High Risk Series: Quick Reference Guide (Other Written Prod., 02/95,
GAO/HR-95-2).
In 1990, GAO began a special effort to identify federal programs at high
risk of waste, fraud, abuse, and mismanagement. GAO issued a series of
reports in December 1992 on the fundamental causes of the problems in
the high-risk areas. This report is part of the second series that
updates the status of those areas. This Quick Reference Guide discusses
the high-risk areas that GAO has been tracking during the past several
years. For each area, the Guide summarizes the problems, the root
causes, the progress, and the outlook for the future; identifies a key
GAO contact person; and lists related GAO reports. Readers have the
following three options in ordering the high-risk series: (1) request
any of the individual reports in the series, including the Overview
(HR-95-1), the Guide (HR-95-2), or any of the 10 issue area reports; (2)
request the Overview and the Guide as a package (HR-95-21SET); or (3)
request the entire series as a package (HR-95-20SET).
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HR-95-2
TITLE: High Risk Series: Quick Reference Guide
DATE: 02/01/95
SUBJECT: Risk management
General management reviews
Defense procurement
Contract administration
Grant administration
Federal procurement
Federal property management
Student financial aid
Financial management
Agency evaluation
IDENTIFIER: Bank Insurance Fund
BIF
SAIF
Savings Association Insurance Fund
Superfund Program
CIM
DOD Corporate Information Management Initiative
Defense Business Operations Fund
Medicare Program
Guaranteed Student Loan Program
Federal Family Education Loan Program
GAO High Risk Program
High Risk Series 1995
DOJ National Asset Seizure and Forfeiture Program
GMR
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Cover
================================================================ COVER
High-Risk Series
February 1995
QUICK REFERENCE GUIDE
GAO/HR-95-2
Quick Reference Guide
Abbreviations
=============================================================== ABBREV
GAO -
FDIC -
FDICIA -
RTC -
SAIF -
ERISA -
GATT -
FBO -
FTA -
DOD -
IRS -
FmHA -
USDA -
FFELP -
HUD -
DOE -
EPA -
HCFA -
DCAA -
PBGC -
NASA -
Letter
=============================================================== LETTER
February 1995
The President of the Senate
The Speaker of the House of Representatives
In 1990, the General Accounting Office began a special effort to
review and report on the federal program areas we considered high
risk because they were especially vulnerable to waste, fraud, abuse,
and mismanagement. This effort, which has been strongly supported by
the Senate Committee on Governmental Affairs and the House Committee
on Government Reform and Oversight, brought much needed focus to
problems that were costing the government billions of dollars.
In December 1992, we issued a series of reports on the fundamental
causes of problems in designated high-risk areas. We are updating
the status of our high-risk program in this second series.
This Quick Reference Guide summarizes the status of the 18 areas we
have tracked over the past few years. For each area, the Guide
outlines the problems, root causes, progress, and outlook for the
future; identifies a key GAO contact person; and provides a list of
related GAO products. Ten of the 18 high-risk areas are discussed in
more detail in separate reports that are also part of this series.
In the accompanying Overview report (GAO/HR-95-1), we discuss the
urgent need to continue addressing critical high-risk problems,
covering such areas as Defense Department contract and inventory
management, revenue collection operations, major lending programs,
and oversight of tens of billions of dollars in civilian contracts.
We also discuss progress made in many areas; in particular, progress
has been significant enough in five areas for us to remove them from
our high-risk program. Further, we introduce newly designated
high-risk areas, such as serious and long-standing financial
management weaknesses in Defense, growing fraudulent tax filings, and
several critical information systems modernization projects that are
plagued with problems.
Copies of this report series are being sent to the President and the
Republican and Democratic leadership of the Congress, committee
chairs and ranking minority members, all other members of the
Congress, the Director of the Office of Management and Budget, and
the heads of major departments and agencies.
Charles A. Bowsher
Comptroller General
of the United States
BANK INSURANCE FUND
============================================================ Chapter 0
The Federal Deposit Insurance Corporation (FDIC) was created in 1933
to provide deposit insurance to protect bank depositors. Through the
Bank Insurance Fund, FDIC insures deposits of up to $100,000 in about
11,000 federally insured financial institutions.
In the 1980s, the banking industry took on increased risk in its
lending activities in response to a shrinking customer base and
competition from other domestic and foreign service vendors. These
activities carried greater risk of loss to the institutions and to
the insurance fund. The risks were exacerbated by weak internal
controls, flawed corporate governance systems, and lax regulatory
supervision. Deficiencies in existing accounting rules also
contributed to the problem by enabling weak institutions to hide the
extent of their problems until their losses had substantially
increased. These factors culminated in unprecedented numbers of bank
failures and insurance losses in the late 1980s and early 1990s,
ultimately depleting the Fund's reserves by year-end 1991.
Since 1991, significantly improved economic factors and congressional
actions have successfully resolved the problem. Favorable interest
margins and improved asset quality have caused dramatic improvements
in the condition and performance of the banking industry, resulting
in substantially lower levels of bank failures and costs to the Fund.
Congressional action contributed to a rapid rebuilding of the Fund's
reserves, as well as providing the framework for safety and soundness
in the banking industry to prevent and provide an early warning of
problems, such as flawed corporate governance and internal control
weaknesses that contributed significantly to bank failures and the
depletion of the Fund.
For example, the Omnibus Budget Reconciliation Act of 1990 provided
FDIC flexibility in setting premium rates it charges insured
institutions. The FDIC Improvement Act of 1991 (FDICIA) increased
FDIC's ability to borrow funds if needed and required FDIC to
establish a plan to recapitalize the Fund within 15 years. FDICIA
also required management and auditor reporting on the effectiveness
of internal controls, independent audit committees, safety and
soundness standards, prompt corrective actions to minimize losses to
the insurance fund and accounting reforms to ensure reliable
financial reports.
The legislative reforms have been largely implemented, and current
FDIC estimates show the Fund will be recapitalized before the end of
1995. The progress in rebuilding the Fund is significant and the
safeguards to address the root causes of the Fund's depletion are now
in place. We are therefore removing the Fund from GAO's high-risk
program.
We caution that implementation of FDICIA's reforms will continue to
require close attention by the Congress, the Administration, and GAO.
Past experience has shown how rapidly the Fund can be depleted.
Other factors that will need continuing oversight and monitoring
include increases in competition and technological advances, the
increasing use of derivative products, narrowing interest margins,
and a pending disparity between the premiums paid by institutions
insured by the Fund and savings associations insured by the Savings
Association Insurance Fund. For these reasons, we will continue to
closely monitor the Bank Insurance
KEY CONTACT
---------------------------------------------------------- Chapter 0:1
Robert W. Gramling, Director
Corporate Financial Audits
Accounting and Information Management Division
202-512-9406
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 0:2
Financial Audit: Federal Deposit Insurance Corporation's 1993 and
1992 Financial Statements (GAO/AIMD-94-135, June 24, 1994)
Financial Derivatives: Actions Needed to Protect the Financial
System (GAO/T-GGD-94-170, June 23, 1994; GAO/T-GGD-94-169, June 14,
1994; GAO/T-GGD-94-150, May 19, 1994; GAO/T-GGD-94-151, May 19, 1994;
GAO/GGD-94-133, May 18, 1994)
1992 Bank Resolutions: FDIC Chose Methods Determined Least Costly,
But Needs to Improve Process (GAO/GGD-94-107, May 10, 1994)
Bank Regulation: Consolidation of the Regulatory Agencies
(GAO/T-GGD-94-106, Mar. 4, 1994)
Bank Insurance Fund: Review of Loss Estimation Methodologies
(GAO/AIMD-94-48, Dec. 9, 1993)
Interstate Banking: Benefits and Risks of Removing Regulatory
Restrictions (GAO/GGD-94-26, Nov. 2, 1993)
Bank and Thrift Regulation: Improvements Needed in Examination
Quality and Regulatory Structure (GAO/AFMD-93-15, Feb. 16, 1993;
GAO/T-AFMD-93-2, Feb. 16, 1993)
High-Risk Series: Bank Insurance Fund (GAO/HR-93-3, Dec. 1992)
RESOLUTION TRUST CORPORATION
============================================================ Chapter 1
In our December 1992 report, we described risks related to the
Resolution Trust Corporation's (RTC) asset disposition practices,
contracting activities, information systems, and financial management
and accountability.\1 In addition, we warned that the thrift cleanup
would not be completed by the time RTC sunsets, and the total cost of
the cleanup will depend, in part, on how effectively the Federal
Deposit Insurance Corporation (FDIC) applies RTC's investment in both
processes and skilled personnel to manage the remaining
responsibilities.
Congress, RTC, and FDIC have taken actions that address most of RTC's
areas of risk. In March 1993, the Chairman of the Thrift Depositor
Protection Oversight Board announced that RTC would implement a
number of management reforms. Several of the planned reforms
addressed aspects of RTC operations that we had reported as entailing
the most risk. In December 1993, the RTC Completion Act required RTC
to implement 21 management reforms, several of which were similar to
those contained in the March 1993 plan. RTC has initiated actions on
all of the reforms and most of them are now fully implemented. RTC
also has made other improvements to its operations. Therefore, we
have removed RTC's high-risk designation. However, risks that remain
should be addressed as RTC completes its mission and transfers
responsibilities to FDIC.
Several of the mandated management reforms address contracting
activities. RTC, in addition to undertaking implementation of those
reforms, has made improvements in its process for awarding contracts
and has increased its contract oversight staffing. RTC also has made
many improvements to its information systems over the last 2 years.
Its system requirements are now better defined and it has completed
all its system development projects. In addition, RTC has modified
its systems to improve response times and make them easier to use.
RTC and FDIC have established a transition team and initiated a joint
planning process to facilitate the transfer of assets, personnel, and
operations from RTC to FDIC in a coordinated manner.
RTC also has improved internal accounting controls over its
receiverships' transactions, accounting operations, and systems. In
particular, RTC has established internal control policies, finalized
field accounting procedures, and established controls over
receivership receipts and payments. In addition, RTC has implemented
several new systems that contribute to improved accountability and
reporting.
In the area of asset disposition, RTC has not undertaken the
comprehensive sales method comparison we recommended to improve the
selection of sales methods, but it established a process for
gathering information that may be useful for evaluating some sales
techniques. In addition, RTC has implemented mandated reforms
related to its marketing and disposition of assets, that should help
RTC obtain maximum revenues.
Despite this progress, RTC needs to address some remaining risks. We
are concerned that improvements in RTC's asset disposition practices
will not fully compensate for the lack of a valid sales method
comparison. The absence of such a comparison could hamper transition
team efforts to identify which RTC sales methods FDIC should adopt.
Likewise, although RTC has made improvements to its contracting
activities, weaknesses continue to be identified in RTC's operating
controls over contractors that perform services for its
receiverships. RTC needs to continue to improve its operating
controls to ensure that it recovers all that it should from its
receiverships. Also, RTC needs to increase emphasis on the closing
out of contracts.
The transition of RTC operations and workload to FDIC by January 1996
is also a continuing risk. The task of winding down a large and
complex organization with thousands of personnel and billions of
dollars in assets, while minimizing the adverse consequences, is a
very difficult one. For a successful transition, RTC and FDIC will
need to ensure that sufficient controls are in place over the assets
that will be sold during the final year of RTC's existence, as well
as over the assets that will be transferred to FDIC. It also is
important that the transition planners give early attention to the
quality of data that FDIC will receive from RTC so that RTC will have
sufficient time to prepare for and respond to FDIC's information
needs.
Another risk that extends beyond the end of RTC involves the
long-term viability of the Savings Association Insurance Fund (SAIF),
which insures thrift institutions and will have full responsibility
for the cost of resolving thrift failures after RTC's responsibility
ends. Currently, SAIF is significantly undercapitalized and its high
assessment rates are expected to continue. While the Federal Deposit
Insurance Corporation Improvement Act and the RTC Completion Act
strengthened SAIF by providing borrowing authority and other access
to funding, SAIF's expected high assessment rates may place the
thrift industry at a competitive disadvantage when compared to the
anticipated lower assessment rates of the Bank Insurance Fund. These
circumstances will require continuing attention by FDIC and the
Congress.
--------------------
\1 High Risk Series: Resolution Trust Corporation (GAO/HR-93-4, Dec.
1992).
KEY CONTACT
---------------------------------------------------------- Chapter 1:1
Gaston L. Gianni, Jr., Associate Director
Government Business Operations Issues
General Government Division
202-736-0479
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 1:2
Resolution Trust Corporation: Interim Report on the Management
Reforms in the RTC Completion Act (GAO/GGD-94-114, June 30, 1994).
Financial Audit: Resolution Trust Corporation's 1993 and 1992
Resolution Trust Corporation: Oversight of SAMDA Property Management
Contractors Needs Improvement (GAO/GGD-94-5, Nov. 30, 1993).
Resolution Trust Corporation: Status of Management Efforts to
Control Costs (GAO/GGD-94-19, Oct. 28, 1993).
Resolution Trust Corporation: Data Limitations Impaired Analysis of
Sales Methods (GAO/GGD-93-139, Sept. 27, 1993).
Resolution Trust Corporation: Better Assurance Needed That
Contractors Meet Fitness and Integrity Standards (GAO/GGD-93-127,
July 26, 1993).
Resolution Trust Corporation: Controls Over Asset Valuations Do Not
Ensure Reasonable Estimates (GAO/GGD-93-80, Apr. 8, 1993).
Resolution Trust Corporation: Funding, Organization, and Performance
(GAO/T-GGD-93-13, Mar. 18, 1993).
PENSION BENEFIT GUARANTY
CORPORATION
============================================================ Chapter 2
The Congress passed the Employee Retirement Income Security Act of
1974 (ERISA) to correct weaknesses in the private pension system.
ERISA set minimum funding standards for defined benefit pension plans
that were intended to ensure funding would be available to pay all
promised benefits and established the Pension Benefit Guaranty
Corporation (PBGC) to insure guaranteed benefits in underfunded plans
that terminate. To protect against fraud, waste, and mismanagement,
ERISA established reporting, disclosure, fiduciary, participation,
and vesting requirements, which the Department of Labor and the
Internal Revenue Service (IRS) are primarily responsible for
enforcing.
In December 1992, we reported that PBGC's weak financial condition
threatened the pension insurance program.\1 By 1993, the deficit in
PBGC's single-employer program was an estimated $2.9 billion. That
same year, ongoing single-employer plans insured by PBGC were
underfunded by about $71 billion. This large exposure put PBGC at
risk and raised concern that, at some point in the future, PBGC might
have to seek financial assistance from the U.S. Treasury to meet its
obligations. Moreover, the cash-based federal budget does not
provide the Congress with complete information on PBGC's long-term
pension insurance commitments. In 1992, we also reported that
management deficiencies hindered PBGC's ability to effectively assess
and monitor its financial condition; weaknesses in Labor and IRS
enforcement programs hindered detection of ERISA violations; and
federal regulation and oversight of pension plans' selection of
annuity providers needed to be strengthened.
Since we issued the first high-risk report, several events have
occurred that, taken together, have improved the financial outlook
for PBGC. First, the General Agreement on Tariffs and Trade (GATT),
which became law on December 8, 1994, contains provisions to
strengthen minimum funding standards and phase out the cap on
variable rate premiums paid by underfunded defined benefit pension
plans. We reported that most companies with underfunded pension
plans will put more money into their plans. The agency estimates
that these provisions will lower the underfunding in plans it insures
and reduce the deficit in its single-employer program. Second, PBGC
improved its internal controls and procedures, enabling us for the
first time to express an opinion on its fiscal year 1992 balance
sheet, and took other steps to improve program administration. In
addition, Labor and IRS modified their enforcement strategies and
targeting procedures to try to more effectively identify plan abuse
and took other steps to improve their enforcement programs. Also,
Labor and PBGC began preparing guidance, regulations, and legislation
to better regulate and oversee pension plans' selection of annuity
providers.
These congressional and agency actions should reduce PBGC's exposure
to losses and, correspondingly, the risk to the federal government.
Therefore, we are removing PBGC from our high-risk program. However,
we will continue to monitor the pension insurance program. Likewise,
PBGC should monitor GATT's pension funding provisions to ensure that
they reduce plan underfunding and improve its own financial
condition. To better reflect its long-term pension insurance
commitments, PBGC should work to develop an accrual-based budget.
PBGC should also continue strengthening its internal controls and
financial information systems so it can meet its future program
responsibilities. Labor and IRS should continue strengthening their
enforcement programs. Labor should also work with the Congress to
enact legislation to improve the usefulness of independent plan
audits. Labor and PBGC should continue developing guidance on
fiduciary responsibility associated with purchasing annuities and
legislation and regulations requiring that participants receive
information on annuity selection and insurance coverage.
--------------------
\1 High-Risk Series: Pension Benefit Guaranty Corporation
(GAO/HR-93-5, Dec. 1992)
KEY CONTACT
---------------------------------------------------------- Chapter 2:1
Jane Ross, Director
Income Security Issues
Health, Education and Human Services Division
202-512-7215
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 2:2
Private Pensions: Funding Rule Change Needed to Reduce PBGC's
Multibillion Dollar Exposure (GAO/HEHS-95-5, Oct. 5, 1994).
Pension Benefit Guaranty Corporation, Fiscal Year 1993
(GAO/AIMD-94-168ML, Aug. 29, 1994).
Pension Plans: Stronger Labor ERISA Enforcement Should Better
Protect Plan Participants (GAO/HEHS-94-157, Aug. 8, 1994).
Underfunded Pension Plans: Stronger Funding Rules Needed to Reduce
Federal Government's Growing Exposure (GAO/T-HEHS-94-191, June 15,
1994).
Financial Audit: Pension Benefit Guaranty Corporation's 1993 and
1992 Financial Statements (GAO/AIMD-94-109, May 4, 1994).
Private Pensions: Most Underfunded Plan Sponsors Are Not Making
Additional Contributions (GAO/T-HRD-93-16, Apr. 20, 1993).
Assessing PBGC's Short-Run and Long-Run Conditions (GAO/T-HRD-93-1,
Feb. 2, 1993).
Pension Plans: Hidden Liabilities Increase Claims Against Government
Insurance Program (GAO/HRD-93-7, Dec. 30, 1992).
MANAGEMENT OF OVERSEAS REAL
PROPERTY
============================================================ Chapter 3
The State Department, through its Office of Foreign Buildings
Operations (FBO), has responsibility for managing about 11,000 leased
properties and 3,000 U.S.-owned properties valued at about $12
billion. These properties, at over 260 locations worldwide, include
embassies and consulates, office buildings, residential units, and
undeveloped land. Since the early 1960s, FBO has experienced serious
management problems, which have resulted in deteriorated facilities,
cost overruns, oversized and unauthorized housing, poor real estate
decisions, and questionable expenditures. The primary cause of this
condition has been inadequate property maintenance programs, lax
oversight of overseas operations, inadequate information systems, and
poor planning.
FBO has taken actions to improve its management of overseas real
property, many focusing on maintenance issues which we identified as
one of the most serious weaknesses in the real property system.
FBO's actions have included assigning maintenance professionals
overseas, conducting systematic maintenance surveys, establishing two
regional maintenance assistance centers, and implementing a
facilities evaluation and assistance program to further support post
maintenance programs. FBO has also made significant progress in
addressing other management problems. It has (1) conducted overseas
financial audits, (2) expanded its planning staff and determined
long-range construction and renovation priorities, (3) implemented an
information resource management system and upgraded the real estate
management system, and (4) established criteria to prioritize capital
construction projects and implemented a system to assess contractor
performance.
In view of these actions, we are removing State management of
overseas real property from our high-risk list. However, because
some problems still exist, we will continue to closely monitor the
area. Remaining problems include the failure of some posts to follow
FBO guidance on facilities assessments, use of routine maintenance
funds, and use of information management systems; the lack of
consistent monitoring by FBO's area managers; the retention of unused
or excess property; and across-the-board inadequacies in the State
Department's financial and information management systems. To
address continuing problems, FBO should (1) ensure that posts conduct
annual facilities condition surveys and fully use automated property
management systems, (2) expand financial audits and area management
assessments to better ensure maintenance funds are properly used, and
(3) actively consider the sale or lease of high-value or
underutilized properties to off-set appropriations requirements. At
the same time, the State Department needs to develop reliable
financial and information management systems to improve
decision-making on real property management.
KEY CONTACT
---------------------------------------------------------- Chapter 3:1
Joseph E. Kelley, Director-in-Charge
International Affairs
National Security and International Affairs Division
202-512-4128
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 3:2
Department of State IRM: Strategic Approach Needed to Better Support
Agency Mission and Business Needs (GAO/AIMD-95-20, Dec. 22, 1994).
Financial Management: State's Systems Planning Needs to Focus on
Correcting Long-standing Problems (GAO/AIMD-94-141, Aug. 12, 1994).
State Department: Widespread Management Weaknesses at Overseas
Embassies (GAO/T-NSIAD-93-17, July 13, 1993).
State Department: Survey of Administrative Issues Affecting
Embassies (GAO/NSIAD-93-218, July 12, 1993).
High-Risk Series: Management of Overseas Real Property
(GAO/HR-93-15, Dec. 1992).
FEDERAL TRANSIT ADMINISTRATION
GRANT MANAGEMENT
============================================================ Chapter 4
The Federal Transit Administration (FTA) administers a program of
financial assistance for the providers of urban and rural public mass
transportation (grantees). In fiscal year 1994, FTA provided more
than $4.6 billion to grantees for the purpose of improving public
transportation. FTA monitors grantees' compliance with federal laws
and regulations by performing various oversight and grant management
reviews, the most prominent of which is the triennial review.
As we reported in 1992, FTA's past oversight and enforcement
practices failed to protect the government from waste and
mismanagement.\1 Inadequacies in grantees' financial and other
management systems led to noncompliance with federal regulations and
the improper use of funds. In addition, FTA seldom used its
enforcement powers to compel recipients to fix problems, even when
the recipients had long histories of noncompliance.
Over the last two years, FTA has made substantial progress in
addressing its grant management weaknesses by making a concerted
effort to improve its oversight procedures and processes and, more
importantly, change the attitudes of its oversight staff and grantees
towards safeguarding federal funds. FTA has gone from relying
primarily on grantee certifications on compliance to implementing
various initiatives and putting systems in place which, over time,
will provide a framework that will allow FTA to take a more proactive
approach to its grant management, oversight, and enforcement
responsibilities.
For example, FTA developed a risk assessment program to identify the
inherent risk of each grantee and is using it to develop individual
oversight strategies based on the risk assigned. FTA has also
increased its use of contractors in performing triennial reviews and
recently updated its guidance on how to conduct triennial reviews.
FTA has also implemented various training courses for FTA staff,
contractors and grantees. In addition, FTA is planning to reorganize
its operations to focus more on grantee oversight and will be
increasing the size of its regional staff in fiscal year 1995 to
better implement oversight activities. More importantly, FTA has
recently used its most powerful enforcement tool--withholding
funds--to sanction grantees found to be mismanaging their programs.
FTA has demonstrated its commitment to change by the numerous actions
it has taken to improve its oversight of grantees that manage
millions of dollars in federal transit funds. FTA officials believe
these actions will resolve the concerns that put FTA grant dollars at
high risk.
We agree that carrying out the initiatives will continue to reduce
the risks associated with FTA's grant management program and are
taking FTA off our high-risk list. However, we will continue to
monitor FTA's progress because many of these actions have only
recently been implemented and their ultimate effectiveness cannot be
determined at this time. FTA needs to put a mechanism in place for
assessing the effectiveness of these changes. For example,
establishing performance measures to evaluate the impact of the new
enforcement policy could help FTA determine whether the procedures
and time frames for working with grantees to affect compliance and
impose sanctions are appropriate and are being applied consistently
across all FTA regions. Moreover, improvements in grantee submission
of quarterly progress reports and data contained in the triennial
review data base could enhance FTA's ability to work with grantees on
noncompliance issues.
--------------------
\1 High-Risk Series: Federal Transit Administration Grant Management
(GAO/HR-93-16, Dec. 1992).
KEY CONTACT
---------------------------------------------------------- Chapter 4:1
Kenneth M. Mead, Director
Transportation and Telecommunications Issues
Resources, Community, and Economic Development Division
202-512-2834
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 4:2
Mass Transit Grants: If Properly Implemented, FTA Initiatives Should
Improve Oversight (GAO/RCED-93-8, Nov. 19, 1992).
Special Report on Contractor Improprieties at an FTA Region II
Grantee (GAO/OSI-92-7, Sept. 10, 1992).
Mass Transit Grants: Risk of Misspent and Ineffectively Used Funds
in FTA's Chicago Region (GAO/RCED-92-53, Mar. 4, 1992).
Mass Transit Grants: Noncompliance and Misspent Funds by Two
Grantees in UMTA's New York Region (GAO/RCED-92-38, Jan. 23, 1992).
Mass Transit Grants: Improved Management Could Reduce Misuse of
Funds in UMTA's Region IX (GAO/RCED-92-7, Nov. 15, 1991).
Mass Transit Grants: Scarce Federal Funds Misused in UMTA's
Philadelphia Region (GAO/RCED-91-107, June 13, 1991).
Mass Transit: Significant Federal Investment Is Not Adequately
Protected (GAO/T-RCED-91-68, June 12, 1991).
DEFENSE CONTRACT MANAGEMENT
============================================================ Chapter 5
In fiscal year 1993, the Department of Defense (DOD) reported
spending about $121 billion contracting for goods and services. In
1992, we reported that defective contract pricing was caused by
contractors not providing accurate, complete, and current cost of
pricing data, as required by law.\1 Since that report, defective
pricing has declined significantly. However, defense contractors'
performance in correcting significant cost-estimating system
deficiencies, which is key to sustaining a reduced risk of defective
pricing, has been mixed.
DOD needs to continue emphasizing the importance of expeditiously
correcting deficiencies in contractors' cost-estimating systems. DOD
should determine why long-standing deficiencies have not been
corrected and establish specific time frames for contracting officers
to seek guidance about using more severe remedies that are already
available and for involving higher level management in resolving
significant deficiencies.
While DOD has addressed some contracting problems, we found that
serious DOD financial control weaknesses have resulted in large and
numerous erroneous, and in some cases fraudulent, payments to defense
contractors. During a 6-month period in fiscal year 1993, defense
contractors returned to the government $751 million, and in fiscal
year 1994, they returned $957 million. Most returned funds appear to
have been overpayments that were detected by the contractors.
To gain control over these troublesome problems, top-level DOD
management must intensify its commitment to resolve contract payment
disbursement problems. In the short term, DOD's efforts, including
its efforts to research problem disbursement transactions and correct
errors, will likely reduce the amount of erroneous and fraudulent
payments and disbursements not properly matched to obligations.
However, DOD will not adequately resolve its disbursement problems
until it (1) corrects weaknesses in control procedures that allow
problem disbursements to occur, and (2) improves its contract pay and
accounting systems.
Finally, weaknesses in contractor procedures for identifying and
excluding unallowable costs from overhead submissions has resulted in
DOD reimbursing contractors for unallowable overhead costs. During
fiscal years 1991 through 1993, DOD auditors questioned about $3
billion in contractors' overhead charges.
Defense contractors and the Defense Contract Audit Agency (DCAA)
share responsibility for identifying unallowable contract costs.
While contractors need to strengthen their controls to ensure that
they do not charge unallowable contract costs, DCAA needs to improve
its audits of contractors' overhead submissions. DCAA may have
difficulty increasing audits given the scope of its workload and
recent and planned staff reductions.
Additional information on DOD contract management problems and
progress can be found in a separate report issued as part of this
series (GAO/HR-95-3).
--------------------
\1 High-Risk Series: Defense Contract Pricing (GAO/HR-93-8, Dec.
1992).
KEY CONTACT
---------------------------------------------------------- Chapter 5:1
David E. Cooper, Director
Acquisition Policy, Technology, and Competitiveness
National Security and International Affairs Division
202-512-4587
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 5:2
Financial Management: Status of Defense Efforts to Correct
Disbursement Problems (GAO/AIMD-95-7, Oct. 5, 1994).
DOD Procurement: Overpayments and Underpayments at Selected
Contractors Show Major Problem (GAO/NSIAD-94-245, Aug. 5, 1994).
Contract Pricing: DOD Management of Contractors With High Risk
Cost-Estimating Systems (GAO/NSIAD-94-153, July 19, 1994).
Financial Management: Financial Control and System Weaknesses
Continue to Waste DOD Resources and Undermine Operations
(GAO/T-AIMD/NSIAD-94-154, Apr. 12, 1994).
Contract Pricing: Reasons for the Decline in Reported Defective
Pricing (GAO/NSIAD-94-144BR, Apr. 11, 1994).
DOD Procurement: Millions in Overpayments Returned by DOD
Contractors (GAO/NSIAD-94-106, Mar. 14, 1994).
Overhead Costs: Unallowable and Questionable Costs Charged by
Government Contractors (GAO/T-NSIAD-94-132, Mar. 3, 1994).
DEFENSE WEAPONS SYSTEMS
ACQUISITION
============================================================ Chapter 6
The Department of Defense (DOD) spends about $80 billion annually
researching, developing, and procuring weapon systems. Too often,
new weapons acquisitions experience cost overruns, performance
shortfalls, and schedule delays. Moreover, requirements for some of
these costly weapons, particularly since the collapse of the Soviet
Union, may be questionable. Despite past efforts to reform the
acquisition system, wasteful practices are adding billions of dollars
to defense acquisition costs.
In our initial high-risk report, we noted that the underlying cause
of these problems is a prevailing culture dependent on generating and
supporting weapons acquisitions.\1 Cultural changes are needed to:
(1) control interservice competition and self-interest that leads to
the acquisition of unnecessary, overlapping, or duplicative
capabilities; (2) discourage overselling of programs and high-risk
acquisition strategies; (3) limit incorporation of immature
technologies into new weapons; and (4) reduce unnecessary and costly
government-unique acquisition requirements and specifications.
Top DOD management has demonstrated a strong commitment to
acquisition reform initiatives. The Packard Commission's acquisition
organization and management recommendations have been largely
implemented and are becoming institutionalized. For example, the
role and authority of the Under Secretary of Defense for Acquisition
and Technology is more firmly established. Also, a Deputy Under
Secretary of Defense for Acquisition Reform position has been
established to initiate, promote, and support key acquisition reform
efforts.
In the Secretary of Defense's February 1994 white paper titled
Acquisition Reform--A Mandate for Change, he articulates the need for
change and presents a vision and strategy for change. A key element
of the strategy is greater reliance on commercial products and
processes. Also in 1994, the Secretary of Defense launched an effort
to reengineer the systems acquisition review process. This effort is
intended to reduce non value-added layers of review and oversight.
In addition to DOD's efforts, the Congress has enacted reforms in the
Federal Acquisition Streamlining Act of 1994 and in the Defense
Authorization Act for Fiscal Year 1994. The Federal Acquisition
Streamlining Act of 1994, among other things, emphasizes greater
reliance on commercial products and processes. The act also: (1)
raises the dollar threshold for using more simplified small purchase
procedures, (2) seeks to constrain low-rate initial production
quantities in defense acquisition programs, and (3) requires a
performance-based, incentivized approach to managing acquisition
programs.
The Defense Authorization Act for Fiscal Year 1994 established the
Commission on Roles and Missions of the Armed Forces. This
independent Commission is examining key missions to determine the
most cost-effective mix of weapons to accomplish those missions and
the services' responsibilities. The Commission is also examining
whether DOD's weapons acquisition structure is too complex and
duplicative.
Success in achieving acquisition reforms will require overcoming
cultural and structural barriers--the procurement bureaucracy will
not be dismantled overnight. However, the ingredients for making
lasting improvements to the weapons acquisition process--the need,
the opportunity, and the leadership--currently exist. Nevertheless,
it is too soon to tell how successful DOD will be in overcoming the
barriers to change.
Additional information on DOD weapons systems acquisition problems
and progress can be found in a separate report issued as part of this
series (GAO/HR-95-4).
--------------------
\1 High-Risk Series: Defense Weapons Systems Acquisition
(GAO/HR-93-7, Dec. 1992).
KEY CONTACT
---------------------------------------------------------- Chapter 6:1
David E. Cooper, Director
Acquisition Policy, Technology and Competitiveness
National Security and International Affairs Division
202-512-4587
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 6:2
Navy Modernization: Alternatives for Achieving a More Affordable
Force (GAO/T-NSIAD-94-171, April 26, 1994).
Acquisition Reform: Role of Test and Evaluation in System
Acquisition Should Not Be Weakened (GAO/T-NSIAD-94-124, Mar. 10,
Future Years Defense Program: Optimistic Estimates Lead to Billions
in Overprogramming (GAO/NSIAD-94-210, July 29, 1994).
Army Acquisition: Information on the Status and Performance of the
Javelin Antitank Weapon (GAO/NSIAD-94-122BR, Mar. 9, 1994).
Tactical Aircraft: F-15 Replacement is Premature as Currently
Planned (GAO/NSIAD-94-118, Mar. 25, 1994).
Navy Ships: Seawolf Cost Increases and Schedule Delays
(GAO/NSIAD-94-201BR, June 30, 1994).
Missile Development: TSSAM Production Should Not Be Started as
Planned (GAO/NSIAD-94-52, Oct. 8, 1993).
Antiarmor Weapons Acquisition: Assessments Needed to Support
Continued Need and Long-Term Affordability (GAO/NSIAD-93-49, Mar. 4,
1993).
DEFENSE INVENTORY MANAGEMENT
============================================================ Chapter 7
The Department of Defense (DOD) uses its inventory of spare and
repair parts, clothing, medical supplies, and other support items to
support its operating forces. In September 1993, DOD reported that
the inventory was valued at $77.5 billion. We estimate that about
$36.3 billion of that amount was not needed to be on hand to support
DOD's war reserve or current operating requirements.\1
DOD has wasted billions of dollars on excess supplies, burdened
itself with the need to store them, and failed to acquire the tools
or expertise needed to manage them effectively. Also, DOD frequently
overestimated its supply requirements and purchased too much. DOD's
Corporate Information Management initiative is suffering from
fundamental weaknesses in DOD's implementation strategy, and the
Defense Business Operations Fund is not working as DOD had intended.
The current downsizing environment is posing additional challenges
for DOD. In order to ensure that high levels of readiness are
achieved, DOD must adopt new management approaches that will allow it
to sustain these high levels while dealing with resource constraints.
At the same time, DOD must address the large amount of unneeded
inventory currently stored in its warehouses that will continue to
drain resources. This problem will only increase as force reductions
continue.
DOD's excessive inventories of unneeded items have resulted largely
from a culture that believed it is better to overbuy items than to
manage with just the amount of stock needed. This culture has been
slow to adopt new management practices, technologies, and logistics
systems. DOD has failed to adopt comprehensive inventory management
practices that result in storing only those items necessary to
support operations. DOD has also failed to provide its personnel
with the tools and incentives to manage the inventory properly.
To its credit, DOD has achieved some inventory reductions, initiated
some pilot projects, and recognized that it must improve its
inventory management. However, DOD has made little overall progress
in correcting long-standing management problems that perpetuate
buying and holding too much inventory. For example, DOD stores and
maintains billions of dollars of unneeded inventory, requirements
continue to be overstated leading to unnecessary procurements, and
modern commercial practices are not being implemented as fast as
possible.
DOD has had limited success with some commercial inventory practices
that have substantially reduced costs while meeting managers'
inventory needs. However, DOD needs to be more aggressive in
changing its inventory management culture in order to ensure high
levels of readiness within existing resource constraints. DOD must
take advantage of new management practices, technologies, and
logistics systems so that inefficiencies can be eliminated and high
levels of readiness maintained.
DOD's top management needs to be much more attentive to the Corporate
Information Management project and the Defense Business Operations
Fund initiative because they will provide managers with the critical
tools needed for managing inventory in the future. DOD must also
improve the accuracy of inventory data. Finally, congressional
oversight is necessary to maintain DOD's focus on these problems.
Additional information on DOD inventory management problems and
progress can be found in a separate report issued as part of this
series (GAO/HR-95-5).
--------------------
\1 The $77.5 billion and the $36.3 billion include inventory that has
been revalued to reflect the value of items that need to be repaired
and the scrap value of items to be disposed of. We estimate that, if
all the inventory were valued at its acquisition cost, the values
would be $96.8 billion and $48.4 billion, respectively.
KEY CONTACT
---------------------------------------------------------- Chapter 7:1
Donna M. Heivilin, Director
Defense Management and NASA
National Security and International Affairs Division
202-512-8412
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 7:2
Defense Management: Impediments Jeopardize Logistics Corporate
Information Management (GAO/NSIAD-95-28, Oct. 21, 1994).
Commercial Practices: Opportunities Exist to Enhance DOD's Sales of
Surplus Aircraft Parts (GAO/NSIAD-94-189, Sept. 23, 1994).
Organizational Culture: Use of Training to Help Change DOD Inventory
Management Culture (GAO/NSIAD-94-193, Aug. 30, 1994).
Defense Inventory: Changes in DOD's Inventory, 1989-93
Commercial Practices: DOD Could Reduce Electronics Inventories by
Using Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994).
Defense Business Operations Fund: Improved Pricing Practices and
Financial Reports Are Needed to Set Accurate Prices (GAO/AIMD-94-132,
June 22, 1994).
Army Inventory: More Effective Review of Proposed Inventory Buys
Could Reduce Unneeded Procurement (GAO/NSIAD-94-130, June 2, 1994).
High-Risk Series: Defense Inventory Management (GAO/HR-93-12, Dec.
1992).
INTERNAL REVENUE SERVICE
RECEIVABLES
============================================================ Chapter 8
The Internal Revenue Service's (IRS) management of accounts
receivable has been recognized by GAO, the Office of Management and
Budget, and IRS management as a high-risk area. IRS' poor
performance in resolving tens of billions of dollars in outstanding
tax delinquencies has not only lessened the revenues immediately
available to support government operations, but could also jeopardize
future taxpayer compliance by leaving the impression that IRS is
neither fair nor serious about collecting overdue taxes.
Despite many IRS initiatives to "fix" the accounts receivable
problem, negligible progress has been made. For example, IRS has not
yet developed an accounting system that identifies valid and
collectible receivables and those that are not, thereby complicating
the job of collection personnel trying to resolve individual
accounts. Also, over the period 1990 through 1994, the gross
inventory of tax debt, which includes accounts receivable, grew about
80 percent--from $87 billion to $156 billion. During the same
period, annual collections of delinquent taxes declined from $25.5
billion to $23.5 billion--a decline of about 8 percent.
These disappointing results are indicative of the (1) pervasiveness
of problems throughout IRS' processes that cumulate in the inventory
and (2) difficulty in coming to grips with the interrelationship of
several underlying causes. These include the lack of accurate and
reliable management information for determining the validity and
makeup of the inventory of tax debt and evaluating the effectiveness
of individual collection activities; IRS' lengthy, antiquated, rigid,
and inefficient collection process; difficulty in balancing
collection efforts with the need to protect taxpayer rights; and a
decentralized organization that blurs responsibility and
accountability.
In our view, IRS' primary task is two-fold: collect more delinquent
taxes and stem the growth in outstanding debts. The first part of
the task requires greater efficiency and productivity in the
collection process. The second requires changes in other IRS
components to prevent delinquencies and minimize cluttering-up the
collection process with invalid and uncollectible accounts.
The lack of accurate and reliable information continues to be IRS'
foremost problem and hinders most of its efforts to effectively deal
with tax debts. Priority must be given to this area because so many
of IRS' modernization efforts rely heavily on accurate and reliable
information. IRS also needs to clearly demonstrate the institutional
focus necessary to effectively deal with the underlying causes of the
problem--causes that cut across the agency and across lines of
managerial authority and responsibility. Equally important is that
the strategy address ways to best reengineer IRS' outmoded tax
collection processes, which were designed decades ago and have not
kept pace with advances in technology or communications.
Additional information on problems with IRS receivables can be found
in a separate report issued as part of this series (GAO/HR-95-6).
KEY CONTACT
---------------------------------------------------------- Chapter 8:1
Jennie S. Stathis, Director
Tax Policy and Administration Issues
General Government Division
202-512-5407
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 8:2
Financial Audit: Examination of IRS' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-120, June 15, 1994).
Tax Administration: Changes Needed to Cope With Growth in Offer in
Compromise Program (GAO/GGD-94-47, Dec. 23, 1993).
Tax Administration: Collecting Delinquent Taxes and Communicating
with Taxpayers (GAO/T-GGD-94-50, Nov. 9, 1993).
Tax Administration: IRS Can Do More to Collect Taxes Labelled
"Currently Not Collectible" (GAO/GGD-94-2, Oct. 8, 1993).
Tax Administration: New Delinquent Tax Collection Methods for IRS
(GAO/GGD-93-67, May 11, 1993).
Financial Audit: IRS Significantly Overstated Its Accounts
Receivable Balance (GAO/AFMD-93-42, May 6, 1993).
Tax Administration: Improved Staffing of IRS' Collection Function
Would Increase Productivity (GAO/GGD-93-97, May 5, 1993).
High-Risk Series: Internal Revenue Service Receivables
(GAO/HR-93-13, Dec. 1992).
MANAGING THE CUSTOMS SERVICE
============================================================ Chapter 9
In December 1992, we reported that Customs had major weaknesses in
(1) mission planning; (2) financial, information, and human resource
management; and (3) its organizational structure.\1
Customs lacked an effective strategic management process capable of
guiding its operations and establishing accountability for
performance. Its prior 5-Year Plan did not set forth a clear
objective for its trade enforcement activities, prioritize its
numerous objectives, or adequately articulate a means of fully
automating Customs' transaction processing. Further, Customs was
experiencing related weaknesses in information management, financial
management, human resource management, performance measurement, and
organizational structure.
Customs has taken action in each of these areas, such as (1) revising
its 1993 5-Year Plan to clarify and set priorities for its trade
enforcement objectives; (2) improving controls over the
identification and collection of duties, taxes, fees, and penalties;
(3) reorganizing its debt collection unit, formalizing its collection
procedures, and aggressively pursuing collection of delinquent
receivables; and (4) embarking on a reorganization plan to correct
institutional problems related to cooperation and coordination among
its programmatic units and ensure consistency in policy
implementation.
Additional efforts will be needed in Customs' financial and
information systems modernization programs. For instance, years of
inadequate financial management leadership led to deficient financial
management systems that do not facilitate financial reporting and
control. Recognizing this, Customs stated that it has recently begun
to take steps to adopt practices that private and public
organizations have used to manage their information resources.
Our recent financial statement audits disclosed that Customs had
improvement efforts underway but had not yet fully resolved many of
the financial management problems that we reported in 1992. Also,
these audits identified two previously unreported problems that
relate to Customs' inability to (1) detect and prevent duplicate or
excessive claims for refunds of duties and taxes paid on imported
goods that are subsequently exported or destroyed and (2) prevent or
detect unauthorized access and modifications to critical and
sensitive data and computer programs.\2
Customs has a wide assortment of plans and a broad reorganization
underway that are intended to correct identified management
weaknesses, including the additional high-risk areas. Some of these
actions can be implemented relatively quickly, while other
improvements will take years. While we believe that Customs' planned
improvement efforts are appropriately focused, it is important that
Customs' top and mid-level management provide the continuing support
needed to ensure that these important actions are properly
implemented and that related problems do not recur.
--------------------
\1 High-Risk Series: Managing the Customs Service (GAO/HR-93-14,
Dec. 1992).
\2 Our audits also identified a high-risk area related to Customs'
inability to control, manage, and report the results of its seizure
efforts, including accountability and stewardship over tons of
illegal drugs and millions of dollars in cash and other property
seized. This area is elaborated on in a separate report issued as
part of this series (GAO/HR-95-7).
KEY CONTACT
---------------------------------------------------------- Chapter 9:1
Norman J. Rabkin, Director
Administration of Justice Issues
General Government Division
202-512-8777
RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 9:2
Financial Audits: CFO Implementation at IRS and Customs
(GAO/T-AIMD-94-164, July 28, 1994).
Financial Audit: Examination of Customs' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-119, June 15, 1994).
Financial Management: Control Weaknesses Limited Customs' Ability to
Ensure That Duties Were Properly Assessed (GAO/AIMD-94-38, Mar. 7,
1994).
Financial Management: Customs Did Not Adequately Account for or
Control Its Accounts Receivable (GAO-AIMD-94-5, Nov. 8, 1993).
Financial Management: First Financial Audit of Customs Revealed
Serious Problems (GAO/T-AIMD-94-3, Oct. 5, 1993).
Financial Audit: Examination of Customs' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-3, June 30, 1993).
Customs Service: Trade Enforcement Activities Impaired by Management
Problems (GAO/GGD-92-123, Sept. 24, 1992).
ASSET FORFEITURE PROGRAMS
=========================================================== Chapter 10
In our December 1992 high risk report on the asset forfeiture
programs of the Department of Justice and the U.S. Customs Service,
we reported that major operational problems relating to the
management and disposition of seized and forfeited property had been
identified and corrective actions were being initiated.\1 Although
some management and systems changes have improved program operations,
our recent audits of the Customs Service's fiscal year 1993 and 1992
financial statements revealed serious weaknesses in key internal
controls and systems that affected Customs' ability to control,
manage, and report the results of its seizure efforts, including
accountability and stewardship over property seized. As a result,
tons of illegal drugs and millions of dollars in cash and other
property have been vulnerable to theft and misappropriation.
However, Customs recognizes the need for long-term and systematic
improvements, and its Commissioner established a senior management
task force to review the seized property program in its entirety.
Actions are being taken to address the internal control and systems
problems; however, these efforts are in various stages of
development.
Problems also persist with the Marshals Services' maintenance and
disposal of seized and forfeited property, according to recent
Department of Justice Office of Inspector General audit reports.
These audits show the need for continued emphasis on and vigilance
over seized property.
We also reported in December 1992, that Justice and Treasury were
pursuing an initiative for consolidating post-seizure management of
noncash seized property inventories as required by legislation
enacted in 1988.\2 Furthermore, in June 1991, we identified
substantial savings that could be realized through merging
post-seizure property management functions. Although a small scale
pilot project for consolidation was in effect from October 1992
through September 1993, no significant progress has been made toward
consolidation. Justice and Treasury should aggressively pursue
options for efficiency gains through program consolidation.
Our 1992 report highlighted growing interest in the forfeiture
programs' application of the asset forfeiture laws. In 1993, the
Supreme Court issued three decisions that more clearly define the
appropriate use of asset seizure and forfeiture authority. Also,
several bills were proposed in the last Congress to limit the use of
forfeiture. The Departments of Justice and Treasury have each taken
several actions in an effort to strengthen the integrity of the asset
forfeiture programs, including implementing new policy guidance. It
is too soon to tell whether these recent actions will provide
sufficient safeguards against improper seizures. Ensuring that
adequate safeguards are in place, and adhered to, will require
considerable forfeiture program management attention and oversight in
the future.
Additional information on asset forfeiture programs can be found in a
separate report issued as part of this series (GAO/HR-95-7).
--------------------
\1 High-Risk Series: Asset Forfeiture Programs (GAO/HR-93-17, Dec.
1992)
\2 The Anti-Drug Abuse Act of 1988, P.L. 100-690 (21 U.S.C. 887).
KEY CONTACT
--------------------------------------------------------- Chapter 10:1
Norman J. Rabkin, Director
Administration of Justice Issues
General Government Division
202-512-8777
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 10:2
Financial Audits: CFO Implementation at IRS and Customs
(GAO/T-AIMD-94-164, July 28, 1994).
Restitution, Fines, and Forfeiture: Issues for Further Review and
Oversight (GAO/T-GGD-94-178, June 28, 1994).
Financial Audit: Examination of Customs' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-119, June 15, 1994).
Financial Management: Customs' Accountability for Seized Property
and Special Operation Advances Was Weak (GAO/AIMD-94-6, Nov. 22,
1993).
Financial Management: First Financial Audits of IRS and Customs
Revealed Serious Problems (GAO/T-AIMD-93-3, Aug. 4, 1993).
Financial Audit: Examination of Customs' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-3, June 30, 1993).
MEDICARE CLAIMS
=========================================================== Chapter 11
In fiscal year 1994, federal spending for the Medicare program
totaled $162 billion, or over $440 million a day. The Congressional
Budget Office estimates that Medicare spending will reach about $380
billion a year by 2003. Though the portion of Medicare spending
attributable to waste, fraud, and abuse cannot be quantified
precisely, health care experts have estimated that as much as 10
percent of national health spending is lost to such practices.
In 1992, we reported that Medicare was one of several government
programs considered highly vulnerable to waste, fraud, abuse, and
mismanagement.\1 Problems we noted included inadequate funding of
Medicare claims processing contractors' activities to control fraud
and abuse, weaknesses in the Health Care Financing Administration's
(HCFA) management of Medicare contractors, flawed payment policies,
and weak billing controls. Since then, HCFA has made various
regulatory and administrative changes aimed at correcting these
problems. However, these worthwhile improvements still are not
sufficient to protect Medicare against continued losses.
The funding of contractors' activities to control fraud and abuse has
not been commensurate with the growing volume of claims. As a
result, today Medicare pays more claims with less scrutiny than at
any other time in the last 5 years. Between 1989 and 1994, the
requirement for contractors to review a portion of claims in process
dropped from 20 percent to 5 percent due to reduced funding.
Inadequate funding has also stunted the development of new controls
to protect Medicare benefit dollars.
In addition, Medicare claims administration is a complicated process,
with some 80 contractors sharing responsibility for claims
processing, payment, and review. Because HCFA's management of
contractors' antifraud and antiabuse activities provides these
contractors with broad discretion, the implementation of payment
controls is uneven across the Medicare program.
Furthermore, HCFA is aware that flawed payment policies and abusive
billing practices plague Medicare, but the exploitation of the
program continues. For example, Medicare has been charged rates as
high as $600 per hour for speech and occupational therapy, though
therapists' salaries range from under $20 to $32 per hour. The
extraordinary markup between the cost and charges for services is the
result of certain weaknesses in payment rules permitted by Medicare.
HCFA has acted to correct certain payment and billing control
problems and has initiated two broad efforts to deal with fraud and
abuse. In 1993, HCFA established a requirement that raised the
standards for contractor performance regarding analyses of payment
data. In 1994, the agency awarded a contract for developing a
national automated claims processing system intended to replace the
several systems currently operating. Through these
efforts--promising modern data analysis techniques and greater
uniformity in claims processing--HCFA expects to reduce Medicare's
inappropriate payments.
The nation's medical service delivery system is becoming more
complex. Companies as well as independent providers are delivering
health care services and billing Medicare. Even some of Medicare's
contractors--which are also private insurers--are investing in
provider networks. This means that contractors responsible for
reviewing the appropriateness of Medicare claims are also, in
principle, billing Medicare through the networks they own.
However, Medicare's traditional controls against fraud and abuse have
not kept pace with health care's more complicated financial
arrangements. This situation raises concerns about the government's
ability to protect Medicare funds in an increasingly entrepreneurial
health care environment.
Additional information on Medicare claims problems and progress can
be found in a separate report issued as part of this series
(GAO/HR-95-8).
--------------------
\1 High-Risk Series: Medicare Claims (GAO/HR-93-6, Dec. 1992).
KEY CONTACT
--------------------------------------------------------- Chapter 11:1
Sarah F. Jagger, Director
Health Financing and Policy Issues
Health, Education and Human Services Division
202-512-7119
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 11:2
Medicare Part B: Regional Variations and Denial Rates for Medical
Necessity (GAO/PEMD-95-10, Dec. 19, 1994).
Medicare: Changes to HMO Rate Setting Method Are Needed to Reduce
Program Costs (GAO/HEHS-94-119, Sept. 2, 1994).
Medicare: Inadequate Review of Claims Payments Limits Ability to
Control Spending (GAO/HEHS-94-42, Apr. 28, 1994).
Medicare: Greater Investment in Claims Review Would Save Millions
(GAO/HEHS-94-35, Mar. 2, 1994).
Medicare: New Claims Processing System Benefits and Acquisition
Risks (GAO/HEHS/AIMD-94-79, Jan. 25, 1994).
Medicare: Adequate Funding and Better Oversight Needed to Protect
Benefit Dollars (GAO/T-HRD-94-59, Nov. 12, 1993).
Psychiatric Fraud And Abuse: Increased Scrutiny of Hospital Stays Is
Needed for Federal Health Programs (GAO/HRD-93-92, Sept. 17, 1993).
FARM LOAN PROGRAMS
=========================================================== Chapter 12
The U.S. Department of Agriculture's (USDA) farm loan program
provides temporary financial assistance to farmers who are unable to
obtain commercial loans at reasonable rates and terms.\1 The program
has two principal and often conflicting roles: (1) to provide
high-risk borrowers with temporary credit to enable them to stay in
farming until they are able to secure commercial credit and (2) to do
so in a way that protects the taxpayers' investment.
In the context of this uncertain operating environment, Farmers Home
Adminstration (FmHA) field office lending officials have not always
implemented loan-making and loan-servicing standards intended to
safeguard federal financial interests or prudently managed farm
property that the agency has acquired. Also, some loan-making,
loan-servicing, and property management policies do not adequately
protect the taxpayers' interests. Furthermore, because legislation
has not yet established clear priorities for the agency's fundamental
role and mission, losses can be expected to continue.
FmHA has taken steps to correct some problems with its farm loan
programs. For example, field office lending officials have been
provided with extensive training in credit and financial analysis to
improve the quality of the loans being made. FmHA reviews show that
most new direct and guaranteed loans meet its lending standards.
Also, field office officials recently improved their compliance with
the standards for servicing guaranteed loans.
However, little progress has been made in correcting other basic
problems with the farm loan programs. Field officials still do not
always follow established procedures for servicing outstanding direct
loans. Also, neither USDA nor the Congress has addressed problems
involving loan and property management policies. As a result, the
agency continues to, for example, make loans to borrowers who either
are behind on repaying their current debts or did not repay their
previous debts; reduce and forgive the debts of borrowers who do not
repay their loans; and sell farm properties at fixed prices to
targeted purchasers, which limits returns and increases holding
costs.
The Congress clarified one aspect of the farm loan program when, in
late 1992, it required FmHA to establish programs for beginning
farmers and target a certain portion of its loan funds to them. The
Congress, however, has not yet provided FmHA with clear direction on
being a fiscally prudent lender nor on handling those borrowers who
have come to rely on the federal farm loan program as a continuous
source of credit.
FmHA's farm loan portfolio continues to contain a high level of
delinquent debt, even though billions of dollars in unpaid loans have
been forgiven. As of September 1994, FmHA's outstanding farm loans
totaled about $18 billion. Of that amount, almost 27 percent--about
$4.8 billion--was held by borrowers who were behind on their loan
payments. This condition exists even though FmHA lost more than $6
billion during fiscal years 1991 through 1994.
In view of the very tight fiscal constraints that the federal
government is facing, action is needed to bring farm loan losses
under control. As we reported in December 1992, we believe that the
Congress needs to recognize that not all financially stressed farms
can be saved and that not all farm families can benefit from a
government assistance program intended to keep them in farming.\2
We suggested that the Congress consider, among other things, giving
FmHA firm guidance on: (1) the level of loan losses that the
Congress is willing to accept; (2) the length of time over which
borrowers should be allowed to receive farm loan assistance; and (3)
the kind of assistance, if any, that should be made available to
unsuccessful borrowers who want to leave farming.
Additional information on the farm loan programs can be found in a
separate report issued as part of this series (GAO/HR-95-9).
--------------------
\1 Within USDA, farm loans have been historically administered by the
FmHA. In October 1994, the responsibility was transferred to the
newly created Consolidated Farm Service Agency. Because of the
general familiarity with the agency's earlier name, we refer to FmHA
in this report.
\2 High-Risk Series: Farmers Home Administration's Farm Loan
Programs (GAO/HR-93-1, Dec. 1992).
KEY CONTACT
--------------------------------------------------------- Chapter 12:1
John W. Harman, Director
Food and Agriculture Issues
Resources, Community, and Economic Development Division
202-512-5138
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 12:2
Farmers Home Administration: The Guaranteed Farm Loan Program Could
Be Managed More Effectively (GAO/RCED-95-9, Nov. 16, 1994).
Debt Settlements: FmHA Can Do More to Collect on Loans and Avoid
Losses (GAO/RCED-95-11, Oct. 18, 1994).
Farmers Home Administration: Farm Loans to Delinquent Borrowers
(GAO/RCED-94-94FS, Feb. 8, 1994).
GAO High-Risk Program (GAO/AIMD-94-72R, Jan. 27, 1994).
STUDENT FINANCIAL AID
=========================================================== Chapter 13
While the Guaranteed Student Loan Program (now known as the Federal
Family Education Loan Program (FFELP)) has succeeded in providing
access to money for postsecondary education, it has been less
successful in protecting the taxpayers' financial interest. In our
1992 report, we focused on several underlying problems with FFELP's
structure and management: (1) the structure was inordinately
complex, (2) lenders and guaranty agencies had little or no incentive
to prevent loan defaults and bore little or no financial risk for
loan defaults, and (3) Department of Education management failed to
establish adequate controls to minimize its losses and to correct
several longstanding management weaknesses.\1
The Congress and Department of Education have made progress in
addressing the underlying problems:
A significant decline in loan defaults--from $3.6 billion in fiscal
year 1991 to $2.4 billion in 1994--was realized, in part, from a 1989
Department initiative and subsequent legislative and administrative
actions.
The Higher Education Amendments of 1992, which reauthorized the
student aid programs, provided stronger enforcement tools and other
program enhancements. For example, annual (rather than biennial)
financial and compliance audits are to be conducted by independent
auditors, and procedures were strengthened over schools allowed to
participate in FFELP. Also, the deferment of loan repayments was
simplified to provide borrowers a better opportunity to avoid
defaulting on their loans when repayment was difficult.
The Omnibus Budget Reconciliation Act of 1993, which enacted the
Student Loan Reform Act of 1993, included additional requirements
that provided for lenders and guaranty agencies to share more of the
risks and financial costs of FFELP. This legislation also provided
for the 5-year phase-in of direct student loans.
However, it is premature to fully evaluate most of the actions being
taken. The Congress and Department must continue to address the loan
default and program and financial management problems. For example,
because reliable student loan data were not available, auditors were
unable to express an opinion on whether FFELP's financial statements
were fairly stated.
We are revising the definition of this high-risk area because many
problems with FFELP may affect the Department's new direct loan
program as well as other student financial aid programs. To reduce
risks, the Department needs to ensure that improvements made to the
gatekeeping process,\2 information and financial management systems,
and the programs themselves are effectively implemented. It also
needs to continue to expeditiously improve the quality of its student
loan data, especially through the implementation of its new student
loan data system. Further, the Department must closely monitor its
implementation of the direct loan program and the transition from
FFELP. The Department needs to formalize its planning for phasing in
the Federal Direct Student Loan Program, a critical omission
considering well documented problems in FFELP.
We recognize that the legislative and administrative changes, as well
as Department initiatives, are steps in the right direction, which,
if implemented correctly, could improve the integrity of all federal
student aid programs. More information on student financial aid
program problems and progress can be found in a separate report
issued as part of this series (GAO/HR-95-10).
--------------------
\1 High-Risk Series: Guaranteed Student Loans (GAO/HR-93-2, Dec.
1992).
\2 Generally refers to the Department's procedures for determining
which schools can participate--and whether they should continue
participating--in federal student aid programs.
KEY CONTACT
--------------------------------------------------------- Chapter 13:1
Linda G. Morra, Director
Education and Employment Issues
Health, Education and Human Services Division
202-512-7014
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 13:2
Financial Audit: Federal Family Education Loan Program's Financial
Statements for Fiscal Years 1993 and 1992 (GAO/AIMD-94-131, June 30,
1994).
Student Loans: Millions Loaned Inappropriately to U.S. Nationals at
Foreign Medical Schools (GAO/HEHS-94-28, Jan. 21, 1994).
Student Financial Aid Programs: Pell Grant Program Abuse
(GAO/T-OSI-94-8, Oct. 27, 1993).
Direct Student Loans: The Department of Education's Implementation
Financial Audit: Guaranteed Student Loan Program's Internal Controls
and Structure Need Improvement (GAO/AFMD-93-20, Mar. 16, 1993).
Department of Education: Long-Standing Management Problems Hamper
Reforms (GAO/HRD-93-47, May 28, 1993).
DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
=========================================================== Chapter 14
The Department of Housing and Urban Development (HUD) is one of the
nation's largest financial institutions, insuring some $400 billion
in loans and guaranteeing more than $400 billion in outstanding
securities for single-family and multifamily housing for a large
segment of Americans. It also spends about $25 billion each year
furthering the social objectives of providing affordable housing,
rent subsidies, and other services to low and moderate income persons
(including the homeless) and of helping finance local community
development activities.
Four long-standing departmentwide deficiencies led to our designation
of HUD as a high-risk area. These deficiencies were weak internal
controls, an ineffective organizational structure, insufficient mix
of staff with the proper skills, and inadequate information and
financial management systems.
Internal control weaknesses, such as a lack of necessary data and
management processes, were a major factor leading to the incidents of
fraud, waste, abuse, and mismanagement that have come to be known as
the 1989 HUD scandals. Organizational problems have included
overlapping and ill-defined responsibilities and authorities between
HUD headquarters and field organizations and a fundamental lack of
management accountability and responsibility. Having an insufficient
mix of staff with the proper skills has hampered the effective
monitoring and oversight of HUD programs and the timely updating of
procedures. Poorly integrated, ineffective, and generally unreliable
information and financial management systems have failed to meet
program managers' needs and have not provided adequate control over
housing and community development programs.
HUD has made a start in correcting these long-standing deficiencies.
HUD's top management team has focused much attention and energy on
overhauling the way the agency is operated. The agency has
formulated an entirely new management approach and philosophy,
balancing risks with results; is implementing a substantial field
reorganization; and has plans and has initiated actions that begin to
address the four fundamental management deficiencies. However, it is
much too early to assess the effectiveness of these actions.
Also, HUD's Secretary recently announced a proposal to "reinvent" the
agency over the next 4 years by consolidating its housing assistance
and community development programs into three performance-based block
grant funds, transforming public housing to make it more competitive,
and changing the Federal Housing Administration into an
entrepreneurial government-owned corporation. If implemented, this
proposal would shift many program design and implementation
responsibilities to states and localities and would change HUD's
primary role into that of overseer and information clearinghouse.
Because the proposal is still in the conceptual stage and
implementation details are not available, it is difficult to predict
how the proposal might affect the corrective actions and plans that
HUD already has under way. However, no matter what form HUD finally
takes, strong internal controls, an effective organizational
structure, a sufficient mix of properly skilled staff, and adequate
information and financial management systems will remain key
ingredients to the proper management and control of risks. The
dialogue on how best to "reinvent" HUD presents the agency, the
Office of Management and Budget, and the Congress with an excellent
opportunity to work together to eliminate HUD's four fundamental
management deficiencies.
Additional information on HUD problems and progress can be found in a
separate report issued as part of this series (GAO/HR-95-11).
KEY CONTACT
--------------------------------------------------------- Chapter 14:1
Judy A. England-Joseph, Director
Housing and Community Development Issues
Resources, Community, and Economic Development Division
202-512-7631
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 14:2
Housing and Urban Development: Major Management and Budget Issues
(GAO/T-RCED-95-86, Jan. 19, 1995, and GAO/T-RCED-95-89, Jan. 24,
1995).
HUD Information Resources: Strategic Focus and Improved Management
Controls Needed (GAO/AIMD-94-34, Apr. 14, 1994).
Multifamily Housing: Status of HUD's Multifamily Loan Portfolios
(GAO/RCED-94-173FS, Apr. 12, 1994).
Improving Government: Actions Needed to Sustain and Enhance
Management Reforms (GAO/T-OGC-94-1, Jan. 27, 1994).
Government National Mortgage Association: Greater Staffing
Flexibility Needed to Improve Management (GAO/RCED-93-100, June 30,
1993).
Multifamily Housing: Impediments to Disposition of Properties Owned
by the Department of Housing and Urban Development (GAO/T-RCED-93-37,
May 12, 1993).
HUD Reforms: Progress Made Since the HUD Scandals but Much Work
Remains (GAO/RCED-92-46, Jan. 31, 1992).
Increasing the Department of Housing and Urban Development's
Effectiveness Through Improved Management (GAO/RCED-84-9, Vols. I
and II, Jan. 10, 1984).
DEPARTMENT OF ENERGY CONTRACT
MANAGEMENT
=========================================================== Chapter 15
The Department of Energy (DOE) relies extensively on contractors to
manage and operate the nation's nuclear weapons complex and network
of national laboratories. In fiscal year 1993, DOE obligated about
$15 billion dollars in contracts with 35 commercial firms and
academic organizations. As discussed in our 1992 high risk report,
DOE's contracting practices have failed to protect the government
from fraud, waste, and abuse.\1 Problems have resulted from DOE's (1)
almost exclusive use of cost-reimbursement contracts, which offer
contractors few incentives to manage and operate the Department's
facilities in cost-effective ways; (2) use of contracts that allow
the contractors excessive latitude; and (3) inadequate oversight of
contractors' activities and costs. In addition, DOE did not require
its contractors to prepare auditable financial statements, and the
net expenditures reports that contractors did prepare were not being
audited every 5 years as required.
Responding to numerous audit findings criticizing DOE's contract
management, in 1993 the Secretary of Energy established a Contract
Reform Team to evaluate the Department's contracting practices and
make specific proposals for improvement. In its February 1994
report, the Reform Team recommended 48 actions to improve DOE's
contracting practices. These actions included using alternatives to
cost-reimbursement contracts, increasing competition for contracts,
strengthening financial information systems, and improving DOE's
management and control of certain costs.
The milestones set for developing and approving specific plans to
implement the recommendations ranged from March 31, 1994, to July 1,
1995. Nineteen of the 29 implementation plans with milestones of
October 31, 1994, or earlier, were completed by that date. Once
completed, the plans are circulated for comment throughout the
Department and submitted to DOE's top managers for approval. After
approval, the plans must be implemented. While policy changes can be
implemented almost immediately, changes in regulations and procedures
will take much longer.
Staff from all organization units are participating in the
development of the implementation plans, responsible officials are
being held accountable for action, and top DOE management is
overseeing the implementation process. This approach has put DOE
well on the way to achieving real changes in the way it conducts its
business.
The changes proposed in DOE's current reforms are unprecedented in
scope and provide a comprehensive plan to correct the root causes of
problems resulting from the Department's past contracting practices.
However, designing and administering contract reforms, such as
performance-based contracts, will require significant training for
staff as well as improved information systems. As we have reported
in the past, DOE's previous contract reforms encountered many
difficulties because field staff were not trained to administer the
contract reforms. We have also reported that DOE has not developed
systems to provide the information needed to meet mission needs.
The staff training and information system improvements recommended by
the Reform Team are not scheduled to take place until most of the
other contract reform initiatives have been implemented. Once again,
DOE is introducing policies and reforms before the staff are fully
trained to do the work and before the information systems to provide
needed data are fully developed. DOE also has plans to include
contractor operations in its agencywide financial statement audits;
however, we doubt DOE's ability to accomplish such audits in the near
future.
We have targeted DOE's management of its information resources as a
focus for our future work and plan to work closely with the
Department to develop innovative solutions to improve its financial
and management information systems. We will also monitor DOE's
implementation of its agencywide financial audit strategy.
--------------------
\1 High-Risk Series: Department of Energy Contract Management
(GAO/HR-93-9, Dec. 1992).
KEY CONTACT
--------------------------------------------------------- Chapter 15:1
Victor S. Rezendes, Director
Energy and Science Issues
Resources, Community, and Economic Development Division
202-512-3841
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 15:2
DOE Management: Contract Provisions Do Not Protect DOE From
Energy Management: Modest Reforms Made in University of California
Contracts, but Fees Are Substantially Higher (GAO/RCED-94-202, Aug.
25, 1994).
Managing DOE: Tighter Controls Needed Over the Department of
Energy's Outside Litigation Costs (GAO/T-RCED-94-264, July 13, 1994).
Department of Energy: Challenges to Implementing Contract Reform
(GAO/RCED-94-150, Mar. 21, 1994).
Energy Management: Inadequate DOE Monitoring of Contractors'
Acquisitions From Affiliates (GAO/T-RCED-94-128, Mar. 17, 1994).
DOE Management: Implementing the Environmental Restoration
Management Contractor Concept (GAO/T-RCED-94-86, Dec. 1, 1993).
Financial Management: Energy's Material Financial Management
Weaknesses Require Corrective Action (GAO/AIMD-93-29, Sept. 30,
1993).
NASA CONTRACT MANAGEMENT
=========================================================== Chapter 16
The National Aeronautics and Space Administration (NASA) currently
spends over $13 billion annually on procurement--about 90 percent of
its budget. Most of this spending is done under contracts that
assign almost all technical and cost risk to the government and,
since the late 1980s, NASA has been working to improve its ability to
oversee its contractors' cost, schedule, and technical performance.
However, NASA has had continuing difficulty in managing space
projects. For example, most major research and development projects
since the late 1970s have required funding increases of at least 50
percent and major completed projects during this same period were
launched about 4 years behind schedule.
In our 1992 report, we said that NASA's difficulties in ensuring
adequate performance by its contractors and in managing research and
development projects were linked primarily to three problems: (1)
planned funding levels that exceeded likely budgets; (2) ineffective
systems and procedures for overseeing contractors' activities; and
(3) NASA field centers' failure to comply with contract management
requirements.\1
NASA has reported closing the gap of up to $20 billion between its
5-year program plan and its likely budgets. However, whether the gap
has actually been closed at the program level is uncertain. For
example, within its two largest programs--space shuttle and space
station--NASA is not finding it easy to make all the necessary
adjustments to align the programs' content and pace to their funding
targets.
Successfully dealing with its overall affordability problem will
enable NASA to derive maximum benefit from other efforts to improve
its management of contracts' cost, schedule, and performance. NASA
has been progressing well in several areas, for example,
restructuring its award fee policy to emphasize cost control, end
products, and performance; reducing the value of contract changes for
which prices have not been negotiated; and working to improve the
timeliness and accuracy of its contractors' cost and property
reporting.
NASA's success in realigning its likely budgets on a
program-by-program basis is a key requirement for improving contract
management. Any substantial remaining gap will only perpetuate the
cost and schedule turbulance of the past.
Beyond the overall affordability issue, NASA's contract management
problems are largely due to inadequate enforcement of requirements
and lax oversight of contractors. Despite having made progress in
some areas, considerable work remains to ultimately effect permanent
improvements. Over the last 2 years, there have been continuing
problems, especially with inadequate management and use of contract
audit services, deficiencies in contractors' cost analyses and
reports, and various accountability and control problems with
contractors' management of government-owned equipment.
Contract and related financial management problems have plagued NASA
for many years and they will not be quickly or easily solved. We are
encouraged by NASA's efforts to identify and implement needed
improvements in both of these areas. Some of the improvement efforts
necessarily change how NASA has historically done business and they
significantly affect both the agency's contractors and its own
personnel. NASA management needs to continue to be proactive in its
efforts--correcting problems as they are identified and developing,
implementing, and measuring the effectiveness of its own improvement
initiatives. Over time, sustained and focused management attention
promises permanent improvement in contractor oversight across the
agency.
--------------------
\1 High-Risk Series: NASA Contract Management (GAO/HR-93-11, Dec.
1992).
KEY CONTACT
--------------------------------------------------------- Chapter 16:1
Donna M. Heivilin, Director
Defense Management and NASA
National Security and International Affairs Division
202-512-8412
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 16:2
NASA Contract Management: Improving the Use of DCAA's Auditing
Services (GAO/NSIAD-94-229, Sept. 30, 1994).
NASA Procurement: Challenges Remain in Implementing Improvement
Reforms (GAO/NSIAD-94-179, Aug. 18, 1994).
Space Station: Impact of the Expanded Russian Role on Funding and
Research (GAO/NSIAD-94-220, June 21, 1994).
NASA Property: Poor Lending Practices and Controls at the Jet
Propulsion Laboratory (GAO/NSIAD-94-116, Apr. 18, 1994).
NASA: Major Challenges for Management (GAO/T-NSIAD-94-18, Oct. 6,
1993).
NASA Property: Improving Management of Government Equipment Provided
to Contractors (GAO/NSIAD-93-191, Sept. 9, 1993).
NASA Procurement: Proposed Changes to the Jet Propulsion Laboratory
Contract (GAO/NSIAD-93-178, July 15, 1993).
SUPERFUND PROGRAM MANAGEMENT
=========================================================== Chapter 17
In 1980, the Congress created the Environmental Protection Agency's
(EPA) Superfund program to clean up inactive or abandoned hazardous
waste sites. Since then, thousands of sites have been discovered.
Recent estimates indicate that cleaning up hazardous waste
sites--many of which are owned by the federal government--could
amount to over $300 billion in federal costs and many billions more
in private expenditures.
Under the Superfund law, private parties that are responsible for
toxic chemical sites must clean up the contamination themselves or
reimburse EPA for doing so. When EPA performs the cleanup, it draws
on a legislatively established trust fund. Federal agencies
generally must use their annual appropriations, not the trust fund,
to clean up their facilities.
As we reported in 1992, certain management problems have put the
Superfund program at risk.\1 First, because the costs and magnitude
of this effort are so large, funding needs to be allocated where it
can reduce the most significant threats to human health and the
environment. Yet, EPA has not established priorities for cleaning up
non-federal sites on the basis of their relative risk. Similarly,
the government does not have a priority-setting system for allocating
funds to clean up federal sites across agency lines. Second, EPA has
recovered from responsible parties only a fraction of the moneys it
has spent on cleanups. Finally, while EPA relies heavily on
contractors to perform much of its cleanup work, it has only begun to
address long-standing deficiencies in its management of Superfund
contracts.
Some steps have been taken to address these problems. In recent
years, EPA has directed more funds to cleanup efforts that address
immediate threats, such as removing drums leaking toxic chemicals at
sites. In addition, the administration has established a task force
to identify ways to prioritize federal facility cleanups across
agency lines. To help recover more of its Superfund expenditures,
EPA has initiated a process to recoup contractor costs that it has
been excluding in its cost recovery efforts. EPA has also taken
actions to strengthen its contract management, for example, by
reducing its potential liability to pay damage claims brought against
contractors that it indemnifies.
These actions, however, are insufficient. We have suggested that EPA
make greater use of risk as a criterion in setting cleanup priorities
for non-federal sites. Further to increase the recoveries of
Superfund costs, we have recommended that EPA broaden the kinds of
indirect program costs that EPA seeks to collect from responsible
parties. Finally, EPA needs to sustain its commitment to improving
its contract management if long-standing deficiencies are to be
rectified.
Additional information on Superfund problems and progress can be
found in a separate report issued as part of this series
(GAO/HR-95-12).
--------------------
\1 High-Risk Series: Superfund Program Management (GAO/HR-93-10,
Dec. 1992).
KEY CONTACT
--------------------------------------------------------- Chapter 17:1
Peter F. Guerrero, Director
Environmental Protection Issues
Resources, Community, and Economic Development Division
202-512-6111
RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 17:2
Superfund: Legal Expenses for Cleanup-Related Activities of Major
U.S. Corporations (GAO/RCED-95-46, Dec. 23, 1994).
Superfund: Estimates of Number of Future Sites Vary (GAO/RCED-95-18,
Nov. 29, 1994).
Superfund: EPA Has Opportunities to Increase Recoveries of Costs
(GAO/RCED-94-196, Sept. 28, 1994).
Superfund: Status, Cost, and Timeliness of Hazardous Waste Site
Cleanups (GAO/RCED-94-256, Sept. 21, 1994).
Superfund: Reauthorization and Risk Prioritization Issues
(GAO/T-RCED-94-250, June 24, 1994).
Federal Facilities: Agencies Slow to Define the Scope and Cost of
Hazardous Waste Site Cleanups (GAO/RCED-94-73, Apr. 15, 1994).
1995 HIGH-RISK SERIES
=========================================================== Chapter 18
An Overview (GAO/HR-95-1)
Quick Reference Guide (GAO/HR-95-2)
Defense Contract Management (GAO/HR-95-3)
Defense Weapons Systems Acquisition (GAO/HR-95-4)
Defense Inventory Management (GAO/HR-95-5)
Internal Revenue Service Receivables (GAO/HR-95-6)
Asset Forfeiture Programs (GAO/HR-95-7)
Medicare Claims (GAO/HR-95-8)
Farm Loan Programs (GAO/HR-95-9)
Student Financial Aid (GAO/HR-95-10)
Department of Housing and Urban Development (GAO/HR-95-11)
Superfund Program Management (GAO/HR-95-12)
The entire series of 12 high-risk reports can be ordered by using the
order number GAO/HR-95-20SET.