, having begun
work on implementing risk management in its port security efforts
immediately after the September 11 attacks. The Coast Guard implemented a
port security risk assessment tool in November 2001, and by August 2002
(prior to the creation of DHS and the port security framework called for
under the Maritime Transportation Security Act of 2002), it had begun
security assessments at major U.S. ports. To a degree, these early efforts
were learning experiences that required changes, but the Coast Guard was
able to build on its early start. The Coast Guard also had the greatest
organizational stability of the three components. It moved into DHS as an
already established entity with an organizational culture spanning
decades, and its organization and mission were not significantly altered
by moving into DHS. Finally, with regard to the scope of its risk
management activities, the Coast Guard's work is specific to port
locations, where it has direct and primary responsibility for carrying out
security responsibilities. With its focus on ports, the Coast Guard does
not have to address a number of the critical infrastructure sectors laid
out in national preparedness policy, such as banking and finance,
information and technology, and public health. Even so, the Coast Guard's
experience to date shows that as the scope of activity widens, even within
a single sector, complexities develop. For example, the Coast Guard has
prioritized risks within individual ports, and it has actions under way to
assess risks across ports, but using this information to strategically
inform the annual program review and budget process will require further
attention.

ODP's Progress in Risk Management Reflected Its More Recent Initiation of
Efforts and Organizational Role

At the time of our review, ODP had made somewhat less progress than the
Coast Guard. Relative to the Coast Guard's progress, its progress
reflected a later start, an organization with much less institutional
maturity, and a different role from the Coast Guard's in that ODP provided
grant money rather than directly setting security policy. ODP was
transferred from the Department of Justice to the Department of Homeland
Security in 2003. While ODP's early grant approval efforts had some risk
management features in place, its main strides in risk management had come
in the procedures recently adopted for the fiscal year 2005 grants. In
moving toward risk management, ODP had found ways to allow information
from the Coast Guard and IAIP to inform its decision making. This is an
encouraging and important sign, because the success of risk management
efforts depends in part on the ability of agencies with security
responsibilities to share and use each others' data and expertise.
Although both the Coast Guard and the port security grant program
administered by ODP had port security as their focus, ODP's more limited
scope of responsibility also had an effect on its risk management efforts.
First, because ODP's role was to award grants that support federal
priorities in port security, its progress in risk management depended to a
degree on the progress made by other federal agencies in determining what
their own port security performance measures should be. Second, ODP's
funding priorities were subject to criteria other than risk, as the fiscal
year 2004 grant awards demonstrated. That year, after creating an initial
list of awardees based in part on risk, and without regard to ability to
pay, ODP extensively revised the list and awarded grants to entities
considered to have fewer funding alternatives.

Lack of IAIP Progress in Risk Management Reflects In Part Its Broader Focus

Of the three components, IAIP was the least far along in its risk
management efforts. All three factors have had an effect on this progress:
IAIP had been at its task for a relatively short time; it was a new
component; and relative to the Coast Guard and ODP, the scope of its
efforts was much broader and more difficult. IAIP was created under the
Homeland Security Act of 2002, giving the directorate little time to
acquire institutional maturity. In addition to taking on difficult tasks
like risk management, IAIP faced other institutional challenges, such as
establishing new management systems, developing sound human capital
practices, and integrating its efforts with those of the rest of DHS.
Further, the scope of its risk management activities extended well beyond
the port-focused activities of the Coast Guard or ODP. (At the time, IAIP
was responsible for conducting risk assessments for every critical
infrastructure segment in the nation.) As demonstrated by the experience
of its Risk Analysis and Management for Critical Asset Protection (RAMCAP)
methodology for comparing risk across sectors, IAIP remained challenged in
meeting that responsibility. Its lack of progress reflected the same
lesson that emerges from the Coast Guard's experience in trying to expand
the focus of risk assessments beyond a single port: the complexity of risk
management appears to grow exponentially as the focus expands beyond a
single location or single type of infrastructure. This complexity may help
explain IAIP's lack of progress, but IAIP was unable at that time to
provide adequate assurance to Congress or the country that the federal
government was in a position to effectively manage risk in national
security efforts. Steps have been small; by far, the biggest work is still
yet to come.

DHS Use of Risk Management in Making Investments in Other Mission Areas Varies
by Degree and Application

We have assessed DHS's risk management efforts across a number of other
mission areas in the 4 years since the department was
established--including border security, immigration enforcement,
immigration services, critical infrastructure protection, and science and
technology--and found varying degrees of consideration and application of
risk management principles in DHS's investments in homeland security.

Border Security: In 2006, as part of our work on border security, we
issued a report assessing how DHS manages the risks of the Visa Waiver
Program.16 The Visa Waiver Program enables citizens of 27 countries to
travel to the United States for tourism or business for 90 days or less
without obtaining a visa. While there are benefits to the program in terms
of facilitating travel for millions of people, inherent risks include
barriers to border inspectors conducting in-depth interviews of travelers
and the use of stolen passports from visa waiver countries. DHS had taken
some action to mitigate the program's risks. For example, it had
established a unit to conduct biennial reviews of the Visa Waiver Program
as mandated by Congress in 2002. Yet stakeholders were not consulted
during portions of the process, preparation for in-country site visits was
not consistent, and the final reports were untimely. Further, the
department had not established time frames and operating procedures
regarding timely stolen passport reporting--a program requirement since
2002. DHS also had not issued clear reporting guidelines to the program's
participating countries about reporting lost and stolen passport data.

Immigration Enforcement: In the area of immigration enforcement, we
reported in 2006 that, while ICE had taken some initial steps to introduce
principles of risk management into its operations, it had not conducted a
comprehensive risk assessment of the customs and immigration systems to
determine the greatest risks for exploitation, nor analyzed all relevant
data to inform the evaluation of alternatives and allow officials to make
risk-based resource allocation decisions.17 We recommended that ICE
conduct comprehensive risk assessments, including consideration of
threats, vulnerabilities, and consequences, of the customs and immigration
systems to identify the types of violations with the highest probability
of occurrence and most significant consequences in order to guide resource
allocation.

16GAO, Border Security: Stronger Actions Needed to Assess and Mitigate
Risks of the Visa Waiver Program, [38]GAO-06-854 (Washington, D.C.: July
2006).

17GAO, Homeland Security: Better Management Practices Could Enhance DHS's
Ability to Allocate Investigative Resources. [39]GAO-06-462T ,
(Washington, D.C.: March 2006).

Immigration Services: In 2006, we reported that USCIS had not yet
developed a comprehensive risk management approach to identify the types
of immigration benefits that are most vulnerable to fraud and the
consequences of their exploitation, monitored ongoing efforts to determine
needed policy and procedural changes to reduce immigration benefit fraud,
or sanctioned those who commit immigration benefit fraud to help deter
them from committing future fraudulent acts.18 We recommended that USCIS
implement additional internal controls and best practices to strengthen
its fraud control environment and that DHS develop a strategy for
implementing a sanctions program.

Critical Infrastructure: As we reported in October 2006, DHS issued a
National Infrastructure Protection Plan in June 2006 to serve as a road
map for how DHS and other relevant stakeholders should use risk management
principles to prioritize protection activities within and across sectors
in an integrated, coordinated fashion.19 However, we concluded that DHS
guidance does not require the plans to address how the sectors are
actually assessing risk and protecting their most critical assets. In
September 2006, we reported that DHS had initiated efforts to address its
responsibilities for enhancing the cybersecurity of information systems
that are a part of the nation's critical infrastructure but had not fully
addressed all 13 of its key responsibilities.20 For example, while DHS had
begun a variety of initiatives to fulfill its responsibility to develop an
integrated public/private plan for Internet recovery, these efforts were
not complete or comprehensive. Many of DHS's efforts lacked time frames
for completion and the relationships among its various initiatives were
not evident. We recommended that DHS (1) conduct threat and vulnerability
assessments, (2) develop a strategic analysis and warning capability for
identifying potential cyber attacks, (3) protect infrastructure control
systems, (4) enhance public/private information sharing, and (5)
facilitate recovery planning, including recovery of the Internet in case
of a major disruption.

18GAO, Immigration Benefits: Additional Controls and a Sanctions Strategy
Could Enhance DHS's Ability to Control Benefit Fraud, [40]GAO-06-259
(Washington, D.C.: March 2006).

19GAO, Critical Infrastructure Protection: Progress Coordinating
Government and Private Sector Efforts Varies by Sectors' Characteristics,
[41]GAO-07-39 (Washington, D.C.: Oct. 2006).

20GAO, Critical Infrastructure Protection: DHS Leadership Needed to
Enhance Cybersecurity [42]GAO-06-1087T (Washington, D.C.: Sept. 13, 2006).

Science and Technology: In the area of science and technology, we reported
in 2004 that DHS had not yet completed a strategic plan to identify
priorities, goals, objectives, and policies for the research and
development (R&D) of homeland security technologies.21 We recommended that
DHS complete a strategic R&D plan and ensure that this plan is integrated
with homeland security R&D efforts of other federal agencies; complete
strategic plans for transportation security research; and develop programs
and conduct risks assessments for all modes of transportation to guide
research and development investment decisions.

21 GAO, Homeland Security: DHS Needs a Strategy to Use DOE's Laboratories
for Research on Nuclear, Biological, and Chemical Detection and Response
Technologies, [43]GAO-04-653 (Washington, D.C.: May 2004).

DHS Has Not Provided Guidance for a Coordinated Risk Management Approach and
More Work Remains to be done in Carrying Out Such an Approach

DHS Has Identified the Need for a Risk-based Approach, but Efforts to Develop
Guidance to Coordinate Such an Approach Have Been Hampered by Organizational
Restructuring

The need for and difficulties associated with creating a coordinated,
coherent risk management approach to the nation's homeland security have
been widely acknowledged since the events of September 11, 2001, and the
creation of DHS. Yet, this general acknowledgment has not been accompanied
by the guidance necessary to make consistent use of risk management across
DHS. The National Strategy for Homeland Security and DHS's strategic plan
called for the use of risk-based decisions to prioritize DHS's resource
investments regarding homeland security related programs. Although the
Homeland Security Act and subsequent strategies call for the use of risk
management to protect the nation's critical infrastructure and key
resources, they did not define how this was to be accomplished. In
addition, Homeland Security Presidential Directive 7 (HSPD-7) directed the
Secretary of the Department of Homeland Security (DHS) to establish
uniform policies, approaches, guidelines, and methodologies integrating
federal infrastructure protection and risk management activities. However,
no further direction or guidance as to the course of action has been
forthcoming. As our 2006 report on risk management at ports and other
critical infrastructure concluded, as DHS's individual components begin to
mature in their risk management efforts, the need for consistency and
coherence becomes even greater. Without it, the prospects increase for
efforts to fragment, clash, and work at cross purposes.

Efforts to establish guidance to coordinate a risk-based approach across
DHS components has been hampered by organizational restructuring. At the
time we conducted our 2005 review of risk management for ports and other
critical infrastructure, risk management was the responsibility of the
Infrastructure Protection Office. The Infrastructure Protection Office's
risk management efforts were focused mainly on assessing and reducing the
vulnerabilities that exist in and around specific facilities or assets.
But DHS's responsibility is broader than this: besides assessing and
reducing vulnerabilities at specific facilities, it also includes
preventing attacks from occurring (and in the process protecting people
and critical infrastructure) and responding to and recovering from natural
disasters and acts of terrorism. This initial focus on vulnerabilities at
specific assets had the potential of limiting DHS's ability to achieve the
broader goal of using risk-based data as a tool to inform management
decisions on all aspects of its missions.

In July 2005, the Secretary of DHS announced the department's Second Stage
Review and reorganization, which had moved risk management to a new
Preparedness Directorate. At the time of our work, we determined it was
unclear how such a move could affect DHS's ability to carry out its risk
management responsibilities, and were concerned that the new focus on
preparedness could result in an emphasis that may go too far the other
way--that is an emphasis on protection of specific assets and response and
recovery at the expense of prevention. To comply with certain requirements
in the fiscal year 2007 DHS appropriation act, particularly with regard to
FEMA, DHS is reorganizing, with some of the responsibilities of the
Preparedness Directorate moving to FEMA. The Undersecretary for
Preparedness is to become the Undersecretary for National Protection and
Programs, retaining responsibility for risk management and analysis. The
new structure is to take effect by March 31, 2007. As we noted in our past
work, the office responsible for risk management should have a broad
perspective across the department's entire mission as well as the
necessary authority to hold DHS component agencies responsible for
carrying out risk management activities in a coordinated and consistent
manner.

Over the Long-Term, More Work Remains to Be Done in Carrying Out a Risk-Based
Approach

DHS has centered much attention on implementing risk management, but much
more work remains to be done than has been accomplished so far. As
discussed in the preceding sections, DHS components have made progress in
applying risk management to varying degrees in guiding homeland security
investments in state and local capabilities and in implementing their
homeland security missions. The challenges that remain, however, are
substantial and will take time, leadership, and attention to resolve. This
is particularly true when risk management is viewed strategically--that is
with a view that goes beyond what assessing the risks are and integrating
a consideration for risk into annual budget and program review cycles. In
this way, DHS faces challenges in the following areas:

           o Developing a way to compare and set priorities across different
           types of key infrastructure the Department is responsible for
           overseeing. While DHS components, such as TSA and the Coast Guard,
           have made progress in applying risk management to airports and
           seaports, challenges remain in making comparisons across assets
           and infrastructure within the transportation sector and in setting
           relative priorities. DHS has been challenged in establishing
           uniform policies, approaches, guidelines, and methodologies for
           integrating federal infrastructure protection within the
           department, including metrics and criteria. While coordination
           occurs among the various components in the department, our work
           shows that components apply risk management in ways that are
           neither consistent nor comparable. The degree to which DHS uses
           common metrics, criteria, and approaches remains a management
           challenge.

           o Coordinating efforts across the federal government. DHS plays a
           central role in guiding risk management activities across the
           federal government and much more work remains in offering
           policies, guidelines, and methodologies, including metrics and
           criteria, for the array of programs covered by Homeland Security
           Presidential Directives. Seven major departments or agencies are
           covered by the Directives, including the Departments of Defense,
           Energy, and Agriculture. DHS is developing a methodology to do
           this, but in the absence of this, these departments will use
           approaches that may not be compatible or may not be able to inform
           one another. Until such a methodology is in place, it will be
           impossible for DHS to make a determination of relative risks that
           could inform spending decisions.

           o Integrating a concern for risk into other management systems,
           such as the annual cycle of budget and program review. A key aim
           of risk management is to inform decisions on setting relative
           priorities and on spending and ultimately to improve the quality
           of decisions made. Doing so, however, is difficult in that the
           traditional ways of reviewing budgets and programs often rely on
           program data that call for continuing or expanding a program
           without examining the relative risks that are addressed.
           Additionally, DHS is challenged because it must depend on others
           to follow risk management principles at other federal departments
           or agencies that have also been called on to implement risk
           management.

Translating the concept of risk management into applications that are
consistent and useful represents a major challenge for DHS as it moves
from an organization that is in its early stages to one that is more
organizationally mature. The Secretary of DHS has said that operations and
budgets of its agencies will be reviewed through the prism of risk, but
doing this is made difficult by the level of guidance and coordination
that has been provided so far. Failure to address the strategic challenges
in risk management could have serious consequences for homeland security.
Until it does so, DHS is unable to provide adequate assurance to the
Congress or the country that the federal government is in a position to
effectively manage risk in national security efforts.

Concluding Observations

Fully integrating a risk management approach into decision-making
processes is challenging for any organization, and is particularly
challenging for DHS, with its diverse set of responsibilities. But the
basic goal across DHS homeland security programs is similar--to identify,
prevent where possible, and protect the nation from risks of all types to
people, property, and the economy. DHS has taken the first step in
confronting this challenge by acknowledging the need for such an approach.
It has taken further steps by incorporating risk management principles to
at least some degree into making homeland security grant allocations,
funding transportation and port security enhancements, and targeting
federal funding across other DHS mission areas. However, much work remains
to be done to implement a comprehensive risk management approach across
DHS. We do not underestimate the challenge involved. Nevertheless, such a
comprehensive implementation would place DHS in a better position to
identify the threats that can and should be offset by limited resources.
So that policymakers can make informed spending decisions, it is essential
that policymakers fully understand the the assumptions and policy
judgments that inform the risk analyses used for these decisions. A more
comprehensive approach to risk management would also help the DHS
components responsible for emergency preparedness, transportation, port
security, and other mission areas to better protect our nation's assets.
Without further attempts to address this incomplete work, DHS cannot
assure the Congress or the public that federal funding is targeting the
most critical risks.

Mr. Chairman and Members of the Committee, this concludes my prepared
statement. I would be pleased to respond to any questions you and the
Committee Members may have.

Contact and Staff Acknowledgments

For further information about this statement, please contact William O.
Jenkins Jr., Director, Homeland Security and Justice Issues, on (202)
512-8777 or [email protected] .

Major contributors to this testimony included Chris Keisling, Assistant
Director; John Vocino, Analyst-in-Charge; and Katherine Davis,
Communications Analyst.

Appendix I: Related GAO Products

Homeland Security Grants: Observations on Process DHS Used to Allocate
Funds to Selected Urban Areas. [45]GAO-07-381 . Washington, D.C.: February
7, 2006.

Homeland Security: Progress Has Been Made to Address the Vulnerabilities
Exposed by 9/11, but Continued Federal Action Is Needed to Further
Mitigate Security Risks. [46]GAO-07-375 . Washington, D.C.: January 24,
2007.

Passenger Rail Security: Enhanced Federal Leadership Needed to Prioritize
and Guide Security Efforts. [47]GAO-07-225T . Washington, D.C.: January
18, 2007.

Border Security: Stronger Actions Needed to Assess and Mitigate Risks of
the Visa Waiver Program. [48]GAO-06-1090T . Washington, D.C.: September 7,
2006.

Interagency Contracting: Improved Guidance, Planning, and Oversight Would
Enable the Department of Homeland Security to Address Risks.
[49]GAO-06-996 . Washington, D.C.: September 27, 2006.

Aviation Security: TSA Oversight of Checked Baggage Screening Procedures
Could Be Strengthened. [50]GAO-06-869 . Washington, D.C.: July 28, 2006.

Border Security: Stronger Actions Needed to Assess and Mitigate Risks of
the Visa Waiver Program. [51]GAO-06-854 . Washington, D.C.: July 28, 2006.

Passenger Rail Security: Evaluating Foreign Security Practices and Risk
Can Help Guide Security Efforts. [52]GAO-06-557T . Washington, D.C.: March
29, 2006.

Hurricane Katrina: GAO's Preliminary Observations Regarding Preparedness,
Response, and Recovery. [53]GAO-06-442T . Washington, D.C.: March 8, 2006.

Risk Management: Further Refinements Needed to Assess Risks and Prioritize
Protective Measures at Ports and Other Critical Infrastructure.
[54]GAO-06-91 . Washington, D.C.: December 15, 2005.

Strategic Budgeting: Risk Management Principles Can Help DHS Allocate
Resources to Highest Priorities. [55]GAO-05-824T . Washington, D.C.: June
29, 2005.

Protection of Chemical and Water Infrastructure: Federal Requirements,
Actions of Selected Facilities, and Remaining Challenges. [56]GAO-05-327 .
Washington, D.C.: March 28, 2005.

Transportation Security: Systematic Planning Needed to Optimize Resources.
[57]GAO-05-357T . Washington, D.C.: February 15, 2005.

Homeland Security: Observations on the National Strategies Related to
Terrorism. [58]GAO-04-1075T . Washington, D.C.: September 22, 2004.

9/11 Commission Report: Reorganization, Transformation, and Information
Sharing. [59]GAO-04-1033T . Washington, D.C.: August 3, 2004.

Critical Infrastructure Protection: Improving Information Sharing with
Infrastructure Sectors. [60]GAO-04-780 . Washington, D.C.: July 9, 2004.

Homeland Security: Communication Protocols and Risk Communication
Principles Can Assist in Refining the Advisory System. [61]GAO-04-682 .
Washington, D.C.: June 25, 2004.

Critical Infrastructure Protection: Establishing Effective Information
Sharing with Infrastructure Sectors. [62]GAO-04-699T . Washington, D.C.:
April 21, 2004.

Homeland Security: Summary of Challenges Faced in Targeting Oceangoing
Cargo Containers for Inspections. [63]GAO-04-557T . Washington, D.C.:
March 31, 2004.

Rail Security: Some Actions Taken to Enhance Passenger and Freight Rail
Security, but Significant Challenges Remain. [64]GAO-04-598T . Washington,
D.C.: March 23, 2004.

Homeland Security: Risk Communication Principles May Assist in Refinement
of the Homeland Security Advisory System. [65]GAO-04-538T . Washington,
D.C.: March 16, 2004.

Combating Terrorism: Evaluation of Selected Characteristics in National
Strategies Related to Terrorism. [66]GAO-04-408T . Washington, D.C.:
February 3, 2004.

Homeland Security: Information Sharing Responsibilities, Challenges, and
Key Management Issues. [67]GAO-03-1165T . Washington, D.C.: September 17,
2003.

Homeland Security: Efforts to Improve Information Sharing Need to Be
Strengthened. [68]GAO-03-760. Washington, D.C.: August 27, 2003.

Homeland Security: Information Sharing Responsibilities, Challenges, and
Key Management Issues. [69]GAO-03-715T . Washington, D.C.: May 8, 2003.

Transportation Security Research: Coordination Needed in Selecting and
Implementing Infrastructure Vulnerability Assessments. [70]GAO-03-502 .
Washington, D.C.: May 1, 2003.

Information Technology: Terrorist Watch Lists Should Be Consolidated to
Promote Better Integration and Sharing. [71]GAO-03-322 . Washington, D.C.:
April 15, 2003.

Homeland Security: Voluntary Initiatives Are Under Way at Chemical
Facilities, but the Extent of Security Preparedness Is Unknown.
[72]GAO-03-439. Washington, D.C.: March 14, 2003.

Critical Infrastructure Protection: Challenges for Selected Agencies and
Industry Sectors. [73]GAO-03-233 . Washington, D.C.: February 28, 2003.

Critical Infrastructure Protection: Efforts of the Financial Services
Sector to Address Cyber Threats. [74]GAO-03-173 . Washington, D.C.:
January 30, 2003.

Major Management Challenges and Program Risks: Department of Homeland
Security. [75]GAO-03-103 . Washington, D.C.: January 30, 2003.

Homeland Security: A Risk Management Approach Can Guide Preparedness
Efforts. [76]GAO-02-208T . Washington, D.C.: October 31, 2001.

Homeland Security: Key Elements of a Risk Management Approach.
[77]GAO-02-150T . Washington, D.C.: October 12, 2001.

Homeland Security: A Framework for Addressing the Nation's Issues.
[78]GAO-01-1158T . Washington, D.C.: September 21, 2001.

Combating Terrorism: Selected Challenges and Related Recommendations.
[79]GAO-01-822 . Washington, D.C.: September 20, 2001.

Critical Infrastructure Protection: Significant Challenges in Developing
National Capabilities. [80]GAO-01-323 . Washington, D.C.: April 25, 2001.

Combating Terrorism: Linking Threats to Strategies and Resources.
[81]GAO-00-218 . Washington, D.C.: July 26, 2000.

Combating Terrorism: Threat and Risk Assessments Can Help Prioritize and
Target Program Investments. [82]GAO-03-173 . Washington, D.C.: April 9,
1998.

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Highlights of [90]GAO-07-386T , a testimony before the Subcommittee on
Homeland Security, Committee on Appropriations, House of Representatives

February 7, 2007

HOMELAND SECURITY

Applying Risk Management Principles to Guide Federal Investments

Since the terrorist attacks of September 11, 2001, and the subsequent
creation of the Department of Homeland Security (DHS), the federal
government has provided DHS with more than $130 billion in budget
authority to make investments in homeland security. However, as GAO has
reported, this federal financial assistance has not been guided by a clear
risk-based strategic plan that fully applies risk management principles.
This testimony discusses the extent to which DHS has taken steps to apply
risk management principles to target federal funding for homeland security
investments (1) in making grant allocations, (2) in funding transportation
and port security enhancements, (3) in other DHS mission areas, and (4) at
a strategic level across DHS. This testimony summarizes previous GAO work
in these areas.

[91]What GAO Recommends

GAO has made numerous recommendations over the past 4 years aimed at
enhancing DHS's use of risk management principles to guide homeland
security investments in, for example, promoting all-hazards capabilities
for catastrophic disasters, assessing customs and immigration systems for
immigration enforcement, determining the potential for cyber attacks, and
conducting modal transportation security research and development efforts.

Risk management, a strategy for helping policymakers make decisions about
assessing risk, allocating resources, and taking actions under conditions
of uncertainty, has been endorsed by Congress, the President, and the
Secretary of DHS as a way to strengthen the nation against possible
terrorist attacks. DHS has used risk management principles to invest
millions of dollars at the state and local level as part of its Urban Area
Security Initiative (UASI) grants. For fiscal year 2006, DHS adopted a
risk management approach to determine which UASI areas were eligible for
funding. For the fiscal year 2007 grant process, DHS made substantial
changes to its 2006 risk assessment model, simplifying its structure,
reducing the number of variables considered, and incorporating the
intelligence community's assessment of threats in candidate urban areas.
The fiscal year 2007 model considers most areas of the country equally
vulnerable to attack; its analysis focuses on the expected impact and
consequences of successful attacks occurring in specific areas.

DHS and the components of DHS responsible for transportation and port
security have taken steps to apply risk management principles with varying
degrees of progress. The Transportation Security Administration has not
completed a methodology for assessing risk, and until the overall risk to
the entire transportation sector is identified, it will be difficult to
determine where and how to target limited resources to achieve the
greatest security gains. The progress of each of DHS's three components
responsible for port security varies according to organizational maturity
and the complexity of its risk management task. The Coast Guard, created
in 1915, was the most advanced in implementing a risk-based approach.
Meanwhile, the Office for Domestic Preparedness (responsible for grants)
and the Information Analysis and Infrastructure Protection Directorate
(responsible for all sectors of the nation's critical infrastructure) were
brought to or established with DHS in 2003 and lagged behind the Coast
Guard in applying risk management to port security.

Other DHS mission areas GAO has assessed include border security,
immigration enforcement, immigration services, critical infrastructure
protection, and science and technology; the extent to which a risk
management approach has been implemented in each area varies.

While DHS has called for using risk-based approaches to prioritize its
resource investments, and for developing plans and allocating resources in
a way that balances security and freedom, DHS has not comprehensively
implemented a risk management approach--a difficult task. However,
adoption of a comprehensive risk management framework is essential for DHS
to assess risk by determining which elements of risk should be addressed
in what ways within available resources.

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